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Guest Post: Gold Standard for All, From Nuts to Paul Krugman

Tyler Durden's picture




 

Via Amity Shlaes' Bloomberg News Column,

Nut cases. That’s what they are. And if you take an interest in them, you are a nut case, too.

That’s the consensus among credentialed economists who describe advocates of a return to the monetary regime known as the gold standard. In fact, the economic pack will marginalize you as a weirdo faster than you can say “Jacques Rueff,” if you even raise the topic of monetary policy in relation to gold.

An example of such marginalizing appears in a recent issue of the Atlantic magazine. Author Adam Ozimek lists four rules upon which economists overwhelmingly agree. Right away, that puts readers on guard; they don’t want to be the only one to disagree with eminences.

The first rule Ozimek offers is that free trade benefits economies. So obvious. That makes the penalty for disagreement higher. Then you read down to the final principle: “The gold standard is a terrible idea.” By putting the proposition in such strong terms, the author raises the penalty for disagreeing. If you don’t subscribe to this view, you risk both being classed as the kind of genuine nut case who believes in protectionism, and enduring the disdain of other economists -- “all economists,” as the Atlantic headline writer summarized it.

But “all economists” is not the same as “all economies.” The record of gold’s performance in all economies over the past century is not all “terrible.” Especially not in relation to areas that concern us today: growth, inflation or the frequency of bank crises. The problem here may lie not with the gold bugs but with those who work so hard to isolate them.

Gold’s Real Record

Conveniently enough, the gold record happens to have been assembled recently by a highly credentialed team at the Bank of England. In a December 2011 bank report, the authors Oliver Bush, Katie Farrant and Michelle Wright review three eras: the period of a traditional gold standard (1870-1913); the period of a gold-standard variant, the Bretton Woods gold-exchange standard (1948 to 1972); and a period of flexible exchange rates (1972-2008).

The report then looks at annual real growth per capita worldwide, over many nations. Such growth, they find, was stronger in the recent non-gold-standard modern period, averaging an annual increase of 1.8 percent per capita, than in the classical gold-standard period before 1913, when real per- capita gross domestic product increased 1.3 percent annually. Give a point to the gold disdainers.

But the authors also find that in the gold exchange standard years of 1948 to 1972 the world averaged annual per- capita growth of 2.8 percent, higher than the recent gold-free era. The gold exchange standard is a variant of the gold standard. That outcome doesn’t tell you we must go back to the gold exchange standard yesterday. But it does suggest that figuring out how the standard worked might prove a worthy, or at least not a ridiculous, endeavor.

Gold shone in other ways. In a gold-standard regime, money is backed by gold, so it’s impossible, or at least more difficult, for governments to inflate. Naturally the gold standard and Bretton Woods years therefore enjoyed lower rates of inflation compared with the most recent era. The gold standard endures a reputation for causing more banking crises than other monetary regimes. The Bank of England paper suggests gold stabilizes banks: The incidence of banking crises in the non-gold-standard period is higher than the incidence in the two gold periods.

“Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives,” wrote Bush, Farrant and Wright.

Stable Markets

Markets and countries enjoyed relative stability in gold- standard years, and capital in those years flowed to worthy growth-generating projects. The main sacrifice in gold regimes that the authors identify is that governments lose authority to micromanage domestic economies. But given governments’ records, that may not be such a bad thing, either.

It all suggests that contempt for old gold hands such as Congressman Ron Paul of Texas might not be warranted. And that it might be interesting to peruse the numerous gold-related currency plans outside the door of the academic salon. Plenty of people, many former bankers, think it is time to pass laws returning the U.S. to some version, strong or weak, of the gold standard.

Lewis Lehrman, financier and founder of the Gilder-Lehrman Institute, which focuses on history, recently published a plan to take the world back to gold, “The True Gold Standard.” Charles Kadlec, another former Wall Streeter, co-wrote his own proposal, “The 21st Century Gold Standard,” with Ralph Benko. The case for gold as a mandatory metric for the Federal Reserve in setting interest rates is made in new legislation offered by Congressman Kevin Brady, another Republican from Texas. Dozens of state legislatures are introducing their own gold- or silver-related currency legislation.

One reason people slap the nut-case label on others with impunity is that for the past 30 or 40 years most economic education has systematically excluded the gold standard and its exponents from the classroom. It’s easy to call something your professors never respected the work of a nut case. But it’s also worthwhile to ask why the professors white out the gold standard from the books. Perhaps it is because the systems they raved about in their dissertations, systems of flexible exchange rates, subsequently underperformed.

This inconsistency in their own modeling is of course hard to acknowledge. Recently Bloomberg Television drew enormous attention when co-anchor Trish Regan moderated a debate between Ron Paul and Paul Krugman, the Nobel prize-winning New York Times columnist.

Krugman’s Nostalgia

Krugman sought to hold the middle ground, noting that all he sought, through his recommendation that federal debt rise to 130 percent of gross domestic product, was a return to the kind of America in which his parents lived. The professor treated the congressman’s remarks as unscholarly; in a blog post afterward, Krugman wrote “everything Paul said about growth after World War II was wrong.”

But Krugman too has some sorting through to do. The years when his parents lived were gold years, the Bretton Woods gold exchange standard, a time when the federal government, except in world war, would never had considered raising debt to 130 percent of the economy, as Krugman suggested in the debate.

If we are going to speak of consensus, let’s not forget one that is truly universal: Our economic system stands a good chance of breakdown in coming years. The only way to limit damage from such a breakdown is to ready ourselves to choose other models by learning about them now.

Not to do so would be nuts.

 

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Thu, 05/03/2012 - 21:12 | 2395603 diogeneslaertius
diogeneslaertius's picture

this made sex to my eyeballs

Thu, 05/03/2012 - 21:40 | 2395655 economics9698
economics9698's picture

The gold standard helps the average consumer by keeping inflation at zero and prices declining.  If there is $200 in the economy and company A builds a better mouse trap, lowering its price from $15 to $10 and increasing sales from 2 units to 4 units the total revenue for the company increased from $30 to $40. 

This is extremely important to understand and why the elite capital owners DO NOT want a gold standard.

When company A has good times not there is $10 less in the money supply and other companies, call them B and C, MUST lower prices to maintain market share or lose market share.

Understand what that means.  This was referred to as “messy competition” in the 19th century.  Industrialist hated having to constantly lowering prices and finding ways to save money whenever a competitor improved their productivity.

Competitor C must lower prices from $2 to $1.9 losing revenue (on sales of 20 units) from $40 to $38.

Competitor B must lower prices from $5 to $4.5 on sales of 10 units lowering total revenue from $50 to $40.

Is the picture becoming clear why capital elites do not like the gold standard?

Savings was $80 before the better mouse trap was invented but now there is a increased demand for money as consumers scramble to buy the better mouse trap.  Savings drop from $80 to $77 and more money is spent.

Under a gold standard with fewer savings available demand for loadable funds would drive up interest rates, attracting more savings, and so forth, the cycle repeating.

The key to the gold standard is it forces manufacturers to constantly strive to be competitive or they will price themselves out of the market by other, maybe unrelated industries.  Think of the implications in today’s world and the significance this would have on oil markets.

The gold standard removes the power of central governments, forced balanced budgets and trade, in the long run.

The main appeal is that in the 1880s to 1890s prices DECLINED 25% and wages ROSE 3% for the masses.  Compare that to today’s wealth concentration going to the top 20% and the bottom 30% stagnated for decades.

Simply put fiat allows governments to live unrestrained and wealth to be transferred from the bottom 80% to the top 20%.  This is the real reason central governments and elites want a central bank.  They simply hope the masses are too stupid to catch on to the con game.

Thu, 05/03/2012 - 21:41 | 2395656 economics9698
economics9698's picture

Tyler should have me write one of these blogs.

Fri, 05/04/2012 - 13:39 | 2397509 Matt
Matt's picture

The other two big things about fiat and perpetual inflation:

Banks and Pensions. It would be much harder to make fat bonuses running a bank in a chronically deflationary environment, and promising everyone a pension would be very difficult, too.

Thu, 05/03/2012 - 23:30 | 2395810 Max Fischer
Max Fischer's picture

 

 

The main appeal is that in the 1880s to 1890s prices DECLINED 25% and wages ROSE 3% for the masses.  Compare that to today’s wealth concentration going to the top 20% and the bottom 30% stagnated for decades.

Much to your embarrassment, you have this totally wrong.  Of course, you're just another hypocritical libertarian, so it's not surprising.* 

Wage differentials between the owners and laborers widened dramatically during the "Gilded Age." In fact, this period of time (from the end of the Civil War to the creation of the Federal Reserve/1913) marks one of the WORST periods for wage dispersion in American history.  There are many reasons for this including the rapid evolution of manufacturing during this time, enabling corporations to substitute skilled labor for cheaper, unskilled labor. This, coupled with an influx of immigrants during this period kept a tight lid on wage appreciation for the laborers (the 99%), while the owners and the titans of industry (the 1%) became richer and richer.  Furthermore, I'm sure the depression of 1893 and the myriad of bank panics during this time had an enormous affect on the 25% price deflation you speak of.

The topic of wage inequality during the second half of the 19th century is rich with data and research, and for you to suggest that this was an era of prosperity for the masses because, for some cherry picked interval of time, wages rose a stupid 3% means one thing and one thing only:  YOU HAVE NO FUCKING CLUE WHAT YOU'RE TALKING ABOUT.

mf.

* Definition of hypocrisy: getting a paycheck from the government as a contractor, yet spending all day on the internet ranting against government socialism.

Fri, 05/04/2012 - 01:09 | 2395899 Mariposa de Oro
Mariposa de Oro's picture

Starting off a response with an insult doesn't help your position....

BTW, us government contractors sometimes bitch about socialism on our own time.  It's a crap system but we're stuck with it.  You don't like it?  Quit bitching on the internet and change YOUR shitty system.  Till then, I'll keep cashing those checks.  Thanks for the money, Comrade.

;)

Fri, 05/04/2012 - 01:29 | 2395906 Transformer
Transformer's picture

Max, I'm working on a dissertation about this very subject.  I've read quite a few books on it, and it seems you are full of it.  There  were quite a few years there where wages improved, on averaqge, about 1% a years, and at the same time prices were going down at an even higher rate.  The Panic of '93 was very short lived.  And yes the .01% did very well also.  But for workers, it was an exceptional period.  Just the kind of thing that elites don't like and as a matter of fact they were scheming up the Federal Reserve starting in about 1990.

You might want to read Rothbards book about all this,  It's free on line.

Fri, 05/04/2012 - 02:50 | 2395976 Max Fischer
Max Fischer's picture

 

 

There's no way you're a Ph.D candidate in American History, because anyone who suggests the Depression of 1893 was no big deal is a total idiot. Until the Great Depression, the 1890's was the worst decade in post-Civil War history. Additionally, anyone who suggest that it was an "exceptional" time for laborers is also an idiot, unless, of course, by "exceptional" you mean exceptionally bad. Only the biggest idiots on Earth would suggest that the American laborer of the 1800's was treated "exceptionally" well.  Much has been written about the wage and wealth inequality, child labor, and slave-like conditions that marked this "gilded" period of our country.  Does the best of times and the worst of times ring a bell?  Probably not.  

During the last quarter of the 19th century, the advancement of the manufacturing process and new technologies enabled corporations to replace skilled workers with women, children, unskilled men and immigrants for a fraction of the labor cost.  If there was any increase in wages, it was only because workers were forced to work nonstop at cheap, slave-like rates.  Even with the most cursory understanding of this period, you'd know that work related deaths/accidents and child labor participation was higher then than anytime in history.  Furthermore, nearly 50% of all laborers lived in poverty.*  50%!!!!  So, yes, while wages might have ticked upward, it was not enough to pull half the laborers in this country out of poverty. The rapid creation of wealth that was produced after the Civil War and before the depression of 1893 went straight into the pockets of the 1%, while the masses suffered extreme hardship. Whatever you think of the wealth inequality in the US today, it was infinitely WORSE in the late 19th century.    

Here, even encyclopedia.com says, the 1890's was a decade of depression, unemployment, widespread poverty and crisis...... 

MF

http://www.westga.edu/~hgoodson/Economic%20Trends.htm

 

Fri, 05/04/2012 - 08:29 | 2396155 Sean7k
Sean7k's picture

During the 1890's only, 45% of the laborers made wages above 500 per year. Using a citation for an entire period when it is specific to a certain timeframe is your MO. The citation does not include all labor, but an unspecified subclass, typical of  historical treatments that do little but generalize.

This is the purpose of reading specialized teaxts on a subject and leaving the "encyclopedia.coms" of the world to the educational propagandists that write them.

Yes, there were mant difficulties for the American worker, as exemplyfied by the union movement and government military support of factory owners. However, the standard of living clearly rose, monetary value was stable. (Rothbard, History of Money and Banking in the United States).

Further, you ignore the anthropological aspects of comparisons within historical periods. You cannot use current values to deride the conditions of a century past without qualifications of what was normal. Income disparities are far worse now then they were in the late 1800's, the Citizen did not have the debt impairmrnts of today and the people could still own property. 

All emerging economies share a history of poverty, see China. The difference between success and failure is the continued development of growth in a middle class. Until the elimination of the gold standard, America and Europe were great examples of this.

Fri, 05/04/2012 - 16:22 | 2398093 Max Fischer
Max Fischer's picture

 

 

I only used encyclopedia.com to show how how easily obtainable and universal this information is.  Poverty was so rampant in the 1890's that I shouldn't have to cite anything at all. It's basic, universally accepted knowledge. It's a FACT not "educational propaganda" as you suggest. 

Libertarians always do this.  Whenever they're confronted with FACTS, they try to wiggle out of the argument by saying that all the data and facts have been skewed by historians with an agenda, like communist university professors, or something.  It's like a creationist looking at fossils.... those fossils aren't real!... God is tricking us to test our fatih!  Bullshit.

I don't even understand the rest of your post.  It's just gibberish.  What the fuck does this mean:  

Further, you ignore the anthropological aspects of comparisons within historical periods.

In the end, you haven't disputed anything I said.  You've only posted a bunch of words with very little meaning behind it all.

MF.

Fri, 05/04/2012 - 20:52 | 2398684 Sean7k
Sean7k's picture

Of course you don't Max, you're a functioning illiterate. You misused your citation, then provided no context for your claims. You use inferior sources, because you are incapable of understanding better quality ones. They are not facts because you proclaim them to be. 

Fri, 05/04/2012 - 09:22 | 2396495 InjuredThales
InjuredThales's picture

Max Fischer, Syphilis Mundane: sheepster and luddite.

Max, Max, Max.  You post a link with decades of American life distilled into banal truisms (really? it can all be reduced to one page? I guess it can when you have such a simplistic view of the world) and you expect us to take you seriously?  Do you have any sources, other than Coles Notes? 

Max is a common knowledge 'intellectual'. The kind who, like the people referenced by Shlaes above, like to say "everybody knows" or "look how many people say" and never bother to question, even for a moment, the quality of the underlying information.  That's not what's important, is it Max?  It's all about staying safely inside the comforting womb of the herd, so you never have to think or be criticized by anyone for being different.

I have a hard time believing this guy isn't an ultra-sophisticated troll.  But, he seems to go to so much effort to be wrong.  IMHO, much prefer MillionDollarBonus' brand of trolling. He dashes off 6 quick lines, and sits back with popcorn to enjoy.

Yes Max, one day government flipped a switch, took over, and transformed everything from poverty to plenty!  The huge revolution that was the last 50 years of the 19th century and first 20 of the 20th never happened! 

Fri, 05/04/2012 - 15:43 | 2397919 Max Fischer
Max Fischer's picture

 

 

It's all about staying safely inside the comforting womb of the herd, so you never have to think or be criticized by anyone for being different......

WTF?  Are you kidding me?  I'm practically the only person at ZH (maybe a couple others) who bothers to question the tirelessly repeated libertarian talking points that reverberate within this echo chamber.  If not for me, you guys would have a perfectly sealed echo chamber. Accusing me of not wanting to be questioned, or wanting to stay safely inside the herd is, quite frankly, ridiculous.  I'm front and center in enemy territory. 

I'll also note that you never once disputed anything I said. All you've done is criticize me with unfounded accusations.  Calling me a Luddite is hilarious because you got that from me.  As far as I know, I'm the only one who's used that word here and it describes the ZH lemmings and their archaic ideologies perfectly.  I'm one of the few here that's NOT a Luddite.  Perhaps you should familiarize yourself with the meaning of the word.

ALL in all, a very poor response from you.

MF 

Fri, 05/04/2012 - 01:43 | 2395921 Max Fischer
Max Fischer's picture

 

 

Wow, another anti-government hypocrite! And a proud one, too! Probably a libertarian, right?  Tea Party?  "Fuck all the parasites collecting government checks, except me!"  

The longer I'm exposed to libertarians, the more and more I despise them.  Pure hypocrites.... ALL OF THEM!

You don't like it?  Quit bitching on the internet and change YOUR shitty system.....

WTF?  YOU guys are the one's bitching about the system, not me!  I'm merely pointing out your ignorance, lack of historical understanding and BLATANT hypocrisy.  

Libertarians.... biggest hypocrites in America.  

mf 


Fri, 05/04/2012 - 01:51 | 2395931 Mariposa de Oro
Mariposa de Oro's picture

again......

Starting off a response with an insult doesn't help your position....

Fri, 05/04/2012 - 07:59 | 2396158 Sean7k
Sean7k's picture

For someone that hates libertarians, you seem to find plenty of time to hang out with them. That and labeling people without any knowledge of their positions or political persuations. Speaking from ignorance, regardless of whether you yell or not, is a testimony to immaturity and lack of education.

Fri, 05/04/2012 - 09:09 | 2396422 trembo slice
trembo slice's picture

Define Libertarianism MFer, since it is the worst philosophy ever and we're all hypocrites. 

Fri, 05/04/2012 - 09:28 | 2396536 InjuredThales
InjuredThales's picture

Max, thank you, again, for the links to such renowned historical sources as Encyclopedia.com (do try to spell it correctly next time) and some dumb fuck no one has ever heard of before. Now our ignorance is laid bare!

Oh, btw, you forgot the wikipedia link.  Probably should add that before people get suspicious that your kowledge of this topic (and any other I have ever seen you weigh in on) is superficial.

Fri, 05/04/2012 - 01:24 | 2395901 centipede
centipede's picture

Why don't you show us some data you are talking about. If you really want to make a point that would be more impressive than just name calling.

Fri, 05/04/2012 - 04:57 | 2396051 francis_sawyer
francis_sawyer's picture

He has no point... All he likes to do is come on and shill against anything remotely libertarian (note that the word 'libertarian' is imbedded within almost all of his posts)...

- Don't like the price of gas? It's all the fault of libertarians

- Make a case for gold as sound money? You're a libertarian nutcase

- Did your team lose today? Libertarians

- Is your nutsack itchy? Fucking libertarians again

~~~

So once you get past all the libertarian droning, MF will try to toss out a few gems (like comparing the standard of living in 1890 vs. today ~ which is an 'unwinnable' argument across the board because the points used to argue are myopic & unquantifiable because they mostly exclude the role of cheap energy, cheap money, & expansion)... It's like trying to compare your somewhat weatherbeaten (but loyal) wife with some bitch of a celebrity like Kim Kardashian...

The problem in a digital society is that people think they can just jump around (in space & time) and draw conclusions about this & that (& faux intellectuals like MF are all too happy to chime in with their opinions)... However, humans are still basically analog...

 

 

Fri, 05/04/2012 - 07:44 | 2396141 Freewheelin Franklin
Freewheelin Franklin's picture

The Typical Libertarian is hated by conservatives because he wants the freedom to snort coke off a teenaged hookers ass while smoking pot and watching a movie full of boobies and cuss words in preparation for sodomizing his illegal immigrant housekeeper, Carlos. The Typical Libertarian also wants criminals, terrorists and Mexicans to roam freely about causing all manner of social chaos, and has no interest in forcing people to love Jesus Christ. The Typical Libertarian is a traitor to the GOP and America because he failed to support the war in Iraq, the PATRIOT Act, the Stimulus, and both Bush and McCain, despite the fact that both men once said something at a cocktail party about maybe possibly lowering taxes on some people some day.

The Typical Libertarian is hated by liberals because he is a crypto-archconservative who wants poor people to go without education, medical care, police protection, food, shelter, and oxygen. The Typical Libertarian spends his weekends running down endangered species in his monstrous, gas-guzzling SUV before stopping off to smoke a pack of cigarettes in a daycare. The Typical Libertarian wants the world to be run by unaccountable multinational conglomerates instead of unaccountable governments. The Typical Libertarian is a racist, sexist, profit-driven nihilist who failed to mark the ascendance of the Chosen One, and has never protested for Union rights nor worn a T-shirt with the word Darfur on it.

Despite clinging to a hopelessly unworkable, idealistic and marginal political philosophy, the Typical Libertarian has recently been discovered as the cause for the downfall of Western Civilization.

Fri, 05/04/2012 - 07:44 | 2396142 Freewheelin Franklin
Freewheelin Franklin's picture

[/sarc]

Fri, 05/04/2012 - 04:48 | 2396046 A Nanny Moose
A Nanny Moose's picture

Since prices were declining, even low wages bought more stuff. Unskilled workers still made more than the small farmer. Overall, wealth increased over the period in question.

Panic of 1893 - Gresham's law acted on gold and there was a government induced railroad bubble. Yes...government meddling in the economy. I don't suppose you get the aversion to government spend yet.

Fri, 05/04/2012 - 13:46 | 2397542 Matt
Matt's picture

Exactly. The railroad boom was terrible, since the government paid per mile of track laid, so the railroads responded to the incentive by simply building lots of crappy railroad really fast, to maximise profit in the short term, only to go bankrupt once the incentives disappeared.

Fri, 05/04/2012 - 13:44 | 2397528 Matt
Matt's picture

Hey Max: Explain why wage disparity matters?

You are arguing about two different things that could both be true.

Employees' wages could increase, and wage disparity could also increase.

How is this bad? If everyone is getting richer, why does it matter if some people are getting more richer?

Fri, 05/04/2012 - 07:10 | 2396101 Debugas
Debugas's picture

in your example company losing competition would offer its workers to work for paper (or any other variaty of promisses to pay). People afraid losing jobs would agree to be paid with paper and so you can kiss your gold standard good-bye.

 

Actually this is exactly what is happening in Argentina and now Spain when people run out of hard currency (their governments can not print) like USD or EUR

Thu, 05/03/2012 - 21:13 | 2395607 diogeneslaertius
diogeneslaertius's picture

its like a pack of insane dr. evil caliber hypnotists took the global economy and turned it into a $4Q hologram running on a super computer in the basement of goldman sachs

 

like some kind of economic death star which they wheel around in and use to blow up entire economies

 

 

.... oh wait

Thu, 05/03/2012 - 21:16 | 2395609 diogeneslaertius
diogeneslaertius's picture

krugman is literally like some crazy mayan high priest

and as the heads roll down the steps

the ponzi thralls howl in mad delight

Thu, 05/03/2012 - 22:53 | 2395774 fonzannoon
fonzannoon's picture

dude keep it up.

Fri, 05/04/2012 - 01:30 | 2395908 Transformer
Transformer's picture

Any time spent reading Krugman is time you will never get back and is thoroughly wasted  --Max Keiser

Thu, 05/03/2012 - 21:27 | 2395627 Bansters-in-my-...
Bansters-in-my- feces's picture

End the FED.

Fuck Timmy G up the a$$

AND oh ya.....Buy gold with toilet paper.....

Thu, 05/03/2012 - 21:29 | 2395630 UP Forester
UP Forester's picture

I say:

1.  Bring the percentage up to at least 300%

2.  Create at least $5 Trillion in new electrons

3.  Piss off the BRICS nations by pulling their SWIFT status

4.  Pop the corn, sit back, and get drunk, laughing away

Thu, 05/03/2012 - 21:31 | 2395632 Bansters-in-my-...
Bansters-in-my- feces's picture

Trusting fiat is trusting Liars,thiefs and killers......The goverment.

Thu, 05/03/2012 - 21:31 | 2395636 The Alarmist
The Alarmist's picture

Would love to see the Venn diagram showing the intersection of gold-hating-consensus economists and anthropogenic-climate-change-consensus scientists.

Thu, 05/03/2012 - 21:33 | 2395637 LetThemEatRand
LetThemEatRand's picture

Normalcy Bias.  

Thu, 05/03/2012 - 21:35 | 2395644 TideFighter
TideFighter's picture

Wheelbarrows are 10% off at uncle Homer's. Just sayin'.

Thu, 05/03/2012 - 22:07 | 2395650 i_fly_me
i_fly_me's picture

The traditional gold standard (fixing the price of gold in dollars) *is* a terrible idea.  It is just as socialist as fixing the price of anything else.  Eventually we'll be rid of the fractionalized paper gold 'markets' and dollars and physical gold will freely bid for each other just like any other two currencies do.  It's only a matter of time.

Thu, 05/03/2012 - 22:17 | 2395703 Likstane
Likstane's picture

You got it backwards.  Gold is not priced in constitutional dollars.  A constitutional dollar is a fixed weight of silver and its prevailing market equivalent in gold(The real gold/silver ratio-not measured in FRN's)  The standard is 371.25 grains of silver(about .77 ozt)  If this is the "standard", then the only way to debase the dollar is to change the weight of the metal making up a dollar.  

Thu, 05/03/2012 - 22:25 | 2395726 i_fly_me
i_fly_me's picture

It's still price fixing and it doesn't work.  Fixing the price of a*anything* by government fiat instead of allowing free market price discovery isn't the answer (and it never was).

Thu, 05/03/2012 - 22:36 | 2395744 Likstane
Likstane's picture

Fixing a dollar at 371 grains of silver is merely defining what a dollar is.  This is not price fixing.  The value of a dollar is what someone will give you for it.   It may be 1 tomato or 100 tomatos. 

Thu, 05/03/2012 - 23:02 | 2395783 i_fly_me
i_fly_me's picture

Why have a dollar then?  Why not just ust use grains of silver?  The answer tells you why this doesn't work.

Thu, 05/03/2012 - 23:38 | 2395821 Libertarian777
Libertarian777's picture

Actually he's correct. A dollar is defined as 371 grains of silver. Why? Because it was some sort of average of the weight of silver in silver coins in circulation at the time. We could use grains, but it's easier to use a 'dollar' as defined. Congress' power to regulate the value of money would mean they could define a new unit, with e.g. A weight of 10 grains or whatever. My assumption is 1 grain is too small a unit of weight to be useful (1 grain of gold might be useful on the other hand).

Nevertheless, don't confuse money (gold or silver) with a money equivalent currency. Even a (paper) dollar fully backed by gold, is still only a claim on gold, not the gold itself. Unfortunately when we speak of 'a dollar' nowadays people are referring to a FRN which is neither a dollar nor a claim on a dollar. It is a pure counterfeit. A silver certificate at least is a claim on a dollar.

Why have a dollar then? The same reason we have a mile and don't measure everything in feet or inches.

Fri, 05/04/2012 - 00:48 | 2395885 i_fly_me
i_fly_me's picture

Your miles analogy is erroneous ... miles are still a denomination of distance; dollars are not a denomination of weight.  My point remains: it doesn't matter if it is the founding fathers doing it by referencing what the market was already using or a government central bank doing it, it is price fixing.  The reason there is a dollar, or a pound or a mark is precisely because it allows fractionalization and debasement.  If not, there would be no need to use anything but silver or gold denominated in weight.  In adopting any currency even if it is explicitly 'backed' by a commodity you are inherently intending at least fractionalization and ultimately practical debasement.  As you fractionalize and debase the price of the 'backing' commodity starts to become worth more than the fixed price (or defined value if that sounds better to you) and the treasury or central bank vaults will find their vaults emptying.  The government will then be forced to *reprice* the commodity to reverse the flow. This is how we got here ... eventually we just got boxed into a corner and couldn't reprice anymore so we just quit the backing lie altogether.

The only pure currency is the commodity itself allowed to bid directly for goods in a free market but no society would bind themselves to that.  The only workable real world solution is to float the currency against everything in true free market fashion.  Real wealth (commodities, labor, etc) will bid for those currency units at a price that reflects the currency's utility as a medium of exchange.  If the government or banking system abuses the currency it will weaken it in relation to real money ( e.g. gold) and other currencies and curb those abuses automatically.

Fri, 05/04/2012 - 01:02 | 2395891 Likstane
Likstane's picture

Thats what a 'dollar' was/is; silver denominated in weight.   I don't think you're getting it. 

 

Fri, 05/04/2012 - 01:16 | 2395900 i_fly_me
i_fly_me's picture

Perhaps not.  Help me out.  Why didn't the price of silver stay $1/371 grains?

Fri, 05/04/2012 - 01:28 | 2395903 Likstane
Likstane's picture

The weight of a "dollar" is still 371 grains of silver.  The problem is the term dollar is substituted for the Federal reserve note.  They are not the same thing.  The reason 371 grains of silver or their equivalent is not commonly used is because people are willing to part with approximately 31 Federal reserve notes instead. 

Fri, 05/04/2012 - 01:40 | 2395918 Transformer
Transformer's picture

Yes, the value of silver did not go up.  The value of the dollar went. . . .  let's see.... now how does that go?  The value of silver did not go up (but it costs more), and the dollar went down, but wouldn't that be less grains of silver...... no wait.   It's cheaper to make stuff, so the value of stuff went down, and there for it costs less, and so a dollar buys more of it, and so the dollar (ie. silver) is worth more so it must cost more.... right.  Like about $31/oz.  But that doesn't make sense.  Cause if the silver cost more then the dollar would actually buy less, since it takes more of them to buy the silver.  Damn, it's complicated, huh?

Fri, 05/04/2012 - 01:52 | 2395923 Likstane
Likstane's picture

uhhh.....thanks for your help

/sarc

Fri, 05/04/2012 - 11:07 | 2396968 BigJim
BigJim's picture

I think you're missing his point.

Having a national unit of money defined by a government-imposed standard of a particular weight, opens the door to debasement, because money is not measured in ounces of gold, but a derivative known as 'the dollar', the value of which can be changed at a moment's notice by TPTB.

THIS is why the gold standard is a bad idea (though still better than any other government-imposed system).

Fri, 05/04/2012 - 01:49 | 2395927 i_fly_me
i_fly_me's picture

Aaaand when the price of silver rose in 1814 and during the civil war that was FRNs too?

Fri, 05/04/2012 - 01:55 | 2395938 Libertarian777
Libertarian777's picture

you're missing the point...

the price of silver rose IN RELATION TO WHAT?

1oz of silver would still cost... 1 oz of silver.

did it cost more GOLD for the silver? more greenbacks? more rocks? more paper?

When new sources of silver and gold are found, the increase in supply will REDUCE the value of gold and silver. A dollar (371 grains of silver) will still be worth 371 grains of silver, but in relation to e.g. food or oil, it might cost 4,000 grains of silver per barrel of oil vs 3,710 grains, due to the increased supply of silver. The free market would end up doing the price discovery if left to its own devices.

Fri, 05/04/2012 - 01:48 | 2395926 Libertarian777
Libertarian777's picture

Let me try again...

Why does it cost 20 British 'pounds' to buy an oz of silver, when the very definition of a 'pound sterling' was exactly 1lb of silver (20 shillings or 240 pennies)? equate 'dollar' to 'pound'. its a unit of weight.

A dollar is still defined as 371 grains of silver (1792 coinage act). The reason it costs 30 federal reserve notes per oz of silver means nothing. A federal reserve note is NOT a 'dollar', it is a counterfeit.

This is the fundamental issue that the public at large don't understand. A FEDERAL RESERVE NOTE IS NOT A DOLLAR! This is the key to understanding all these issues, the difference between MONEY and a claim on money. ALL paper currencies, even if 100% backed are CLAIMS on money, they are not money themselves, any more than a coat check receipt can keep you warm in winter. So you can't go around saying gold costs '1,600 dollars'... its costs 1,600 FRNs. The mere fact we call a FRN a 'dollar' proves that the counterfeit is the accepted norm (primarily due to legal tender laws). It doesn't make a FRN any less a counterfeit though.

A $1 silver certificate itself is still not a 'dollar', but it is a RECEIPT on a 'dollar'. However a $1 FRN looks exactly the same as a $1 silver certificate, but it is a receipt on nothing (well technically its backed by US treasury debt).

Fri, 05/04/2012 - 01:51 | 2395933 Likstane
Likstane's picture

Thanks for your help.

/no sarc

Fri, 05/04/2012 - 01:58 | 2395942 Libertarian777
Libertarian777's picture

np

it's taken a HELL of a lot of reading up on money, gold, credit crises, booms busts, economics etc to figure all this shit out.

Ron Pauls book 'the case for gold' is a good start. Mises, Rothbard, Hayek's writings are also good places to go. Gary North is another good writer.

so many lies out there no wonder the public is confused and prefers to sleep

Fri, 05/04/2012 - 01:55 | 2395940 i_fly_me
i_fly_me's picture

I'll repeat my above question here: Why did the price of silver (in dollars) go up in 1814?

Fri, 05/04/2012 - 02:01 | 2395946 Likstane
Likstane's picture

see above- I don't think you want to get it

 

Fri, 05/04/2012 - 02:06 | 2395947 Libertarian777
Libertarian777's picture

see my earlier response...

price of silver did not go up in 'dollars'. 371 grains of silver (1 dollar) still cost, 371 grains of silver (1 dollar).

your question should be...

why did i need to exchange more greenbacks, with the dollar symbol printed on them, for real dollars? Why was the greenback with $1 printed on it not worth $1 (371 grains of silver)? i.e. why could i not exchange my greenback (coatcheck receipt) for my real dollar (real coat). Instead they gave me less (i need 2 coat checks to get my original coat back? wtf?)

Fri, 05/04/2012 - 09:20 | 2396485 i_fly_me
i_fly_me's picture

Sorry, I was tired and not being very charitable in my responses to either of you last night.  My purpose for the questions about the price of silver diverging from the established weight of a dollar in the 1792 coinage act was to show that that coinage act not only defined a coin called the dollar and its weight but also established the dollar as the unit of account and fixed its price to that coin.  Even before greenbacks came into existence the dollar (as unit of account) was being debased and the price of silver reflected it during those times.  The fact that that divergence happened shows that the dollar's value  as a unit of account was established not discovered.  Once we got to the civil war we explicitly debased using "demand notes" or greenbacks and the price of silver in dollars once again reflected it.  The fact is though that the "dollar" those demand notes were representing was still intended to be valued at the *established* 371 grains of silver.  It didn't work out that way because in the long run the market always wins out which is why I think we are basically vehemently agreeing here that unmolested gold and silver freely competing with other currencies are the answer.  I think our only real disagreement is whether or not we can get there in an orderly fashion.

Fri, 05/04/2012 - 13:56 | 2397572 Matt
Matt's picture

To put it more simply;

If you create a system using silver and gold at fixed rates, I will game your system, taking payment in silver OR gold, as suits my needs and international free market pricing, to maximise profit.

Further, I will take foreign fiat money and trade it for the gold or silver.

Fri, 05/04/2012 - 07:55 | 2396156 Freewheelin Franklin
Freewheelin Franklin's picture

...but it is a receipt on nothing (well technically its backed by US treasury debt).

 

Since about 87% of all "dollars" enter the "system" in the form of debt, an FRN is a claim on somebody's debt....somewhere.  We have effectively "collectivized" debt, as it were.

Fri, 05/04/2012 - 07:17 | 2396106 Debugas
Debugas's picture

dollar is not a claim on gold :). money is a claim on human labour

Fri, 05/04/2012 - 08:02 | 2396160 Freewheelin Franklin
Freewheelin Franklin's picture

LTV? Seriously?

Ithica Hours, bitc......oh fuck it.

Thu, 05/03/2012 - 21:47 | 2395667 bankonzhongguo
bankonzhongguo's picture

The Plan has always been to revalue the XDR before 2015, but in conjunction with the impossibility of Basel III compliance under this technical default environment.

Basel is not just for banks, but now for any corporate with $50 billion in assets.  The race is to get to that extralegal 'to big to fail' protection bracket.

Gold will be in the "new SDR" basket in order to make its adoption a stabilizing force for the next 100 years and digestible to Joe Six-pack.

Remember the Bancor was also invented by Keynes and otherwise killed by the preeminence of the US after WW2.

Its no coincidence that all this is happening the same year the Fed's charter lapses.

They have to create a serious problem and then offer a serious and lasting solution.

Remember. It's their economy.  You just live in it.

Good luck to everyone.

 

 

Fri, 05/04/2012 - 07:01 | 2396092 Gunga
Gunga's picture

I have been trying to figure out how the expiration of the Federal Reserves charter next year factors in to this worldwide cluster fuck. It's not like they will just pack their shit and move on down the road after the 100 year charter expires. Is their plan just to print and buy up as much of the world as they can ? Without regard to the impact of a Hyperinflationary collapse on us muppets ?

Fri, 05/04/2012 - 09:16 | 2396466 Gunga
Gunga's picture

I can't find confirmation that the Federal Reserve Systems charter expires next year. The only thing I found says it has a perpetual charter and that the Fed has to be formally dissolved by an act of congress. Does anyone know ?

Fri, 05/04/2012 - 11:13 | 2396992 BigJim
BigJim's picture

That's my understanding of the current situation also.

Thu, 05/03/2012 - 21:54 | 2395668 ChacoFunFact
ChacoFunFact's picture

No no no no. A simple gold standard would be massively deflationary. Deflation in an over indebted environment would be a dream for TPTB. At least consider bimetalism. Bring back the debt-free US Note as lawful money where the amount issued is based on a transparent input.

Thu, 05/03/2012 - 22:51 | 2395772 i_fly_me
i_fly_me's picture

Bimetallism doesn't work for the same reason the traditional gold standard doesn't.  Once the free market price of the metal diverges from the government set price by more than the cost of transporting it, it will start to move across the border.  The government will find itself either flooded with a metal it overpriced or starved for metal it under-priced.

Thu, 05/03/2012 - 23:48 | 2395829 Libertarian777
Libertarian777's picture

Exactly..which is why we need to have competing currencies. Competing currencies will also allow a smooth transition away from FRNs.

Bimettalism is exactly why economists now claim the 'gold standard' failed. It didn't fail, you didn't have a 'gold standard' you only had a fixed exchange (centrally planned, price fixed) rate. Greshams law made the undervalued metal disappear from circulation (hence claims of the gold standard restricting liquidity and growth of an economy).

The greatest thing is win or lose the nomination, Ron Paul has everyone talking about a gold standard and the role of the fed.

The scary part is while his ideas are gaining traction, there are false prophets out there trying to corrupt his message. Ellen Webb, bill still and the greenbackers being the ones who proclaim a centrally planned US TREASURY currency should replace a central bank centrally planned one. Or the talk of a 'mathematically perfect' economy. That's a fallacy, the whole point of Austrian economics is human action, you cannot use 'perfect' mathematical models to model human behavior.

This has been empirically shown to be false multiple times, with Long term capital management, with Lehman, bear sterns and the whole subprime crises, the dot com boom and every other 'can't lose' market strategy.

Be it a centrally planned gold standard, or a centrally planned us treasury or federal reserve note system, ALL will fail.

Fri, 05/04/2012 - 01:04 | 2395895 i_fly_me
i_fly_me's picture

Well said and I agree except that I don't believe that competing currencies can be introduced in a smooth fashion.  It requires the destruction of the dollar to force the failure of the paper gold market and realization by humanilty that physical gold is the only real gold supply.

Thu, 05/03/2012 - 21:53 | 2395677 gaoptimize
gaoptimize's picture

Everyone instinctively knows, Krugman especially, that the fake US economy only stays afloat on ~$1,5T/year of new debt that will never be paid back.  We stand on the deck of this otherwise sinking ship and watch the demographic entitlement tidal wave approach.  A gold standard will be enforced by nature when those with the hubris to oppose nature have been swept away.

Thu, 05/03/2012 - 21:58 | 2395687 passwordis
passwordis's picture

 If you believe that our government and it's controllers (the money power) are stupid, inept and irresponsible and are simply making one mistake after the other then you will likely believe that a gold standard is a better option than what we have now.  However, if you consider that the current economic, social and political environment is due to a purposeful agenda and not ineptness than a gold standard looks like another part of the plan. Who will control a gold standard? Who will decide the price of Gold? Who will set the reserve? The same cast of characters?

 

 Didn't The Who write a song about not getting fooled again?

Thu, 05/03/2012 - 22:03 | 2395694 Kina
Kina's picture

Economics is no science, it is religion with different sects.

Krugam is the sharmon of his sect, and thinks being king of his own shit pile make him master of other shit piles.

 

Ron Paul is the fire hose to clean all this shit away.

Fri, 05/04/2012 - 00:11 | 2395860 WmMcK
WmMcK's picture

Please don't squeeze the sharmon (shit cleaner).

Thu, 05/03/2012 - 22:43 | 2395695 Paul451
Paul451's picture

No government, in this or in any resonable variant of the current political environment, will ever institute a gold or bi/tri/basket metal standard. Not gonna happen.

However, the invisible hand of the market-place can and will do it. The problem is that takes time and it wont be pretty.

"Never attribute to conspiracy that which is adequately explained by stupidity."   - paraphrase of "Hanlon's Razor" (fm R. Heinlein)

Or by Greed. - me.

 

 

Fri, 05/04/2012 - 13:31 | 2397479 passwordis
passwordis's picture

No government, in this or in any resonable variant of the current political environment, will ever institute a gold or bi/tri/basket metal standard. Not gonna happen.

 

 Why wouldn't they? 

 

However, the invisible hand of the market-place can and will do it. The problem is that takes time and it wont be pretty.

 

 The invisible hand IS the government and banks. Learn about  The President's Working Group on Financial Markets.

"Never attribute to conspiracy that which is adequately explained by stupidity."   .... Or by Greed. - me.

 

Huh? You just completely invalidated that quote. Conspiracy and stupidity are not mutually exclusive.   There is nothing stupid about government being in the hands of the money interests. In order to achieve that, they had to first conspire.


 

Thu, 05/03/2012 - 22:06 | 2395696 AmazingLarry
AmazingLarry's picture

Gold isn't backed by anything.

Thu, 05/03/2012 - 22:11 | 2395710 Likstane
Likstane's picture

According to Canadian financial reporters, it is backed by the USD. 

Fri, 05/04/2012 - 01:51 | 2395934 Transformer
Transformer's picture

"Gold is not backed by anything"   And that's why you can't depend on the price.  No way to know what it's worth cause the people who know aint talking, and the people who are talking hate gold.  Except, I guess, for the Gold Bug types, who think gold is worth a lot money and they constantlly try to talk up the price, but you see how well that is working.  Lindsey Williams says only own silver as minted by the US gov, and gold as minted by the US gov, before 1933.  what the hell does that mean?

Fri, 05/04/2012 - 13:38 | 2397502 passwordis
passwordis's picture

Gold is not backed by anything"   And that's why you can't depend on the price.  No way to know what it's worth cause the people who know aint talking, and the people who are talking hate gold.

 They don't hate gold. They love Gold, That's why they own it all... They want you to think they hate gold..  They are trading their paper for gold. 

Fri, 05/04/2012 - 14:12 | 2397612 Matt
Matt's picture

+1

-1

Thu, 05/03/2012 - 22:38 | 2395749 Vendetta
Vendetta's picture

Its backed by the lies and deceipt of mainstream economists.

Fri, 05/04/2012 - 07:23 | 2396112 AmazingLarry
AmazingLarry's picture

Which makes it priceless cause we all know there's no limit to the above. 

Thu, 05/03/2012 - 22:45 | 2395758 ebworthen
ebworthen's picture

Other than its intrinsic value and 5,000 years of value in all human cultures.

Fri, 05/04/2012 - 01:53 | 2395935 Transformer
Transformer's picture

People say that all the time, but the first gold coins are from about 700BC.  Before that, they couldn't separate the gold and silver, and coins were made of Electrum, a mix.

Fri, 05/04/2012 - 11:18 | 2397007 BigJim
BigJim's picture

Gold coins date from around that time... but unminted, unstamped lumps of gold, silver, and electrum were circulating as money long before that.

Fri, 05/04/2012 - 14:13 | 2397616 Matt
Matt's picture

Not all human cultures. The Mayans and possibly Aztecs and other Amerindians believed that metal was the excrement of the gods, which is why they didnt use any, and treated it as worthless.

Fri, 05/04/2012 - 15:57 | 2397985 BigJim
BigJim's picture

 ...believed that metal was the excrement of the gods, which is why they didnt use any, and treated it as worthless.

no, it was widely used in their jewellery. From wikipedia:

Aztecs and Incas perfected metalworking to a great art. Gold and silver jewelry was worn alongside ornaments made of feathers, shells, leather, and stones. Among the Aztecs, laws about which ornaments could be worn were strictly enforced. Only royalty could wear headdresses with gold and quetzal (a bird with brilliant blue-green feathers that reach three feet in length) feathers, for example.

In fact , the greatest draw for the European conquistadores was the vast amounts of silver and gold the indigenous peoples had.

Fri, 05/04/2012 - 18:54 | 2398490 Matt
Matt's picture

The vast amount they supposedly had. The City of Gold was the best red herring anyone ever thought of, to send the Spaniards wandering all over two continents looking for treasure.

"It's just over those mountains, a city with streets paved with gold, and everything is covered in gold leaf".

 

Fri, 05/04/2012 - 07:04 | 2396094 Debugas
Debugas's picture

gold (as well as any fiat currency) is backed by the labor of people willing to accept it as payment. Without that willingness gol is worthless

Fri, 05/04/2012 - 11:22 | 2397024 BigJim
BigJim's picture

This is absolutely true, and is one of the reasons TPTB devote so many resources (academic, political, and financial) into discrediting it as a store of value.

If they can persuade the Arabs, Chinese, and Indians that gold is worthless, then they have a chance of destroying gold's value as money forever... or, at lease, for as long as cheap energy enables a worldwide web of oligarchs to issue fiat and force their citizens to accept them in exchange for value.

Fri, 05/04/2012 - 13:45 | 2397535 passwordis
passwordis's picture

If they can persuade the Arabs, Chinese, and Indians that gold is worthless,

 There is no such thing as a worthless natural commodity.

Fri, 05/04/2012 - 15:58 | 2397895 BigJim
BigJim's picture

 There is no such thing as a worthless natural commodity.

Air? dirty water? Rocks?

Yes, I know gold is rather rarer than those natural commodities. But if people no longer believe in it as a store of value then its value could drop precipitously. So, yes, it'll never be worthless, you're right; but if the gold Eagle you bought for $1700 will only get you $170, that won't be much consolation, will it?

Silver's value stems from its many industrial uses, jewelery demand, and speculative investment purchasing. Gold's is almost entirely the latter two, which, to my mind are tightly linked - I doubt as many people would buy gold jewellery now if it weren't an expensive metal in the first place.

So, my original point - which was to back up the OP's assertion that the value of gold is entirely down to what people think it's worth - stands.

disclaimer - I own allocated gold, in the hope that the price suppression and attempts to discredit it will ultimately fail - ie, the Arabs, Indians, and Asians will continue to value it. But they might not... TPTB have a lot to lose if gold re-asserts itself, and god knows they have a lot of resources at hand to destroy its credibility.

Fri, 05/04/2012 - 23:43 | 2398894 passwordis
passwordis's picture

Air?  

I'm not sure if you are serious.

dirty water?

Dirty water in not a natural commodity.. Dirty water is the result of man made contaminants.

Rocks?  

Worthless? Forget for a moment that rubies emeralds sapphires and diamonds are all rocks, try paving a driveway or road way  or building a foundation with out paying for a few tons of rocks.

 

I understand your point but what you should consider is that while Gold's value is not related to industry like silver's that does not make it any less valuable.  Gold's value is just as real as Silver's but for different reasons.  The fact that gold has no real industry uses strengthens the argument that it's money. Gold does nothing else but act as money. Think about that... If it were an industry metal it would not make a very stable store of value. 

  So if we look at gold as natures money then we can see that its' value lies in it's role and usage as money.  That's what makes it worth something. It's natures money. It exists for no other reason than to act as money... That's the argument and I think it's a pretty good one.


 

 

Thu, 05/03/2012 - 22:06 | 2395698 lsbumblebee
lsbumblebee's picture

No doubt gold will fall below $1600 tomorrow morning: 

"Russia has become the first major country to call for a partial restoration of the Gold Standard to uphold discipline in the world financial system."

http://www.telegraph.co.uk/finance/g20-summit/5072484/Russia-backs-retur...

 

Thu, 05/03/2012 - 22:48 | 2395764 WAMO556
WAMO556's picture

Dude, that article was written in 2009!!!

Thu, 05/03/2012 - 23:01 | 2395781 lsbumblebee
lsbumblebee's picture

Yeah what's taking so long?

Thu, 05/03/2012 - 22:06 | 2395699 WhiteNight123129
WhiteNight123129's picture

I hate the Gold standard because it is artificially high price of Gold and deflationary. Bimettalism is neutral.paper is inflationary . Let the people use whqtever they like.

Thu, 05/03/2012 - 22:19 | 2395721 Quinvarius
Quinvarius's picture

We will end up back n gold one way or the other.  And the people who are fighting it now will embrace it when the other choices are the Yuan or the Euro.  The US has been on and off gold many more times than this article reveals.  We always go back to gold because everything else ends up in a train wreck.  Nothing else works or has ever worked.

Thu, 05/03/2012 - 22:24 | 2395729 bankruptcylawyer
bankruptcylawyer's picture

a standard of any kind, gold or otherwise would be a total undoing of the money supply control by the controllers. what people are asking for , agitating for, and hoping for is to regain the control over the political capital supply, which cannot be done without controlling the money supply, or at least, by eroding the control that is possessed by those currrently controlling it. 

 

in short, a shift of the money supply is a shift of the political order. people want a shift of the political order , not a shift of the money supply for its own sake only to leave the political order consolidated but largely in tact at the core. a bank panic which leaves the house of morgan and a few other families in charge of this country's political order, is not going to help americans, and more likely will hurt them. but if they want change, they better be prepared to take the risk of hurt to get that change. in any case, they are going to be rolled over---so there's no real choice in the matter of whether or not you sufffer, only if you go down with a prepared mental state, fighting, or otherwise.

Thu, 05/03/2012 - 22:41 | 2395754 Bagbalm
Bagbalm's picture

Look at what people do not say. All the central banks hoard gold.

Thu, 05/03/2012 - 22:43 | 2395756 ebworthen
ebworthen's picture

God forbid money (exchange for labor and goods and services) should be based on something tangible and immutable.

Thu, 05/03/2012 - 22:48 | 2395767 plata pura
plata pura's picture

the persian nation is fast tracking to a currency backed by the precious and its cousin gold. the fascisti big r republicans and big d democratics under the rule of the jeckyll isle cartel will expand the theater of war to stop them.

Thu, 05/03/2012 - 23:31 | 2395812 jomama
jomama's picture

what i don't get is how in the hell is Ag selling at a ratio of 50:1 against Au?

shit just doesn't make any sense if one tries to rationalize it. 

Fri, 05/04/2012 - 00:08 | 2395856 Vint Slugs
Vint Slugs's picture

The marketplace, not the government(s) demonitized silver in the second half of the 19th century when the gold/silver ratio was 16 and at its highest level in all of history.  Prior to then over the centuries the gold/silver ratio gradually increased from about 10-12 to 15.

After the silver demonitization, throughout the 20th century, the gold/silver ratio increased dramatically and reached levels in excess of 100.

Despite your statement, "shit just doesn't make any sense if one tries to rationalize it" you fail to rationalize reality because your primary premise is wrong.  Your premise is that silver is money.  Check your premise(s).  Silver is a commodity and has been since the 1870s.  That is a true fact regardless that the US gov't stood ready to exchange silver bullion for silver certificates until the late 1960s and regardless of what you hear by the uneducated masses on websites such as ZH.

That silver is not money is why (1) on the recent silver bull move to its 2011 nominal high it did not take out its all-time 1980 nominal high (2) sort of related - prices of gold stocks do not track gold bullion's price.  Gold producers' stock prices are not money either.

When all is said and done you are going to see the gold/silver ratio at magnitudes above its 20th century highs that were marginally above 100.  When it all shakes out you will find that you will and must barter your silver for gold, just as you would barter any other physical good that you might own (petroleum, feed grains, etc) for the ultimate money.

Not to be antagonistic but so many people here at ZH are blind silver bulls - they just don't perceive the reality.  History, probably sooner than anybody expects, will prove just how misguided they are:  They are going to find out that they might just as well have stuffed a couple bushels of soybeans in their mattresses as an ounce of silver.

Fri, 05/04/2012 - 00:55 | 2395889 plata pura
plata pura's picture

hogwash! history tells another story. the Hebrews have one word for money and silver.

Fri, 05/04/2012 - 02:59 | 2395986 Uchtdorf
Uchtdorf's picture

So says you as you hope to buy more silver when the price drops.

Fri, 05/04/2012 - 08:26 | 2396199 Sean7k
Sean7k's picture

The de-monetization of silver was the result of two actions: one, the huge silver strikes in Nevada and Alaska that flooded the market with silver and led to the mint not striking silver dollars for anything other than trade with China (trade dollars) and two, to fleece farmers of their huge savings (in silver) after the civil war from profits in supplying the armies (governmental action in association with bankers). 

I do agree that silver is a commodity, just as gold is a commodity. Their value as money will never be fulfilled as long as fiat regimes exist. The ability to manipulate and use leverage allow bankers to set current values. The question then becomes, " What kind of gold standard could be established?". 

Who ownes the gold kids? That will tell you what kind of standard will be raised. Suggestion: currency will be revalued and the new value will include a windfalls tax to minimize the opportunity to profit from accumulation. However, there will be an exception for those that seek to pledge it as collateral for credit expansion. 

This will give the Elites the ability to profit from something they would never need to spend AND give some legitimacy to the current fiat regimes. They will tell us it is the only "fair" way to build a gold standard. 

The people need to hold out for the elimination of legal tender laws. Standards are Elite control mechanisms. 

Fri, 05/04/2012 - 11:40 | 2397072 BigJim
BigJim's picture

I think a lot of silverbugs are probably hoping silver will be re-monetised and they'll see a commensurately major increase in the value of their holdings. And, throughout history, silver has been money in many places, so this is not entirely unreasonable.

However, I hold silver mainly because I genuinely believe its price is being suppressed and that this suppression cannot go on forever. Gold's present value (also suppressed, I know) is very largely determined by people's belief that it is money (central banks, for instance, though they won't admit it). There is relatively little demand for it for industrial purposes, whereas silver is consumed (and, for all practical purposes, destroyed) in vast quantities and its price, going forward, is likely to reflect increases in energy prices and scarcity... (though, of course, our current natgas prices might influence the cost of getting it out of the ground if the glut is sustained long enough). The carry cost of owning physical silver is practically zero, and it shares none of the risks of holding mining equities (nationalisation, fraud, managerial incompetence, share dilution, etc, etc).

I think a portfolio of 50:50 gold:silver is actually quite a diversified play, all things considered. If we have monetary breakdown, gold will certainly hold its value, and silver might; if TPTB manage to kick the can down the road another cycle, then silver should do well from industrial demand.

Just my $0.02...

Fri, 05/04/2012 - 07:25 | 2396115 Debugas
Debugas's picture

trading Ag involves paying TAXes whereas trading Au (in EU at least) is tax-free

Thu, 05/03/2012 - 23:41 | 2395822 The Alarmist
The Alarmist's picture

Gold is not money ("they" say), yet it is one of the few things that has been used through several millenia by dozens of cultures as a store of wealth and a medium of exchange. Can someone remind me again what constitutes money, because the experts have me confused?

Fri, 05/04/2012 - 07:02 | 2396093 Debugas
Debugas's picture

money is a contract between individual (which is holding money) and a society. this contract basically is a promis that society members will perform some work for the individual in exchange for the money he owns. So money is a virtual concept which exists in the minds of the society members. Wether it has material thing (contract paper, gold coin electronic record etc) is not that important

Fri, 05/04/2012 - 14:17 | 2397628 The Alarmist
The Alarmist's picture

Sorry, but that is totally wrong.

Thu, 05/03/2012 - 23:58 | 2395840 Guns N Metals
Guns N Metals's picture

Krugman is an Intellectual Idiot.

Fri, 05/04/2012 - 01:52 | 2395930 q99x2
q99x2's picture

'Credentialed economists' are buying from e-Foods Direct.

Fri, 05/04/2012 - 01:54 | 2395937 the tower
the tower's picture

As most of the gold is in the hands of a select few, returning to the gold standard is just what these few want. Again we are all being manipulated into "learning what we want". First it was fiat, now it's gold.

A stable - and democratic - standard can only be a standard that is of the people, and I don't mean "the people" as in socialism or communism. I mean the people as in each and every one of us, in effect no-one.

A real standard cannot be manipulated as it's not in the hands of a select few.

BitCoins are the closest to this standard. A fixed amount, not owned by anyone, anonymous and freely transferable by anyone without mediator.

So, go ahead, play gold, but do know that again you are playing the hand of the people that got us into this mess....

Fri, 05/04/2012 - 02:12 | 2395951 Libertarian777
Libertarian777's picture

5,000 years ago, Egyptian and Chinese emporers put bitcoins in their tombs.

These were recently unearthed, and were sold on eBay for...

oh wait that's right bitcoins didn't exist 5,000 years ago... hmmm.

'the argument of gold being in the hand of a select few' is the fallacious argument greenbackers use to discourage the use of gold. I say, ALLOW COMPETING CURRENCIES, and let the damn free market sort it out. If you want to work for bitcoins you should be free to do that.

I on the other hand will work for 7oz of gold a month or 300 oz of silver.

but 300oz of silver <> 7oz of gold you say? well that's why the free labour market will offer me more or less gold or silver, and i will then accept the job offer of more or less gold or silver. When many millions of people do this, the exchange rates come into a free market equilibrium (labour supply/demand issues aside).

Fri, 05/04/2012 - 06:57 | 2396089 Debugas
Debugas's picture

free market (freedom to take over most of the capital and posses it as private property) has already sorted it out - 99% work for paper because they have no capital of their own to sustain them

Fri, 05/04/2012 - 03:53 | 2396016 greenknightist
greenknightist's picture

do you think there is any chance that obama will have a debate with dr ron paul ? now that would be a five star, must watch .

Fri, 05/04/2012 - 03:59 | 2396023 Hobbleknee
Hobbleknee's picture

It would be an instant TKO in the first round, followed by and endless pummeling of multiple Mortal Combat fatalities.

 

 

_______________________

Compare silver prices

Fri, 05/04/2012 - 03:53 | 2396017 Hobbleknee
Hobbleknee's picture

"And that it might be interesting to peruse the numerous gold-related currency plans..."

Unless the "plan" is to let the people trade in whatever monetary instruments they choose, screw all your lame plans!

Fri, 05/04/2012 - 03:58 | 2396022 Hobbleknee
Hobbleknee's picture

double-post

Fri, 05/04/2012 - 06:54 | 2396087 Debugas
Debugas's picture

returning to gold standard is only possible after we write-off 99% of the debts and redistribute capital more equally

Fri, 05/04/2012 - 07:20 | 2396109 graspAU
graspAU's picture

What is a dollar - http://www.fame.org/HTM/Vieira_Edwin_What_is_a_Dollar_EV-002.HTM

Pieces of Eight: The Monetary Powers and Disabilities of the US Constitution, is a fantastic book on monetary history in the US that is worth the read: http://www.amazon.com/Pieces-Eight-Monetary-Disabilities-Constitution/dp...

 

 

Fri, 05/04/2012 - 08:57 | 2396373 hazek
hazek's picture

I can't fking stand the gold standard and anyone wanting to go back to it is fking nuts!

 

I don't want to go back to a gold standard, a standard where the ineffective, inefficient and humanly fallible government enforces a weight of precious metal being tied to some arbitrary amount of value. No! Fuck that. That only brought us trouble.

 

What I want is to go FORWARD to JUST gold without a standard. Repeal legal tender laws, repeal capital gains laws and let the consumers decide what is money and how much it's worth. Luckily I may get my wish with Bitcoin no matter what the psychopaths in D.C. do.

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