Bernanke's Gold (or Folly?)

In the year 2000, Mr. Ben S(halom) Bernanke published his Essays on the Great Depression (ISBN 0-691-11820-5). In this book, he and others discuss "The Great Depression" in macroeconomic terms. One of the premises layed out is that "the earliness with which a country left the gold standard reliably predicted its economic recovery". In fact my reason for writing this blog, and now reading the aforementioned book, is that last month (September, 2008) Mr. Bernanke (Chairman of the Federal Reserve System) and Mr. Henry M. Paulson (Secretary of the Treasury) both informed Congress in a closed sesssion (essentiall a meeting without record) that a $700 Billion bailout was needed of the financial sector. After much consternation, Congress approved a bill as such.

I have then been wonder what they said to Congress. The political noise was such that we should expect the end of the American Financial System as we know it. It appears this will be the case either way.

In any case, what is Mr. Burnanke thinking. It appears from reading the preface of book that they consider a reliance on gold as major factor in slowing the "aggregate growth". In other words, gold is a slow lubricator of economic transfer. (Duh.) Gold is heavy, difficult to move, difficult to replicate and is easily tested. At this point in time, gold has two primary uses - jewlery and electronics.

Put another way, if people have more confidence in gold, which happens during a panic, then the U. S. Dollar and any assoicated credit instruments have less confidence - and in the worst case scenario they are worth nothing. Therefore Bernanke's job is to assure the stability of the financial market and make paper worth something. In essence, paper is Bernanke's Gold.