Five reasons everyone loves Tesla (TSLA) to the moon and back

Certain stocks trade on beliefs, ‘gut feelings’ and a desire for change in the world. They have a mixture of allure, great timing and, perhaps most importantly, a great story. Here are the five reasons why everyone loves the Tesla (TSLA) story.

As I wrote yesterday (see A stock’s ‘sex appeal’ plays big role in price), certain stocks trade on more than just reason and numbers alone. They trade on beliefs, ‘gut feelings’ and a desire for change in the world. They have a mixture of allure, great timing and, perhaps most importantly, a great story. Here are the five reasons why everyone loves the Tesla (TSLA) story:

1) Electricity is the future. No, our power grid isn’t ready to support 100 million Americans recharging their cars at night, but if we continue chucking solar panels on our roofs, that won’t matter. Electricity is cheap, it doesn’t pollute the earth, and it makes your car run quietly (like something off the Jetsons).

2) Tesla’s name is cool. Remind me to name my next company after a brilliant inventor who toiled in the shadows but eventually turned into a cult-hero with underdog street cred. Tesla’s like the Amazon.com of inventors while Edison’s like Walmart. You can’t undervalue a cool name. I think that’s why Hemp, Inc. (HEMP) is one of the more popular medical marijuana stocks right now.

3) Elon Musk has groupies. They say everything the guy touches turns to gold. I have to admit his resume is almost as good as mine. He co-founded Zip2, SpaceX and PayPal. He leads Tesla Motors and he tossed his idea for the Hyperloop onto the web and encouraged someone else to take it on… Oh yeah, he’s the chairman of SolarCity (SCTY), too.

4) Tesla’s cars are sexy. The Roadster turned electric cars from novelties into something lust-worthy. I don’t care if the thing’s powered by fish heads and spoiled milk, it’s one of the coolest looking cars I’ve ever seen. The Model S makes sedans seem cool, and the Model X has gull wings!

5) Tesla has moxie. Everything about the company is challenging the status quo. Its approach to power blindsided GM, Toyota and Ford. Its factories hardly need humans. It’s going to war with car dealership cartels by offering direct sales, and it’s trying to roll out charging stations and new consumer batteries.

Tesla’s ridiculously overvalued right now, but Muskovites don’t care. It’ll be interesting to see if Tesla can actually transform itself into a profitable company that warrants such enthusiasm. In the meantime, I’m content watching TSLA’s shares rocket to the moon from the safety of earth.

Brightsource IPO: 6 reasons to invest in solar giant

Here are 6 reasons to invest in the Brightsource IPO, a solar start-up based in Oakland, Calif., with truly massive ambitions.

BrightSource Energy filed for a long-awaited IPO last week. The company has made several huge bets on a fledgling form of solar power, and they’re hoping investors will help finance the costs. Here are 6 reasons to invest in the Brightsource IPO:

1) Betting on solar thermal. Brightsource’s technology has more in common with traditional power plants than the solar panels most of us are familiar with. The company plans to cover swaths of desert land with giant, computer-controlled mirrors that will concentrate sunlight on a “solar receiver.” That receiver will heat water, which will, in turn, power steam turbines to generate electricity.

2) Revolutionary scale. Brightsource has the land and ambition to truly revolutionize the way California gets its power. As it stands, California gets just 1 percent of its power from the sun, according to GreenProphet.com. If Brightsource is able to develop all 110,000 acres of its land throughout the Southwestern U.S., it has the potential to supply 13 percent of California’s energy needs every year.

3) One word: “Ivanpah.” BrightSource broke ground on its massive 392-megawatt Ivanpah Solar Electric Generating System in October. The project’s scale is daunting. When construction wraps up in 2013, Ivanpah should nearly double the amount of commercial solar thermal electricity produced in the U.S., and it’ll yield enough juice to power more than 140,000 homes in California.

The project is currently on hold pending a U.S. Fish and Wildlife Service review of the complex’s threat to an endangered desert tortoise. Brightsource is optimistic, though, that the delay won’t threaten Ivanpah’s 2013 target completion date.

4) Heavyweight investors. You can often judge the quality of an investment by who laid down cash early, and Brightsource has gotten some ringing endorsements. NRG Energy, Inc.’s (NYSE:NRG) chipping in $300 million for the Ivanpah project, and Google’s investing another $168 million. Even the U.S. Department of Energy’s in the game. The agency is guaranteeing $1.6 billion in loans to Brightsource to see Ivanpah through completion.

5) By way of executive order. When California Governor Arnold Schwarzenegger signed Executive Order S-14-08 in 2008, the solar industry went mainstream overnight. The rule stipulates that California must get 33 percent of its energy from renewable resources by 2020. Better yet, the requirement doesn’t count nuclear power and hydroelectric power as “renewable.” That means the push for solar and wind energy is greater in California than anywhere else in the country. Solar producers like Brightsource are big winners in the deal.

6) The bottom line. Brightsource has a long way to go before it’s profitable. The company generated just $13.5 million in revenue last year. It spent $71.63 million during that same period, per Reuters. Still, there’s a lot of work in the pipeline that could add up to big profits down the road. All told, the company “has $4 billion of revenue opportunity for us through sales of our systems,” most of which will come through 14 power purchase agreements California energy companies PG&E and SCE. Brightsource won’t be rolling in the green anytime soon, but barring any other tortoise-related problems, its future definitely looks bright.

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Silver Wheaton predicts mining deals once silver prices stabilize (SLW)

One of the hallmarks of a mania is an rapid increase in the number of leveraged buyouts — something we haven’t seen yet. Silver Wheaton’s (NYSE:SLW) CEO Randy Smallwood has an explanation why.

One thing we’re yet to see silver’s ongoing bull market is a flurry of corporate buyouts and acquisitions. One of the hallmarks of a mania, after all, is a rapid increase in the number of leveraged buyouts.

Silver Wheaton Corp.’s (NYSE:SLW) brand new CEO Randy Smallwood offered an explanation yesterday in an interview with the Financial Post: small caps are reluctant to sell out of fears silver prices could hit $50 in the coming months.

Think of it like Groupon turning down a $6 billion buyout offer from Google (NASDAQ:GOOG). Why sell for enormous sums when you stand to make even larger sums down the road? “We’ve been talking with a lot of potential partners, but they want to see some [silver price] stability,” Smallwood told the Post. “They don’t want to look stupid two months from now.”

Silver Wheaton’s biding its time, then, as it waits for prices to level off before swooping in and acquiring the “silver streaming” deals that turned it into a money-minting titan. With its streaming model, Silver Wheaton gives gold and base metal miners cash up front to fund the development of mines. In exchange, SLW gets the right to buy byproduct silver at cut-throat rates – right now, that rate’s about $3.90 an ounce, per the Post.

Until silver prices stabilize, there aren’t many companies eager to take a loan from SLW, but that’s quite all right, Smallwood says. Silver Wheaton has the luxury of waiting. Even without any acquisitions, the company’s attributable silver production should spike 60 percent through 2015 to 43 million ounces a year.

The whole thing reminds me of Sean Parker urging Facebook CEO Mark Zuckerberg to take things slowly in the 2010 film, The Social Network.

“A million dollars isn’t cool,” Parker says. “You know what’s cool? A Billion Dollars.” By refusing to sellout for relatively small sums, Facebook’s since morphed into a multi-billion dollar company that sprawls across most of the globe.

It’s hard to argue with Parker’s logic. The deals will come in time. The same is true for the mining industry’s unsung heroes. Why take a check today when you might get one with a few more zeros in a year?

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Utah gold standard takes pot shot at the Federal Reserve

Utah’s new gold standard bill takes a symbolic jab at the Fed. And it’s a jab that’s representative of the pent up anger over the federal government’s fiscal irresponsibility.

Utah just got a lot of street cred by firing the first bullet in the war against the Federal Reserve’s loose monetary policies. The state’s Governor Gary Herbert signed a bill into law last month that recognizes gold and silver coins issued by the U.S. Mint as legal tender in the state.

Unfortunately, the bill doesn’t go so far as letting you exchange gold and silver for goods and services based on the value of the underlying metal. Instead, Utah residents would have to use face value on the coins to purchase goods and services. That means people probably won’t be using Eagles to pay their mortgages or car payments (since the face value is far less than market value), but nonetheless it’s a symbolic jab at the Fed. And it’s a jab that’s representative of the pent up anger out there.

It’s not just Main Street that’s upset about government spending; it’s state governments, businesses and voters, too. And there are few voices speaking more loudly against rampant inflation than Texas Congressman Ron Paul.

“The gold standard would keep you from printing money and destroying the middle class,” Paul says. “Every country where you have runaway inflation, there’s no middle class. Mexico, there’s no middle class, you have a huge poor class, and a lot of wealthy people. Today we have a growing poor class, and we have more billionaires than ever before. So we’re moving into third world status.”

While Utah’s bill stops short of recognizing all forms of gold and silver as currency, it does contain a nice tax benefit. Utah investors who buy and sell gold and silver coins for investment purposes no longer have to pay state capital gains taxes on the metal.

A number of other states appear to be following Utah’s lead by introducing their own gold and silver currency bills. Georgia and Iowa have put forth legislation that would mandate state taxes be paid in gold and silver, according to MotherJones. Indeed, more than a dozen states have floated or are in the process of debating alternative currency bills.

It’s a step in the right direction, but I’m still not convinced we’ll start seeing progress until banks are allowed to issue gold- and silver-backed debit cards that can electronically exchange bullion for U.S. dollars at checkout terminals.

I wrote about just such a scheme recently in my post How would a gold standard work in the 21st Century? It’s Utopian thinking right now, but if the government can’t rein in spending before we’re subject to runaway inflation, I suspect I wouldn’t be the only one who would sign up for a gold- or silver-backed debit card.

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Gold-silver ratio crumbles to 28-year low

The gold:silver ratio has traded in a range between 42 and 85 for 15 years. There’s a dramatic change in that historic ratio, though, and it’s happening right now.

With silver trading at its highest prices in 31 years, the gold:silver ratio is tumbling rapidly. On Friday, the gold:silver ratio hit its lowest level in 28 years near 35. A growing number of uncertainties in financial markets have investors piling into precious metals as no one’s quite sure when the next big shoe is going to drop.

“I’d say that from a macro/fear standpoint this is most like 2008 only its not the banking system that’s blowing up (that was around Bear Sterns time) it is the Sovereign debt, the US dollar and the Arab world that are on fire,” MontyHigh writes at WorldofWallStreet. “I would say the current chart’s eight in-a-row white candles looks a lot like the beginning of 2008’s ten-in-a-row white candle run leading up to its parabolic peak.”

Back in 2008, silver rose more than 24 percent in a month, only to plateau then take a huge 16 percent plunge in a single day of trading. That sobering fact should keep investors on their toes. But there may be more to it then just a manic buying spree.

Institutional investors have long been calling for a parabolic rise in silver that will close the large gap in the gold:silver ratio. Back in February, Eric Sprott of Sprott Asset Management was calling for the gold:silver ratio to hit 16 in the not-so-distant future – a level that would likely see silver upwards of $80 an ounce.

In an interview last week, Sprott called silver “the investment of the decade.”

“I’ve always thought that silver would move quickly to $50, and it would move to $50 this year – I thought it would get to $50 before year end,” Sprott told MineWeb. “If you ask me in the three to five year time frame, obviously I think it’s going to go north of $100 simply because we’ll get that 16:1 ratio.

“Silver is the investment of this decade as gold was the investment of the last decade,” he says. “So we’re sitting back waiting for things to evolve here.”

The gold:silver ratio has traded in a range between 42 and 85 for 15 years. Sprott chalks up today’s ratio change to industrial demand for solar panels and other high-tech industries. But changes of this scale and at this speed are unprecedented. There are obviously other factors at work – things like fear and greed. Even more than that, though, the spike in silver prices indicates just how tenuous the global markets have become.

Unlike in 2008, investors don’t feel comfortable crawling into a cave with dollar bills in their hands as the dollar itself is under assault by the loose monetary policies at the Fed. Silver has become the investment du jour. It could just as quickly become the short du jour, but silver’s showing no signs of weakness in early trading this week.

I agree with MontyHigh when he says it’s looking a lot like 2008 right now. The difference is there are few places to turn outside of gold and silver. If that other shoe drops soon, the markets are going to be in for a lot of pain. And I won’t even predict where the gold:silver ratio could end up. I do know, though, that I wouldn’t want to be holding dollars this time around.

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Renewable energy industry growth led by China; U.S. tumbles

Clean energy investment in the U.S. climbed 51 percent, but the country still fell to third place among G20 members just a year after China toppled the U.S. as the global clean energy superpower. The fact that Germany, a country with a population that’s almost four times smaller than the U.S. invested more in clean energy than the United States in 2010 is alarming, and it needs to change soon.

While I am, for the most part, an advocate of free markets, I don’t believe energy policies should be set by private corporations. The United States government needs to take an aggressive role in securing a steady supply of energy for the country in the years to come. There is no economic growth without an affordable and uninterrupted supply of power.

And it’s increasingly looking like affordable power is a thing of the past even as the U.S. falls behind foreign countries in investing in renewable energy sources. Germany toppled the United States to become the second-largest investor in renewable energy in 2010 according to new research from The Pew Charitable Trusts. Both Germany and the U.S. lagged China, where the market for renewable energy hit record levels of $54.4 billion. Germany invested $41.2 billion in green energy and the United States fell to third, investing $34 billion in solar, wind, biofuels and other sources of renewable energy.

“The clean energy sector is emerging as one of the most dynamic and competitive in the world, witnessing 630 percent growth in finance and investments since 2004,” says Phyllis Cuttino, director of Pew’s Clean Energy Program.

Cuttino credits foreign governments with spurring spending in alternative energy industries. “Countries like China, Germany and India were attractive to financers because they have national policies that support renewable energy standards, carbon reduction targets and/or incentives for investment and production and that create long-term certainty for investors,” she says.

The Trust warns that global energy demands are expected to grow by 35 percent over the next 25 years, and that could lead to significant geopolitical instability as oil supplies peak and nuclear power gets put on the back burner in the wake of the 9.0 Tōhoku earthquake that struck Japan on March 11.

Globally, governments and investors around the world poured $243 billion worth of finance and investment into green technology in 2010. That was up more than 30 percent from 2009. The fact that Germany, a country with a population that’s almost four times smaller than the U.S. invested more in clean energy than the United States in 2010 is alarming.

The Chinese and German economies are moving toward energy independence – a fact that will insulate their jobs and growth in the event of an oil shock or major disruptive events in the Middle East. Investments in small-scale solar installations in Germany and Italy grew by 100 percent last year. Meanwhile, clean energy investment in the U.S. climbed 51 percent, but the country still fell to third place among G20 members just a year after China toppled the U.S. as the global clean energy superpower.

“With aggressive clean energy targets and clear ambition to dominate clean energy manufacturing and power generation, China is rapidly moving ahead of the rest of the world,” according to the Pew report. “In 2010, it accounted for almost 50 percent of all manufacturing of solar modules and wind turbines.”

The U.S. needs to get aggressive to ensure the country’s economy isn’t at the whim of the price of a barrel of oil or train car full of coal. In 2009, renewable energy sources contributed just 8 percent of U.S. energy consumption. Petroleum, on the other hand, accounted for 37 percent of the country’s energy needs and coal chipped in 21 percent, according to the United States Energy Information Administration.

“The barriers to a 100 percent conversion to wind, water and solar power worldwide are primarily social and political, not technological or even economic,” scientists Mark Z. Jacobson of Stanford University and Mark A. Delucchi of the University of California, Davis, wrote in 2009.

It’s time to pull our heads out of the sand and get serious about the government’s role: ensuring we have the energy to keep our economy from collapsing. That might mean stamping out lawsuits that bog down the construction of solar arrays and wind turbines. It might mean taxing gas consumption and offering tax incentives for adopting renewable energy. It probably means all of the above, but as the turmoil in the Middle East and the disaster in Japan have shown us, we have little choice but to recognize the rules have changed. We need to adapt to stay in the game.

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5 reasons to buy solar stocks in 2011

The so-called “nuclear renaissance” is dead in its tracks as the world watches the on-going tragedy unfolding in Japan. Solar power could be the biggest beneficiary in the quest for viable, renewable power moving forward. Here are five reasons to consider adding solar stocks to your portfolio in 2011.

The so-called “nuclear renaissance” is dead in its tracks as the world watches the on-going tragedy unfolding in Japan. Solar power could be the biggest beneficiary in the quest for viable, renewable power moving forward. Here are five reasons to consider adding solar stocks to your portfolio in 2011:

1) Anti-nuclear sentiment. The tragedy that’s still unfolding in Japan has spurred nuclear power protests around the world – particularly in Germany where the BBC reports 200,000 people turned out over the weekend to demand the immediate closure of the country’s 17 nuclear power plants. Alternative energies including wind and solar look like obvious winners in the post-quake world. Even coal seems preferable to the risk of contaminating a country’s food and water supply with radiation.

2) China’s five-year plan. China’s ambitious, forward-looking energy initiatives aren’t so much the product of a desire to be green as they are a realization that the country’s going to need energy in every form it can get its hands on in the coming years. Wayne Chang with New York-based investment bank Brean, Murray, Carret & Co. speculates with Barron’s that China’s soon-to-be-announced “five-year plan” will call for the PRC to boost its renewable energy supply from 8.3 percent to 11.4 percent by 2015. That could mean the country will be installing 60 gigawatts worth of solar energy producing panels per year by 2020.

3) Government subsidies. Government dollars that were earmarked for nuclear power could easily find their way into the renewable energy space. Of the 62 reactors slated for construction around the world, 27 were supposed to be built in China. Even there, though, the government has temporarily suspended approvals for nuclear power plants, and some of that money that would have went toward nuclear power could find its way into more palatable energy solutions. If it happens in China, it’ll certainly happen in Western countries from Italy to Spain and the United States.

4) Solar jolt in Japan. Before the quake, Japan accounted for roughly 10 percent of total worldwide solar production. Power and logistical disruptions in the country have idled several major polysilicon, solar wafer, cell and module manufacturers there, according to The Bedford Report. That could boost margins for solar producers in the near-term, and Jefferies analyst Jesse Pichel also sees solar energy, which is relatively fast to install, as a possible solution for getting Japan’s nuclear plants back in operating condition quickly. A “significant amount” of new photovoltaic power could start pumping into Japan’s power grid in the next few months, Pichel adds, as the country immediately begins installing panels to alleviate rolling blackouts.

5) Trading psychology. With even established solar companies trading at single-digit multiples, we could be in the midst of a profound change in the way investors look at solar stocks. “This is exactly the kind of environment that can launch 100 percent or 200 percent or even larger trading moves,” the gents at MercenaryTrader wrote recently. For several years, they argue, solar stocks have traded on liquidity-driven speculation. They’d surge up one quarter as momentum traders climbed on the bandwagon, only to crumple the next. If investors start to see the industry as a long-term play, solar stocks could finally be entering a buy-and-hold phase. Leading companies in the industry will transform themselves from spec plays to real, viable businesses. If you’re lucky enough to be holding shares in those companies, your rewards could be large.

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Top 5 best ways to short the dollar

Here are five simple ways to bet against the dollar; from opening a savings account in a foreign currency to investing in precious metals or American Blue Chip stocks.

1) ETFs. Perhaps the easiest way to bet against the dollar is by investing in an inverse dollar ETF. The PowerShares US Dollar Index Bearish ETF (NYSE:UDN) is the best in class with a daily trading volume around 156,000 shares. UDN shorts futures contracts as it tries to track the Deutsche Bank Short US Dollar Index (USDX) Futures Index. A better option, though, might be shorting an ETF that’s long the dollar in the form of UDN’s sibling, the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP). UUP has a trading volume that’s 16 times higher than UDNs, and some sources argue shorting long ETFs is a better strategy than going long short ETFs.

2) Buy gold. Since the supply of gold is relatively stable, the precious metal’s price tends to behave independently of the actions at the Fed’s printing press. If the value of the dollar goes down, gold prices can stay the same, but it’ll still take more dollars to buy the same amount of gold. Throw increased investor demand for gold into the mix when inflationary fears are building in the economy, and you’ve got a recipe for surging gold prices.

3) Convert your dollars to yuan. The Chinese government has loosened the strings it has the yuan of late, finally allowing allowing Americans to open yuan savings accounts directly in the U.S. The Bank of China branches in New York and L.A. allow investors to save cash in the form of renminbi (deposit up to $20,000 a year). Kiplinger also recommends checking out EverBank, which offers savings accounts in 20 foreign currencies (provided you pay a 0.75 percent transaction fee when you buy and sell currencies). Accounts can be started with as little as $2,5000.

4) Invest in multinational Blue Chips. While companies like tractor-manufacturer Deere & Company (NYSE:DE), The Coca-Cola Company (NYSE:KO) and software company Oracle Corporation (NASDAQ:ORCL) are all headquartered in the U.S., they derive significant portions of their income overseas. In the case of Oracle, 70 percent of the company’s revenues come from business outside of the U.S. Not only does these investments give you exposure to emerging economies, they hedge your exposure to the dollar while paying a modest dividend.

5) Invest directly in foreign companies. In the tech realm, the Chinese market operates behind what’s been dubbed The Great Firewall. American tech companies can’t get in, and a lot of the country’s biggest tech companies aren’t yet trying to capture audiences outside the domestic market. That means growth in your investment is unmoored from the performance of the dollar. In tech, consider SINA Corporation (NASDAQ:SINA), the maker of a Twitter-like microblogging service called Weibo. China’s financial markets has a new player in wealth management company Noah Holdings Limited (NYSE:NOAH) and the Chinese advertising industry looks like it’s led by Focus Media Holding Limited (NASDAQ:FMCN). There are also numerous plays in China’s solar industry from JA Solar Holdings Co., Ltd. (NASDAQ:JASO) to Trina Solar Limited (NYSE:TSL) to name a few.

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Nuclear and uranium stocks forecast crumbles in wake of Japan’s crisis

Wind, solar and geothermal power are going to need massive investments from governments and private companies to fill the void left by nuclear power. If one country will lead the way, I can see it being Japan.

The crisis in Japan is made even worse by fears that at least two of the country’s nuclear reactors are on the verge of meltdowns. The meltdowns could release large amounts of radioactive material, contaminate drinking water and affect the health of generations of Japanese. It’s overwhelming to think about on top of the tragedies we’ve already watched unfold on television.

The effects of the nuclear crisis will likely have more subtle reverberations around the world, too. With nuclear power supplying 29 percent of the electricity in Japan, it will take considerably longer to get power back online throughout the country’s most damaged areas. It will also likely lead the Japanese to look at alternative sources of power moving forward.

There’s a problem, though. The alternative to nuclear just aren’t that great. Surging demand for oil and coal from the emerging world has already pushed prices up to levels that threaten to stymie growth. Couple that with the pollution problems inherent in burning oil and coal, and it’s going to be difficult to find a solution that’s sustainable moving forward – particularly if the Japanese look to move away from nuclear power entirely.

That could be a reality. “Nuclear technology was making a strong comeback, especially with oil prices surging and the instability in the Middle East and North Africa adding to production uncertainty,” writes Gonzalo Lira at his personal blog. “But now? Irrespective of what we think about nuclear energy … if there is a meltdown of one of the reactors in Japan, that’s curtains for nuclear energy for a generation. The thinking will be, If the Japanese couldn’t prevent a disaster, then no one can.”

Already Switzerland and Germany have announced plans to suspend construction of new nuclear power plants and put renewals for operating permits on hold. The nuclear renaissance is dead and that means we’re going to need even more new sources of energy. In their present states, solar, wind and geothermal aren’t the answer. They’re going to need massive investments from governments and private companies to fill the void left by nuclear power. If one country will lead the way, I can see it being Japan.

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In an appearance before the Senate Banking Committee, Bernanke pointed to a flaw he sees in a gold-backed currency: namely, that there’s not enough gold in the world to go around.

Rumblings that the U.S. should return to a gold standard have started trickling into the media as the public grows wary of a ballooning budgetary deficit. In an appearance before the Senate Banking Committee earlier this week, Federal Reserve Chairman Ben Bernanke was asked directly about the possibility of the U.S. returning to a gold standard.

“It did deliver price stability over very long periods of time, but over shorter periods of time it caused wide swings in prices related to changes in demand or supply of gold. So I don’t think it’s a panacea,” Bernanke said.

The soft response to questioning from Sen. Jim DeMint (R., S.C.) – a long-time Bernanke detractor – leaves a tiny window of hope that a gold standard might be something the Fed’s actually considering. “It’s not a cure-all, but it could be helpful,” Bernanke seems to be saying.

It’s difficult to imagine Bernanke would endorse a gold standard. He’s long maintained that the Federal Reserve kept too tight of a grip on the money supply by raising interest rates during the Great Depression. Once the public began losing faith in the dollar, they were all too eager to trade greenbacks for gold, which further contracted the money supply and ultimately led to deflation.

Linking the dollar to a fixed amount of gold would constrict the Fed’s ability to prop up the money supply. Bernanke himself pointed to another flaw he sees in a gold-backed currency: namely, that there’s not enough gold in the world to go around.

“I don’t think that a full-fledged gold standard would be practical at this point,” Bernanke said.

He could be implying a watered-down gold standard of sorts is possible in the future, but I’m not convinced Bernanke believes that. Inflation is one of the few tools the Fed has to spur growth (or at least the perception of growth). Giving power up is always more difficult than accepting it, and – so long as the public retains faith in the dollar – it would serve little purpose.

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