The 10 Minute Gold Standard

Monetary Metals's picture

Far too many people believe that gold serves no useful purpose. I am therefore publishing this response to The 10 Minute Gold Standard: It’s Much Easier than You Think by Nathan Lewis. Mr. Lewis, a professed advocate of the gold standard, argues that even if we have a “gold standard”, we don’t need actual gold. Indeed, according to David Ricardo (quoted in the article), gold’s only job is to regulate the quantity of paper.

Mr. Lewis notes that when the Fed buys bonds it increases the quantity of dollars and when it sells bonds it decreases the quantity. This is true enough, but it’s not the quantity of dollars per se that is causing our ongoing capital crisis, or if you prefer, our solvency crisis. But I get ahead of myself.

The 10-Minute proposal is simple: the Fed should tweak its central planning.  Instead of buying bonds to control the interest rate, it should buy bonds to control the gold price. However the unstated assumption, that the price of gold is based on the quantity of dollars, is false.

Gold is money, and paper (the dollar) is credit. The ratio of credit to money is not constant. Nor is the price of credit, which depends on its quality. Trying to control the gold price by this indirect proxy would be like trying to steer a car by opening and closing the windows.

The fatal flaw in the proposal is that paper cannot perform certain functions that can only be performed by gold. One is to extinguish debt. Paper currency is itself a credit instrument. The dollar is the liability of the Fed. Paying in paper transfers a debt, but the debt itself does not go out of existence. Since interest is constantly accruing, total debt rises exponentially.

Another function of gold that cannot be served by paper is hoarding. This is half of the key to understanding how interest rates are set in the real gold standard. A saver can withdraw his gold from the bank. This forces a contraction of credit and an increase in the rate of interest. In contrast, in a paper standard such as the “10 Minute Gold Standard”, there is no reason to sell a low-yielding bond in exchange for zero-yield dollar bill; the saver is disenfranchised.

Economists speak of “bond vigilantes” and assert that no one would buy a bond yielding less than the rate of “inflation”. In reality, the interest rate has been falling for 32 years. This long-term decline has done three things. It has continually lured in new borrowers, increased the burden of each dollar of debt, and caused incalculable destruction of capital.

The final stage of the Ponzi scheme of paper money is when debtors can’t pay the interest out of income. They must sell new bonds to pay off the old ones. The Fed is the enabler; its own bond purchases encourage speculators to front-run them. So long as the Treasury market holds up, the pretense can be maintained that the government is in good financial condition. Greece was the first of many countries to learn what happens when the bond market fails.

The world is rushing towards mass insolvency. If we don’t change course, we face certain devastation.

We urgently need the unadulterated gold standard. Those few of us who promote gold face a daunting task: to bring the message to the people and change course. I can understand the appeal of a quick fix that seems politically pragmatic, but the unworkable “10 Minute Gold Standard” only undermines gold standard advocates.



Postscript: Since this article is about money, readers may be interested in my latest video: Is Bitcoin Money?





Dr. Keith Weiner is the president of Gold Standard Institute USA, and CEO of Monetary Metals.  Keith is a leading authority in the areas of gold, money, and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads.  Keith is a sought after speaker and regularly writes on economics.  He is an Objectivist, and has his PhD from the New Austrian School of Economics.  He lives with his wife near Phoenix, Arizona.

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the grateful unemployed's picture

good points all, the first presumption is simplistic. here is solution one or two. one is that we don't need to keep the gold in a vault to count its value. we use the best scientific estimates of how much gold is in the ground, and we count it. is all the crude oil in the world put into a storage tank before it can be counted? this raises some issues, but Plan B is perfect.

Money is credit, and credit is money. Doug Noland tries to separate these two by calling it "moneyness.." Credit as the Fed uses it has very little "moneyness" very little of it is converted to real cash. it has no economic value.

still there is too much credit relative to money. the solution is for government to collect data on the relationship bewtween the two, M1, cash in circulation, and Total Credit Outstanding, and float that rate as a real convertible rate in transactions.

If i borrow a $1000, it may only be worth $500 in cash. If i buy a bond for instance, i would pay a premium to par, if the ration of 2:1 were valid of $500. this is what is currently happening, some Fed auctions notes sell below par, because they have no chance of making more interest than the rate of inflation. and that's fine, but the government should print these numbers and investors who pay for credit, or who buy credit should do so at the rate of exchange.

government would then have to print real money to offset any new credit, and of course there is no official way to get that money into the economy without doing something economically productive. in the end it would mean more inflation, which is of course what they are doing, but they're hiding it, and with inflation out in the open the governments ability to print cash would be severely restricted, and to finish that thought, we then return the responsibility of printing cash to the Congress, so we have a balance of power restored, win win

AUD's picture

No. Gold is money. Credit is credit.

Credit can be 'money good', it can have a high degree of 'moneyness', right up to 'as good as gold', but it cannot be money. This is where Doug Noland's analysis takes a nosedive.

tradewithdave's picture

"Unadulterating" things is easy.  Take a glass a milk for example.  You put a drop of ink in the milk to adulterate it.  To "unadulterate" it you.... uh... hmmm.  Okay let me give a better example.  Take Hollywood for example... and the global pop star Madonna.  Uhhh.... Ummm. 

Give me a minute.  I've got to work on a "unadulteration" metaphor... I'll be right back.

new game's picture

when i offered a tube of silver for a colt woodsman the guy said no.

i quickly learned, after offering the same tube for a glock and others that we

are not even close to a barter system-people are in strong faith of the dollar.

the conversion is coming, but faith is faith.

just try to get through to a bible thumper and you will get the picture.

closed eyes seeing all...

the grateful unemployed's picture

give him the silver for the gun, then put the gun in his ribs and take the silver back. don't you know anything about business?

Vooter's picture

Why would you give the idiot your silver? Keep the silver for yourself and give the idiot the paper...

lasvegaspersona's picture

here let me help:

The world is rushing towards mass insolvency. If we don’t change course, we face certain devastation.

just drop the last sentence....things cannot be fixed...not in the current dollar system....and a gold standard cannot be introduced by any of the existing currencies. 

I see the balance sheet of the Euro, with gold as an asset, marked to market (read fofoa)  in the future. I won't repeat his arguements here (they are better in his words) but if you understand what he is saying (what Another and FOA said) and you still believe the classic gold standard could work...I'd love to hear your conclusions and how you arrived at them.

So far after 2 years of reading fofoa I have not come across a more probable outcome. But since I am (truly) looking for the best way to position myself if you can offer a more convincing way this monetary house of cards will collapse...let me hear it.

Panafrican Funktron Robot's picture

Just remember that any fiat currency amount can be stated as 1 oz. of gold.  The "crazy idea" of the trillion dollar platinum coin was a good example of this.  If $1 mln dollars = 1 oz. of gold, it would be pretty easy to pay off the nominal debt we presently have in place, and it would at least fix the value of the USD to something.

Ghordius's picture

of course all standards where gold is involved work - even the one that the rest of the world had between the 30's and the 70's had - one million bucks where fungible with one metric ton of gold, outside the US

you just have to account for the long lasting effects of fourty years of US gold prohibition

honestann's picture

#####  WRONG  #####
#####  WRONG  #####
#####  WRONG  #####

Everyone wants to be their own personal federal reserve, central planner and mass manipulator.  Cannot human beings re-attach their brains to reality?  Apparently not.

The most important and fundamental reason for gold as money should be obvious.  But everyone has a plan to avoid being honest, I guess.  Let me make this clear.

The gold standard is simply a standardized form of barter.  And barter is the exchange of one real, physical, valuable good (or set of goods) for another real, physical, valuable good (or set of goods).

What is the most fundamental and important characteristic of this phenomenon we call barter?  Answer: all parties involved always have possession of real, physical, valuable goods.  No promises, no receipts, no worthless pieces of paper, no outside parties taking a completely unearned cut of the value.

The only thing special about bartering with gold is... the fact that most people assign a "price in grams of gold" to their goods so everyone can easily understand the relative value of all goods.  And as a matter of convenience, exchanging the goods we produce for gold, and then exchanging gold for other goods and goodies we want or need, is an exceedingly convenient practice.  By "exchanging goods twice" we can exchange any goods we have for any goods we want and need.

But to return to the fundamental point, when we "buy with grams of gold" we are actually just trading one real, physical good for another.  Period.  No extraneous parties, no promises, no trust required, no men behind the curtains, no scams.

ANY scheme in which one human receives a piece of paper for goods... is pure, unadulterated, unmitigated, undeniable fraud.  Period.  Why create absolute insane fictions, and then try to impose them on everyone by force?  Humans are not required by their nature to be massively stupid and insane!  So why do they feel so compelled to be that way?

the grateful unemployed's picture

i would rather be the person taking payment in gold for the same products which only a short time earlier were bought and sold with worthless fiat

Marco's picture

Just to absolutely clear then, you consider loans even without interest fraudulent? (A promise to repay is paper and currency under a gold standard is goods.) Everything should be either a trade or a gift? Do you really live up to that yourself?

Panafrican Funktron Robot's picture

"Just to absolutely clear then, you consider loans even without interest fraudulent?"

It depends on whether the underlying currency is based on loans/debt.  Consider, if you transact in US dollars, even if you lend somebody money at zero percent interest, the US dollars themselves are debt based, and are literally backed by "the full faith and credit of the United States".  So, the value of what you transacted is dependent on "faith" and the credit rating of the United States.  Tell me how that's not fraud.  

honestann's picture

No, a loan is not fraudulant IF the nature of the interaction and the terms are clearly stated.  Which makes every loan through a bank a case of fraud, but leaves loans between primary trading parties potentially ethical... though very unwise in almost all situations (unless secured).

So, as a matter of fact, even those kind of "direct loans" are often unwise, but can sometimes be ethical and appropriate (especially between neighbors who loan each other equipment regularly, have good reason to trust each other, and ultimately can simply walk onto the neighbors property and recover their equipment).

However, what is even more practical and reliable is for the person who borrows [some equipment he needs or something] to leave something of even greater value as guarantee he will return the items he borrows.  This way too assures all transactions are in real, physical, valuable goods, and that nobody is left holding a worthless piece of fiat, fake, fraud, fiction, fantasy, fractional-reserve debt-toilet-paper-scrap.

In my case, yes.  100% of my transactions are exchanges of goods for goods, and usually one of the goods exchanged is gold.  I also do give gifts to people I value, and who I know will do productive and good things with my gifts.

Winston of Oceania's picture

Please do not overlook that the money supply cannot grow beyond gold/silver production with silver gold ratio unfixed, most important.

the grateful unemployed's picture

well i would suppose a population variable, unless you want population growth and inflation to be the same thing. the problem as we speak is that the USD is a global currency, and when a child is born in China, the Fed has to issue that child a trousseau, a package of dollars in order to keep the money supply steady. the problem is the money never gets to this child, the child grows up, competes for the those dollars, causing inflation, but never receives his rightful share. (hence dropping dollars from helicopters, which is an iconic and practical solution to the problem and Bernankes way of saying, hey the system as global investors, business and government is doing it, just doesn't work)

aka Gil's picture

Your point is exquisitely clear, and it's a cryin' shame that it's not wildly popular.

MFLTucson's picture

Wont work because it will hault the Jews that are making the laws from stealing.

steveo77's picture

I discovered something very interesting, the 1871 "Chicago Fire" was not just a fire in Chicago, there were actually around 17 MAJOR fires across the Midwest over a period of days.

This is undoubtedly an "asteroid attack". I just discovered this today, although others have combined The Chicago, the Peshtigo, and Michigan fires. At least I discovered that today after my own research.

Check it out, this is cool, but a little scary.

Vooter's picture

Well, then...they were asteroids with cows on them!

Shaten's picture

We need a currency based on Energy, say a dollar worth 4 ounces of oil a C note worth a gram of U238.

Establish a BTU exchange rate.

Vint Slugs's picture

Why?  Oil's finite and U238 has a half-life.  Gold is forever.

orez65's picture

Gold Standard?!

What about no currencies?

Just gold and silver.

No "fractional reserve banking"

Or just allow competing currencies, that will drive out the trash.

Ghordius's picture

no currencies? the national fiat currencies like we have them at the moment are instruments of military defense, too

in the old times, before one empire started wars in the influence zone of another, it had a long, good look at the gold treasure of it's prey

fiat currencies give the possibility of spending now for wars and pay later - just look at the US WWII war debt

and so it's a bit like disarmament talks: you'd need some interest in the matter and everybody would say: "you first"

lasvegaspersona's picture

We do have competing the moment, for reasons that few can explain, the world is choosing the dollar...but I believe they are having second thoughts....serious second thoghts...and some are making plans for when the rest come to  the same conclusion.

RuiNsPro's picture

Bankers would be sh*tting their pants if you take FRB away.

thewayitis's picture

So how much longer before we loose all confidance?  17 Trillion and counting.

Just Buy your GOLD and hold tight. This all gonna blow soon enough. "


IrritableBowels's picture

Sooner than we tighten confidence.

ebworthen's picture

10 minute gold standard via the FED buying bonds to "control" the price of Gold?  Can you hear the Chinese laughing?


Mr. Lewis and Mr. Ricardo must be central banking moles.

Bansters-in-my- feces's picture

I got more gold than Ben Bernanke....!!!

Ha ahahahhha haaaha ha ha ha ha......!!! too fucking funny......

And I only got a couple OZ's

Stuck on Zero's picture

I hope the Author's idea of a gold standard includes continuous public audits of the gold backing the currency. 


Ol Man's picture

No need for that as long as gold is directly redeemable at parity with the currency.



Dexter Morgan's picture

Good enough, but the sheep I talk to say they see no issue with 16 trillion debt as opposed to 1 trillion or 32 trillion.  Other than inflation, which they accept as a fact of life, they see the debt and deficit as having no impact on their daily lives.  How can you convince them when gas is already $4/gallon, ground beef $6, etc., and they say so what?  I am still chicken little saying the sky is falling.  I have told them that one thing that has changed is banks are out of their lives.  They can get no loans and they have no cash and don't think the government is causing the problem.  My problem is convincing them the government is the problem.  As soon as I start talking math their eyes gloss over and I might as well be speaking French.

You have to give the banksters credit for a scam so brilliant that the masses don't even know who is raping them.  All that is needed is a compliant media. 

Vooter's picture

I understand your frustration, but here's the best piece of advice I can give: DON'T TALK TO THE SHEEP. Ever. I know it's tempting, and I know you're probably trying to help people that you know and love, but it's just not worth the effort. Keep stacking, and keep your mouth shut. In twenty years, you'll be in a much better position to help the sheep who matter to you...

Marco's picture

Government is not the problem, bad government is the problem, it's become a mode of theft ... but most of that theft is behind us now and removing democractic government will just erect a different state.

A land owner in laissez faire is no different from a government and the "banksters" own a whole lot of land by now, a whole lot more than they did 4 decades ago.

The only way to reset things ... is to really reset things.

orez65's picture

I get the same "glazed eyes" reaction.

Even from highly educated people.

It's like they've turned into the "walking dead"

Tango in the Blight's picture

They are not highly educated but highly indoctrinated.

Oracle of Kypseli's picture

The credit should go to the US educational system. Compare education of the masses vs. Ivy league colleges breeding economists based on a monolithic belief.

The masses have no clue and no chance to get it. Chavez subsidizes bread, hard liquor and TV. The winning trifecta.

Doña K's picture

You mean similar to Obama's extended unemployment benefits, unrestricted food stamps and hopium (hope & change)?

knukles's picture

Buying or selling bonds to buy or sell gold is doing exactly the same thing as having an open window where individuals can buy or sell paper money for gold except... it closes the citizen out of the process.
Furthermore, if any of the buying or selling of gold is done through the paper market, then we're right back to where we are now, darlings.
Might just as well allow the "markets" and the citizenry (peasants, who BTW become the ultimate "bond" vigilantes) o exchange paper for specie.

"Sorta" as in eliminates any possibility for the CB to game the system...
(they'd never do that now, would they...)

Unfortunately, the monied interests loose control...

GMadScientist's picture

Barbarous relics at the gates?

knukles's picture

I like that
I really like that.....

willwork4food's picture

Those things can't hurt us can they?  :)

richard007's picture

What is impossible for you to do is very easy for Yahweh, the God of the Bible, to do.

As a matter of biblical prophecy, it appears that He may be planning to do just that by crashing the US dollar. He indicates that US (End Time Babylon) creditors will soon wake up and make the US tremble.

One only need be aware of the US economic crisis to see what that may be. It will, however, be triggered by the coming Iran War.

Bye Bye US Dollar! Buy Buy Gold.