At first glance, Congressman Poe’s plan looks pretty good:
These calculations show that Ron Paul’s gold coin standard fails for the same reason that the classic gold standard failed-there isn’t enough gold in the world to prevent it from being wildly deflationary. Because all America has known for almost 70 years is inflation, many people have forgotten that deflation is much, much worse. The Great Depression was caused by deflation. People want stable money, but they aren’t willing to starve to get it.
Fortunately, it is possible to stabilize the dollar and create an economic boom at the same time. Judge Poe’s bill, H.R. 6690, would do this. It would require the Federal Reserve to use its Open Market operations to bring the COMEX price of gold down to $500/oz and keep it there. H.R. 6690 would also give the economy a powerful supply-side stimulus in the form of “first year expensing” of all capital investment.
H.R. 6690 defines the value of the dollar in terms of the market value of gold, but does not use gold as money. In this way, Judge Poe’s bill would not create a new and potentially unlimited source of demand for a scarce commodity. This is the key difference between H.R. 6690 and both Ron Paul’s approach and the classic gold standard.
As Paul Craig Roberts (and other people, I am sure) pointed out a long time ago, there are no laws preventing Americans from using gold as currency. The fact that almost no one uses gold as currency suggests that there are strong reasons to prefer paper dollars. The US dollar isn’t bad as currency goes, but it could be improved, mainly by being made less-subject to political caprice. Linking the dollar robustly to the market price of gold would be a big step in the right direction. How well HR 6690 would accomplish this is a different question, however. The devil is always in the details and unintended consequences. Congress might find it difficult to avoid post-hoc tinkering with the rule and thereby returning us to dollar uncertainty. And this bill has no chance of being enacted in the current political environment. But, at first glance, it sounds like the best currency-reform proposal yet.