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Guest Post: The Mechanics Of Transitioning To The Gold Standard... And Why It Won't Happen
Submitted by Martin Sibileau from A View From The Trenches
The Mechanics Of Transitioning To The Gold Standard... And Why It Won't Happen (pdf)
Today we retake the discussion left two weeks ago, on a return to the gold standard. We had divided the discussion in two parts: The first part (here) was based on an historical perspective. Today, we will deal with the technical one. As a summary of the first part, we left with two important conclusions: a) A gold standard will fail if the banking system is allowed to survive with a reserve requirement below 100%, and b) Establishing a gold standard does not require that gold be confiscated. The question before us today is: How do we transition from this:
To this:
Note that the in the second chart, there is no central bank. And note that in none of the charts, we make reference to the shadow banking structure that exists and is well alive today. While including it makes matters more complicated, excluding it does not affect the analysis at all. We will write why this is so, further below.
In the first chart, we see a stylized version of the consolidated balance sheets of a central bank, commercial banks and their relation to the money stock. The reserve ratio is the ratio of demand deposits to reserves. If this ratio was 100%, no loans would be made from demand deposits. In this case, we would have a system with no aggregate leverage. Leverage, at the firm or individual level would still be possible. However, for someone to raise debt, there would have to be someone else saving no less than the same amount.
From the first chart too, it is clear that it is not only the private sector that has leverage. The leverage of the public sector is very significant, since all the liabilities of the central bank (reserves and currency) are fully backed by sovereign debt (US Treasuries). The first chart is reproduced from Laura Davidson’s “The Causes of Price Inflation and Deflation”, 2011.
In what follows, we will examine the adjustment process necessary to shift from a system with fiat money and a reserve ratio below 1 (reserve requirement under 100%). Let’s begin clarifying that this proposed delevering process is an ideal situation, applicable if one had the luxury of planning the shift. There is not always time to do so and, if we ever had any, we’re running out of it pretty fast.
The adjustment process below could only be done very gradually, by adjusting the reserve requirement and gold holdings by the central bank a few bps every year (say 200bps). The ultra-necessary condition here is that the nation undergoing this process be able to generate an equivalent fiscal surplus, in percentage terms. For instance, the process could demand to cover 2% per year of the gap in the reserve ratio to reach 1 (50 years long!!!). This means that if the reserve ratio is 10%, the gap is 90% and narrowing it over 50 years would require to increase reserves by 1.8% every year (90%/50).
Because the delevering process should be accompanied by a pari passu reduction in the fiscal deficit and sovereign debt, that 2% annual adjustment, in the US, this would require a surplus of $324BN every year, over 50 years ($16.2 trillion in national debt x 2%). In 2012 terms, spending would have to be cut by $1.52 trillion ($324 billion + $1.2 trillion annual deficit), if the numbers we have are correct. We suspect they are not: The situation is even worse. But, the bottom line is that, once you see these numbers, you realize that going back to a world of no leverage is politically impossible. Even though it is technically feasible, just like the European Monetary Union was planned and built over decades, it is still politically impossible.
(If you are still interested in the mechanics of this fictional process, you are welcome to keep reading. Otherwise, please, accept our apologies for the time we took from you. But if you ask us, learning how fiction works, in the end, always helps to cope with reality)
Now, if the delevering cannot be planned, and if the amounts involved are so colossal, you can have a very good picture of how painful it will be when liquidation eventually happens and how overvalued the US dollar is today. Below, we present you the aggregate, sectorial, balance sheets represented in the first chart:
It is completely out of the question that to delever the public sector, the private sector must generate equal savings, and they would have to come from exports. This would require political stability, capitalism, free trade and privatization of public services, among other things. In this rare context, this is what the accounting side of the story would look like:
Deleverage of the public sector
Above, we show one of the two delevering processes required to transition to a commodity-based standard, with a 100% reserve requirement: That of the public sector.
In step 1 we see the generation of savings that is needed to pay off the sovereign debt. Assets produced by the private sector are sold to the rest of the world in exchange of foreign currency. In step 2, the private sector sells the foreign exchange to the central bank, for currency. In step 3, the private sector uses that currency to cancel taxes due to the public sector and to purchase government-owned assets, via privatizations. In step 4, the government applies the currency received from the private sector to repay debt (i.e. Treasuries). In this last transaction, the currency that was initially issued against foreign exchange is withdrawn by the central bank, leaving the monetary base unchanged, but backed by foreign exchange. This is, of course, preferable to allowing the government to cancel its debt with the central bank. Initially, it is more painful, but the result is more desirable…
Deleverage of the private sector
Simultaneously with the delevering of the public sector, the leverage ex-nihilo in the private sector has to be eliminated, to slowly reduce the risk of further systemic liquidity runs. To reach a reserve ratio of 1, the loans from demand deposits must be cancelled. Just like the deleverage of the public sector, this would have to be done over 50 years (yes, yes, we know…but note that the European Monetary Union took about thirty years and it was way more complex than this simple rule of increasing reserves by 2% every January 1st ). The chart below shows how it would be accounted for:
Once again, the source of savings for this delevering process will stem from exports. In step 1, we show the assets produced by the private sector, which are sold to the rest of the world in exchange of foreign currency. In step 2, the private sector sells the foreign exchange to the central bank, for currency. In step 3, the private sector uses the currency to repay the loans originated from demand deposits (2% of total, every year). In step 4, the banks apply that currency to reserves at the central bank. The result is an increase in the level of reserves and, pari passu, of the monetary base. This marginal change is entirely backed by foreign exchange.
Commoditization of the monetary base
Simultaneous with the delevering of the public and private sectors, the central bank should every year, convert 2% of the foreign exchange holdings into gold. This transaction is represented below:
The immediate result is a devaluation of the foreign exchange vs. gold. As the local currency is incrementally backed by gold, it appreciates vs. the foreign exchange held by the central bank, albeit at a lower pace. This appreciation would generate a virtuous cycle, because based on the expectations of a 2% annual commoditization of the local currency, foreign savings would fund local investments and real interest rates would slowly decrease to a Wicksellian, natural level. This is counterintuitive to Keynesians. Keynesians would maintain that this steady appreciation of the currency would damage the local competitiveness and exports. However, IF THE PUBLIC SECTOR HONOURS ITS DELEVERING GOAL, the rest of the world will export capital to the country, lowering real rates and financing growth (i.e. productivity gains). If the public sector does not honour its delivering targets, the whole exercise will have been utterly useless.
Aggregated balance sheets at the end
Once the two delevering processes and the commoditization of the monetary base are finalized, in the new system loans will only be made from time deposits (i.e. real savings) and demand deposits will be fully backed by reserves. The public sector will have no debt and the non-financial private sector will have realized capital gains from the privatized assets and productivity increases.
Restructuring of the financial system:
Only at this stage one could restructure the financial system. Banks could spin-off themselves into gold-backed note-issuing banks and investment banks. As the central bank is unwound, the note banks will need to join a clearinghouse to minimize counterparty risk, with all notes denominated in gold (i.e. interchangeable). The market will sort out which ones are the most liquid, based on the liquidity services provided by the each bank, rather than repayment risk. Further below, we show the possible revenue model for such banks.
Some would argue that this revenue model is not viable and that these banks would not be profitable. We disagree, although we can only speculate here. For the City of Amsterdam, the Bank of Amsterdam of the 17th century was profitable and in general, senioriage, has been a good business. Even more so under a 100% reserve ratio, because it is stable and grows in volume with time. Cash management and fx services would naturally be ancillary businesses for these institutions. The resulting investment banks would be simple brokers between those interested in saving in credit products and those raising funds via debt. The net interest income would be their main revenue driver.
Revenue sources of a note bank
As we mentioned in the beginning, we have not considered the role of shadow banking in our discussion. Why not? Simply because the whole structure, since it is levered, also rests upon the existence of a central bank as lender of last resort. Otherwise, these players would be swallowed either by the investment banks that we just described or by the public debt market.
If there wasn’t a central bank, re-hypothecation would not be tolerated and economies of scale would dictate that only the investment banks end up capturing savings, along with the private and public equity and debt markets. But this, of course, is pure speculation and at this time, is nothing else than an intellectual exercise of dubious utility. Hence, we leave the matter aside…
Ron Paul’s Proposal
What we just described is not the only transition possible. Since 2010, Ron Paul has been publicly suggesting that a transition to gold-backed money be simply enabled by allowing gold to be used as money (i.e. capital gains not taxed). In other words, Ron Paul suggested what the US Constitution clearly dictates: …No State shall (…) coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts…” (Section 10 - Powers prohibited of States).
We commented about this idea in our “Open Letter to Ron Paul” (Dec/10). We still think that this proposal would unnecessarily lead to hyperinflation and the discredit of the libertarian movement, without solving anything and giving others the excuse to return to the status quo.
Revolutions usually start in the least likely of all places
If the transitions we described today or the one proposed by Ron Paul are not politically possible, are there any chances that we may ever see a system without aggregate leverage? Such a system would have to challenge the financial establishment of the currency zone where it wants to blossom. Perhaps then, the best environment for its development is a place where any potential opposition is weak: A nation without capital markets or an established banking system. There are many examples of such places today: Argentina, Bolivia, Paraguay, in South America; a multitude more in Northern Africa and the Middle East.
Does this make sense? We think it does. There are parallels in history that won’t disappoint you: Protestantism would have never flown in Rome or Spain. Those who opposed the status quo were expeditiously eliminated. However, when Protestantism surged in the Alps, far from the center of power, it was underestimated and allowed to flourish. By the time the status quo sought to quench it, it was too late. The same occurred with the liberal revolutions of the 18th century. When the Americans declared their rebellion, they were underestimated. They were far from the centres of power. When the French declared theirs, they were suppressed. When communism began in Russia, it was unchallenged. When it tried to grow in Britain or the United States, it was immediately repelled. Revolutions then, apparently survive when they start in the backyard, rather than the front yard.
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Tyler... Long time member first time bitcher.... These pop up ads are a pain in the ass. I can barely read an article on my phone. It f*&!ing sucks.
See comment # 2906823
I completely understand , and I want the Hedge to be as successful as it can be. That is why I am loath to bitch about it. However , it really screws up trying to read an article on my phone. It wouldn't be so bad if I hit it and was sent to the link , but when I come back to the article it sends me back to the add link again. I'm not questioning the fact that they exist.. I'm commenting on their functionality.
Use Google Currents.
If any of the other nations with significant wealth decide to go on the gold standard, we will not have a choice. Otherwise there will be a permanent flight from the dollar to currencies with some substance (backing them). In my opinion, it will happen eventually... very soon I aver, but the transition will not be smooth. That seems to me to be the only suggestion this article REALLY makes: A transition is not practical because it is not going to be smooth. SO WHAT!?!?! Economic crashes are not smooth, and shit get rewired during them! That's how our species tends to operate. I say this: "Get ready for a gold standard."
THX
implied here is a voluntary transition...I do not believe that could happen...forget about what gets credited and debited...if the US currency hyperinflates...well we will get what we get. I see the Euro as the MODEL of the future (a model mind you, not the winner of the currency wars) in that their use of gold on the balance sheet as opposed to a fixed gold price has many advantages.
Ron Paul argued that if the price of goods was allowed to go both up AND down that a gold standard could work. In the Euro world it would be the price of gold that varies as the currency (a fiat currency) sees its value set by the way it behaves...and set by gold!!
Most of the comments are misled by the fact that the author does indeed explain why anything with below 100% reserve requirement does not work and that a return to the gold standard, if any, will be based on necessity, not planning, and why he disagrees with Ron Paul (link provided in post). Where does he say this? In the first part of this 2-piece article. Link is at the beginning of the post. If you are going to comment on these issues, then read the first part first. Why then, did he take the trouble of explaining the mechanics of a plan to the gold standard? First, because a lot of people speak of it without the "how" and then, just so there is at least one "how" out there for everyone to see and bitch on!
Another bull shit article on why the gold standard is unfeasible. I see the motivation of Tyler, without inflation and complexity these Wall Street money changers would live like the rest of us peasants, but Tyler and the Wall Street Yids should know if the marketplace dictates that money is to be created then guess the fuck what, money will be created. It’s been that way for thousands of years.
This bull shit blog is an insult to my intelligence and not even worthy of a rational response.
The shit can be reset in two fucking years with the right motivation, a gun pointed at Mr. Yids head, a few bankers hanging from a rope. Yes we can.
Bottom line is the Yids do not want to lose their bank and money printing scam. Time for the gypsies to fuck off, it's over. The gonium’s know the scam and payback is a bitch.
371.25 grains silver. My preference.
Harsh...but not untrue.
Usury banking has been the means of defrauding and deceiving the peoples of the west for half a millenium. Usury banking is the special preserve of a subset of humanity which believes money can be best employed to make more money, instead of in the production of things of value. This is an anti-social attitude which can and needs be stopped.
There's the Readers' Digest version.
No need for a Gold Standard when you're in a slave labor death camp (other wise known as the United States) The more they devalue the paper, the more you work yourself to death. As long as you are able to breed new babies into slavery, who cares about your miserable life span. We won't get back to a Gold Standard until some ebola like virus kills all the guards and the host can shed it's vampire parasite's
@9698
don't get frustrated!
pick the article apart like a vulture dining on regurgitated carrion?
use the authors key objectives to refine your rebuttal... thus enhancing your own critique, showcasing/highlighting these improbabilities of a, 'not-so-thought-out-thesis'... lacking empirical and baseline data. both misleading in direction and bifurcated in futility...
50 year timeline... <?>
jmo
@9698
don't get frustrated!
pick the article apart like a vulture dining on regurgitated carrion?
use the authors key objectives to refine your rebuttal... thus enhancing your own critique, showcasing/highlighting these improbabilities of a, 'not-so-thought-out-thesis'... lacking empirical and baseline data. both misleading in direction and bifurcated in futility...
eg, 50 year timeline... <?> / and, cb's prevent recessions {that's an easy one} creating stability [laughable]???
jmo
The USA could just revalue gold itself to $100k or so, then the ROW would follow with a gold standard. Or China couldo do the same.
A writer on another site worked out recently that would give the US 2 decades of breathing room.
Anyone banking on US hyperinflation has a bit of a closed mind don't you think? Bit blinkered perhaps.
Sorry I hate to be a debbie downer here but there really isn't any other nations with significant wealth including China. Empty cities, bad banks other countries downturns also affected them collapsing exports. Even if China's wealth was real (which it's not) the majority of countries wouldn't trust them and for good reason. Not to mention that would lead to War. In 2008 people didn't run away from the dollar they ran to it.
The mechanics of it isn't the problem the problem is the Power and Wealth our politicians have created for themself's by enacating and keeping the Federal Reserve (thanks a lot President Wilson). With a Gold Standard governments were revenue constrained with a fiat system they may claim they worry about the fiscal cliff however if that were really true they wouldn't keep raising the debt ceiling. They only worry about it insofaras deflation/hyperinflation and only then because of the political consequences of losing power by being voted out, or reduced (bribes) donations. You might prepare for riots (but they have hollow points for that) otherwise prepare for inflation and get ready to be Japan.
Remember the words of Thomas Jefferson: "First by inflation. Then by deflation"
Jefferson understood the banking scam extremely well. The game is first to bankrupt the population through easy debt. Then when everyone is loaded to the gills in debt (done already) and the banking system has managed to offload its debt (currently underway), the deflationary game will begin -- at which point those with liquidity (the banks) will buy up the nation at pennies on the dollar.
Thomas Jefferson's full quote is here:
First by inflation. Then by deflation. There will be no need for a gold standard currency. They will crank up interest rates and impoverish anyone without liquid capital. Gold is not necessary to create scarcity. There are plenty of forces who will benefit (and benefit at a historic scale) from a rise in rates and the resulting deflationary collapse.
Whether or not we actually get deflation will depend largely on policy -- and the whims of government. But there are plenty of players who have massive cash reserves who are licking their lips at the prospect of a deflationary collapse. And where there is money and power, there is often policy follow-through.
Can you cite that? Cos I've looked and couldn't find a source for that quote.
I don't think you have, because if you did, you would know that the quote is a famous misattribution. The real author of that is unknown.
The first known written record of the words is from 1937, during a major deflationary period immediately following an inflationary one.
The fact is that the bankers saw the deflation as a failure on their part. They don't steal or get rich with deflation, they do it with INflation.
Even if "they" had every ounce of gold in the world, a gold standard would be far preferable to the current system. With gold as money, they could only spend it once. With paper money, they can spend as much as they want forever, meaning their pickpocket fingers reach into every pocket, and into every vault in the world forever. Can't do that with gold. They have to physically seize that, which is very, very hard, and makes people very, very angry.
believe it or not if you switched over to a gold standard more than likely it would be INFLATIONARY. the example of North Dakota will suffice: suddenly "money is worth something"...as a consequence in the world of North Dakota "that means you have to pay more for things." buy low/sell high does not disappear under a gold standard folks. and VALUE is of course ENHANCED. we have transitioned to a gold standard before...and much more actually. Imagine transferring over to an Andrew Jackson standard who despised ALL FORMS of speculations! Not even i go that far! He believed in NO DEBT PERIOD! Anywho happy trading come tomorrow...
+100
Oligarchs always win if they are smart and cover both ends. The only way people can stop that is via statist intervention.
The market is just the facade for oligarchy control UNFORTUNATELY; the ideal image of the town market place even today is selling non local produce, made in china! That's how long the arm of the global supply chain oligarchy is.
If we have to go back to neo-feudal times as today is fast becoming, think of Italian cities and the fight between people and nobility: white Guelfs vs Black Guelfs, as in the Florence of Dante and Petrarch. That's where we are heading now, with the collapse of the house of Bardi that was initiated by Edward III forfeiture when he reneged on his debts incurred by his hundred years war...Renaissance chimes bitchez!
Giovanni Villani - Wikipedia, the free encyclopedia
Scali (bank) - Wikipedia, the free encyclopedia
Interesting to see, the writeup in Wiki about the Scali bankruptcy, its is a page out of ZH... written in the 1320s !!!
As WB7 says, we should all be moving to an Internet type economy without intermediaries; peer to peer and transparent, where money is a means of achieving buyer satisfaction, not a polluted blood-line to feed the banker squid bloodsuckers as throughout of history, or the feudal statist king who taxes us for his own kith and kin.
A few years ago I used crowd lending 'Lending Club' to grab a loan and pay off credit card debt. Gave the interest to the people instead of the banks
This quote is nowhere attributed directly to Jefferson. Most reliable sources cite c. 1890 as the first recorded use of the term deflation.
The question about returning to a gold standard doesn't fix on economic structure. It's all about politics. The banking and political systems won't go back to a gold standard without a total collapse of the current Wall Street/Washington structure. That means a total economic meltdown which causes a political upheaval.
Thus your answer involves killing two birds with one stone, but also involves an immense amount of suffering.
"...returning to a gold standard doesn't fix on economic structure. It's all about politics."
The issues with returning to a Gold standard for the the US are:
1. Foriegn Central Banks would immediately convert US dollars held into Gold. Thus depleting all remaining gold reserves in short order. This is why Nixon took the US off the gold standard back in 1971
2. The US would almost certainly would have to pull and FDR and sieze all privately owned gold so it pay foriegn creditors with gold (see point #1), and probably do the same (convert siezed PMs to dollars, then devalue the dollar)
The only way the US can return to a gold standard is if it completely defaults (dollar become worthless) so it does have to pay creditors. However this still presents a problem going forward since the US still needs to import OIL to keep the economy running. I also doubt the TPTB are interested in giving up power (ie defaulting) to return to a gold standard.
Best option is to continue to accomulate PMS and real assets and wait for the dollar to go bust. There isn't really any other option at this point since the US gov't is insolvent.
Yup!
Further, any "gold standard" will only be transitory w/o there being a world full of people who understand that this is a finite world and that we cannot base our existence on some virtual notion of perpetual growth.
i pads work great....
Can we pay for an ad free experience? Where do I send the silver? What about an IPO? If The Street did one...
How about a subscription option that avoids ads? Two options: Free with Ads, Subscripton fee with no ads.
They do seem to close for me without issue when I click them.
X2, they suck on my mobile.
TD's gotta pay da bills. It's a nuisance, but nothing a fat finger can't undo. The site is mainstream! Just keep the truth flowing and Shell and Wells Fargo can pop up only to be fingered away. It is what it is.
Banner ads are a dying business model:
http://www.zerohedge.com/contributed/2012-10-19/reggie-middletons-observations-googles-dramatic-3rd-quarter-2012-earnings-rel#comment-2905342
Perhaps ZH is not providing profitable information, because otherwise one assume they can sell it or otherwise profit by investing on their own information. For me, ZH's byline should be, "On a long enough timeline, the non-liar inflation adjusted purchasing power of every persistent speculator or borrower drops to zero.".
ZH could put links to affiliate products they recommend in the text of their articles, thus using their knowledge about the demographics of their audience to target higher conversion rates and make it less spammy. This might negatively impact their jounalistic objectivity though.
"a) A gold standard will fail if the banking system is allowed to survive with a reserve requirement below 100%" That whole long-winded article and all its pretty charts, and explanation why it ain't happenin' is right there in the first paragraph. Too many people with too much power have too much to lose to even consider such a radical move, and they won't give up their precious fractional reserves until the whole thing eats a giant shit sandwich.
They've all shown they're permanently wedded "Print, Pretend and Extend", what possible lever could there be to move them away from that? An equitable, stable, and workable system has never been the goal, self-enrichment and a pretty consumerist puppet show is where it's at.
"An intellectual exercise of dubious utility" indeed.
This is what I thought too. The whole point was to try and fit "the gold standard" into a fractional reserve system.
A true gold standard cannot be a fractional reserve system, ergo, tptb will never implement it. They would love, however, to let you think your money was "as good as gold".
It can, and it has. http://en.wikipedia.org/wiki/Free_banking
People tend to confuse the legitimate use of fractional reserve banking in a private banking system following a gold standard (ie private vaults with gold in them lending out notes against said gold) with the necromancy of zero reserve banking in a central banking system (where notes are simply created based on the demand of people to take their "cash" out of the banks).
Fractional reserve banking is legitimate because it is a contract between two parties. The system we have now couldn't be further from that old gold standard system. It shares a name because funny money peddlers don't want you to see the difference.
Edit: Also note that the powers that be, will become the powers that were. There will be no choice in a return to a gold standard. Might as well put a stop sign in front of a speeding train.
Intellectually I get that we may be challenged. But when wealth is wiped out stability will only be achieved with competing currencies and that will be the return to the gold standard so someone.
And why has no one said it...
F*uck the Fed. I'll suffer through to a gold standard.
Most of the comments are misled by the fact that the author does indeed explain why anything with below 100% reserve requirement does not work and that a return to the gold standard, if any, will be based on necessity, not planning. Where does he say this? In the first part of this 2-piece article. Link is at the beginning of the post. If you are going to comment on these issues, then read the first part first. Why then, did he take the trouble of explaining the mechanics of a plan to the gold standard? First, because a lot of people speak of it without the "how" and then, just so there is at least one "how" out there for everyone to see and bitch on!
All of this is unnecessary to get to a gold-based system. All that needs to be done is to renounce the odious gov't debt, disband the central banks and the central states, and start over with commodity money. All of those who have held their fortunes in paper would be broke, and each person would only have wealth in the form of actual goods. All the existing capital stock would still be intact. Capital currently owned by the "public sector" would be open for homesteading by the first individuals who take it over and put it to work. All that this requires is a dedication among the people to the non-aggression axiom and a willingness to work hard. Unfortunately both those things are in short supply, and therefore we are getting the system we deserve. The universe has a way of regulating behavior, and those who persist in irrational behavior should not expect to continue to survive. If the human race is to have a future, it needs to get its act together before the statists kill us all with their nukes and other weapons of mass destruction.
Fiscal cliff is in sight. While debts - even though they are staggering could theoretically be repaid, and even unfunded liabilities with a little stretch of imagination could possibly be met (with some haircut)... still proportion of govt spending to the GPD is on insane level and buries any hope for keeping this model. France has about 90% gdp debt and 60% gdp govt spending. Are they going to take 80% of all output to pay interest, pensions, fund all this harmfull crap that they fund with govt spending and still have some left to paying down the debt?!
The question is, when shit hits the fan, what will replace what we have now. They will blame too much personal and economical freedom, globalization (too much information, too much trade) and if they can convince people they need great leaders to bravely shepherd them through the dark valley... we're headed for another Dark Ages.
I agree in principal, but it won't be until we all look in the mirror and repeat to ourselves "there can be no perpetual growth on a finite planet" that we'll have any long-term "solution."
REMEMBER: TPTB ride on the back of this wholly faulty premise (and get all the peons to buy into it [with the carrot of "you too can be rich!"]).
So how are you going to feed the millions who will starve during the temporary economic implosion it will cause?
http://www.zerohedge.com/news/2012-10-21/guest-post-mechanics-transition...
We don't need a gold standard, we need an exterminator.
Beside that, the elite are way too busy hiding the gold from the view of the ponzi victims.
Like this is going to happen when the Feds are generating 70%+ of the GDP in additional obligations each year? Yeah, right. The only way we get to monetary stability on the gold standard is to put the politicians in a very small space and drio about a ton of ingots on them one politican at a time. Of course, we recycle the ingots after we turn the politician into mush by hosing the ingots down. He who wastes not wants not.
Does this mean I shouldn't be stacking? /sarc
Recent history indicates the Zimbabwean Dollar is supposed to be a fantastic store of wealth. Currenty you get $361 Zimbabwean Dollars for 1 USD. What a deal?! Just a few short years ago a day of labor would net you over $1 billion Zimbabwean Dollars. Do your own research carefully and start investing now. :-)
The capital gians tax on gold is effectively just a transaction tax -- a very high version of what we'd like to see on HFTs so that they make rational choices.
A time will come that even the 28% transaction tax on gold will seem like a great deal -- it'll be around the time the dollar devaluing 28% during some time frame is perceptible to the average Joe.
Around that same time frame people will just transact to get into gold and large purchases will be value exchange contracts rather than FRN paid. Not long after this, the government will attempt to prevent such transactions, but this will last just a few months before the collapse is completed.
+++++
No, there's no government surplus required, only that the deficit is funded by the printing of new money, rather than debt, to cover the deficit. Inflation is then controlled through the reserve ratio not interest rates.
I could point out that this is basically what Benanke is doing just now. He's printing new money to buy treasuries (and holding the treasuries) and he's increasing the effective reserve ratio by paying banks interest on their excess reserves. Whether he plans to decrease the ratio to 1:1 or not remains to be seen, but I doubt it.
Has anyone calculated the effective reserve ratio in the US at the moment?
I come up with 1.25. Someone can check the numbers and formulas.
Data from FRED, in billions.
TR = total reserves = WRESBAL + VAULT = 1,483.095 + 48.826 = 1,531.921
RR = required reserves
ER = excess reserves = EXCRESNS = 1,409.422
CD = customer deposits
EFF = effective reserve ratio
=====
TR = RR + ER
RR / CD = 0.1
EFF = TR / CD
So,
EFF = TR/CD = TR / (10*RR) = TR/(10*(TR-ER)) = 1,531.921 / (10*(1,531.921-1,409.422)) = 1.25
Great! So, there is no delevering to do! What is the government waiting for to get us to the gold standard? It should be a pleasure, as we go from 1.25 to 1!
M1 is $2.4 trillion, so customer deposits per the formulas above would be too low except for "sweep accounts". Perhaps the author is planning on removing that feature of the banking system? I haven't read the article and embedded links in their entirety.
Are Reserve Requirements Still Binding?
Maybe they do not want to disclose the fact that they can print unlimited amounts of gold?
I got rid of my Gold and exchanged it for ipads, computers, a tv, new car and a lawnmower..all the shit that will go up in value..right?
If a shooting war broke out between the U.S. and China they would.
Politicians are going to chased to the hills...you were saying?
Real bills are an important aspect of returning to a gold standard. Here is a link with an overview: http://thedailybell.com/3478/Real-Bills-Doctrine
Also, it is not rational to argue that something which functioned for hundreds of years cannot work.
This author is completely ignorant of Real Bills.
Most of the comments are misled by the fact that the author does indeed explain why anything with below 100% reserve requirement does not work and that a return to the gold standard, if any, will be based on necessity, not planning. Where does he say this? In the first part of this 2-piece article. Link is at the beginning of the post. If you are going to comment on these issues, then read the first part first. Why then, did he take the trouble of explaining the mechanics of a plan to the gold standard? First, because a lot of people speak of it without the "how" and then, just so there is at least one "how" out there for everyone to see and bitch on!
You are also ignorant of Real Bills. The gold standard, which functioned for hundreds of years, did not have a 100% reserve requirement. It used Real Bills. Look them up & learn something.
Did you ask yourself why it only lasted 100 years, if you're correct? Did you ask yourself what brought it down? Did you ask yourself why the Bank of Amsterdam, with a 100% reserve requirement actually lasted over 200 years? Did you ask yourself what brought the Bank of Amsterdam down? Did you ever make the connection between the fall of these systems and where we are today? When you ask yourself all these things, then come back, provided you found the answer. And yes, I am an ignorant, and that is precisely all I know: That I am an ignorant.
well...you know your gold is valuable. if you were offered to the chance to exchange your gold for paper would you? i say no. hence "what's the big deal"? it's not like people aren't overpaying for everything right now anyways. and that includes gold in my view...
The gold standard in Byzantium lasted for 1200 years. No banking regulation until the end, which coincided with increased government spending on military adventurism which resulted in their final conquest by the Turks.
That is the same thing that destroys ALL gold standards, and brings an end to all empires.
Exactly, they don't understand that Real Bills are not a solution:
http://www.financialsense.com/contributors/shelby-moore/real-bills-all-loans-are-harmful
And that we never had a 100% global gold standard, thus we never had a stable gold standard:
http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#StoringIdleSavings
Note to lazy readers and skimmers, you actually have to read the section linked above to understand why a gold standard has never existed in a stable form.
I've debated Fekete many times in private email. He is correct about the destructive effect of negative real interest rates.
.gov knows any gold based system has for them a major flaw: it limits spending by .gov for progessives this is a mortal sin for our statists of the left this is not acceptable.
the pols problem is there is NO - New thing- or new lands-to expand wealth. so robbing the serfs keeps this going..
EU is robbing the people thru reduction in living standards and taking of wealth..but it is a closed system and that just staves off the end..third world subsistance living, for a short time. the EU is just a little farther down this road than the big fiat USA.
the fiat system has broken it's main function of giving capital to the wealth creation business venture ..it now just supports the most broken sectors: banks and .gov welfare as example.
gold will not solve the above. we need the destruction of .gov fiat along with the fall of the big banks and welfare state supported GSE's in which large corp co's such as GE.
globalism has just made this broken system larger, the breakup of the USA is needed as currently operating.
with removal of big .gov the economy can grow again. the end of central monolith control is really the answer to the problems that have no solution because the solution is the death of .gov
Engali: use firefox & noscript. Phone? Gee, aren't they so convenient for the interwebs?
Tyler(s) : how about that Currency Wars? Why can't any fractional backing and/or fractional-reserve work for a gold(exchange) standard? It has before. But further, in a currency collapse, why would anyone use any fiat paper token for gold when GOLD itself is easy to handle in coin & bar form?
Zimbabwe went right to gold 0.1 grams for 1 loaf of bread - no paper at all. Why would this not spread with social uprising? Gold for food, silver for bullets?
1 word: FOFOA
review the discussion Ron Paul had with Charles Partee in 1983. In it Partee urges a system in which gold is used as an 'indicium' and not in a typical 'gold backed currency' way. This is very close to the freegold concept of fofoa.. Gold will return as a monetary metal and not just to the central banks. If this can be called a 'gold standard' then I believe we will return to one. As for gold backing the medium of exchange...ain't happen'in. We have been there and we do not like it. So what if we have to change the Constitution to make it legal....we will!
http://fofoa.blogspot.com/2011/09/once-upon-time.html
see #3 Gold vs Discretion
1776 an ounce. There's your phucking "freedom tower" Manhattan.
Haven't read the article but perhaps there won't be no transition to a gold standard because there will be a global economic collapse that will force a gold standard to be implemented.
Yeah, ok..ok...And Thank You, At last....a Good article!
Yep, -I see it now...there is absolutely NO point to even try to fix anything, coz its toooo complicated for the anti-humans in charge.
-So yes yes...Lets continue this "How-Could-Hell-be-Worse-Situation" and bow down to the elites plan of a Cash-Less Slave-Society, and let them Cull 95%, so they can start over again, they of course will be living in their castles, served by those fortunate remaining slaves.
it will be interesting to see what everyone else does when the Chinese declare they have 10,000 tonne of Gold.
Moving to a gold-standard will implode China and the global economy (at least temporarily):
http://www.zerohedge.com/news/2012-10-21/guest-post-mechanics-transitioning-gold-standard-and-why-it-wont-happen#comment-2908184
And this is in the interest of the "kings of passive capital" when "they" reach the desired stage of their business model:
http://www.zerohedge.com/news/2012-10-21/guest-post-mechanics-transitioning-gold-standard-and-why-it-wont-happen#comment-2908208
Very learned & intricate article. Okay, that's the praise done with.
I once read a similarly learned article ( correct in all its parts & with impeccable logic) on the topic of how its impossible, actually, to boil an egg with any degree of success or repeatability.
Like the empires & trading states of old, the mere fact that your empire/state had lots of gold was the important fact, not guys scribbling about bits of paper & spreadsheets problems. When a country comes out and declares, "We have all (or goodly part of) the gold!", that will be a gold standard, and that's what will rally support & following. The essential idea missing, imho, in the above article, is the simple fact that paper/electronic currency has F%$ked things up in the first place, there'll be no appetite for more paper-fiddling here & 200bps there, angels on top of a pin type problems.
It also fails to address, or even acknowledge, the end of (rapid) growth scenario we're entering. It's already becoming apparent that QE (and all its many relatives & sub-species of money printing) has failed to work because the levers which previously could turn on more oil, raw material in exponential quantity wo't do that anymore - there isn't enough stuff left. Coming from that, the idea that it's a dis-advantage that you can't easily leverage currency (under a gold standard), becomes a positive & chimes with how the world economy will actually work in the future. Efficient dispersal & use of (limited) capital that truly represents the stuff left we have to use to make things with, and the stuff we've already made.
Most of the comments are misled by the fact that the author does indeed explain why anything with below 100% reserve requirement does not work and that a return to the gold standard, if any, will be based on necessity, not planning. Where does he say this? In the first part of this 2-piece article. Link is at the beginning of the post. If you are going to comment on these issues, then read the first part first. Why then, did he take the trouble of explaining the mechanics of a plan to the gold standard? First, because a lot of people speak of it without the "how" and then, just so there is at least one "how" out there for everyone to see and bitch on!
"We still think that this proposal would unnecessarily lead to hyperinflation ..."
Hyperinflation and bankruptcy / deflation are already baked in to the cake....blameing a move to a gold standard is silly.
The author already addressed this in another letter (link included in post). I guess it would have made too long a post to explain this point as well.
It took the Federal Reserve almost 100 years to get the USA to its present mess and we expect the gold standard to return just like that?
The great thing about the gold standrad is that it can be adopted by individuals for themselves. That is, if you want to be your own central bank, just keep excess cash as gold and silver rather than paper.
That's like saying "It took me thirty years to wrack up all this debt, you expect me to start living without access to credit just like that?"
The gold standard is the default monetary policy of humanity, and returns upon the collapse of any and all foolish government-forced schemes.
So, if Peru or Zimbabwe doubled their gold holdings next year, the value of their currency would double. Who would verify their gold holdings by sawing all their bars in half? A Zimbabwe government official or a U.N. official and would it make any difference which one verified it? In other words, what happens when governments cheat, not that many would, but that's what we're trying to fix in the first place, right? Let the system collapse(like there's a choice) and go to a straight sales tax for government revenue. That way the government gets nothing if there are no sales.
I wish Peru would double the size of their gold holdings. They are a medium sized country, but the No. 5 gold producer in the world.
Of course, they still have lots of gold reserves "in the ground" that they could use in a pinch.
***
Re above comments on limited resources leading to a zero-sum outcome, I say:
Spare parts, bitchez! (Repuestos, putaz!)
the author has deep flaws in his argument.
if he argues that his proposal is not feasible, deflation wont happen and hyperinflation is guaranteed too.
what ron paul proposes is a non-proposal, it is reality. aren't gold bugs and central bank already hoarding gold to prepare for using it as currency in the future? so ron paul's proposal is not only feasible, it is already happening.
the author tries to refute the invevitability of the return of gold standard by discrediting his own proposal and ron paul's proposal at the same time.
it is very misleading with ulterior motives!
"it is very misleading with ulterior motives!"
It seems this site is all about the money now. You'd think Tylers could earn plenty using their knowledge of finance and the markets. This article would make Paul Krugman proud.
(I have often been critical of those who criticize articles with simplistic generalizations...I am a lot more specific in a post further down. Just sayin')
The "kings of passive capital" do indeed want the return of the temporary discipline of gold, as "they" (perhaps think "they") will own more of everything with another such cycle of rebasement followed later by debasement again:
http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#StoringIdleSavings
http://www.silverbearcafe.com/private/01.10/thinklikeabanker.html (QE-ternity buying MBS is the "Hide this action" stage).
http://www.silverbearcafe.com/private/06.11/owntheearth.html
But they are failing, the revolution that is outgrowing finance is well underway:
http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#FinanceabilityofKnowledge
This is a kinda bitch. I went to donater yesterday and saw that it goes through PayPal. I will not use PayPal.
Me too. Paypal and I aren't speaking to each other ever since it insisted I tell it all my banking information. I don't even give my bank all my banking information, let alone let Paypal have it ferfraksakes.
Most of the comments are misled by the fact that the author does indeed explain why anything with below 100% reserve requirement does not work and that a return to the gold standard, if any, will be based on necessity, not planning. Where does he say this? In the first part of this 2-piece article. Link is at the beginning of the post. If you are going to comment on these issues, then read the first part first. Why then, did he take the trouble of explaining the mechanics of a plan to the gold standard? First, because a lot of people speak of it without the "how" and then, just so there is at least one "how" out there for everyone to see and bitch on!
I just bought a new safety winter cover for my in ground pool along with some winterizing services closing the pool my sales tax was just shy of 100 dollars. With recent bankruptcy of a company I worked for as sales manager of 2 major midwest cities and my new hourly shipping clerk "job" that 100 dollars represents about a day and a half of my labor. The count of Cook in Ill just passed a new anti violence tax that includes a 5 cents per bullet tax on ammo bought in Cook County. We are taxed enough already, right??? Whew. I feel better. Our FRN's are only worth anything at all because someone will give you something for them in return. The day is coming when that will be much less likely. Lack of proper planning on our part will be no ones fault but our own. Act accordinglly.
This writer is like so many others, in that, he fails to understand the ramifications of the present levels of debt. There is no possible way to extinguish the debt without causing revolution. History is quite clear on this issue as it is best illustrated by the "debt jubilee".
Worse, he fails to understand that debt is meaningless to the central banks. It has been created without the promise of an asset as collateral. Bankers know the value of collateral and the value of any debt based on good faith- they are worthless. Therefore, to think bankers are dependent on the repayment of this debt is juvenile.
The debt is a means to power and influence, to accumulate and transfer real wealth, to dictate policy and control the transmission of economic activity for their own benefit. Once fractional reserve banking fails to accomplish this, IT WILL BE MODIFIED OR CHANGED to a system that allows them to maintain social control AND THEIR SOCIAL/ECONOMIC SUPERIORITY.
Arguments concerning resource depletion and the impossibility of growth are also meaningless, BECAUSE WE HAVE NO WAY TO MEASURE HOW THE MARKET WOULD FUNCTION IF IT WAS ALLOWED. Capital has been compromised. When money ceases to have real value, it is impossible to price investment decisions. This leads to hoarding of commodity assets and disrupts the normal process that creates new products.
Corporations have been able to lock up markets through patent laws, government regulation and credit financing to eliminate new ideas and directions that would minimize their own corporate positions. They purchase ideas to eliminate competition. Laws and regulations are created to force the use of corporate products (agriculture, pharmaceuticals, medicine, etc).
There is a reason so much time and effort are spent on controlling populations via mind control, media and consumerism. To think that any change can happen in an environment where the vast majority of the people are WILLING participants in their own demise through ignorance and the use of emotional and physical triggers is laughable.
The problem is the accumulation of debt whereby the main players no longer have a means of siphoning wealth of REAL value. Coupled with the result of withdrawing and protecting their positions from an angry populace. The Elite understand the numbers and like the rest of us- there are no places to run. If you want the benefits of luxury, you must be in a city large enough to provide them and that means you need protection. Is it any wonder we have so much police action? NYC is a totalitarian nightmare.
The problem is simple: the Elites have succeeded beyond their wildest dreams, BUT THERE IS NO WAY TO MAINTAIN OR EXPAND THE SYSTEM for the inevitable new players or to continue to live in excess without placating the people. This would require greater and greater amounts of entitlements and largess that would have to be paid from their existing stocks of wealth. Unless they can convince the people to live at living standards well below their present assumptions, rock has met hard place.
While this has been actively engaged as policy, it has been uneven in its' results and could eventually fail. For me, this is the reason for the slow degradation and inability of economies to recover or function in a positive manner. This is a full scale economic retreat to some hopeful bastion whereby they can carve out and protect a life of luxury, while the masses are left to fend for themselves.
Goooood luck!
He fails to understand there is no possible way to extinguish debt without causing a revolution? Did you read the article? Did you see that in the end, there is a special paragraph devoted to revolutions??
A few parting words do not carry the same weight as a complete discussion based on paying said debt. Nuance.
This is like a person who spends more than he takes in by using credit cards talk about how there is no way he could ever transition to being poor. After all, how could he ever transfer from his current, complex system to a simple one that doesn't even include a bank?
All that complexity will collapse, and the people will move to a gold standard all on their own if the government doesn't. This article is nothing but normalcy bias, as far as I can tell.
And what is this BS about gold standards failing because of non-100% reserve requirements? That is asinine. Free banking worked wonderfully in Scotland, with no reserve requirements (ie ZERO government intervention, the market set the reserve requirements, and anyone violating them would either get away with it for a time, or go under due to market forces), and fairly well in the US (where banks were restricted to a single branch by government mandate).
Any banking sysem will fail with a reserve requirement below 100%. But when you don't use gold, the money goes down the tubes with the banking system. A bank account is an investment with risk that generates a return. Money in your pocket is not supposed to carry risk. But without a gold standard, money carries a risk.
Nothing like that green grass on the other side of the fence ... right? Tantalizing ... like a chocolate cake w/ ice cream.
Moderns would not like to live under a 100% reserve system, in fact no such system has existed for over 100 years. There are reasons: losses/risk at the margins and the need for increasing unsecured credit to support industrialization and related 'innovators' and 'entrepreneurs' (thieves).
No unsecured credit/inflation, no industries. PERIOD!
Don't believe me, look @ Europe which is entertaining a credit embargo currently. The entire EU economy is cratering because there is insufficient credit to allow Europeans to obtain and waste capital (and retire old debts). Gold isn't the problem here, you cannot burn gold in an automobile for 'fun'. It is the other forms of capital burned up for nothing-in-return that is the problem, capital rationing is taking place along with the repricing of it.
NOTE: when rationing by price stops working, there will be physical shortages and these will be PERMANENT ... as in 20 million years permanent. No cars for YOU, SUCKERS! ('Fools' and 'jackasses' is also appropriate)
The 'crisis' in the world is not (mismanaged) monetary systems, it is conservation by other means. The world is becoming car-free, there is the ongoing death march of the automobile industry and all of its various dependencies ... including governments everywhere in the world and high finance.
Peeps are worried about that 'great crash'. No shit Sherlock! Yr problem is at the end of your driveway, you are directly competing with a fucking machine for what it is you and your kids need to keep from living in cardboard boxes ... or in caves ... here on Planet Earth!
From an ecology standpoint, there are good reasons to support a 100% reserve system ... because such a system destroys industries and hangs the nouveau-riche out to dry (if not from lampposts). Unfortunately, with commodity money/gold standards the government creates money and gives it directly to tycoons bypassing the need to include the public in the process. Here is why the 'gold confiscation' meme arises: the desired system takes the pricing of money away from the public. Money creation becomes a direct government monopoly, where it flows becomes an arbitrary favor.
It is the continual exchange of money by the general public which gives our crazy debt-money worth. No public, no money! That a poor man is willing to kill/die for a dollar is what gives the millionaire's hoard worth. If the public wasn't required, banks would simply give checks to rich people and leave ordinary folks out of the loops.
In a gold-money system the public loses. Any member of the public who has gold (or aluminum or zinc) will have it 'removed' by adverse circumstances or by direct government action and handed over to government 'friends'. Those without metal are ipso-facto poor and of no consequence (except for farmers). Don't believe me, governments have been abusing hard-currency 'systems' this way for thousands of years.
'Virtuous cycle' of 'beggar they neighbor', indeed! This is the exact opposite to what actually occurred during the 4 year period following the 1929 stock market crash, in every single country which attempted to maintain its gold currency peg: real interest rates rose as one country after the other attempted to keep their commodities to themselves. The outcome was cross-border (and intra-country) currency arbitrage against gold without hyper-inflation (which is currency arbitrate with decreasing real interest rates, BTW).
... and keep Wicksell out of it, he forgot more about money than most of you JP Morgan wannabes ever learned.
Good grief!
I don't know how you can say that. The beggar thy neighbour context occurs when central banks arbitrarily devalue their currencies. The process described in the post is completely market driven. The beggar thy neighbour process is one of devaluation. The process described in the post is of appreciation. How on earth can you compare them??? How??
I'm stunned. This article would make a Keynesian proud. I suspect a few will pick up on it and use it for their own purposes.
"Because the delevering process should be accompanied by a pari passu reduction in the fiscal deficit and sovereign debt, that 2% annual adjustment, in the US, this would require a surplus of $324BN every year, over 50 years ($16.2 trillion in national debt x 2%). In 2012 terms, spending would have to be cut by $1.52 trillion ($324 billion + $1.2 trillion annual deficit"
The din of breaking windows is deafening. The author of this article -- aside from all the mixing up of apples and oranges -- fails to see "that which isn't readily apparent." Would not a reduction in fiscal deficit and sovereign debt be accompanied by a better functioning price mechanism (for a slew of not so obvious reasons), by inspired confidence, and so forth? What about velocity? The author implies that a decrease in the money supply would automatically lead to lower economic activity and lower tax revenues, essentially ignoring, or not seeing, that it could and probably would lead to increased velocity (due to inspired confidence, etc), increased economic activity and a larger tax base. I could get way more technical and cite a host of arguments borrowed from Mises and especially Rothbard (they'd rip this article to pieces) but am struggling to keep my argument accessible...
WTF? Is there someone on the staff with an actual grounding in Austrian economics, or are all the references to that lip service? inflation.us was recently busted as the scam it always was, and all their lip service paid to Ron Paul and the Austrian School was just that. It apparently caused the implosion of their site. If this site is not a "scam" along those lines...and I sure hope it is not because I get a lot from it and from some of the bloggers...I think it will be well advised to find an editor well versed in ("Austrian") praxeology.
Otherwise, at the very least, it's going to continue to hemorrhage and turn off it's more informed readers. But I know from my own experience with a few blogs that it is the lesser informed who tend to buy the products and services in the ads. Is it all about money now? Almost all indications are that it becoming increasingly so.
And then there's the up/down arrow thing. It ensures that people in search of Daily Affirmation jump to comment first, without reading the article, thereby dumbing the whole thing down. But...it is a great way to compel the community to keep everyone in line...so they don't post criticisms such as this...and to make the dummies feel at home and returning to drive up traffic and buy more products.
Can't you guys figure out how to use your own financial and market sophistication to pay your salaries from trading rather than steadily throwing up ever more (invasive) ads? If I have (and I have), then it should be easy for you guys.
Good luck Tylers. It's been fun and educational at times. But out of the hospital today...finally...and just don't have time anymore to fact check ever more of the dubious stuff that's finding its way into your articles.
I think the post shows that the role of prices are included. Did you notice that in the transition to a gold standard, the author explicitly says that the local currency would appreciate? Did you notice that he says that in spite of that appreciation, the country would still be more competitive and would be able to keep exporting, unlike what Keynesians say? If the author wrote that....do you think he was not agreeing with you? How can you say that the post implies lower tax revenues, when the activity level picks up via export and the private sector gets capital gains from higher productivity, all included in the post? How?
Why are you stunned by the fact that imploding the extremely high levels of leverage in the global economy, would at least temporarily implode the uneconomic activity in the economy, i.e. much of the global economy would implode (at least temporarily). The article astutely points out that the more plausible solution will come from some unfinance growth paradigm that grows outside the current system and eventually replaces it:
http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#StoringIdleSavings
@Steve in VA..
"In a gold-money system the public loses. Any member of the public who has gold (or aluminum or zinc) will have it 'removed' by adverse circumstances or by direct government action and handed over to government 'friends'. Those without metal are ipso-facto poor and of no consequence (except for farmers). Don't believe me, governments have been abusing hard-currency 'systems' this way for thousands of years"
^^ This is exactly why returning to the gold standard would REQUIRE the people going to war with its government. .
The presumption that allowing competing currencies (such as gold) would lead to hyperinflation is a classic ends vs means debate. Mr. Paul would presume to forget the pragmatics required to allow for such a transition while Sibileau believes an unplanned transition would lead to anarchy and the discrediting of libertarians. I will assert that if the former occurs the latter is irrelevant.
Mr Sibileua does a wonderful job illustrating how such a transition could take place. The utopian plan relies heavily on 2 assumptions, which Sibileau does put forth. The first, that while the home currency is transitioning to a commodity backed currecny, there would be any demand at all for a foreign, fiat currency. The second being that somehow politicians begin acting on principle with morality in virtual unanimity for better than 50 years consecutively. It is at this point, where his argument against Mr. Paul's proposal loses all credibility.
Slightly off topic, but much of the outside world wants it's trillions in gold back that was 'put on deposit' (stolen) by the FED and the BIS. These nations have slapped multi-trillion dollar liens on the FED and BIS... http://sirratatap.com/?s=liens
Additionally, the 100+ nation BRICs alliance is now fully capable of dropping the Federal Reserve Note from international trade in favor or transactions denominated in gold, oil, and non-dollar currencies. What you are seeing is actually a global struggle for gold, most of it stolen, and held by the FED, BIS, and G5 nations.
-5
Set yourself up on your own gold standard and to hell with the banks and the governments. Forget about confiscation of gold -- why would they bother when they are stealing your money through inflation every moment of the day.
Set yourself up on your own gold standard and to hell with the banks and the governments. Forget about confiscation of gold -- why would they bother when they are stealing your money through inflation every moment of the day.
In an extreme crash anything will be politically possible - that is the huge danger. Lets hope that if there is an extreme crash in the US that the people will be educated enough to use force to take control of the govt and get the right solutions, not the solutions that the controllers want.
I can almost guarantee that the solution offered will be as follows; new currency and US+MExico+Canada combined into a single political unit.
But it still does not answer the question that I have: What would happen if there was no form of money at all?Isn't that the transition that's going to eventually have to take place?And how will the world transition to that?And in that scenario what happens to gold and how would you then price it?Against what?
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You can leverage dollars/gold in a gold standard, you just can't get insolvent; and you do still need a central bank, but its job is just to enforce solvency. This guy obviously doesn't know what he's talking about and clearly hasn't studied how a classical gold standard has worked in the past. All this crap he's thrown on the wall is symptomatic of an economist, and the job of all economists is to justify the unjustifiable. In this case, this means trying to justify not having a gold standard when it is the only means to restore America and the world, because a classical gold standard is always used in the economic model that comes with Liberty. Naturally, the greatest weakness of an economist is that they fail to recognize the differing economic models between a tryannical state where the government rules the people, and a state in Liberty, where the people rule the government. These realities never occur to them, so they are oblivious to the truth. This is why their job has denigrated into that of justifying the unjustifiable, because they are supporting an inevitably systemic failure.
You can leverage dollars/gold in a gold standard, you just can't get insolvent; and you do still need a central bank, but its job is just to enforce solvency. This guy obviously doesn't know what he's talking about and clearly hasn't studied how a classical gold standard has worked in the past. All this crap he's thrown on the wall is symptomatic of an economist, and the job of all economists is to justify the unjustifiable. In this case, this means trying to justify not having a gold standard when it is the only means to restore America and the world, because a classical gold standard is always used in the economic model that comes with Liberty. Naturally, the greatest weakness of an economist is that they fail to recognize the differing economic models between a tryannical state where the government rules the people, and a state in Liberty, where the people rule the government. These realities never occur to them, so they are oblivious to the truth. This is why their job has denigrated into that of justifying the unjustifiable, because they are supporting an inevitably systemic failure.
Enforcing the Coinage Act of 1792 would be a motivation to make the gold standard work.
It's true that you can't execute on the mechanics using double-entry accounting. However, if you divorce the currency into two parts a) convenience money that satisfies the double coincidence of wants and b) wealth money that has a fractional gold reserve, you can execute on a "new" gold standard, but you need triple entry accounting for the (a) component and single entry accounting for the (b) component in the sense that gold will have a midas effect I like to refer to as "see gold" rather than "freegold" as in the gold is only valued when held by a central (or the central) bank.
Using triple entry accounting, the same that is present in Bitcoin, Truledger and as exemplified in the open source software approach to a public record of all transactions as in GitHub, you can remove fractional reserve from the (a) money and simply have a never reconciled flow of global debit cards so to speak. You eliminate the possiblity of a bank run because the money's in no way levered up, but it also can't be used as a form of wealth accumulation or savings. Let's put it under the human rights category of everyone has the right to their Starbucks and McDonald's. We're talking ultra-high velocity money.
The second half of the divorced currency would be the wealth component with a small fractional reserve of gold and extreme leverage. This money is virtually inaccessible without proving extreme hardship. What was the full faith and credit component of fiat is disintermediated by a newfound confidence in gold which allows for the final solution of a debt-for-equity swap and the upstreaming of the sovereign. It's all spelled out in the Chicago Plan and the hero of the day, Michael Woodford. Everyone's worried about the Fed, well the Fed along with the TBTF will be liquidated in the introduction of this new scenario.
If you were a central planner, who would you rather go up against, dozens of central banks and some with their own sizeable gold holdings or a bunch of individuals armed with smart phones who have their paychecks direct deposited? You have to understand how compelling a public record (yet somewhat opaque) of all transactions is to theh enforcement of so-called "rights" to a job, a house, a latte' are and the impact on both the insurance industry and the law. We're getting ready to witness the biggest roll-up in history and they're certainly not keeping it a secret.
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Dave Harrison
Seems to me that fractional reserve banking causes more problems by itself than the basis of the currency (fiat or PM, govt-issued or private bank-issued, etc.). What are the remifications of switching to full reserve requirement anyway?
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