Gold standard question #1

[rp0x]

Hello,

I understand well the reasons for going for the gold standard.

Here's my question on basing the dollar on gold standard.

Let's say, hypothetically, Australia discovers a gold mine that has equal to all the gold ever discovered. Ignoring the extraction costs, the value of the gold will be cut in half, with means that the value of dollar will also be halved. This is equivalent to doubling the money supply. So, why base the currency on something that is unpredictable ?

Again, I understand the intend of basing it on the gold standard. but I am not sure about the approach.

Thanks

rp0x.

[Chester Copperpot]

Hello,

I understand well the reasons for going for the gold standard.

Here's my question on basing the dollar on gold standard.

Let's say, hypothetically, Australia discovers a gold mine that has equal to all the gold ever discovered. Ignoring the extraction costs, the value of the gold will be cut in half, with means that the value of dollar will also be halved. This is equivalent to doubling the money supply. So, why base the currency on something that is unpredictable ?

Again, I understand the intend of basing it on the gold standard. but I am not sure about the approach.

Thanks

rp0x.

because historically gold is predictable.. I think the world supply only grows by about 5% a year... The only time there was any inflarion attributable to this sort of thing was in 16th century Spain as they started receiving tons of gold and silver from the new world.. It basically made things more expensive in SPain for a little while.

Even if this were to happen and lets say money devalued by half.. its alot better than now.. right now.. the dollar devalues by half like every 10 years.. like clockwork.

[Mr. White]

2 options

reapportion the denotement of of the value of gold to the dollar, 1/100th 1/1000 of an ounce, whatever. Thats drastic

OR

Let the market correct itself

If a mine were found and tapped, they wouldnt sell it all quickly because theyd get less than actual value, theyd do it slowly to maximize their payoff.

Theoretically a group could flood the market with gold, having no intention to make a lot of money, but the market would eventually correct itself then as well.

Ugh time for sleep.

[rp0x]

http://www.optimist123.com/optimist/2007/05/sound_money_ver.html

Please read this article. The point made here is that we need sound money, but not necessarily gold standard, which can lead to recession or depression.

Thanks for your comments.

[rp0x]

The price of stuff goes down over the years because of increase in productivity. Something that was made in 1907 can be made much cheaper today.

So, for eg. something that cost $1 in 1907 could be made for 1 cent today. And something that cost 50 cents in 1907 will be worth half a cent today. Wouldn't no increase in money supply make these transactions harder ? Shouldn't the money supply increase at the same rate as GDP so that things cost the same in 1907 and 2007 ? This makes similar case as Q #2.

Thanks.

[John of Des Moines]

A good website to check out monetary value over the years is http://www.westegg.com/inflation/

Check out the value of $100 in 1800 to 1913, then 1913 to 2006, then 1800 to 2006 it will help you understand what the Federal Reserve is doing to us.

[kylejack]

Hello,

I understand well the reasons for going for the gold standard.

Here's my question on basing the dollar on gold standard.

Let's say, hypothetically, Australia discovers a gold mine that has equal to all the gold ever discovered. Ignoring the extraction costs, the value of the gold will be cut in half, with means that the value of dollar will also be halved. This is equivalent to doubling the money supply. So, why base the currency on something that is unpredictable ?

Again, I understand the intend of basing it on the gold standard. but I am not sure about the approach.

Thanks

rp0x.
M3 (the money supply) is currently increasing at 14%. At this rate, the money supply will double in 5 years. This is very real and is already taking place. Your scenario is much less plausible.

[kylejack]

http://www.optimist123.com/optimist/2007/05/sound_money_ver.html

Please read this article. The point made here is that we need sound money, but not necessarily gold standard, which can lead to recession or depression.

Thanks for your comments.

Ron Paul favors legalization of alternative currencies, not a return to the Breton-Woods Gold Standard. Various different legalized currencies keeps things balanced and sane.

[noxagol]

Ron Paul favors a commodity backed dollar, and he says gold and silver because that is what the Constitution demands.

From Article 1, Section 10 of the United States Constitution:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit;make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

[Mastiff]

The point of gold standard these days is generally to prevent the government from being able to screw things up. It's not really optimal; I'm not sure why people are so hung up on it. For one thing, the more rapidly the economy is growing, the more energy people waste trying to dig up gold.

A reasonable approach, which I think RP mentioned somewhere, is to simply take away barriers to competition in currency.

Share money is an interesting concept. Read about it in this paper:

http://www.paulbirch.net/HonestMoney.html

[Silverback]

I'm of the opinion government shouldn't be involved at all.

Put an end to legal tender, let the market decide what the most liquid asset and means of exchange should be. In a barter economy the most liquid asset rapidly rises to the top and becomes money all by itself, that's how gold became money in the first place, there's no need to exert any force at all on the marketplace.

We really don't need the state to coin money anymore, private firms can mint and back their own coins if it comes to it, and with 24 hour global electronic markets for just about everything there's no longer a need for an official currency as such. Since the Constitution authorizes the coining of gold and silver though I have no problem with it, so long as I'm not forced to use it to gain access to the courts. Contracts should be enforcable in whatever means of exchange they're written.

The only benefit legal tender has is making taxation easier.

Your question #3 suggests the idea that the state should be fixing the price of money, which is a really bad idea IMO.

That's me though, the important point is Dr. Paul recognizes the problems associated with fixing interest rates by providing unlimited amounts of credit nobody earned and nobody saved at that rate, and making those debt instruments legal tender in payment of debts.

Nothing is going to change until the crisis is upon us but when it is it would be nice if the president understood what caused it.

[Ninja Homer]

Let's say, hypothetically, Australia discovers a gold mine that has equal to all the gold ever discovered. Ignoring the extraction costs, the value of the gold will be cut in half, with means that the value of dollar will also be halved. This is equivalent to doubling the money supply. So, why base the currency on something that is unpredictable ?

The extraction costs can't be ignored. It costs a lot of money to extract gold. It would also take a VERY long time to extract that amount of gold. The value of gold would be cut in half but it would be much more gradual than the current deflation of the dollar.

As said in previous posts, Ron Paul wants to open it up to the free market. A currency doesn't really have to be backed by anything as long as it's stable, but when it is backed by something like gold or silver, it is a lot easier to keep it stable because then the people in control of the currency can't just make up numbers or print paper.