Unpleasant arithmetic for gold bugs

Money & Banking/Stephen Cecchetti and Kermit Schoenholz

Ed Stein cartoon graphic of gold bar flying a dollar kite“With the smallest balance sheet we can imagine, our best guess is that the Fed initially would have to triple its gold holdings, driving the price of gold up by two thirds (to about $2,600 per ounce). Then, to maintain the gold standard, the Fed would still need to purchase one-third of world gold production each year. Without gold holdings over and above this minimum, the Fed would not be able to lend at all, much less without limit as it can under a pure fiat money standard.”

USAGOLD note:  It is difficult to understand how the findings of professors Cecchetti and Stoenholz are ‘unpleasant arithmetic for gold bugs’.  More accurately their findings might be called unpleasant arithmetic for the global monetary system.  In their anxiety to undermine the argument for a gold standard, the authors unwittingly make a very strong case for gold’s deep undervaluation once the level of federal debt rattling around the global economy (including what’s held at the Federal Reserve) is taken into consideration. As such, many gold bugs, in our view, will take much pleasure from their conclusions, a hint of which is presented in the snippet above.


Repost 2-24-2020

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