The Strange Allure of the Gold Standard

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Stacks of gold bars.

Some Republicans want to take the country forward by taking us back — way back – to the gold standard. The Republican party platform, approved on Tuesday, warns against the evils of “easy money and loose credit” and calls for a commission to “investigate possible ways to set a fixed value for the dollar.” This proposal is clearly a sop to Ron Paul, who made “sound money” one of his big issues during his failed campaign, and has about as much chance of being enacted as Romney has of winning the African-American vote. But the mere fact of its existence is significant.

Almost everyone who is not Ron Paul, or at the very least a Ron Paul fan, thinks the idea of returning to the gold standard is daft. A recent University of Chicago poll of top academic economists found precisely zero who thought that was a good idea. Liberal commenters are aghast that the issue is even being raised. Economist and New York Times columnist Paul Krugman has described the gold standard as  “an almost comically (and cosmically) bad idea.” On The Atlantic, Matthew O’Brien called the gold standard “the world’s worst economic idea.” He conceded that “[t]here might be worse ideas than this, but they generally involve jumping off the Brooklyn Bridge because everybody else is doing it.”

But aversion for the gold standard is hardly confined to the left. Economist Milton Friedman, the late king of the monetarists, argued that the idea was fundamentally “anti-libertarian because what they mean by a gold standard is a governmentally fixed price for gold.”

(MORE: Is the U.S. Headed for a Double-Dip Recession?)

Yet the gold standard still has its fans. What’s the appeal? True goldbugs have an almost religious faith in the power of the precious metal, and a deep distrust of government. To some, what they call “sound money” is the only moral solution. At a conference organized by the libertarian Cato Institute last fall, speakers denounced our current policy of “fiat money” with the fervor of preachers. As George Melloan observed in the American Spectator,

“the consensus view [as the conference] seemed to be that in these parlous times a return to the gold standard might very well be the only way to restore order in the bawdy house Washington has become.”

What worries the goldbug the most is the specter of inflation, which some at the conference referred to as not only harmful but “immoral.” When the government can print money on demand — without having to back up its bucks with real gold — goldbugs warn, the end result can be hyperinflation and economic chaos.

And, as Joe Weisenthal points out on Business Insider, “the ability to create fiat money out of thin air is a stealth form of taxation, because the creation of more dollars diminishes the value of those already in existence.” This makes the gold standard especially enticing to tax-hating conservatives.

(MORE: 10 Questions for Dan Quayle)

The trouble is that the idea of gold as a bulwark against economic chaos is based on illusions. Going on the gold standard would essentially require an instant end to deficits, robbing to government of its ability to fight recessions (and possible depressions) with stimulus money. Moreover, it would link the value of the dollar to the gold supply, leaving our economic future in the hands of gold miners. If miners were to strike, as Noam Scheiber notes in The New Republic,

there [would] be too few dollars relative to the amount of buying and selling going on in the economy. When there are too few dollars, each dollar becomes more valuable, and people start to hoard them. Spending slows and the economy collapses.

We all saw what happened when banks started hoarding their dollars during the financial crisis; imagine what might have happened if the rest of us had done the same.

Anyone who thinks the gold standard means stability needs only look at American history to see that theory rebutted, again and again, by the crashes and “panics” of the gilded age and afterwards. As Krugman sardonically notes, “under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.”

Given all this, it seems likely that any commission tasked with examining the gold standard would return with a conclusion similar to that reached by the Reagan Gold Commission back in 1982, the last time such an exercise was conducted: that a return to the gold standard “does not appear to be a fruitful method for dealing with the continuing problem of inflation.” That’s putting it mildly.

MORE: The Six Daunting Financial Problems Facing America

136 comments
fredblogs.turnbull
fredblogs.turnbull

When my grandfather was a boy, a portion of chips cost 6 pence. When I was a boy, a portion of chips cost 6 pence. Now my grandson is a boy and a portion of chips costs £1.30...   Guess which of us lived under a gold standard.... If you don't want a gold standard, fine - be a serf to the bankers.

Cl Tan
Cl Tan

Actually I want to know how the gold standard benefits the world economy, not just America's. As a non-American, I was warned if - or when - the US dollar collapses, the whole world will fall into a depression perhaps worse than the 1929 Wall Street Crash. Everybody has been depending on trade with the US to various extents will confront extraordinary circumstances when this happens. As a freelancer being paid largely by non-Americans in USD right now, I'm looking forward to being paid in a new reserve currency in the shortest possible time frame.

michaelbroome123
michaelbroome123

Exchange it if you're so worried. Maybe some euros? Yeah, that looks like a great bet. How about some of this oh so worthwhile and wonderful gold? You don't have to ask the government's permission to exchange your dollar for gold. Go ahead, dump your worthless fiat dollars and jump on the gold train as it collapses. We Americans don't want to be included, Thankyou very much.

J Fawkes
J Fawkes

Yes, disabling government from inflating the money supply should be considered "robbing" them.

Pathetic article.

Rick Fitzgerald
Rick Fitzgerald

What would Joe say?

Joe would say basing our economy using the "gold standard" is crazy. If people wish to hoard it, that's fine. We have long passed using rocks, cows and metal as our monetary media. We use the "dollar" instead. And the dollar is backed by the sweat and blood of the American people.

Joe says; "the current value of our monetary unit "dollar bill" is determined by the people (not the government) through the amount of productive human effort people are willing to exert in exchange."

"Time is money". How much of your time and effort are you willing to give up in exchange for a service or product. My daughter makes $10 dollars an hour.  She works 2 hours in order to pay for a $20 oil change.

Gold is a pretty metal and has useful purposes but not to measure the worth of a dollar.

SixSixSix
SixSixSix

 "I will not help to crucify mankind upon a cross of gold." Williams Jenning Bryan.

The Repubs race back towards the beginning of time. Why sometime soon Lyin' Ryan and Willard the Flipper will pass the 4,000 year mark and begin riding dinosaurs along with the cave men from whom they have hardly evolved at all.

paulsnx2
paulsnx2

Paul Krugman points out we have had the financial panics in 

1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.  

Financial Panics are where the financial sector suffers.   Remember, just like housing is a sector, or the tech sector, or the manufacturing sector... banks are just another sector of the economy.  When do they go through a cycle?  Well, 2008-2009.  But they don't suffer, or go through a period of reduced profits.  In fact, what we do is bail them out and they continue to be more profitable than ever.

The only advantage to the Gold Standard is to take away from Bankers the ability to manipulate monetary policy to their advantage.  

Nobody should believe Bankers don't care about money.  Nobody should believe the current system is set up "For the Greater Good."  There IS no greater good here.

We have an income gap that started from the early 70's, the very period in which we handed the keys to the kingdom to Bankers.  Why is anyone surprised that the income gap has grown ever since, through all administrations, through all tax polices, through all economic periods.

Nobody likes the Gold Standard, really.  The point is to take away the ultimate economic lever from the financial sector.   They have stolen enough already using it.

formerlyjamesm
formerlyjamesm

Right, I got it, the bankers will no longer be in control when we go back to the gold standard.  Uhhh, didn't the bankers control the financial sector when we had a gold standard, or am I wrong?  I recall a gilded age that T. Roosevelt challenged.  Do you recall the Great Depression?  Gold ruled at the time.

There have been other monetary standards we could look to...there was a salt standard, a tulip standard, probably a frog balls standard, although frogs balls are eatable, and you can pick any other standard. How about diamonds, controlled by a sole purveyor out of the Netherlands? Just as precious as gold, but better controlled.

Not to alarm you, but did you know that there are vast gold resources in the ground in Russia and Africa?  Are there no bankers in control in those other places?

You speak nonsense, my friend.  The monetary system can only be tied to productivity.  As I mentioned to somebody earlier, send me all the worthless money you can, I will happily accept them.

Chris Hadrick
Chris Hadrick

Would you rather have money backed by x amount of Gold or money backed by a floating amount of nothing?

geoffot
geoffot

The article does a REALLY  BAD job of explaining why a gold standard is a bad idea.  The reason is actually pretty simple.  We live in an economy that is actually expanding.  To avoid inflation you need to have the currency supply expand at approximately rate that economic activity expands.  That has no correlation to the rate at which gold comes out of the ground.

The problem comes when those who can manipulate the supply of fiat currency succumb to other reasons for fiddling with the supply.  Returning to a hard currency would at least eliminate that portion of the problem.  Both systems are imperfect but one is less subject to abuse than the other.  When fiat currency is abused hard currency becomes more attractive to those who are getting screwed by the abusers.

JustAFishin
JustAFishin

Ft. Knox is empty the gold was used to back loans from the Fed.  Thats why no one could take a look inside inside all these years. Greenbacks will always be around.  How else will GOP tip the strippers when they go to Florida?  Scan a tattoo code with their smartphones and throw coins at them?

Robert Williams
Robert Williams

How could we EVER go back to the gold standard?  We've printed FAR more money now than we have gold to back it up.  But I like the idea of not being able to just print money out of thin air.

mahagwa
mahagwa

it would require a sharp contraction of the money supply.

the us would have to retire its outstanding debt and not issue additional debt. the us would also have to take tons (by weight) of dollars out of circulation and not issue replacement notes.

hence over a period of time, the amount of dollars in circulation would have to reduce by close to 20-30%.

in order to accomplish this, the government would have to significantly cut back spending. hence it would be tough medicine in the interim.

long range, we would be much better off. no more boom and bust cycles. no more inflation, no more indebtedness. it would also force the average consumer to start living more within their means.

along with that, the fractional lending concept banks use to lend would have to be abandoned.

this just might be the medicine we, as a national, and global economy, need to once again right ourselves.

michaelbroome123
michaelbroome123

How about, I dunno, just using the current exchange rate? We do not have to undergo some period of deflation until we reach some arbitrarily higher value of the dollar in relation to gold. That's nonsense. The gold don't even understand their own stupidity.

Richard Finkelstein
Richard Finkelstein

The article leaves out the biggest reason for the push to return to the gold standard.....A certain company that advertises extensively on The Fox network, Beck and Limbaugh shows, who, along with the Fox and Conservative pundits, would make a killing in unbelievable profits if we based our economy on their product.....gold.

Chris Hadrick
Chris Hadrick

It's been going up steadily since 2001, way before those guys got on board or any of these cash4gold things were advertising. You're putting the cart before the horse.

Bodie James
Bodie James

...saying that people who are for the gold standard have almost a religious obsession is kinda of ironic. Considering now, our paper money doesn't have any actual value... we just have to have "faith" Great analogy...moron

michaelbroome123
michaelbroome123

Hey, I'm willing to offer you FREE garbage disposal for those green pieces of paper you've just said ate valueless. Don't this opportunity up!

formerlyjamesm
formerlyjamesm

I will be happy to accept all of the paper money of which you find no value that you want to send to me.  Talk about morons.

andy20660
andy20660

Thank you for another thoroughly UNobjective  article you Liberal Leftist Moron.

michaelbroome123
michaelbroome123

Haha, gold and bitcoin collapsing at the same time. Almost too good to be true. Ah, all the penniless Paultards! Makes my black heart weep with joy!

andy20660
andy20660

Thank you once again for a thoroughly UNobjective article you Liberal Leftist Moron.

Jason Hoppe
Jason Hoppe

It doesn't have to be the gold standard.  Just back the dollar with something.  Back it with coal.  China would be buying our bonds for decades while we advance further than they do.

michaelbroome123
michaelbroome123

Great idea, China will surely collapse as they merely bring a billion people out of poverty and into living productive lives while we cleverly sit back and back our currency with coal, a good that China had the world's largest reserves of, instead. We'll be miles ahead. Classic Libertarian logic - don't produce, hoard.

Avent81
Avent81

Wow... this article is amazing... I can just imagine Wile E. Coyote clickety-clacking away at his type writer referencing the ACME Encyclopedia of Economics. Where do I begin?

#1 Economist Milton Friedman, the late king of the monetarists, argued that the idea was fundamentally “anti-libertarian because what they mean by a gold standard is a governmentally fixed price for gold.”

I highly doubt Milton Friedman ever said this. I would really like to see the reference. I find it highly suspicious. While the government CAN engage in price fixing gold to a certain and relatively minor degree, this power is minuscule in comparison to their ability to print fiat paper money out the wazoo. For the laymen who doesn't understand much about economics, manipulating the printing of paper money is essentially the exact same thing as price fixing the value of that money. I could use a lot of four lettered words to describe an individual who claimed to be an economist and failed to make that distinction, but I won't. Libertarians of course want a gold standard, but with the price of gold fixed by the natural laws of the free markets without government meddling. 

#2 Going on the gold standard would essentially require an instant end to deficits, robbing to government of its ability to fight recessions (and possible depressions) with stimulus money.

A whole mess of good that did. Cuz, I mean yeah we're doing great right now thanks to that. Ever single one of these so called "real economists" they are referencing are all admitting that this reduced output of growth will go on for another 10-15 years. They argue that "if we hadn't gotten involved it would have been much worse." Yes it would have been much worse, for a year or so. And now it would already be a thing of the past. Instead they're stretching out the pain over the next 15 years, and in the process accumulating interest on it over time. The interest on it is what makes this process the worse alternative. By the time it's all said and done, assuming the American people make it out of this in one piece, which I sincerely doubt, it will have cost us almost twice as much money on the accumulation of interest rates than if we had just sweat it out over the course of a year or so. The government should not have this power. While recessions have existed, the 2 nastiest ones(1929 and 2008) have occurred under the Feds watch. While 1872-1873 was nasty, it was again, much shorter lived than 1929 or 2008.

#3 Moreover, it would link the value of the dollar to the gold supply, leaving our economic future in the hands of gold miners. If miners were to strike, as Noam Scheiber notes in The New Republic, there [would] be too few dollars relative to the amount of buying and selling going on in the economy.

Again I'm really tempted to use a lot of 4 letter words here again... The raw production of gold and the subsequent introduction of that new gold into the market would essentially devaluate the dollar in the same way that printing more dollars does now.  It would inflate the dollar over time. In fact if too much gold were introduced too suddenly, that would be a bad thing for savings and middle-class heavy economies, i.e. economies with relatively thinner income inequality. The scenario described in the article, while accurate, would be a boon to the middle class, not a blight. It's the rich who would take the blunt of the beating under those circumstances.

#4  When there are too few dollars, each dollar becomes more valuable  and people start to hoard them. Spending slows and the economy collapses.

Forget economics for one second, and just use a little common sense. If you don't know much about economics, even better. Imagine for one second that you have $1,000 saved in the bank. And tomorrow, because of deflation, that money all of a sudden becomes worth $2,000. HOW IS THIS A BAD THING?!?!?!? They will sit here with all their spin-doctors trying to convince you of a magic BS fairy tale of how this is bad. Use common sense. How can this be bad for you as the individual? And while its true that spending will slow, the economy will not collapse. The reason that that money would become more valuable is that with less money in circulation, businesses and banks would then be forced to compete much, much harder for those fewer amounts of dollars. In other words, prices will sink like a stone. This action while it does encourage saving more than spending, to the economically illiterate (the vast majority of people), the ability to afford stuff you couldn't before  generates a certain degree of spending as well. So the end result is the reaction is never that severe as they would like to depict it. Everything becomes much cheaper. Some businesses and banks will fall, yes, but the end result is that those that competed successfully will become much stronger. The point is that a free market economy based on a hard-backed currency without a centralized bank regulating interest rates and price fixing is a harmonious natural balancing act. You can't possibly screw it up even if you tried. Now matter how heavy you stack it on one side, the scales will always balance out.

#5  As Krugman sardonically notes, “under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.”

Again, use one ounce of common sense. You don't have to be a banker. We're on a paper based currency today and... how well off are we for it? Since we went off gold in 1973 we have had recessions:  Nov 1973 – Mar 1975,  Jan–July 1980,  July 1981 – Nov 1982,  July 1990 – Mar 1991, March 2001 – Nov 2001, Dec 2007 – June 2009. How is this any different? What they printed is a very convenient half truth designed to deceive people who don't know any better. Paired against the amount of recessions we've had after gold, it looks pretty much about the same right? The big difference is that The Fed was pitched and sold to Congress on the promise that by creating the power to fix interest rates and the price of money on a centralized national level, the Fed could balance the economy out better than natural free markets ever could, and could contract and expand the flow of money with much better reaction, essentially making recessions a thing of the past. Like communism, it sounded great on paper. 16 years after The Fed's creation, we had the great depression. And when they decided that fixing interest rates wasn't enough to get the job done, they abolished gold in 1973 so as to engage in full all out price-fixing. 99 years after the creation of the Fed and 39 years after the abolishment of the gold standard, it is safe to say that the Fed has largely failed its mission, miserably so.

 

Here's a little hint, something that this article again doesn't cover. Ron Paul and libertarians, we don't want to FORCE the gold standard onto the population. That flies in the face of the principle of letting the markets naturally decide outcomes that we so adamantly stand for. All we want is to give it a fair chance. The plan is not to replace paper money with a gold backed currency. The economists are absolutely right that forcing the switch would be nothing short of apocalyptic, it would make the great recession and the great depression look like a walk in the park. The plan is to introduce a gold backed currency into the market and allow it to COMPETE against paper money. In other words, there would essentially be two types of dollars circulating in the economy, and people would be free to choose to use whichever type they preferred. If we're wrong, no harm is done, or at least next to no harm. People keep using paper, and life goes on. However, we libertarians are hedging our bets that gold would do so well it would push paper money out of existence.

To be honest, paper money isn't even the real issue. The economic theory that these economists are using to argue for paper money actually DOES make sense. The problem is they're not practicing what they preach, because they're too busy breaking all the rules and making money off of it while sticking you and me with the check. The real problem, public enemy #1, is the Fed, not paper money. The only reason we want to get rid of paper money is because it's impossible to even have paper money without a centralized banking system to regulate it. In other words, as long as we're using paper money, the Fed is a necessary evil. And we have 99 years of guarantees that they just don't play by the rules.

michaelbroome123
michaelbroome123

Yeah, just look at Europe and they're austerity. They're doing great! Of of recession any decade now!

Avent81
Avent81

Wow... this article is amazing... I can just imagine Wile E. Coyote clickety-clacking away at his type writer referencing the ACME Encyclopedia of Economics. Where do I begin?

#1 Economist Milton Friedman, the late king of the monetarists, argued that the idea was fundamentally “anti-libertarian because what they mean by a gold standard is a governmentally fixed price for gold.”

I highly doubt Milton Friedman ever said this. I would really like to see the reference. I find it highly suspicious. While the government CAN engage in price fixing gold to a certain and relatively minor degree, this power is minuscule in comparison to their ability to print fiat paper money out the wazoo. For the laymen who doesn't understand much about economics, manipulating the printing of paper money is essentially the exact same thing as price fixing the value of that money. I could use a lot of four lettered words to describe an individual who claimed to be an economist and failed to make that distinction, but I won't. Libertarians of course want a gold standard, but with the price of gold fixed by the natural laws of the free markets without government meddling. 

#2 Going on the gold standard would essentially require an instant end to deficits, robbing to government of its ability to fight recessions (and possible depressions) with stimulus money.

A whole mess of good that did. Cuz, I mean yeah we're doing great right now thanks to that. Ever single one of these so called "real economists" they are referencing are all admitting that this reduced output of growth will go on for another 10-15 years. They argue that "if we hadn't gotten involved it would have been much worse." Yes it would have been much worse, for a year or so. And now it would already be a thing of the past. Instead they're stretching out the pain over the next 15 years, and in the process accumulating interest on it over time. The interest on it is what makes this process the worse alternative. By the time it's all said and done, assuming the American people make it out of this in one piece, which I sincerely doubt, it will have cost us almost twice as much money on the accumulation of interest rates than if we had just sweat it out over the course of a year or so. The government should not have this power. While recessions have existed, the 2 nastiest ones(1929 and 2008) have occurred under the Feds watch. While 1872-1873 was nasty, it was again, much shorter lived than 1929 or 2008.

#3 Moreover, it would link the value of the dollar to the gold supply, leaving our economic future in the hands of gold miners. If miners were to strike, as Noam Scheiber notes in The New Republic, there [would] be too few dollars relative to the amount of buying and selling going on in the economy.

Again I'm really tempted to use a lot of 4 letter words here again... The raw production of gold and the subsequent introduction of that new gold into the market would essentially devaluate the dollar in the same way that printing more dollars does now.  It would inflate the dollar over time. In fact if too much gold were introduced too suddenly, that would be a bad thing for savings and middle-class heavy economies, i.e. economies with relatively thinner income inequality. The scenario described in the article, while accurate, would be a boon to the middle class, not a blight. It's the rich who would take the blunt of the beating under those circumstances.#4 

When there are too few dollars, each dollar becomes more valuable 

and people start to hoard them. Spending slows and the economy collapses.Forget economics for one second, and just use a little common sense. If you don't know much about economics, even better. Imagine for one second that you have $1,000 saved in the bank. And tomorrow, because of deflation, that money all of a sudden becomes worth $2,000. HOW IS THIS A BAD THING?!?!?!? They will sit here with all their spin-doctors trying to convince you of a magic BS fairy tale of how this is bad. Use common sense. How can this be bad for you as the individual? And while its true that spending will slow, the economy will not collapse. The reason that that money would become more valuable is that with less money in circulation, businesses and banks would then be forced to compete much, much harder for those fewer amounts of dollars. In other words, prices will sink like a stone. This action while it does encourage saving more than spending, to the economically illiterate (the vast majority of people), the ability to afford stuff you couldn't before  generates a certain degree of spending as well. So the end result is the reaction is never that severe as they would like to depict it. Everything becomes much cheaper. Some businesses and banks will fall, yes, but the end result is that those that competed successfully will become much stronger. The point is that a free market economy based on a hard-backed currency without a centralized bank regulating interest rates and price fixing is a harmonious natural balancing act. You can't possibly screw it up even if you tried. Now matter how heavy you stack it on one side, the scales will always balance out.

#5 

As Krugman sardonically notes, “under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.”Again, use one ounce of common sense. You don't have to be a banker. We're on a paper based currency today and... how well off are we for it? Since we went off gold in 1973 we have had recessions:  Nov 1973 – Mar 1975,  Jan–July 1980,  July 1981 – Nov 1982,  July 1990 – Mar 1991, March 2001 – Nov 2001, Dec 2007 – June 2009. How is this any different? What they printed is a very convenient half truth designed to deceive people who don't know any better. Paired against the amount of recessions we've had after gold, it looks pretty much about the same right? The big difference is that The Fed was pitched and sold to Congress on the promise that by creating the power to fix interest rates and the price of money on a centralized national level, the Fed could balance the economy out better than natural free markets ever could, and could contract and expand the flow of money with much better reaction, essentially making recessions a thing of the past. Like communism, it sounded great on paper. 16 years after The Fed's creation, we had the great depression. And when they decided that fixing interest rates wasn't enough to get the job done, they abolished gold in 1973 so as to engage in full all out price-fixing. 99 years after the creation of the Fed and 39 years after the abolishment of the gold standard, it is safe to say that the Fed has largely failed its mission, miserably so.

 

Here's a little hint, something that this article again doesn't cover. Ron Paul and libertarians, we don't want to FORCE the gold standard onto the population. That flies in the face of the principle of letting the markets naturally decide outcomes that we so adamantly stand for. All we want is to give it a fair chance. The plan is not to replace paper money with a gold backed currency. The economists are absolutely right that forcing the switch would be nothing short of apocalyptic, it would make the great recession and the great depression look like a walk in the park. The plan is to introduce a gold backed currency into the market and allow it to COMPETE against paper money. In other words, there would essentially be two types of dollars circulating in the economy, and people would be free to choose to use whichever type they preferred. If we're wrong, no harm is done, or at least next to no harm. People keep using paper, and life goes on. However, we libertarians are hedging our bets that gold would do so well it would push paper money out of existence.

To be honest, paper money isn't even the real issue. The economic theory that these economists are using to argue for paper money actually DOES make sense. The problem is they're not practicing what they preach, because they're too busy breaking all the rules and making money off of it while sticking you and me with the check. The real problem, public enemy #1, is the Fed, not paper money. The only reason we want to get rid of paper money is because it's impossible to even have paper money without a centralized banking system to regulate it. In other words, as long as we're using paper money, the Fed is a necessary evil. And we have 99 years of guarantees that they just don't play by the rules.

Jason Huddleston
Jason Huddleston

I am not sure of what economist in general think of backing money with something other than faith but it is obvious the writer of this story is very much against it.  And they are quite determined to make sure we are against it as well or at the very least uncomfortable discussing it.  After all, it is clear from this that anyone who thinks money should be backed by something is a dangerously misinformed idiot who probably should not be allowed to enter society without supervision.

Chances are in my life time I will see a quadrillion dollar US debt. This would not be possible without fiat currency.

superpaul3000
superpaul3000

Our nation's debt growth has far outpaced inflation. The fiat currency has little to do with our debt. The real issue is the @#$%head politicians we elect to serve. Republicans spending trillions and making problems. Democrats spending trillions to fix those problems.

mahagwa
mahagwa

actually, without fiat currency, the level of debt existent today would not be possible. this is how it works. 

i am sure you have heard of all the Quantitative Easing by the Fed. Well, the Treasury department issues Notes (Bonds), and the Fed makes an electronic entry in its ledger for a few trillion dollars, it then buys (with this made up money) the bonds issued by the treasury. With this new money (another entry in the Treasuries ledgers), the government is able to spend.Now, if the Fed or government can only issue money tied to something (gold, platinum, silver, coconuts.. take your choice), then they can not make these magical entries in their ledgers. If the Fed can not make these magical entries, then the treasury can not issue bonds day and night. If the Fed can not issue a never-ending stream of bonds, then debt is placed in check.If debt is placed in check, then the government is forced to be discplined in its spending. Hence, if anything, republicans (and their cry for smaller government and fiscal control) should embrace Ron Paul, and if they were serious about what they say, they should have nominated Ron Paul... if they did that, they would have my vote (and I am a black man).

chris moore
chris moore

the author is very misguided with this piece. firstly it isn't really republicans alone clamoring for this, plenty of the left is too. secondly it's not a regression as the author would have you believe. the gold standard is something we're constitutionally bound to. a gold standard would remove income tax and the need for a central bank, and restore congresses constitutional right to issue our currency. there is absolutely nothing bad about it. unless of course you work for a publication owned by the military industrial complex / federal reserve. 

Brucinator
Brucinator

Exactly how would the gold standard remove the income tax?

mahagwa
mahagwa

the income tax is actually unconstitutional. a constitutional ammendment MUST be ratified by 2/3ds of the states. the internal revenue bill, passed in 1913 was not ratified by 2/3rds of the states and was actually struck down twice by the us supreme court.

the income taxes collected go towards paying off the interest on the debt. that is what is implied by "full faith and credit"... it is the ability of the us government to tax its citizens (workers) that allows it to issue debt. that debt is used to finance government spending, specifically the department of defense, and now homeland security. without the need to borrow beyond their means, the us government would have no need to tax its citizens.hence, even though republicans may be right in claiming that the democrats love to spend, they need to acknowledge that their (republicans) biggest spending target -- defense, is the major cause for the debt; and were we to curtail defense spending, we could significantly reduce debt, and with it eliminate the need for income taxation.

were we to embrace the gold standard, it would significantly reduce debt, as we could not issue 'monopoly money' to buy the bonds issued by the treasury department.

mahagwa
mahagwa

this is a very biased and unrealistic article.let us deal with the facts:

a. Recessions and Expansions are caused by the Federal Reserve's monetary policy. When the Fed lowers rates and buys bonds, money becomes easily available. When this happens, the economy expands (easy money). When the Fed raises rates and decreases money in circulation (M1, M2, M3) the economy experiences a contraction (less money in circulation; hard money). This is the reality. Recessions and Expansions are not and should not be an economic given. The major thing that should control the rate of growth of an economy is innovation... as new technologies are invented and deployed, they spur new economic activity. The only reason fed policy has failed this time around is (a) Corporations are hoarding money; (b) Banks are not putting the 'free money' the fed gives them into circulation -- rather, they are using it to shore up their balance sheets and speculate.

To link the gold standard to 'miners going on strike' displays your ignorance to the reality that existed until the early 70s when Nixon took the dollar off the gold standard (in order to fund the Vietnam war). It does not have to be gold; but fiat money is erroneous for it has no implicit backing, other than the "Full Faith and Credit" of the issuing country. When a tangible asset is used to back the currency of a country, it introduces fiscal discpline on the government. It also gives people a sense of security in the value of their currency. An example would be housing. Once upon a time, the theory was that "housing never loses value".. then came the great bubble 'pop', and that illusion was thrown out the window. In a like vein, were the US debt to become unsustainable, the "Full Faith and Credit" of the US government would not mean much, and the value of the dollar would plummet (I personally saw the British Pound lose over 2,000 basis points in a matter of hours). Were this to happen, people who  held assets denominated in US dollars would see the value of said assets diminish significantly.

Another major factor that keeps the US dollar from crumbling is the fact that oil (the world's largest traded commodity) is settled in US dollars. This is probably the one and only thing that keeps the dollar afloat. Were the major oil exporters to refuse accepting US dollars as settlement and opt for gold (as did Ghadaffi and Iran) or Euros (as Saddam was about to prior to his WMDs becoming a threat), the US dollar as a reserve currency would be no more.

Hence whether gold, or platinum or silver or diamonds, i see it as very necessary to establish a link of a country's currency to a real and tangible entity. The Fed and the Euro Central Bank keep printing tons of money. What is backing this money? Where is this money going? Has anyone contemplated the level of inflation that is being created right now. This is the begining of the next big bubble, and when this one bursts, it is going to be catastrophic.

SImbaKubwa
SImbaKubwa

this is a very biased and unrealistic article.let us deal with the facts:

a. Recessions and Expansions are caused by the Federal Reserve's monetary policy. When the Fed lowers rates and buys bonds, money becomes easily available. When this happens, the economy expands (easy money). When the Fed raises rates and decreases money in circulation (M1, M2, M3) the economy experiences a contraction (less money in circulation; hard money). This is the reality. Recessions and Expansions are not and should not be an economic given. The major thing that should control the rate of growth of an economy is innovation... as new technologies are invented and deployed, they spur new economic activity. The only reason fed policy has failed this time around is (a) Corporations are hoarding money; (b) Banks are not putting the 'free money' the fed gives them into circulation -- rather, they are using it to shore up their balance sheets and speculate.

To link the gold standard to 'miners going on strike' displays your ignorance to the reality that existed until the early 70s when Nixon took the dollar off the gold standard (in order to fund the Vietnam war). It does not have to be gold; but fiat money is erroneous for it has no implicit backing, other than the "Full Faith and Credit" of the issuing country. When a tangible asset is used to back the currency of a country, it introduces fiscal discpline on the government. It also gives people a sense of security in the value of their currency. An example would be housing. Once upon a time, the theory was that "housing never loses value".. then came the great bubble 'pop', and that illusion was thrown out the window. In a like vein, were the US debt to become unsustainable, the "Full Faith and Credit" of the US government would not mean much, and the value of the dollar would plummet (I personally saw the British Pound lose over 2,000 basis points in a matter of hours). Were this to happen, people who  held assets denominated in US dollars would see the value of said assets diminish significantly.

Another major factor that keeps the US dollar from crumbling is the fact that oil (the world's largest traded commodity) is settled in US dollars. This is probably the one and only thing that keeps the dollar afloat. Were the major oil exporters to refuse accepting US dollars as settlement and opt for gold (as did Ghadaffi and Iran) or Euros (as Saddam was about to prior to his WMDs becoming a threat), the US dollar as a reserve currency would be no more.

Hence whether gold, or platinum or silver or diamonds, i see it as very necessary to establish a link of a country's currency to a real and tangible entity. The Fed and the Euro Central Bank keep printing tons of money. What is backing this money? Where is this money going? Has anyone contemplated the level of inflation that is being created right now. This is the begining of the next big bubble, and when this one bursts, it is going to be catastrophic.

SImbaKubwa
SImbaKubwa

this is a very biased and unrealistic article.

let us deal with the facts:

a. Recessions and Expansions are caused by the Federal Reserve's monetary policy. When the Fed lowers rates and buys bonds, money becomes easily available. When this happens, the economy expands (easy money). When the Fed raises rates and decreases money in circulation (M1, M2, M3) the economy experiences a contraction (less money in circulation; hard money). This is the reality. Recessions and Expansions are not and should not be an economic given. The major thing that should control the rate of growth of an economy is innovation... as new technologies are invented and deployed, they spur new economic activity. The only reason fed policy has failed this time around is (a) Corporations are hoarding money; (b) Banks are not putting the 'free money' the fed gives them into circulation -- rather, they are using it to shore up their balance sheets and speculate.

To link the gold standard to 'miners going on strike' displays your ignorance to the reality that existed until the early 70s when Nixon took the dollar off the gold standard (in order to fund the Vietnam war). It does not have to be gold; but fiat money is erroneous for it has no implicit backing, other than the "Full Faith and Credit" of the issuing country. When a tangible asset is used to back the currency of a country, it introduces fiscal discpline on the government. It also gives people a sense of security in the value of their currency. An example would be housing. Once upon a time, the theory was that "housing never loses value".. then came the great bubble 'pop', and that illusion was thrown out the window. In a like vein, were the US debt to become unsustainable, the "Full Faith and Credit" of the US government would not mean much, and the value of the dollar would plummet (I personally saw the British Pound lose over 2,000 basis points in a matter of hours). Were this to happen, people who  held assets denominated in US dollars would see the value of said assets diminish significantly.

Another major factor that keeps the US dollar from crumbling is the fact that oil (the world's largest traded commodity) is settled in US dollars. This is probably the one and only thing that keeps the dollar afloat. Were the major oil exporters to refuse accepting US dollars as settlement and opt for gold (as did Ghadaffi and Iran) or Euros (as Saddam was about to prior to his WMDs becoming a threat), the US dollar as a reserve currency would be no more.

Hence whether gold, or platinum or silver or diamonds, i see it as very necessary to establish a link of a country's currency to a real and tangible entity. The Fed and the Euro Central Bank keep printing tons of money. What is backing this money? Where is this money going? Has anyone contemplated the level of inflation that is being created right now. This is the begining of the next big bubble, and when this one bursts, it is going to be catastrophic.

Houston Retrievers
Houston Retrievers

It actually requires Americans to be responsible, who would want that....  We deserve what we will get.

belseth
belseth

It only works if you don't run up debt. It's the government equavalent of saving up to buy a house. That's why they say it's daft.

blessedgeek
blessedgeek

Some people believe in bartering. Many people believe in gold. Why don't we just provide our services and goods freely away to whom they may so desire?

But then, even if we have all succumbed to such generosity, we would need to know how much of what to produce. So that equitable efforts are reciprocated - because can we determine that 5 hours' painting a house should be reciprocated with 5 hours' doctor's time?

The value of gold is yet another derivative. Gold is worthless except for its uses. Other modes of values for gold are as artificial and superficial as the demand for salt. Its only redemption is its rarity. If rarity matters, why not Uranium, Plutonium or a chance to glance into the throat of an unrestrained live lion.

Therefore, we simply need to acknowledge that we need a a reliable means to control the traffic of transactions. We also need a signaling strategy. And a means to analyse those signals to understand how much we need to contribute and how much reciprocation we need.

And why would gold be the perfect token that could carry such signaling technology?

MPAA and RIAA are the most powerful lobby in Washington, so they say. But also the most outdated in their outlook towards property assets. As well as patent squatters and hitchhikers. Technology has opened up the speed and effectiveness of information, and all these people wish to do is to reminisce on the good old days and restrict them? It is no longer a workable model. Technology has rendered them useless and obstructive to the betterment of human kind.

Can gold be an effective token of signalling to  adaptively signal the dynamically changing bandwidths of the market? What is bandwidth? What is loading factor? Does gold know what all these signals are about? If yes, then gold could be an an effective signalling token.

We need a new world order. Not one that hides behind an apocalyptic superstitions. A new world order that would effectively reward people for their contribution and work - to effectively motivate people to work in cancer research and building galactic travel spaceships not one that is concerned with still trying to mine coal when there are more effective ways of using energy. Not one whose only justification above salt, pebbles or clam shells is a romance with the good old days.

traveler128
traveler128

We have bartering today. Ever heard of Craigslist?

Carl Persson
Carl Persson

The gold standard almost bankrupted the country before Nixon abandoned it. It could only work if the entire world adopted it and fixed the price, which is unlikely to the point of absurdity.  Just look at the wildly fluctuating value of gold in the world market and think of the chaos that would occur if the value of the dollar was tied to it.  The value of a dollar could rise or plunge orders of magnitude overnight. You would never know what your dollar could buy the next day.

Chris Hadrick
Chris Hadrick

it almost bankrupted the country because washington refused to stay within limits. Nixon wanted to save the Vietnam war, that's why he left the GS

http://en.wikipedia.org/wiki/N...

"By the early 1970s, as the costs of the Vietnam War and increased domestic spending accelerated inflation,[1] the U.S. was running a balance-of-payments deficit and a trade deficit, the first in the 20th century. The year 1970 was the crucial turning point, because foreign arbitrage of the U.S. dollar caused governmental gold coverage of the paper dollar to decline from 55% to 22%. That, in the view of neoclassical economics and the Austrian School, represented the point where holders of the U.S. dollar lost faith in the U.S. government's ability to cut its budget and trade deficits."

not really our finest moment there

traveler128
traveler128

You're dead wrong. Gold doesn't fluctuate any more wildly than the dollar against other major currencies. Gold is a tightly traded commodity, which means it tracks closely and continuously against all major currencies in real time.