PDA

View Full Version : Gold Standard?


whitehairedidiot
09-13-2012, 05:46 PM
So, part of the Republican platform includes convening another commission to study whether it'll help the economy to return our monetary system to some form of the gold standard. This is favorite topic for Ron Paul, as well. I realize there's a low chance it will ever really happen -- but because I knew so little about how the old gold standard worked, I started reading.

There's not a whole lot out there, so I started with the report from the last gold commission - circa Reagan's administration. (This is available from Amazon for the kindle, price = $ .01) Ron Paul served on that commission and contributed heavily to the "minority" report opinions, which is what I'm reading. He provides quite the historical review of gold-based monetary systems! Particularly interesting is the section on the US Revolution... and how quickly government started being in love with printing it's own paper money and how that affects the economy. That's one thing, that's convinced me this commission idea isn't overly serious.

The second thing, is how much chaos it would create for business, people with retirement accounts, pensions, the financial system -- and even gov't itself. Doesn't seem like now is the time to try to implement something like this. A few other things to clean up, sort out, and let settle first. Anyway... all these questions came up for me, over on the 50 percent thread. Figured this topic needed it's own space.

Any of you well versed in the gold standard? Comments. discussion, opinions, and conjecture welcome (learned or not). The basic premise is essentially barter: I trade you X amount of gold for X amount of something else. Gold being the agreed on valuable commodity on which "money" is based. The constitution specified that the amount of gold which equaled a dollar be precise. The most recent numbers (1971) are:

1 dollar = 1/35th oz. of gold.

Today, gold went over $1700/oz on the market today. So, with this formula, 1 dollar is worth 1/1700th of an oz. of gold.

In other words, in 1971 it took $35 to buy an ounce of gold. Today, it'll take $1700. I think I just found the source of what I've called "invisible inflation" that I've felt - over the years - but never, ever shows up in gov't statistics or numbers.

---- related thought, maybe ----

Back in the financial crisis, one of the talking heads from Congress or the Fed said that our economy was "based" on construction. Really? Construction - whether residential or commercial - considered a commodity? OK. Let's say it is. If that's the case, then the value of a dollar is equal to what unit of construction? Maybe he was just talking from another orifice.

What's frightening, when I let myself ask rhetorical questions like this... is that the people making those big decisions might really be that dense and uneducated in the areas they're responsible for. (A good many of them really are.) They don't SERIOUSLY believe our economy is based on building houses do they? What purpose do they think money serves? Or is that the uncomfortable answer to why they think printing even more money and lubricating the economy with even more months of historically low interest rates to big banks... is "necessary"... and will work now, though it's only had negative affects on unemployment and the real take-home pay of those who still have jobs?

Ron Paul suggests another uncomfortable answer. That the printing of money and low interest rates for that level of credit -- makes it easier for government to go on borrowing, to provide cash flow to keep gov't things running (and ever larger deficits). But that interest rate isn't available to the rest of us - as anyone with a credit card could tell you - it's a lot more than 1/4% (the Fed overnight rate). The one thing I can't make heads or tails of, in this report - because it's not part of our current situation - is the link between inflation (caused by printing more dollars) and high interest rates. Mortgage rates are still the lowest they've been in my lifetime. Car loans, also.

Our current situation seems to be one of inflation (increasing the money supply) with the lowest interest rates (credit cards excepted) in half a century. I'll keep reading (even though I need to make some coffee first) and hope this is explained further on. Or maybe someone else here can enlighten me.

TSJ
09-13-2012, 08:15 PM
The reason why the interest rate is so low is because there is not much demand. Remember that 70% of our economy is consumer based (according to a source I have read). The middle class and the working poor' income is not keeping up with the growth of the economy. In other words for the majority of Americans, income is not growing.

If we went back to the gold standard what would happen is that the money would stay with banks as it did over a hundred years ago. Remember William Jennings Bryan and the "Cross of Gold" speech? The grange in the mid west wanted sliver because there was more of it to pay their debts. Nobody had any currency in the mid west. They were practically down to a barter economy. So it will happen again. And the recent trend of flat personal income growth in the nation proves it.

I think it is telling that 20% of WalMart customers in the US do not have a checking account.

billygoatgruff
09-14-2012, 08:12 AM
All buying and selling is barter. Money is just something that makes barter between a lot of people easier, a medium of exchange if you will.

Instead of bartering directly between just two people, we add a step and trade money for what we would barter, and we all more or less agree to trade money for stuff.

Money can be based on just about anything. That anything is the "standard." Gold was once a standard, as was sea shells, giant round stones, feathers, and similar physical items if memory serves. I think I've also heard of money at times being based on an hour's work or other non-physical things. And, whatever the money is based on is the standard.

Now, our money is based on debt. That is the standard. If I have a dollar then someone somewhere owes me because I have the dollar and the dollar is the thing that tells everyone that someone owes me something. When I trade the dollar away then no one owes me anything anymore and the guy that has the dollar now is owed something. To get the dollar back, I have to give him what he wants or I do without. Or promise to do what he wants sometime in the future if it is a loan.

I guess my question is why the discussion focuses on just gold as a substitute standard for the debt standard. Why not have smiles as the standard? Or so many minutes of hard labor? Or so much energy? Or so much oxygen? Etc and so on.

Don't know, and doubt anyone does. All standards have problems of one sort or another seems like. Gold isn't very liquid in the short term since there is only so much gold, and debt isn't too stable in value over time.

Self reliance sounds good to me. But I'm thinking it really messes up the system too, no matter which standard is chosen. Just IMO

Dennis G
09-14-2012, 08:35 AM
When one considers all of the characteristics needed in money, it becomes clear that only something
like a metal can fulfill ALL of the functions needed. Metals are divisible, consistent, and most have
some intrinsic value. However, not all metals will suffice. Lead is too heavy, so it is not convenient.
Iron rusts, so its durability is in question.

After centuries of trial and error, human beings selected gold and, to a lesser extent, silver as the primary forms of money. No government ever had to pass a law mandating that gold or silver be used as legal tender. Gold and silver were selected because they fulfilled ALL of the requirements of money.

Ironically, in 1966, Alan Greenspan wrote what this writer believes is the best essay ever written on
the subject of gold's function as both money and as a guarantor of individual freedom. The irony
lies in the fact that Mr. Greenspan later became the biggest purveyor of paper money the world has
ever known. However, at least back in 1966, he understood why gold was, is, and always will be,
money.

The main functions of money are: 1) to serve as a standard unit of exchange and 2) to serve as a
means by which to store or preserve wealth.

Greenspan recognized this and pointed out that without a means of storing value, people would have no way of saving and no way of making long-range plans. We might as well go back to being hunter-gathers, living from day to day, hoping that we will kill enough animals and pick enough berries to live another day.

Of all the substances which humans have tried as media of exchange, precious metals have worked the best, and gold the best of all. Gold has served as money throughout most of recorded history. Gold and silver are the only forms of money referred to in the Bible. However, beginning with the ancient Chinese, and in Europe in the 17th century, there have been many experiments with other types of currency. All have ended badly.

As Voltaire (1694-1778) once observed, " Paper money eventually returns to its intrinsic
value...Zero!"


See. www.therichterreport.com/content.php?id=107&menu_id=-1&menu_item_id=82

Dennis G

ScrubbieLady
09-14-2012, 10:25 AM
Here is an interesting question for you about gold. Why are all these companies wanting to exchange their gold for your dollars?

grumble
09-14-2012, 02:27 PM
I think a lot of people pine for the days when gold was the standard international unit of currency. To be sure, a lot of the problems we face now resulted from NOT using gold as a standard. But it's also true that we left the standard because of a separate set of issues that were well-nigh impossible to overcome.

Consider that if some standard is used (gold, iron, popcorn, trees or whatever), there has to be a worldwide acceptance of the unit of measure for the substance, and on its value, whether denominated in dollars, pesos, or euros. And once the units and value are established, it has to be stable. It can't change every day or week or even decade, because it is the international unit of money. That's why it was a big deal when FDR increased the set price of gold at $35, up from $32. It upset every transaction world wide that hadn't been settled. Even more than moving interest rates, it locked in a government-mandated inflation.

Another problem is that there simply isn't enough gold on earth, in hand or in the ground, to back the world economy. Maybe if an ounce of gold were to be set at $3000 or $5000 or $50,000, it might be enough, but that would sure make a dollar bill pretty useless, meaning a new currency would have to be established. Same for every country in the world.

Do you really want to lug a sack of gold everywhere to do your grocery shopping or to buy a new car? Of course not, so you'd accept paper representing the gold as the same thing as the metal itself. In other words, you're accepting a derivative. The paper would promise that the gold it represents is in a vault somewhere. But is it, really? Who would know if two ounces worth of paper were to be printed for every ounce that was actually on hand? Or ten, or a thousand? In other words, we'd be in the same situation we're in now, where the paper money has value because we THINK it has value, not because it's really worth anything.

What worked in a smaller world with fewer, more simple people, and an economy of a size that people could actually comprehend the numbers that measure it, would be a whole new proposition today.

What sounds like a good idea may not be so good when you down to the practical side of things. One thing to have a concept of things after they are implemented, it's the transition that can be very difficult and complicated.

whitehairedidiot
09-14-2012, 06:02 PM
What sounds like a good idea may not be so good when you down to the practical side of things. One thing to have a concept of things after they are implemented, it's the transition that can be very difficult and complicated.

This is what I was thinking, Grumble. Lots of interesting responses. I need to read some more... digest some of those comments... and think on it some more.

ArmySGT.
09-14-2012, 09:48 PM
Not until the 16 trillion dollars in debt is paid off.

Ft. Knox does not contain 16 trillion in gold.

Merchant Seaman
09-14-2012, 11:52 PM
Not until the 16 trillion dollars in debt is paid off.

Ft. Knox does not contain 16 trillion in gold.

How much do they have?

TSJ
09-15-2012, 01:33 AM
The Bullion Depository at Fort Knox holds about 4.5 thousand metric tons and the New York Federal Reserve holds about 7000 metric tons under the streets of New York. Some of it is held in trust for foreign governments. Dr. Ron Paul is not so sure about that figure, however. Grin.

whitehairedidiot
09-15-2012, 11:29 AM
Sarge - that's part of what I was trying to figure out: where were they gonna get enough gold... to be able to "change over" to that system... without completely re-setting values on everything from penny candy to toilet paper to a car to..... ad infinitum.

Because, I know full well that just that part -- changing what things were worth -- would cost untold hours of work and throw everything into total chaos. You don't just "flip a switch" -- claim "it is so" -- and it's done. And the important part - would it really be worth it, when it was all done (IF it was ever all done) - well, I don't think anyone knows.

Another problem, since most of the rest of world uses this fiat monetary system too... would be exchange rates. I think switching to a gold standard would cause more - unforeseen - problems than it would correct. At least I haven't seen any serious arguments yet... in favor of the standard.

I don't think it'll get serious consideration anyway. More immediate and pressing things will push that down the list -- again.

billygoatgruff
09-20-2012, 03:18 PM
It really doesn't matter what standard is used IMO. There will be problems with it.

A physical standard has some serious problems which is what conversion to the fiat system attempted to lessen. Non-physical standards also have serious problems at the other extreme and is leading folks to talk about reverting to a physical standard, ie, gold.

The underground economy (there usually is one no matter the currency) uses whatever is at hand to get the job done. The 3 trillion dollar debt can be paid in other things and leads to fears of land takeovers, labor slavery, etc. After all, a "dollar" is nothing more than a medium of exchange (IOU) to make a barter transaction more even (my words - translation into your words will be needed.)

What amazes me is that alternate currencies are allowed as I believe that in addition to Dennis' big two purposes for a medium of exchange there is a third purpose 3) ease of calculating taxes to pay for group expenses. Ithica Hours, Calgary Dollars, Berkshares, Toronto Dollars, Time Hours, etc., are examples of alternate local currencies.

Some of those are backed by the national currency while others are backed by nothing more than the confidence that they are valuable to others. That last sounds vaguely familiar... :confused:

Bottom line thoughts - the gold standard is sexy if one is on the fiat system. The fiat standard is sexy if one is on the gold system.

Maybe it takes both... Nah, never! :eek:

SevenCreeksSap
09-26-2012, 10:59 PM
This is an interesting topic since it looks like TPTB are doing all they can to collapse the confidence in the US dollar, and you have to wonder why. Is it truly out of stupidity or ignorance, or a more complicated reason. Can you see us heading more towards a digital economy, as we seem to be? almost everyone (except me for the most part, i'm one of those walmart shoppers who doesnt have a checking account) uses credit or debit card for almost everything, and some people almost never use cash, from paycheck through paying the bill. I work with some younger people who only carry plastic. I always ask what do you do when the power goes out?
I can almost forsee that after they've collapsed all confidence in paper money, just decree-ing that from this point forward, the only "money" that is acceptable is this digital form. Reasons for this could be for more control over interest, inflation, or just control. When the ones creating the digits have that kind of power, whose to say what the economy will be. Only the ones who control the digits. We probably will have to revert back to a barter system, mostly which will of course be decreed illegal black market.
It seems like it really is just a confidence game. we have some confidence that the paper is worth something, because we were raised with it, and thats what its always been for most of us. I guess I'm glad it isn't still the giant round stones. On the other hand, with our land I'd be rich.

ScrubbieLady
09-27-2012, 07:59 AM
I think a lot of the money we have now is digital.

whitehairedidiot
09-27-2012, 10:39 AM
SevenCreeks...

I kinda got to the same thoughts and questions and made myself so dizzy and crazy, I had to go read a couple other books for a while.

This is a HUGE topic, and it's got a lot of different "handles" -- or perspectives -- that connected in complicated ways. A lot of what I'm thinking scares me to death... so I'm not thinking those thoughts, just yet. I set it aside until I do some more research.

One thing I'm pretty sure of: Digital Money is Doubly Dangerous -- vulnerable, in other words.

Incoming
09-28-2012, 12:20 AM
I understand that Texas is making a move to have their 1 Billion in gold currently held in NYC returned to Texas for safe keeping. Doesn't bod well for the condition our condition is in hey.

whitehairedidiot
09-28-2012, 10:59 AM
Yeah, my mind's been on other "developments" here in NC... same kind of activity... in other areas, this time, legal. Clarification of laws... dealing with mandatory evacuations, martial law, etc.

The states aren't being blind to the need to prep.

grumble
09-28-2012, 12:34 PM
I understand that Texas is making a move to have their 1 Billion in gold currently held in NYC returned to Texas for safe keeping. Doesn't bod well for the condition our condition is in hey.

And I bet the Federal Reserve Bank (FRB) will fight tooth and nail to prevent that withdrawal of bullion. There's a very good chance that every ounce of gold in that vault is "owned" by several entities. The first ones to remove their gold get it, those that delay will find the gold is gone. The FRB does NOT want its customers to withdraw their gold.

whitehairedidiot
09-28-2012, 12:51 PM
I gotta tell ya - I can read technical manuals, theoretical scientific stuff, and neuroscience textbooks. But this book on the Gold Standard is by far the most difficult, dry, redundant and impossible to wrap my head around stuff I've ever tackled. I'm not exactly financially illiterate, either.

At this point, I don't think there much chance it'll ever come back - officially, that is. I can see the point of having gold, as an individual though. I think it would take so long to sort out all the issues... that S will HTF way before then. Besides: too many people would lose too much money (on paper and in 1s and 0s) that they'll never let this happen.

As many dollars as have been printed in the last four years, an ounce of gold would have to go way up from the old $35/oz.... or the dollars would have to evaporate.

J R Adams
09-29-2012, 11:29 AM
I gotta tell ya - I can read technical manuals, theoretical scientific stuff, and neuroscience textbooks. But this book on the Gold Standard is by far the most difficult, dry, redundant and impossible to wrap my head around stuff I've ever tackled. I'm not exactly financially illiterate, either.

At this point, I don't think there much chance it'll ever come back - officially, that is. I can see the point of having gold, as an individual though. I think it would take so long to sort out all the issues... that S will HTF way before then. Besides: too many people would lose too much money (on paper and in 1s and 0s) that they'll never let this happen.

As many dollars as have been printed in the last four years, an ounce of gold would have to go way up from the old $35/oz.... or the dollars would have to evaporate.

There is one thing about the US going back to the gold standard that worries me.
By law any minted US coin must have a value on it. The one ounce American Eagle has a $50 denominatin on it but an ounce of gold is about $1750. Would gold be devalued to $50 an ounce, would the price of goods adjust, ie.$500 gold would by a car or would the American Eagle coin assume a value of say $2000.

Seems that there is a real possibility that a holder of gold could get hosed pretty bad.

whitehairedidiot
09-29-2012, 11:37 AM
That seems to be the big question, JR.

And I simply can't fathom the amount of chaos this would create in trade, finance, personal accounting, taxes, and even the gov't statistics. Why would anyone willingly entertain thoughts of this much upheaval? What astronomical costs would this entail? ('coz there's no way I believe this wouldn't cost a ton of money to accomplish... somewhere, to a lot of people)

The argument seems to be it would be worth it. That after the initial "shock" and disruption... the financial "system" would be more stable, going forward.

I'm not convinced.

TSJ
09-29-2012, 07:13 PM
There is one thing about the US going back to the gold standard that worries me.
By law any minted US coin must have a value on it. The one ounce American Eagle has a $50 denominatin on it but an ounce of gold is about $1750. Would gold be devalued to $50 an ounce, would the price of goods adjust, ie.$500 gold would by a car or would the American Eagle coin assume a value of say $2000.

Seems that there is a real possibility that a holder of gold could get hosed pretty bad.

That's the problem with metallic gold money. It doesn't respond to world events. Things happen to gold mines, new inventions occur, etc. These external events can raise havoc with metallic gold money. What worse, hoarding naturally occurs in response to world events and the people's needs for a medium of financial transactions go unmet. Witness the era right before the start of the 20th century when most of the gold was in the east coast financial insitutions and none in the rest of the country (William Jennings Bryan's Cross of Gold speech).

In response, the government in 1935 set the price of gold at $35 per ounce(it was $20/ounce), took all the gold coins out circulation and said the world (except for US citizens) could exchange their dollars for gold at $35 an ounce. That held until the 1970's when OPEC and inflation destroyed that system and now we have fiat money.

We could go back to this system by declaring say, the dollar is worth $1700 per ounce and have the US government buy or sell at that price. Those that have gold will make out. Those that don't won't. Just that simple. Money will become a static thing limited by mining activities.

Incoming
09-30-2012, 12:32 AM
Been prepping seriously since 1987 and have learned a few things of value in that time. I'm of the opinion of where there is no standard there is no value and where there is no value there is no standard. Take a look at just about all the currencies around the world and take note of how this applies. Putting fiat paper in hard currency is only common since but as in penny-wise but of course the stupid will always be with us and the old Gump adage always applies, "stupid is as stupid does" or doesn't as the case may be.

SevenCreeksSap
10-01-2012, 11:48 PM
Was listening to radio today and he had on a money guy guest talking about the current situation here in US. The talking point was that we have a 15 trillion GDP, or thereabouts, and the big money world bankers have created a 600 Trillion -with a T- debt through these derivatives, whatever they are. He explained it that they have created bonds to sell for debt( a paper certificate), and now have created a "certificate" for the bonds and resold/reloaned each other these certificates again and again, of course with our gubments promise that when it all goes south, as it eventually has to, we the people will pick up the debts through our taxes.
He went on to explain the very limited ways out of this mess created by the money men, none of which will be easy or good for our economy. I didnt catch all the details of these and probably wouldnt understand them either. One is to pull back dollars they have created, the next rapid inflation. The easiest he described is just a relatively slow decline of our dollars, and standard of living. that seems to be the course they are taking. I wonder if the managed decline is planned by the ones who hate US and our standard of living, but thats a whole topic on its own.

My thought through all of it was" now the whole world economy is basically a fake creation, where they just keep creating digits on their computers for them to be richer, all the while knowing the whole system is going to collapse". The speaker went on to say that if we understood what they have done, there would be a run on the banks that would collapse them Tomorrow. Literally in one day.

I understand we need something that we trade for goods and services. we call that money. we have to have a certain amount of it to get along. Gold seems to be something that man has always used and is an acceptable item to "barter" when things go bad. since we can't all have some of it and the money men probably aren't going to use it for a standard again, it seems to me the things that really matter are only what I can use for the survival and benefit of myself and family when things follow their natural course. Knowledge is one of those, along with old style tools, and preparation.

At some point the monster they have created will fall apart, and most likely our society as we know it. I only hope the monster devours them and not all the rest of us with it. what are people going to do when its finally revealed what they have done? I think we're headed back to a "lead" standard, and maybe a lot quicker than most believe.

Wow, just read my own post, and don't mean to be a downer, but this stuff is really getting scary to anyone even paying a little attention.

whitehairedidiot
10-02-2012, 12:44 PM
Well, I've heard it said that whiskey is a good investment for future barter. Someone else said - guns & ammo. Tobacco is another "luxury" commodity that won't be widely available... and I've been wondering the best long term storage strategy for that is.

And paper... I think we'll want to have plenty of paper. And cloth. Trade ya a couples yard of calico for a yard of denim...

TickFarmer
10-02-2012, 01:30 PM
This might fit on several threads, but:
If I remember correctly, we went onto the "petro dollar" standard back in the '70s. That was when OPEC agreed that all oil produced would be sold/bought/traded using the US dollar as the medium. Then, (strangely enough) when Iraq decided to sell oil using the Euro, they somehow developed WMD... and now Iran is going to sell using other than the dollar, and they have suddenly become an unstable nation on the verge of building nukes to blow up the world...
I don't look for gold to ever regain being a viable standard. That would take a world wide shift in faith that the holder of the gold would pay it out on demand, which we demonstrated that we would not do.

TSJ
10-02-2012, 02:07 PM
This might fit on several threads, but:
If I remember correctly, we went onto the "petro dollar" standard back in the '70s. That was when OPEC agreed that all oil produced would be sold/bought/traded using the US dollar as the medium. Then, (strangely enough) when Iraq decided to sell oil using the Euro, they somehow developed WMD... and now Iran is going to sell using other than the dollar, and they have suddenly become an unstable nation on the verge of building nukes to blow up the world...
I don't look for gold to ever regain being a viable standard. That would take a world wide shift in faith that the holder of the gold would pay it out on demand, which we demonstrated that we would not do.

Actually, it was that we were unable to do. The world was holding more dollars than we were able to redeem at $35 per ounce of gold. Let's see there was a war in Vietnam and oil used to sell at $3.55 a barrel then the Yom Kippur war occured and the oil shieks embargoes oil to the world, etc, etc. And our public debt was waaay less then it is now.

grumble
10-02-2012, 03:13 PM
Well, I've heard it said that whiskey is a good investment for future barter. Someone else said - guns & ammo. Tobacco is another "luxury" commodity that won't be widely available... and I've been wondering the best long term storage strategy for that is.

And paper... I think we'll want to have plenty of paper. And cloth. Trade ya a couples yard of calico for a yard of denim...

As for tobacco, I'd suggest stocking up on cans -- pipe tobacco, roll-your-own cigarette tobacco, and even snuff/chewing tobacco if you want to store it. Anything not sold in airtight containers will go stale.

Just understand that it will be a luxury item only. By the time you're ready to barter it, all the tobacco adicts will have long since gone "cold turkey." And unlike alcohol, it really isn't much good for anything other than satisfying a habit. But, you can store a lot of barter value in a pretty small space.

whitehairedidiot
10-02-2012, 05:58 PM
Tobacco also makes a decent insecticide, just add water and soak. Course, so does cayenne pepper - and it keeps the deer off, too.