Perhaps the most interesting development on Wednesday was Federal Reserve Chairman Jerome Powell’s comments regarding a variety of things, including the possibility of further interest rate cuts which now seem like.
However, the chairman also commented on the idea of returning the U.S. to the gold standard, where in contrast to the current fiat monetary system, the U.S. goes back to where every dollar was backed by an equal amount of gold.
While such a move would have a drastic impact on not only the world’s financial system as well as the price of gold itself, Powell went on to thoroughly reject the notion for a number of reasons.
President Trump’s pick for one of two open seats on the Federal Reserves board is Judy Shelton, who is the U.S. Director of the European Bank for Reconstruction and Development.
What makes her unique is that she’s one of the rare economic voices that vouches for the gold standard, a somewhat reactionary economic policy by modern standards but still has appeal among more bearish investors and economists.
A common opinion among some independent financial experts, gurus, and investors is that the dollar is essentially worthless and that ever since the currency went off the gold standard, there’s nothing fundamentally holdings it’s value together aside from its status as the worlds reserve currency.
With the U.S. still having a record amount of debt, doomsayers in the markets warn that the dollar could collapse at any moment hypothetically.
If Trump follows through with his nomination and that the Senate confirms his decision, current Fed chairman Powell would work with Shelton to set the monetary policy of the U.S. as the two would have to work together closely. However, he warned that the idea of the gold standard would be bad for the country since the Fed wouldn’t be able to look after full employment and stable prices as the price of gold fluctuates.
“There have been plenty of times in the fairly recent history where the price of gold has sent signals that would have been quite negative for either of those goals,” Powell said. “And I don’t think that’s something that would be attractive; no other country uses it.”
The U.S. abandoned the gold standard back in 1971, adopting the new fiat system instead. If Congress rewrote laws that would force the Fed to link its monetary policy to stabilize gold’s value, unemployment could rise or inflation could see a significant surge, argued Powell, and that there would be nothing the Fed could do in response.
However, Powell also didn’t say anything against Shelton as a candidate, especially since the President has criticized the chairman for not doing more to help the economy. Although it’s highly unlikely the U.S. will ever go back to the gold standard, even the idea would help push the price of gold up further, and could very well give the catalyst needed to see the precious metal surge past the $1,500 price range.
Currently, gold is sitting at $1,421,90 per ounce, up 0.84 percent or $12 for today.