Fed's Hoenig says gold standard "legitimate" system

[tsai3904]

http://news.yahoo.com/s/nm/20110105/ts_nm/us_usa_fed_hoenig_gold_1

KANSAS CITY, Missouri (Reuters) – A gold standard that forces countries to back their currency reserves with bullion is a "legitimate" monetary system, though it would not prevent financial crises, Kansas City Federal Reserve President Thomas Hoenig said on Wednesday.

"The gold standard is a very legitimate monetary system," Hoenig said, adding: "We're not going to have fewer crises necessarily. You will have a longer of period of price stability or price level stability, but I don't know that you'll have lower unemployment, I don't know that you'll have fewer bank failures."

[emazur]

A "legitimate" gold standard depends on what kind of gold standard.

Illegitimate:
1) Gold exchange standard (only foreign governments~central banks can claim the gold)
2) Government determines the "acceptable" risk ratio for fractional reserve banking

Legit (in order of preference, can be a mix of all below):
1) 100% gold backed U.S. issued currency
2) 100% gold backed bank issued currency
3) fractional reserve based gold backed bank issued currency where banks are competing for stability in a free market with no implicit bailout from the government (if a bank breaks the promise to exchange ALL of its notes for gold on demand, perhaps it could be given 30 days to come up with the gold (private bailout from another bank) but still receive some sort of punishment from the government, but if not: SEVERE punishment for the owner(s) of the bank (life in prison or death penalty) and a seizure of all bank assets to be redistributed back to the holders of the bank's notes to the fullest extent possible. Sound harsh? The Coinage Act of 1792 states:
http://en.wikipedia.org/wiki/Coinage_Act_of_1792
the penalty for fraud or embezzlement by officers or employees of the mint, or of debasing or making the currency to "be of less weight or value" was death.

That applies to government employees not private banks (to the best of my knowledge), but the private bankers should have to face equal wrath.

[Bruno]

Hoenig continues to amaze. It's a wonder he isn't booted out of the Fed.

[Fox McCloud]

you won't have lower bank failures until the FDIC is dismantled and fractional reserve banking is recognized for what it is: fraud.

until then, we'll continue to have a boom bust cycle, though if the government did have a real 100% gold standard, they'd be fewer in number.