Gold Standard ........good timing

• Belly35

  

  Back to gold
  
  http://online.wsj.com/article/SB10001424052702303695604575181693906532202.html
  
  OPINION
  MAY 7, 2010
  The Gold Standard: The Case for Another Look
  By SEAN FIELER AND JEFFREY BELL
  Washington's elites are quietly preparing a post-election fiscal compromise that will fund much of President Barack Obama's domestic spending agenda with huge tax increases. They aim to create a value-added tax and will argue that there is no alternative even though doing so will leave the United States resembling the stagnant, bureaucratic nations of Western Europe.
  
  But there is an alternative. The U.S. could return to a gold standard, a system that would not only prevent the government from running chronic budget deficits but would also curb attempts to manipulate the value of the dollar for political reasons.
  
  The value of a gold standard was proven in the 19th century. Following the English parliament's passage of the Coinage Act in 1816, which created a gold standard in England in collaboration with the semi-private Bank of England, gold gradually displaced copper and silver to become the world's sole final currency. In doing so, gold established ground rules for international trade and integrated the world's economy. Countries that adopted the international gold standard prospered. This remarkably successful monetary system only blew apart with the outbreak of World War I in 1914.
  
  The reason it came apart then—and not at other times when countries abandoned the gold standard to finance wars with deficit spending—was that World War I was the first conflict to affect every major economically advanced country in the world. The U.S. suspended dollar convertibility to gold to finance the Civil War in the 1860s, but because Britain and other major economies did not suspend convertibility of their currencies there was an existing standard for post-Civil War America to rejoin. This wasn't the case after World War I.
  
  This might not have mattered, and the major economic powers might have re-established a monetary system similar to what existed before the war if not for the central reason why political elites dislike the gold standard: It leaves them little room to run the economy and claim credit for its successes. If you ask political elites why they oppose returning to gold today, they are apt to laugh uproariously and imply that adopting a gold standard is the policy equivalent of reviving the horse-drawn carriage. But their deeper reason is that they prefer to retain power over the economy that they would not have under a gold standard.
  
  Since the crackup of the international gold standard, all subsequent international monetary regimes have elevated dominant paper currencies—first the British pound, later the dollar—as the final money of the world. This set up a critical imbalance of international demand for dominant paper currencies, even while gold remained formally in the system between 1922 and 1973. Following the Nixon administration's decision to end the last vestigial (and exclusively foreign) convertibility of the dollar to gold in 1973, the American dollar has been in demand all over the world both for purposes of international trade and foreign central-bank liquidity.
  
  But foreign central banks don't stack their greenbacks in vaults. They maintain monetary reserves mainly as interest-bearing U.S. government-backed debt securities—in effect, as unsolicited loans to the U.S. government. So by expanding its monetary base, China is both increasing monetized dollars and increasing the borrowing capacity of the U.S. government. That increase in borrowing capacity creates liquidity that is unrelated to any need of Americans involved in economic transactions.
  
  It is little wonder then that in recent decades—beginning most notably in the 1980s—the U.S. has registered far bigger budget deficits, accompanied by far smaller economic strains, than has been the case for countries whose currencies lack the standing of final money. The government of Charles de Gaulle, president of France from 1958 to 1969 and a supporter of returning to the international gold standard, once assailed this American liquidity advantage as an "exorbitant privilege."
  
  But for the U.S., the dollar standard has proven to be less like a bed of roses than a whack-a-mole game. In the 1960s, the mole that popped up was a weak dollar, which triggered accelerated gold outflow from the U.S. to foreign governments. In the 1970s, the mole took the form of high inflation and stagnation. In the 1980s, high interest rates and big budget deficits that reared their heads. In the 1990s, regional or one-sector investment bubbles triggered emergency easing of interest rates by the Federal Reserve. Finally, reacting to deflation fears following the bursting of the dot-com stock-market bubble, the Greenspan Fed pushed the federal-funds rate down to 1% or less and kept it there for far too long.
  
  This brought forth the Mount Everest of bubbles, a boom in U.S. residential real estate derivatives that spread all over the world. When credit-worthy investors and firms can borrow money for virtually nothing and aggressively leverage their investments in a market that seems headed in only one direction, no force on earth—not even an Obama-appointed regulator—is going to stop them from making that bet.
  
  Now Ben Bernanke's Fed is repeating recent patterns of keeping interest rates too low for too long, creating new bubbles and risking a whack-a-mole encore: 1970s-style stagflation. Before that happens, we need to lead the world back to the monetary system that worked better than any other—and, moreover, the one most appropriate for a global economy that is integrating about as rapidly as it was in 1900.
  
  The first step in cutting off the addictive flow of foreign central-bank capital to Washington is an American commitment to a dollar convertible to gold on a date certain. The second step is allowing the market, in the run-up to that date, to find and fix a dollar price of gold that would encourage other nations to replace dollar reserves with gold holdings as their new monetary base, whether or not they choose initially to join the new international gold standard.
  
  These steps alone would put an end to the U.S.'s ability to run painless budget deficits financed by foreign central banks. But we should also provide an insurance policy against the tendency of political elites to fool around with our money. Legislation restoring dollar-gold convertibility should be accompanied by passage of a constitutional amendment guaranteeing the American people a right to conduct their economic affairs in gold, regardless of the future status of gold as the official money of the United States.
  
  The unexpected rise of the tea party movement over the past year should be sobering for Washington's bipartisan elite. It's a sign that many American voters are prepared to consider ambitious, even radical proposals to preserve the system of limited government the Founders created and that gave the U.S. the greatest economy ever to exist. We believe what this country needs most urgently is a dollar worth its weight in gold.
  
  Messrs. Fieler and Bell are, respectively, chairman and policy director of the American Principles Project, an advocacy group based in Washington, D.C.
• ptown_trojans_1

  

  Belly, per the rules, please provide your opinion on the piece rather soon.
• Belly35

  

  For those that don’t know what the gold standard is. It’s when the value of a country's money is tied to the amount of gold the country possesses. Anyone holding that country's paper money could present it to the government and receive an agreed upon value from that country's gold reserves. What administration abandon this American system of Gold Standard..
  One of the biggest benefits of this system is that money is backed by a fixed asset. It provides a self-regulating and stabilizing effect on the economy. Another benefit is that it controls the government spending. Government can only print as much money as its country has in gold. This discourages inflation, which is too much money chasing too few goods. It also discourages government budget deficits and debt, which can't exceed the supply of gold. Present and past administration has abused system, out of control printing and spending as we are witness to in the Obama Agenda. More productive nations are directly rewarded. As they export more goods, they can accumulate more gold. They can then print more money, which can be used for investing in and increasing these productive businesses. China will own America if America does not rethink the Gold Standard NOW.
  
  
  Nice day yesterday in the gold market: I made up for April Taxes
• Con_Alma

  Belly35 wrote: For those that don’t know what the gold standard is. It’s when the value of a country's money is tied to the amount of gold the country possesses....

  It's my understanding that the Gold Standard is a monetary system whereby the value of a country's currency is backed by gold...not the other way around.
  
  In general I am a believer in the Gold Standard. I don't like the fact that under a Gold Standard the government is restricted in controlling the money supply which can lead to inflation and depression periods that can't be "dampened". it would be nice to have some ability to, at least a minor ability, to throttle or minimize these peaks of cycles.
  
  In light of the irresponsible government we continue to put into place, however, that seems to be irrelevant anymore.
• LJ

  

  The Gold Standard is when there is $1 worth of gold in storage for every $1 of currency circulation.
  
  A Pegged currency is when $1 of currency = .x ounces of gold.
• Con_Alma

  I think that's what I was politely saying.
• queencitybuckeye

  Why gold? Why not silver? Zinc? Granite?
• I Wear Pants

  Is there even that amount of gold?
• Belly35

  

  I Wear Pants wrote: Is there even that amount of gold?

  Good question very good
  
  Does anyone know this answer?
  
  But if you think of the value of gold an the potential to increase in value with a Gold Standard back in place in America than could off set the amount of gold we have available value. Hell I’m confused what I’m trying to say.
  
  Yesterday 51 oz of gold purchase at 980 market jumped to 1210 …230 jump (should of sold but I’m holding…I think it will go to 1300 or more)
  
  Let say that gold jump to 2000 oz what amount of gold the federals have increased in value and that increase maybe able to match the money present in circulation. I don’t know that for sure just a comment.
• QuakerOats

  http://www.investors.com/NewsAndAnalysis/Article.aspx?id=532490
• sleeper

  

  God no. A gold standard would be the last thing America needs right now, it won't work, you can take that to the bank.
• Cleveland Buck

  

  It's all going to be ok. We won't have jobs or food, but we will all have health care and social security.
• Footwedge

  I Wear Pants wrote: Is there even that amount of gold?

  
  
  Plenty of mining companies still gold digging.
• I Wear Pants

  What?
• Footwedge

  All I'm inferring is that the cumulative amount of gold in the world increases every day because of gold mining companies. You asked if there is "even that amount of gold". Not sure what you meant by that question. The amount of gold is not a finite number.
• Footwedge

  Belly35 wrote:

  I Wear Pants wrote: Is there even that amount of gold?

  Good question very good
  
  Does anyone know this answer?
  
  But if you think of the value of gold an the potential to increase in value with a Gold Standard back in place in America than could off set the amount of gold we have available value. Hell I’m confused what I’m trying to say.
  
  Yesterday 51 oz of gold purchase at 980 market jumped to 1210 …230 jump (should of sold but I’m holding…I think it will go to 1300 or more)
  
  Let say that gold jump to 2000 oz what amount of gold the federals have increased in value and that increase maybe able to match the money present in circulation. I don’t know that for sure just a comment.

  A couple years ago, I bought gold at around 900 per share. Held it for about 4 months and then got rid of it. The price fluctuated and I broke about even.
  
  The thinking on investing in gold is hedging an unstable market. Except if the crap really hits the fan, gold's prices will plummet as well. You can't eat or drink gold. Like any other commodity, it is priced by speculators that in my opinion, are collective market manipulators.
• IggyPride00

  

  Gold won't do anyone alot of good in the sense that if the price gets out of control at some point and our currency is in free fall, the government will just start seizing gold again like they did in the 1930's.
  
  The Supreme Court already ruled it constitutional for the government to essentially confiscate your gold were it to choose to do so (as long as they gave you worthless paper money in return).
  
  If we ever get to a point where we are in a true currency crisis, anyone who thinks gold confiscation isn't coming back is naive as they will do any and everything to save the dollar no matter how far fetched the idea of it may seem.
  
  The fact the groundwork is already laid (should they find it necessary to do again) along with the stamp of approval of the S.C should scare the bejesus out of any goldbug who comforts themselves with the thought they are well hedged against the possible collapse of the currency through their gold or silver holdings.
• I Wear Pants

  Footwedge wrote: All I'm inferring is that the cumulative amount of gold in the world increases every day because of gold mining companies. You asked if there is "even that amount of gold". Not sure what you meant by that question. The amount of gold is not a finite number.

  What I meant is this "is there enough gold in the world to represent all of our monetary exchanges and to account for increases in the money supply due to new work being done/new people entering the workforce?"
  
  Seems to me that saying "this dollar bill represents xxx amount of gold held by the treasury" wouldn't work out as there is a constantly expanding amount of work and goods being exchanged that couldn't possibly be met with the same rate of expansion in the gold cache.
• sjmvsfscs08

  You know what else works?
  
  Fiscal responsibility.