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View Full Version : Economic: Monetary Policy: legalizing gold as legal tender.




thequietkid10
02-23-2012, 11:20 AM
I'm taking a college course right now, real cool class basically it is a souped up current events class. We write an essay, based on an article, do a 10 question current event quiz. And then all three professors in the class, do a presentation/discussion based on something in the news. Don't even have to take notes from the classes, fun stuff.

Anyone, one of the professors, a Business professor did a presentation on the Fed, generally it was your typical positive presentation about Fed money controlling money supply, mixed in with a little history.

Afterwards I asked him about Ron Paul's idea about legalizing gold as legal tender. He said it would be stupid because the value of that money would fluctuate year by year, making it ineffective as currency. He seemed more receptive to the idea of a Gold Standard because under the Gold standard there would be a set value to provide stability.

I didn't spend too much time asking him about that, I'm not a very confrontational person, nor do I claim to know much about the monetary system.

Bern
02-23-2012, 11:36 AM
... He said it would be stupid because the value of that money would fluctuate year by year, making it ineffective as currency. ...

Funny, that's how I feel about the US Dollar.

The real question is, does he have any objection to letting gold and silver compete with Federal Reserve notes as money, and if so, why? Then you will see his true colors shining through.

rpwi
03-03-2012, 10:22 AM
Afterwards I asked him about Ron Paul's idea about legalizing gold as legal tender. He said it would be stupid because the value of that money would fluctuate year by year, making it ineffective as currency. He seemed more receptive to the idea of a Gold Standard because under the Gold standard there would be a set value to provide stability.I am against a gold standard (it would represent artificial market privilege for a commodity IMO)...but hate the argument that we 'need a stable' currency.

For starters...say we were on a gold standard. Unless gold were to be cornered (a very real concern) the price of gold should remain somewhat stable. If trader X sees that gold fluctuates between 50 and 100...they buy at 50 and sell at 100...which self-regulates the price.

Now even if gold does not remain stable, this isn't the end of the world. It quite natural for prices to change in cycles (apples are cheaper in the fall for example) and a government policy to ensure price stability (like to make sure spring apples cost the same as fall apples) can cause more harm than good.

A decent analogy to having a 'unstable currency' is to look at floating currencies on the FOREX market. Unpegged currencies vary in regards to each other all the time and it's not the end of the world.

What it does sound like is that your professor might favor a dollar pegged to gold (and pegged systems in general). But economically speaking pegs are stupid beyond belief. Smart FOREX traders like Soros make billions churning these artificial systems. The biggest problem a peg causes is that government has to waste a lot of money to purchase the peg currency like gold. Huge waste of public resources. Then the reserves are usually never big enough to prevent big fluctuations (which big financial institutions can cause...and do so intentionally to drain the peg fund). Like cracking open an egg to eat the yolk...FOREX traders win...public loses. The other problem is that the target exchange rate the government will shoot for is so artificial and rigid. Statistically there is no way a government can 'guess' what the perfect peg rate should be. A country for example that has a lot of seasonal products doesn't want a rigid peg and that greatly distorts the markets. The other issue is that the big traders can use their volume to create artificial waves in the exchange rates...and then they can ride corrections from the government to profit as the feds waste public funds buying/selling securities to achieve their exchange rate. This happens in pegs around the world and in fact in the Open Market (where the Fed does a similar thing locally).

Too often central banking discussions come down to the status quo vs gold...when there are better tertiary options. IMO we should dump the Fed and its meddling in banks and return the monetary base to the treasury department. There MB remains untouched or grows at a static rate...and there is no corporate welfare or privilege for financial institutions.