Monday Morning: Gold bugs have come back to bite – again

What we have is a triple witching. No other explanation exists.

The current economic malaise, an unusual anniversary last week and this God-awful summer heat apparently have caused a strong case of gold fever.

The first symptoms showed up, predictably, on the editorial pages of The Wall Street Journal.

In June, that old supply-side standard-bearer Jack Kemp wrote an opinion piece calling for a return to the gold standard.

“How many more dashed hopes and false recoveries must we experience before politicians and monetary authorities accept the fact that our inability to manage fiat currencies is causing the global economic slowdown?” he opined.

With that admonition, the gold-standard was in play – again.

We’re not talking about rehashing economic policy from the 1980s; we’re talking about the 1880s.

At the turn of that century, William Jennings Bryan ran for president three times crusading against the gold standard.

You may recall his memorable line: “You shall not crucify mankind upon a cross of gold.”

Mr. Bryan was reportedly on former President Richard Nixon’s mind as he signed an executive order on Aug. 15, 1971 – 30 years ago last week – taking the United States off the gold standard.

According to Mr. Kemp, as Mr. Nixon signed the order, he reportedly uttered: “I don’t know why I’m doing this. William Jennings Bryan ran against gold three times, and he lost three times.”

Mr. Nixon’s comment suggests one of two things:

He really did believe that the end justified the means, even if it meant getting into bed with a liberal economist like John Maynard Keynes, who championed an end to the gold standard in the 1930s.

Or, like millions of us, Mr. Nixon really didn’t understand the issue.

I confess that I fall into that camp, but only because the debate has been so contradictory.

Former British Prime Minister Winston Churchill was vilified when he reinstituted the gold standard in 1925, and was blamed for the depression that followed. England dropped the gold standard in 1931.

Mr. Kemp advocated a return to the gold standard in 1996 as Bob Dole’s vice presidential candidate.

But even the Republican party declined to make it a significant part of its economic plan.

And remember Steve Forbes? Another gold bug, as they’re known. Where did he end up? On the radical fringe, that’s where.

That raises another troubling concern. Ever notice how this issue attracts, shall we say, the conspiracy minded? Just check out the Gold Anti-Trust Action Committee (gata.org) in Texas.

The group is backing a suit against Federal Reserve Board Chairman Alan Greenspan, J.P. Morgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc. and former Treasury Secretary Lawrence H. Summers, among others, claiming they launched a vast conspiracy in 1994 to fix gold prices.

The reason most advocates want to go back on the gold standard is because they believe Mr. Greenspan has botched monetary policy. Yet the group claims at the same time that he is the master of a vast international conspiracy. See what I mean about contradictions?

All of this, of course, clouds the issue. There actually may be some merit to the argument that currencies should be fixed to a basket of commodities – not just gold.

That way Mr. Greenspan and the Federal Reserve would have some guidance when they decide to raise or lower interest rates.

On the other hand, maybe I’ve just been spending too much time in the sun.

Keith Girard is the editor of InvestmentNews.