Economic: Monetary Policy: Going Back to Gold Standard = More Wars?

[GopBlackList]

I was thinking, if we did hypothetically go back to the gold standard to back our currency would that encourage the possibility of more wars, say in countries that have huge reserves in gold?

 

[rpwi]

This is a good question. Ron Paul has been somewhat vague on the gold standard details...I believe he doesn't advocate a gold standard per say but would legalize competing currencies of which could (and in his mind probably would) include gold. Wish he would clarify this.

There isn't that much gold in the world. Probably about 10 billion ounces (roughly a third the size of the Washington Monument). The price of gold is about a 1000 dollars an ounce (little more but this is easier to calculate). So the total supply of gold in the world is worth roughly 10 trillion dollars. The amount of money we have depends on how you measure it. M0 = trillion dollars, m2 = 1 trillion dollars, M2 = 9 trillion. It would be a very tough task for us to migrate over to a gold standard given those numbers. We would make the few gold holders in the world become obnoxiously rich at the expensive of the public. So ironically if government starting buying gold to back the currency this would be a form of corporate welfare more onerous on the public than anything we had experienced before. Best that government doesn't buy assets to cover the currency, but keep M0 as is, stop meddling with banks and let a free market for currencies naturally exist.

There actually haven't been that many examples of authentic gold backed currencies in the history of central banking throughout the world. Nearly all (including the US) only backed their currency fractionally or by some small percentage and always crossed its fingers that everybody wouldn't demand their gold at once...which of course happened and is why we're off the fractional gold standard today.

My vote would be to just have the treasury (not the Fed) maintain a non-backed M0 money supply. They would legalize non-banks to access this (right now only banks are allowed to have 'electronic dollar bills' (deposits directly at the Fed) and this is messing with the market giving them an unfair advantage. M0 would then remained untouched or would grow at a small solid predictable rate (somewhat akin to what Friedman advocated).

If anybody is intersted in this subject in general, I would recommend the book, "What Has Government Done to Our Money? " by Murray N. Rothbard which has been made free to read online: http://mises.org/money.asp

 

[The Gold Standard]

Gold backed paper money is almost as bad as nothing backed paper money. The Fed/government can still inflate it, change reserve requirements, and end convertibility and so on. Government control of anything ends up in disaster. Competing currencies and repeal of legal tender laws that are enforced at gunpoint is the free market solution and the only solution. As prices rise in Federal Reserve Notes, they will stay the same or decrease in gold and silver and what have you. You have a choice to use the worthless paper if you want, but not many people will in time.

 

[rpwi]

Actually don't think government paper money (M0) is too bad...as long as government is not manipulating and inflating it. To be clear there are two types of money. Dollars Bills and direct deposits at the Federal Reserve (which the government converts between paper and electronic form as needed). This is not backed at all (although there are some residual assets the Federal Reserve holds as a holdover from the days they did practice having a partially backed currency).

Then there there are bank deposits (M1 - M0) which are fabricated by the private banking system, are fractionally backed and are a much larger source of inflation and malinvestment.

In the big picture the private banks are more of a problem than the Fed (although the Fed is an enabler because they prop up this fraudulent system).

Not sure that a commodity based currency would ever be practical. For gold or whatever to become a currency, it's market value would grow way out of proportion to its utility value so then gold would then become a 'paper currency' of sorts as it too was only fractionally worth what it should have been.

Furthermore, I'm not sure that M0 unless really inflated would ever really go away because it would always have the power to pay your yearly taxes...so would always have some utility. If government stopped accepting it to pay taxes, then it would collapse IMO. But am not sure that a commodity currency would take its place. Probably another foreign currency would instead (like what we see in third world nations when their domestic currrency starts to die and they have a market of competing currencies they prefer foreign fiat ones over commodity ones (again the fiat ones will always have value as long as they can pay government debts).

Certainly the government could not buy its way into a 100% backed gold currency as this would lead to circular logic. Imagine if the government spent a billion dollars to buy a billion dollars worth of gold. The result would be that M0 would be backed by M0/xgold %. Now imagine they did this again...because there would be less gold left on the market they price would rise and the government would have less. Repeat the process and you see the problem...a 100% backed gold based currency can't really purchase gold.

So IMO the problem is more complex than it seems...and that the government issuing and controlling the currency is ok...but they have to get rid of they way the Fed does things now (end fed dividends to banks, open market, discount window, asset accumulation, bailouts and all this other nonsense.

 

[DerekA]

Gold backed paper money is almost as bad as nothing backed paper money. The Fed/government can still inflate it, change reserve requirements, and end convertibility and so on. Government control of anything ends up in disaster. Competing currencies and repeal of legal tender laws that are enforced at gunpoint is the free market solution and the only solution. As prices rise in Federal Reserve Notes, they will stay the same or decrease in gold and silver and what have you. You have a choice to use the worthless paper if you want, but not many people will in time.

This, and this is what RP advocates as far as I know - making competing currencies legal. The gold standard is a relic from another era that ended because governments manipulated the currency anyway. The market can handle money like anything else, a la bitcoin. I can't see paper being an efficient means of payment these days.

 

[rockerrockstar]

I would be worried that other countries would get all our gold and we would have none. What if they exchange their paper money for our gold currency. I believe there was a reason we switched from gold to paper currency and kept our gold in Fort Knox.

"Under the administration of the French President Charles de Gaulle up to 1970, France reduced its dollar reserves, trading them for gold from the U.S. government, thereby reducing U.S. economic influence abroad. This, along with the fiscal strain of federal expenditures for the Vietnam War and persistent balance of payments deficits, led President Richard Nixon to end the direct convertibility of the dollar to gold on August 15, 1971, resulting in the system's breakdown (the "Nixon Shock")."-http://en.wikipedia.org/wiki/Gold_standard

Just think if we went to the gold standard China could trade in all the US bonds they own and take all our gold reserves. Just a thought. This could be a disaster.


I just think we need to consider that our gold our country has in reserve is an emergency fund that if the dollar crashes they can start over with it. Just a thought. I do agree with the ideas of returning to the gold standard but I am unsure if it is really a good idea. I think it needs serious investigation. Why did we leave the gold standard to begin with is something to think about. Also, what prevents the government from taking your gold and reissuing paper money later like they did before. Since there is a law on the books that the government can take your gold. Also, how would you know that your coin acutaly was pure gold and not just gold plated.

Governments that are on the gold standard normally go off the gold standard once a major war starts to help pay for the war. This causes inflation. Then they may or may not try to go back to the gold standard after the war is over. This is another reason to be careful in deciding the policy for the gold standard switch.

 

[Jingles]

Gold standard = less war.

We wouldn't have the ability to fund endeavors unless it was an actual real just war. Countries that are "rich with gold" would have extremely strong national defenses. It would difficult to invade a country that is on the gold standard.

"it doesn't matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the gold-unit. There is no need to tamper with the market in order to alter the money supply that it determines." -Murray Rothbard

 

[Travlyr]

Actually don't think government paper money (M0) is too bad...as long as government is not manipulating and inflating it. To be clear there are two types of money. Dollars Bills and direct deposits at the Federal Reserve (which the government converts between paper and electronic form as needed). This is not backed at all (although there are some residual assets the Federal Reserve holds as a holdover from the days they did practice having a partially backed currency).

Then there there are bank deposits (M1 - M0) which are fabricated by the private banking system, are fractionally backed and are a much larger source of inflation and malinvestment.

In the big picture the private banks are more of a problem than the Fed (although the Fed is an enabler because they prop up this fraudulent system).

Not sure that a commodity based currency would ever be practical. For gold or whatever to become a currency, it's market value would grow way out of proportion to its utility value so then gold would then become a 'paper currency' of sorts as it too was only fractionally worth what it should have been.

Furthermore, I'm not sure that M0 unless really inflated would ever really go away because it would always have the power to pay your yearly taxes...so would always have some utility. If government stopped accepting it to pay taxes, then it would collapse IMO. But am not sure that a commodity currency would take its place. Probably another foreign currency would instead (like what we see in third world nations when their domestic currrency starts to die and they have a market of competing currencies they prefer foreign fiat ones over commodity ones (again the fiat ones will always have value as long as they can pay government debts).

Certainly the government could not buy its way into a 100% backed gold currency as this would lead to circular logic. Imagine if the government spent a billion dollars to buy a billion dollars worth of gold. The result would be that M0 would be backed by M0/xgold %. Now imagine they did this again...because there would be less gold left on the market they price would rise and the government would have less. Repeat the process and you see the problem...a 100% backed gold based currency can't really purchase gold.

So IMO the problem is more complex than it seems...and that the government issuing and controlling the currency is ok...but they have to get rid of they way the Fed does things now (end fed dividends to banks, open market, discount window, asset accumulation, bailouts and all this other nonsense.

It is important to understand that the banking system does not create money. Banks manipulate currency.

Paper currency is not bad for the elite ruling class; however, irredeemable currency is bad for everyone else.

Paper currency and electronic deposits are not real money... they are claims to real money. Currency is printed or created, in other words, manipulated by the banking industry. Real money is produced by mining, growing or sewing.

• Big Government - Fiat money empowers rulers through force of law at the expense of individual liberty - Rulers control society.
• Limited Government - Real money empowers producers who have access to land or resources - Individuals control their own lives.

Theft is always an issue.
Fiat money theft is legalized, controlled by the ruling class, and characterized by redistribution of wealth.
Real money theft requires contract law and some way to settle disputes.

Wars are much more likely with a system of debasing currency. For example, The Federal Reserve Act of 1913 -> WWI 1914.

 

[Sola_Fide]

This little piece will answer all your questions about this issue:

No Shortage Of Gold by Hans Sennholz
http://www.google.com/url?sa=t&sour...5Zy1CA&usg=AFQjCNGo3HTZhlAqugO64G8-1GaPMYDySQ

 

[rpwi]

It is important to understand that the banking system does not create money. Banks manipulate currency.

Banks do create money...in fact much more than governments do.

If banks have 10X in checking accounts and only X in dollars, how are these checking accounts now created money?

Or put another way... If the local village deposits 1000 ounces of gold at the local gold smith for safe-keeping and uses the claim-slips as a means of trade...and the gold-smith then gets sneaky and issues more claim-slips than gold because he notices people trust him that he will always redeem their gold...how is that not creating money and causing inflation?

 

[Liberty74]

I am hearing the collapse is near. According to a top banker in Europe, two turning point dates to watch for are Feb 21 and March 20. The first will deal with a fresh new program downloaded where debt is cleansed. The second is where you and I will not recognize America as we do today.

Things to happen...

1) Greece goes bankrupt followed by other European countries
2) Latin America countries to follow
3) Mexico will default on their $100B creating a bank run
4) America has two weeks left after Mexico creating a bank run then bank holiday for up to 6 months
5) Marshall law

Where is this going? Perfect set up for Homeland Security, Patriot Act, NDAA, Internet Kill Switch, etc.

The powers to be know this is all coming. They are trying to control the collapse by forcing countries into more debt. In turn, these countries will have no where to go except to accept the NWO currency which is suppose to be backed by GOLD.

The pyramid of debt to prop up Socialism is coming to an end...

 

[acptulsa]

Actually don't think government paper money (M0) is too bad...as long as government is not manipulating and inflating it.

But when have they ever been able to resist?

And as for the question in the OP, how often do you really think we'd run off and have a war if we had to pay for it in advance? I mean really.

'I have a scheme for stopping war. It's this--no nation is allowed to enter a war 'till they have paid for the last one.'--Will Rogers

 

[Travlyr]

Banks do create money...in fact much more than governments do.

If banks have 10X in checking accounts and only X in dollars, how are these checking accounts now created money?

Or put another way... If the local village deposits 1000 ounces of gold at the local gold smith for safe-keeping and uses the claim-slips as a means of trade...and the gold-smith then gets sneaky and issues more claim-slips than gold because he notices people trust him that he will always redeem their gold...how is that not creating money and causing inflation?

There is a difference between currency and money. If money could be created, then there would be no need for banks. Banks create currency which are claims on money. Money is a valuable commodity and cannot be created. Money has to be mined, grown, or sewn.

In other words, the gold smith didn't create more gold (money), he created more claims against the existing gold (currency).