Why a Gold Standard Won't Be Adopted - The Reason May Surprise You

Having read the last few posts on currency manipulation, and ideally having watched the James Grant video that comments on why the gold standard once worked so well and how it could help us out of the current crisis, here's the final piece on this subject today. It's from an analyst at Deutsche Bank, so the conclusion drawn by the author is all the more surprising. It's surprising because usually employees of major financial institutions don't - or can't - really think all that clearly. Usually it's because they're not capable, but sometimes it's because they don't want to upset the apple cart. So this guy's comments are as refreshing as they are surprising.

To cut to the chase, after explaining the virtues of a gold standard and refuting the two standard objections to a gold standard, the author makes a startling comment - startling if you've never thought about all this on your own, that is. The key point is that in our day and age a gold standard would be considered a "radical" solution. Fair enough. But it's the authors comment about our day and age that really grabbed me. How true this is!

The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think). The self-reliant, individualism of the free market has been left behind in favour of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force in our view, one which minimises creative options/solutions to economic impasses. On this basis we are cautious of predicting such a radical solution to monetary imbalances.