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Bill Fleckenstein continues:

“I read that Bernanke said the gold standard was a bad idea because it didn’t allow the flexibility that he perceived we needed to have in order to engineer us out of trouble.  The man clearly does not understand the business cycle.

There was a huge bust in 1921 that was far worse than anything we’re facing and the Fed did not print $3 trillion.  Eventually the situation righted itself and we wound up having a boom in the 1920s until the Fed started tinkering with things again....

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“The 1930s were terrible, not because of a gold standard, but because of a confluence of other events.  These people do not realize they are the problem in terms of the booms they create, due to the misallocation of capital they create by money printing.  It’s not because they don’t print enough money to get us out of a slump.

Bernanke is a man with a hammer, in this case a money printing machine, and the whole world looks like a nail to him.  He believes we have to print money and it’s the only solution. 

Printing money is what caused the problem.  The equity bubble led to the real estate bubble.  While printing more money may appear to make things seem not so bad in the short-run, it doesn’t solve anything.

We’re going to have a huge problem in this country financing the government debt when rates start to rise.  We are headed to a problem because they have printed so much money and at some point we will really begin to experience inflation, then the printing press will be taken away from the Fed.  That is what ultimately will happen.

He (Bernanke) will not be able to fix that.  When the market takes the printing press away, that will be a very positive thing.  But for right now, the Fed believes they have all of the answers and things will unfold according to their plan.

Obviously that has been proven not to be the case because we had this epic bust, but they still think they are in control.  They believe rates aren’t going to rise and this gets back to the Fed’s arrogance.  This just shows they aren’t very good students of history.

So, why would we be in trouble if we went back to the gold standard?  We would have sound money.  What we would also have is an environment in which a group of members of the central bank Politburo would be unable to cause problems by overstimulating.

It’s the overstimulation.  Whiskey is not bad, but if you have a whole bottle of it you will feel bad.  Printing money is the same way and so the gold standard is like a regulator.

Is the gold standard perfect?  No.  But again, if the idea is not to end up in a horrible situation, a horrible slump or horrible economic environment, then it’s the best alternative.

In the end, Bernanke has misread history.  He doesn’t realize the Fed caused the Great Depression and it wasn’t their job to get us out of it.  Government intervention, we could argue, prolonged it.  So Bernanke believes what he is saying.  He’s wrong, but he believes it.”

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

Eric King

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