-Az Legislature: Testimony on Gold Bonds

STATEMENT OF JOE COBB TO THE ARIZONA HOUSE COMMITTEE INVESTIGATING THE POSSIBILITY OF ARIZONA STATE BONDS DENOMINATED IN WEIGHTS OF GOLD.

November 3, 2016

My research in the past 40 years, and my avocation before that, is “monetary theory.” I studied economics at the University of Chicago under Milton Friedman.

Today, you can ATTEMPT to plan for your retirement, and your financial planner can give you a calculation of the expected income from your investments in 25 years, or based on your life expectancy. Yet, what the numbers will show is “dollars” in the future.

    What will the value of “the dollar” in year 2050 be?
    How many McDonald’s hamburgers will $100.00 buy?
    We do not know, and we cannot know.
    The “Future Value” numbers for your retirement income
    do not measure anything in the real world.

Many people believe it is just not “sensible” to try to plan to save or invest for the future in the financial markets, without something more “concrete” than the Federal Reserve’s promise it desires to have a “stable price level” or, worse, a slow and steady “inflation” (which means the dollars in your retirement plan become smaller and smaller each year – fewer hamburgers in 2050).
A specific weight of gold (troy ounce, kilogram) may also have changes in “exchange rate” with hamburgers, but it would not be imaginary.

    Gold Bonds would be an attractive alternative for savers hoping for retirement. People want to be able TO TRUST their Arizona State Government. And they can. An Arizona Gold Bond promising to pay ongoing interest in gold-weight and to mature at a specific weight of gold would inspire even more confidence than gold coins in the backyard.

But can they trust the Federal Reserve System? Janet Yellen just delivered an interesting speech October 14, “Macroeconomic Research After the Crisis,” at a conference at the Federal Reserve Bank of Boston explaining that they do not know. [http://www.federalreserve.gov/newsevents/speech/yellen20161014a.htm and https://www.bostonfed.org/live for a video of Chairman Yellen’s presentation]

I am not a “conspiracy theory” person. I am a trained economist who used to supervise Monetary Policy for the Congressional Joint Economic Committee (staff director, 1990-91). I met with Alan Greenspan and knew the Secretary of the Treasury, Lloyd Bentsen, under President Clinton. I believe the US government to be stable, honorable, and trustworthy – and all future “dollar” payments will be made as guaranteed by the 14th Amendment.

Unfortunately, the Federal Reserve System has been assigned by Congress “to manage” the United States money supply, and they openly admit they DO NOT KNOW WHAT THEY ARE DOING. The Bank of Japan made the same confession last month.