Why Does the Fed Hate Gold?
This article was submitted by Joel Bauman, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.
When central bankers talk about gold, it’s usually with an attitude of disdain. So, why do they hate gold so much?
The Federal Reserve operates under a dual mandate. It must maintain price stability while also simultaneously promoting maximum employment.
The Fed hates it when the price of gold rises because it correlates with a rising unemployment rate.
Gold also reveals the weakness in the US dollar and the Fed’s failure to stabilize prices. For this reason a rising gold price is an embarrassment to the Federal Reserve as it undermines its purposes.
The hatred of gold is nothing new. When it operated on a gold standard, the US government was limited in terms of its ability to pursue deficit spending. It could only accrue so much debt. The gold standard forced the practice of austerity. When the government abandoned the gold standard, it gained the power to finance any national expense by simply borrowing from the Federal Reserve. Today, no amount gold is necessary for the Fed to purchase treasury bonds. It is blessed with the ability to expand their balance sheet with zero limitations.
Simply put, gold limits the power and influence of central bankers. No wonder they hate it.
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Back in the day when Alan Greenspan’s economic philosophy fell more in line with the Austrian School of Economics, he understood what gold meant to the government. Greenspan wrote in his 1966 essay Gold and Economic Freedom:
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
Gold falls under the true definition of money. Gold neither gains nor loses wealth, but acts as the measuring stick against every action of the Federal Reserve. Since the abolition of the gold standard, it is well known that the US dollar has depreciated by 98.5% in comparison to gold.
At the end of the day, it’s important to know the Fed will never have a keen attitude toward gold. Central bankers will always downplay the significance of the gold price appreciating, and they will also always over-emphasize the significance of the gold price falling. By extension, institutions that are influenced by the Fed will also condemn gold out of their own self-interest. For these reasons, you will do well to be skeptical of those who criticize gold.
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