STRONG GOLD STANDARD ADVOCATE STILL CONSIDERED FOR TOP CABINET POSITION

NEWS FLASH!!

Written by: Avery B. Goodman

On November 29, 2016, I wrote that John Allison, retired CEO of BB&T Bank and the libertarian think tank, CATO Institute, was being considered for appointment as the new U.S. Treasury Secretary. That was music to the ears of many people including me. The man is a real banker, as opposed to a bankster, and his bank concentrated on real lending, the way a bank ought to, rather than opportunistic gambling and manipulation. He spent his life running an institution that supported American business. That, of course, supported good jobs that sustain communities.

In fact, BB&T Bank was one of the handful of major American financial institutions that remained very well capitalized during the 2008 financial crisis. It didn’t need any help from the U.S. government, although it was forced to take the “help” anyway. Allison opposed “TARP” and was sharply critical of the bailouts. His bank was pressured into accepting the money because it was thought that if banks like BB&T didn’t, the truth about the insolvency of a majority of American banks would be forced out of the closet.

Mr. Allison believes, as do I and most clear thinking people, that the world would be better off returning to a strict gold standard. He also believes that the Federal Reserve makes the swings in the business cycle more severe, and that the central bank ought to be closed down. It was very disappointing when I found out that former hedge fund manager, Steve Mnuchin, was awarded the US Treasury Secretary position, instead.

It seemed like Allison was going back to Winston-Salem, NC, empty handed. That was a sad shame considering how well-qualified he is. More recently, however, I learned that it isn’t over, and I wanted to share that with you. Mnuchin may be getting the coveted Treasury Secretary position, but Allison is still being seriously considered for “other administration positions”. In an interview in his hometown newspaper, for example, he disclosed that the 90-minute discussion with President Trump was only partly about the possibility of becoming U.S. Treasury Secretary.

Allison was actually being vetted for a number of other top positions. At the moment, he refuses to say which ones. But, he did mention that the idea that he join the Trump administration came from Vice President-elect Mike Pence. Mr. Pence had read his book about the 2008 financial crisis, and asked him to testify about it while he was still a Congressman. According to Allison:

“He thought my book was one of the best explanation of the crisis. As such, he was kind enough to inform the president-elect of my qualifications to serve in his administration. It was flattering to have been asked to meet with (Trump), and if I had been asked to serve in an administrative position, it would have required some significant thought and consideration.”

Oddly, although he says he wants to close it down, Allison is particularly interested in serving as Chairman of the Federal Reserve when Janet Yellen’s position expires. He says that he is willing to do that even though his real goal is to end the Fed. That’s because, in his opinion (and he is probably right) it is going to be politically impossible to close it down abruptly. His compromise is to, at least, end the central bank’s interest rate discretion. He wants to force the Fed to strictly comply with the “Taylor Rule”, which is a formula that determines what the interest rate should be, based on other economic factors.

Clearly, adherence to the Taylor Rule would rein in the Fed, because the basis for determination of the prevailing interest rate would be openly disclosed.  Since everyone would have equal knowledge and automatically know what the interest rate would be, members of the FOMC could no longer tip off their friends and colleagues at the banks they once worked at. It would eliminate the insider’s advantage, and destroy the incentive to place Trojan horses on the Fed’s interest rate setting committee to the benefit of certain trading firms.

As to going back to gold, the best alternative is not necessarily to “end the Fed”. Rather, it is better to simply return gold to “legal tender” status. The Federal Reserve should be allowed to continue printing its notes. Paper and electronic dollars would continue to be used, alongside gold, to the extent that people wanted to use them. Both dollars and gold would be legal tender for payment of all debts, public and private. In order to stabilize the value of gold (and of the dollar), leveraged trading would become illegal.

By monetizing gold, we would have the best of both worlds. There would be an automatic one-off increase in the money supply without resorting to confidence-destroying measures like money-printing. The increase probably wouldn’t be used for speculation in the stock market. That’s because the primary dealers would not be able to  borrow it at the Federal Reserve’s daily loan windows. As “better money”, most of it would disappear from circulation, based on Gresham’s Law. That, however, is a very good thing. As people’s savings, rather than a medium of exchange, gold could serve as the buffer that stabilizes against the big booms and busts induced by the fiat dollar economy.

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