Ron Paul talks about going back to the gold standard so I crunched some numbers: http://answers.google.com/answers/threadview?id=548152 http://web.worldbank.org/WBSITE/EXT...133150~piPK:64133175~theSitePK:239419,00.html http://money.howstuffworks.com/question213.htm 2005 World GDP $44,795,448,000,000 Gold: $902.90 per ounce (February 13th 2008) 49,612,856,351.76 ounces of gold needed Gold production per year: 50,000,000 ounces Gold value per year: $45,145,000,000 Percentage of GDP: 0.1% All the gold in the world: ~10,000,000,000 ounces Value of all gold in the world: $9,029,000,000,000 Percentage of GDP: 20.16% Required Value of Gold: $4478.67 per ounce Current GDP growth rate: 3.5% Growth Rate in Dollars: $1,567,840,680,000 Gold Production percentage of Growth: 2.88% Gold Needed to Produce: 1,736,111,111.11 ounces ---------------------------------------------------- So basically even if there was enough gold in the world to cover the amount of money floating around, the amount that we can find every year would allow for an inflation rate of 0.1% and decrease every year unless we could increase production every year. In order to be valued at the current amount of money in the world every known ounce of gold would have to be worth more than 4 times what it's worth now. So of course gold investors want a gold standard. But, just like paper, gold is only worth what people say it's worth. And you can't just make more gold to support the growing population. But, investors love scarcity. It drives up the value of gold and there's no way to lower it. With paper, inflation can be curbed by printing more money. With gold, inflation is an unfixable problem.
Read about the specifics of what Ron Paul is proposing. He's not saying to put the entire country on one single gold-based currency, he's saying legalize competing, asset-backed currencies. Right now, if I had a pile of gold, I could print off a sheet of paper certificates redeemable for a $ value worth of gold. This is how banks and paper money got started. I could sell those paper certificates or mint the gold into coins that indicate how much they are worth. Unfortunately, that is all illegal. People are going to jail and having precious metals assets seized by the FBI for selling gold-backed currency certificates and people are paying huge fines if they try to spend real gold coins that weren't minted by the Treasury Dept. Competing with the Federal Reserve currency (which is increasingly worthless due to a lack of incentives created by competition) will put you in jail. Now, that doesn't make much sense either. Ron Paul isn't saying get rid of the greenback, he's saying stop putting people in prison because they set up a business model to compete with it.
http://www.opensecrets.org/pfds/pfd2006/N00005906_2006.pdf Ron Paul is heavily invested in precious metals. Boy, that sounds like it has a 0% chance for fraud. Did you know that Joseph Smith, the founder of the LDS church, had his own currency including a 3 dollar bill? Those bills are now worthless. The government a long time ago had to settle on one single currency in order to prevent fraud and have a successful country. It doesn't matter what is supposedly backing the currency. You're not allowed to print your own money period. What guarentee is there that you have as much gold as you claim you have? What if you get robbed? What if you stole the gold? Now I can't go turn in my money for gold from you because either you don't have it or you have stolen property. In either case that "money" from you is now worthless. The value of something is based on scarcity. The less scarce something is the less value it has. If a single dollar has too much value then I can print a second dollar and cut the value in half. And now another dollar is available to someone else. Two people in the world can have 1 dollar instead of only 1. The original "money" system was exchanging trinkets. Now we give you a government backed piece of paper for trinkets so I don't have to have the badger you want for the car I want.
True, there is a huge potential for fraud, but that exists in any financial model. The major fear would be what, that the business owner would dilute the value of the currency? I guess we can keep all our currency fraud centralized in a single national bank, then.
It used to be that if a bank got robbed the customers were out the money. If Joe Bob is running a bank with 1000 lbs of gold and someone robs him of 500 lbs of gold, every bill he gave out is now worth half as much or nothing at all if he honors the "per ounce" for the first people that make a run on the bank. If you rob your local bank of america the customers are out zero dollars because it's just paper anyway. The government can print more (dilluting the value of all money by a negligable amount) and destroy the stolen bills when they're found restoring the value of the dollar.
The bank robbers who get 10-50 grand at a time aren't the problem. It's the banksters themselves. That's why this mortgage crisis exists.
Why would businesses choose to accept a non-standard currency? It would just be more hassle for them, as they would have to find a bank that would accept it. It essentially would be taking us back towards a barter system, except instead of exchanging tangible goods we would be exchanging currencies backed by entities more mysterious that the U.S. treasury. Remember that in the "real world" businesses do not hoard their money until they have to spend it. They prefer to put it in banks. How would banks deal with multiple competing currencies? They would have to split all their deposits and loans by currency or constantly follow the market exchange rates. The fraud would be rampant as people tried to compete with their currencies, and the chaos that a system like that would cause would create massive distrust and illiquidity in the markets.
This is incorrect. It is an assumption people have drawn from listening to Paul talk about gold. He is quick to admit the previous gold standard(s) had flaws. This is incorrect. You're assuming that the purchasing power of a fixed weight and measure, say 1 ounce of gold would not decrease with inflation, and increase with deflation. You don't need more money to grow the economy, you need more net production. This is incorrect on a lot of fronts. Gold will always be gold. It has intrinsic value. It's purchasing power may wax or wane, but it will still be gold. The notion of increasing the monetary supply to accommodate population growth is also flawed. When you're born, you don't increase the economy. When you produce, or consume, you effect the size of the economy. It's a very important distinction. The reason why people like gold, is it's scarcity, it's durability, it cannot be counterfeited, and it has value beyond being a medium of exchange. If we needed more currency, we could produce small denomination coins. We could use platinum and silver. We could trade in commodities like oil, natural gas, grains. A lot of people don't have a fundamental understanding of what money is. How it is created, how it is manipulated, how it is inflated or deflated. This is actually backwards. Printing money causes inflation. If you produce more dollars, for the same size economy, aggregate pricing will eventually adjust for a zero net gain. If the production of fiat money, outpaces growth, you will have inflation. So why is the money supply inflated, if we all get the new money in an equal proportion, at the same time? There would be no advantage to doing so. Well it's simple, we don't get the money at the same time, and this is the moral hazard of inflating the money supply artificially. The people who get the money first, before aggregate pricing has adjusted, get the greatest benefit with a boost in their purchasing power. And we all know who introduces new money into the system and how. The banks, who release it as credit. This is why you have a growing wealthy class, and a shrinking middle class. The middle isn't moving up, it's moving down, because even when it gets "new money", a debt service cost is attached, which becomes an albatross as aggregate pricing adjusts. One only has to look at the history of CPI in America to see that the further we got from gold, the more rapidly inflation has occurred, and that is due to fractional reserve banking, coupled with fiat currency. The facts and statistics totally disprove the notion that gold causes inflation. The only cure for inflation, is deflation. And you can't deflate pricing by adding more money into the mix.
Most Austrian economists are. That is why the Constitution has limitations on what can be used as currency, gives the power to Congress to define fixed weight and measures, and specifies gold and silver over bills of credit. The Founders experienced inflationary fiat money with the Continental dollar. They decided when they established the Republic, that such a system could have terrible consequences. Scarcity vs. demand. My nosehair might be scarce, but if there is no demand, it is still worthless. As far as diluting the purchasing power of the dollar by printing more, if a vendor has only one apple, and charges a dollar for it then you print a second dollar, the apple is now only worth half as much? It's totally illogical. The apple will now be worth $2. The demand and supply factors don't change relative to the number of dollars in circulation. Another example. I make $10 a week. Kalvin makes $10 a week. Our boss doubles our pay. Has my purchasing power increased relative to Kalvin's? No, it has not. If we're chasing the same basket of goods and services, neither of us is able to buy more than the other. We have more money, but it doesn't provide a net increase. This is incorrect. Barter occurred before mediums of exchange.
It's a lot harder to rob a bank of gold than paper money. How fast can you run with a bag of paper money compared to 1000 lbs of gold?
Let's see, if I have 1 dollar bill in the world and then I make another bill that makes 2 dollar bills but since there are now two, they are each worth half as much. So until you can print gold out of thin air you can't control inflation or deflation of value as easily. All you can do is hoard gold to raise the value and release gold to lower the value. Like is done with diamonds. If the fed wants to raise the value of each dollar bill they can destroy more than they print. If they want to lower the value they print more than than destroy. Not a hard concept. And much easier than gold. 1 paper bill is 1 gram. 1 troy ounce = 31.1034768 grams If you average more than 31 dollars per bill, you'd be better off with cash. Not taking into account volume. Gold takes up much less space per gram than a paper bill. One brick (about 6" x 3" x 2") is about 400 troy ounces and is worth about $360,000. 400 troy ounces = 27.4285714 pounds dollars: 360 000 grams = 793.664144 pounds 10's: 79 pounds 100's: 7 pounds Back when gold wasn't worth much, there was no contest. If I had to decide between 1 brick of gold and a bag of random bills, I think I'd take the gold brick. Gold can be easily melted down to avoid the problem of serial numbers.
Right, this is inflation of the monetary supply, the dilution of wealth. In a sensible economy, both bills would have the same purchasing power as the single dollar did, before you created a second one. This is incorrect. Inflation and deflation occur naturally based upon the performance of a free market economy. You cannot manipulate it, when you do, you risk moral hazard (harm to someone). Again, you're also incorrect about hoarding. You have to understand Human Action. Right, so you have $1,000 saved up. The FED prints more money. The purchasing power of your $1,000 declines relative to the pre-FED action to the purchasing power of $750. Is this advantageous to you? In the other example, the FED destroys money, reducing the supply. You had none saved. So you work, save and accumulate $500. Then the FED increases the money supply, reducing your purchasing power to $375. Is this advantageous to you? All discussions on American fiat money vs. a gold standard should begin with a common understanding of what a dollar is. Do you know where the name "dollar" is derived from? Did you know that Congress has fixed the value of a dollar? Do you know what that value is? (Hint, the answer to Q3 is based on the answer to Q1)
He's missing the point, he thinks the Fed can just snap there fingers and magically $1.00 will equal $5.00. No. As much as he has it stuck in his mind that inflation can be controlled and that inflation is bad, it will be hard to tell him that it can't be controlled and its not bad (necessarily).
Value is based on scarcity and demand. Gold has no more intrinsic value than dirt except that it's shiney and people want it. If DeBeer's opened up their diamond stash the value of the diamond would go down dramatically. It's the same with the dollar. If the feds wanted to they could stop printing money and the value of the dollar would skyrocket. If they wanted to they could print 100 Trillion dollars and drop the value of the dollar to the peso. It's really not that hard to understand. Gold can't keep up with the amount of money in the world. That's why we print it and don't mine it anymore.
People want it = intrinsic value. You basically refuted yourself. Yes, but again, diamonds are not a medium of exchange. They could be, but in a comparison argument about gold as currency, they don't pass muster. Actually, the FED cannot stop printing as long as the government continues to deficit spend, the FED must continue to print money. This is totally incorrect. You must not be reading my responses to this thread, I have already covered this point.