For years, investors and analysts have heavily criticized the actions of Federal Reserve Chairman Ben Bernanke. Bernanke has earned himself a slew of nicknames for his money printing, with the most popular being “Helicopter Ben.” After studying the Great Depression for many years, Bernanke felt that the reason the U.S. slipped into such a rough patch was because of the lack of money supply in the economy. This is one of the main reasons that he has maintained his quantitative easing programs that have involved exorbitant money printing.
But after pumping trillions into the system, Bernanke seems to have found himself cornered. National debt is at an all time high, and the Chairman has decided that a bold and abrupt change is needed if the U.S. wants to continue on the path to prosperity. Late yesterday, Bernanke made the shocking announcement of the return to the gold standard, which was abandoned decades ago. “The safest way for the economy to proceed is through a new system that holds more accountability for the U.S. dollar and its value in the global markets,” Bernanke said in his statement [for more gold news and analysis subscribe to our free newsletter].
The Gold Standard
In something of a mea culpa moment, the Chairman admitted that while his increased money supply has done well to prop up markets for the time being, it is not a sustainable solution. The reversion to the gold standard, he hopes, will allow the economy to march forward in a more stable manner. “The flexibility of a fiat currency has guided the U.S. through the toughest era since the Great Depression, but the time has come for a change,” said Bernanke.
The move comes after a wave of fears sparked by the Cyrpus banking scare. At a time when investors have little to no confidence in their local bank, the Chairman wanted to ensure that savings and investments will always be safe on American soil, hopefully giving citizens peace of mind to continue to trust local financial entities [see also 50 Ways To Invest In Gold].
One important thing to note is that the timeline for the return will be relatively drawn out and smooth. The Fed mandates that by 2015 all currency must be backed by at least 30% of its value in gold. That figure will increase to 50% by 2017 and to 100% by 2020. The move brings up a number of big questions, like whether or not the Fed will audit For Knox or other institutions that conspiracy theorists have been attacking for years. For now, we will have to wait for more specifics, but investors can already begin preparing.
Prepping for a Gold Standard
With a hard seven-year timeline, investors can already begin allocating to gold as this move will surely spark interest in the commodity. Some may choose to utilize stocks and ETFs, but physical bullion will likely be the most popular, as this will likely spark fears of a gold confiscation in order for the Fed to have enough bullion to justify the move. While a confiscation is extremely unlikely, there are those who still fear such a move.
The final question that remains to be seen is what happens in 2014 when Bernanke’s term ends. The Chairman has already hinted that another term is likely not in the books for him, so what will happen when someone else takes the reigns? Hopefully the change will be relatively seamless, but it will be worth keeping an eye on [see also Investing In Gold: The Definitive Guide].
The Bottom Line
With such monumental news coming seemingly out of nowhere, there is something that investors need to keep in mind. Today is April 1st April Fools day. Let’s be honest, Bernanke is going to print money until the U.S. runs out of ink. But for a few paragraphs, it was fun to live in the fantasy world of a gold standard reversion. Happy April Fools Day to all, feel free to get your friends and co-workers with this article!
Disclosure: No positions at time of writing.