Author: Ronny Rossetti

Ben Bernanke, our expert on the Great Depression of the 1930s, has staked his reputation on loading the banks with money as per QE1 and QE2. Bernanke's theory -- if the banks are choking on money, they will lend and consumers will come, and they will borrow, and they will buy.  But alas, the best laid plans . . . . .

The paragraph below is from the front page of today's Wall Street Journal ---

"The US economy might be on a slower path to full health as manufacturing cools, the housing market struggles, and consumers keep a close eye on spending.  An increasing number of economists are lowering forecasts for second quarter growth."

In view of the  above, will Bernanke give up on quantitative easing?  Hardly, if first you don't succeed, try, try again. Which is exactly what the stock market is thinking.  With the US economy still sluggish, expect Bernanke to keep trying with a third session of quantitative easing, but he may not have the nerve to call it QE3.  At any rate, QE3 is what the rising stock market is discounting.

Good money must have seven characteristics.

(1) It must be durable, which is why we don't use wheat or corn or rice.

(2) It must be divisible, which is why we don't use art work.

(3) It must be convenient, which is why we don't use lead or copper.

(4) It must be consistent, which is why we don't use real estate.

(5) It must possess value in itself, which is why we don't use paper.

(6) It must be limited in the quantity that is available, which is why we don't use aluminum or iron.

(7) It should have a long history of acceptance, which is why we don't use molybdenum or rhodium.

Only gold fits all seven characteristics.

Federal Reserve notes (now erroneously called 'dollars') are issued by the Federal Reserve.  They are created without sweat, ingenuity or risk by the Federal Reserve.  The Fed is a creature of Congress and therefore, it can be pressured by the will of Congress.  Congressional men and women are elected by the voters. The voters desire constant prosperity and tend to 'vote their pocketbooks.'  Thus, the quantity of Federal Reserve notes can be a result of the desires of an impatient and often greedy electorate.

The quantity of Federal Reserve notes tends to be influenced by the wishes of impatient voters -- plus obedient politicians who value their jobs.

Unlike Federal Reserve notes, gold is fixed as to quantity.  Gold is a currency that is not beholden to politicians or to any government.  Politicians cannot increase or decrease the quantity of gold at will.  When a currency is backed by gold, the quantity of that currency is out of the hands of politicians.  This is the reason why politicians detest the gold standard.  The gold standard leaves politicians helpless at a time when they wish to inflate or over-spend.

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