Posted on 11/09/2010 4:09:58 AM PST by expat_panama
I almost spat my coffee across the room when I saw the headline plastered across the front of the FT this morning: Robert Zoellick, president of the World Bank, is calling for a debate on the return to the Gold Standard, it said. Of course, when you read the column upon which the news story is based (subscription only, this being the FT), it is far less clear that Zoellick really wants a return to the 19th century international macro-economic structure. Instead, he merely seems to have namechecked gold as a possible mechanism to help us wean ourselves off our reliance on the dollar as the world’s reserve currency.
But let’s pretend for a moment that he is being serious about a return to the Gold Standard. What would that mean? The easiest way to understand the consequences is by considering what economists catchily call the “International Macroeconomic Policy Trilemma”. It goes as follows: you can have any two of the following at any one time: fixed exchange rates, capital mobility and independent monetary policy. You can’t have all three.
As the chart below (courtesy of Dani Rodrik) shows, for the last few decades (since 1971 and the final nail in Bretton Woods’ coffin) we have sat on the right hand side of the triangle, with floating currencies and untrammelled capital markets (in most of the Western world at least). The Gold Standard era involved the free movement of capital and fixed exchange rates, but in exchange for this the members had to abandon any pretence of being able to control their own domestic monetary policies.
[snip]
(Excerpt) Read more at blogs.telegraph.co.uk ...
... such as the policy of theft, the ability to steal trillions of dollars in the dark of night by inflation.
Anyone still have a gold ping list?
Number one is the obvious, there isn’t enough gold.
With respect to the “tragedy” of fixed exchange rates: what is ethical about giving the government the power to make my labor fluctuate in value relative to that of a Chinese person’s labor, when both of us do the same thing day after day? When imports as a whole “get cheaper” or “get more expensive” that’s just manipulation, something done without informed consent.
I don’t know the author, but I suppose he is one of those monetarist/central banker supporters who is under the delusion that paper currencies are just fine?
The only madness is in believing that a central/global bank would ever keep a gold standard.
They are only floating this idea in order to get the people of sovereign nations to dump their increasingly worthless currencies, accept a global currency, and submit to the monetary controls of the global bank that controls that currency.
Once they succeed in doing this, they will dump the gold backing so that they have full control over the currency and thus the people.
And, at least by theory according to monetary science, it is fairly simple for a nation to return to a gold standard and it doesn’t need much gold to do so.
Murray Rothbard outlines how the US could return to the gold standard at the end of his book, “The Case against the Fed.”
You mean, gold’s price is too low? That appears to be in the process of “correcting.”
I'm no economist, but I do know a bit about history. In the US, we hade the Sherman Silver Purchase Act, the Bimetallism debate, and William Jennings Bryan's "Cross of Gold" speech. Is this article saying we did not have any domestic monetary policies?
Not enough gold- which is why the smart money is holding and accumulating it...
Are you thinking that, in order to have a gold-back currency, everyone’s currency would have to be in gold coin?
If so, that isn’t how it works. It would be awkward to switch back to a gold-backed currency, but it would certainly be possible. All you need is to determine the amount of gold you have and then adjust costs in the economy according to the gold you have (fractions of percentages of the gold) and then set the value of the currency to match both. From that point on, changes to cost in the economy and the value of money MUST be in accordance to the supply of that gold. This is why nations that had a gold-backed currency typically had a “slow” but very steady GDP growth of 3% per year. That is about the only amount of new gold that can be added to the supply.
But I think the point is being missed. I’m no “gold bug,” but I do think the value of the currency needs to be attached to something. Right now, none of the major nations have currency tied to anything. What is the value of the dollar based on? Manufacturing? Good credit? We have none of that. Right now we are living on the momentum of the past, which is rapidly slowing, and the fact that the USD is the world’s reserve currency, which Russia, China, and India are actively trying to remove. Once they do that, the US dollar, given the debt the US government has taken on and must pay off with interest, the US dollar is rapidly approaching worthlessness.
"PS Quite a few decent blogs worth reading on this, including Krugman..."Anyone who thinks Krugman is "worth reading," is NOT "worth reading."
Come on, we both know that doesn't make any sense, unless maybe you work in a chopstick factory in Shenyang Heights? Hey, American workers make more money than foreigners because US labor's worth more. Anyone who's really sure he's getting paid what a foreigner makes needs to either bring his work skills up to US average or learn to live cheap.
Do you not understand how an inflation rate that is higher than GDP is in fact stealing the value of the purchasing power of the money in circulation?
How is it hyperbole, then, to say that an organization like our central bank (the Federal Reserve) that intentionally inflates the currency is not intentionally stealing the value of the money already in circulation?
Or are you saying that “trillions” (as opposed to hundreds of billions) is hyperbolic?
One of the few things Keynes got absolutely right: "Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
You, at least, are not one of those one in a million.
You’re not understanding my point. I’m not arguing that my labor should be worth the same as another’s, but rather that the relative values should stay the same, relative to one another. When the dollar falls, “our goods get cheaper” and exports go up. Somehow, the things we make drop in value, so more foreigners can afford them. This is said to be a good thing, but of course it also steals value from our savings When government alters the value of the dollar, they aren’t only altering what your bank account is worth, they’re also altering the time value given to your labor in a factory, relative to that of others in other countries. Congress has the power “to set the value of money” but not to set the value “of your labor.” I’ll admit this point might to subtle.
I always thought that fact was behind our drive to reach and investigate other planets.
What would happen if gold (or diamonds for that matter) would be found, in quantity on a reachable planet?
Those elements must be present, right?
Without regard to gold, it is evident that printing up money out of thin air and lending out at interest ain’t so hot either.
This is an old, old problem. If not a gold standard, how about a money standard? How is it that mankind has ever increasing standards of precision with respect to weights and measures, and yet money itself isn’t defined at all? An acre doesn’t fluctuate in size, a yard doesn’t vay against the meter. What is tbe supposed benefit of different currencies fluctuating against each other? (Other than to make people like Soros very, very wealthy, and impoverishing whole countries)
If the world’s currencies go to crap, the market will return to the gold standard, no matter what the governments do, even if they do what they did in the 1930’s and make gold ownership illegal.
Alvin Toffler, in “The Third Wave” predicted that governments would become increasingly authotitarian, and, because of technological advancements, increasingly irrelevant.
If the world’s currencies go to crap, the market will return to the gold standard, no matter what the governments do, even if they do what they did in the 1930’s and make gold ownership illegal.
Alvin Toffler, in “The Third Wave” predicted that governments would become increasingly authoritarian, and, because of technological advancements, increasingly irrelevant.
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