Everyone's a critic when it comes to the crisis in Europe. Even CNBC personality Rick Santelli!
Yep, the same man that some credit with the on-air rant that inspired the Tea Party movement said on Tuesday that the eurozone's solution is right in front of it, if only the troubled countries would open their eyes. How? Go gold! A return to the gold standard could solve their problems, Santelli said, never mind that the gold standard helped contribute to the suffering of millions of people during the Great Depression standard (h/t Joe Weisenthal).
"The solution for Europe is their gold reserves," Santelli said. "Sweeten it up, leverage it up, and the best part of the plan, that should buy you one to two years."
These troubled eurozone countries should back new government bonds with gold and leverage them "by a factor of 10" Santelli said. That, he continued, would buy enough time for the eurozone to write and ratify a constitution.
Let us point out two problems (among many) with this argument, if Santelli wants a full return to the gold standard:
- Going back to the gold standard would accentuate a central cause of the eurozone crisis: Ceding the ability to print money. The European Central Bank, which controls the entire eurozone's monetary policy, refuses to print more money because it fears inflation. If the eurozone returns to the gold standard, that would mean even the ECB would have given up the ability to print money whenever it wants, since there is only so much gold in the world. The ECB's ability to do anything to alleviate economic pain would essentially vanish.
- It was only when European countries and the U.S. left the gold standard that they started to grow their way out of the Great Depression, according to multiple academic papers. Just look at pages 43 and 45 of this 1991 economics paper by Federal Reserve Chairman Ben Bernanke. Only when the U.S. and other countries left the gold standard did they start to escape the deflationary spiral of plunging prices and wages and rising unemployment.