By Steve Forbes
A new gold standard is crucial. The disasters that the Federal Reserve and other central banks are inflicting on us with their funny-money policies are enormous and underappreciated. An unstable dollar is wreaking havoc on our capital markets, depriving us of money for productive enterprises and future enterprises while subsidizing government debt on a scale never before seen in U.S. history. The zero-interest-rate policy destroys capital by punishing savers and enabling the central bank to allocate where capital goes. By definition such central planning means subpar or negative returns. No one believes, given the finances of the U.S. government, that a ten-year Treasury bond should yield only 1.8%.
The promiscuous printing of money in the U.S., Europe and elsewhere is enabling governments to put off pro-growth structural reforms and giving them incentive to increase the burdens on the private sector. The poster child here, of course, is France, raising its maximum income tax rate to 75%. Not since the early 1930s have governments of major countries collectively acted so destructively. The only difference between then and today—and it is a gargantuan one—is that we haven't destroyed the global trading and capital systems. But even they are facing increasing strains and will continue to do so unless policies are changed.
What the Fed is doing through its binge buying of bonds is enabling Washington to consume our national wealth. Instead of creating new wealth we are beginning to destroy that which exists. No wonder tens of millions of people feel—rightly—that their real incomes are declining and their financial situations are coming under more pressure. In real terms the stock market is lower today than it was in the late 1990s, and even in absolute terms it still isn't where it was in 2007.
Can we move forward on a gold standard before a real catastrophe à la the 1930s results?
A big part of the problem is that economics classes no longer teach the fundamental importance of stable money. The gold standard, if men tioned at all, is derisively dismissed as a relic, like the Egyptian pyramids or the Ford Model T.
Unless Mitt Romney educates himself quickly on the need for monetary reform (yes, he will win this election, despite all the claptrap to the contrary), we are going to have to seriously and deliberately begin the process of education and experimentation.
The gold commission advocated by the Republican platform would be an excellent start. There is something big that could be done simultaneously to get the golden ball rolling: remove legal barriers to alternative, nongovernment currencies in the U.S. We are allowed to use pounds, yen, euros and any other currency to carry out a transaction. Why not allow metal-based or -backed currencies to be used?
The need for such legislation is crucial. As noted monetary expert Nathan Lewis told Congress this summer in testimony on the desirability of allowing alternative domestic currencies: "If a house were purchased using U.S. Mint gold coins, the transfer of the coins to the seller would be regarded as a 'sale' of gold bullion for tax purposes, and subject to capital gains taxes. If the same transaction were done with euros, no such taxes would apply. In addition, purchases or sales of small quantities of gold are subject to sales taxes in many states."
To that end, when he takes office, President Romney should urge Congress to pass a bill similar to that proposed by Ron Paul, the Free Competition in Currency Act, which would abolish all federal taxes on gold and silver bullion, as well as ban state and local taxes on them. It would explicitly allow gold-based monetary transactions and would remove the onerous reporting rules that now afflict gold and silver bullion buyers.
Currently the federal government wages a virtual jihad against any attempt by individuals or companies to create gold-based monetary instruments for commercial transactions. Several years ago Bernard von NotHaus started a company to do just that, issuing coins and paper bills called Liberty Dollars. They were receipts for gold and silver bullion. He now faces massive jail time.
The tide is turning on this issue. On the national level we should do as Utah did in 2011: eliminate all taxes on transactions in gold and silver bullion. When you "purchase" a $20 bill for two $10 bills, you don't pay sales tax. When you exchange dollars for euros, you don't pay a government tax on the transaction. Utah decreed that U.S.-minted gold and silver coins are legal as currency.
An interesting historical fact is that until 1933 the U.S. government itself issued gold-based dollars that floated freely with currencies issued by numerous national banks.
The combination of getting a serious debate on the gold standard going and sweeping away our legal tender laws barring competitive domestic currency would hasten the day that we'll once again have a gold-based currency like that which did our country so much measurable good for 180 years.