"ZUT ALORS! Ah would lak to 'ave a BAHOG!"
Posted on 08/16/2007 8:44:52 AM PDT by .cnI redruM
Republican Presidential Candidate Ron Paul has made politics a lot more interesting this year. He believes a lot of things the GOP establishment doesn’t, and his entry into the race has made people discuss ideas that wouldn’t otherwise get put into the public forum. I salute him for contributing, but would rather take a pass on one his least useful contributions. Ron Paul has suggested taking the United States Dollar back on the Gold Standard and doing away with The Federal Reserve.
For some reason, this whole debate over Ron Paul's platform and on full-bodied and specie-backed currencies, reminded me of a course I took in Medieval History. One text, Mohammad and Charlemagne, by Henri Pirenne, had significant input on the impact of Islam's capture of North Africa and Spain on the currency of France.
Like America's economy today, the French economy, even under the Merovingian Dynasty, had a constant requirement for an expanding money supply. This was to do what any money is supposed to do; provide a medium of exchange, establish a baseline standard of value and store wealth.
Had the Merovingian French been content with the M1 the Romans left behind, as they fled before Theodoric, Gaiseric and Attilla with the same doomed finality with which the last US helicopter lifted off the embassy roof in Saigon, Henri Pirenne's historical masterwork would not inform a modern audience of the economic consequences implicit with Gresham's Law. Instead, the French expanded their economy and their currency in circulation, without appreciably expanding their supply of precious metals to support the circulation of these funds.
Prior to 476 AD, Rome had mined significant portions of its gold and silver in Hispania. They used these metals to back the Imperial Aureus. As long as the Romans kept digging gold as fast as they opened new markets, the Imperial Aureus was to ancient world currencies what Caesar's 10th Legion was to brutal, close infantry combat. When the currency fell behind the rate of expansion, the part of the world formerly in the Western Roman Empire met its economic Adrianople, as would be predicted by Gresham’s Law.
Gresham’s Law states that good money drives bad money out of circulation. A more accurate formulation thereof might read that money overvalued in proportion to its specie content is a great medium of exchange for the buyer, but a poor store of value for its recipient. I’ll hand you coins made out of rock all day, if you’re dense enough to give me a tall mug of ale in return. By the time Charlemagne took over as Holy Roman Emperor, buyers in France were literally attempting to find people gullible enough to take their coins chiseled out of rock.
The converse of Gresham’s Law states that coins with more specie than required to support their accepted value tend to leave circulation rather swiftly. These coins are storing more value than they will bring in exchange. Some merchants in modern America would really rather not bother with the pennies put in circulation in 2007. These same people would take a mint condition 1941 Wheat Penny off your hands in a heartbeat.
A hyper-accelerated version of this process occurred in Merovingian France. Once the Islamic conquests separated France from a steady flow of precious metals, the French currency went the way of Jacques Chirac’s moral integrity. The powerful nobles and the growing church took gold and silver coins out of circulation through taxes, tithes and blatantly unfair confiscation. The peasants and serfs got left to go chisel coins out of whatever specie they could find.
The end result of this downward spiral was a decadent Merovingian monarchy ruling over a desolate, impoverished peasantry that couldn’t read, couldn’t write and didn’t understand a word of the mass they attended on Sunday. Economic policy like this kept the Dark Ages of Europe ineluctable for several centuries. When a specie-backed currency doesn’t have enough specie, this is where people can end up.
Modern America would never be leveled the way the Merovingian France was by the rise of the Muslim Caliphate without a nuclear conflagration. We are blessed with land, resources and population that Medieval France could never even dream of. However, before considering a specie-backed currency, we should take a good, hard look at where the world gets its specie.
Modern America currently circulates $7,243,000,000,000 in currency. The current spot rate for an ounce of gold is $654.90 per ounce. That makes gold sell for $10,478.90 per pound. This means the US would require 345,600 tons of gold on reserve to back our current currency float; assuming we take no reserve risk.
The United States currently holds 8,133.5 tons of Gold. The current worldwide governmental holdings of gold for the 40 largest governmental reserves total 29,846.70 tons. The United States could only back less than 3% of it’s current M2 without acquiring more gold. This would leave us vulnerable to currency devaluation as predicted by Gresham's Law.
Simply put, Congressman Ron Paul longs for a simpler time when the US Government did not deeply involve itself in every aspect of our daily lives. On a philosophical level, I strongly sympathize with his concerns. On a more practical level, I’d like to hear his plan on for acquiring the 28,000 tons of gold the United States would require going back on the gold standard and only taking a 90% currency risk. That would probably be sufficient to insure that modern America and Merovingian France continue to have very little common economic history.
Ain’t never gonna happen—but we can dream and believe =-(
That's incorrect. In fact, that's exactly the opposite of Gresham's Law.
..and there is one of the rubs.. along with that we must hold that gold, and the world market for the value of gold isn't inflated or deflated. Value (in relation to price), unlike quantity, is an abstract.
He simply ignores all practical reality to cling to how he feels things should work. That is a dangerously naive and ignorant world view. Like his followers, Paul simply ignore the facts to cling to his dogmas.
This sort of inability to deal with the world as it is, rather then how he wishes it, makes him unfit for the office he NOW holds in Congress, much less any higher office.
interesting the role lack of specie played in colonial America as well.
I am sure Ron Paul’s pal Alex Jones knows how to get it.
If each of these were valued at current market rates for the sell of those assets, then that amount of money converted back to gold ounces as a pure book keeping exercise, you would then have a value of the US assets in the equivalent of gold ounces. That would allow for a realistic holding and benchmarking of an asset based currency without the strict need to hold gold in reserve.
An interesting idea. It sort splits the difference between a fiat and a specie-backed money. I would worry about the externalities of currency fluctuations on the markets of some these commodities. Particularly, if they had strategic or economic impact.
"ZUT ALORS! Ah would lak to 'ave a BAHOG!"
Now, I don't hold any imaginings that there is any chance that we'll ever see a specie backed currency again, but... To use the current price of gold in current dollars to "prove" that we can't possibly hoard enough gold to back our currency is a fruitless calculation and proves nothing whatsoever. It's simply an irrelevant calculation and a waste of your time typing in the numbers... the current value of the dollar has no relation whatever to the value of a species backed currency which might replace it.
This entire posting is a waste of time and doesn't even string rational thoughts end to end.
(non coupable)
I was thinking of a bit later, like when George Washington shifted out of tobacco production at Mount Vernon to general crops; also, obviously, the slave trade
This is gonna be fun...the goldbugs are a’comin!
Somewhat off-topic, but Ron Paul ran for President on the ticket of the Libertarian Party back in 1988. Does anyone know in which state Dr. Paul earned the highest percentage of the vote, coming to within 57% of winning the state’s electoral votes?
You know, wacky things like the relevance of the Second Amendment, the rule of law, the applicability of the US Constitution, the right to life of the unborn, and all that jazz.
I've always heard the opposite stated: bad money drives good money out of circulation if both are legal tender. If I could use either precious metals or green paper to pay my bills, I'll keep the gold and use the paper. I would hope that my boss would do the opposite, but wouldn't expect it.
Gold's benefit is that governments can't just create more when they feel like it to shift value from those who have saved money to those who owe money (especially the government itself). The disadvantage is that it can't just be created when the economy grows and would benefit from having more gold being circulated, thus leading to deflation with all of the hoarding of money for "later when prices drop" associated with it.
Considering that an ounce of gold used to be $20, it becomes quite clear how thoroughly we have been ripped off in the days since 1913.
Then you’d know exactly how much gold has appreciated or depreciated since.
More than just populism, he was arguing for an inflationary monetary policy. A lot of silver was being added to the supply by mining (I think mainly in Nevada at the time), but there weren't any recent major gold finds. Thus using a silver standard was inflationary while the gold standard was deflationary. By Gresham's Law, any bimetal silver/gold standard would become a defacto silver standard as people held their gold and spent their silver.
The question became moot when the Klondike gold strike happened and for a while both gold and silver standards were inflationary.
Does Rep. Ron Paul advocate a return to chattel slavery, prohibition, a navy of square rigged sailing ships, sufferage for only property-holding white men and using horses & buggies as well?
Gold has appreciated at a rate of 1.63 times the rate of inflation.
What’s wrong with getting rid of the Fed?
Also, what if the price of gold falls? Why not use silver instead?
I'm no RonPaul supporter, but still, I do not think that the underlying premise of your argument here is sound.
There is enough gold in Nevada to put a dent in the requirements, on BLM-controlled land, that the government could offer a fixed profit to the mining companies for the extraction. The government could then require that the gold be smelted and handed over to the government in good delivery bars.
There’s at least 120 million troy ounces of identified reserves on the Eureka-Carlin trend in my backyard alone, waiting to be mined. About 60 million troy ounces have been mined on the Eureka-Carlin trend to date. There’s plenty of other gold trends in Nevada.
If you follow the chain of ownership of many of the mining companies mining this gold in Nevada, you find that they are Canadian-owned operations. The first thing we should do is quit allowing other countries to extract our gold and keep the profits from same. The second thing we can do is use the gold to our advantage.
http://www.reviewjournal.com/lvrj_home/2002/Apr-20-Sat-2002/business/18566314.html
Plus a few the democrats like. Blaming the USA for 9-11, not supporting our troops in a time of war and 8 million dollars for his earmarked shrimp.
Just a thought.
Wow... what a fundamental lack of knowledge of economics!!!
There is a reason why we went away from it. As far as I know, no other country has a gold standard either.
Aside from the fact that it would wipe out the investment that anyone has in gold, the cost of deflating the currency to match the gold reserves of the USA would be massive economic disruption. If you think that inflation is bad — and there is a considerable body of evidence that it isn’t bad when under control — then just try deflation! Can you imagine buying a house for $100k, knowing that the worth of the house went DOWN every year? Can you imagine depreciate plus deflation? Can you imagine your boss giving you a pay cut every year?
Question 2)The problem with any commodity-backed currency is that the government has to hold a monopoly on the commodity (or at least a very strong market position) to prevent other countries from telling us what our currency is worth.
Although, and perhaps this is worth examining more closely in the future, China tried to manipulate our currency by threatening a large dump of US Treasuries back onto the market. Bernanke’s response was to tell them he would collatoralize anything they dropped without hesitation.
Without a Federal Reserve Bank, China could manipulate our currency in exactly this fashion. We wouldn’t have any counter-measure that could go into effect within minutes, and prevent a major liquidity crunch in our market.
“Simply put, Congressman Ron Paul longs for a simpler time when the US Government did not deeply involve itself in every aspect of our daily lives. On a philosophical level”
And on that, Republicans agree with him. The problem is that Ron Paul is the Louis Farrakhan of the GOP....70% of what he says makes tremendous sense, but the other 30% is so blatantly, batsh!t insane that you can’t take him seriously.
Hey, us property-holding white men have to suffer quite a lot these days - oh, you meant "suffrage", never mind :0)
Spell check is my friend...sometimes.
Is there 345,600 tons of gold even in existence?
In fairness to gold standard supporters, and as I speculated at the end of the post, you only need about 10% of that to handle most redemption runs against the banking system. 34,560 tons of gold would still probably bury The National Depository at Ft. Knox. I’d rate going on to a gold standard as logistically impossible.
You are absolutely correct.
Typical ore levels run from 0.02 oz to 1+ oz (troy) per ton of material moved.
This sounds like a pissant amount of gold that boggles people’s minds — they’re expecting to see nuggests, or flakes, etc. They can’t see how 0.05 oz/ton of dirt can be profitable.
Most people have no idea how modern mining in Nevada works, and the way it works is this: you move huge amounts of dirt, pile it up, dribble cyanide on it, collect the cyanide+gold in solution, pass it through activated carbon to glom onto the gold, burn off the carbon and wha-la — there’s your gold.
Most people who haven’t been out here in the west have no idea how much earth these open-pit mines move in a day, whether we’re talking about the coal mines in the Powder River basin, or gold heap-leach mines in Nevada. Think of dump trucks that can haul anywhere from 180 to 340 tons in one load; huge electric-over-hydraulic shovels that can fill one of those trucks in three scoops. The trucks have 1,000+ gallon fuel tanks, the mines using 20,000+ gallons of diesel fuel per shift.
My point is, the gold does exist. It does exist here in the US. Much of it even exists on “public” lands — ie, where the US government can say “Hey — we want a cut, and you’re going to give it to us, without any whining, or you don’t get to put the first shovel into the ground.”
BTW — when I say “in my backyard” — I mean I live on the Eureka-Carlin trend. We own only a square mile of land, and 50% of the mineral rights thereupon, but I point out the Eureka-Carlin trend because it is a world-class gold deposit, as well as other minerals. A mountain only about 20 miles north of us contains 10% of *all* identified moly reserves in the entire world. The major gold mines on the E-C trend fully expect to pull out 10’s of millions more ounces in the next 10 to 15 years - EACH.
Again, this is only one trend in Nevada. We have gold-rich deposits all over the state, just not as widespread as the E-C trend. There are significant gold deposits in the Dakotas. If we wanted to monetize gold, we could do it, with effort. I’m not going to blovate that it would be “easy” — no, it wouldn’t. But to say that there is “no way” to make it happen just isn’t the case. People forget that there’s more to Nevada than gambling and whores. Truth is, mining is our #2 industry in the state, after gaming. The rural counties in the center/northeast of the state have huge mines, with open pits so big that you could drop most towns of population 50K or more down in the hole and you’d have to listen on a calm day to hear the “thud” when the town hits bottom.
The point is not to have a dollar of gold for every dollar. The point is to base the dollar’s value on something substantial, not floating in the ether.
Gold and silver were used as a basis of currency because their value do not change over time. An ounce gold coin in ancient Greece or Rome would buy a nice toga, a good pair of sandals and a belt. Today, an ounce gold coin would buy a nice suit, a good pair of shoes and a belt.
Can’t we tie it to other metals like aluminum?
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