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Sunday, January 30, 2011

Return to gold standard backed by state legislator

CONCORD – A dollar should be worth more than an idea.

That’s what state Rep. Norman Tregenza says when he explains why he submitted a House bill that, if approved, would encourage the state’s federal delegation to work on getting the country back on the gold standard.

The bill is one of several similar bills submitted to state legislatures this year, according to media reports.

“This is the greatest issue of our time that is really not even covered,” said Tregenza, a Madison Republican. “This is vital if this country is to even survive.”

Tregenza’s bill would petition the U.S. Congress to correct what he says is a departure from the constitutional mandate that states use only gold and silver coins as legal tender and empowers the federal government only to coin money. The bill would also direct lawmakers to phase out the Federal Reserve System.

“The issue is that our money is no longer backed by precious metal,” Tregenza said. “That is important, because the Federal Reserve makes money out of thin air and is destroying the reputation of our dollar.”

The Federal Reserve is a quasi-private body charged with controlling the prime interest rate and determining when and how much currency is printed.

Proponents of the gold standard are worried about inflation and the fact that a dollar that isn’t tied to the price of gold or some fixed group of commodities is essentially worth what people, including other countries, think it’s worth.

That makes it less stable in the eyes of gold standard advocates, according to Charlie Arlinghaus, of the Josiah Bartlett Center for Public Policy.

“That symbolic value is subject to mood swings, if you will,” he said.

The Federal Reserve printing more and more money deflates the value, Tregenza said, to the point that the reputation of the dollar is no longer trusted by other countries, which means more dollars are needed to buy foreign products.

“It has been so abused that other countries are not trusting our currency the way they used to,” he said.

But getting rid of the Federal Reserve is also an important portion of Tregenza’s bill, said said state Rep. George Lambert, R-Litchfield, one of the bill’s co-sponsors.

The private nature of the Federal Reserve means no one really knows how a small group of people make decisions about the country’s currency.

“There’s no open auditing of the federal reserve system,” Lambert said. “Over time, a stable money supply is a really important thing to have as a society.”

As Lambert explained, if you tie the value of a dollar to a certain standard, you can better predict what its value will be and prevent an organization from just printing more without having the gold to back it up.

Instead, the country has printed too much money and the value of each dollar is less than it once was, he said.

“It used to be $100 was a lot of money,” Lambert said. “Today, $100 will get you dinner and a movie. Everyone who has a dollar has less power than they had before.”

Michael Goldberg, an economics professor at the University of New Hampshire, said the Federal Reserve is purposely shrouded in some amount of secrecy to insulate it from the political process.

“It think it’s a really dumb idea,” he said of the resurgence by “gold bugs” pushing for a return to the gold standard. “It’s responding to the perception that the Fed isn’t managing the monetary affairs of the country in a responsible way.”

In developing countries, the central currency-regulating organization often isn’t separated from the political machine and is therefore under pressure to print more money more often to promote economic growth. But that leads to rampant inflation, among other problems, Goldberg said.

Also, pegging the value of a dollar to gold ties a country’s hands, so to speak, taking away its ability depreciate the dollar or adjust interest rates when needed, such as when the economy dips, he said.

Also, there are some correcting mechanisms that would be in place if America did go back on the gold standard, but they’re notoriously slow and can lead to prolonged recession, Goldberg said.

“By going on the gold standard, we’re giving up our ability to make intelligent decisions about our monetary affairs,” he said. “It would take the ability to manage monetary arrangements away from an institution like the Fed.”

Joseph G. Cote can be reached at 594-6415 or jcote@nashuatelegraph.com.