Steve Forbes: "The US Will Likely Have A Gold Standard Within The Next Five Years"

Zero Hedge ^ | 05/11/2011 | Tyler Durden

[SeekAndFind]

And another advocate for the only logical outcome out of the disastrous monetary and fiscal catastrophe the US finds itself in emerges in the face of billionaire, and open administration critic, Steve Forbes. From Human Events: "A return to the gold standard by the United States within the next five years now seems likely, because that move would help the nation solve a variety of economic, fiscal, and monetary ills. “What seems astonishing today could become conventional wisdom in a short period of time,” Forbes said. Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending, the media mogul and former presidential candidate said.  The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now, Forbes added." Of course, for this to happen the US would first need to allow a full public audit of its gold 8,000+ ton reserves held at Fort Knox and elsewhere. And that may be problematic.

More from the article:

If the gold standard had been in place in recent years, the value of the U.S. dollar would not have weakened as it has and excessive federal spending would have been curbed, Forbes told HUMAN EVENTS.  The constantly changing value of the U.S. dollar leads to marketplace uncertainty and consequently spurs speculation in commodity investing as a hedge against inflation.

The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.).  But the idea “makes too much sense” not to gain popularity as the U.S. economy struggles to create jobs, recover from a housing bubble induced by the Federal Reserve’s easy-money policies, stop rising gasoline prices, and restore fiscal responsibility to U.S. government’s budget, Forbes insisted.

With a stable currency, it is “much harder” for governments to borrow excessively, Forbes said.  Without lax Federal Reserve System monetary policies that led to the printing of too much money, the housing bubble would not have been nearly as severe, he added.

“When it comes to exchange rates and monetary policy, people often don’t grasp” what is at stake for the economy, Forbes said.  By restoring the gold standard, the United States would shift away from “less responsible policies” and toward a stronger dollar and a stronger America, he said.  “If the dollar was as good as gold, other countries would want to buy it.”

An encouraging sign for Forbes is that key lawmakers besides Rep. Paul are recognizing that the Fed is straying well beyond its intended role of promoting stable prices and full employment with its monetary policies.

And speaking of Ron Paul, today the Subcommittee chairman will hold a 10 am EDT hearing on "Monetary Policy and the Debt Ceiling", which we hope to broadcast live, as it should further reinforce the logic of all those who are calling for the overthrow of the central bank cartel.

[GonzoGOP]

As an example I looked up the mass of a grain of sand. The average mass of a grain of sand is .013 grams. At your valuation of gold a dollar would equate to .00354 grams per dollar. So a dollars worth of gold would be worth one quarter of a grain of sand. Now when I put some sand in your hand can you tell me how many grains there are? Would you notice if one grain of sand was missing? So if I took away $4 of gold you couldn't even detect it was missing.

Also as a piratical mater how do you measure the value of your gold? The most accurate commercially available electronic balances round to .01 grams. That would be rounding to a third of a dollar. How do you know if your gold dealer isn't ripping you off when you buy a gold coin. With a metal as soft as gold just the normal inconsistencies of the stamping process could change the value of a coin by several dollars. You simply can't run tolerances in coinage to one 8000th of an ounce.

[diogenes ghost]

Oh lordy...$8K an ounce?

I'm ok wit dat.

Mrs. Ghost bought 500 oz at $300 with inheritance from her mother.

I better stay on her good side; my investments have, ahem, not done so well.

[ColdSteelTalon]

As long as I do not have to pay of any current debt I have with Gold backed dollars but can still use FRNs’ I am good with it.

[Atlas Sneezed]

So how do I go to the bank hand in my $10 and demand payment in gold? That is one 800th of an ounce. A speck of gold dust. 1$ worth of gold at $8000 and ounce becomes just as theoretical a creation as the Fed funny money we have now.

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Consider paper money with embedded physical gold foil of 0.1 gram (about what a silver dime is worth - ~$3). One tenth gram is a centimeter square, 1/5th mm thick (about the thickness of two post-it notes together).

Keep in mind that an 800th of an ounce will typically be good for small purchases like a cup of coffee or a newspaper ($2 today).

If you want a paper money for smaller transaction ($0.20 - but why?) your gold foil strip could be 1 mm by 1 cm. Sealed in a nice clear hologram window.

[GonzoGOP]

Consider paper money with embedded physical gold foil of 0.1 gram (about what a silver dime is worth - ~$3). One tenth gram is a centimeter square, 1/5th mm thick (about the thickness of two post-it notes together).

Except that .1 gram is not $3 it is $28.248. When your smallest bill is a 30 you need to revalue your currency not just go to a gold standard. So what we need to do is issue "New Dollars" or "Gold Dollars" that are worth 10 old dollars. That way the penny becomes a workable monetary unit again. And the price of gold goes from $8000 to the ounce (which is an unworkable amount) to $800 and ounce, still high but at least a workable amount.

This would put the value of the dollar back to where it was in 1946 ($1 in 1946 would be equal to $11.04 today). And by locking the value in you eliminate inflation. That is both good and bad since there are times (like when a technological advance allows large growth in productivity) where you want to pump a little extra currency into the market.

[Atlas Sneezed]

Except that .1 gram is not $3 it is $28.248. When your smallest bill is a 30 you need to revalue your currency not just go to a gold standard. So what we need to do is issue “New Dollars” or “Gold Dollars” that are worth 10 old dollars. That way the penny becomes a workable monetary unit again. And the price of gold goes from $8000 to the ounce (which is an unworkable amount) to $800 and ounce, still high but at least a workable amount.

---

I just did the math with precision, and at today’s $1500/oz price, 0.1 gram of pure gold is worth $4.82. Call it a $5 bill.

I think you are on to something with the penny, but I think dropping a zero would be too “third world” and a more politically plausible plan would be to drop the penny and nickle, and add a few higher value coins and higher value notes per my old plan:

Given that there has been ample inflation on the order of 10 since the last change, and we have an excessive array of confusing coins and low-value currency, it is time for a practical simplification.

First, denominations need to proceed in a proportional way without large value ratios or crowded ratios. The classic 1-5-10-50-100... progression with ratios of 2.0-5.0 is ideal as a minimum, with denominations of 2, 20, etc. being optional for important valuations.

Second, we want to avoid coins of such low value that they are more trouble than they are worth. Economic waste occurs with the extra time wasted dealing with needlessly small coins. A dime is worth less than a minute of labor at minimum wages, and no currency transaction requires anything smaller than this denomination. The penny and the half-cent served well as the smallest denominations when their values were that of today’s dime. (Note to any economic imbeciles: electronic transactions are often conducted in smaller units than our smallest coin, and that cash registers have been “rounding” - without bias up or down - to the nearest small coin for sales tax purposes for generations. Google “sales tax rounding” if you have doubts and read a few articles).

Third, we want to set the coin/currency transition at a practical level that avoids our wallets being overstuffed with small bills, or our pockets with too many coins. Coins should be suitable for purchases like a magazine, a coffee, a lunch, or a brief cab ride.

Fourth, the ratio between the largest and smallest coin should be limited to a practical factor. Consider that the economy functions effectively with coins at 0.05, 0.10, and 0.25, with pennies treated as trash, and larger coins generally not used. That is a factor of 5 between the largest and smallest coin. A factor of 10-50 may be ideal, and a factor of 100 (as in actual current coinage) is excessive.

Fifth, we need bills of adequately high value for large cash purchases (consider the largest Euro note has a value of about 6.5 times that of the largest US note.)

Sixth, coins should be sized approximately proportional to their value for ease of recognition and use.

The proposal:

Coins:
$0.10 (slightly smaller than the current dime)
$0.50 (slightly smaller than the current nickel, larger than the penny)
$1.00 (slightly smaller than the current quarter dollar, larger than the nickel)
$5.00 (slightly smaller than the current half-dollar) Or it could be set at $2 to avoid overlap with a $5 note.

Currency Notes:
$5 (optional)
$10
$20 (optional)
$50
$100
$500

Our current 6 coins are replaced with 4.
Our current 7 notes are replaced with 4-6.

If you want to talk about making coins out of silver or gold, I’m even more enthusiastic:

$1000 gold coin (1 oz)
$500 gold coin (1/2 oz)
$100 gold coin (1/10 oz)
$20 silver coin (1 oz)
$10 silver coin (1/2 oz)
$2 silver coin (1/10 oz)
$1 copper or base metal coin (1/2 oz)
$0.50 copper or base metal coin (1/4 oz)
$0.10 copper or base metal coin (1/10 oz)

[TheOldLady]

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[Ancesthntr]

I agree that 1/8000 of an ounce of gold is not a practical measure - yes, it could be done, but think about the cost of making it into thin strips and embedding it in money: its just not practical.

Here’s what you do: Declare that gold is now valued at $8,000 per ounce and silver at $500/oz. (restoring the old 16:1 ratio). That backs the currency and stops the chaos of the moment, thereby allowing the economy to begin to recover by restoring confidence. Concurrently, you announce that at a date certain, say 3 or 6 months later, ALL current US currency and coinage will cease to be currency (though they will likely be collectible), but that they can be turned in for [name of new currency] at a ratio of 1:387. Effectively, you will have a gold- and silver-backed currency with the gold in it valued at $20.67/oz. and the silver at $1.29/oz. (exactly where they were before FDR seized the gold in 1933). Additionally, all bank, brokerage and other financial balances (including our debts) will be adjusted in the same manner. Finally, ALL contracts will be modified to reflect the change in currency (and people will automatically have the right to state future contracts in terms of ounces of gold or silver).

As an aside, all new currency and coinage would be barred from having the image of any person born after 1800 on it to remove politics from that area - use Founding Fathers or a generic Lady Liberty as was done for much of our history, and go back to changing the coinage every 25 years to keep collecting a vibrant hobby that would earn lots of seignorage for the government as older coins were removed from circulation and replaced with newer ones.

There would be an end to speculation in gold and silver, as they’ll have a stable value in terms of the new currency...and there would necessarily have to be an end to taxes on any gains on the sale of gold or silver. Gold and silver will be money, and you couldn’t be taxed on the exchange of them for cash or each other any more than you can currently be taxed for exchanging a $10 bill for 2 $5 bills.

What does all of this do? Well, it backs your currency with gold and silver, just as the Founders wanted. Second, it restores practicality to the use of the physical currency - silver can be used for smaller transactions, and we can once again have gold coins. Ironically, all of the old “junk silver” coinage and the common date gold coins from yesteryear could once again be used as circulating coinage (though I think it likely that most would still stay in closets and vaults as collectibles). Initially, since this would necessarily be done after a currency/financial crisis, people will hoard the new coins - but eventually it will become inconvenient and people will revert to using paper bills, cards and electronic transactions (just like now), with the only difference being that we’ll have a stable currency and (necessarily) limited power for government.

Yes, I know, doing a “reverse split” on the dollar would look Turd World. But face facts, we ARE Turd World when it comes to our finances. Going to a gold/silver standard would restore fiscal sanity, and it is completely practical.

[Atlas Sneezed]

Declare that gold is now valued at $8,000 per ounce and silver at $500/oz. (restoring the old 16:1 ratio).

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The only problem with your otherwise fine plan is that setting a ratio arbitrarily (or for good reasons) creates an arbitrage opportunity that can destroy your economy.

The actual market ratio is now a bit over 40. So if your plan were implemented, I’d buy silver elsewhere, trade it in for gold, sell the gold elsewhere for (cheap) silver and more than double my money with each cycle. The equivalent happened in the early 70s, which is why Nixon closed the gold window (folks were pulling out gold, and trading for cheap dollars overseas - lather, rinse, repeat.