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If The Gold Standard Is So Great, Why Aren't We On One Now?
Forbes ^ | 05/21/2011 | Nathan Lewis

Posted on 05/21/2011 9:18:55 AM PDT by SeekAndFind

Sometimes people ask me: If the gold standard is so great, why aren't we using it right now?

This is a good question. The basic answer is that it would prevent central bankers, and governments, from doing something they have become very fond of over the past several decades--attempting to solve their economic difficulties with some sort of "easy money" policy. You can see this remains very popular today.

The Classical viewpoint is that any form of currency instability causes economic problems. An economy functions best when the currency is as stable and reliable as possible. In practice, this always means a gold standard system because that is the most effective way to achieve these goals in an imperfect world.

The Mercantilist viewpoint is, you could say, the complete opposite. Mercantilists don't see currency instability and monetary fiddling as problems; they see them as solutions. A gold standard system prevents them from implementing this apparent solution, which is why they sometimes refer to the "golden fetters" that used to hold them back.

Both of these ideas are literally thousands of years old. People were trying to solve their economic difficulties with currency fiddling in ancient Greece and China, in the 7th century B.C. or earlier.

Which is correct?

(Excerpt) Read more at forbes.com ...


TOPICS: Business/Economy; Constitution/Conservatism; Culture/Society; Government
KEYWORDS: currencies; gold; goldstandard

1 posted on 05/21/2011 9:18:57 AM PDT by SeekAndFind
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To: SeekAndFind

2 posted on 05/21/2011 9:23:09 AM PDT by blam
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To: SeekAndFind

I believe Switzerland is the only country that has ever successfully kept a Gold standard. Having currency based on a single commodity is a big risk because it can easily be influenced by outside events. If we went to a commodity based currency, I would rather see it as a broad spectrum instead of just one.


3 posted on 05/21/2011 9:27:31 AM PDT by mnehring
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To: mnehring

having currency based on a worthless piece of paper issued by a banking cartel is not a big risk?


4 posted on 05/21/2011 9:31:07 AM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: mamelukesabre
A currency that should be based on the full faith and credit should be less of a risk because it can survive one area within the economy crashing. Having a currency based on a single commodity is a greater risk because if that one single commodity is manipulated it could crash that currency. Historical reference, see how Soros destroyed the Pound Sterling. That isn't an excuse for ours becoming a debt based currency or saying it is great- a Gold standard just isn't the panacea that people think it is.
5 posted on 05/21/2011 9:37:03 AM PDT by mnehring
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To: mnehring

we never had a gold standard. we had a silver standard. it never failed us.


6 posted on 05/21/2011 9:38:27 AM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: mnehring
If we went to a commodity based currency, I would rather see it as a broad spectrum instead of just one.

I have wondered if we could inject some stability into the currency if we would mint large denomination circulating coins. Say $500 gold coins, $10, $25, $50 silver and perhaps even $5 copper.

The face value and commodity content would need to be set at the commodity price on a certain date so if on that date gold was $2000 an ounce the $500 coin would need to be a quarter or fifth ounce (depending on purity)

This would be akin to the gold and silver certificates that you used to be able to exchange for gold and silver at your local bank. It would establish a competing currency to the paper dollar and therefore cause market pressure to make diddling with the currency less attractive.

7 posted on 05/21/2011 9:39:37 AM PDT by Cowman (How can the IRS seize property without a warrant if the 4th amendment still stands?)
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To: mnehring
A currency based on the "full faith and credit" is a recipe for slavery at the hands of an oligarchy.

It's no accident that the federal Income Tax amendment was passed (allegedly) at about the same the Reserve bank was created: the latter depends on the former for its collateralization.

The collateral is us and our labor. But we don't get to decide how much we get mortgaged for: the bank and its private owners do. We just get handed the bill, called "income taxes".

If that isn't slavery, don't know what is.

8 posted on 05/21/2011 9:46:29 AM PDT by Regulator (Watch Out! Americans are on the March! America Forever, Mexico Never!)
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To: SeekAndFind

It’s the simplest answer one can give. We aren’t on it because it would require that our dollar be backed by something somebody really wants versus lies that he and little Timmy G tells us. They wouldn’t be allowed to print scrip on toilet paper anymore.


9 posted on 05/21/2011 9:48:23 AM PDT by Gaffer
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To: Cowman

If we are going to re-peg the dollar to metals, I prefer we do it the way it was. Silver quarters and dimes, copper pennies and nickel nickles. But to do that the dollar needs to gain a whole lot of value first.

A basket of commodities sounds like an OK method as long as there are ONLY metals in that basket...say copper, nickel, silver, gold, lead, and zinc. Maybe platinum, palladium and other platinum group metals.


10 posted on 05/21/2011 9:52:12 AM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: Cowman

Which of course is the solution.

* The only money system that will remain stable for more than a few decades is one that is selected, or continually re-selected by the Free Market.

* To have a free market in money, you need *competing* forms of money.

* So we need to allow fiat currencies, salinas-style Libertad silver money, digital calls on audited Gold or Silver, anything else the Free Market can dream up. Allow any system of money agreeable to both buyer and seller. DISALLOW any form of government intervention whatsoever in the allowed forms of money.

* The only form of money that Government has a say in is what taxes get paid in and what their contractors, employees and dependants get paid in. Government can’t dictate to 3rd parties what money they may use - and specifically they can’t declare any piece of paper (such as a Federal Reserve Note) good for settling debt between 3rd parties.

* audit the private company known as the ‘Federal Reserve’. Allow anybody who wants to to compete with the Federal Reserve - which shouldn’t be hard as they do frack-all.


11 posted on 05/21/2011 10:01:58 AM PDT by agere_contra ("Debt is the foundation of destruction" : Sarah Palin.)
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To: mnehring

We are on one. We have always been on the Gold Standard. The Fiat Currency is the problem.


12 posted on 05/21/2011 10:05:54 AM PDT by screaminsunshine (Shut up and eat your Beans!)
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To: SeekAndFind

We’re not on the gold standard because you can’t print gold and inflating the currency is one of the primary ways the government asserts control


13 posted on 05/21/2011 10:18:32 AM PDT by muir_redwoods (Somewhere in Kenya, a village is missing an idiot)
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To: SeekAndFind

Because going back on the gold standard would slow and probably stop the advance of world collectivism.


14 posted on 05/21/2011 10:22:12 AM PDT by Jack Hydrazine (It's the end of the world as we know it and I feel fine!)
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To: agere_contra

Which of course is the solution.

* The only money system that will remain stable for more than a few decades is one that is selected, or continually re-selected by the Free Market.

* To have a free market in money, you need *competing* forms of money.

* So we need to allow fiat currencies, salinas-style Libertad silver money, digital calls on audited Gold or Silver, anything else the Free Market can dream up. Allow any system of money agreeable to both buyer and seller. DISALLOW any form of government intervention whatsoever in the allowed forms of money.

* The only form of money that Government has a say in is what taxes get paid in and what their contractors, employees and dependants get paid in. Government can’t dictate to 3rd parties what money they may use - and specifically they can’t declare any piece of paper (such as a Federal Reserve Note) good for settling debt between 3rd parties.

* audit the private company known as the ‘Federal Reserve’. Allow anybody who wants to to compete with the Federal Reserve - which shouldn’t be hard as they do frack-all.
~~~~~~~~~~~~~~~~~~~~~~~~~~

I have to say I like this logic. We can debate all day long, but in the end the truly american and capitalist correct answer is LET THE MARKETS DECIDE. problems are a result of letting the so called experts convince us to let a few “anointed ones” call the shots.


15 posted on 05/21/2011 10:39:50 AM PDT by mamelukesabre (Si Vis Pacem Para Bellum (If you want peace prepare for war))
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To: mnehring
I believe Switzerland is the only country that has ever successfully kept a Gold standard.

Nope, the Swiss Franc is a fiat currency.

Swiss Franc

...

The Swiss franc has historically been considered a safe-haven currency with virtually zero inflation and a legal requirement that a minimum of 40% be backed by gold reserves.[8] However, this link to gold, which dates from the 1920s, was terminated on 1 May 2000 following a referendum.[9] By March 2005, following a gold selling program, the Swiss National Bank held 1,290 tonnes of gold in reserves which equated to 20% of its assets.[10]


16 posted on 05/21/2011 10:49:46 AM PDT by Yo-Yo (Is the /sarc tag really necessary?)
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To: blam

We could institute a B.S. standard, we have plenty of that, and we can increase it easily as needed.


17 posted on 05/21/2011 11:36:55 AM PDT by SaxxonWoods (Throw away your papers, blow up your TV...and set yourself free.)
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To: SeekAndFind

I have a better idea of a logical basis for currency, one that is better than the current fiat, or “faith based” currency in use.

Way back when, an idea called “mercantilism” arose, which simply meant that those countries with the most specie, gold and silver, were the most powerful, because the more specie they had, the more army and navy they could afford.

In most every book on economics, mercantilism is mentioned, and is said to have died out, mostly because there is just not enough specie to go around.

But in the modern scheme of things, specie no longer plays such a critical part, compared to other commodities, such as oil and food.

So instead of thinking that mercantilism has died out, instead imagine it as having *expanded* to having far more bases than just specie.

But would this “expanded mercantilism” automatically impoverish resource poor nations? Not really. Because raw materials are worth much less than processed and finished goods. While a resource wealthy nation might mine iron and make it into steel, a resource poor nation might buy that steel, and make it into automobiles.

In fact, resource wealthy nations would be at something of a disadvantage, unless they also “value enhanced” the products they made.

An easy way to see this “expanded mercantilism” in practice, is to look at the Gulf oil states. While they pump and ship a lot of crude oil, they actually don’t get as much profit as they could from this resource. That is, imagine if instead of selling crude oil, they refined it themselves and sold the refined products: gasoline, home heating oil, jet fuel, etc., they would make much, much more profit.

An important lesson about “expanded mercantilism” is little known means by which Ronald Reagan broke the Soviet Union—with wheat.

The Soviets could never overcome their stupid philosophy that the communist-style farm *had* to be better than the wage farm or the free enterprise farm, so they had a perpetual shortage of grain for both themselves and their farm animals, on which they were very reliant, to eat.

Reagan got some very harsh criticism from both the left (pandering to the farm vote), and the right (helping the Soviet Union), by opening the flood gates to unlimited grain sales to the Soviet Union.

The Soviets were far too paranoid to eat US grain, but they would feed their animals with it, and divert their food to human consumption.

Expensive US grain. It began by Russia giving us all their gold, for wheat. They rapidly drained their gold reserves, so they began to dredge their river deltas for more, and every bit went to the US. But it was not enough.

Soon, more and more Soviet crude oil went to the US as well, eventually almost all of it. But it was not enough. All their foreign currency reserves went to the US. The effect was like a vampire, draining their economy dry. And all for wheat.

Then finally, when their purse was empty, Reagan announced his Star Wars program, and it broke their will. No way could they match this. They were impoverished. They gave up.

So as you can see, wheat can be just as powerful as gold and silver.

Today, most people could make a common sense judgment about what commodities and even services should be part of an expended mercantilism system. But no matter what was used, by being “reality based”, instead of “faith based”, would mean that it would be far less prone to monkey business, speculative gambling, or government manipulation.


18 posted on 05/21/2011 11:50:48 AM PDT by yefragetuwrabrumuy
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To: SeekAndFind

“If the gold standard is so great, why aren’t we using it right now?”

There’s a twofold answer to this question. It’s perhaps overly simplistic, but it is sufficient to understand why the US and the rest of the world is not on a gold standard.

First, a gold standard enforces a discipline upon all economic actors, even governments. If there’s one thing that governments and politicians hate, it’s discipline.

Second, certain economic actors benefit from a fiat monetary regime. These include politicians and “civil servants”, of course, but also government contractors of all varieties, commercial banks, and highly leveraged financial entities like investment banks and hedge funds. Beneficiaries of a fiat monetary regime tend to be those with the greatest political pull, though they can readily co-opt penniless, indigent, and slothful folks who have nothing to lose from a corrupt monetary regime.

And who does the fiat monetary regime hurt? Only the prudent, the frugal, and the industrious, the savers and investors, the inventors and entrepreneurs. Who needs people like that?


19 posted on 05/21/2011 11:55:15 AM PDT by Skepolitic
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To: Cowman

If you had a currency made out of precious metals and denoted in some at-the-time realistic dollar value, and side by side with that a fiat currency also denominated in dollars, you’d run into problems immediately, because

1. Gresham’s law. The value of two currencies would soon float apart, and the lesser value currency would be traded while the greater value currency would be ‘hoarded.’

(By the way, when I say “value” I mean percieved or subjective value, since there is no other kind.)

Generally, it would be the metallic currency that would increase in value and thus be hoarded. FDR had to confiscate gold in the 30’s because of this. (As an amusing side note, FDR and his band of thieves didn’t get it all—surprise, surprise! But they adopted the fiction that they did get it all, and that became the basis for the estimate of the amount of gold in the U.S.)

2. Now, why would somebody hoard a “$100” gold piece and spend a “$100” bill? Because he could! Legal tender laws would throw in jail anyone who demanded the gold piece and refused the bill, so guess which currency the holder of these two pieces would foist off on the seller, and which one he’d hold onto, anticipating a future seller who would be willing to flout the legal tender law.

Maybe that future seller would accept the $100 gold piece in lieu of ten $100 bills, making him a criminal in the eyes of the kleptocracy.

Now, all of the above assumes that the value of the paper currency would plunge due to conterfeiting by the government. But that’s kind of a safe bet, wouldn’t you agree, since it’s the whole reason they set up fiat money in the first place.


20 posted on 05/21/2011 12:18:52 PM PDT by Erasmus (I love "The Raven," but then what do I know? I'm just a poetaster.)
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To: SeekAndFind

The bankers cannot plunder a nation that is on a gold standard. They NEED fiat money like the “Federal Reserve Note” that they can manipulate at will.


21 posted on 05/21/2011 12:30:20 PM PDT by CodeToad (Islam needs to be banned in the US and treated as a criminal enterprise.)
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To: mnehring
A currency that should be based on the full faith and credit should be less of a risk because it can survive one area within the economy crashing.

Full faith and credit to do what? Hand you yet another piece of colored paper? The only faith you can have is that the Fed doesn't print so many of these colored bits of paper (or the electronic equivalent) that the value goes to zero. And that's a fairly silly faith to hold since the the Fed has let the dollar fall by 98% since it's inception.

The 'full faith and credit' used to refer to belief that the US Treasury would trade you 1 oz of gold for every $20 on request.

'full faith and credit' is faith in the people who run the Fed. Their objective was a stable dollar, which they did not accomplish. After the Humphrey/Hawkins bill, they added the task of ensuring full employment. They can't do that either.

On what basis would anybody have faith in the Fed? Only the bankers that the Fed protects.

22 posted on 05/21/2011 4:13:59 PM PDT by slowhandluke (It's hard to be cynical enough in this age.)
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To: mnehring

I distinguish between a “modern” gold standard where the supply of a nominally fiat currency is tied to gold prices vs. the gold coin or deposit notes that is more susceptible to to fluctuations due to changes in supply. Both are probably better than what we have now where the high priest of monetary policy determines money supply.


23 posted on 05/21/2011 9:30:01 PM PDT by garbanzo (You better hold on; This one's about to get bumpy.)
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To: SeekAndFind

A precious-metals based currency can still be debased . . . just ask the Romans!

A precious-metals based currency can exist for a thousand years . . . just ask the Byzantines!


24 posted on 05/22/2011 1:34:59 PM PDT by hripka (There are a lot of smart people out there in FReeperLand)
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