Earlier this week "Dr. Doom" Nouriel Roubini and Currency Wars: The Making of the Next Global Crisis author James Rickards got into a war of words on Twitter over the return of the gold standard. (Read the exchange.)
As Rickards explained last week on The Daily Ticker, he believes a return to the gold standard will do a lot to fixing the current troubles in the global financial system and the U.S. economy.
In the accompanying interview with Aaron Task, Roubini continues to disavow Rickards of his claim.
"That's total nonsense." Roubini then goes even further, calling the gold bugs who support a return to the gold standard a, "bunch of lunatics and hacks."
Roubini says the gold standard would be dangerous. In fact, he claims, the gold standard was a major reason for the Great Depression.
"One of the major causes of the Great Depression was the existence of the gold standard and the return to the gold standard after World War I - that they restrained the ability of central banks to provide lender of last resort support to their banks created tight money, it created bank runs, and lead eventually to the Great Depression," he says.
Rickards disagrees. As we wrote last week:
"Unlike most fans of the gold standard, he (Rickards) actually has a plan to return to a gold-backed monetary system without causing major upheaval to the global financial system by addressing three key questions: What's the definition of 'money' (M1, M2, etc.)? What percentage of the money supply should be backed by gold? Will the U.S. act alone or in concert with other nations? "Answer those questions and it's really just 8th-grade math" to figure out what the implied price of gold will be, he says."
Roubini and Rickards also disagree on the future of the U.S. dollar as the global reserve currency. Rickards says the dollar's days of dominance are numbered; Roubini says recent history illustrates a strong support of the U.S. dollar as the world's favorite fiat currency.
"People may complain as far as they want about the U.S. dollar, but the reality is that actually when there is risk aversion, when there is tail risk, when we have trouble like today, people dump the euro, people dump emerging markets and go to the safety of the U.S. dollar and U.S. Treasuries because it's the tallest small midget in the room."
Who is right?
- Nouriel Roubini