The Gold Standard

[Fort Lauderdale]

Does returning to the gold standard also mean that we will have no more paper money and we will have to pay for our groceries and our clothes with pennies, nickles, dimes and quarters? Will we have to walk around with tons of change in our pockets and purses when we go shopping? It's either that and/or we will have to pay using checks or a debit card?

 

[GeorgiaAvenger]

A gold standard would mean the currency value is in line with gold value

Now, if you had a competing currency, you could use a debit card based on the value of your metals that are in a deposit

 

[Travlyr]

100% redeemable currency would mean that you could take your paper certificate to the store and buy whatever, or you could take it to the bank and get gold if you wanted.

 

[Acala]

First of all, Ron Paul does not advocate forcing the country onto a gold standard. He advocates repealing the laws that force people to use the funny money created by the Federal Reserve. He wants people to be free to choose the money they use. Of course if history is any guide, people will choose gold and silver.

For the sake of answering your question, let's assume people choose to use gold as money. There is no reason you could not have debit cards, checking accounts, paper bills, electronic transactions, and token coins all backed 100% by gold. You could, for example, use gold coins to buy a car, and token coins representing a tiny fraction of an ounce of gold to buy a magazine. Or you could write a check for an ounce of gold payable out of your stash of gold coins at the bank.

 

[Travlyr]

Plastic would work too. If you had $1000 on your debit card, then you could take it to the bank and get $1000 worth of gold, or you could spend it at the store. It would work just like it does today, the only difference is that the money is based on real value not just on faith.

 

[TheGrinch]

I think the OP is confusing that gold wouldn't be the currency persay, that would be the dollar or whatever competing currency prevailed (that's the part I admittedly don't understand quite as much)....

But it's more about the dollar being backed by gold or another commodity like silver like it used to be.... As they continue to print money like they do right now, then the only thing the dollar is really backed by is confidence of the issuer, which is of course rapidly waning... So it's not so much gold in itself as much as the currency being backed by something tangible, to where it's value can remain steady.

That's it in a nutshell anyway. The conversation of course becomes much more complicated when you get into inflation (which as Dr. Paul says, should be seen as a tax by devaluing the currency) and of course the lack of transparency with the Fed, among many reasons why the Gold standard (or moreover any competing currency that is backed by something tangible) makes far more sense.

 

[sailingaway]

Mexico has gone through several depreciations of currency where the middle class savings were wiped out. Some years ago, the Mexican government consulted with Ron on how to set up the system they have now where they don't use silver per se as currency, but you have the option of holding your savings in silver, to address potential devaluation. Ron isn't a nut, he has very concrete ideas.

 

[William R]

Does returning to the gold standard also mean that we will have no more paper money and we will have to pay for our groceries and our clothes with pennies, nickles, dimes and quarters? Will we have to walk around with tons of change in our pockets and purses when we go shopping? It's either that and/or we will have to pay using checks or a debit card?

Plenty of paper money. But you could take your paper and exchange if for a fixed amount of gold. If people think the monetary authorities have issued more paper than the economy needs people start turning in their paper. This signals bankers to start withdrawing credit from the economy.

 

[Edu]

For a long time you could walk into a bank and turn in your sliver certificates for one ounce of silver (which is at about $33 today). Search for "sliver certificate" on google and lots of coin shops will have pictures, looks like a normal paper dollar.

They used to be "United States Notes" not "Federal Reserve Notes", there was a promise to pay in silver.

A Note is DEBT! But in the case of a promise to pay sliver, that's the debt, the silver they owe you.

In the case of FRNs - well, you figure it out.

 

[squarepusher]

 

[floridasun1983]

Actually. Ron said in the last debate (http://www.youtube.com/watch?feature=player_embedded&v=Sv96YIFsZfQ its in the first minute) that he advocated a return to the gold standard. He has also said in the past he advocates competing currencies.

 

[rpwi]

A literal return to a gold standard would be scary. It would either be a fractional based one where M0 is say backed by say .1% by gold assets...or it would be 100% back currency. If the former...this would be too unstable. There would be a run on gold and you would have a government default and a very upset public. If we went to a 100% system our economy would be in ruins. There just isn't enough gold...and the many trillions it would take to buy the guy would result in crippling debt or inflation. Government should never buy gold...it is a form of state-tyranny...albeit very indirect.

What most people don't realize is that gold is already a fiat currency. If you take the market value of gold currently and subtract its industrial value, you have fiat/speculative value. This is not something government should be using tax payer money to buy. Silver and other precious metals are better but still have the same problems.

A third option for President Paul would be to peg the dollar to gold. If we went to a pegged based system we would have to purchase a lot of gold and do a lot of market manipulation to keep the dollar even with the price of gold. Pegging is artificial currency manipulation and country after country who has done it has gotten burnt because it is so easy for FOREX traders to game the system and fleece governments through their forced transactions to maintain an artificial PEG.

My preference would be to get rid of the FED and more specifically it's management role. No more lending/bailing out institutions/going into debt/no more hoarding assets... Fed would get liquidated and the responsibility for maintaining M0 would go to the treasury with the receipts going directly into the budget. M0 then would either remain static or would grow at a constant rate (somewhat similar to what Friedman suggested back in the early 80s). The growth of the money supply would not be determined by the president or by the budget...but by law...and the only way to set a new growth rate would be to pass a new law. The president would then as an extra check be able to unilaterally move the growth rate down at his discretion and it could only go back up by a new law.

 

[sailingaway]

Ron Paul EVENTUALLY wants actually a currency pegged to a fluctuating basket of commodities chosen by market, (Hayek described it). However, he speaks of gold because that is what is in the Constitution, and people should have a right to that unless they amend it. BUT just as his budget plan on his website, not his ideal of zero income tax, is his plan, he as a transition would go to competing currencies to keep the fed from printing by the fact that its notes would have to compete with hard money.

Ron speaks of first principles too much without distinguising that they are the ideal The problem is, people have never heard of this stuff and there is so much to explain in your typical 30 second debate answer.

the idea that 'there is not enough gold' isn't correct, though, the price would just go up. However, as I said, he really is just going for competing currencies and as a policy matter, would best like a basket of commodity pegged currency, eventually.

 

[floridasun1983]

My preference would be to get rid of the FED and more specifically it's management role. No more lending/bailing out institutions/going into debt/no more hoarding assets... Fed would get liquidated and the responsibility for maintaining M0 would go to the treasury with the receipts going directly into the budget. M0 then would either remain static or would grow at a constant rate (somewhat similar to what Friedman suggested back in the early 80s). The growth of the money supply would not be determined by the president or by the budget...but by law...and the only way to set a new growth rate would be to pass a new law. The president would then as an extra check be able to unilaterally move the growth rate down at his discretion and it could only go back up by a new law.

This is all well and good, but just like you see with the debt ceiling stuff, the politicians have a field day with this stuff. I'm not sure trading the idiots at The Fed with the idiots in Congress is a trade up.

 

[lakefx]

I may, or may not have, a couple of these laying around...maybe. .

Pictures are easier to understand sometimes.

Basically you can use gold coin and certificates interchangably. A person can redeem gold for certificates at the bank, and visa versa. In theory, there would always be $20 worth of gold for every $20 bill for example. As the price of gold climbs, the value of the certificate climbs too, thus it's buying power also climbs.

On the other hand, the gold standard is disciplined, you can't print more money unless there is more gold. Therefore, you can't fund a bailout of an institution by printing the money for it and inflicting 'an inflation tax'

The net result, or ideal, is that the cost of everything stays nominal with the value of gold, rather than continuously inflating like the dollar does today. Inflation rates of 3,4 and 5% that we have been seeing for decades, would have been closer to 0%. meaning that a gold $50 bill would buy you a whole playstation 3, rather than a single game.

It also closes the wealth gap. Many of our nations billionaires indirectly, or directly, made a lot of wealth on essentially printed money. Case in point, if you own stock in GE, and the USA prints money to fund a war, GE gets that investment, and the value of GE's stock goes up. Or Goldman Sachs gets a truckload of printed money to reinvest in loans and stocks, and of course huge bonuses for it's top eschilon. That same printed money devalues the money in the pockets of every American, further reducing our buying power. That's oversimplified, but you get the idea.

 

[rpwi]

This is all well and good, but just like you see with the debt ceiling stuff, the politicians have a field day with this stuff. I'm not sure trading the idiots at The Fed with the idiots in Congress is a trade up.

I'm not sure there is too much you could do to protect the money supply other than an amendment to the constitution. The status quo obviously isn't working. As it is now, Congress could already pass a law stipulating that the money supply would grow at X rate and be directed into the budget, which they have not done. They could also pass a law stating we would have to pay 90% taxes. I agree Congress tends to be evil...but to a certain point you have to realize that unaccountable evil (the Fed) is worse than accountable evil in the congress. The President could be a check on congress to some degree (unlike with the debt ceiling rules) and with my proposal he could ratchet down the rate at his discretion.

 

[rpwi]

Ron Paul EVENTUALLY wants actually a currency pegged to a fluctuating basket of commodities chosen by market, (Hayek described it).

I respectively disagree with Ron then. That would be out of the frying pan and into the fire as inflated commodity prices (be they gold/silver/copper/etc...or a combination thereof) would just constitute another fiat currency...but one in which we would have to buy from the private market and couldn't create ourselves.

the idea that 'there is not enough gold' isn't correct, though, the price would just go up. However, as I said, he really is just going for competing currencies and as a policy matter, would best like a basket of commodity pegged currency, eventually.

I do like the idea of competing currencies...it's simple and lets the market take care of some these complicated issues. Back to the point about government being able to convert its money supply into gold...

Let's look at the figures.

There is probably 10 billion ounces in the world (roughly a third the size of the Washington Monument)
The price of gold currently is 1000 dollars per ounce (roughly...makes calculations easy)
Worldwide gold supply is probably worth currently 10 trillion dollars.

Now let's look at our fiat currency.

Monetary base (M0) is about a trillion dollars.
Monetary base plus bank created money (M1) = about two trillion dollars
M1 + near deposits = (M2) = about 9.5 trillion

Source: http://www.shadowstats.com/charts/monetary-base-money-supply

Now imagine if you will that government starting buying gold in say lots of a billion dollars worth. They couldn't do it. The more they bought, the more the price of gold would spike...to the point where we would not have enough M0 to buy the remaining amount of gold to complete the backing. This scenario even assumes that 100% of the world's gold supply would be for sale (it wouldn't) and it ignores the problems of bank money (a probably regardless to be granted).

 

[MoneyWhereMyMouthIs2]

First of all, Ron Paul does not advocate forcing the country onto a gold standard. He advocates repealing the laws that force people to use the funny money created by the Federal Reserve. He wants people to be free to choose the money they use. Of course if history is any guide, people will choose gold and silver.

The truth is that this is such a big distinction when talking with people. Because they have been programmed to believe that "going back to the gold standard" is somehow "going backward," it irks people. It needs to be presented as allowing competing currencies, but that is still too much for people to wrap their heads around.

So what is the best way to make this point to people?

 

[musicmax]

Mexico has gone through several depreciations of currency where the middle class savings were wiped out. Some years ago, the Mexican government consulted with Ron on how to set up the system they have now where they don't use silver per se as currency, but you have the option of holding your savings in silver, to address potential devaluation. Ron isn't a nut, he has very concrete ideas.

Do you have a reference for that? I tried googling "ron paul mexico currency" and came up blank. Would be great to illustrate to people how Ron's currency's ideas are actually in effect and protecting families' savings.

 

[socal]

rpwi,

A couple of your definitions/numbers are off:

1) Gold is not a fiat currency using the accepted definition, as it has intrinsic value and cannot be willed into existence,

https://secure.wikimedia.org/wikipedia/en/wiki/Money
Fiat money is without intrinsic use value as a physical commodity

https://secure.wikimedia.org/wikipedia/en/wiki/Fiat_money
Fiat money is money that derives its value from government regulation or law. The term derives from the Latin fiat, meaning "let it be done" or "it shall be [money]", as such money is established by government decree.

2) In the US, the monetary base (MB) includes coins, currency, and bank reserves, and is about $2.8 trillion (edit: it looks like you were using the year over year % change figure for the monetary base),

https://secure.wikimedia.org/wikipedia/en/wiki/Money_supply
http://research.stlouisfed.org/fred2/series/BASE

3) Using CNBC's figures of 8,965.6 tons of gold held by the US, a monetary base of $2.8 trillion, and $1,700/oz gold gives a gold price of a little less than $10K/oz to back up the US monetary base with gold. So backing 0.1% of the monetary base with gold like you mentioned would give a gold price of $10/oz,

http://www.cnbc.com/id/33242464/The_World_s_Biggest_Gold_Reserves?slide=16