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Return to the Gold Standard would be madness
Telagraph UK ^ | November 8th, 2010 | Edmund Conway

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.

trilemmaBut 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 ...


TOPICS: Business/Economy; Foreign Affairs; News/Current Events
KEYWORDS: dollar; economy; gold
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To: ClearCase_guy

Those acts were in response to the deflation in the post-Civil War era caused by the gold standard. Basically, the worldwide stock of gold stagnated during that when the California and Australian gold mines ran out. In response, with continue economic growth the price level was decreasing, ie deflation. The problem was farmers were debtors so that saw the price of their crops drop so the real burden of their debt was increasing. They and the Populist movement responded by demanding the US adopt a bi-metallic standard. It is a 19th century version of what Helicopter Ben Bernanke is doing. Also, when the US started minting silver dollars they artifically set the price of silver too high relative to gold. This was a “bailout” for the Westwern silver interests. One affect was if owed Uncle Sam money you paid in silver dollars and if Uncle Sam owed you money you demanded payment in gold. So the effect was you had silver flowing into the Treasurt and gold flowing outward until the US had to go back to a pure Gold Standard.


61 posted on 11/09/2010 8:45:41 AM PST by C19fan
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To: All

The problem is the debt not the currency, which means it’s the governments that always devalue their own currency over time due to over spending causing loss of confidence in their banking system....this is history, repeated over and over again, almost unavoidable due to human nature.

What you guys are talking about is controlled growth or capping expansion. Citizens could live with a 1% or 2% growth rate or GDP a year. Banks, Corporation, power hungry elitists can’t and always try to hoard the available currency or currencies.

Precious Metals are used as a limiting factor in currency creation as they are finite compared to the capacity of a printing press.

Precious Metals used in a civilized world and food stuffs used in an uncivilized world as backing for or as a currency begets hoarding over time no matter what.

Leaving countries with there own monetary systems is the better option as money will flow from one area of the world to the next in cycles as in free markets there are booms and busts, you can’t change cycles in free markets. There are always free markets in progress using there own form of currency whatever that might be and is acceptable at the time. Most governments hate that part ‘free markets’ because trying to control a market just sends it to a black market which is another form of a free market.

Above all, whatever currency is decided upon, you need the rule of law to back a currency for confidence. Without the rule of law people will flee a currency due to the obvious uncertainties.


62 posted on 11/09/2010 9:06:45 AM PST by Razzz42
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To: Toddsterpatriot
I still dont see the problem if everything is adjusted to scale and at the same time. if you owe 100 million, the new adjusted figure is 50 million. i know this would be a feat to coordinate something of that magnitude, but technically it would work. Loans: now cut in half, savings = half, loaf of bread = half, salary = half.. etc..

The real problem would seem to be global trade issues. who would and who wouldn't want to cooperate

63 posted on 11/09/2010 9:28:49 AM PST by FunkyZero ("It's not about duck hunting !")
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To: 1rudeboy; ml/nj
People read articles? And the comments that follow them?


64 posted on 11/09/2010 9:30:41 AM PST by expat_panama
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To: 1rudeboy; ml/nj
People read articles? And the comments that follow them?


65 posted on 11/09/2010 9:30:53 AM PST by expat_panama
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To: expat_panama

I can’t imagine how that happened. I can’t imagine how that happened.


66 posted on 11/09/2010 9:33:01 AM PST by expat_panama
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To: FunkyZero
I still dont see the problem if everything is adjusted to scale and at the same time. if you owe 100 million, the new adjusted figure is 50 million.

The person who loaned you the $100 million doesn't agree to the adjustment.

but technically it would work

LOL!

67 posted on 11/09/2010 9:34:08 AM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Razzz42
Citizens could live with a 1% or 2% growth rate or GDP a year.

What's the growth rate of Social Security and Medicare payments?

68 posted on 11/09/2010 9:35:59 AM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: MarkL
Certainly not enough to cover even a fraction of the amount of money printed by the US Mint.

The US Mint produces coins (some are even gold, silver, and platinum). The Bureau of Engraving prints the paper currency.

69 posted on 11/09/2010 10:44:35 AM PST by Smokin' Joe (How often God must weep at humans' folly. Stand fast. God knows what He is doing.)
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the price of gold does not determine the value of the gold, but the strength of the currency exchanged for it...
70 posted on 11/09/2010 3:42:12 PM PST by Chode (American Hedonist - *DTOM* -ww- NO Pity for the LAZY)
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To: Toddsterpatriot
"LOL!"

Listen, "all things being equal" is the part you seem to be ignoring. I'm not here to argue with you. One more time: All things being equal, all monies adjusted at the same point in time. Get it ? I'm guessing not likely...

If I loaned you 20 bucks yesterday and adjustments were calculated tonight, tomorrow I would accept 10 bucks in re-payment because those 10 dollars are worth an EQUAL AMOUNT to the 20 I gave you yesterday. I think I'm the one who should be laughing at this point

71 posted on 11/09/2010 6:12:50 PM PST by FunkyZero ("It's not about duck hunting !")
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To: FunkyZero

Already established as idiotic on the subject of currency. Don’t waste your time.


72 posted on 11/09/2010 7:21:57 PM PST by Razzz42
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To: expat_panama
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.

Yep, that gold is just bouncing all over the place. Bouncing up is more like it. For the last 10 years. Mirror image of the dollar falling.
73 posted on 11/09/2010 9:03:20 PM PST by dollarbull (why are paperbugs so bad at history?)
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To: Chode
the price of gold does not determine the value of the gold, but the strength of the currency

The price of gold is set by traders that take into account things other than exchange rates.  

Half the gold mined is jewelry and people buying wedding rings don't check exchange rate trends.   A third of the world's gold is investment/reserves, and while exchange rates are important most will dump it during a selloff regardless of exchange rates.  Supply affects the price too.   The total quantity of gold that's been mined in the world doubles in less than 50 years, and we've so far only dug up about less than 200,000 tons of the 600 billion tons in the earth's surface.

74 posted on 11/10/2010 5:29:46 AM PST by expat_panama
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To: dollarbull
"...bouncing all over the place. Bouncing up is more like it."

LOL, sounds like a buddy of mine that was buying real estate four years ago. 

Your take on the post 74?

75 posted on 11/10/2010 5:38:14 AM PST by expat_panama
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To: expat_panama
LOL, sounds like a buddy of mine that was buying real estate four years ago.

It's true that at some point gold will be in a bubble and then it will be time to sell. It's not that time yet. Right now is like year 2001 for real estate, year 1994 for tech stocks, etc. We are far from a bubble for many reasons - but the *main* reason is that by definition, a bubble peaks once the public goes "all in" on the asset class in question (that's what drives the asset class to over valuation). The public cannot spell gold right now.

Your take on the post 74?

My main comment is that I can't decide if the post is sophistry or stupidity. The poster is clueless and due to his flawed world view and analytical framework has probably watched gold rise from $400-500 to its present price, all the while telling you why it is over priced. He'll keep doing so until it gets massively overvalued (5 digit handle) and then he'll buy - that will be the top/bubble/etc.

The price of gold is set by traders that take into account things other than exchange rates.

the price of gold, like everything else, is set by the market - that is more than "traders". It's also actively managed by the gov't-bankster complex, it's on sale now, so get it while you can.

Half the gold mined is jewelry and people buying wedding rings don't check exchange rate trends.

rings aren't bullion. Their value is made of artistry, labor, brand, etc. The gold in a wedding ring is probably worth $10,000 per ounce if sold by weight.

A third of the world's gold is investment/reserves, and while exchange rates are important most will dump it during a selloff regardless of exchange rates.

most will dump gold during a selloff of gold? How much gold was sold off by central banks, trusts, etc during the selloff in 2008? Not much. Also investments and reserves are 2 different things, but he's lumping them together here

Supply affects the price too. The total quantity of gold that's been mined in the world doubles in less than 50 years, and we've so far only dug up about less than 200,000 tons of the 600 billion tons in the earth's surface.

probably the most clueless part of the post. Gold production is declining, just like oil production is declining. We're at peak gold. Prices are at all time highs yet production is NOT increasing, it's decreasing.
76 posted on 11/10/2010 5:07:28 PM PST by dollarbull (why are paperbugs so bad at history?)
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To: dollarbull
"...it will be time to sell. It's not that time yet."

Some traders in my experience know what prices are going to be in the future.   Others like me only know what we can see and that we can't see everything.  For decades I've made good money trading, but that first type usually seem to be the new guys.

sophistry or stupidity. The poster is clueless

That's what's called a conversation ender.

Cheers.

77 posted on 11/11/2010 3:59:59 AM PST by expat_panama
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