Granny’s Irrational Gold Obsession Is Wholly Rational

Jeffrey Snider To modern day central bankers, gold is anathema to successful economic management. As Fed Chairman Ben Bernanke noted recently, “nobody really understands gold prices.” Central banks certainly don’t want to be shackled by the discipline a gold standard imposes, but freedom for central banks is the opposite of freedom from government interference. Snider presents a fascinating look at the evolution of monetary science in parallel to technology and innovation in related fields. For the most part, he says, monetary operations used to be nothing more than the management of patterns, primarily the seasonal flow of money to and from New York City (real money, not credit production). The advanced in pattern recognition and the related mathematics would not have been possible without progress in disciplines such as cryptography. Snider discusses William F. Friedman, perhaps the greatest mind in cryptography, whose interest in patterning began after reading a series by Edgar Allen Poe called “The Gold Bug.” Economics and finance, much like cryptography, are about pattern recognition. Modern monetary science is becoming singularly dedicated to discounting and disavowing obvious patterns. That is the only way social economics can continue to override monetary choice—real money, not credit. With respect to codes and patterns, Bernanke is both ideologically blind and obsessed with gold. The history of the US dollar under the Fed reads like Poe's Gold Bug as US central bankers fixate over losing the battle with gold’s discipline. There is no happy ending to this story, only economic headwinds that need something other than central and social economics. Free market capitalism is the answer here. There is no detective story to unravel. If there does exist a Gold Bug on the ‘gold side,’ it is the singular and rational focus on something that will provide an alternative and limit to the Bernankes of the world and their unrequited record of obvious failure: truly free markets, including a real market for money. Click to Read Full Article