A Shift Towards a Gold Standard? The FDIC-Fed's "Proposed Rulemaking" regarding Basel III Capital Requirements

In early August, the FDIC¹ and the Fed² issued a "Notice of Proposed Rulemaking" stating that it intends to adopt the Basel III³ capital requirements. The document is 250 pages long and is available on line; http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20120607a1.pdf

 

It is important to analyze the potential implications of this document. Previous actions of the Basel Committee have had significant impact.

 

One commentator summarized this pending rule change this way;  'If this new rule is adopted as proposed, gold would shift... by the year 2015... (to) eventually place gold at the heart of global currency and payment systems -- seemingly a shift back towards a gold standard. This action is a strong confirmation that gold's primary trend will likely continue.'

 

 

The central bank governors of the Group of Ten countries (Belgium, Canada, France, Italy, Japan, the Netherlands, the United Kingdom, the United States, Germany and Sweden) meet from time to time. They signed the Smithsonian Agreement (Dec. 1971, the time of Richard Nixon) replacing the world's fixed exchange rate (IE a dollar is worth a fixed amount of gold) with a floating exchange rate. The effect of the agreement was the abolition of the US dollar's convertibility into gold making the dollar effectively a fiat currency (IE not backed by gold.... of no fixed value). The US went off the gold standard.

 

Again in 1974 the bankers met in Switzerland on the Rhine and established the Basel Committee on Banking Supervision; a committee of banking authorities to provide '...a forum for regular cooperation on banking supervisory matters'. Perhaps by coincidence but perhaps not, 1974 was the year in which the national debts of both the United States and Canada began to soar. It was the moment in history when, for some reason, both nations stopped printing money when they needed it and instead began to borrow it from the private banks. I've found no explanation for the identical policy change happening in both nations at the same time. 

 

A quick scan of the chart below, especially noting  the 30 years before the mid seventies meetings in Switzerland and 30 years after shows the result of the change in practice. The Canada chart is about the same.