Brad DeLong had two terse comments on Zoellick’s FT op-ed:
The last thing that the world economy needs right now is another source of deflation in a financial crisis. And attaching the world economy’s price level to an anchor that central banks cannot augment at need is another source of deflation–we learned that in the fifteen years after World War I.
If you say on Tuesday that you are in favor of using:
gold as an international reference point of market expectations about… currency values…
you cannot then say on Wednesday that you are:
not proposing to judge whether currencies are undervalued or overvalued by looking at their price in gold…
You cannot say that, that is, unless you really are making a serious run for the crown of Stupidest Man Alive.
Robert Zoellick’s Financial Times op-ed was composed of:
Two paragraphs of praise for his patron James Baker as the Greatest Policymaker of All Time (with not a mention of Baker’s prime role as creator of the global imbalances with which we now struggle).
Five paragraphs of mush.
A call for a return to some gold-standard-ish international monetary system: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
Now he says that anybody who read him as meaning what he said was wrong.
David Goldman, who normally seems to have both a sophisticated and practical view of policy, was not subtle in his praise for the Zoellick proposal Robert Zoellick is Magnificently Right.
I do not understand what Zoellick is proposing (DeLong’s “mush” reflects what I thought I was reading), so I also do not understand what Goldman is agreeing to. So I appending the following question to Goldman’s post:
David, you wrote:
a gold reference point is brilliant
Could you please amplify what you mean? An example would help, illustrating the “correct price” of the reference currencies in terms of gold. And how do you reconcile the current gold price trend with the inflation expectations indicated by the 5 and 10 year breakeven rates (notes relative to TIPS)? Both of these cannot be correct inflation indicators.