A proposal from the president of the World Bank, Robert Zoellick, to use gold as a reference point could prove destabilizing. Like the Bretton Woods system, such a government-run peg would break under stress. A better approach would flip the monetary order and use gold as a private means of global exchange.

Zoellick suggests using the yellow metal as an “international reference point of market expectations about inflation, deflation and future currency values.” In its weakest form, this would simply use the gold price as one indicator of the health of the global monetary system, something many central bankers already do. In a stronger form, it would mean fixing a peg for currencies in terms of gold, in a similar manner to the Bretton Woods monetary system in force from 1944 to 1971, and in vestigial form until 1973.

The model worked well only while the United States was the dominant global economy and in control of foreign exchange markets. Once other economies revived and global FX markets were liberalized after 1958, the system proved unable to handle growing monetary imbalances. Today, America is economically much less dominant and FX markets are more powerful than in the 1960s, so the life expectancy of a state-administered fixed peg system would be correspondingly shorter.

An alternative route for dealing with global distrust of currencies inflated by excessive monetary easing would be for the private sector to start using gold in ordinary transactions. Exporters from Germany or China, for example, distrusting the dollar and not wishing to use the possibly fissiparous euro or the state-controlled yuan, could invoice customers in gold, thus creating gold-denominated trade paper. Banks wishing to serve such customers could offer gold-denominated accounts, either hedging themselves in the futures market or maintaining a gold fractional reserve against such accounts.

This wouldn’t necessarily up-end the banking system, though if widely adopted it would require bigger changes. But if the world’s monetary authorities maintained control of their currency issuance, the private gold transactions market would remain modest, expanding only if global inflation took off. It would nevertheless provide the private sector with a useful protection against some of the misguided enthusiasms of central bankers.

The newly empowered U.S. Republican Party may have fun kicking Ben Bernanke, the Federal Reserve chairman, around. Whether or not the party ends with control of the Senate, it will find budget cutting difficult and often unpopular. However as several regional Fed bank presidents — along with many Republicans — support tighter money it’s easy to see a GOP Congress making sport of harassing the central bank chairman.

With the White House still Democratic for at least the next two years, a new Republican majority in the House of Representatives may have difficulty scoring concrete achievements on the economic front.

The party generally agrees on tightening fiscal policy, but increasing taxes may be economically counterproductive and would certainly infuriate the Republican voting base. Cutting spending, conversely, is likely to be generally opposed by President Barack Obama, who has the power of veto over any appropriations bills that do not meet his objectives.

Monetary policy is a different matter. Bernanke is not up for re-nomination until January 2014, though 30 Senators voted against his second term in January. However, he is required under the Full Employment Act of 1978 to make twice-yearly appearances before Congress.

In addition, the Fed reports to Congress on a number of matters; there have been seven such reports in the last year, for example. In addition, both chambers of Congress have subpoena power, so there are ample opportunities for harassment of the Fed if Congress wishes to exercise them.

Moreover, within the Republican caucus, there is a small but increasingly vocal minority that wishes to abolish the Fed, a much larger faction that wishes for either a fixed monetary peg such as a gold standard or for the Fed to be “Volckerized” by statute and prevented from excessive monetary expansion.

Other Republicans simply believe, as do regional Fed presidents Thomas Hoenig, Charles Plosser and Jeffrey Lacker, that interest rates are currently too low and should be raised above the inflation rate. Since a high proportion of Republican voters share these concerns, a growing campaign by Congress to end Bernanke’s easy-money policy seems likely.

The American economy is exhibiting an unhealthy zombie glow. Third-quarter GDP numbers, released just before the Halloween weekend, suggest worrisome imbalances rising again. The gain in real GDP was about equal to the growth in net imports and exceeded by the rise in inventories. Consumption was solid but government spending rose sharply as the savings rate fell. It’s not an altogether pretty picture.

In a well-balanced economy, consumption grows in tandem with overall GDP, with savings adequate to finance investment. Moreover, government spending growth is restrained, while inventories grow only as fast as consumption and the balance of payments deficit remains under control.

That’s not what the Bureau of Economic Analysis’s advance GDP report showed. Inventory growth was $116 billion compared to overall GDP’s real growth of $66 billion. In other words, the country is producing more stuff, but letting more of it pile up. Real final sales grew only 0.6 percent, and that growth was exceeded by a surge in imports.

Consumption growth was moderate, and while fixed investment grew marginally it was held down by a fall in housing investment after the April end of the home-buyer subsidies. In the meantime government spending grew rapidly, worsening an already unsustainable deficit, while the already inadequate savings rate declined.

America’s economic imbalances stem from over-expansive monetary and fiscal policies. With real interest rates negative and the government spending more than it takes in, savings are discouraged, imports surge and both raw and finished goods are stockpiled as commodity prices surge. Further quantitative easing by the Fed next week may exacerbate the problem.

Sure, some growth is better than a contraction. But the imbalances of inadequate savings, excessive imports and rising budget deficit all worsened in the quarter, and were joined by a bloating of inventories. That doesn’t signify an economy in good health and ripe for stock market investment. Rather it suggests that those entrusting their savings to the U.S. economy will find them eaten by the zombie lurking inside this feeble recovery.

President Ford refused to help New York in 1975, a rejection immortalized as “drop dead.” Historically, the federal government hasn’t bailed out U.S. states and cities facing default. But the EU’s rescue of Greece and the exceptional depth of the recent recession just might change that. Two possible structures for bailouts are budget-avoiding federal guarantees and regulation-bending Federal Reserve bond purchases. Either way, politics may make rescues hard to resist.

Any such action would create huge controversy over constitutional principles of state sovereignty and responsibility. It would also create a potentially hazardous precedent. But that doesn’t make it impossible.

Sure, major direct transfers of cash to states or municipalities, beyond those in the 2009 stimulus package, would worsen federal finances and are thus unlikely. But federal guarantees of local debts would not immediately increase federal budget shortfalls. In fact, limited guarantees for non-federal infrastructure projects were considered as part of last year’s stimulus. A narrowly-defined guarantee program that extended to all states, but mostly helped a few, might avoid the political problems of directly bailing out just one state.

An alternative mechanism could be an extension of the Fed’s asset purchases to include state and municipal bonds. Currently the central bank does not have the power to do this for maturities of more than six months. But an approving Congress could remove that hurdle at a stroke, at least temporarily. That would distance the problem further from the federal budget, burying the risk in the Fed’s balance sheet — though of course it would amount to another form of money-printing, as is the case with the Fed’s existing programs to buy Treasuries and mortgage bonds.

In the end, whether decades of history are overturned may depend on the breadth of state and local financial problems. A guarantee or Fed purchase program to tackle a widespread danger of default could garner political support. Conversely, if default appeared confined to one large entity such as California — as with New York in 1975 — the politics would probably prevent any rescue. If troubled state and municipal governments are hoping they and their bond investors will get federal help, there is probably safety in numbers.

When are big public-sector projects more of a drain than a stimulus for the economy? Strict anti-Keynesians would argue all the time. But even die-hard believers in government stimulus would have a hard time defending the merits of American rail projects. The simple reason: the costs involved are just too high.

Take Amtrak’s plan to improve the rail line connecting the Northeast corridor. The government railroad estimates it would take $117 billion to implement high-speed service. That exceeds the $17 billion cost of China’s longer high-speed train or the adjusted costs of earlier services in France and Japan.

Operationally, Amtrak’s plans are attractive. It proposes running fast trains on a dedicated track, which would run close to the existing Amtrak route between New York and Washington, but north of New York would divert from the current route, running to Boston through Danbury and Hartford (thus avoiding the congested suburban New Haven Line.) There would be several grades of service, with the fastest running at a maximum 220 miles per hour covering Washington-New York in 96 minutes and New York-Boston in 83 minutes — highly competitive with flight, even from Boston to Washington.

The problems are cost and time. Amtrak projects it would spend $274 million per mile, with completion only in 2040. That’s far out of line with similar projects abroad. The 1983 Paris-Lyon LGV Sud-Est was completed in seven years and cost $5 billion in today’s dollars, or $20 million per mile. In Asia, the 1964 Tokyo-Osaka Tokaido Shinkansen, criticized bitterly for its cost, was completed in six years for $20 billion 2010 dollars, or $63 million per mile. China’s Wuhan-Guangzhou line was completed last year after five years of construction for $17 billion, or $28 million per mile.

Excessive cost hasn’t always been an American problem — the 1,777 mile-long Transcontinental Railroad was completed in 1869, seven years after authorization, at a cost of only $1.1 billion in today’s dollars. Bureaucracy, complex environmental regulation, lawsuits, political pork and NIMBYism have combined to make the public sector thoroughly uncompetitive in both cost and time — apparently by a factor of five or ten times compared to other countries.

If 2011′s new Congress wants to restore competitiveness, it has at least one starting point.

Friday’s U.S. jobs figures provide subdued reassurance. The private sector employment gains of 67,000 in August, together with positive revisions totaling 123,000 for previous months, should dispel fears of an economic double-dip for now. With just one more jobs report before November’s elections, the latest data also offer a glimmer of hope for Democrats.

Continued and fairly steady private sector job growth, together with a surprising decline of 323,000 in long-term unemployment should be reassuring for the unemployed and those fearful of losing their jobs. That’s despite that fact that the end of temporary census employment led to a headline loss of jobs in August. It is also likely to help Democrats in November’s midterm elections, blunting the force of Republican attacks on their handling of the economy.

That said the recovery is less than vigorous, whatever the Democrats might claim. Following the last comparably deep recession in 1983, monthly job creation was on average 288,000. So far in 2010, job creation has averaged less than a third of that — and in recent months has gone negative. That isn’t enough to make even a modest dent in unemployment. The civilian non-institutional population aged over 16 has increased by 2 million since last August. Some 65 percent of Americans participate in the workforce, so the 723,000 jobs created since last December are insufficient to absorb new workers.

While there was a modest 0.8 percentage-point increase in the Institute of Supply Management’s manufacturing index in August, the larger 2.8 percentage point decline in its non-manufacturing index also indicates that economic recovery remains sluggish — although here too there is as yet no sign of a double-dip. Employment data confirm this; most of the rise in private sector employment was in healthcare services, while manufacturing employment declined, reversing last month’s increase. With construction employment down 271,000 in the last year, there is also little sign of a positive employment effect from the 2009 stimulus package, much of which was devoted to infrastructure.

In the short term, the jobs picture has improved slightly and fears of a double-dip should lessen. But there’s not yet much on which to pin longer-term optimism.

First ice hockey, now the economy. The annualized second-quarter growth rate of 2 percent in Canada didn’t much beat the 1.6 percent pace in America, but final demand growth at 3.2 percent was much stronger than the U.S. equivalent expansion of 1 percent. That’s an indication that Canada’s economy, though weighed down partly by its neighbor’s weakness, is recovering more robustly.

While Canada’s economy is closely linked to that of its southern neighbor, it has considerable relative strengths. Its banking system is more tightly regulated, so indulged less intensively in the subprime mortgage and derivatives shenanigans that brought the U.S. system to its knees.

The Canadian government was also more disciplined in terms of fiscal stimulus at the bottom of the recession. As a result, the 2010 budget deficit projected by the Economist panel of forecasters is only 4.5 percent of GDP — against 8.9 percent in the United States. Further, Canada has a relatively larger resources sector than the U.S. economy, an advantage when energy and commodity prices are drawn upwards by largely Asian demand.

The Bank of Canada has begun to reverse the stimulative monetary policy it adopted in April 2009, raising its target overnight interest rate twice so far to a current level of 0.75 percent. Even if that’s now held steady, the central bank has more leeway than the Federal Reserve with its near-zero rates. Meanwhile, 10-year Canadian government bonds currently yield 2.77 percent compared with 2.47 percent for U.S. Treasuries, so savers are marginally closer to getting a decent deal. Canada’s savings rate jumped to 5.9 percent in the second quarter, close to the 6.1 percent seen south of the border.

Real final demand growth in Canada is showing no sign of slowing, and energy and commodity prices remain high. Unemployment at 8 percent of the workforce is considerably lower than the 9.5 percent jobless rate to the south. And Canada’s fiscal and monetary positions both look closer to long-term sustainability than the U.S. equivalents.

That makes any possibility of a home-grown double-dip recession seem remote — although a severe second downturn in the closely-linked U.S. economy could hurt Canada too. Overall, though, it’s Team Canada that has a clear economic edge.

You wouldn’t know it to hear officials talk, but the strong yen is not Japan’s main problem. The Bank of Japan’s latest moves on Monday didn’t weaken the currency — though that is one broad objective of fiscal and monetary stimulus. In any case, the trade-weighted yen is weaker than its real 1990-2010 average and Japanese exports are still rising. Export lobbies may have the government’s ear, but intervention could make Japan’s domestic predicament worse.

When the Democratic Party of Japan took office last year, its leaders talked about putting more emphasis on Japan’s domestic economy rather than the needs of major exporters, which had been favored by Liberal Democratic Party administrations since 1955. The DPJ’s first finance minister, Hirohisa Fujii, said at his introductory press conference last September that he was opposed in principle to currency intervention because it could distort the economy.

Fujii was, however, forced out after less than four months, and some officials have reverted to blaming the rising yen for Japan’s problems. Direct currency intervention, though not yet tried by the DPJ, looks more likely than ever, too. Yet the yen’s trade-weighted exchange rate, corrected for differences in inflation, remains about 6 percent below the average of the last 20 years. True, the yen did last week hit a 15-year peak of less than 84 against the dollar and remains far stronger than its 20-year average of around 100. But the comparison with the trade-weighted figure underlines the extent to which that reflects the dollar’s overall weakness.

Meanwhile, exports are hardly suffering badly from the strengthening yen. In July, they were up 2 percent on the month and 23.5 percent from the previous year. Japan also continues to run a large current account surplus.

Even deflation shouldn’t be the Japanese government’s biggest worry. Consumer prices have, in fact, fluctuated within a 5 percentage point range since 1992. Rather, the number one challenge is excessive government spending, which has brought continuing fiscal deficits and government debt amounting to more than 200 percent of GDP.

By skating over this and majoring on the yen — particularly against the dollar — Japanese policymakers risk retaliatory currency interventions. Those beggar-my-neighbor battles worsened global economic conditions in the 1930s and would do so again now.

U.S. Federal Reserve Chairman Ben Bernanke said in his Jackson Hole speech on Friday he would fight deflation — but he ignored the federal deficit. Even Japan has not experienced sustained deflation, while the U.S. deficit remains at record levels. Bernanke’s diagnosis and treatment of a phantom disease are unlikely to produce faster growth.

Sir Ralph Bloomfield Bonington, the quack in Shaw’s “TheDoctor’s Dilemma,” offered a single treatment for all diseases — to “stimulate the phagocytes.” In a similar vein, Bernanke appears to regard the anti-deflationary treatment that the Fed should have applied in 1930-32 as appropriate for all subsequent economic ailments.

The example normally used to illustrate the perils of deflation is contemporary Japan, which has suffered near-recession conditions since its bubble burst in 1990. However, Japan has not actually seen significant long-term deflation but only price stability. Its consumer price index, set at 100 in 2005, stood at 98.9 in 1992 and 99.2 in July 2010.

A more likely major contributor to Japan’s problems is its continual fiscal deficit, boosted by numerous so-called stimulus programs of wasteful spending. These have now pushed the country’s debt to 217 percent of its GDP, an alarmingly high level.

In Friday’s speech, Bernanke’s only reference to any kind of budget shortfall was to remark that “deficit management is a challenge to many countries.” He could have said much more about the specific U.S. problem, even at the Jackson Hole conference for central bankers. After all, at the 2004 iteration of the conference his predecessor, Alan Greenspan, led off his remarks with a lengthy disquisition on the long term financial burden of Social Security and Medicare — a problem that has worsened since.

Bernanke outlined in detail various possible ways in which the Fed could ease monetary policy further should deflation appear, and ended by reassuring his audience that “the preconditions for a pickup in growth in 2011 remain in place.” The United States is not, however, currently suffering from deflation. Second-quarter GDP data showed prices rising, while consumer price inflation for the month of July was 0.3 percent. It is, however, facing a big deficit problem. The Fed chairman’s remedies are for the wrong disease.