Why the GOP Is Really Talking About the Gold Standard

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"The move to 'audit the Fed' and a return to the gold standard are two ideas Ron Paul supporters care most about."

One of the most surprising proposals from the Republican National Convention was that the GOP platform for election 2012 includes a commission analyzing a return to the gold standard.

Ever since the United States went off the gold standard in 1971 the U.S. monetary base has grown to its current level of roughly $2.56 trillion (T). With this increase has come an even more alarming rise in the federal deficit. Currently the U.S. has around $222T in unfunded liabilities.

That's why many, most notably Rep. Ron Paul, R-TX, have called for a return to the gold standard and a compete audit of the Federal Reserve.

But as opponents are quick to point out, it is impractical, impossible, and highly unlikely that America's enormous monetary supply would be backed by gold.

Some on the left, such as Paul Krugman of the New York Times, called the return to the gold standard "an almost comically (and cosmically) bad idea."

So why would the GOP bring it up?

Experts have theorized that the inclusion of a gold standard commission on the GOP party's platform is just a way to encourage Ron Paul supporters to join the Romney camp.

Within the GOP there are worries that these devoted "Paulites" will not vote for Romney unless more of Paul's agenda is taken seriously. The move to "audit the Fed" and a return to the gold standard are two ideas Paul supporters care most about.

But there's more to the gold standard proposal than pleasing Paulites. Gold Standard: Code for Fiscal Discipline

Analyst Ed Mills of FBR Capital told Yahoo Finance a return to the gold standard is the perfect way to rally voters to support a more disciplined U.S. government.

"Talking about the gold standard is a great appeal to average Republican voters about fiscal discipline, to make sure we don't have runaway government spending, runaway monetary policy, and don't have inflation like we've seen in the past," said Mills.

Presidential hopeful Mitt Romney has already made it clear that fiscal discipline is something he wants to talk about in this campaign and the gold standard is a more approachable subject to discuss than quantitative easing. It allows Republicans to talk about supporting the value of the U.S. dollar without having to analyze the economic effects of quantitative easing—something many voters are unfamiliar with.

"Republicans generally view QE as an act of economic war," said Mills, adding that his ''mother is not going to want to have a conversation about quantitative easing, but she might want to have a conversation about the gold standard."

Romney recently reiterated that if elected he would replace Federal Reserve Chairman Ben Bernanke, a move that shows he is opposed to the Fed's stimulus measures.

By bringing up the gold standard Republicans can create a bridge from that subject to fiscal discipline, reduced spending, and less government (Fed) involvement in the economy, all major points to their campaign.

"It's far easier to talk about the return to the gold standard than it is to talk about why they don't like quantitative easing," Mills says. "It's something that is never going to happen, but it allows the Republicans to talk about key areas without losing people over wonky conversations."

If Republicans win election 2012 and their commission does indeed study a return to the gold standard, that's as far as the talk will go. The findings will likely resemble those by the Reagan Gold Commission in 1982, which said implementing the gold standard "does not appear to be a fruitful method for dealing with the continuing problem of inflation."

Ben Gersten
Money Morning

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