A Return to the Gold Standard

[Makalakumu]

I want to start a discussion about returning to the gold standard in the United States...and in other countries. At moment, the US is entering a major recession that will be very painful. The root cause of this recession lies in the way that we create our money. Which means that we possibly could avoid these things by doing things differently.

So, read this article. Talk about the ideas. And be prepared to take action and make sure your representatives know what should be done and why. The benefits of a gold standard are profound.

The monetary benefits of a gold standard are clear enough, and they include life without inflation, an end to the business cycle, rational economic calculation in accounting and international trade, an encouragement to savings, and a dethroning of the government-connected financial elite.

But it is also political considerations that draw people to support the gold standard. Gold limits the power of the state and puts power back in the hands of the people.

IMO, this is the only viable idea that we have on the table for really affecting long term change in our economic system. I'm open to other ideas, but the bottom line is that I really feel that something fundamental has to change or we will have nothing but more of the same.

Discuss.

 

[Makalakumu]

Here is a good five minute video that explains the value of the Gold Standard.

 

[Bob Hubbard]

Didnt the US leave the Gold Standard because too much of our gold was at risk of leaving the country due to large amounts of US $ in foreign hands?

 

[Makalakumu]

Didnt the US leave the Gold Standard because too much of our gold was at risk of leaving the country due to large amounts of US $ in foreign hands?

That's the myth. I don't know how true it is. I know that John Maynard Keynes argued strongly against the Gold Standard because it limited the government ability to socially plan and spend.

 

[Makalakumu]

Here's the Wiki on the Gold Standard. Good information all around in regards to history and advantages/disadvantages.

Here's an ironic bombshell

Former US Federal Reserve Chairman Alan Greenspan once argued, before the advent of monetarism, that

"under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth... The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."[6]

What the heck happened to Greenspan? He talks about the gold standard and nearly destroys the currency by doing the opposite! He sounds like a hypocrite.

 

[Xue Sheng]

Panic of 1873

Gold standard

Advantages

Disadvantages

Advantages

The history of money consists of three phases: commodity money, in which actual valuable objects are bartered; then representative money, in which paper notes (often called 'certificates') are used to represent real commodities stored elsewhere; and finally fiat money, in which paper notes are backed only by use of' "lawful force and legal tender laws" of the government, in particular by its acceptability for payments of debts to the government (usually taxes).

Commodity money is inconvenient to store and transport and is subject to hoarding.[4] It also does not allow the government to control or regulate the flow of commerce within their dominion with the same ease that a standardized currency does. As such, commodity money gave way to representative money, and gold and other specie were retained as its backing.

Gold was a common form of representative money due to its rarity, durability, divisibility, fungibility, and ease of identification,[5] often in conjunction with silver. Silver was typically the main circulating medium, with gold as the metal of monetary reserve.

The Gold Standard variously specified how the gold backing would be implemented, including the amount of specie per currency unit. The currency itself is just paper and so has no innate value, but is accepted by traders because it can be redeemed any time for the equivalent specie. A US silver certificate, for example, could be redeemed for an actual piece of silver.

Representative money and the Gold Standard protect citizens from hyperinflation and other abuses of monetary policy, as were seen in some countries during the Great Depression. However, they were not without their problems and critics, and so were partially abandoned via the international adoption of the Bretton Woods System. That system eventually collapsed in 1971, at which time all nations had switched to full fiat money.

Former US Federal Reserve Chairman Alan Greenspan once argued, before the advent of monetarism, that

"under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth... The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."[6]

Disadvantages

A currency needs to satisfy three functions to become a true representation of transactions between people.[citation needed]

1. Medium of exchange
2. Store of value
3. Unit of Account

For gold currencies to be valid, the issuer should be able to deliver "value / energy" on redemption of currency. Otherwise, gold currency has no mechanism to satisfy the "delivery of value" function to be real currency. Gold does not have inherent value/energy so exchange value has to be negotiated during each transaction. During times of scarcities like famine, exchange value of gold goes down drastically.

The total amount of gold that has ever been mined has been estimated at around 142,000 tons.[7] Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $7.6 trillion is in circulation or in deposit (although international banking currently practices fractional reserves). Therefore, a return to the gold standard would result in a significant increase in the current value of gold, which may limit its use in current applications.[9] For example, instead of using the ratio of $1,000 per ounce, the ratio can be defined as $2,000 per ounce (or $1,000 per 1/2 ounce) effectively raising the value of gold to $8 trillion. Gold standard advocates consider this to be an acceptable and necessary risk. [10]
Fluctuations in the amount of gold that is mined could cause inflation, if there is an increase, or deflation if there is a decrease. Some hold the view that this contributed to the Great Depression.
It is difficult to manipulate a gold standard to tailor to an economy’s demand for money, giving central banks fewer options to respond to economic crises.

Some have contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak. For example, some believe the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency.

If a country wanted to devalue their currency, it would produce sharper changes than the smooth declines seen in fiat currencies

 

[Sukerkin]

In international terms, no monetary system is flawless. However, as with voting in a bi-polar political system, what you are stuck with is choosing between the lesser of two evils.

A fiat currency, effectively creating imaginary money out of thin air, has essentially run it's life as it has facilitated the farce that is fractional reserve banking. If we attempt to carry on down that path then collapses, such as we are staring in the face now, will become all too common-place.

The core of it is that a monetary unit, that is not in some way linked to the value of goods and services in an economy, is truly a unit with no value and is subject to all manner of abuses and manipulations (not the least of which is currency speculation).

When the subject of a return to the Gold Standard is breached, it must be understood that this does not necessarily mean a return to the Gold Standard of old but rather a medium of exchange the quanity of which is determined by the real value of an economies product.

It is the dislocation of those two things which has lead us to the current pass where multi-nationals are incredibly wealthy and part of that comes from 'outsourcing' production to where labour is practically free. This means, amongst other things, that money is taken from the working population of the 'advanced' country and 'fed' into the Mega-Corps, thus effectively weakening the increasingly non-productive economy.

Does anyone have any figures as to the real-terms value of GDP in the USA now compared to previous decades? I'd be very interested to track that. Note that the wealth of the corporations is fundamentally seperate from the health of the economy as a whole as it is generally invested 'outside'.

Returning to a stable generator of currency is only one prong of attack in restoring some measure of economic sanity. Others are abolishing fractional reserve banking, outlawing usury (the vampiric collection of wealth divorced from production), curtailing stock trading (including the Futures and Commodity markets) and most assuredly rendering currency trading illegal.

Tied into these is a return to sensible limits on the Free Market - for altho' it generates profit for the companies involved, that wealth seldom benefits the 'host' nation and has given rise to businesses that are more powerful and influential than countries - not healthy.

Such changes would involve a severe dislocation for some years until things stabalised and 'apparent' wealth would decline for a time. The trade off is that true wealth would arise and persist in a stable system, preventing such things as my brother in law 'losing' over £100,000 due to the current 'crisis' in the fiscal system.

In a very real sense, you pays your money and you takes your choice. In the current system, wealth is manipulated in the hands of the few for their own benefit. In a modified, more rational, system, wealth flows to those that work for it and produce something of value. I would have thought that the latter more fitted the American Ideal?

 

[Makalakumu]

If this idea is so obviously good for our country in the long term, how does it get done?

 

[TaiChiTJ]

I have heard this book is excellent on the subject of the 1913 fed takeover:

http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212

It's on my list of books to read!

:ultracool

 

[Brian R. VanCise]

I truthfully do not know if we could even contemplate getting back to the gold standard. Integrating it back to the gold standard I think would be filled with problems and may cause worse economic stress.

 

[terryl965]

I truthfully do not know if we could even contemplate getting back to the gold standard. Integrating it back to the gold standard I think would be filled with problems and may cause worse economic stress.

I would have to agree, chanding anything now would mean a total collapse in the economics of America. I can only see time as a avenue of turning this country and the world around.