How do you back 7t cash with 4t gold

[williameis]

If there is 7 trillion dollars in cash floating around, how do you replace it with gold (current world supply is around 4 trillion)? I know the answer is that you use gold, silver, oil credits, subprime mortgages, diamonds, etc... but I just see logistical problems in trying to make the switch off of a fiat system. It seems like it would take many decades (assuming very competitive and efficient private banks get into it).

:)

[Indy Vidual]

Competition is the answer.
If enough people start using and accepting Liberty Dollars (or any other real money), then the fiat dollars will be replaced (by competition) as it continues to collapse.

Edit: The US government debt is not your responsibility.
Let the crooks and lawyers figure out how to 'pay it off.'

[SeanEdwards]

A free market of commodity backed currencies allowed to compete with Federal Reserve Notes. Reform of legal tender laws to allow gold and silver as legal tender (as indicated in the Constitution).

Bring on the Kongbucks, baby! *tips hat to Neal Stephenson*

[williameis]

yes, but this doesn't address the issue of there not being enough gold and silver on the planet to back the amount of cash that gets circulated.

[0zzy]

yes, but this doesn't address the issue of there not being enough gold and silver on the planet to back the amount of cash that gets circulated.

Wouldn't we just take the money we have and divide it by how much gold+silver we have? But we wouldn't back the US Dollar with it, we'd have a competing currency and the US Dollar will continue to collapse and hopefully die out once the gold backed currency is dominate.

[Gilby]

Every tradable good or service can be used to purchase every tradable good and service. Make sense? In other words, the money supply expands and contracts with the supply of goods and services. The free market will come up with easy ways to trade such easily tradable goods and services. This may contain banknotes, electronic transactions through market makers (ie. credit/debit cards), physical coins, etc.

[williameis]

there is currently 7 trillion dollars in currency in circulation. The sum of all the gold in the entire world is 4 trillion. The math does not work without a massive increase in gold prices (a minimum of a 1,000% increase). If that happened a metals bubble would likely develop and the gold backed currency would be more at risk of a 90% value collapse then the current fiat system is. I just don't see how it is practical.

[specsaregood]

there is currently 7 trillion dollars in currency in circulation. The sum of all the gold in the entire world is 4 trillion. The math does not work without a massive increase in gold prices (a minimum of a 1,000% increase). If that happened a metals bubble would likely develop and the gold backed currency would be more at risk of a 90% value collapse then the current fiat system is. I just don't see how it is practical.

Have you seen the Kudlow REport youtube from last week where they had Ron Paul on and he discussed his stance/policy suggestion?

There are 5 economists on the show and they all agreed with Ron Paul (well Forbes actually suggested a gold standard, but didn't disagree with RP). I suggest giving it a view.

[austin356]

There is not 7 trillion dollars in our economy.

m1 our currency/checking account base is ~1.2 Trillion or so.


But that does not matter. Ron does not intend to back all outstanding Federal Reserve notes with Gold. Just issue gold notes and allow gold to circulate as legal tender; In this way the market determines the quantity/supply of gold and its price relative to other monies.

[specsaregood]

Here is the interview: http://youtube.com/watch?v=Mx2eWcBOE3o
Here is where the economists discuss his interview: http://youtube.com/watch?v=Cilwld5fj48

[pdavis]

Read Ludwig von Mises' series of essays about economic crisis (hyperinflation, money and credit, gold).

The Causes of the Economic Crisis, and Other Essays Before and After the Great Depression (http://www.mises.org/books/causes.pdf)

[travismofo]

there is currently 7 trillion dollars in currency in circulation. The sum of all the gold in the entire world is 4 trillion. The math does not work without a massive increase in gold prices (a minimum of a 1,000% increase). If that happened a metals bubble would likely develop and the gold backed currency would be more at risk of a 90% value collapse then the current fiat system is. I just don't see how it is practical.

Quantity of the money supply is not even remotely important. Gold is simply a measurement of value.

If your measuring the length of a football field, it doesn't really matter if you measure it in yards, feet, inches, centimeters, or nanometers. It doesn't change the actual length of the field. These are simply measurment tools of length, just as gold is a measurement tool of value. Quantity of the supply is irrelevent.

[johngr]

yes, but this doesn't address the issue of there not being enough gold and silver on the planet to back the amount of cash that gets circulated.

You're thinking of the total amount of money as some kind of absolute. The value of gold relative to the value of goods and services (as well as to paper) will adjust relative to the gold supply and to the supply and demand of goods and services.

[williameis]

Every tradable good or service can be used to purchase every tradable good and service. Make sense? In other words, the money supply expands and contracts with the supply of goods and services. The free market will come up with easy ways to trade such easily tradable goods and services. This may contain banknotes, electronic transactions through market makers (ie. credit/debit cards), physical coins, etc.

If a new asset-backed currency is created, somewhere there has to be a vault with assets backing these currencies. Being able to trade the new currency electronicaly does not mean assets to back them are not needed (because by definition that would make it a fiat currency).


There is not 7 trillion dollars in our economy.

m1 our currency/checking account base is ~1.2 Trillion or so.


m1 is not the way to measure the amount of assets needed to back our currency. M1 does not include things such as savings accounts (somewhere between m2 and m3 is the correct measure of what would need to be asset backed). see: http://en.wikipedia.org/wiki/Image:Components_of_the_United_States_money_supply .svg



But that does not matter. Ron does not intend to back all outstanding Federal Reserve notes with Gold. Just issue gold notes and allow gold to circulate as legal tender; In this way the market determines the quantity/supply of gold and its price relative to other monies.

This will cause gold prices to rise at extremely high rates. Gold backed currency would be extremely volatile, prone to bubbles, etc.

Read Ludwig von Mises' series of essays about economic crisis (hyperinflation, money and credit, gold).

I am familiar with the Von Mises' essays. It makes a case against a fiat system, but does not offer much in the mechancis of replacing it with an asset backed system.


Quantity of the money supply is not even remotely important. Gold is simply a measurement of value.

If your measuring the length of a football field, it doesn't really matter if you measure it in yards, feet, inches, centimeters, or nanometers. It doesn't change the actual length of the field. These are simply measurment tools of length, just as gold is a measurement tool of value. Quantity of the supply is irrelevent.

I agree that what we call the measurement tool does not matter, however I disagree that your analogy applies to currency. We use 7 trillion dollars worth of currency to make the economy function. I agree we could think of that 7 trillion dollars into CPI baskets, houses, bars of gold, or whatever we want, but at the end of day the US market is demanding this amount of liquidity to function. You can't replace that liquidity with the world supply of gold (about 130,000 tons... ~4 trillion dollars).

[Green Mountain Boy]

There is not 7 trillion dollars in our economy.

m1 our currency/checking account base is ~1.2 Trillion or so.


But that does not matter. Ron does not intend to back all outstanding Federal Reserve notes with Gold. Just issue gold notes and allow gold to circulate as legal tender; In this way the market determines the quantity/supply of gold and its price relative to other monies.

Actually, the total money supply in the U.S. is around $46 Trillion as we speak.

[Gilby]

If a new asset-backed currency is created, somewhere there has to be a vault with assets backing these currencies. Being able to trade the new currency electronicaly does not mean assets to back them are not needed (because by definition that would make it a fiat currency).

You're thinking of an asset backed currency, but the constitution does not allow an asset backed currency, only an asset currency. The actual physical asset. The governments are limited to gold and silver for their transactions. The free market is not limited to gold and silver. We can use any kind of asset we desire. We may choose gold and/or silver as the index that all prices are denominated in, but we don't need the amount of gold and silver for every transaction. Like I said before, every easily traded asset is the money supply. For example, I own stocks in several companies and I can easily liquidate each of those assets to pay any debts. No physical gold or silver is needed in the transaction, it might only be used as the index so I know how much of my stock to sell to cover my debts.


m1 is not the way to measure the amount of assets needed to back our currency. M1 does not include things such as savings accounts (somewhere between m2 and m3 is the correct measure of what would need to be asset backed). see: http://en.wikipedia.org/wiki/Image:Components_of_the_United_States_money_supply .svg

What's the difference between a savings account and a checking account? They are not the same. A checking account allows you to withdraw all the money right away, whereas a savings account has limits on how quickly you can withdraw the money. A savings account is a time deposit. Though with the federal reserve and fractional reserve banking this is harder to see the difference now. The money you would have in a savings account is not actually there, but is loaned out. In other words, the balance would represent a promise to pay within some time in the future. Since everyone is not going to the bank on the same day, the banks usually allow you to be able to withdraw all of your money instantly.


I agree that what we call the measurement tool does not matter, however I disagree that your analogy applies to currency. We use 7 trillion dollars worth of currency to make the economy function. I agree we could think of that 7 trillion dollars into CPI baskets, houses, bars of gold, or whatever we want, but at the end of day the US market is demanding this amount of liquidity to function. You can't replace that liquidity with the world supply of gold (about 130,000 tons... ~4 trillion dollars).

True, but gold isn't the only liquidatable asset. Again, the money supply is everything that can be easily liquidated. Even today, it's not just dollars, but it is gold, it is silver, it is promises to pay, it is homes, it is cars, it is stock in a company, it is oil, etc, etc.

What is the dollar anyway, as it is commonly known as today? It is a promise to accept, by the Federal Reserve and from the US government to pay their debts. To you and I, it is a promise to accept, by the government from us, to pay any debts we owe the government. Of course, that means the dollar is backed by the government's ability to impose taxes on others.

[williameis]

ok - so it sounds like you are saying the government will issue gold and silver coins, but the majority of over the counter transactions will involve some type of currency that a private investment bank has issued. As a consumer I would want a currency backed by something such as the CPI basket of goods to reduce volatility by any single asset (such as gold). It would be like 1 Goldman-Sachs-Buck can always be turned in for some (portion of) a list of several hundred assets like eggs, gallons of gas, $/SF apartment rent, etc.

I’m not sure if the Ron Paul campaign strategists read this or not, but I think the monetary message he has gets muddled when the headline is that he wants our money backed by gold to follow the constitution, with the footnote that really he just wants our currency system privatized. I think he should instead talk about the merits of a private system with the constitutional law as the footnote. No one will or should blindly follow the constitution if there are reasons original ideas are now out of date. We have been ignoring (and surviving) without gold currency for a long time; if Ron Paul is going to win it will be with logic, not constitutional dogma. I would speculate that the falling dollar of the last 5 years has made the public more receptive to this idea then they have been since the early 1980's, and probably more receptive to it then they ever will be.

[Gilby]

Following logic leads you back to why the constitution has these limits.

When Ron Paul is speaking about this he does say that he would simply legalize competition, remove taxes and other restrictions on them.

[Chester Copperpot]

Following logic leads you back to why the constitution has these limits.

When Ron Paul is speaking about this he does say that he would simply legalize competition, remove taxes and other restrictions on them.

That would be the way to transition from the system we're in now.

[arkitekt]

So essentially, you guys are saying 3 different currencies; fiat money on one side, and gold/silver on the other, right? So dollars would not be replaced at all, it is just that the competitive nature of the free markets would be introduced into our money supply, allowing people to choose between fiat or gold/silver for their M1 uses.

In other words, if you went to the bank and got out 500 bucks, you could either choose 500 dollars, or $500 worth of gold at current market prices. You would not get a dollar with its intrinsic value derived from gold sitting inside the bank vaults.

Any of this help, williameis?

[arkitekt]

Uh, I just realized I posted without reading the second page, so what I said above may not even be up to date with the discussion anymore. Oh well. :D

[pdavis]

When America was experiencing excessive inflation due to the increase in the quantity of Continental dollars, how did America transition to a silver standard? When Germany was experiencing hyperinflation in 1923, how did they transition back to a gold standard?

[lastnymleft]

A re-rating of the gold price is imminent, regardless of Dr Paul wanting to move us back on to the gold standard, for two reasons:

(1) The fiat system is unsustainable, and close to collapsing. When it does, the price of gold will skyrocket, anyway. I'm expecting to wake up one morning to find gold is in the several thousand per ounce region.

(2) The gold price has been manipulated for years (mostly, suppressed). There was a Canadian hedge fund manager proved as much a few years back, though it's been known for some time: http://www.sprott.com/pdf/not_free_not_fair.pdf When (1) happens, it will be such a tsunami that not even the central bank and international banker manipulators will be able to keep gold's price down.

Prior to entering into Establishment, Alan Greenspan was in favor of going back onto the gold standard. I think he even wrote a book on it in the '60s. Now that he has retired from the Establishment, he's moving back towards open support for the gold-standard.

Steve Forbes also supported it openly on Kudrow & Company. This is not a whacky idea.


Disclaimer: I hold gold. As much as possible.

[jon_perez]

You can't. However, another question needs to be asked:

Does it make sense to equate the enormous amount of wealth in today's civilization with just USD4T worth of gold?


This would arbitrarily make current holders of gold rich beyond measure.


.

[williameis]

it should be done in CPI baskets, not gold or silver

[James R]

it should be done in CPI baskets, not gold or silver

Only after the constitution is changed. Until then we are in violation of the constitution.

Personally I think it should not be done in CPI baskets, but rather commodity baskets. The CPI and many other indexes have finished goods. However, I'd like commodity-backed currencies should focus on raw materials. Oil, Wheat, Copper, etc.

[truthbetold]

Competition is the answer.
If enough people start using and accepting Liberty Dollars (or any other real money), then the fiat dollars will be replaced (by competition) as it continues to collapse.

Edit: The US government debt is not your responsibility.
Let the crooks and lawyers figure out how to 'pay it off.'


The U.S. debt is based on a fraud and a Amendment that was never ratified as proven in many court cases. It is an illegal debt.

IT DOES NOT NEED TO BE PAID BACK. IT IS ONLY PAPER ANYWAY...
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

[pickdog]

http://www.mises.org/store/Case-for-a-100-Percent-Gold-Dollar-The-P64C1.aspx


read this book by Rothbard and you will understand

[Kapt Nemo]

Ok so I can;t say I understand much about what you all are going on about... honestly wish I did, however if anyone has some dumbed down resources I could read through I'd appreciate it...




Nemo

[fsk]

Ok so I can;t say I understand much about what you all are going on about... honestly wish I did, however if anyone has some dumbed down resources I could read through I'd appreciate it...


I consider my blog to be a good resource. I made an IMHO good post on Ron Paul and the gold standard recently.

http://fskrealityguide.blogspot.com/2007/11/ron-paul-federal-reserve-and-gold.html

[Kapt Nemo]

I consider my blog to be a good resource. I made an IMHO good post on Ron Paul and the gold standard recently.

http://fskrealityguide.blogspot.com/2007/11/ron-paul-federal-reserve-and-gold.html



Thank you sir, I'll be checking it out tonight
:cool:


Nemo

[fsk]

If you have any questions, post a comment or PM me.

[Revolution9]

there is currently 7 trillion dollars in currency in circulation. The sum of all the gold in the entire world is 4 trillion. The math does not work without a massive increase in gold prices (a minimum of a 1,000% increase). If that happened a metals bubble would likely develop and the gold backed currency would be more at risk of a 90% value collapse then the current fiat system is. I just don't see how it is practical.

You can leverage gold to seven times its value. Ergo that 4T turns into 28T in ledger entries and the system remains stable as it is built into it already.

Best
Randy

[fsk]

Why the arbitrary limit of seven times? In a truly free market, banks would be able to use whatever leverage ratio they choose.

[jon_perez]

You can leverage gold to seven times its value. Ergo that 4T turns into 28T in ledger entries and the system remains stable as it is built into it already.LOL! That sounds exactly like the fractional reserve banking that conspiracy theorists like you rail against...

[fsk]

No. In a free market, there's no limit to how much leverage ratio a bank can use.

In a truly free market, there should be NO government regulation of banking at all.

[jon_perez]

No. In a free market, there's no limit to how much leverage ratio a bank can use.

In a truly free market, there should be NO government regulation of banking at all."leverage" here is just code word for fractional lending (and other similar practices).

In other words, you seem to be saying that in a "truly free market", the goldsmiths should be able to lend out "gold-backed" notes and back it with as small a fractional equivalent as they please with no government to oversee them. The libertarian line being that their so-called counterparties can hire 'private' auditors to make sure they don't abuse this concept too much.

The difference I suppose is that in the mythical days of yore [as presented by your friendly neighborhood conspiracy theorist], people did not realize that their gold was being lent out with only fractional reserves to back it up. Nowadays, people are [supposed to be] smarter and are expected to demand more transparency, so the reasoning goes that they will not patronize a "private money provider" whose practices they do not find satisfactory.

Of course there is nothing really new to this story or scenario. Such "free banking" would be presumably more or less how the US operated before the Fed was created. There seems to have been a sufficient number of bank runs, failures and instances of outright fraudulent banking practices back then such that the clamour for the creation of the Fed as regulatory body and insurance provider succeeded (revisionist history notwithstanding).

My own subjective feeling is that the US economic system is indeed being burdened and restrained by far too many regulations introduced by disingenuous politicians with a statist/socialist (I admit to being brainwashed enough to consider these bad words) agenda... and thus the swing of the pendulum towards a more libertarian mindset is largely justified.

But on the other hand, while all this talk about moving to private money and a more laissez faire system is interesting, people should really brush up on their history and not just swallow the most recent conspiracy fad. I have noticed that the latter tends to be bolstered by one-sided and sometimes (often?) dubious historical facts.

[HRHTish]

Hey, I'm surprised no one brought up the feasibility of creating platinum coins. Copper is scarce these days, otherwise I'd suggest it.

At Kitco.com they allow for shares in a "pool" of gold. I sold my shares, and was reimbursed in gold coin. Doubled my money in two years! Which pretty much means we're suffering hyperinflation NOW, not jjust some time in the near future.

[fsk]

The idea that "free banking" didn't work out is itself revisionist history, according to some sources. There never was truly free banking. There always was some form of government regulation and interference.

The problem is that, in 1787, when the USA was founded, the European central banks had a near monopoly on the worldwide gold supply. When the USA adopted a gold standard, it was like they handed the keys to their monetary system to the European central banks.

[JosephTheLibertarian]

If there is 7 trillion dollars in cash floating around, how do you replace it with gold (current world supply is around 4 trillion)? I know the answer is that you use gold, silver, oil credits, subprime mortgages, diamonds, etc... but I just see logistical problems in trying to make the switch off of a fiat system. It seems like it would take many decades (assuming very competitive and efficient private banks get into it).

:)

Why not just leave it to the people? No national currency :)

[fsk]

Why not just leave it to the people? No national currency


That really is the correct way to do it. Have no regulation at all of money and banking and let the market decide.

[JosephTheLibertarian]

That really is the correct way to do it. Have no regulation at all of money and banking and let the market decide.

Pretty much. I also am a stickler (lol) for this concept of voluntary contributions as opposed to taxation, therefore, government would pretty much have to budget what it receives from then people by basing their assets on the market. You know, if someone contributes a pound of copper, the government would have to budget as much as the pound of copper is worth. Government could also choose to back what they have with a monetary system, that's entirely up to the government.

[weatherbill]

price of things would not be equal....simple as that.....if a competing currency enters the market place, a loaf of bread will cost $3 USD, but only a silver quarter. There would be two prices on all items, a USD price and a silver price. The silver price would be much more consistent....the dollar price would keep rising due to people dumping it for silver.........

[fsk]

That's the entire point.

If there weren't taxes and regulations preventing people from using REAL MONEY (gold or silver), then why the **** would anyone use Federal Reserve Notes at all?

[williameis]

I don't think the transition would be as terrible as that. Believe it or not, the Fed can destroy currency as quick as they can print it, and if they stayed resolved at a 1 to 2 percent core inflation rate I think it would be a relatively painless transition.

[fsk]

If Federal Reserve Notes are still considered "legitimate" for paying taxes, then the demand for them won't completely dry up.

Income taxes are the *ONLY* reason that people use Federal Reserve Notes at all, instead of real money.