If Not Gold, What Then?

[Thom1776]

I have the answer, but in the mean time, here is an interesting and in depth piece on the subject:

http://landru.i-link-2.net/monques/goldx2.html

[TeeJay]

Ron Paul has spoken several times about the need for a "commodities" backed dollar. I agree with the article linked above, about the deficiencies of a gold backed dollar. The value of gold fluctuates too much to be the only foundation for a reliable currency.

I am hoping Ron Paul has in mind tying the value of the dollar to a basket of commonly used commodities with the prices determined by already existing futures contracts. This would be a true free market approach.

A basket of from between 10 and 12 commodities would work fine. The commodities basket might include approximate equal value amounts of: gold, silver, steel, aluminum, oil, lumber, concrete, wheat, corn, rice, potatoes and soybeans. A provision should be made to be able add or subtract commodities as necessary if a certain commodity stops playing a major role in the economy.

Stop the inflation tax!

[Bradley in DC]

Ron Paul has spoken several times about the need for a "commodities" backed dollar. I agree with the article linked above, about the deficiencies of a gold backed dollar. The value of gold fluctuates too much to be the only foundation for a reliable currency.

I am hoping Ron Paul has in mind tying the value of the dollar to a basket of commonly used commodities with the prices determined by already existing futures contracts. This would be a true free market approach.

A basket of from between 10 and 12 commodities would work fine. The commodities basket might include approximate equal value amounts of: gold, silver, steel, aluminum, oil, lumber, concrete, wheat, corn, rice, potatoes and soybeans. A provision should be made to be able add or subtract commodities as necessary if a certain commodity stops playing a major role in the economy.

Stop the inflation tax!

Basket approaches are completely unworkable (look at the Thai baht basket approach that set off the Asian financial crises--yes, they had fiat currencies, but the basket was the problem). Market determined prices of gold don't fluctuate "too much" (note your subjective determination)--all values are subjective (Austrian economics), that's the point. We need the price signalling mechanism of the market to have real information to make decisions. Bureaucrats would manipulate baskets for "discretionary" policies. Better to have competing currencies backed with different real assets. I did, some years ago, see a proposal for currency backed by an S&P 500 portfolio of stocks that, I guess, would be a basket not subject to discretionary manipulation. But, yes, of course, you're right--the important thing is to stop the monetizing of the debt that causes the inflation.

[Meistro1]

Ron Paul doesn't want to tie it to anything. Let the market decide.

[Kregener]

The value of gold fluctuates too much to be the only foundation for a reliable currency.

This statement shows you do not have a real understanding of gold, or fiat currency.

[Highmesa]

Ron Paul has spoken several times about the need for a "commodities" backed dollar. I agree with the article linked above, about the deficiencies of a gold backed dollar. The value of gold fluctuates too much to be the only foundation for a reliable currency.


I preface this by saying I don't think a pure gold standard would be wise.

The value of gold in relation to the official currency would however, NOT fluctuate. It would be set so that: x dollars = y gold. YOu would always be able to exchange the x dollars for the y gold used to purchase it in the first place.

The bigger problem in my mind is the limit in the quantity of gold which would in effect limit the money supply. Well, at least the official currency supply.

Ron has spoke of eliminating the Federal Reserve, a de facto monopoly on providing currency and allowing for private currencies. Allowing private currencies, and eliminating the monopoly is, in my mind, the essential factor, and why he is treading on dangerous ground.

These currencies already exist, but are not practical due to tax implications. That is why eliminating the personal income tax goes hand in hand with eliminating the Federal Reserve. If the US gov't wants to issue currency based on silver or gold, that is fine so long as there are other currencies, based on whatever standard the issuer wants and users are willing to accept. It could be any commodity.

I want to take exception with one part of that article quoted below:

"Winning two world wars, once having the highest now reputed third or fourth average standard of living in the world, and development of spectacular technology including space exploration were all accomplished under bankers’ debt-money schemes, but this is not a defense of bankers’ debt-money. It must be repeated that criticism of bankers’ debt-money is found elsewhere. This is to suggest that the U. S. could not have developed as it did under the restrictions that a gold money system would have imposed."

In my mind these are exactly the types of things that the federal government should NOT be involved with. Other than the wars, all the above listed accomplishments could and would have still happened without the Federal Reserve monopoly. They just wouldn't have happened under the central planning of an overbearing federal government. In fact, we, as a society, would likely be much more evolved by now without this central direction. I think it wrong and deceptive to claim that the monetary system had ANYTHING to do with these accomplishments. The relative abundence of natural resources on the "new" continent had much more to do with this country's prosperity over the first 200 years.

That era has unfortunately come to an end though, and our prosperity going forward will more be based on our relative productivity and freedom in relation to the rest of the world. The freer our markets, the more likely others will be to want to trade with us. For over 200 years we have been the bastion of innovation and productivity, but that has been squandered over the last 50 years in building socialist schemes that make doing business in the USA more and more exspensive relative to the level of productivity. This is why more and more production of goods is moving to China, Mexico, and the Pacific Rim.

The creation of, and expansion of credit markets was essential for one thing - to allow this country to get into foreign wars. And boy did we ever! Private credit markets would not dry up, backed by the value of tangible and intangible assets instead of the "full faith and credit fo the US Government."

This is why it is essentail to get Ron into the White House, and why the king makers will do everything in their power to stop it from happening. They are taking advantage of the masses for their own benefit. Making these basic yet revolutionary changes would free the average person to live a much more prosperous life, and at the expense of those who would rather keep us under their thumbs.

[foofighter20x]

The value of gold in relation to the official currency would however, NOT fluctuate. It would be set so that: x dollars = y gold. YOu would always be able to exchange the x dollars for the y gold used to purchase it in the first place.

I don't know how many times I've said this here, but I'll say it again.


No such equation is what Dr Paul wants.

He just wants currency competition. That's it. He wants to let the market do its work, and that can't happen if gov't sets a fixed rate on gold.

[Larofeticus]

The pet idea that i've always had was this:

Tie the Fed's ability to print new money/issue credit to the value of gold/or some index of commodity values, by putting a ceiling on it.

They still have control over their interest rate, but if the price of the index commodity (or commodities) they can't issue new loans.

As things are now there is no limit to the amount of loans they can limit, my suggestion would still provide the protection against deflation that we have with the current fed, but also protect against hyperinflation and weaken the boom/bust cycle.

Since we'd be sunk if the index actually exceeds the limit, the fed would be extra cautious when setting rates so that there is a lot of slack between the ceiling and the actual value.

The end result would be a money supply which rises and falls with the rate of production, which is pretty much ideal for price stability, and that a dollar amount will always buy a minimum amount of real goods.

[Highmesa]

I don't know how many times I've said this here, but I'll say it again.


No such equation is what Dr Paul wants.

He just wants currency competition. That's it. He wants to let the market do its work, and that can't happen if gov't sets a fixed rate on gold.


Ummm...I never said that is what Dr. Paul wants. I was just stating what a gold standard is.

In fact, I think I said pretty much the same thing you did. End the monopoly and it really doesn't matter what the gov't does.

[foofighter20x]

Ummm...I never said that is what Dr. Paul wants. I was just stating what a gold standard is.

In fact, I think I said pretty much the same thing you did. End the monopoly and it really doesn't matter what the gov't does.

You didn't say it explicitly... or implicitly for that matter. :p

You'ze gots ta sez it!

[atilla]

turkey gizzards

[angelatc]

Didn't Ron Paul mention something about industrial-grade silicone at the Google talk?

[foofighter20x]

If the world traded in kisses-for-cute-girls, I'd be a gajillionaire. :o

[Lesgov]

Right now neither gold or silver or anything else for that matter is legal tender except frn's.
You can not pay on your mortgage with cucumbers, spaghetti, diamonds, or anything but frn's.
Ron is talking about making silver and gold legal tender at market prices. If this happened, the frn's would have to compete with them,which do you think would win out?

[foofighter20x]

Right now neither gold or silver or anything else for that matter is legal tender except frn's.
You can not pay on your mortgage with cucumbers, spaghetti, diamonds, or anything but frn's.
Ron is talking about making silver and gold legal tender at market prices. If this happened, the frn's would have to compete with them,which do you think would win out?

to be honest, gold and silver would only become the choice store of wealth... but exchange currency would remain FRNs

why?

gresham's law

[Man from La Mancha]

to be honest, gold and silver would only become the choice store of wealth... but exchange currency would remain FRNs

why?

gresham's law

Anonymous gold trading now

Right now you can sell and purchase goods with gold at amounts less than a penny to thousands of dollars on an international basis. The best way to introduce this system is join one of the Egold groups and give out gift certificate in this 100% gold backed trading system, then the gift receivers would have to join to spend their gift. Totally bypassing the present counties money systems of the world. Another free market result of the internet. These people who are doing this have to provide a good service, with security and reliability like Ebay does.

http://pecunix.com/money.refined...ind.features
an example of one that charges reasonable rates and has good security. This company use an email address to trade with not your name so when you trade world wide it is only linked to that address which you can make up and fund.

.

[Bradley in DC]

Right now neither gold or silver or anything else for that matter is legal tender except frn's.
You can not pay on your mortgage with cucumbers, spaghetti, diamonds, or anything but frn's.
Ron is talking about making silver and gold legal tender at market prices. If this happened, the frn's would have to compete with them,which do you think would win out?

Um, not entirely correct. The FRNs are the default currency if nothing else is specified, but one can contract other things. Specifically, the US re-legalized gold clauses in contracts in the 1970s (I have them in my rental agreements):

"Landlord shall have the right to require rent payments to be made in cash, money order, by cashier's/certified check or in gold coin of the United States of or equal to the standard of weight and fineness existing on the date of this contract."

[Lesgov]

to be honest, gold and silver would only become the choice store of wealth... but exchange currency would remain FRNs

why?

gresham's law

I agree, people would tend to store the more valuable commodity, and that is only wise,but how much can you afford to store? Right now if you have gold or silver you can't spend it because it's not legal tender.
The constitution says gold and silver is to be legal tender.

[Lesgov]

Um, not entirely correct. The FRNs are the default currency if nothing else is specified, but one can contract other things. Specifically, the US re-legalized gold clauses in contracts in the 1970s (I have them in my rental agreements):

"Landlord shall have the right to require rent payments to be made in cash, money order, by cashier's/certified check or in gold coin of the United States of or equal to the standard of weight and fineness existing on the date of this contract."

Yes, I know I'm generalizing here. Also you could say that US treasury coins are not frn's and you could use those also.
Basically, only frn's are legal tender and this needs to be changed.

[jj111]

I am hoping Ron Paul has in mind tying the value of the dollar to a basket of commonly used commodities with the prices determined by already existing futures contracts. This would be a true free market approach.

A basket of from between 10 and 12 commodities would work fine. The commodities basket might include approximate equal value amounts of: gold, silver, steel, aluminum, oil, lumber, concrete, wheat, corn, rice, potatoes and soybeans.


Please send me a few baskets!

[Gee]

http://landru.i-link-2.net/monques/goldx2.html
The article misses the point. The US's old gold and silver standard had problems becaues it was a gold AND silver standard. The value of each was regulated, but the commodity value of their specie changed with market fluctuations. The result was that sometimes it would be profitable to convert all currency in one metal to another. This lead to runs on banks, bank failures, and general instability in the supply of money (NOT a good thing).

In my opinion (and my opinion only, I've not read this elsewhere), this need not happen in a standard of a single commodity. Gold prices are not totally stable in the short-run, but if used as a currency, they would be. Why? Because retail prices are sticky, they don't change often. Whatever is used as a currency is stabilized, to some extent, by this.

Most gold-haters forget that up until 2000, the Swiss Franc was backed up by 40% gold reserves. But of coures, Switzerland was noted for its unreliable banking system... Oh wait, no they weren't.

Either way, I think we can trust whatever comes out of the free market to be better than a government monopoly on money. Curreny, most private currencies out there are based on gold.

[Gee]

to be honest, gold and silver would only become the choice store of wealth... but exchange currency would remain FRNs

why?

gresham's law
The law states: "Money overvalued by the State will drive money undervalued by the State out of circulation."

Its only the case where the law specifies some set exchange rate between two currencies. So if the ratio of A:B is 5:1, but the market value of their specie is 10:1, everryone will horde Bs because they are worth more. This force is exactly what created the monetary instabilities of the gold/silver bimetalic standard.

Without a set exchange rate, Gresham's law would not apply.

[jj111]

Mots gold-haters forget that up until 2000, the Swiss Franc was backed up by 40% gold reserves. But of coures, Switzerland was noted for its unreliable banking system... Oh wait, no they weren't.



Seriously:

1. What happened to Swiss gold reserves backing their currency after 2000?

2. Is Switzerland's banking system reliable or not?

[jj111]

Bad money is money that has a substantial difference between its commodity value and its market value, where market value is lower than exchange value.

In Gresham's day, bad money included any coin that had been "debased." Debasement was often done by members of the public, cutting or scraping off some of the metal. Coinage could also be debased by the issuing body, whereby less than the officially mandated amount of precious metal is contained in an issue of coinage, usually by alloying it with base metal. Other examples of "bad" money include counterfeit coins made from base metal. In all of these examples, the market value was the supposed value of the coin in the market.

In the case of clipped, scraped or counterfeit coins, the market value has been reduced by fraud, while the exchange value remains at the higher value. On the other hand, with coinage debased by a government issuer the market value of the coinage was often reduced quite openly, but the exchange value of the debased coins was held at the higher level by legal tender laws.

All modern money is "bad money" in this sense, since fiat money has entirely replaced the commodity money to which Gresham's law applies. The ubiquity of fiat money could indeed be taken as evidence for the truth of Gresham's law.

http://en.wikipedia.org/wiki/Gresham's_Law

[TeeJay]

Bradley in DC wrote:

"Basket approaches are completely unworkable (look at the Thai baht basket approach that set off the Asian financial crises--yes, they had fiat currencies, but the basket was the problem). Market determined prices of gold don't fluctuate "too much" (note your subjective determination)--all values are subjective (Austrian economics), that's the point. We need the price signalling mechanism of the market to have real information to make decisions. Bureaucrats would manipulate baskets for "discretionary" policies. Better to have competing currencies backed with different real assets. I did, some years ago, see a proposal for currency backed by an S&P 500 portfolio of stocks that, I guess, would be a basket not subject to discretionary manipulation."
------------------------------------------------------------------------------------------------

From what I understand the Asian financial crisis was triggered from a devaluation of the Thai Baht and had nothing to do with the basket of currencies. In addition the basket was defined by fiat currencies rather than commodities. (See Below.)

I have trouble believing politicians can influence the prices of basic commodities which are set by supply and demand in futures markets traded around the world in a free market setting. I belief commodities provide more reliable tangible value as "real assets" than an S&P portfolio that fluctuates based on economic predictions and fear.


http://converter-currency.com/currency/thai-baht.cfm
"The baht was partially pegged again to U.S. dollar beginning in 1985, and a sudden devaluation of the currency became the primary triggering event for the Asian financial crisis of the late 1990s. "

[jj111]

The problem with a basket is it's not sturdy enough. I would substitute it for a bucket made of stailness steel.

[Bradley in DC]

Bradley in DC wrote:

"Basket approaches are completely unworkable (look at the Thai baht basket approach that set off the Asian financial crises--yes, they had fiat currencies, but the basket was the problem). Market determined prices of gold don't fluctuate "too much" (note your subjective determination)--all values are subjective (Austrian economics), that's the point. We need the price signalling mechanism of the market to have real information to make decisions. Bureaucrats would manipulate baskets for "discretionary" policies. Better to have competing currencies backed with different real assets. I did, some years ago, see a proposal for currency backed by an S&P 500 portfolio of stocks that, I guess, would be a basket not subject to discretionary manipulation."
------------------------------------------------------------------------------------------------

From what I understand the Asian financial crisis was triggered from a devaluation of the Thai Baht and had nothing to do with the basket of currencies. In addition the basket was defined by fiat currencies rather than commodities. (See Below.)

I have trouble believing politicians can influence the prices of basic commodities which are set by supply and demand in futures markets traded around the world in a free market setting. I belief commodities provide more reliable tangible value as "real assets" than an S&P portfolio that fluctuates based on economic predictions and fear.


http://converter-currency.com/currency/thai-baht.cfm
"The baht was partially pegged again to U.S. dollar beginning in 1985, and a sudden devaluation of the currency became the primary triggering event for the Asian financial crisis of the late 1990s. "

Yes, you got it right. One, I do say the Thai baht problem was one of a basket of fiat currencies. Two, the problem was the basket, in this case: their aim was to try to have the currency basket reflect their trading/current account patterns. The more ability for bureaucrats to "manage" the currency (change the makeup of the basket) the more it allowed them to change the value--which resulted in the mismatch of the true market price and the artificial managed price. The devaluation was the market institituting discipline the bureaucrats could not keep under their basket.