Rothbard's Gold Price: $2,600/Oz

In the final pages of his 1994 book, The Case Against the Fed, Murray N. Rothbard presents an interesting example about what might happen to the price of gold should the United States revert back to a 100% gold-backed currency. Rothbard states that at the time of writing the book the market price of gold was varying between $350 and $380 per ounce while the Federal Reserve valued their gold stock (260 million ounces) at only $42.22/oz. As at April 6th, 1994, the Federal Reserve had approximately $404 billion in liabilities (mainly in the form of U.S. Government securities).

So even though the value of gold in the market is presently at $1,600/oz, the Federal Reserve still values gold at $42.22/oz in 2012. I don't understand how their annual report could have been audited properly with this obvious fallacy. In any case, returning to our analysis we can see that the Fed still posses approximately 260 million ounces of gold (most of which is in US Treasury coffers). If we divide the liabilities of $2.87 trillion by the 260 million ounces we obtain a new price of gold of $11,030/oz. Back in 1994 the "Rothbard price" of $1,555/oz was a factor of 4.3 times higher than the market price of $365/oz. Today's Rothbard price of $11,030/oz is a factor of 6.9 times higher than the market price of $1,600/oz. For the factor to fall to 4.3 again gold's price would have to rise to $2,600/oz.

The fact that it was a commodity is the reason that it is money.

Then why isn't oil (or corn for that matter) money? Being a commodity has nothing to do with being money.

Real money always has started out as something useful.

Great Britain used "tally sticks" quite successfully for over 700 years as both their currency and money. Are you saying that sticks with notches in them are useful?

Gold is REAL money and serves as a valuable medium of exchange and currancy should be backed 100% with it.

Gold is not "real" money, since money is what society defines it to be. Right now, the international banks have forced debt-based "money" on all nations - which simply means that all of our currency is backed by debt (the promise of our future labor).

We do not need "gold" to have a proper form of currency. Instead, we need currency that is not backed by debt, but instead by the "completion" of our labor. The US Treasury should issue our currency - not the Federal Reserve. This is where the actual problems lies.

We are not in a deflationary environment, the FED is inflating as fast it can.

You're wrong. First off, why is the US government deficit spending as fast as it can? Answer: We're in a depression. Why is Western Europe imploding? Answer: They're in a depression. Why is China spiraling down? Answer: They're in a depression. The entire world is in a depression that was forced upon us by international banks pulling access to credit (debt). The stock market is currently rallying because the drug addicts (us) think that large amounts of new debt are on the immediate horizon.

The Fed does not "print money". The Fed does not "create" money. Instead, the Fed issues "currency", which is backed by money (securities). You also create money every time you use your credit card (you get debt, the owner of your debt gets claims on your future labor - or "money").

We just haven't seen a rise in most prices due to drop in demand, but the effect of inflation, malinvestment of capitial goods is still occuring and will result in a 'bust' soon.

You're wrong. The money supply (claims on the promise of future labor) is crashing all over the globe. Again, that's why both Democrats and Republicans alike are seeking to deficit spend and encourage Americans to enter new debt as fast as possible (TARP, student loans, cash for clunkers, etc., etc., etc.)

It's why the Euro Zone is desperate for the concept of a "Euro bond" that they can sell on a "Federal" level like we do with our US Treasuries.

We do see some price inflation, but it's accompanied by monetary deflation. Price inflation is a natural occurrence of a Depression, as companies run out of cost-cutting options except for raising their prices.

The reason it is not is that gold is the commodity with the best storage of value and is a great hedge against potential future inflation and a decent track record in deflation (went down with the other commodities but came right back).

Gold and silver are considered the "thing" for an investor to run to when an economy sours. What we're seeing is an "emotional" attachment to precious metals, because people think that's where they should find refuge.

People need to understand the concept of debt-based money (or having a claim on someone's future labor...i.e. owning a bond).

The safest investment strategy right now, in my opinion, is to own "direct" claims on the future labor of others. Short term US T-bills are an excellent example of this. You won't earn any money, but you also won't lose your shirt with what is coming.

"Currency" (or what many incorrectly refer to as money) is just what we carry in wallets and purses. It's backed by "money", but isn't money in and of itself - it's a "2nd deed" if you will on money.

Gold and silver are typically bought and sold with "currency". In other words, they're "backed" by currency - a 2nd order deed to money.

Gold and silver are actually 3rd order deeds to money - a REALLY poor investment decision in times of a world-wide deflationary crisis.

Do I own some gold and silver? Yes. I believe that 10% of every investment portfolio should be put into something that is a direct contradiction to where you believe things are going. I use gold and silver as a 10% hedging strategy.

Gold and silver are actually 3rd order deeds to money - a REALLY poor investment decision in times of a world-wide deflationary crisis.

Deeds, shmeeds. We require energy, commodities and some finished products to survive but can also use some products to build and add value to our businesses. The Saudis have energy, various countries have commodities and the Asians have some useful products. Those of us with an eye to the future have collected some PMs. Some time in the future those other countries will more preferentially take those PMs to printed up dollars. The Fed, IRS and politicians will make it as hard as possible to trade in PMs, but middlemen will always be there to do it for us.

The Fed in particular uses their power to produce fake deflation, namely the lowering of interest rates to ridiculous depths compared to the prevalence of inflation, the risks of default, and the declining value of underlying securing assets (e.g. real estate). A minimal market rate for mortgage interest (e.g. if I were to loan my money to someone to buy real estate) would probably be 10-15%. The fact that my money is not in demand at that rate is not a sign of deflation but of an entirely corrupted market.

The other consequence of the Fed's stupidity is a giant movement of wealth from productive long term investments to speculation. The resulting economic decline is not deflation, but forced stagnation. Similarly the reluctance to buy goods does not represent deflation psychology but economic realism.

Finally, PMs are not an investment now and are never an investment, but merely a store of value. There is no difference between your putting dollars in a mattress which you would do if you truly believed in deflation and my gold in my mattress. Your substitute (U.S. government bonds) is mostly the same and that you believe in coercion.

[The fact that it was a commodity is the reason that it is money.]

Then why isn't oil (or corn for that matter) money? Being a commodity has nothing to do with being money.

Because money has to have other attributes as well, such as the ability to serve as a means of indirect exchange.

All real money can be traced back to it's use value.

The Fed creates money out of thin air via credit and keeping interest rates artificially low.

Tally sticks were viewed as money because of government fiat, that was why they were considered money, no different then the paper dollar today.

They did not come from the Market, where real money comes from.

As soon as Gold was allowed to compete with it, it ended it as money. I have no problem with the treasury issuing currency and ending the Fed.

But currency needs to be backed by gold so the currency cannot just be created out of thin air, destroying it as money.

The government is spending because that is what Government does!

In reality, the federal government never is in deficit since it really is just a matter of how it is going to pay the bills, borrowing or printing money.

The bills always get paid, but of course the nation is much poorer because of the drain on the economy through taxes, direct or indirect.

The economies are crashing because of their excessive spending and that is bleeding the economies.

We don't see as much price inflation as we should because of the lowering of demand, but the inflation is still occurring since interest rates are not at the levels they should be, they are still being kept too low, resulting in malinvestment in higher goods.

What you are seeing is the 'bust' of many years of 'boom' inflation.

"Those of us with an eye to the future have collected some PMs. Some time in the future those other countries will more preferentially take those PMs to printed up dollars.

That's not what we're seeing right now - and haven't seen for quite some time. Citizens of other countries absolutely love US dollars, which is a big reason why the Fed has to put so many into circulation. These people know that the US has the greatest possibility of "making good" on the claims of their future labor.

"The Fed in particular uses their power to produce fake deflation..."

And inflation...

"if I were to loan my money to someone to buy real estate) would probably be 10-15%. The fact that my money is not in demand at that rate is not a sign of deflation but of an entirely corrupted market.

We agree on the corruption of the market. This is why people should be very careful investing heavily in the stock market. It's operating on extremely low volume, with most of that being High Frequency Trading.

"The resulting economic decline is not deflation, but forced stagnation."

A reduction in the overall money supply against a level of goods and services IS deflation - by definition. Yes, we have economic deflation - forced on us by the large banks (Primary Dealers).

"Similarly the reluctance to buy goods does not represent deflation psychology but economic realism."

The reluctance to buy goods is a byproduct of deflation. Credit is harder to get, wages are going down, unemployment is high. The only real "credit" growth is in Federal deficit spending - namely student loans.

"Finally, PMs are not an investment now and are never an investment, but merely a store of value. There is no difference between your putting dollars in a mattress which you would do if you truly believed in deflation and my gold in my mattress. Your substitute (U.S. government bonds) is mostly the same and that you believe in coercion."

Your "store of value" is only valued against what it is backed by - currency. I am not, and never have been, a proponent of debt-based money like you infer. I very clearly advocate a currency that is based on the completion of labor, versus a claim on the promise of future labor. Gold and silver have nothing to do with that idea - which is why people so strongly advocating precious metals are so wrong in their understanding of monetary theory.

"Because money has to have other attributes as well, such as the ability to serve as a means of indirect exchange."

You're confusing "money" and "currency". They are not always the same - especially in a debt-based economy. Yes, "currency" is used as an indirect exchange, while our form of "money" is not.

Gold and silver can be used as "currency" in our country at face value, or by weight if the US Secret Service doesn't pay you a visit for doing that too often. However, gold and silver are not "money" in our economy, since "money" all across the world right now is defined as "the value owned through a promissory note". (I know, you don't read that in too many college textbooks, but the definition is a correct one).

"All real money can be traced back to it's use value."

If we're talking about a "properly run" economy then, yes, money can be traced back to its base - the "completion of labor that has economic value".

"The Fed creates money out of thin air via credit and keeping interest rates artificially low."

That's entirely not true. The Fed issues "currency" against a certain amount of securities that it purchases from Primary Dealers (banks). The Fed never "creates money out of thin air" since it doesn't primarily issue loans. You need to look at the H.4.1 report that the Fed issues weekly. It contains their balance sheet.

Having said this, the Fed needs to be abolished - because they favor the continuance of debt-based money. Instead, the US Treasury should issue our currency - and the issuance should be against completed labor, not debt.

"Tally sticks were viewed as money because of government fiat, that was why they were considered money, no different then the paper dollar today."

There's absolutely nothing wrong with paper currency - or tally sticks for that matter. What makes it wrong is when it's issued against debt. The debate really has nothing to do with precious metals. Paper currency issued by our US Treasury against completed labor would be FANTASTIC!

"As soon as Gold was allowed to compete with it, it ended it as money. I have no problem with the treasury issuing currency and ending the Fed."

On that we agree, my FRiend.

"But currency needs to be backed by gold so the currency cannot just be created out of thin air, destroying it as money."

No, currency needs to be backed by "completed labor" - which would be controlling in itself, since only so much labor gets completely in a sovereign nation each year. Any excessive issuance could be taxed back in to the US Treasury and destroyed, as needed.

"The government is spending because that is what Government does!"

Your wrong. Remember when a $300 million deficit was absolutely HUGE! Then President Bush brought us TARP - because he had no choice. Our nation's money supply is controlled completely by bankers. When they shut off credit it was like putting a boot on the throat of our nation. The US government knew that they had to create new debt as fast as possible, or the public would see the real results of an enormous depression. That was the wrong move by our government. Instead, they should have abolished the Fed and had the US Treasury issue our currency. However, the banks could then have threatened to immediately stop clearing every financial transaction they had control over. Chaos would have resulted. What would you have done?

"In reality, the federal government never is in deficit since it really is just a matter of how it is going to pay the bills, borrowing or printing money.

The Federal Government can only "create" new money by using income from its Trust Funds to buy US securities. That's why the Health Care "trust fund" is being established - it has absolutely nothing to do with health. Social Security and Medicare now have more outlays than income - so there is nothing in the "middle" to purchase securities with. Other than this, the Federal government has no means of creating money - and the Fed does not create money either.

"The bills always get paid, but of course the nation is much poorer because of the drain on the economy through taxes, direct or indirect."

The inhabitants of our nation are like frogs in a boiling pot. We have been made into financial slaves of the banks - and given away our nation to them.

"The economies are crashing because of their excessive spending and that is bleeding the economies."

They're crashing because their money supplies are crashing. When a loan defaults then it means that the "claim on future labor" against that promissory note will never be completed. This reduces the money supply by the amount of the default. Debt-based economies run on promissory notes. There are not enough of them right now - which is why the EuroZone is clamoring for the creation of Euro bonds.

"We don't see as much price inflation as we should because of the lowering of demand, but the inflation is still occurring since interest rates are not at the levels they should be, they are still being kept too low, resulting in malinvestment in higher goods."

We don't see much price inflation because we're in a depression. Think about it for one minute. Our nation's GDP is roughly $14 trillion/year. Our Federal government deficit spends at roughly $2 trillion/year (even though they lie and pretend it's a little lower).

10% of $14 trillion is $1.4 trillion. In other words, the nation's GDP would be more than 10% smaller is we stopped deficit spending tomorrow. The GDP during the Great Depression shrank a little over 10%, before international war broke out to re-introduce gradual inflation (brought on by the bankers, who funded all sides of the war effort).

"What you are seeing is the 'bust' of many years of 'boom' inflation."

No, I'm seeing a repeat of history. Remember the "Roaring 20's". Remember 1929? Remember the recovery after 1929? Remember the even larger bust that occurred after the fake recovery? Remember the New Deal? Remember the international war, where money was well placed to turn losers into leaders (like Adolf Hitler, who was a nobody until he got funding)?

People need to remember history. I fully believe we are heading for another world war, were many people will be killed - not for patriotism - but merely as the way that the banks use to re-introduce gradual inflation into the world economies and become even wealthier and more powerful.

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