Back to the Gold Standard?

[dczech09]

Hey everyone.

I am doing some reading and sharpening my knowledge base on monetary standards such as barter, gold, and fiat.

I read some articles talking about a return to the gold standard. Supporters say it would be a good thing as it would take away the printing power from the Federal Reserve and curb the government's meddling. Critics say that it would cause labored cash flow that would destabilize the economy.

What are your thoughts? Personally I am a fan of limiting the Fed's powers, however I am not so sure the gold standard is the answer.

[UnknownXV]

I prefer it, although it's not perfect. Growth is far slower, but it's real growth since it's money backed by something.

Personally I feel slow and steady wins the race.

[GrimJack]

Do you understand there is not enough gold in the world to support the economy? Who's gold standard would you use? Do you mean the paper money is based on the gold standard or carrying around the gold itself? Do you expect someone somewhere to move megatons of gold from one vault to another to balance trade deficits? What do you mean by 'back to the gold standard"?

[UnknownXV]

The supply of gold isn't really relevant, as a gold standard merely reflects that the currency is backed by it. The amount of paper currency to one ounce of gold will reflect this automatically.

Again, economies would likely grow slower, but they would be more stable and on firmer ground.

Personally, the main reason why I like the idea of a gold standard is that it limits the governments ability to endlessly create currency to devalue its debts. That's irresponsible, and hurts the people this government is supposed to serve.

[GrimJack]

The supply of gold isn't really relevant, as a gold standard merely reflects that the currency is backed by it. The amount of paper currency to one ounce of gold will reflect this automatically.

Again, economies would likely grow slower, but they would be more stable and on firmer ground.

Personally, the main reason why I like the idea of a gold standard is that it limits the governments ability to endlessly create currency to devalue its debts. That's irresponsible, and hurts the people this government is supposed to serve.

So, can you point to any time period where the gold standard worked for anyone? The US was on the gold standard until 1933; show me where the gold standard worked. In 1929 a farmer needed a hundred pounds of cotton or 18 bushels of wheat for an ounce of gold - by 1932, it was 300 pounds of cotton or 36 bushels of wheat.

The gold standard fails on stability and if fails on the real economy.

[UnknownXV]

So, can you point to any time period where the gold standard worked for anyone? The US was on the gold standard until 1933; show me where the gold standard worked. In 1929 a farmer needed a hundred pounds of cotton or 18 bushels of wheat for an ounce of gold - by 1932, it was 300 pounds of cotton or 36 bushels of wheat.

The gold standard fails on stability and if fails on the real economy.

You point out a time when the gold standard is stressed the most. Fair enough. During times of war or their subsequent aftermath *(due to temporarily leaving the gold standard during WW1)* it leaves the economy shaky, in a sort of rollercoaster looking at a graph. Wild hills of deflation and inflation.

It's not surprising that the Great Depression came after and just before WW2. You have to stick to your guns in a gold standard. Temporarily disbanding it doesn't work.

After WW2, we were still on the gold standard. Officially we've only been permanently off of it since 1971.

Look at this historical chart of Inflation rates in the US as well as interest rates.


United States Interest Rate

United States Inflation Rate

As you can see from these charts, interest rates and inflation, the ratio between the two, has been shrinking, in favor of inflation; the further we get from dropping out of the gold standard. This is direct evidence of a reduction in quality of life for low and middle class people, who are now less capable than ever to properly save for their desires and retirement.

I am not saying the gold standard is perfect, not by any stretch, but I do feel like it's superior to the system we have now, which allows for unlimited creation of currency via the "Federal" reserve. This, given enough time, will cripple us. Not just because of a decrease in living standards in our country, but also international tensions will rise as the world begins to realize we;ve essentially been running a ponzi scheme on all of them foolish enough to lend and trade with us.

A valid compromise for now would be to allow gold and silver to be legal competing currencies. It's quite simple to do this. Remove sales tax and capital gains tax on it. Treat it as a currency, not a commodity. Banks could open up offering to back every dollar they have with precious metals. People who think this is a superior bet to holding money without a currency backing can opt into that instead.

[DiscounThem]

I don't think the banks and federal reserve will allow it to happen.

[DiscounThem]

even though I have invested heavily in silver and thing gold and silver are the real money (god's money)

[cooliemae]

My biggest question is how would we deal with the ever changing value of the gold back dollar. I don't know if I like the idea of my dollar being worth one thing today and something else tomorrow.

[UnknownXV]

My biggest question is how would we deal with the ever changing value of the gold back dollar. I don't know if I like the idea of my dollar being worth one thing today and something else tomorrow.

That's already what happens today though. Our dollar fluctuates relative to other currencies across the world.

As well, because of inflation, it changes all the time too.

The difference is that on a gold backed currency you'd also see deflation, which encourages us savers, instead of it always being inflation nation which benefits borrowers.

[cooliemae]

That's already what happens today though. Our dollar fluctuates relative to other currencies across the world.

As well, because of inflation, it changes all the time too.

The difference is that on a gold backed currency you'd also see deflation, which encourages us savers, instead of it always being inflation nation which benefits borrowers.

I understand that inflation happens today, but my question was how we deal with it. For most of us in the US the the inflation or deflation of the dollar doesn't have daily impacts (unless your into FOREX or live on a border town perhaps). This is because we don't have to exchange the money for anything but the products/services we buy, and those rise/fall slowly over time.

With gold, wouldn't we face daily changes in the price of goods? I assume that prices of goods/services would be linked to the price of gold and there be as volatile the price of gold.

I also don't think I would want my paycheck to be tied to gold and I'll explain why. Today I have a salary of $300,000 and decide to buy a $150,000 house with $50,000 down. I now have 100k in debt. If gold prices fall then my salary would fall equally but my debt wouldn't would it?

[dczech09]

I understand that inflation happens today, but my question was how we deal with it. For most of us in the US the the inflation or deflation of the dollar doesn't have daily impacts (unless your into FOREX or live on a border town perhaps). This is because we don't have to exchange the money for anything but the products/services we buy, and those rise/fall slowly over time.

With gold, wouldn't we face daily changes in the price of goods? I assume that prices of goods/services would be linked to the price of gold and there be as volatile the price of gold.

I also don't think I would want my paycheck to be tied to gold and I'll explain why. Today I have a salary of $300,000 and decide to buy a $150,000 house with $50,000 down. I now have 100k in debt. If gold prices fall then my salary would fall equally but my debt wouldn't would it?

I think what you are concerned about is the overall volatility of the gold market. Right now, the gold market is extremely volatile.

However, if you look at historial gold prices from back when the US was on the gold standard, the price of gold was VERY consistent. In fact, there are many multi-year time periods where gold did not change a single penny.

Thats what happens with the gold standard. Gold is fixed at a certain price level and the dollar is pegged instead of being a floating currency.

So there really would not be much volatility with the gold price. The only reason why gold fluctuates so rapidly today is because it is not a standard- it is a commodity just like corn and pork-bellies.

I am not saying we should go to the gold standard as I still do not know enough to make a good judgement. But I do know that the gold fluctuation would not really be an issue- there are much bigger issues especially if the rest of the nations retain their floating currencies.

[dczech09]

As I understand it, the gold standard would be a disaster if the US switched back but all other nations stick to floating currency. We live in a globalized economy now, so in order for a change to the gold standard to work, we would need other nations to follow suit.

I don't see China or Brazil doing this anytime soon. They are already making a shift to capitalism and the floating currencies are doing well for them. I don't see Germany changing either.

[greenskeeper]

gold standard is long gone, no way to go back at this point....not enough gold in existence.

What is available is land. The govt owns around 1/2 the property in the USA. Maybe somehow our currency could be tied to this asset?

[cooliemae]

I think what you are concerned about is the overall volatility of the gold market. Right now, the gold market is extremely volatile.

However, if you look at historial gold prices from back when the US was on the gold standard, the price of gold was VERY consistent. In fact, there are many multi-year time periods where gold did not change a single penny.

Thats what happens with the gold standard. Gold is fixed at a certain price level and the dollar is pegged instead of being a floating currency.

Ok that makes sense, but you're right on the money with your next post in that if we're the only ones playing the game, then we suffer drastically.