From the Fifth Monetary Chaos to Twenty-First-Century Gold

Abstract

So long as monetary inflation ends up in asset price deflations without a substantial build-up of reported goods inflation, then a political coalition in favour of sound money is unlikely to form. If ultimately, as is likely, high inflation emerges, then a new role for gold could gain public acceptance as the best prospect of ending monetary chaos rather than repeating the failure of the last four “stabilization experiments” since the collapse of the gold standard in 1914. Gold monetization would re-pivot high-powered money in the monetary system allowing interest rates to be determined free of official manipulation. Either the US or a group of small advanced economies could lead the way back to gold in a form different from pre-1914 gold or the gold exchange standard of the 1920s.