Fed Chairman Bernanke’s lectures at George Washington University are aimed at Republican candidate Ron Paul, who represents a significant strain of thought about the Federal Reserve. Paul believes that the Fed is evil because it interferes with the free functioning the American economy and most often encourages inflation. Paul would like to see the US return to the gold standard. Bernanke’s first lecture dealt extensively with the issue, in particular recalling William Jennings Bryan’s speech about “the cross of gold” on which the rich were crucifying average workers and farmers.
Bernanke correctly asked why the world economies should be restricted by the amount of gold that is mined around the world. It’s clearly better to have a money supply that can be managed to correspond the amount of goods and services being produced that the amount of gold being mined. On the other hand, Paul is right that an irresponsible Fed can allow or encourage detrimental policies which might well increase inflation (or create deflation). In an ideal world, however, the US would have a competent Fed which would maintain a proper money supply to facilitate growth and full employment.
One problem these days is that the US has no fiscal policy. Congress is dysfunctional. Republicans refuse to raise taxes; Democrats, to cut expenditures. So, the full burden of trying to manage the American economy falls on the Fed, with some help from the Executive Branch, depending on what it can do by executive order, by the Treasury selling bonds, etc.
But Paul’s gold bugs don’t trust bureaucrats. They would rather have the economy controlled by external forces, rather than the government.
I prefer to have Bernanke try to manage the economy rather than leave it hostage to South African gold miners.