The WSJ Is Right - U.S. Should Return to a Gold Standard 46 comments
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I have to admit being a bit shocked to find myself on the side of Fox News, the WSJ and the Republican party, after so many years of being absolutely outraged and disgusted by everything that they did and said. I believe they were wrong on the war, expansion of the government, stripping of civil liberties and so many other issues during the Bush administration, but are absolutely correct on opposing the irresponsibility of printing and borrowing trillions of dollars to prop up the very banks and institutions that are responsible for the crisis we face today.
But enough of my ranting about the government’s runaway ego and rampant corruption, let’s get down to the key points from Wednesday’s WSJ article. Kudos to Judy Shelton for so bravely and brilliantly penning this piece.
Capitalism Needs a Sound-Money Foundation
Let’s give the Fed some competition. Abolish legal tender laws and see whose money people trust.A gold standard stands in the way of runaway government spending.
Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money — i.e., currency with no intrinsic worth that government has decreed legal tender — loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation — which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.
If capitalism is to be preserved, it can’t be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there’s no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.
So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies — and for good reason.
While I would like to see a return to the gold standard and think it is a critical step to solving our political and economic issues, I believe we will see the Federal Reserve, banking industry and government continue and accelerate current efforts to print our way out of the economic crisis.
As mentioned in the WSJ article above, too much fiat money creation results in inflation, higher prices and debasement of the currency. Savvy investors have been turning to gold and silver to hedge against inflation, protect their wealth and book significant profits as precious metals and mining companies skyrocket in value.
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Frankly, the concept is so fanciful. The US is just about broke. It is a good job the Fed doesn't actually have to print physical money, because frankly it could not afford the ink.
Backing with Gold is not going to work if you have to borrow money to buy the Gold in the first place.
And what then if the rest of the World turns around and say so what? If they conclude that all that has been done is to create a false market in a worthless yellow metal, then the US would have just squandered the little resource they had left to even make a long-shot at resolving this problem without collapse of the dollar.
Are you sure? When was last tme Fort Knox independently audited? in 1923?
On Feb 15 06:06 PM auto44 wrote:
> The last list I saw a few days ago listed the us gov't as the largest
> holder of gold at 8,133.5 tons.(seekingalpha.com/symbo...)
> was seventh in the world with894 tons. You figure out the ounces,
> my calculator doesn't handle numbers that large.
If you estimate the value it is about 1.6 trillion USD dollars
Before the US started printing money in the fall it had about 800 billion in circulaiton which is a gut check since the US represents about 50% of the world economy. The US now by some estimates has printed another 800 billion.
When a currency was tied to the gold standard it could not be inflated faster than new gold was mined...or about 2% per year
Nixon closed the gold window to stop the French from draining Fort Knox and got away with it...since that time every politician has fell to the temptation to simply print what they need to pay for programs/votes they need.
The largest problem is this... the US owes about 75 trillion dollars (admitted debt plus unfunded liabilities of Medicare, medicade and pensions) and the only way to pay is to devalue the currency.
But all of this is long term thinking...the short term plan is to stimulate...pump in more printed cash.
What happens when inflation takes hold? (that is what must happen when the dollar is diluted)
Can you say runaway inflation even hyper inflation
Gold and precious metals are the only hedge that folks will turn to.
All of this will come to pass within 1 to 5 years
The solution for the US Govn't will be to arbitrarily choose a new price for the metal and base a new currency upon it ...even fractionally..say 10% gold
The problem will be for all of those Americans who are expecting their pensions to actually be worth something..not to mention the holders for US treasuries
apparently 95% of all the gold ever mined is still in circulation
My final observation is that any county that owes 75 trillion against a 13.5 Trillion GDP as serious issues that folks are not waking up to (bankrupt)
Another bit of learning is that currencies never loose their ratings becuse a sovereign nation has the ability to print more...
I am watching with interest the US T bill auctions to see if there are still buyers...apparently there are problems there. Since the US has forcast a need to borrow 2 trillion this year...and 2 trillion next ...I fully expect the US will print money to buy their own treasuries (called monetizing your debt)
Restore the gold standard and restore the Republic!!!
Under the Articles of Confederation, the Continental Congress was granted the power to "emit bills of credit". At the Constitutional Convention, the Founders, deliberately did not include that power because of the disastrous experience with the continental; an early form of currency that became so badly inflated that for years, "not worth a continental" was a popular description of anything worthless. Of course, it is out of fashion these days for our leaders to abide by the Constitution. Mentally, ninety-nine percent of them mentally cross their fingers when they take the oath of office. (Thank Gd for Ron Paul, a noteworthy exception).
It's also ludicrous to claim that arguing for a gold standard is just a republican ploy. When did a Republican Party platform last call for a return to gold?
get my drift here?
People have been trading their labor for silver coin in the US. The IRS has taken it to court, and the courts have found that the silver coins really are legal tender. Therefore, the people involved pay tax on the face value of the coins.
If we all were to do major transactions in silver coin, and some banks were to set up accounts based on silver coin, we could have a parallel, legal, precious metal based economy overnight. The actual amount of silver coin required wouldn't have to be that great as long as the banks didn't get up to their old tricks. There's no reason there couldn't be real siver credit and debit card, etc.
Most likely if this comes to pass, the feds will declare silver coin to no longer be legal tender.
www.indianahonestmoney...
it's also pending in Colorado, getting ready to be filed in Ohio and there are 3-4 other states with similar legislation including Washington State.
This is a movement by people not governments, the federal reserve..opps I mean the federal government would never make this change again. From the bottom up.
Mark
DGCmagazine.com
What you don't consider is what the impact of another nation going to a gold standard would have on the US dollar. China is now the biggest gold producer in the world. The following shows a possible scenario for such an event.
www.murdockglobalinsig.../
The biggest hurdle is to get a coin shop in the area to make conversion from current dollars to U.S. silver coins conveniently and with a much smaller conversion mark-up. If you can guarantee a steady stream of customers wanting to convert currency, I think you could make a deal with a local shop.
For that matter, you could even open up a seperate business that does nothing but convert dollars to silver coins and make money on both sides.
On Feb 16 09:39 AM traxcavator wrote:
> Silver coins are still legal tender. If one wishes, one can make
> transactions with the proviso that payment will be in US silver coin
> at face value. (Recent court decision upheld a pre-Roosevelt contract
> denominated in gold.)
> People have been trading their labor for silver coin in the US. The
> IRS has taken it to court, and the courts have found that the silver
> coins really are legal tender. Therefore, the people involved pay
> tax on the face value of the coins.
> If we all were to do major transactions in silver coin, and some
> banks were to set up accounts based on silver coin, we could have
> a parallel, legal, precious metal based economy overnight. The actual
> amount of silver coin required wouldn't have to be that great as
> long as the banks didn't get up to their old tricks. There's no reason
> there couldn't be real siver credit and debit card, etc.
> Most likely if this comes to pass, the feds will declare silver coin
> to no longer be legal tender.
On Feb 16 11:15 AM kelm wrote:
> For any nation to go to a gold standard it just requires that gold
> and the currency be aligned in value. Taking the amount of gold that
> the US has (or doesn't have as the case may be) and looking at the
> current price of gold and dollars in circulation misses the point.
> If you got to a gold standard some of those variables change. Price
> of gold goes up dramatically, dollar is devalued, money supply is
> reduced or a combination. We also are not limited to gold as silver,
> platinum, palladium, and other metals are also possibilities.
>
> What you don't consider is what the impact of another nation going
> to a gold standard would have on the US dollar. China is now the
> biggest gold producer in the world. The following shows a possible
> scenario for such an event.
>
> www.murdockglobalinsig.../
>
>
video.google.com/video...
The reality of America, is that we are flat broke. So backing up every current dollar in circulation is a meaningless claim. If you wanted to keep the already printed legal tender as the note, then you place the value of the dollar to the gold at a very high amount. I don't reccommend this, because it may give some Americans the wrong because a 100 dollar bill might be equal to say, what 20 dollars is none. So it sounds bad, same really but appearances matter.
After the Civil War, when the South rejoined the Union all of its currency had to be removed from circulation because it was worthless because of the debt, because it was fiat money.
So, you completely eighty-six the dollar, and print a new currency with values that does not exceed the amount gold the US government currently possesses. To have an actual gold standard you can never print more money than you have in circulation.
There is no need to buy more gold because it the gold that has actual value, not the paper currency. The paper is merely a convenient means to carry and handle transactions in. One reason being, it's lighter. (No pun intended.)
It's the value of the gold that matters, not the amount. The reason I recommend the second way rather than the first, is that one, it's easier to do, and two, it's easier for non-economists and accountants to understand. Also, it would take less time for the economy to readjust because there would less speculation on the value of printed money, because there is no history of what it used to be valued at. It's still quite a change, but more manageable then the alternative.