Here’s a thought experiment in respect of Europe. Its central bank is getting ready to try to stimulate its economy by launching a program called “outright monetary transactions.” That’s European palaver for quantitative easing. We prefer the phrase “outright socialism,” but, hey, they’ve got more euphemisms than a eulogist in an echo chamber. So our thought experiment is this: Instead of borrowing all this money from themselves by having their central bank buys bonds directly from its member governments, why don’t the Europeans spend their gold?
The top European gold-holders — Germany, Italy, France, the Lowlands, the European Central Bank itself, Portugal, Spain, Austria, and Belgium — are hoarding more than 10,000 tons of the silent metal. What’s the logic of using the central bank to borrow money from themselves and then spending that? Why not just spend the gold they have? “Mon Dieu!” you ask, how could The New York Sun suggest such a thing? Well, not to put too fine a point on it, we’ve grown weary of European lectures about how honest money is a barbarous relic, when all the while they are hanging on to this gold.
It’s outright hypocrisy.
And bizarre, too, given recent events in America. Economic historians are going to spend the next generation arguing about the role that quantitative easing played in turning what could have been a short, quick, albeit brutal, recession into a long travail that consumed Barack Obama’s entire presidency. On one side, there will be Williams Jennings Krugman and his ilk. On the other there will be a group of historians focused on classical principles, the latest being James Grant, whose latest book — “The Forgotten Depression,” about what happened here after World War I — offers much for the Europeans to consider as they flail for a way out of their slump.
The notion that the problem in Europe is a failure of the European governments to lend themselves enough money is a feature of the age of fiat money. It’s been almost 50 years since the collapse of Bretton Woods. “By now,” no less a sage than Paul Volcker has proclaimed, “I think we can agree that the absence of an official, rules-based, cooperatively managed monetary system has not been a great success.” The New York Times is predicting the European Court of Justice will give a green light for the outright monetary transactions. A far better strategy would be establish sound money on a rules-based system like that which obtained during the years of post-war triumph for a free Europe. Then they would have a reason to keep their gold.