The Federal Open Market Committee (FOMC) is scheduled to meet next week and is largely expected to divulge their appetite for inflation by adding additional stimulus into the markets. This will be accomplished through buying more troubled assets in addition to US Treasuries, aka quantitative easing. The Fed believes that manipulating the dollars buying power will increase employment and create economic growth.
Let’s analyze this theory and look at employment figures and growth prior to 1971 (before Nixon removed us from the gold standard). From 1947, shortly after World War II, and 1971 the unemployment rate averaged 4.7% and never rose above 7%, while the growth rate averaged 4%. Stable growth combined with low unemployment led to low inflation. During this 21 year period the consumer price index averaged only 1.9%.
Since the gold standard was removed there has been higher average unemployment, slower growth and more instability in the economy. Let’s look at some numbers on this. From 1971 to 2009 unemployment averaged 6.2%, growth averaged less than 3% and the CPI average 4.4%. We have also experienced the three worst recessions since WWII with unemployment higher than 8.4% during all three. The dollar now buys one sixth of what it bought in 1971.
Due to this many people are buying gold and silver as a safe haven from these types of central banking policies. The intention of buying gold coins is to increase purchasing power as the dollar is devalues and savings are eroded.
It seems clear that a dollar based gold standard creates better employment, more growth and lower average inflation, which is better for all of us. Charles Kadlec, member of the Economic Advisory Board of the American Principles Project, said “Economists and pundits may disagree on why the gold standard delivered such superior results compared to the recurrent crises, instability and overall inferior economic performance delivered by the current system. But the data are clear: A gold-based system delivers higher employment and more price stability. The time has come to begin the serious work of building a 21st-century gold standard for the benefit of American workers, investors and businesses.”