From Yahoo! Tech Ticker last week. Lots of market talk, then Prechter makes the case for truly free banking, in which banks could decide for themselves what to use as money. He beleives that most banks and savers would chose gold, as they have for most of human history. The first segment below is mostly on the markets — the comments on the Fed are in the second:
EDIT: Sorry, I didn’t realize that there are actually two segments to this interview. The comments on the Fed are in the second half:
At the end, Prechter makes a key point about the gold standard: it is not a free-market solution, because it is a “standard” set by the government. Essentially, a gold standard is redeemable paper money, but as we saw in the early years of the Federal Reserve (and actually in older times with many other central banks), the exchange rate between paper and specie is set by the government. Paper money remains legal tender and the primary unit of account, so citizens are forced to use it and the banking cartel can still inflate.
A much better solution is no standard at all. Under such systems, the unit of account was typically a weight of gold or silver. Hence the British pound sterling, which was exactly that (sterling is 92.5% pure silver). Under these systems, there were safe banks that earned money by simply storing metal and clearing payments. Interest was low, but inflation was lower or negative, since the growth of human productivity from improved infrastructure and technology meant that goods and services became more abundant over time, while the money supply grew only as fast as new gold was mined.
This is why the price level fell steadily during the 1870s in the US while the economy grew at its fastest pace in history, and why the price of a postage stamp in England remained the same for 100 years, even as the country grew rich. There were booms and busts and banks failed, but because even big ones were allowed to fail, bubbles remained contained and the busts freed up capital for productive uses.
Such periods will come again. This is not the end of civilization, just the end of a long credit inflation.