Speaking to the Senate Banking Committee on Capitol Hill on Thursday, Federal Reserve Chairman Ben Bernanke discussed gold prices. The yellow metal, which is considered a hedge against inflation and the destructive monetary policies of the nation’s central bank, was called an “unusual asset” by Bernanke and he conceded that he didn’t understand it very well.
“Gold is an unusual asset. It’s an asset that people hold as a sort of disaster insurance,” stated the Fed Chair. “Nobody really understands gold prices and I don’t pretend to understand them either.”
Bernanke briefly elaborated that the fluctuations in the price of gold and other precious metals is not an indicator of inflation. Instead, as with the significant drop in gold since April, the head of the central bank noted that it could reflect diminishing concerns over really bad outcomes.
“One reason gold prices are lower is people are less concerned about extreme outcomes, particularly negative outcomes, and therefore they feel less need for whatever protection gold affords,” Bernanke explained. “A lot of people hold gold as an inflation hedge but the movements of gold don’t predict inflation very well.
Although gold has gone down in recent months, it has made gains for the past two weeks and presently stands at around $1,290 – silver, which has also seen declines, is trading at $19.44 (at the time of this writing).
In the day prior, Bernanke had an exchange with Pennsylvania Republican Congressman Keith Rothfus, who had asked where the Fed gets the money to purchase Treasury bills. Bernanke responded that it establishes a deposit in the private citizen’s bank when it buys securities from a member of the general public.
When asked if that is a form of printing money, Bernanke said, “Not literally.”
The exchange continued when Rothfus was concerned with the dramatic increase in the Fed’s balance sheet – from $800 billion in 2009 to $3.5 trillion today (to be $4 trillion at the end of the year). Rothfus noted that Bernanke has even admitted that this is unprecedented and asked how the central bank can assure the American people that hyperinflation will not take place.
Bernanke alluded to other central banks, such as Japan, the United Kingdom and elsewhere in Europe, utilizing similar tools to enlarge their own balance sheets. Rothfus had an opportunity to note the economic calamities that are transpiring overseas, but he ended the conversation there.
Since Texas Republican Congressman Ron Paul retired from Washington, Bernanke hasn’t been lectured to or tested about the value of gold and how important it is to the economy, monetary policy and security. During one exchange in 2011, the bestselling author of “End the Fed” asked the head of the Fed if gold is money, in which Bernanke responded that it is not.
Paul has been a strong advocate of the concept that the Federal Reserve prints too much money, intervenes itself too much into the economy and has become a political tool – Dr. Paul has even noted the correlation between the 20th century’s constant wars with the central bank’s expansion. Paul is also certain that there is no recovery and the Fed is exacerbating the issue more than helping it.
“We are certainly not in a recovery. We don’t see the long unemployment and soup kitchen lines like in the Great Depression, but that’s just because the lines are electronic now,” wrote Paul in an op-ed piece.
“Stop printing money to benefit the government and big banks. Restore sound money to the economy and the American people. Sound money is the bedrock for prosperity and the best check on big government and crony capitalism.