And … We Are Back!

We are back from our trip to the north - no worse for wear - and, for anyone who’s interested, this item at the old blog has a number of photos and comments about our journey on a route detailed here last week.

Obviously, markets didn’t wait for our return to move, precious metals surging out of their months-long trading range shortly after we departed and now anxiously awaiting signs from Fed Chief Ben Bernanke tomorrow about how itchy his money-printing trigger finger has gotten.

My guess is “not very” and, if this is the result, markets are not likely to behave well.

In catching up on some reading it appears that the Republicans now favor a fresh look at sound money of some sort, a proposed study on the subject finding its way into the party’s platform for the first time since the 1970s and spurring all sorts of commentary on the subject.

Of course, New York Times columnist and Nobel Prize winning economist Paul Krugman has been on top of this since returning from his vacation and has penned a number of columns, notably, Galt, Gold, and God in which he laments the possibility of a Vice President favoring a return to a gold standard. I don’t know how I happened upon it, but, somehow I came across this 1996 column at Slate -  The Gold Bug Variations  - and this story may be more interesting than anything else that Krugman has written about gold lately, particularly this:

The United States abandoned its policy of stabilizing gold prices back in 1971. Since then the price of gold has increased roughly tenfold, while consumer prices have increased about 250 percent. If we had tried to keep the price of gold from rising, this would have required a massive decline in the prices of practically everything else-deflation on a scale not seen since the Depression. This doesn’t sound like a particularly good idea.

It’s not clear how keeping the price of gold stable would have caused consumer prices to go down - more likely, after a period of adjustment from what was an unsustainable price of $35 an ounce, a stable gold price would have slowed inflation in the U.S. during what was a very painful period of rising consumer prices in the 1970s under Fed Chief Arthur Burns (and not just due to energy - this was back when actual home ownership costs were used in the calculation and this accounted for half of the 14 percent inflation rate in 1980).

Also, some quick math reveals that, 16 years later, gold has now increased 4,700 percent since 1971 (up from 1,000 percent in 1996) while the government’s dubious, but nonetheless official, measure of inflation has increased 570 percent (up from 250 percent in 1996). It’s not clear what this says more about - gold, the U.S. dollar, or the government’s measure of inflation - but it’s sure an interesting comparison.