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Fools' Gold (Arguements Against Gold Standard and Bankers)
Independent Media Center ^ | 17 February 2002 | by Robert Carroll

Posted on 04/29/2002 5:14:43 PM PDT by shrinkermd

By monopolizing this commodity the moneyed classes have got Nature by the throat and the community under their heels... Compared with this process, usury is mere child's play. -Alexander Del Mar in The Science of Money.

Advocacy of gold or gold "backed" money rests on dubious foundations. The discussion that follows will reveal some of the semantic deception, half-truths, doublespeak, self-interest pleading, and historical errors employed in gold advocacy polemics.

The Pope admitted in 1992 that Galileo had been right. This has nothing to do with gold money, but it is offered to show that neither antiquity nor authority makes a phony idea anything but phony.

There is a strong belief among gold money advocates that little bits of gold, especially if they are stamped with the image of some authority and numbers make better price counters than numbered pieces of paper or computer bytes. The belief involves a perception of what money is. The person who holds that belief perceives money to be something real and apparently needs to see and hold in his hand a physical manifestation of it. Gold is heavy, and refined gold is bright and shiny. It satisfies an emotional need however meaningless it is to the function of money. Money is a product of human mental fabrication. It always has been; it always will be. It is a tool that facilitates exchange. Modern society could not run without it or some equivalent accounting system.

A rational business decision would require that monetary symbols cost the least possible to manufacture. Presently, (1998), it costs around $280 to mine and refine an ounce of gold. Mining decades of tons of ore per ounce of gold has left holes in the ground measured by cubic miles. The ore is leached by toxic chemicals that have produced environmental pollution. Banks create money in any amount with the touching of computer buttons.

Abstract numbers, meaningless in and of themselves, that count quantities of amperes, wheat, gasoline, volume, distance, area, force, or any measurable, quantifiable thing, suffice in commerce, science, and technics without the clumsy inconvenience of metal counters. Why should it be different with money?

A pseudo-legal argument is sometimes advanced by advocates of gold money that a debt cannot be paid with another debt. This is semantic deception. A debt can be paid with anything that is acceptable to the payee. In addition, as long as debt in the form of deposit entries in bank accounts or Federal Reserve Notes can be exchanged for real goods and services, the payee is just as well off as if he had received little lumps of metal. Further, the multi-trillion dollar world economy runs almost exclusively on exchange of debt-money which only consists of numbers in deposit accounts at banks.

A common argument for gold money that accompanies the pseudo-legal sophistry is that gold has "intrinsic value," another semantic deception. Gold has interesting intrinsic properties such as chemical stability and excellent electrical conductivity, but "intrinsic value" is a semantic error if not outright doublespeak. Value(1) is a subjective judgment and cannot be rationally thought of as intrinsic. Subjectivity is exclusively a product of human minds. "Intrinsic value" is a deceptive euphemism for price.

If people were stranded in some remote location without food, water, and shelter, a mountain of gold would serve no more purpose than so much sand. It would have no price. Gold has no intrinsic value. It merely has a price which is the result of complex factors associated with its subjective price value compared to other commodities. Industrial usefulness of gold as well as human subjectivity that desires gold for personal adornment, etc., does assure that gold will fetch a price in a modern market. But what price?

Gold pricing in the United States, today, 1998, is denominated in Federal Reserve Accounting Unit Dollars.(2) The commodity price of gold has fluctuated wildly in the last half of the 20th Century, mostly remaining in the $300 to $400 per ounce range in the last decade. Price fluctuation was not due to variations of the Federal Reserve Dollar. The U. S. monetary price of gold is $42.22 per ounce. Artifact (jewelry, etc.) and numismatic prices of gold are what the market will pay. The value of gold as denominated by price is highly variable.

Historically, the commodity price of gold has been subject to fluctuation caused by normal supply and demand influences. Supply and demand infuences are in turn affected by the vagaries of mining and shipping, speculation, hoarding, political action, industrial demand, wars, central bank manipulations, and fads.

When governments or private banks have attempted to use gold as money, or for the last yea many centuries the fraud perpetrated as gold "backing" or reserves, it has been necessary to establish a monetary price of gold by fiat in an attempt to isolate money from inevitable price fluctuations of commodity gold.

The U. S. Constitution writers anticipated the instability of commodity prices and included the phrase, regulate the value, in the coinage clause.(3) In 1792 after the ratification of the Constitution, the Congress, consistent with the Constitutional mandate, defined specific amounts of gold, silver, and copper as representing dollars. They regulated the value and established a monetary price by fiat.(4)

Historically, monetary prices have been set higher than market prices, the ludicrous present U. S. monetary price notwithstanding. It would make no sense to issue money that had an equal or lower monetary value than the price of acquiring the metal. This mark-up is known as seignorage. It is profit that accrued to goldsmiths, kings, banks, and governments that issued gold money. When the monetary price of gold was too low, coins were melted and turned into artifacts that could be sold for more money than the original coins. When the monetary price was too high, artifacts were melted and turned into counterfeit coins. This was another cause of monetary and price instability when gold was used as money.

The relative scarcity of gold and the demand for gold for other uses than money should raise questions about the efficacy of trying to use consumable and losable gold as money or as monetary reserves.

The inherent instability of a scarce commodity subject to all the influences enumerated above have inevitably led to financial instability which instigates human suffering, social unrest, political instability, totalitarianism, fraud, counterfeiting, theft, war, and abandonment of gold monetary policy.

A mantra of gold money advocates is that alternative money systems, particularly "paper money," always fail. Historically, it is true; but it is also a case of selective historical facts, half-truth, and errant semantics. There is archaeological evidence that accounting systems existed before paper was invented. For example, clay tablets written in cuneiform that show evidence of debt accounting. Paper, per se, merely represented another more economical way of accounting. What is never admitted is that all money systems including gold money systems have failed. Today, "paper money" as bank notes is substantially irrelevant. Overwhelmingly, transactions are carried on via computer accounting where money is nothing more than numbers transferred from account to account by computers.

Arguments about the substance of money will never address the problem of why all monetary systems have failed .

In fact, historically, not only has no money system survived indefinitely; but also, no civilization, empire, or political system has survived indefinitely. Systematic monetary manipulation has played a part in their demise. It is not a question of gold or paper; it is a question of human culture. Is it possible to maintain a political system or nation that is founded in myth, intellectual error, and financial fraud?

The Gold "Backing" Fraud

A sacrosanct dogma of modern economic superstition is that money derives its value from scarcity. It is nowhere scientifically proven or successfully argued. It is accepted dogma; and, once again, the semantic trick of substituting value for price is used.

Scarcity does play a role in prices of goods and services, but it is only one factor; there are many other factors in price.

What is provable is that the scarcity of gold provided an opportunity for fraud that has become modern banking custom and practice.

Exactly how the fraud started is not matters of facts, but that it started is not in question.

Legend with perhaps more than a little truth in it has been related many times, including Congressional testimony.(5)

In brief, goldsmiths built vaults to secure their gold which was used in artifact manufacture and lending. The security of the vault attracted others who deposited their gold with the goldsmith for safe keeping. The goldsmith noticed that depositors never claimed all their gold at once. This provided him the opportunity to lend their gold at interest for his profit.

The custom developed that depositors would write notes which could be redeemed by the goldsmith to pay their bills. Eventually, the security of the goldsmith s vault and convenience of the notes induced more and more people to leave gold with the goldsmith and pay their bills with notes.

The common use of notes provided the goldsmith with the opportunity to write notes for making loans. In fact, it enabled him to write notes for more gold than there was gold in his vault. He created money! Eventually, it was found that as much as ten times the value of gold in the vault could be circulated as notes. He only needed enough gold in "reserves" to redeem the few notes that were presented for redemption.

This fraudulent practice has become modern banking custom and practice. Today, it is called fractional reserve banking.(6) Of course, gold is not presently used as reserves; banks just create money out of nothing without any pretense of gold reserves.

Gold advocates lament that money is no longer "redeemable." This is doublespeak that is tantamount to a lie. Since the initiation of the goldsmith s trick in banking, bank notes or "paper money" have never been fully redeemable in gold money. It must also be remembered most money created by banks by checks and deposit entry was never printed as banknotes. While deposit money, Federal Reserve Bank Notes, and U. S. coins cannot be exchanged for any form of gold money at the U. S. Treasury or Federal Reserve Banks, anyone is free to spend as much current money purchasing gold as they please; and the gold can be sold for current money. Furthermore, current money is exchangeable, fully redeemable, for all necessary and desirable goods and services which is the only real purpose gold money could serve. Satisfaction of superstitious beliefs and greed of investors are not considered real purposes.

The growth of national and world economies has rendered even the gold "backing" pretense of using gold as money absurd, but the greedy wishful thinking is that gold will be re-monetized at some astronomical price that will provide a windfall to gold investors. It is more likely that gold will be confiscated, as happened in the United States in 1933, before central banks attempt to re-monetize gold.

Attempts to re-monetize gold in the early 20th Century were accompanied by disaster in national economies and were quickly abandoned.

The Gold (un)Standard

"... the disastrous inefficiency which the international gold standard has worked since its restoration five years ago (fulfilling the worst fears and gloomiest prognostications of its opponents) and the economic losses, second only to those of a great war, which it has brought upon the world..."--J. M. Keynes(7)

What is generally referred to as "the gold standard" is a set of variable monetary and economic goals that involve manipulation of currency, balance of trade, internal commerce, and prices by use of variable gold policies. Different countries have tried different gold policies depending upon the desired goal. Whether it was to achieve balance of international trade, stable currency, stable internal commerce, or stable prices determined the policy. Balancing international trade may, and usually does, interfere with internal commerce. Stable prices may require juggling currency. Different countries with different goals pursuing different policies may conflict. What is called "the" gold standard is not a unique and well defined system.

There is a common conception of "the" gold standard that ties the value of the currency unit to a legally determined amount of gold. It is believed that such a policy would stabilize currency. It may be possible to stabilize currency using gold in monetary policy decisions but with disastrous other results.

For example, five methods used to manage a gold standard by the Bank of England from 1925 to 1931 follow:(8)

i. The bank rate.

ii. Open market operations (that is purchase and sale of securities) undertaken to influence the amount of reserves of the commercial banks, and their power of creating bankers money.

iii. Open market operations, undertaken to influence the London Money Market.

iv. Gold exchange methods dealings in foreign exchanges and in forward exchange, and variations in the price of gold within the narrow limits permitted.

v. Personal influence or advice such as the so-called embargo on foreign loans.

Anyone familiar with Federal Reserve operations will note amazing similarity. Just as the present Federal Reserve Open Market Committee engages in a variety of open market transactions to control the dollar, the Bank of England tried to manage the pound ostensibly based on gold. The results also have an amazing similarity to the Federal Reserve s policies, particularly the "soft landing" announced by Alan Greenspan that was the 1990 recession.

... the operations of currency management conferred upon the Bank of England the power to restrict credit, to postpone new enterprises, to lessen the demand for constructional materials, and other capital goods, to create unemployment, to diminish the demand for consumable goods, to cause difficulty in renewing loans, to confront manufacturers with the prospect of falling prices, to force dealers to press their goods on a weak market, and to cause a decline in general prices on the home market. In brief, the stability of the international exchanges was accomplished by a process which deliberately caused universal depression in industry, created unemployment, and forced manufacturers to produce, and merchants to sell, at a loss.(9)

The operations of the Bank of England under the administration of Montagu Norman critiqued above is a classical example of what happens when monetary policy is carried out in the abstract. Human needs and human suffering be damned, trade will be balanced to control the outflow of gold or silver or inflation will be controlled to maintain prices regardless of how it affects employment, hunger, or any other form of human stress.

The errant buzz-word of monetary policy administered by Federal Reserve gurus personified by Alan Greenspan is inflation. Low unemployment motivates the gurus to "slow down an overheating economy." In other words, needful humans must be made to suffer to accomplish abstract monetary goals.

The above critique of Bank of England policies exposes, more than anything else, the fallacious thinking that gold will automatically regulate currency and prices. Not only the above critiqued policies, but also, other history confirms the fallacies.

One extreme anecdote from Roman history is the case of a man who had his own image placed on a gold nugget which he presented to a lover. So extreme were Roman concerns with controlling money that it was a death penalty offense under Roman law at that time to affix any image on gold except for official purposes. The law-breaker was executed.

This Roman anecdote is an example of two things: 1. An absurd, extreme policy used in an attempt to make an inherently unstable commodity suitable for monetary use by legal means. 2. The arrogant stupidity of legal absolutism.

Some factions of gold advocates argue that attempted regulation is the problem and that "market forces" should be allowed to follow their course with gold. Aside from the obvious superstitious belief in a fiction in support of a belief, histories of fraud, manipulation, monopolization, gambling, and speculation of commodities(10) left to market forces should overcome the tunnel-vision and doublethink of such an argument as market forces should determine the value of common currency while believing the implausible, self-defeating belief that gold left to speculation and monopolization will, by magic, lend stability to currency in the same market.

One of the sophistries used by gold money advocates is the non sequitur. Byzantium has been offered as an example of how a culture or empire was stabilized by a stable gold currency.(11) In the first place, stable Byzantium can be dismissed with the question: Where is Byzantium now? In the second place, the longevity of Byzantium was not extraordinary for its day. Nor did Byzantium ever achieve extraordinary wealth. The Italian city states built on bankers credit lasted longer and achieved more wealth.(12) Byzantium existed during the "dark ages" of Europe as a near singularity in the Euro-Asian area. It was founded in autocratic theocracy. The annual trade of Byzantium was less than a week of world trade today, perhaps less than a day s trade. Byzantium s relatively stable coinage was a function of its relatively stable society maintained by a severe autocracy. Its relatively stable society was not a function of its coinage; its relatively stable coinage was a function of its relatively stable society.

After the ascendancy of the Italian city states, it could just as well be argued that Byzantium failed to achieve great wealth and eventually succumbed because of the superiority of credit money or Byzantium s stupid, limiting, and inflexible reliance on gold coinage, but that is not the argument presented here. The argument here is that money is a function of culture, not culture is a function of money although selective facts may make it appear so. Certainly, the pathological kleptomania and greed of Capitalism make it seem U. S. culture is a function of money.

The coup de grace of gold standard is that a gold standard applied in recent centuries has not altered the custom and practice of bank issued debt-money. Bankers, such as Alan Greenspan who has advocated a return to a gold standard, are well aware that gold standard is not only no threat to their power and ability to create money out of nothing; but also, it enhances their confiscatory power and control over both the public and private economy. It helps banks realize their superstitious mantra that money derives its value from scarcity. The more scarce the more value, i.e., the more interest banks can charge for the money they create out of nothing.

Ordinary gold standard advocates are either ignorant or disingenuous about bank created money. They usually blame government for the abuses of credit money, but it is banks that create money nearly exclusively. Paranoid, near hysterical arguments such as inflation is caused by "governments printing too much money" are absurd when it is banks that create money. What a silly argument it is to say governments print too much money when, for example, the U. S. government has borrowed more than $5 trillion from banks and other investors in government securities! Every cent of it originally issued by banks! But just as any paranoiac can have real enemies, there is plenty of blame to lay on government. It is government that has given the power to create money to banks(13) then relies on borrowing money from banks and private investors at the additional expense of interest when taxes are inadequate to meet expenses.

A Federal Reserve bankers dogma is that monetary policy must be separated from politics because politicians can t be trusted with it. This dogma has some truth in it; but like any half truth, it obscures a lie. Monetary policy can never be separated from politics, and bankers would loose their golden goose if the government excercised its Constitutional power to issue its own money.

Ostensibly, the people have the power to control politicians with the political process. People have no power to control bankers for whom they cannot vote and do not know.

Criticism of bank created money and how(14) it is done is left to other vehicles. This discussion is about the fallacies of gold money arguments.

Conclusion

What is usually referred to as "the" gold standard or gold backed money is an intellectual and financial fraud. Under gold standard policies, Central banks wrote checks creating money to buy gold to use as reserves, just as Federal Reserve Banks create deposits to buy U. S. Treasury securities, now. A gold standard does not prevent commercial banks from creating money on the basis of fictional reserves and lending it at interest. What has passed as a gold standard in the last few centuries is not theoretically or functionally different than the present bank created credit/debt money system. In both cases, banks create and issue money as debt. Both systems are often properly labeled debt-money systems. Money is nearly exclusively issued by banks as debt at interest in both systems.

A plausible argument can be made that if banks were required to maintain an invariable level of gold reserves, it would limit how much money they could create. It would, but it would also limit how an economy functions as in the disastrous British case cited above.

The Federal Reserve Act was passed in 1913 establishing the Federal Reserve System as the U. S. Central bank. It required 40% gold reserves behind issuance of Federal Reserve Notes. World War I soon followed. It would have been impossible for the United States to finance it s participation in that war with Federal Reserve Banks and commercial banks required to maintain 40% gold reserves. (The argument that it may have forced the U. S. to stay out of the war had the reserve requirement been maintained is irrelevant; the U. S. participated in the war.) Reserve requirements were lowered, and the war was financed with debt-money created by banks.

The first central bank of the U. S. was charted in 1791, and the Coinage Act of 1792 which limited coinage to the haphazard appearance of gold and silver owners at the mint forced seekers of money to use bank credit or debt financing. It is a speculation whether the two cited acts were intended to force money seekers into banks. The central bank has been attributed to the efforts of Alexander Hamilton. There is no doubt of Hamilton s banking connections.

The United States has become the most powerful nation ever in history. It did so mostly on bank credit; nearly exclusively so in the 20th Century.

Winning two world wars, once having the highest now reputed third or fourth average standard of living in the world, and development of spectacular technology including space exploration were all accomplished under bankers debt-money schemes, but this is not a defense of bankers debt-money. It must be repeated that criticism of bankers debt-money is found elsewhere. This is to suggest that the U. S. could not have developed as it did under the restrictions that a gold money system would have imposed.

A credit money system operated for the purpose of serving human needs instead of serving the profit interests of bankers could educate everyone to any desired level, provide medical care for all, end poverty, and finance any socially acceptable and physically possible activity.

The substance of money used for counters whether lumps of yellow metal or computer bytes is unimportant, per se. What is important is monetary policy. Good or bad policy can be made with credit money that makes good or bad results. It is hardly possible to have a good policy under the restrictions and inflexibility that a one hundred percent gold money system would impose. Gold "backing" known as fractional reserves has already been revealed as a banking fraud that differs from the present bankers debt-money system in cosmetics only.

If there is anything that can be classified as a public utility, it is money. Yet, the supposedly democratic U. S. Government has seen fit to endow a select group of greedy bankers with all the power of issuing and regulating the money supply for their own profit. The banking system that issues money as debt holds the government and people hostage to the system. Until the power to issue money is taken from the hands of greedy corporate profiteers, megalomaniac kings, and plundering politicians, there is little hope for a socially kind and peaceful society or a safe and sustainable environment.

The science of how to do it is well known.

They [bankers] viewed national interests from the windows of the bank parlour. From their point of view, industry, commerce, agriculture, wages, employment, were but counters in the skilled game of international finance. They must be regulated to fit in with the monetary scheme. The monetary scheme must not be regulated to fit in with the needs and necessities of the world.(15)

Whose interests are served by "the monetary scheme"?

Until the "cart before the horse" philosophy of financiers revealed in the above quote is righted, no monetary system will serve public interests. A gold monetary system will be just

FOOLS' GOLD!

Notes:

1. See Theoretical Essay on the Nature of Money for a fuller explication of value.return

2. Contrary to popular opinion, the "U.S." dollar in the form of bank notes and commercial bank credit is not issued by the United States Government. It is issued by Federal Reserve Banks and commercial banks mostly in the form of deposits or numbers in deposit accounts. return

3. Article I, Section 8, clause 5. return

4. An Act establishing a Mint and regulating the Coins of the United States, April 2, 1792, specified 24.75 grains of pure gold and 27 grains of standard alloy per dollar. return

5. Robert Hemphill, credit manager in the Federal Reserve Bank of Atlanta, before the Committee on Banking and Currency, House of Representatives, March 22, 1935, re Banking Act of 1935. return

6. See Modern Money Mechanics, published by the Federal Reserve Bank of Chicago for a detailed explanation of how the central bank creates reserves and regulates the money supply and commercial banks create money by fractional reserve lending. return

7. Quoted by Sir Charles Morgan-Webb in The Money Revolution. return

8. Ibid. return

9. Ibid. return

10. See "The Tulipomania" chapter of Extraordinary Popular Delusions and the Madness of Crowds for a charming example of kleptomania, gambling, and greed in an unregulated market. Of course, a free market in tulips is one thing; a free market in common currency is another. The whole book is an entertaining read of collective "delusions" and "madnesses." return

11. See The War on Gold by Antony C. Sutton. return

12. See An Inquiry into the Permanent Causes of the Decline and Fall of Powerful and Wealthy Nations by William Playfair. return

13. See The Federal Reserve Act in the United States Statutes at Large and Title 12 USC for complete texts of current banking law. return

14. For how, see Modern Money Mechanics published by Federal Reserve Bank of Chicago. return

15. The Money Revolution by Sir Charles Morgan-Webb.


TOPICS: Business/Economy; Constitution/Conservatism; Philosophy
KEYWORDS: centralbank; gold; goldstandard
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To: shrinkermd
If you lived in Argentina today you would know the true value of gold when the bank account is frozen and ATM machines out of paper money and you are down to your last peso. If you look at a chart of the gold price in Argentina pesos, you can see what happens to the value of gold when a currency dies.

Gold is money. Paper fiat notes are currency. Currency can be printed at will. Gold makes the bankers honest and limits the spending of government. Gold prevents government bloat and excess spending and that is why politicians and bankers hate it.
21 posted on 04/29/2002 7:47:10 PM PDT by Chewbacca
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To: shrinkermd
If people were stranded in some remote location without food, water, and shelter, a mountain of gold would serve no more purpose than so much sand. It would have no price.

Not exactly: it would have a price, and that price would be zero.

22 posted on 04/29/2002 7:55:00 PM PDT by TopQuark
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Comment #23 Removed by Moderator

To: shrinkermd
You sure stirred up a lot of heffer dust with what, in my humble opinion, is a bull crap article. The fun thing about economics, like politics, is that one can say just about anything and then prove it with a whole lot of nothing that can't be disproven.

On the bottom line, after all the heffer dust settles, an economic argument must pass the sniff test. Your article passes the sniff test about as well as a Ponzi Chain Letter sniffed by a soccor mom. As long as you have enough soccor mom investors, you can get someone to trade their gold dust for your heffer dust. But, eventually even the soccor moms will get bound up on all that crap. When they finally realize that some slick talking con-artist has traded them paper political promises in exchange for their gold, the stampeed will be on.

24 posted on 04/29/2002 8:06:21 PM PDT by ghostrider
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To: arthurus
In short, Keynes and his disciples are /were not economists. They are socialists It is like saying that Einstein was not a physicist because he convinced Truman to build the bomb.

You confuse the professional occupation with poltitical beliefs.

25 posted on 04/29/2002 8:22:46 PM PDT by TopQuark
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To: Chewbacca
you can see what happens to the value of gold when a currency dies. What you ment was the price of gold, not the value.

Secondly, have you looked at the price of pork bellies and copper as expressed in pesos?

26 posted on 04/29/2002 8:26:15 PM PDT by TopQuark
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To: Vigilant1
The increase in world gold supply resulting from the California gold rush in 1849 had only a very minor impact on American money supply. In 1853, the silver value of dollars and smaller coins were reduced somewhat to reflect a change in the worldwide valuation of gold vis a vis silver. Ironically, a small, but notorious loss of gold supply (the sinking of the SS Central America) actually had a greater impact on the US economy -- at least some credit the loss of this ship with the panic of 1857.

When the world employed a bimetallic standard (gold & silver) between 1815 and 1914, the exchange rate between nations was unbelievably stable, which dramatically promoted the development of world trade. In fact, the Australian, South African, and Yukon gold rushes had no impact on foreign exchange rates.

Since World War I, and particularly since the collapse of Bretton Woods, businesses involved in international trade have been forced to consider currency fluctuations in determining the "bottom line" success or failure of their exchanges of product or services for currency.

27 posted on 04/29/2002 8:26:53 PM PDT by DeaconBenjamin
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To: ghostrider
I got to this part before I concluded that this was pure BS

A rational business decision would require that monetary symbols cost the least possible to manufacture. Presently, (1998), it costs around $280 to mine and refine an ounce of gold. Mining decades of tons of ore per ounce of gold has left holes in the ground measured by cubic miles. The ore is leached by toxic chemicals that have produced environmental pollution.

First this article was written during the dot com boom...today two shares of WorldCom could not buy you a 1oz Silver Eagle ...Second.. costs to mine gold in Nevada run around $125 per oz...third..the author is one of those left wing eco-nazi types....jeez....how could anyone miss this fact!

May I suggest a book GOLD WARS

28 posted on 04/29/2002 8:30:46 PM PDT by robnoel
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To: David
d:
"We have never had a true specie money system for any meaningful period of time. Periods in which we were nominally "on the gold standard" or "gold reserve money system" were really variations of the current fiat money system for the reason that the government could, and did, fix the price at which gold would be used as a basis for exchange; and the reserve ratios held against the circulating paper."

Absolutley true. The federal government has never held enough specie to back the currency issued. In the Great Depression, when there was a 'run' on the currency as everyone tried to redeem their notes for precious metals, FRD was forced to take us off the 'gold standard' (really the silver standard; one dollar = 371 grains of silver) as there was no way the fedgov could make good on the promise printed on the currency they issued.
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d:
"Why not use silver or some other metal--because there is more of it, which increases the risk of commodity price movements that would adversely affect its utility as money."

All precious metals are quite vunerable to market manipulations and real changes in supply, as I explained above. To think otherwise is to lie to one's self.
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d:
"Well we don't have enough gold to use gold as our only money? Of course we do, this is just another fiction introduced by the bankers who have something to gain from the fiat or fractional or reserve system. And since this is one of the principal arguments, I am going to address it here."

Good luck.
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d:
"One reason gold is so cheap at the moment is because it is not in regular use as money--one reason the price is increasing is because it is being appropriated for monetary purposes by the market. No one can know what the real market value of gold is in a specie money market system. Demand for gold to use as money will result in a significant increase in the value of gold--it will be used for a much wider range of purposes than locked in a box as a store of value. But say hypothetically, the number is 10,000 (current US fiat dollars) an ounce. So your basic currency unit is 1/10000 of an ounce of gold. Gold commodity price fluctuations would be a problem? Really. Gold goes from 10000 to 10100 (a huge move)--your currency unit changed 1%--we don't even notice a 3-3.6% fluctuation resulting from price level fluctuations (inflation) in the fiat currency. And in the gold system, flucuations would be increases in the value of your money rather than decreases."

So far, you haven't said anything that hasn't already made clear in this thread.
; ----------

d:
"At this point, it is difficult and costly to extract the stuff from the ground. And for the same reason the economy demands more money from the fiat system, there will be increasing demand from the gold money system also--as the economy expands, additional volume of money will be required and the intrinsic value of the gold will go up. There is enough of it above ground that an addition from a new discovery is not going to materially alter the total supply."

These are the huge flaws in your argument. You assume that the supply of gold won't significantly change. You also assume that if the supply isn't significantly changed, the value of the commodity can't be manipulated. These unsupportable assumptions are a foundation of sand on which to build a currency system.
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V1:
"How could our nation aquire enough gold or other precious metals to back the necessary amount of currency for an economy the size of ours? We sure don't have such reserves now."

d:
"This is answered above."

The only problem is that the answer is wrong.
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d:
"But you would not use the gold to "back" the currency--the gold is the currency. If you don't want to carry the stuff around in your jeans, you give it to the local bank and get a receipt against which you write checks or whatever."

This thread is about a gold standard, a gold-backed currency. You are proposing gold as a privately-held currency, an entirely different concept. You should have made this clear at the beginning of your post. While this solves the government problems, it does not in any way address the supply and valuation issues.
----------

V1:
"What real benifits will a gold standard bring us? History shows that a gold standard in no way prevents currency manipuation or economic disasters. So where's the benifit?

"Does anyone seriously believe that if there is a 'run' on the currency, i.e. everyone tries to redeem their notes for gold (as they did during the Great Depression), that any government would actually redeem all their notes and allow their gold reserves to be wiped out?

"Does anyone seriously believe that a government can be trusted to issue only the number of currency notes that they can fully back with gold?

"What happens to the currency if a technological advance creates a cheap method for extracting gold? Or if there is a huge gold strike? When gold is devalued, won't the currency's value collapse with it, precipitating a massive economic crisis? After all, gold is a commodity like any other, and we all know that the free market will always eventually triumph over any attempt of any government to fix the price of a commodity, right?"

d:
"All this remaining nonesense assumes the government and some government reserve arrangement has a role in the monetary system. It doesn't. Government's participation is the problem. A gold money system should leave government out. You need to have some legal arrangment to be sure that the coin that says it contains 1/10000 of an ounce or 1 ounce or some fraction or multiple really contains what it says it contains but that is the end of the Government's role."

No, government participation is only part of the problem. Gold is merely a commodity, and gold traders will alway be able to manipulate the value as they do with other privately-held commodities like oil, wheat and pork bellies. Governments will still have large stocks of gold, and they can likewise manupulate the markets by hoarding or dumping their gold reserves by simply controlling the moment they spend the vast amounts of money they spend to provide government services. If they hold back for several months, then spend and pay outstanding balances due all at once, they can drive down the value of gold. They can restrict the supply by massive short-term borrowing. Your premise seems to be that the value of gold can't be manipulated if the government doesn't issue the currency. That is a laughable and naive idea.
----------

d:
"Can't do it because the Government won't like it? At the moment. But we have a democracy."

We have a herd of sheeple insuring that the fedgov remains in control.
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d:
"And pretty soon we are going to get a real lesson on how bad the fiat system is at which point when the democracy replaces it, we should have a clear view on what we are going to replace it with. Because the real issue is wrapped up in your question about why we do this. You, this nonsense author, and the other defenders of the fiat system are about to get a lesson from the marketplace about why this is so important."

LOL !!! That prediciton has been made almost daily since FDR took us off the silver standard. The one constant thing about gold standard advocates is their absolute certainty that economic disaster is virtually always 'right around the corner', although it never seems to arrive. They are convinced only they have the 'real truth', and insist that their baseless predictions are to be blindly accepted as factual. Anyone who questions this is to be burned at the intellectual stake as a heretic (usually by personal attack, being labelled an idiot and/or liberal). If there's one thing that history has shown us, it's that no one can accurately or consistently predict the direction of the economy. You certainly can't.

29 posted on 04/29/2002 8:54:53 PM PDT by Vigilant1
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To: DeaconBenjamin
When the world employed a bimetallic standard (gold & silver) between 1815 and 1914, the exchange rate between nations was unbelievably stable, which dramatically promoted the development of world trade

Well we certainly can't have that now can we. Besides, what would all those currency traders do for a living?

Since World War I, and particularly since the collapse of Bretton Woods, businesses involved in international trade have been forced to consider currency fluctuations in determining the "bottom line" success or failure of their exchanges of product or services for currency.

I can almost see a light go on every time I point this one out. The increased efficiencies would plug a huge drain from the system.

30 posted on 04/29/2002 8:56:55 PM PDT by getsoutalive
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To: shrinkermd
A currency's backing seems less important in light of alternative mediums of exchange that are aloud to compete. In my view, the Fed would serve our long term economic interests better if it acted as a currency clearinghouse, issuing a common unit of currency according to the value of many competing currencies, whatever their backing. Politically speaking, let us not forget the main reason for central banking: public finance, which, depending on your ideology, translates into national security. Of course, we pay a little insurance premium every day for such security as the currency is gradually diluted. Is it worth it?
31 posted on 04/29/2002 9:05:03 PM PDT by The Big Econ
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To: ghostrider
You sure stirred up a lot of heffer dust with what, in my humble opinion, is a bull crap article.

Well said.

32 posted on 04/29/2002 9:56:59 PM PDT by Deuce
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To: getsoutalive
The increased efficiencies would plug a huge drain from the system.

Exactly.

The trillions of dollars in currency derivatives required to protect the productive sector from the adverse effects is a measure of the tribute that the fiat purveying parasites extract from the host organism. It's somewhat reminiscent of the tribute that shop keepeers paid in Capone's Chicago for "protection."

33 posted on 04/29/2002 10:15:37 PM PDT by Deuce
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To: TAP ONLINE
Amen. Amen and Amen to that! "Governments always seek control...." Absolutely. The inflation rate in this country is astronomical. The only reason for inflation is the government PRINTS too much money.

The idea that there is not enough gold to support our economy is misguided. The price of gold will fluctuate with the economic activity of the country. If things go well, then the price of gold will rise to meet the activity. That way, individuals who hold gold will profit from the good economy. It would be an incentive to go out and be productive. Making the economy perform would be a national pastime to make the value of their gold rise. I see nothing but good things in that.

The government has in the past banned the ownership of gold coins for a very good reason. They know that the "MONEY" they are printing is nothing more than debt instruments used by international bankers to control us. If you own gold, then you are independent of their plans and that cannot be tollerated.

I would much rather have been payed in gold for all my work. By now I would have had enough real money to buy anything I would care to buy. For example, a person buying an automobile in 1920 would pay about $450.00 for a Model T. If you took $450.00 in 1920 and bought gold coins with that money, you could pay cash for a new car today. That is the power of inflation tax that the government is doing to us when it prints worthless debt instruments called federal reserve notes.

For a good historical backgound of the non "FEDERAL RESERVE", read "THE CREATURE FROM JEKYL ISLAND" by G. Edward Griffin.

34 posted on 04/29/2002 10:52:19 PM PDT by Radioactive
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Comment #35 Removed by Moderator

To: shrinkermd
Bump. But still the Fed should be abolished let interest rates go back to the free market.
36 posted on 04/29/2002 11:03:23 PM PDT by weikel
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To: TAP ONLINE
The biggest problem I see with the U.S. Government in whole is the checks and balances the Founding Fathers of the American Nation put in place in the U.S. Constitution are being trampled by the people that the citizens vote into office.

Congress has way too much power to tax. Get rid of the heavy taxation (Socialism) and you will see much more prosperity.

37 posted on 04/30/2002 12:44:15 AM PDT by 2nd_Amendment_Defender
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To: shrinkermd
This article is a lot of doublespeak garbage.Gold rules!
38 posted on 04/30/2002 2:05:37 AM PDT by taxtruth
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To: Radioactive
For a good historical backgound of the non "FEDERAL RESERVE", read "THE CREATURE FROM JEKYL ISLAND" by G. Edward Griffin.

Creature... is an excellent book. For something with a similar theme that integrates more recent developments, see, Special Privilege.

39 posted on 04/30/2002 6:01:34 AM PDT by Deuce
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*bump for later*
40 posted on 04/30/2002 6:36:54 AM PDT by Yardstick
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