Replacing the gold standard with the PhD standard.

Jim Grant quipped during a monetary policy hearing that the United States Federal Reserve Bank had replaced the Gold Standard with the PhD Standard. It’s been seven years to the day since Jim’s admonishment – how right (or wrong) was he?

His point is that it [the Fed] believes the impossible of itself; the Fed being wholly convinced that it can select the interest rate that will cause GDP to grow, payrolls to expand, and prices to levitate by just two percent a year (as they measure it). An impossibility as both experience and common sense would attest. Congress has in effect entrusted the value of the greenback to an independent committee dominated by monetary scholars.

Jim’s on the money. The result has been a series of economic bubbles with increasing amplitude. The PhD standard is akin to saying that without a natural brake on currency debasement (gold standard being one such example) and left to the will of a single committee, government will almost certainly print huge gobs of money with impunity.

In an equity and bond world that is defying convention and the Fed hiking with little consideration to the bubbles it may have created, some tangible precious metals held in the portfolio might be warranted.

A Krugerrand or two sewn into the belt should work.