We’ve got goldbugs at the World Bank!

The soaring price of gold reflects international unease about the strength of large developed economies that must be taken seriously by the Group of 20 leading nations, according to Robert Zoellick, president of the World Bank.

Mr Zoellick on Wednesday said the increasing use of gold as a monetary asset was an “elephant in the room” that was being ignored by policymakers in the debate over how to correct global trade and fiscal imbalances.

. . .  Mr Zoellick dismissed criticism of his proposal in Monday’s Financial Times for a new international monetary system involving multiple reserve currencies and including a role for gold as a reference point for market expectations of inflation and future currency values.

He said critics had misunderstood his proposal as a call for a return to the gold standard – the framework of fixed exchange rates backed by gold which was replaced after the second world war by the Bretton Woods system of fixed but adjustable exchange rates.

Looked at another way, the price of gold is not soaring; the price of dollars, yen, and euros is tanking. (And not just in terms of gold.) Monetary-policy authorities are in a race to the bottom, devaluing national currencies in response to weak growth: Every country thinks it can be China and export its way out of making hard economic decisions. All you need to make that model work is an impoverished population, a government-dominated economy, and a for-profit police state. Super.

Count me as against a new Bretton Woods, even one incorporating some sort of gold-derived controls, and in favor of the free-market alternative to international monetary-policy shenanigans: privatizing money.

Conservatives usually are fans of privatization and foes of government price-fixing. We do not like government-monopoly schools or government-monopoly health-care systems. So why do we assume that we must always have government price-fixing and government-monopoly supply-management in the most fundamental commodity of all: money?

We want money to do a couple of things: The first is facilitating exchange, the second is providing a relatively stable store of wealth. The dollar excels at the first but not at the second: What other asset do you hold expecting an annual loss of around 3 percent, forever? None, is my guess. You’re telling me we cannot come up with a non-government alternative for that relatively straightforward task?

Technology and financial innovation are going to catch up with, and surpass, the state’s monopoly on money; if I had to guess, I would predict that it will happen in the near future, though not in the United States, where private-currency innovators are preposterously prosecuted  as counterfeiters. My bet would be on a far-sighted innovator based in a market-minded financial upstart like Singapore or South Korea. But why not here? We have 900 kinds of shampoo and one kind of currency — government monopoly money. In what other marketplace does a government monopoly provide the best value?

I don’t get the gold fetish, and I suspect that a currency tied to a single commodity or metal would not be the most stable option. But a currency based on a market-basket of commodities (gold, crude — take your pick, and the more the merrier) could provide a very stable store of value with a basis in something more concrete than the acumen of Ben Bernanke and his fellow committee members, smart guys though they are.

Am I crazy? Let me know in the comments.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

So the price for the Fed’s next round of pump-priming turns out to be: $600 billion.

Here’s the rationale:

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak.

It’s not entirely clear how this new round of quantitative easing will actually do much to address any of that. If businesses aren’t investing when interest rates are almost zero, then they probably aren’t going to invest a lot more when interest rates are even closer to zero. If credit is tight when interest rates are basically zero, credit probably will be tight when interest rates are even closer to zero. And none of this is going to address that “lower housing wealth” — which, of course, it shouldn’t: Continued efforts to prop up housing prices or to reinflate the housing bubble are part of the problem.

The Fed is, practically speaking, out of arrows in its quiver. This is really Congress’s problem now — it will take congressional action to clear away the barriers to saving, investing, and production that are preventing a robust recovery. Unfortunately, one of those barriers is … Congress. That new Republican majority in the House has an enormous task in front of it, and I am not entirely convinced its members are up  to it.

UPDATE: Business Insider points out that $600 billion isn’t really the whole show. The Fed will also be reinvesting proceeds from other securities in its portfolio, driving the real number up to nearly $1 trillion.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Thank you, Commander Obvious:

Comments from Janet Yellen, the vice chairman of the Fed, Monday reined in the most exuberant hopes in the markets.

In remarks to economists in Denver, Yellen warned that excessively easy monetary policy, involving ultra-low interest rates and an expansion in the Fed’s balance sheet, could create big problems down the line.

“It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking,” Yellen said.

There is a buildup of leverage and excessive risk taking, complete with a speculative asset bubble, right in front of our noses: in the housing market, where it has been for years. The Obama administration is working night and day to try to reinflate the bubble, or at least to keep it from deflating much further, and the coming pause in foreclosures will only serve to further confuse the markets. If this is a sign that the Fed is coming to its senses, it is to be welcomed — but do not be too confident that it is.

The Federal Reserve made no move to tighten up the loosey-goosey money supply today, keeping the rate at 0.0-0.25 percent. Fed-watchers don’t expect any tightening until the second half of 2011. That’s a lot of cheap money for a long, long time.

But the Fed may have its eye on some other rough news today: Housing is nearly back in meltdown mode. New home sales dropped nearly 33 percent in the new report, down to an annualized rate of 300,000 – the lowest number on record since Commerce starting tracking the figure in the early 1960s. Housing is headed for a double dip; is the rest of the economy?

Uncle Sam has done everything in his power to keep the housing market mobile, from endless support for Fannie and Freddie to that silly $8,000 first-time buyers’ tax credit, which only served to front-load some marginal sales, producing a spike in sales that only makes the fall-off look that much more steep. Housing still has a good long ways to fall before prices get back to their historic trendline. Sir John Templeton, predicting the housing crash back in 2000, offered this advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”

Problem is, Uncle Sam already bought, and the Fed has a lot of mortgage-backed stuff on the balance sheet. Investors have always wondered which way the government will go, but now the government is an investor, and a big one. We’d probably be better off if Washington would just let housing hit bottom, but you can be sure that the Obama administration will go red in tooth and claw fighting to keep whatever’s left of the real-estate bubble inflated, borrowing our way out of stagnation. Where have I heard that idea before?