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.
Sure, I agree a commodity-backed currency would slow the rate of printing.
But economics is a very strange thing. There are no experiments. We can now say that the value of what the USA does and has in a month or so is worth more than all the gold in the world, with gold priced at or around its free market commodity-worth value.
The same was not true 70 years ago. So is it not true that the US is much richer in any measurable sense than it was 70 years ago? And all this wealth occured under a managed fiat currency.
I mean maybe it would have been the same under a backed currency, or maybe better, we’ll never know because there are no reruns in economics.
But I think there’s a pretty sound argument to say that backing a currency with a limited commodity could hold back its wealth potential. I’m not sure, but it seems pretty reasonable.
One argument for an inflation-based economy, is that it forces people to put their money in banks so they don’t lose money, so then that money is invested. Again, I’m not entirely comfortable with anything that includes the word “force”, but it seems that a pretty reasonable argument could be made that it’s a working model.
I don’t even understand fractional reserve banking though, I don’t honestly know what the heck is up with that.
In a nutshell, I’m not sure. I know we are richer now than we were. Would we have been this rich anyway? I’m not sure.
Ben Bernanke was not appointed by Obama. Thanks Bush.
“The value of gold is based on the total demand for gold relative to the supply of gold. Period.”
That’s exactly right. And the value of a Fed Note is based on the total demand for a Fed Note relative to the supply of Fed Notes. Period.
If you arbitrarily call either “money”, you have forced up the Demand function D for that item. One is a paper fiat, and one is a shiny yellow fiat.
“you must wish you hadn’t”
It was my college fund. It’s very hard to invest money rationally that you really need for your future.
That's the problem though. You can't keep a government, any government, from printing more whenever it wants to. That was the whole point of going off the gold standard to begin with. Baskets of commodities won't work either since there is no way to enforce the standard across borders and there is nothing to keep a government from simply redefining the basket whenever it wants to.
Gold takes the management of the currency's value out of the hands of the government. Only a market chosen commodity, not a government chosen commodity, can do that.
We don't have to play games with dollar to gold value conversions. All we have to do is remove the capital gains tax on gold, repeal the legal tender statutes, and repeal the prohibition on private banknotes. Dollars will continue to circulate for as long as the market needs them, but will eventually be replaced by other private currencies.
That is a tough notion but if the value of the paper and the value of the commodity rise simultaneously with the net wealth, all remains in balance with a net deflation rather than a perpetual inflation. When we were on a species standard, prices did not rise yet wealth grew.
Government interference in health care, warfare, energy use and fiscal growth may just cause an unwarranted imbalance in the market.
Not saying I'm right, just that what we are doing isn't working well and the old way seemed to.
'Demand' for fed paper is prescribed by law. That is the meaning of 'fiat'. Absent the law, there is no demand. Fiat currencies also suffer from what is ultimately an unlimited supply problem. This is why fiat currencies always return to their fundamental value. That of a simple piece of paper. It is simply a matter of how long a government can keep the confidence game running.
"If you arbitrarily call either “money”, you have forced up the Demand function D for that item. One is a paper fiat, and one is a shiny yellow fiat."
This demonstrates a profound misunderstanding of the term 'fiat'. Physical gold is the antithesis of 'fiat'.
He can understand the logic behind fractional reserve banking but can’t understand a gold standard? That’s whacked.
Bernanke understands a gold standard just fine.
The banksters don’t have all of the shiny they think they can get their hands on yet. Once they do, their understanding of a gold standard will miraculously materialize.
Under a gold standard, deflation is the norm. You do not need a 'return' on your gold savings to increase your wealth. Normal deflation will result in the ounce of gold that you save today being 'worth' much more in terms of goods and services when you retire.
We are under the false impression that denominating the same quantity of assets in ever-increasing numbers of fiat currency means that we are getting 'wealthier'.
If you force US currency to be backed by gold, you add a huge new gold buyer. That would push up the price of gold until it matched the wealth it is being asked to back. That would push the price to $100k+.
It is not worth $100k+ as a commodity, so by prescribing the backing by law, you have simply created another artificial wealth store, which is worth more than it would be as a commodity, without the law.
Without the law, the paper is worth $0.00000000001. With the law, it is worth $1. Likewise without the law, the metal is worth ~$1500, with the law it is worth $100k.
So it is the same as a fiat currency, except they don’t print more dollars, they just push up the value of gold until it matches the wealth it is supposed to back.
“We are under the false impression that denominating the same quantity of assets in ever-increasing numbers of fiat currency means that we are getting ‘wealthier’”
But we are better off now than we were 70 years ago wouldn’t you say?
You cannot *force* anything to be backed by gold. Gold simply is. The price of gold is not 'rising'. The value of fiat is plummeting.
Is materialism your god or are you referring to the fact that we are not currently involved in a world war?
Those who firmly support gold should also back the creation of scrip currencies to maintain the value of their gold. Scrip is a tightly controlled alternative or complementary currency that is not legal tender. As such, value of scrip is fixed, and prices of goods purchased with scrip are fixed, even if the dollar is vacillating wildly.
So, in effect, if the price of a loaf of bread is 1 scrip denomination, even if a dollar hyperinflates so that a loaf of bread costs a billion dollars, it still only costs 1 scrip denomination.
Imagine an ounce of gold in that situation. Say its price is fixed at 1000 scrip denomination. You might need a semi-truck to haul all the 100 million dollar bills to buy an ounce of gold. Or everyone on the scrip system will be able to make change for your ounce of gold, if they have the appropriate fraction of 1000 scrip denomination.
The same exchange rate it was the day before and the day after. It doesn’t matter what the dollar does.
Thus it has a huge stabilizing effect on markets, and maintains the value of both goods and items of value, like gold.
Idiot is not the right term of endearment. Thief is more appropriate. He is a vicious thief.
I think we should go back to the sea shell standard!
“Is materialism your god”
You goldbuggers get so nasty when anyone doesn’t agree with you. It’s usually because all or most of your money is in it, and so you feel economically threatened.
I’ll rise above it. You should diversify your portfolio, then you wouldn’t be so anxious all the time.
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