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What Ron Paul Wants: A Quartet of U.S. Currencies
Daily Finance ^ | Jan 3, 2011 | Peter Cohan

Posted on 01/04/2011 9:49:48 AM PST by Toddsterpatriot

In the new Congress, Ron Paul (R-Texas) will head the House committee that oversees the Federal Reserve. Thanks to the title of his book, we know he wants to end the Fed and paper money. But what will he replace it with? The short answer: metal-based currencies.

I recently participated in a hour-long radio debate on the Progressive Radio Network's Freedom News Hour with two Paul supporters who wanted to take me up on the challenge of being proven wrong in my disagreements with seven of Paul's points about the Fed. I really enjoyed this debate and learned some important things.

Of these, none is more significant than what my debate partners believe Paul would do if he could end the Fed. According to them, Paul isn't ready to go directly back to the gold standard. Instead, he wants to keep the dollar and add three more currencies. Those would be based on gold, silver and copper.


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


TOPICS: Business/Economy; Government
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To: ex 98C MI Dude
"From 1866-1896 was a period of persistent mild deflation. We were expanding fast as a nation, and the gold/bimetallic standard was unable to keep up, even as new sources of the metals were discovered. That is one of the chief disadvantages of the gold/silver standards. Limited monetary supply and debasement are its two greatest flaws."

Those are two very great flaws, but I'd add another, the inflexibility on monetary policy relative to fiat money.

We were expanding fast as a nation territorial wise, but economically not so much..."The Long Depression is sometimes held to be the entire period from 1873–96."

List of US recessions

Business and the market will eventually forecast and attempt to factor in future deflation or inflation. But deflation is insidious in that it incents people to hold capitol in currency instead of investing it. If you can make 3 or 4% by just holding on to dollars, why invest? Persistent deflation makes for an economy with a very inefficient use of capitol.

"Today's has the great flaw of debt piled upon debt until the current system comes apart because of???

But I don't see that as a limitation of the gold standard. There is nothing to stop congress from borrowing and promising that our children will pay the chinese back in gold. No monetary system will stop congress from borrowing. Only a determined citizenry can do that.

But they are bailing water right now, not fixing the holes. Congress is supposed to do that, and they haven't.

Exactly on Congress. But I don't see the Fed as really bailing water yet because of congressional spending. The FED has kept inflation down, telling me they aren't bailing due to congressional spending.

And while QE does raise inflation fears, I see QE as more a response to current unemployment situation. And I don't see the current unemployment as a result of congressional borrowing, but rather as the result of unwise trade policies, a failure to prepare for the oil price shock, and a failure to regulate derivatives and abusive credit practices.

51 posted on 01/04/2011 1:05:06 PM PST by DannyTN
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To: DannyTN
But I don't see that as a limitation of the gold standard.

The gold standard doesn't prevent any of this anyway because it doesn't count for 1.Changes in supply within the market, 2.People's perception of the value, & 3.Government manipulation of the value through controlling the production cycle. Having the currency based on a fixed point like this is even riskier as only one commodity needs to be manipulated to crash an economy.

Imagine a scenario where we have our currency based on gold, and ten years down the future, a South African mine hits a major vein and dumps 500 tons into our market. It would, over night, greatly devalue our currency. Or worse, what if there were a mining disaster in Peru and the courts there immediately froze all mining, with other countries following. Even a temporary freeze would impact the supply and affect value. The result of course would be the government comes in and manipulates the value by printing the 'gold notes' on credit to protect(sic) our economy.. and we have the federal reserve cycle all over again.

52 posted on 01/04/2011 1:12:44 PM PST by mnehring
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To: mnehring
"There is a misconception by those who push the Austrian school of economics that it states going to a single commodity standard would eliminate inflation, deflation, recessions, etc. In actuality, the Mises/Hayek Business Model Theory (basis for Austrian economic theory) specifically states there will be inflation, deflation, recessions depressions that happen, and must happen, as market regulators."

So if inflation, deflation, recessions and depressions must happen, why switch to a gold or metals standard? What possible advantage could it have? The only advantage I see is to the largest gold producer which is the Chinese and maybe the currency traders like Soros.

53 posted on 01/04/2011 1:15:38 PM PST by DannyTN
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To: Toddsterpatriot

Dunno. How would the gold conversion work?

Gold, beyond a few industrial application, has value only in the mind. Its pretty and its rare but it has almost no utility.

That’s why I was thinking a commodity should be used instead.


54 posted on 01/04/2011 1:18:57 PM PST by Little Ray (The Gods of the Copybook Heading, with terror and slaughter return!)
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To: mnehring
"Having the currency based on a fixed point like this is even riskier as only one commodity needs to be manipulated to crash an economy."

I agree, I think a commodity based currency is very risky. And I see Ron Paul's 4 currency scenario as only slightly better. I still see the current Federal Reserve scenario as the best model I've seen.

It won't reign in congressional spending, but commodity based currencies wouldn't do that anyway. And we'd just legislatively pop off any commodity based currency at the first crisis anyway.

55 posted on 01/04/2011 1:20:12 PM PST by DannyTN
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To: DannyTN
Those are two very great flaws, but I'd add another, the inflexibility on monetary policy relative to fiat money.

Which is why we had to leave the gold standard in times of crisis.

But I don't see the Fed as really bailing water yet because of congressional spending. The FED has kept inflation down, telling me they aren't bailing due to congressional spending.

That may well be true. I really don't know enough about the subject to argue against it.

56 posted on 01/04/2011 1:22:54 PM PST by ex 98C MI Dude (Alea Iacta Est)
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To: VegasCowboy
"How about we just require a balanced budget at the Federal level, and let the Fed do it's thing in tweaking money supply to account for economic growth? Isn't it that simple? "

I think that it is almost that simple. And that hard.

I think the term balanced budget implies to a lot of people not spending more than we take in. But really it implies you just have a plan on where you're going to get the money.

In other words, tax revenue forecast 10% + projected massive borrowings 90% = projected massive spending 100% is technically a "balanced budget".

We always need a balanced budget. But we need more than that. We need spending restraint and fiscal responsibility in the good times, so that we have means in the bad times.

I would never want to tie congress's hands from borrowing in case we have a war and we need to. I think a lot of people want a gold standard because they think it would stop congress from overspending. But only electing people of good character is going to do that.

57 posted on 01/04/2011 1:27:19 PM PST by DannyTN
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To: DannyTN
So if inflation, deflation, recessions and depressions must happen, why switch to a gold or metals standard? What possible advantage could it have? The only advantage I see is to the largest gold producer which is the Chinese and maybe the currency traders like Soros.

That is one major concern I have that goldbugs are in denial of. It is too easily influenced by outside forces. The problem with promotion of the Gold Standard is it attempting to treat a cancer by giving someone a bath. Also, too many people believe that the fundamental issue we have with our economy is the Federal Reserve manipulating prices and are under the false notion that Gold can't be manipulated. You usually see misnomers like 'the price of a suit always cost one gold ounce no matter where the dollar is'. That is actually pretty false. Right now, the price of one ounce of gold could buy a high end bespoke suit while in 1899 it would by an every man Sears suit. For that example to be true, gold would only be $200/ounce now.

(I also believe a LOT of those pushing this are highly invested in Gold and are hoping for investment returns- Ron Paul had to disclose in the last election he had a lot of investments in Gold Mines).

The issue is basic economics, spending more than you produce. It is also Constitutional, with the government going well beyond its authorized purpose. The government is not a revenue producing entity so anything it spends must either have a specific governmental function (like defense) or in limited cases, infrastructure capital purpose. Everything else is like burning money.

58 posted on 01/04/2011 1:27:19 PM PST by mnehring
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To: DannyTN

Good post


59 posted on 01/04/2011 1:29:32 PM PST by mnehring
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To: ex 98C MI Dude

In times of crisis, I would much rather my currency be based on oil or grain. Gold only has a perception value and in times of true crisis, could be worth nothing if no one found value in it.

In other words, if the SHTF, you can’t eat gold, you can’t shoot gold, and you can’t burn gold.

We also produce very little gold, so in times of crisis, we can be held hostage by external forces.


60 posted on 01/04/2011 1:32:23 PM PST by mnehring
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To: Little Ray
Dunno. How would the gold conversion work?

In the old days, walk in with an ounce of gold, walk out with $20. Walk in with $20, walk out with an ounce of gold.

Who is going to accept 20 different commodities (or store the commodities to exchange for the $20) when you want to get your $20?

Sounds a little clunky.

61 posted on 01/04/2011 1:37:00 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: BlueLancer

That prohibition is from Article 1, Section 9. The prohibition on Congress issuing paper money is found in Article 1, Section 8.


62 posted on 01/04/2011 1:37:45 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: mnehring
Basing a currency on a consumable is probably not the best way to go, especially during a crisis. Grain is probably the worst. A bad harvest in the middle of a problem, and suddenly you have a financial crisis as well. Oil has the same disability. A flexible currency is best.

A major reason why gold is considered stable is because it isn't really used for anything else. It doesn't tarnish in its purest state, nor corrode. Put it in a fire, and it comes out gold. It does have its place as a store of wealth, but not as currency in an economy of scale anymore.

63 posted on 01/04/2011 1:40:44 PM PST by ex 98C MI Dude (Alea Iacta Est)
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To: Toddsterpatriot

Its very clunky. But so is gold. I don’t have much use for an ounce of gold, other than its easier to carry than $1400 worth of cheeseburgers.
In any case, even if we used a gold standard, we’ll likely never handle the metal. Same thing for commodities.

All things considered, I guess it work something like a money market account. You have “shares” (dollars) of the commodity basket. If the quantity of that commodity basket goes up, so does the value of the shares.


64 posted on 01/04/2011 1:50:02 PM PST by Little Ray (The Gods of the Copybook Heading, with terror and slaughter return!)
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To: Toddsterpatriot

To read later.


65 posted on 01/04/2011 2:21:22 PM PST by kitkat ( Obama: Hype and Chains.)
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To: ex 98C MI Dude

That’s a pretty good thought. My thoughts regarding tying it to a different set of commodities is that if you have a real SHTF situation, commodities like grain and oil would be directly bartered, increasing demand and thus, pulling up the price of the currency tied to it. It could actually result in a faster stabilization in one of these situations.


66 posted on 01/04/2011 4:57:58 PM PST by mnehring
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To: Lurker
The prohibition on Congress issuing paper money is found in Article 1, Section 8.

Are you imagining things again?

67 posted on 01/04/2011 5:01:35 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
Prior to 1933 and Roosevelt's gold confiscation we had three paper currencies circulating. A return to this would be a good idea. Let stinking Federal Reserve notes compete against gold and silver backed paper currencies

In 1933 we had circulating-----

  1. Federal Reserve Notes
  2. Silver certificates that could be redeemed in silver at the US Treasury
  3. Gold certificates that could be redeemed in gold at the US Treasury
  4. they were all green looking money like we have today

 

  1. after 1933 we had two paper currencies circulating
  2. Silver certificates that could be redeemed in silver
  3. Federal Reserve Notes

 

  1. silver certificates were eliminated in 1964 along with silver coinage so all we have left are 
  2. Federal Reserve Notes

 

  1. Currency is maybe 6% of our money today
  2. most money is created out of thin air by the Federal Reserve and supplied to banks electronically
  3. this money is ledger entries that exist on hard drives

68 posted on 01/04/2011 5:21:29 PM PST by dennisw (- - - -He who does not economize will have to agonize - - - - - Confucius)
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To: dennisw
Currency is maybe 6% of our money today

Currency is about $917 billion. M1 is about $1824 billion. M2 about $8834 billion.

most money is created out of thin air by the Federal Reserve and supplied to banks electronically

Actually, most money is created out of deposits by banks when people take out loans.

69 posted on 01/04/2011 5:28:12 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

So then currency and coinage is roughly 10% of M2. So much US currency circulates outside of America that this 10% is off too


70 posted on 01/04/2011 5:34:01 PM PST by dennisw (- - - -He who does not economize will have to agonize - - - - - Confucius)
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To: dennisw
So then currency and coinage is roughly 10% of M2.

Yes.

So much US currency circulates outside of America that this 10% is off too

The 10% is not off. If you want to talk about how much of the money supply in the US is currency, the percentage is lower. I've seen estimates that between one-half and two-thirds of our paper money is held outside the US.

71 posted on 01/04/2011 5:40:22 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

Where exactly in Article 1, Section 8 of the US Constitution is the specific, enumerated power for Congress to print or authorize the printing of paper money?

You do believe in the principles of “enumerated powers” as set forth by our Founding Fathers dont you Todd?

L


72 posted on 01/04/2011 6:04:27 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Lurker

Where exactly in Article 1, Section 8 of the US Constitution is the proof for your original claim?


73 posted on 01/04/2011 6:08:00 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot
Actually, most money is created out of deposits by banks when people take out loans.

So when I deposit 100 dollars someone else borrows that 100 dollars and that creates money?

74 posted on 01/04/2011 6:13:05 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Lurker
So when I deposit 100 dollars someone else borrows that 100 dollars and that creates money?

Yes.

75 posted on 01/04/2011 6:23:46 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

So what happens when I take the 100 I deposited out of the bank?


76 posted on 01/04/2011 6:25:15 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Lurker

Did the bank have excess reserves of more than $100?


77 posted on 01/04/2011 6:28:48 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

No. It only had my 100 dollars.


78 posted on 01/04/2011 6:32:12 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Lurker

Then it couldn’t loan $100 in the first place. Only $90, with the 10% reserve requirement.


79 posted on 01/04/2011 6:35:42 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

So if they loan out 90 and I come in and try to withdraw my 100 what happens?


80 posted on 01/04/2011 6:54:19 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Lurker

They can borrow $100 in the Fed Funds market or they can sell the loan.


81 posted on 01/04/2011 6:58:24 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Toddsterpatriot

But I want my 100 now.


82 posted on 01/04/2011 7:11:40 PM PST by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: Toddsterpatriot

The Fed isn’t going away, so the hypotheses concerning alternate currencies are not relevant to anything.


83 posted on 01/04/2011 7:18:53 PM PST by Gene Eric (Your Hope has been redistributed. Here's your Change.)
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To: Lurker

As soon as you prove your original claim.


84 posted on 01/04/2011 7:25:40 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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