“Gold Is Not Money” – Ron Paul Shreds Bernanke
Ron Paul's confrontational and decisive questioning left the former Princeton professor looking uncomfortable and befuddled.
Ron Paul started off by noting that instead of spending $5.1 trillion bailing out banks and enriching corporations with no discernible economic benefit, the Fed could have simply given each and every American $17,000. Ron Paul also suggested that the huge amount of money injected into the economy by the Fed has caused a real inflation rate of about 9%, far above the government inflation statistics.
Bernanke, obviously annoyed with Paul's remarks started to elaborate on why the Fed was actually a "profit center" for the government, but was quickly cut off by Ron Paul who noted that he had only five minutes of allocated time to ask questions.
Ron Paul then followed up with a series of devastating questions that left the Chief Money Printer reeling.
Paul: "When you wake up in the morning do you care about the price of gold?"
Bernanke: “I pay attention to the price of gold. I think it reflects a lot of things. It reflects global uncertainties. I think the reason people hold gold is as protection against what we call tail risks, really, really bad outcomes. And to the extent that the last few years have made people more worried about the potential of a major crisis they have gold as a protection.” (Editor's note: Gold has been steadily rising for the past ten years.)
Paul: "Do you think gold is money?"
Bernanke: (after a long awkward pause) "No, it's not money, it's a precious metal".
Paul: “So even if it’s been money for the past 6,000 years, somebody reversed that, eliminated that economic law?”
Bernanke: ”It’s an asset. Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”
Paul: "Why do central banks hold it?"
Bernanke: "Well it's a form of reserve".
Paul: "Why don't they hold diamonds?"
Bernanke: "Well it's tradition, long term tradition".
It's unfortunate that Ron Paul was only allowed to question the Fed Chief for five minutes. In a couple of hours, Ron Paul would have shredded the foundations of the dollar's value. In an interview with thestreet.com, Ron Paul says "Gold, if you pick up a coin minted 6,000 years ago, you'd still have your money. If you pick up a piece of paper printed a year ago, it might be worth half its value. So history is on my side of the argument." Gold as money has retained its value over the millennia - does anyone really expect any modern currency to retain value over the long term?
In Bernanke's world he is right - gold is not money. All contemporary monetary systems are now based on fiat money with no intrinsic value other than the full faith and credit of the government issuer. Unfortunately, the world's short term experiment with a fiat money system seems to be swirling towards financial disaster in Europe as nation after nation totters at the edge of default.
The real disaster is that the hoax of fiat currency has been very effectively promoted by Bernanke, Governments and Central Banks. The middle class citizens of most countries still hold the unshakeable, religious conviction that their paper money will retain its value because it is backed by an all powerful government that can protect their bank savings, pension plans, etc. If this profound belief in paper money did not exist, gold would be thousands of dollars higher as currency holders of insolvent countries such as Greece, Ireland, Portugal and Spain desperately lined up to buy gold.
As the looming financial crisis explodes, bank depositors will discover that a bankrupt nation cannot protect their savings. It will be too late for many as bank holidays and the financial collapse of financial institutions prevent depositors from accessing their money. Middle class savers will be financially destroyed. If depositors eventually get paid back in printed paper money, it will be worth a fraction of its original value.
Bernanke can say that gold is not money but time will prove him wrong.