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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 10, 2010 at 10:15 AM

A new gold standard? Another brick in the wall

You can read World Bank President Robert Zoellick’s opinion piece in Financial Times to see if he really urged a return to the gold standard. Many readers did, forcing Zoellick to walk back from the statement/misunderstanding. Any student of economic history knows that the world suffered more panics and longer depressions under the gold standard. Even convertibility of dollars-to-gold proved unsustainable and was ended by President Nixon.

It’s also not how business is done today, which is mostly in dollars with elaborate currency hedges built into the workings of major corporations. Zoellick’s deeper message was the need for a new world financial system, including coordinated exchange rates to ease imbalances and increase growth. Yet how would that work when China holds a huge advantage as a creditor — and as a currency manipulator to keep its manufacturing/export edge?

As I’ve written, a new world financial system is coming into being whether we like it or not, and it won’t be to our advantage. Yet so far, the dollar remains strong and the world’s reserve currency. Lucky for us.

Zoellick told FT that the rising price of gold and its use as a “monetary asset” is an “elephant in the room” being ignored by policymakers. Maybe so. But at the risk of raising the ire of gold bugs, I see much of the gold rise as a speculative bubble abetted by hot money. It rises as the dollar holds its own and the appetite for Treasuries stays strong. Beyond speculation, gold’s moment is a sign of the deep uncertainty in a world economy with so many imbalances and fragile players. And a dangerous banking system

If, in the dystopian future imagined by the gold bugs, you have to pay for a loaf of bread with gold, that’s going to be the least of your problems.

Here comes the G-20. It will be an interesting few days.

Today’s Econ Haiku:

This is why they test

And this bird is so advanced

Boeing going on

Comments | More in Global economy, Macro/Big picture

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