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 ...
“Number one is the obvious, there isn’t enough gold.”
With all due respect, though this seems so on the surface, G. Edward Griffin gives a powerful (logical) explanation of why it doesn’t matter how much gold there is in “The Creature From Jeckyl Island, A Second Look at the Federal Reserve”.
Equally well explained is the hidden tax of inflation. Remember when gas was 20 cents/gallon? Coke was a nickle?
Amen!
As long as currency is based on nothing, we are slaves to the currency masters - the Central Banks who create what they call money out of nothing. Anyone who understands this system and still thinks that it is acceptable is an idiot.
And he references Krugman, who we know is the smartest man in the world. /s
We are in effect now on a gold standard. The major currencies are all losing value when measured against the precious metals.
It is purely a matter of perception. The metals are the constant. The currencies are variable. The variation is negative relative to the constant.
You must be talking about the guy who thinks there isn't enough gold.
Not to worry, soon the dollar wont be worth the paper it’s printed on. That is when they will get rid of paper money.
And of course, “lead” will always be a staple in anyones metal inventory.
——I do think the value of the currency needs to be attached to something.——
The lesson learned was that attachment to gold, a single commodity was ineffective in a global economy with so many variables. The result is that we de facto have many standards.
As we type, the variation relative to several of these standards can be measured in continuous real time. The variation of the relative value of the currencies has become smaller than the variation with the commodities subject to market variation.
To get a picture of reality, the variation between gold and the $$ indicates a decreasing value for the $. The variation between gold and silver is not clearly understood but there appears to be movement towards the historic norm of 20:1 or so.
Until the massive outstanding global debt is absorbed, the variation or relative decrease of currency to gold et al will continue. For convenience, forget et al and keep an eye on gold. Gold is a reliable standard.
In the present situation, the creditors were bailed out in advance of the coming inflation. The creditors were taken out up front and will not suffer nearly as badly as before. They have a TARP upfront cushion .
And Murray Rothbard. The quantity of gold in circulation doesn’t matter. The government or the banks will have to simply mint smaller units for smaller purchases. An end to fractional reserve banking would essentially serve the same purpose as a return to the gold standard. Fractional reserve banking is just another form of counterfeiting.
No actually there are too many dollars...
Can you explain that "science" here?
So we could adjust the cost of your home down 50%, if that works with the gold we have?
“Equally well explained is the hidden tax of inflation. Remember when gas was 20 cents/gallon? Coke was a nickle?”
I do. But wadges were .$50 per hour and your spendable income always lagged rate of inflation.
Thanks for the warning and sparing me the waste of time.
Does anybody really think that there’s any gold left in Ft Knox? Certainly not enough to cover even a fraction of the amount of money printed by the US Mint.
IIRC, the last “audit” of the US gold reserves was done back during the Eisenhower administration.
Mark
That's true. They would both be really bad for the economy.
Fractional reserve banking is just another form of counterfeiting.
You put $100 in the bank. The bank loans out $90 and keeps a $10 reserve. How is that like counterfeiting?
It is like counterfeiting in that you still believe that your $100 is available to you upon demand, while 90% of it is in someone else's hands and not really available to you at all. Both parties have a claim on that $90 that the bank no longer holds.
OK, that's true as long as we just look at how many dollars buys a fixed amount of gold.
Now, if you look at how much gold trades for a fixed amount of dollars then suddenly it's the currency that looks constant compared to the metal. In real life what we really need is stuff like food, clothing, energy, and if we compare a typical basket mix of stuff people actually use to either metals and dollars, it's the dollars that are stable and the metals is what jumps all over the place.
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