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Thursday, October 12, 2006 8:09:40 PM
"WE HAVE A POWERFUL WEAPON WE COULD WIELD AGAINST Islamic fanaticism but won't: gold."
Comparing graphs, Forbes makes a case for when the dollar was fixed to gold between the 40s and '71, the price of oil barely fluctuated. "And look what has happened since. In the late 1960s we began printing too many greenbacks, which resulted in inflation, sending commodities, including oil, upward. Before this inflationary era was ended by Ronald Reagan, the cost of oil had risen tenfold.
The volatility in the value of the dollar has led to volatility in the oil market. The result has been a boom-bust cycle that has been disruptive - and now politically costly.
The history is instructive: The dollar's formal tie to gold was severed in 1971, and since then we've fluctuated between period of strength and weakness....
Cutting the dollar-gold connection has played hob with the economy in other ways. The resulting turmoil in commodity markets led to a number of hedge funds to speculate widely. There will be more debacles like the now notorious Amaranth Advisors before this inflation unwinds...Most economists were taught that gold is irrelevant and that is somehow caused and deepened the Great Depression. Gold had nothing to do with that catastrophe. It came about because of hideous tariffs and tax-policy errors. for 4,000 years gold has been the Polaris of price stability. But don't look to fed Chairman Bernanke, Treasury Chief Paulson or any other policymaker to reestablish the long-cut link between the greenback and gold. Instead, we will for a while longer subsidize terrorists with billions of dollars, thereby prolonging the war and unnecessarily giving up innocent lives."
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