More important than the gold standard or Federal Reserve System policy is whether the Congress continues to run large budget deficits. Surpluses would make the dollar stronger. Deficits make it weaker.
That’s the whole point of having a gold standard. Once the dollar is backed by a precious metal, the government will no longer be able to aribitrarily inflate the supply of money to cover deficit spending. The gold standard keeps Congress honest.
That’s the whole point of having a gold standard. Once the dollar is backed by a precious metal, the government will no longer be able to aribitrarily inflate the supply of money to cover deficit spending. The gold standard keeps Congress honest.
But the ratio at which the dollar is backed by the whatever-it-be can be changed at a whim to adjust the supply of currency to “fit” current “needs”. It was done before so often then they flipped over to different standard ie silver dollars vs. gold dollars it all became pointless and we switched to the fiat currency standard. And you can bet if they did it today, that it would end up being “the people” ie congress that had a say over the ratio and not the Fed. People forget that Rep Henry Gonzalez did a pretty good job in the 80’s of trying to wrestle control of the Fed away from the Fed and into the hands of Congress. Of course he failed but he made some scary inroads and had very widespread support of both sides of the aisle.
Changing to a commodity ratio based currency doesn’t mean that they can’t issue new currency, just that they can monkey with the ratios. And don’t think they won’t do again. If anything, it will increase the amount of volatility of the USD since it would be beholden to an asset primarily held by South Africa and Russia, which in and of itself is a volatile asset. Add the need to hedge USD based contracts against inflation etc and you would see some righteous volatility. Especially since so many other nations use us as the “gold standard” to hedge against when it comes to contracts regardless of what the Euro traders will tell you.
But the ratio at which the dollar is backed by the whatever-it-be can be changed at a whim to adjust the supply of currency to “fit” current “needs”.
So if I have a gold coin in my pocket that says $50, how is the government going to take gold out of that coin to make it worth less?
So if I have a gold coin in my pocket that says $50, how is the government going to take gold out of that coin to make it worth less?
Nope, it’s worth $50.00 still. Just like the paper that says $1.00 is still worth $1.00. But you are actually looking at different issues than what I was addressing. I was discussing the difference between currency backed by some pretty shiny metals versus ones actually made out of it.
Ones actually made out of it have two separate and entirely different values. An intrinsic and explicit value. A $50.00 coin made from gold is worth exactly as much as a $50.00 coin made from copper when it comes to the face value. But, since it’s a pretty shiny metal that lots of people like and is hard to come by, then people will generally give you more for it. It’s the same reason that the American Eagles cost and arm and a leg because they are gold etc but still are technically worth nothing more than their face value. So it has an intrinsic value that is greater than its face value. Though walk into a store and try to spend that coin and get the “real” value of the coin. It won’t happen.
When people discuss the gold standard as I was, it has to do with a currency that represents a currency that is “exchangable” for a given amount. In theory I could go up to Fort Knox and hand X number of $ bills and be given X ounces of shiny metals. This is supposedly the magical “inflationproof” currency that people point to. Generally people mean that each note represents 1/350th (or whatever amount) an ounce of gold and given that the treasury has a specific amount of gold, they can’t go an issue new currency. Therefore, no more inflation. QED.
But, as I pointed out in my post, in every single occurrence of a commodity backed currency the government just adjusted the ratios to fit their macro models. Of course, all macro models are flawed and doomed to fail.
And in the instances where coins (which people hate carrying even more than cash hence and even checks which are all quickly being replaced by debit cards) are actually made out of gold/silver/etc, governments have always just jerked around the purity levels of the coins. Sure, you can insist on keeping your higher purity coins but then you can’t spend or deposit them since they’ll be replaced by the newer versions. It happened in 1965 with quarters. Can’t remember what year they did it with dimes.
More important than the gold standard or Federal Reserve System policy is whether the Congress continues to run large budget deficits. Surpluses would make the dollar stronger. Deficits make it weaker.
The Congressman have been put in place by the bankers, they are part of the system. You cannot expect a centralized entity to be able to maintain a gold and silver standard without infiltration from the central banking money power. Please see The Coming Battle-A History of Central Banking
You’ll need a banking structure that’s completely decentralized and redundant.
But, as I pointed out in my post, in every single occurrence of a commodity backed currency the government just adjusted the ratios to fit their macro models. Of course, all macro models are flawed and doomed to fail.
And in the instances where coins (which people hate carrying even more than cash hence and even checks which are all quickly being replaced by debit cards) are actually made out of gold/silver/etc, governments have always just jerked around the purity levels of the coins. Sure, you can insist on keeping your higher purity coins but then you can’t spend or deposit them since they’ll be replaced by the newer versions. It happened in 1965 with quarters. Can’t remember what year they did it with dimes.
Fine. Then I’ll demand my salary in coins with high purity and on tax day give unto Caesar in the form of lower purity coins.
Fine. Then I’ll demand my salary in coins with high purity and on tax day give unto Caesar in the form of lower purity coins.
Okey dokey. You’ll just have to deposit them at the bank and give Ceaser a check who will treat them just the same as the low purity ones that they just issued.
Ceaser will appreciate your patience and participation.
Okey dokey. You’ll just have to deposit them at the bank and give Ceaser a check who will treat them just the same as the low purity ones that they just issued.
Ceaser will appreciate your patience and participation.
Why trade perfectly good solid gold for phony “gold” on a one-for-one basis? Sure, state-licensed banks will be required to treat them the same, but not the black market (a.k.a. free market). For example, whenever I travel to third world countries, I always get much better exchange rates from cab drivers and waiters than I do at the big banks and major hotels. So, I’ll trade the solid gold for its true free market value in inflated dollars, and pay Caesar in his own play money.
Ideally, the government should not be in control of the money supply. Its role should stop at the legal convenience of standard-setting. That is what it ought to mean to be on “a gold standard” or “a silver standard”, etc. It ought to mean that the government has created a legal definition of a “dollar”.
In the idea of a “gold standard”, the concept “standard” is crucial. Philosophically, it is more important than “gold”. After all, “gold standard”, “silver standard”, “platinum standard” could be various implementations of a monetary standard.
So, a government that defines a dollar as 1/20th of an ounce of gold one year, and changes this to be 1/30th of an ounce at some other time, is not on any standard.
In essence, “inflation” is a “creeping standard” (oxymoron alert).
So, a government that defines a dollar as 1/20th of an ounce of gold one year, and changes this to be 1/30th of an ounce at some other time, is not on any standard.
Furthermore, any debasement of money constitutes an act of fraud, putting an inferior good in place of a widely accepted superior good. It would be the same as buying gasoline at $1.75 per gallon, only to discover that each “gallon” being pumped contained only three quarts.
Furthermore, any debasement of money constitutes an act of fraud, putting an inferior good in place of a widely accepted superior good. It would be the same as buying gasoline at $1.75 per gallon, only to discover that each “gallon” being pumped contained only three quarts.
Well, legally a gigabyte is no longer legally a gigabyte. Actually, it’s defined two ways now. The correct way and the marketers way. But SoftwareNerd is right, any government controlled standard is not a standard at all.
Sad thing is, we can’t even trust the government to set the standards for pizza. Wolfgang Puck had to fight in federal court for the right to call his pizzas just that. Some federal type defined pizza as having tomato sauce and since his didn’t have sauce, they obviously weren’t pizzas. So god knows how much he had to spend to fight for the right to call his pizza a pizza.
Ugh.