Why don’t they hold diamonds?

Federal Reserve Chairman Ben Bernanke gave testimony to the House of Representatives’ Financial Services Committee for the semi-annual Monetary Policy Report earlier today.

Bernanke offered his usual optimistic view of the economic recovery stating, “The anticipated pickups in economic activity and job creation, together with the expected easing of price pressures, should bolster real household income, confidence, and spending in the medium run.” The Fed Chairman also noted that he expects price inflation to remain low, in the 2% range, for the foreseeable future.

Congressman Ron Paul, also Chairman of the Financial Services Subcommitee on Domestic Monetary Policy disagreed. “We hear that in the future we’re going to have a better economy, and everybody hopes so, but…it’s hard for me to believe…Prices have gone up 35%, 9.4% every year. I think if you went out and talked to the average housewife, she would believe prices have gone up 9%, instead of 2%.”

Running out of time, the Congressman asked Mr. Bernanke, “When you wake up in the morning, do you care about the price of gold?” and then, “Do you think gold is money?” To which Bernanke replied, “No.”

This verbal spar ensued, Paul, “Why do central banks hold it?” Bernanke “It’s a form of reserves.” Paul “Why don’t they hold diamonds?” Bernanke, “Well, it’s tradition. Long term tradition.” Paul, “Some people still think it’s money.”

With questions like these, Bernanke must be pleased with Ron Paul’s announcement not to seek re-election in the House. With monetary policy like Bernanke’s, gold owners must be pleased to keep safe the value of their wealth.

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