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Posted on 04/17/2011 5:58:28 PM PDT by johnsmom
Ben Bernanke, testifying before the Senate Committee on Banking yesterday, was asked about a possible return to a gold standard – his disingenuous reply was that there isn’t enough gold in the world to cover the US money supply.
This really has to be one of the most pernicious fallacies that haunts the entire discussion of money*. The truth is there is always enough gold, it is simply a matter of price. Of course the dollar denominated price of an ounce of gold would be many multiples of the current price, but that just serves to demonstrate that gold is still significantly undervalued at the current levels. Creating a gold standard for the Dollar is simply a matter of dividing the total weight of gold that provides the backing, by the money supply to be backed. Each dollar is redeemable for a fixed weight of gold. The price does not matter. What matters is that new dollars cannot be created out of thin air without adding a proportional weight of gold to the reserves.** This is why Bernanke does not want a gold standard and perpetuates simple myths about money.
The Federal Reserve is arguably the most powerful institution in the world as it maintains the sole legal right to counterfeit the world’s reserve currency without limit and without oversight. This allows them to bail out the too big to fail banks, manipulate currencies, support foreign central banks and corporations and allow near endless government spending above and beyond what the government can pay for through direct taxation. A true, enforceable gold standard would put an immediate end to all of that. Responsible people who live within their means and save would not have the efforts of their labor stolen through inflation. These are all positive outcomes. So the problem isn’t that there is too little gold in the world but rather too little discipline and honesty in Washington DC.
“The truth is there is always enough gold, it is simply a matter of price”
Gold is a commodity. Its primary use is ornamental and sentimental, with some smaller use in electronics.
It is THAT value apon which the value of gold is based. Because people want it for uses OTHER than a value store.
If you artificially inflate the price of gold because you say “this is money, I call this money now” - that is no different from saying of a paper note “this is money, I call this money now”.
MUCH more rational than a gold standard would be a “basket of commodities” standard, where gold is but one commodity to back a currency.
I once had all my money in gold. It removes all your good logic to have all your money in one thing.
...his disingenuous reply was that there isn't enough gold in the world to cover the US money supply.The entire pile of gold ever mined in history would make an approx 82 foot cube (more than half of that has been mined since about 1950), or 952,763,904 cubic inches, or 7+ humans per cubic inch. That quantity of gold would represent your lifetime earnings. His reply wasn't disingenuous.
I’ve felt for years that Richard Nixon’s greatest sin, hands down, no contest.....was taking us off of the gold standard.
I feel that even more today. I also am equally convinced that Bernanke is an absolute idiot.
Well, that and the fact that Ben can't push a button and have another thousand tons of the stuff just spit out, like he can with paper (or electronic) money. That gives it some additional value, perhaps.
“I also am equally convinced that Bernanke is an absolute idiot.”
I would say that he’s more of a complete whore for the Wall Street bankers and is doing/saying whatever it takes to make sure they get their bonuses at the end of the year. That makes him say some of the most idiotic things one can imagine but does not necessarily make him an idiot.
Depends on your definition of what makes an “idiot”.
I judge a man on his actions; not his education or his supposed IQ or his position/title.
Yes, the man’s an idiot on many levels.
This will make a nice rhetorical discussion of change that absolutely will not occur in our lifetimes.
OK then...but when I redeem my money will you pay me in gold for my barrel of crude oil and my sack of coffee?
(I don't drink coffee and I cant refine the crude)..... any commodity can be money..but over time...one becomes the standard......Historically...its always been gold as none-other then Sir Allen Greenspan so aptly understood in 1966! http://www.constitution.org/mon/greenspan_gold.htm (it's a shabby little secret!)
If one increases the money supply, devaluing the paper then it can be exchanged for a fixed quantity of that commodity and visa-versa.
If the commodity becomes undervalued relative to the paper, the commodity will be sold for paper. A paper/commodity linked system provides negative feedback.
There is no need to have enough of the commodity to cover all the world's wealth, just enough to stabilize the monetary system and stop the unscrupulous politicians from debasing the currency.
This said, Bernanke is an obvious fool.
The information in this link is very interesting...includes a chart (published in Barron’s)on paper dollar inflation 1945 to 2011 http://fisherpreciousmetals.com/2010/11/53957-in-circulation-for-every-ounce-of-gold/
“will you pay me in gold for my barrel of crude oil and my sack of coffee?”
That’s not how currency backing works. You don’t get the oil and coffee yourself.
“any commodity can be money”
No commodity can be money. Commodities are seperate to money. Commodities can back money, but it is not the same as money. We have money so we don’t have to barter commodities.
“over time...one becomes the standard”
Please read my post again. It contains important points that cannot be overridden by a simple argumentum ad antiquitum.
Nixon pulled off the greatest theft ever. All US wealth held in cash was stolen by refusing to pay in gold as promised.
Funny how little this is recognized.
*The close cousin of which is the fallacy that the money supply must continually be increased to match expanding production.Thread readers, please note my tag. Tied directly to this subject.**In reality fractional reserve banking is not compatible with a true fixed gold standard. True monetary reform and discipline would require a full reserve banking model – another massive limitation on the power and profits of bankers.
I agree with Bernanke. You can’t dispel his comment simply by saying that there is always enough money, it’s just a question of price. If going to the gold standard would result in a price per ounce of $1 million, then you are talking about massive dislocation of the economy in order to get there.
I once had all my money in gold. It removes all your good logic to have all your money in one thing.
Circular reasoning.
The value of gold is based on the total demand for gold relative to the supply of gold. Period. The specific purpose doesn't matter.
The form of gold does matter. Coins can have a value distinct from the bullion price of gold since coins and bullion have different utilities.
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