In War and Gold, British Member of Parliament Kwasi Kwarteng traces the history of debt from 16th century Spain all the way to our post-2008 economy and concludes that tying currency to gold is the best policy. That the gold standard is essential to a strong and prosperous economy.
He does, however, recognize that rapid deflation would occur if we went back to gold. “I’m not going to say that we’re going to bring the gold standard back immediately or that we should. What I am saying is that if you look at history you find that the gold standard is a much more stable arrangement than what subsequently happened,” he says.
Kwarteng points to the 2008 financial crisis and national debt level and claims they’re related to our paper money. But after years of the Fed printing money, how would you even begin to put the genie back in the bottle?
“I could envisage a way in which you could get back to the gold standard. If the Chinese unilaterally declared that the renminbi would be pegged to gold it would essentially recreate the gold standard,” says Kwarteng. But he also understands that would be unlikely given China’s passion for cheap exports.
So what should the policy takeaway be? “The takeaway is about fiscal policy.” He says. “Let’s take a look at balancing the budget, and I think that’s very central to any kind of long-term stability because during those gold standard times there was an incentive to balance the budget…I think we’ve got to get back to some sort of fiscal discipline to recreate the stability of the gold standard,” he says.
Gold prices are currently at a 16-week low but Kwarteng says long-term he would always bet on gold. “I think in a world of paper money, in a world of increasing debt on a national level and big credit splurges, gold is a reliable asset.”
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