Ron Paul and Ben Bernanke: Is Gold Money?
July 13, 2011
Congressman and Presidential candidate Ron Paul questions Federal Reserve Chairman Ben Bernanke on “Is Gold Money?” in a U.S. House Financial Services Committee Meeting shortly after reports surfaced that the Federal Reserve was preparing for a third round of quantitative easing. Gold’s new record highs may also have been contributed to by the debate between Bernanke and Paul.
Dr. Paul asked about the collapse in the value of the dollar by almost 50% in the past three years to less than a 1,580th of an ounce of gold.
“When you wake up in the morning, do you care about the price of gold?” he asked Mr. Bernanke.
“Well,” Bernanke replied. “I pay attention to the price of gold. But I think it reflects a lot of things. It reflects global uncertainties. I think the reason people hold gold is as protection against of 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 then they have gold as a protection.”
Paul: “Do you think gold is money?”
Bernanke: “No. It’s a precious metal.”
Paul: “Even if it’s been money for 6,000 years? Somebody reversed that and eliminated that economic law?”
Bernanke: “Well, you know, 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 if it’s not money?”
Bernanke: “Well, it’s a form of reserves.”
Paul: “Why don’t they hold diamonds?”
Bernanke: “Well, it’s tradition. Long-term tradition.”
Paul: “Some people still think it’s money.”
The Federal Reserve Chairman’s admission that gold is “protection” against “tail risks” and “really, really bad outcomes” is important and marks another step towards gold’s movement from being a fringe asset to being a core part of a properly diversified portfolio.
Gold is increasingly being seen as an important safe haven asset and indeed currency (despite Bernanke’s feeble denial of this) and this interview may be seen as another landmark in gold’s move from fringe “barbaric relic” to mainstream investment and savings vehicle.
All Things Considered – John’s Commentary
A fitting commentary from the Campaign for Liberty….
Congressman Paul directly asks Chairman Bernanke whether he believes gold is money, to which Bernanke responds that it is not. Paul then asks why central banks bother to hold gold if it is not to be considered money, and Bernanke responds that it is merely tradition.
In light of this exchange, it is worth noting the following from International Business Times:
QNB Capital state in their latest report that central bank gold reserves rose by more than 2% between 2008 and the end of 2010, with central banks in Brazil, Russia, India and China – as well as those in the Middle East – particularly strong buyers of the yellow metal. Developing nations’ preference for gold was highlighted by the Mexican central bank’s purchase of 100 tonnes of gold in the first quarter.
As a result, central banks in developing countries have been diversifying out of paper money and into gold bullion.
Quite an expensive tradition, wouldn’t you say? Who knew that international central banks were so concerned with maintaining their “golden” heritage?
