Spotlight: Price Of Gold Should Be Sounding Alarm Bells At The Federal Reserve

This episode discusses the implications of rising gold prices on inflation and economic policy, particularly focusing on the Federal Reserve's response.

1. Rising gold prices signal potential inflation and economic instability.
2. The Federal Reserve's current strategies may not adequately address the underlying economic issues.
3. The Phillips Curve is considered outdated, and its assumptions do not hold true in current economic conditions.
4. A stable currency value should be a priority for economic policy.
5. Reintroducing practices from the past, like considering gold prices in policy making, may benefit the economy.

1: Introduction and Overview

Steve Forbes introduces the topic and explains the significance of rising gold prices.
Steve Forbes: "Gold is moving up. That's bad news for future inflation."

2: Critique of Current Economic Policies

Discussion on how current policies fail to stabilize currency values and the dismissal of the Phillips Curve.
Steve Forbes: "They'll never admit it, but they're still in thrall of the Phillips curve."

3: Recommendations for Policy Changes

Forbes suggests practical steps for the Federal Reserve to stabilize the dollar and address inflation.
Steve Forbes: "First, announce that henceforth its goal is a stable dollar."

1. Monitor gold and commodity prices as indicators of economic health.
2. Prioritize maintaining a stable currency to avoid economic instability.
3. Question the effectiveness of traditional economic indicators like the Phillips Curve.
4. Advocate for policy changes that focus on long-term stability rather than short-term adjustments.
5. Engage in discussions and debates about the return to practices that consider precious metals in policy decisions.

Steve Forbes explains how the shifts in the price of gold are harbingers for even worst inflation to come—and the Federal Reserve had better take note.

People

Steve Forbes

Companies

None

Books

None

Guest Name(s):

None

Content Warnings:

None

Steve Forbes

Gold is moving up. That's bad news for future inflation.

Hello, I'm Steve Forbes, and this is what's ahead where you get the insights you need to better navigate these turbulent times. What is happening to the price of gold should be sounding alarm bells inside the Federal Reserve and other central banks. The best barometer for monetary inflation is the dollar price of gold. For a variety of reasons, gold keeps its intrinsic value better than anything else in the world. That has been true for 4000 years.

Fluctuations in the cost of the yellow metal reflect changing values in the value of currencies, not in the value of gold itself. What policy makers can't quite grasp is that there are two types of monetary and non monetary. The non monetary kind is is when prices rise because of disruption to production resulting from natural disasters like droughts and earthquakes, from wars such as the Ukraine conflict and the attacks on international shipping by iranian proxies. From the pandemic shutdowns that severely damaged global supply chains, and from government regulatory actions that raise the cost of doing business. Monetary inflation comes when the value of a currency is reduced in value, usually from creating too much of it.

There's not much the Federal Reserve can do about non monetary inflation. The Fed can, however, curb traditional monetary inflation by focusing on keeping the dollar steady in value, in other words, not letting it go up too much vis a vis gold. Unfortunately, central bankers these days never refer to stable currency values. Instead, they focus on trying to suppress their economies. But by upping interest rates, they pay close attention to whatever price index they think best reflects the true state of inflation.

Theyll never admit it, but theyre still in thrall of the Phillips curve, which posits theres a trade off between unemployment and inflation. The Phillips curve has long been discredited by real world experience and by studies from a number of Nobel Prize winning economists. Thats why the Federal Reserve has been flummoxed by recent events. Despite big boosts in interest rates, the US economy is expanding, while the pace of rises in price indexes have come down quite a bit from their 2022 highs. While gold is flashing red, other signs of trouble are emerging.

When theres currency trouble, hard assets like commodities often surge. One key commodity index is up 17% this year. Of course, the best approach for a sound and stable dollar is the gold standard, which we had for 180 years before we ignorantly blew it up in the early 1970s. But gold is the great unmentionable in economic circles, a visceral disdain based on deep ignorance of how the system actually functioned. Criticisms are encrusted in myths.

Two things the fed could do right away. First, announce that henceforth its gold is a stable dollar. To that end, it should look at gold and commodity prices when making monetary policy, as it did for a few years back in the 1980s and 1990s. 2nd, publicly direct fire at our astronomical spending binge spending will create pressure for future money printing to pay for deficits, and we know where that leads. I'm Steve Forbes.

Thanks for listening. Do send in your comments and suggestions. I look forward to being with you soon again.