Today's Wall Street Journal. This is the SECOND opinion piece in the last three publications calling for the dollar to be backed by a commodity.... In the circles of those who make policy, this is no longer a lunatic fringe idea.

BK.

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To Prevent Bubbles, Restrain the Fed
Obama would be a fool to trust his economy to the discretion of central bankers.

By GERALD P. O'DRISCOLL JR.

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To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn't linked to the price of a commodity.

With a commodity standard in place, the government would also have price signals that would alert it to the formation of a bubble. Why? Because the price of the commodity would be continuously traded in spot and futures markets. Excessive easing by the Fed would be signaled by rising prices for the commodity. In recent years, Fed officials have claimed that they cannot know when an asset bubble is developing. With a commodity standard in place, it would be clear to anyone watching spot markets whether a bubble is forming. What's more, if Fed officials ignored price signals, outflows of commodity reserves would force them to act against the bubble.

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