Why Peter Schiff Urges a Return To a Gold Standard

One of the biggest pieces of news to break surrounding the upcoming election was concerning the future of our currency. After digging through the absurd mud-slinging lack-of-actual-substance-politics that has become today’s Presidential race, many investors discovered that the Republican party wanted to call for a gold standard commission. Now this does not mean that Mitt Romney and company are seeking an outright return to the gold standard, but it does illustrate the point that they would like to look further into it to discover if it could help fix our economy [for more gold news and analysis subscribe to our free newsletter].

Calls for a gold standard have been relatively strong in recent years, as a gold-backed currency would not allow for such rampant and irresponsible money printing that the Fed has exhibited. That being said, there are also plenty of reasons why a gold standard could be an issue. Aside from the fact that it would take a pretty hefty overhaul to re-install the system, it also puts tighter budget constraints on the U.S. as we would not have the ability to print money in an emergency situation (though this is precisely the reason why some want a standard). Something like an unexpected war, or a massive meltdown of ferociously corrupt financial institutions enjoying the safety net of “too big too fail” would be unable to be saved by the government in a manner that was done back in 2008.

There are varying opinions on how a gold standard would impact us, but one of the most interesting comes from renowned investor Peter Schiff. Though he often grabs headlines for his rather outlandish predictions, he has some compelling arguments on why a gold standard would benefit the US. Says Schiff,

The gold standard forced the government to responsibly confront irresponsible fiscal policy. At first Nixon tried devaluation, but the amounts were far too small to stop the gold drain. As an escape hatch, he instead abandoned the gold standard (although he said that the move was temporary). Without this “relic”, government could continue to finance its spending with ever larger deficits without losing any more gold. So instead of devaluation or deflation, we chose inflation instead. Many consider the impossibility of running perpetual deficits under the gold standard as proof of its unsuitability to the modern economy. As I see it, this is precisely why the gold standard is so desirable and so badly needed today.

Schiff quite clearly falls in line with those who feel a standard would force fiscal responsibility on our government, whether it wanted to do so or not. Schiff does, however, fail to take into account all of the steps and political nightmares we would have to endure in order to actually revert to a gold standard. Do you all agree with him, or is a gold standard just another financial pipedream?

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Disclosure: No positions at time of writing.

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  8. [...] this is not a straight up call for a reversion to the gold standard, but Romney has toyed with the idea of calling for a gold standard commission. That could [...]

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