Edgar Allan Poe, long a proponent of the Bretton Woods monetary system, has come out in favor of a new gold-exchange standard, and the financial community, waiting with bated breath for the bond bubble to burst, is sitting up and taking notice.
In the wake of the sharp recent decline in the value of gold, Congressman Poe (Republican, Texas) has introduced legislation that would return the nation to a gold standard albeit in drastically revised form.
"For anyone living under a rock, the price of a troy ounce of gold is now officially in bear market territory," said Alice Elgar, who covers the sector for Cantor Fitzgerald. "What Ted Poe is proposing is a kind of bailout package in reverse for investors -- whether in bullion or in gold-mining stocks -- who are twisting in the wind."
Under Poe’s plan, the dollar would be fixed to gold at a specified price. Say the peg is $1,300. If gold goes over that figure, the Fed sells bonds. Under that figure, the Fed would inject cash into the system by buying bonds. "An effective gold standard can be that simple," says Steve Forbes, the editor of Forbes, who has run for president on a business-friendly platform centered on a flat tax. (See "New, Poe-tent Gold Standard," Forbes, May 27, 2013, p. 15). "The Poe bill's basic operating gold-standard principle and its specifics provide plenty of grist for the mill, which is all to the good," says Forbes, which sounds like a lukewarm endorsement but he really likes the idea.
In his keynote speech at the Gold Bug convention in Jackson Hole in May, Poe said he wanted "to usher the US into a new era of fiscal propriety." He painted a grim picture of current uncertainties. "If you have ever witnessed a financial meltdown, like those afflicting Lehman in 2008 and Detroit this year, you don't need me to tell you how scary it is. I have seen a barely discernible fissure widen so rapidly that my brain reeled. I saw the mighty walls rushing asunder. There was a long tumultuous shouting sound like the voice of a thousand waters, and the deep and dark tarn at my feet closed sullenly and silently over the fragments of my life." Poe, who writes his own speeches, delivers them without notes.
The gold standard as the anchor of U. S. currency died on August 15, 1971. President Nixon issued the directive. He felt he had little choice. The cost of the Vietnam War and the persistent U. S. trade deficit forced his hand. The dollar could no longer realistically be backed by gold bullion on the basis of $35 per ounce. "The change was announced as a temporary measure but like most such it quickly became permanent," said Cantor Fitzgerald, who oversees the pension plan of the Mosaic Law and Tile Society, the nation's largest non-prophet. Fitzgerald, who quotes Keats and other greats, jokes a lot, and laughs so hard he sometimes seems on the verge of cracking up, usually makes this reporter feel like a sophomore who has wandered into a lecture for upperclassmen majoring in the dismal science. "Henceforth American money would be backed not by a metal but by the good faith of the United States government with the result that the value of the currency has fluctuated with the value of gold."
Little lamented at the time, the gold standard has lived on in the same way that a repressed memory takes uncanny forms in dreams or waking life. In a notorious TV commercial aired only once, Bunter (right) advises Lord Peter Wimsey (left) to get a smart city broker (played by Max Shylock) and allocate ten per cent of his assets to the commodity or to shares in mining concerns. "Even at a three-year low, an ounce of gold is worth more than eight hundred pounds, m'lrd, and you get a free smart phone plus ten thousand frequent flyer points if you play your cards right, close to the chest, what?"
The metal’s decline in global markets has been attributed to the likelihood of reduced monetary stimulus by central bankers at the same time as you have a slowing of the growth rate in China. "The logic is not unassailable," said Eddie Cantor with a wry smile. "But, to paraphase Gertrude Stein on roses, it is what it is."
-- David Lehman