US Money...

[jks9199]

OK... I know we've got a couple folks with the background to answer this reasonably knowledgeably.

Currently, the US dollar is basically worth what other folks believe it to be worth. It's not tied to gold or silver or fairy dust or donkey tails or anything else... (Yes, I know... That's oversimplifying the issue. But it's accurate enough, as I understand it for my question.)

Let's say Obama does something really radical on January 21, 2009. He puts the US back on the gold standard, or the chick pea standard or whatever medium you choose. I'll continue to use gold for the moment to stand in for that medium... 'cause it's easy. (And shiny!) He sets the dollar as being equal to a given amount of gold. (or sneakers, or the letter Q...)

What effect would that have on both the US and the world economy?

 

[Bob Hubbard]

Everyone with paper money starts trading it in for whatever that is, lets say gold. All the gold leaves the US as the majority of US paper is outside the country.

We go boom even faster.

 

[terryl965]

Well I believe it will cause more trouble than it is worth, so he will not do any of that and leave it alone and concetrate on getting the economy back to some level playing field.

 

[Sukerkin]

I've talked about this here a couple of times in the past year or so, JKS.

I don't know if a dabble with the Search function would turn up an answer for you or not. If it doesn't, then I'll have a go at giving an assessment of what would happen (the briefest of precise' being that, in my opinion, it's a necessary step for the whole world to take but in order for it to work then all the developed nations need to do it in-step).

EDIT: The 'nightmare scenario' that Cap'n Bob laid out can easily be avoided by appropriate framing of the legislative change.

 

[Bob Hubbard]

Our legislature botched several bailouts, sold up down the river to the banking cartels in the last one....you really think we can trust them to safeguard our wealth?
Well, 432nd time's the charm right?

They could put us back on the gold standard, make it illegal (again) for a US Citizen to own gold, still wouldn't stop gold from leaving the country.

 

[arnisador]

A Zimbabwean 100 billion dollar note:

 

[Big Don]

A Zimbabwean 100 billion dollar note:

Seeing this:

Media reports in the country say the country’s central bank has introduced the 10 billion dollar note which is worth $20 on the black market.

Really makes me want a few of those...
Picture this:
"I'll give you TEN BILLION dollars for that..."
Hilarity ensues

 

[Cruentus]

He would never do it, and if he did, it would mean that we are really in trouble. This is because you don't get anything out of the gold standard that you didn't bring with you. If your currency is credibly backed by your assets, then you don't need a gold standard. If it isn't, then you are screwed anyway, even if you go to a gold standard.

Your screwed because your currency will still fluctuate relative to other countries anyway, because none of whom we viably trade with are on the gold standard. Their currency will fluctuate accordingly, and therefore we will not be shielded from export/import fluctuations. Furthermore, simply by going to such a standard you are basically conceding to the marketplace that your assets cannot credibly back your currency; this is a all too perfect set up for more of a crash, as investors will not want to deal with you in any capacity.

The idea of going to such a standard is reliant on the idea that commodities are somehow more stable then currencies, of which they are not. Gold fluctuates like any other market, and therefore your dollar backed by that commodity will also fluctuate not just according to the currency market, but to that commodities market as well. You have just added another layer of risk without any real benefit.

This could only work if the rest of the 1st world also went to the same standard; yet this would have to be governed by a world organization that would further remove countries individuality (think 'new world order' type stuff). Not really a good scenario for anyone in the long run.

Then there are some of the scenarios that Bob has painted; those things might happen to a degree enough to effect the marketplace and further take money out of circulation.

So, in short, going to a gold standard would probably be a bad thing...

 

[Bob Hubbard]

It would be incredibly bad.
It would take some seriously short sighted and self serving idiots to pass that.
It would probably really **** us up bad.

Oh ****.
Congress will authorize this won't they?

We're so boned!

 

[Bob Hubbard]

A Zimbabwean 100 billion dollar note:

Seeing this: Really makes me want a few of those...
Picture this:
"I'll give you TEN BILLION dollars for that..."
Hilarity ensues

Ditto!

 

[Cruentus]

Interesting contrarian view on my last post though:

http://www.usagold.com/gildedopinion/greenspan.html

I think he makes a lot of good points. The thing is, it would be good to go to such a standard if the Euro, the Yen, and other major viable currencies we traded with also went to a standard of commodity backed currency. But since they won't, problems are created. In order to coax them into it, we would need a worldwide regulatory organization, therefore eliminating our individuality.

When one thinks about it though, choosing gold, or any commodity for that matter, as a standard is arbitrary. It all boils down to other factors like GDP and assets that make up the valuation of your currency anyway, and attaching it to a commodity isn't going to change that at all.

 

[Makalakumu]

He would never do it, and if he did, it would mean that we are really in trouble. This is because you don't get anything out of the gold standard that you didn't bring with you. If your currency is credibly backed by your assets, then you don't need a gold standard. If it isn't, then you are screwed anyway, even if you go to a gold standard.

Your screwed because your currency will still fluctuate relative to other countries anyway, because none of whom we viably trade with are on the gold standard. Their currency will fluctuate accordingly, and therefore we will not be shielded from export/import fluctuations. Furthermore, simply by going to such a standard you are basically conceding to the marketplace that your assets cannot credibly back your currency; this is a all too perfect set up for more of a crash, as investors will not want to deal with you in any capacity.

The idea of going to such a standard is reliant on the idea that commodities are somehow more stable then currencies, of which they are not. Gold fluctuates like any other market, and therefore your dollar backed by that commodity will also fluctuate not just according to the currency market, but to that commodities market as well. You have just added another layer of risk without any real benefit.

This could only work if the rest of the 1st world also went to the same standard; yet this would have to be governed by a world organization that would further remove countries individuality (think 'new world order' type stuff). Not really a good scenario for anyone in the long run.

Then there are some of the scenarios that Bob has painted; those things might happen to a degree enough to effect the marketplace and further take money out of circulation.

So, in short, going to a gold standard would probably be a bad thing...

I disagree, Paul. The gold standard would be a good thing to do for our country in the long run. We NEED to end fractional reserve banking and fiat money creation in order to have sound money and wealth creation. With the current system, the bankers can control the entire country, they can move all of our assets around, they can control the very direction that society moves.

Also, gold doesn't fluctuate in value. The dollar fluctuates in value based on the amount in circulation. A dollar that is backed by gold is trustworthy and a FAR more valuable trade medium. Having a dollar that is worth a known value now and in the future will actually DRAW business into our country.

Lastly, I think it needs to be said, going to commodity money is not going to be an easy sell to the powers that be. We very well could see a world war perpetrated upon us for this very thing. Every country that has a central bank and fiat currency is secretly run by financial interests. The power to create money is the power to control everything.

Going to a gold standard takes the power away from the banks and puts it into the hands of people. When value is measured in gold, people accumulate gold in order to have wealth. When wealth is created from nothing, the people who create the wealth control the whole game.

If the US went to a gold standard, the entire world would turn against us...

...for a short time. Then they would want to trade and the US would find a completely different society. A society that is more in line with what the Framers of the Constitution had in mind.

 

[Makalakumu]

Here is a thread specifically about the gold standard.

http://www.martialtalk.com/forum/showthread.php?t=69301&highlight=gold+standard

 

[Makalakumu]

When one thinks about it though, choosing gold, or any commodity for that matter, as a standard is arbitrary. It all boils down to other factors like GDP and assets that make up the valuation of your currency anyway, and attaching it to a commodity isn't going to change that at all.

You are right, it is arbitrary. The Gold Standard is one solution to the problems that face our economy and have faced our economy since we started printing fiat money and allowing banks to fractionally create money.

The Gold Standard limits the amount of dollars in circulation. The Gold Standard encourages the accumulation of wealth by pinning paper to something of real value.

There are a lot of other ways that this can be accomplished. I personally like the method suggested in this video. Government takes control of the creation of money and it is created by investments in our country. Politics are dominated by a governments ability to control the rate of inflation. The people have a choice in the matter through the ballot box.

Anyway, we are slaves to the banks with the current system. Willing slaves.

 

[Big Don]

Also, gold doesn't fluctuate in value.

If it didn't fluctuate, shouldn't the redline be FLAT?

 

[Bob Hubbard]

Actually Don, that's not a good comparison, since the value of the Dollar is all over the place. I think we need to look in a different direction.

How many ounces of gold = how many carets of diamonds = how much oil = how many tires for your car, etc.

Someone said to me once that it takes the same amount of gold today to buy 4 tires for a car, as it did 100 years ago. Don't know how accurate that is though.

 

[Cruentus]

I disagree, Paul.

Cool. I can see your points and points on the other side of the argument, and to be honest, I am not completely sold on my side of the debate. I am open to the idea of the gold standard, and realize that I could be wrong. However, I see some problems that haven't allowed me to move over to your side of the debate. In interest of time, I have broken up your post to subsequently respond (something I usually don't do, apologize in advance).

The gold standard would be a good thing to do for our country in the long run. We NEED to end fractional reserve banking and fiat money creation in order to have sound money and wealth creation. With the current system, the bankers can control the entire country, they can move all of our assets around, they can control the very direction that society moves.

What I see here is common with those in support of the gold standard; that is a distrust of the banking system and the appearance of no check/balance regarding our current banking environment. I can understand the distrust, however, the banking system is not just arbitrarily deciding how our currency is valued.

Currency is valued basically by goods and services, and is by itself a separate marketplace. This marketplace is regulated by governments monetary policies and production, of which countries are directly in competition with each other. This competition in and of itself acts as the check/balance system based on capitalistic principles. Going to a single standard worldwide, such as gold, would essentially create a worldwide currency, thus removing competition (the check and balance system) where whoever decides the valuation of gold and the currency to gold relationship would decide the value of currency. At best, it will only complicate the marketplace slightly; at worst it would lead to even more of a lack of check and balances then we currently have in the global markets.

Also, gold doesn't fluctuate in value. The dollar fluctuates in value based on the amount in circulation. A dollar that is backed by gold is trustworthy and a FAR more valuable trade medium. Having a dollar that is worth a known value now and in the future will actually DRAW business into our country.

Sorry man, but the idea that gold doesn't fluctuate is false. Gold is a commodity. Like Oil or wheat, it fluctuates due to supply/demand just as anthing else. Check this chart out:

http://www.financialsense.com/editorials/griess/2005/1202.html

This shows a gold index vs. the value of the dollar. Gold has fluctuated just as much as the dollar and has mirrored the dollar for the most part. Over a longer period of time you will find just about as much fluctuation in the gold market as our currency.

Lastly, I think it needs to be said, going to commodity money is not going to be an easy sell to the powers that be. We very well could see a world war perpetrated upon us for this very thing. Every country that has a central bank and fiat currency is secretly run by financial interests. The power to create money is the power to control everything.

Well, again, this "secret" stuff implies that there is some sort of sinister plan running our currency markets; a bold assumption that requires proof. This stuff isn't arbitrarily decided by evil rich people and banks; currencies are a function of production and assets, and there is a currency market where capitalistic competition becomes the regulator (or check/balance) system.

Going to a gold standard takes the power away from the banks and puts it into the hands of people. When value is measured in gold, people accumulate gold in order to have wealth. When wealth is created from nothing, the people who create the wealth control the whole game.

Our currency market determines wealth in a much fairer way then it would if the market went to a gold standard. Think of it like this; what if we went to an oil standard instead? Then those that could mine the most oil (middle eastern countries) would all of a sudden be the richest countries, despite their lower GDP. Fair? Not so much. At least this way our currencies are determined by a marketplace based on production and assets rather than an arbitrary commodity. The erroneous idea here is that wealth is created from "nothing," when it is in fact determined by assets and production values.

Also, if the worry is a small few deciding the valuation of currency and therefore "creating wealth," then basing currency off a commodity proposes a real problem. Because, who decides the value of gold? And who decides how much the dollar, yen, euro, dinar, or whatever is worth in relationship to whatever unit of gold? A small few perhaps? Yet, with a unified standard based off a commodity rather then assets and production, we might remove the capitalistic competition that is the very thing that protects the markets from being run by a small tyrannical few.

If the US went to a gold standard, the entire world would turn against us...

...for a short time. Then they would want to trade and the US would find a completely different society. A society that is more in line with what the Framers of the Constitution had in mind.

The framers of the constitution had the protection provided by capitalistic competition in mind, I would think. Yet, during their time period, a global marketplace as it exists today could not have been imagined. Those of us with a free society in mind understands that power shouldn't lie with a small few, and therefore healthy competition and diversity creates the proper checks and balances needed. Moving to a commodity based currency in favor of a currency based off production and assets might remove the competition needed to prevent a globalized facist takeover.

Also, there are countries that have "turned against us" now, and have in the past but now trade with us. This will continue to occur because the USD is still the default currency, and we are still the richest country in the world. If another country were to take that role over, hatred and reluctant trading would simply be redirected towards them.

conclusion: The push towards the gold standard in some circles has recently occured due to the dip in the US markets (all of them, currency, stocks, realestate, etc.), and where people see that the valuation of gold is now greater then the USD. This is a common occurence, and a fear response. When things are bad, we say, "Wow, we need to do something different... how 'bout this?" Keep in mind, we hit the great depression on the "gold standard," so this is no magic solution. Gold fluctuates like ANY market. Furthermore, just because gold is up, that doesn't mean that by equating our dollar to gold would mean our dollar would be more stable, or go up in relation to other currencies. Our dollar would be valued in accordance to a unit of gold, which would be based on our assets and production in relationship to other currencies. If gold was down instead, our dollar would simply be worth a higher amount of gold then if it was up. It arbitrarily accomplishes nothing because the valuation equates to assets and production anyway.

Right now, due to the backing of the Euro and the chinese currency, the dollar is down and people are scared. However, the USD is still the default currency for trade. But because it is down and gold is up, people think that the gold standard would help, and are willing to write about it. If the USD index was worth more then the gold index right now, then we wouldn't be having this discussion, most likely.

The bottom line is this: the case isn't compelling enough for me yet to agree with moving to a gold standard to determine USD value, rather then determining it based on assets/production in relationship to other countries/currencies. I don't like the current state of the US economy either, however I am not going to support a change simply because of that. The case has to be compelling enough to prove itself better; the gold standard has yet to do that, in my opinion.

Thanks for the stimulating discussion...


C.

 

[Makalakumu]

If it didn't fluctuate, shouldn't the redline be FLAT?

What is value, Don? How do you extract the value of gold from the value of the USD?

 

[Makalakumu]

The hard part about this is that the case can already be made so compelling thing with a simple google search of Ron Paul and Gold Standard or even just the Gold Standard.

Look, Paul, even wondering where money comes from is like looking at the rabbit hole.

Here's a great book that will trace the History of Banking.

You may or may not agree with his Jeffersonian/Libertarian viewpoint that he is taking, but I think that ANYONE can learn a thing or two about banking from this book.

Paul, I'm going to tell you this, the framers of our constitution felt so strongly that our money should be backed by something of real value that they wrote it into out constitution.

Check some of the stuff that has already been posted on MT and some of the stuff that I've cross linked into this thread. It'll change your mind. Or at least help you understand where money really comes from.

 

[Sukerkin]

With regard to the fluctuation of 'gold' noted above, just for clarity, you have to distingish between Gold, the real, yellow, shiny stuff and what is traded on the commodities markets. That difference is why Stock Market Gold was not the safe haven people thought it would be when the current crisis bit.