Press Release AIPR - Gold- The Powerful Antiterror Weapon Unused

We have a powerful weapon we could wield against Islamic fanaticism but won't: gold. The near-tripling in the price of oil since 2002 has given terrorists tens of billions of dollars to wreak havoc on civilization.

By Steve Forbes We have a powerful weapon we could wield against Islamic fanaticism but won't: gold. The near-tripling in the price of oil since 2002 has given terrorists tens of billions of dollars to wreak havoc on civilization. Iran is the biggest trainer, supplier and paymaster of Islamic terrorism. Its economy is in shambles. Oil production there is about one-third less than it would be had the mullahs not so mismanaged the industry. But the post-2002 windfall has masked these shortcomings. The same is true of Venezuela and its vehemently anti-American, terrorist-abetting dictator, Hugo Chávez. Imagine the setback the bad guys--Iran, Venezuela and other countries--would suffer if oil went back to a price range of $30 to $35 a barrel. Look at these graphs. When the dollar was fixed to gold between the mid- 1940s and 1971, the price of oil barely fluctuated. And look what has happened since. In the late 1960s we began printing too many greenbacks, which resulted in inflation, sending commodities, including oil, upward. Before this inflationary era was ended by Ronald Reagan, the cost of oil had risen tenfold. The volatility in the value of the dollar has led to volatility in the oil market. The result has been a boom-bust cycle that has been disruptive--and now politically costly. The history is instructive: The dollar's formal tie to gold was severed in 1971, and since then we've fluctuated between periods of strength and weakness. When inflation was firmly brought under control in the 1980s, the cost of oil plummeted, reaching a brief low in 1986 of $10 a barrel. Naturally, the unexpected price collapse saw the industry slash expenses and exploration budgets, which set the stage for the subsequent rise to almost $40 a barrel by the early 1990s. Then in the late 1990s the Federal Reserve inadvertently tightened money again, sending the price of oil crashing to $10 a barrel. The cycle repeated: Exploration was sharply reduced, and the price of oil started moving up again. Then Fed actions inspired a mini version of the 1970s-early- 1980s inflation, and the price of black gold gushed up once more. We are not running out of oil. The recent major discovery in the Gulf of Mexico is the latest verification of this. Experts estimate that in the U.S. Outer Continental Shelf, where oil exploration is mostly banned, there are more than 85 billion barrels in reserves. As monetary expert John Tamny recently wrote in National Review Online: "Amidst oil's impressive price rise in recent years, we've predictably been assaulted with provocative books such as The Party's Over: Oil, War and the Fate of Industrial Societies and Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, which herald the coming decline of worldwide oil reserves. In the 1970s, [publications] such as The Limits to Growth and The Oil Crisis: This Time the Wolf Is Here were released amid much fanfare, similarly suggesting that 'scarcity and shortages' were part of our future." Cutting the dollar-gold connection has played hob with the economy in other ways. The resulting turmoil in commodity markets led a number of hedge funds to speculate widely. There will be more debacles like the now notorious Amaranth Advisors before this inflation unwinds. A lot of money is being invested in alternative energy sources, and many of these endeavors will come a cropper if the assumption of ever-higher oil prices proves false. Then there will be ever-louder cries for expensive government subsidies to help out. This bout of inflation has been devastating for Detroit. The surge in the cost of gasoline KO'd the sales of highly profitable vehicles seen as gas-guzzlers, particularly SUVs. The latest victim here is Chrysler, which recently predicted a staggering $1.5 billion third-quarter loss. Will we unsheathe this sword? Not likely. Most economists were taught that gold is irrelevant and that it somehow caused and deepened the Great Depression. Gold had nothing to do with that catastrophe. It came about because of hideous tariffs and tax-policy errors. For four thousand years gold has been the Polaris of price stability. But don't look to Federal Reserve Chairman Ben Bernanke, Treasury Chief Henry Paulson or any other policymaker to reestablish the long-cut link between the greenback and gold. Instead, we will for a while longer subsidize terrorists with billions of dollars, thereby prolonging the war and unnecessarily giving up innocent lives.