Germany Eyes Gold Standard

Editorial of The New York Sun | September 22, 2012

It would be too much to say that the government of Free Germany, as we are still wont to call it, is taking steps toward the gold standard. After all, no committee beckons in the Bundestag. The government is entangled with Spain and Greece and the scrip known as the Euro. The newspapers are mum. It would not be too much, though, to say that the latest report from the Deutsche Bank, the country’s leading private bank, is a newsworthy document, even if it will slide past up the bien pensant salons of Europe.


Deutsche Bank’s report is “Gold: Adjusting for Zero.” It reckons we’re in a situation that is “Zero for growth, yield, velocity and confidence.” It says: “We believe there are nearly zero real options available to global policy-makers. The world needs growth and is willing to go to extraordinary lengths to get it.” It forecasts bluntly that the value of the dollar will plummet in the first half of 2013 to less than a 2,000th of an ounce of gold. It reckons “the growth in supply of fiat currencies such as the USD will remain an important driver.”

That’s just for openers. The report then goes on to assert that gold is misunderstood and doesn’t really belong in the basket of “commodities” used by so many economists. Gold is money, according to the Deutsche Bank. Says it: “We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.” It refers to Gresham’s Law and suggests “the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.”


There follows a discussion that would make Ron Paul blush, though it doesn’t mention the congressman who, with the businessman scholar Lewis Lehrman, has been pushing this issue all these years. Deutsche Bank notes that discussion of the gold standard has become a common theme, a development that “says much about the change in attitudes by investors, many who would have ridiculed the mere mention of such a thing as little as five years ago.” It suggests the talk “perhaps gives a hint as to the desperation of investors.”


In any event, the Deutsche Bank concluded that “[w]hile a gold standard could work,” it remains skeptical that it will be considered. This is owing to what it calls the power of culture. “The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think),” says the Deutsche Bank. “The self-reliant, individualism of the free market has been left behind in favor of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force in our view, one which minimizes creative options/solutions to economic impasses.”
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What startles us is that this is being issued by the one of the world’s major banks. It was brought to our attention by James Grant of the Interest Rate Observer, who says when he read it, he could have been knocked over with a feather. For his part, your editor remembers the way gold was dismissed by the then president of the Bundesbank, Karl Otto Poehl, when your editor met with him in Frankfurt. That was a generation ago. When pressed, Herr Poehl suddenly exclaimed that Germany was the second biggest gold holder in the world. It still is, according to one of the many nifty charts in the Deutsche Bank’s “Gold: Adjusting for Zero.” This gives rise to the thought that if America is not going to lead on monetary reform, Germany is in a position to do so. There has, after all, been a bit of talk lately about how it should be not Greece but Germany that leaves the Euro. If Berlin wanted to take that course, a campaign for “good” money, as the Deutsche Bank calls it, would certainly be the strategy.