Lewis Lehrman: We Need Gold Standard to Stabilize Dollar

Monday, 09 Apr 2012

The dollar has lost 85 percent of its purchasing power since the government scrapped the gold standard in the early 1970s, and it's up to Congress to obey the Constitution and bring the system back, says historian and investor Lewis E. Lehrman, author of the book "The True Gold Standard."

Under the current monetary system, where currencies are valued against other currencies under the guidance of central banks, inflation is creating wealth and income disparities.

The gold standard sets the value of a currency against a measure of gold, and supporters say it would prevent governments from spending and borrowing out of their means and bring back a return to stable growth.

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When the gold standard was in place, the economy grew and inflation remained at bay, and the reverse happened when it was scrapped.

"From 1971 until 2012, under the Federal Reserve system, the dollar has lost over 85 percent of its purchasing power," Lehrman tells Newsmax.TV in an exclusive interview.

"Everyone who saved money in 1970-71 gets about 15 cents on the dollar today. That's a scandal compared to the workings of a classical gold standard."

Under the current monetary system, central banks can also print money to push economies out of hard times.

The Federal Reserve, for example, has purchased in the recent past $2.3 trillion in assets like Treasury bonds or mortgage-backed securities from banks in a policy known as quantitative easing.

Critics say the policy is printing money out of thin air and laying the seeds for inflation that will eat away at the savings of the nation.

"Those who are on wages, lagging wages, the lagging salaries, those who are on fixed income, or pensions, they cannot stay up with inflation because their incomes remain the same or their annuities or their retirement incomes remain the same or do not adjust upwards as fast as inflation," Lehrman says.

"Inflation is always and everywhere an unjust policy, which impoverishes those who are least able to cope with it and enriches those are clever enough to stay up with it."e — Click Here Now.

Meanwhile, the present monetary system allows countries like China to manipulate its currency and give its exports an unfair advantage in the global trade arena.

A gold standard, under which not just the U.S. but all major powers adopt, could end such trade disputes.

"It is the best weapon or the best institutional arrangement whereby economic predators like China can be properly disciplined," said Lehrman, who heads the Gold Standard Now, a project of The Lehrman Institute, a public policy foundation that he founded in 1972.

"I don't mean disciplined by war the way in which Hitler had to be disciplined or imperial Japan had to be disciplined, but I mean disciplined by the institutional arrangements of the global economic and trading system."

The United States, meanwhile, must make the first move.

"The United States is the only country strong enough to establish the gold standard and cause other leading countries to follow its lead," Lehrman says.

"When all the currencies of the major powers, only the leading three or four — the European Union, China and the United States — accounting for about 80 percent of world out, when those currencies are established and linked to a common monetary standard, there is no room for manipulating your currency."

Up to Congress

The Federal Reserve currently operates under a dual mandate, to control inflation and ensure optimal unemployment rates, the latter mandate being relatively new.

Some say the Fed cannot properly control inflation if it's working to juice the economy and promote investment and hiring, and argue for scrapping the employment mandate.

Good intentions, but true reform would come by having the Fed bind the value of the dollar to gold, and only Congress can take the initiative, Lehrman says.

"Reform of the Federal Reserve system does not mean eliminating the dual mandate of the Federal Reserve, it means establishing the Federal Reserve's goal of maintaining the stable value of the currency, which can only be done by Congress under Article 1, Section 8 and 10 of the Constitution," Lehrman says.

"It's Congress, which has the power to specify the value of the currency, and of course, the Constitution speaks only of gold and silver."