The Gold Standard
November 16, 2008 7:38 PM   Subscribe

Gold Standard, Way before then, Then, Now, and...

After the Classical Gold Standard came the "new" Gold Standard , Bretton Woods in 1944. That era ended in 1971 when the US went off the gold standard.

Ron Paul weighs in on the G-20 meeting and future of domestic and international currency
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posted by Rafaelloello (50 comments total) 5 users marked this as a favorite

 
GOOGLE PORN!!

No, wait, that's not right...
posted by pompomtom at 7:43 PM on November 16, 2008


Ron… who? Is there any way I can get more information on this fellow?
posted by shakespeherian at 8:05 PM on November 16, 2008 [4 favorites]


You neglected to mention that Iran moved back towards the gold standard yesterday.
posted by shii at 8:06 PM on November 16, 2008 [1 favorite]


I don't know much about finance, but it seems to me that moving back to the gold standard would be like snatching an amputee's prosthetic leg and then gluing it to the sidewalk then expecting them to go for a nice stroll while praising you.
posted by Burhanistan at 8:09 PM on November 16, 2008 [6 favorites]


Ron Paul http://www.ronpaul.com/ Read his book " Revolution"
posted by anyandy at 8:19 PM on November 16, 2008 [3 favorites]


Ron Paul http://www.ronpaul.com/ Read his book " Revolution"

OMIGOD YESSSS
posted by shakespeherian at 8:24 PM on November 16, 2008 [4 favorites]


Was it worth the $5, anyandy?
posted by Justinian at 8:27 PM on November 16, 2008 [5 favorites]


Of course it was. Without the gold standard the dollar isn't actually worth anything.
posted by klue at 8:31 PM on November 16, 2008 [6 favorites]


Last.
posted by bardic at 8:39 PM on November 16, 2008


The whole gold standard thing simply had to end in the Modern Era. The trouble with it is that there simply isn't that much gold to go around so in an exponentially increasing economy (as we had for many years as technology started to really put out for us) money would become almost impossible to find; and, when it comes down to it, it assumes something magic about "gold" that simply isn't true.
posted by lupus_yonderboy at 8:41 PM on November 16, 2008


I really feel that the calorie or some unit of energy should be what currency is based upon. That would give us the most accurate assessment of the true worth of things.
posted by sourwookie at 8:41 PM on November 16, 2008 [2 favorites]


A man came home drunk at four in the morning, and his wife was all over him, yelling at him, crying because she thought he was with another woman.

"No, honey, I swear, I was at this bar. It was so fancy that even the urinals were made of gold."

Not believing him for a minute, she called the bar. "Hello," she said, "I just want to ask one question. My husband claims to have spent the night at your bar. Are your urinals covered in gold?"

To which she heard the bartender say, "Hey, Clarence, I think we found the guy who pissed in your saxophone."
posted by netbros at 8:47 PM on November 16, 2008 [19 favorites]


There's this crazy theory out there that the G20 meeting is going to result in devaluing all major world currencies sending gold to $10,000 (revalued) USD an ounce.

In other news Gold bugs are trying to re-inflate last spring's gold bubble, as unable to deal with reality as your average sup-prime wallstreet jagoff. But at least their theories are more entertaining.

Gold to $450!
posted by delmoi at 8:51 PM on November 16, 2008 [1 favorite]


FWIW, the Fed stopped reporting M3 back in 2006, but I took that chart and interpolated from where the Shadow Stats guy thinks we are now ($14T) to produce this chart.

Somewhat sobering.
posted by troy at 8:53 PM on November 16, 2008


You neglected to mention that Iran moved back towards the gold standard yesterday.

No, they moved their reserves into gold. They didn't peg their currency to the value of gold, that would have been insane. The difference is the difference between BUYING gold and GIVING IT AWAY.
posted by delmoi at 8:54 PM on November 16, 2008


By the way, how much gold is there in world reserves? Does anyone have stats on that?
posted by delmoi at 8:55 PM on November 16, 2008


btw, the above chart is one reason why I am not entirely uberbearish about the future course of the equities markets, going forward from these price levels at least.

With all that money still out there in the world -- nearly twice as much as 2002 when the S&P 500 was last bouncing around in the 800s, and THREE TIMES what it was in 1997 (when again the market was first moving up through the 800s) I simply can't believe there's THAT much air under present prices for blue-chip offerings.
posted by troy at 8:59 PM on November 16, 2008


delmoi: wiki sez there are ~30T of gold in various reserves, with the US holding ~80% of them ATM.

GLD, the ETF that holds physical gold in a vault for shareholders in the City of London, will be soon passing Japan as #7 on the list.
posted by troy at 9:02 PM on November 16, 2008 [2 favorites]


I've always loved these pileons as much as the next, but now I get to try my new line.

Going back to the gold standard is like going back to feudalism because of these damn shocks in the labor market. Feudalism provided stability. Come on, people. Do your research. Google the Tsar!

I feel like it's a crime to teach Econ 101 without three years of follow-up training.
posted by allen.spaulding at 9:03 PM on November 16, 2008 [7 favorites]


Ron Paul http://www.ronpaul.com/ Read his book " Revolution"

Not as good as "Rotation".
posted by dirigibleman at 9:15 PM on November 16, 2008


Note to mods: For the record, I did not mean to flag anyandy's comment as fantastic. My finger slipped. You gotta believe me!
posted by danb at 9:16 PM on November 16, 2008


If you google too long into the Ron Paul, the Ron Paul googles also into you.
posted by cortex at 9:27 PM on November 16, 2008 [3 favorites]


[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head. -- Warren Buffett
posted by dhartung at 9:29 PM on November 16, 2008 [13 favorites]


I found Ron Paul's book Abortion and Liberty much more interesting. Here's a passage:
Abortion on demand is the ultimate State tyranny; the State simply declares that certain classes of human beings are not persons, and therefore not entitled to the protection of the law. The State protects the "right" of some people to kill others, just as the courts protected the "property rights" of slave masters in their slaves. Moreover, by this method the State achieves a goal common to all totalitarian regimes: it sets us against each other, so that our energies are spent in the struggle between State-created classes, rather than in freeing all individuals from the State. Unlike Nazi Germany, which forcibly sent millions to the gas chambers (as well as forcing abortion and sterilization upon many more), the new regime has enlisted the assistance of millions of people to act as its agents in carrying out a program of mass murder.
What a masterful command of the issue. Why oh why was this sane individual ignored by the MSM?
posted by Marisa Stole the Precious Thing at 9:56 PM on November 16, 2008 [2 favorites]


MSTPT, it's like women are getting paid taxpayer dollars to line up to be impregnated just so the the Auschwitz Abortion factories can continue to operate. Like that "Itchy and Scratchy Show" where Itchy makes a Scratchy clone machine with a shredder on the opposite end of the conveyor belt.
posted by Burhanistan at 10:06 PM on November 16, 2008 [2 favorites]


Executive Order 6102

Might explain why the Federal Government has most of the reserves
posted by captainsohler at 10:22 PM on November 16, 2008


delmoi: wiki sez there are ~30T of gold in various reserves, with the US holding ~80% of them ATM.

Actually that says 30 thousand tons. Which means we're talking about about $960 billion dollars worth, even at the outrageous $1,000 an ounce. That, clearly, isn't enough to cover all dollars if we did try to go back to the gold standard, not even enough to cover M1.
posted by delmoi at 10:30 PM on November 16, 2008 [1 favorite]


Executive Order 6102

Might explain why the Federal Government has most of the reserves


Negatory. Gold outflow was massive during the '60s and '70s and hit an all time low of 16%.

The US only holds 27.2% of the world's gold reserves but it makes up 78.2% of the US's own reserves.
posted by Talez at 10:53 PM on November 16, 2008


keep grinding that axe...
posted by empath at 11:22 PM on November 16, 2008


troy apologizes for the error
posted by troy at 11:57 PM on November 16, 2008


Now gold is a very interesting topic.

I'd rather avoid any back and forth about the superiority / inferiority of commodity backed / fiat currencies (look at my posting history and you'll see what side I'm on), rather the thing I find very curious is the disconnect between the physical and futures bullion markets. No matter how futures are trading, physical is a completely different story.

For the past six months or so we've seen reports of folks unable to purchase physical gold or silver, at least not without paying obscene premiums (sometimes 20% or more) to spot.

Also, there are repeated reports of unusually large orders for gold being placed - the story linked notes that Rand Refinery Ltd. sold out of Krugerrands due to a single large deal .

The US Mint maintains a web site tracking annual sales , and it's interesting to compare YOY information.

We're seeing signs of demand for gold globally spiking; Dubai, Vietnam and Australia all report record demand for physical.

And in some markets supply and demand have gotten so out of whack retailers are (temporarily one would hope) shutting down. In Germany, for example, there is a shortage of gold for retail customers, with a prominent dealer shutting down parts of their operations (nur auf Deutsche, tut mir leid!) due to an inability to get product to sell.

Clearly, lots of folks want gold now. And the inability to take physical possession doesn't seem reflected in futures prices.

Disclaimer: I have relatively large positions in both gold and silver, physical and ETFs, originally established in 2004/2005. I haven't purchased gold since 2005, although I've been slowly adding to my silver position at these price levels.
posted by Mutant at 1:48 AM on November 17, 2008 [5 favorites]


this has nothing[1,2] at all to do with this :P

cheers!
posted by kliuless at 3:48 AM on November 17, 2008


Not quite related, but fun anyway.
posted by not_on_display at 5:51 AM on November 17, 2008


Would that be the Ron 'Yesterday's Man' Paul, Ron Paul?
posted by fearfulsymmetry at 5:51 AM on November 17, 2008


Actually that says 30 thousand tons. Which means we're talking about about $960 billion dollars worth, even at the outrageous $1,000 an ounce. That, clearly, isn't enough to cover all dollars if we did try to go back to the gold standard, not even enough to cover M1.

But isn't that comparing apples to oranges? Pre-gold standard dollars aren't the same as post-gold standard 'dollars' or whatever they'd be called. If the new 'dollars' were decreed as equal to 1/1000 oz. of gold, then we could keep the same nominal price of gold but prices of everything else (and numbers like M1) would all be completely different (and lower). Or we could decree one oz. of gold as equal to 10,000 'dollars' or whatever and get roughly the same nominal prices of goods.
posted by Durin's Bane at 6:04 AM on November 17, 2008


This seems like a fine time to link to an FPP that I did under my old handle.

Liberty Mint, the gold standard and Ron Paul discusses a current effort to return the USA to a gold standard. Just shy of TimeCube-esque ranting with a bit of survivalist argumentation and con-artistry. Ron Paul was tentatively linked to this effort, whose members are in trouble with the Fed.
posted by Severian at 6:37 AM on November 17, 2008


Why didn't Ron Paul get thoroughly googlebombed?
posted by graventy at 6:44 AM on November 17, 2008


Ron Paul isn't the only one disappointed with the G-20 meeting outcome. Would have been nice if they'd done *something* substantial, anything other than simply proposing "more of the same."

"we shouldn't worry about the deficit next year or even the year after."

They'll never worry about it until eventually they're forced to. Let's hope that can be successfully put off until next time around. "Lord, give us just one more cycle of credit expansion, and we promise not to piss it away this time!"
posted by sfenders at 7:12 AM on November 17, 2008


Google the Tsar!

That's it, I'm printing t-shirts.
posted by kosem at 8:06 AM on November 17, 2008


But isn't that comparing apples to oranges? Pre-gold standard dollars aren't the same as post-gold standard 'dollars' or whatever they'd be called. If the new 'dollars' were decreed as equal to 1/1000 oz. of gold, then we could keep the same nominal price of gold but prices of everything else (and numbers like M1) would all be completely different (and lower). Or we could decree one oz. of gold as equal to 10,000 'dollars' or whatever and get roughly the same nominal prices of goods.

Still doesn't work. Let's say gold at this moment is $750/ Troy oz. (It's not, but it's moved through that price a couple times in the last week, and it's round.) And let's use the Wikipedia number for how much gold has been extracted in the world -- 158,000 tons -- and round it up (to 160,000 tones) and assume they're American short tons.

320 000 000 pounds = 4.66666667 × 10^9 troy oz
4.66666667 × 10^9 troy oz = roughly $3.5T (plus $2500 extra or so)

If you think the guesstimated M3 is correct, that means that even if the US seizes every last coin, bar, ring, and Monster Cable with gold sheathing out of every single house on this planet, we'll still need another $10.5T to get to 1 USD = 1 gold USD parity.

So, let's say we don't. Let's say we force every American to hand over their gold and get our reserves back to, say, $1T. If we were to revaluate our currency to meet that $14T goal, then every 1 old USD = 7 cents new USD. Besides having to force a massive, expensive conversion of all our debts and salaries to the new system (you made $100K last year? You're making $7143 this year -- but your million dollar home is $71,000!) it would also make the dollar incredibly, ridiculously strong. If a Euro is $1.25 USD now, it'd be 9 Eurocents = 1 new USD. The Euro would go from being stronger than the dollar to being insanely weak.

There's no currency in the world that could handle being that strong for long. Dollars would be way too dear. Yeah, we here would be in great shape, given that pennies are now worth more than dimes were, but we can't export anything, so our trade imbalance would be insanely out of whack. American equities would be too expensive for anyone but Americans or very rich overseas investors to hold, effectively pushing all the overseas money out of the market save hedge funds and governments.

Worse still, we would have to peg the dollar to a commodity we have almost entirely played out in this country. China could mine immense amounts of gold in Africa, hold it in their vaults, and then just dump it on the market whenever it feels like it, devaluing gold and thus our new dollar. China can do this right now with US treasuries, of course, but the idea that gold would eliminate the idea that foreign governments couldn't do fundamental damage to our economy is silly.

Now, the other idea -- make a dollar a smaller amount of gold -- is also problematic, since you'd have to raise the price of gold considerably. And because the US would always be in need of gold at the price they want to pay, that would spawn an arbitrage economy that would make our current speculative bubbles look pale. We're talking about a spot price initially that'll be 1/20 - 1/50th what the Fed will value gold at. It will pull the price up in the long term, obviously, but it'll be artificial, and eventually all things artificial like this have to fail.

Also, who holds the world's gold reserves? The rich, national banks, gold funds. Who doesn't hold gold? Everyone else. Those holding gold would be far, far wealthier than they've ever been. Those not holding gold will be poorer than they've ever been. Going to gold will only make those with gold rich.

And then there's one more little problem -- the gold standard means the money supply can only be expanded by buying gold. If the US government needs money, it'll either have to buy more gold, or it'll have to tax the money out of the populace. The former will be very expensive, the latter will be insanely unpopular.

I'm not even sure bi-metal or even quad-metal would work. And after gold, silver, and platinum, you're either dealing with metals that are in common use and hard to "reserve" (e.g. magnesium), rare earths that you just put a value on because they're rare (e.g. yttrium), or radioactive metals that are dangerous and hard to store (e.g. plutonium).

The cat's out of the bag. It would take total and complete failure of the financial system, one where fiat collapsed because there were no countries to back it up anymore, to return us to a metal-based standard. Let's hope we never get to that.
posted by dw at 8:43 AM on November 17, 2008 [9 favorites]


Mutant: any thoughts on what's driving the disconnect between physical and spot prices? It seems that right now, large buyers could be buying Comex futures & demanding delivery in a months time for considerably less than people are reported as paying for physical gold in the open market, where such trades are being reported. This is a bit weird, to say the least.

(You can see why the gold bugs complain about 'manipulation' of the gold price. Even if there isn't any manipulation going on, things don't seem to make sense as they stand.)
posted by pharm at 11:09 AM on November 17, 2008 [1 favorite]


And then there's one more little problem -- the gold standard means the money supply can only be expanded by buying gold. If the US government needs money, it'll either have to buy more gold, or it'll have to tax the money out of the populace. The former will be very expensive, the latter will be insanely unpopular.

For guys like Ron Paul or Lew Rockwell, isn't that the whole point? Not that gold is magical in some way, just that it's something historical and convenient to restrain the government.
posted by ericales at 1:54 PM on November 17, 2008


Honestly, I'm not a google ron paul gold zealot or something, I'm just trying to understand the arguments for and against a gold standard, and I kind of feel like the kid in math class who isn't seeing the obvious so please bear with me.

So, let's say we don't. Let's say we force every American to hand over their gold and get our reserves back to, say, $1T. If we were to revaluate our currency to meet that $14T goal, then every 1 old USD = 7 cents new USD. Besides having to force a massive, expensive conversion of all our debts and salaries to the new system (you made $100K last year? You're making $7143 this year -- but your million dollar home is $71,000!) it would also make the dollar incredibly, ridiculously strong. If a Euro is $1.25 USD now, it'd be 9 Eurocents = 1 new USD. The Euro would go from being stronger than the dollar to being insanely weak.

Isn't this what the EU did when everyone switched from their old currencies to the Euro? They decreed a fixed exchange rate and forced everyone to change. I don't think Italians freaked out that their houses went from 100 million lira to 100,000 Euros or whatever it was, right? The number is meaningless; it's just semantics. The strength of Italy's currency didn't skyrocket to the point where they couldn't export anything. What am I not seeing here?
posted by Durin's Bane at 2:43 PM on November 17, 2008


I don't really understand this whole Gold standard thing. Am I right in grossly summarising it as an attempt to give a 'real' value to the concept of a currency?

If that's the case, then why gold? It's pretty, quite rare and it doesn't rust, but you can't eat it. It has no real intrinsic value other than what others are prepared to exchange for it and the value others place on it seems to have no other basis than it's pretty and doesn't rust, and there's not a lot of it about.

In summary summary - Aztecs and Conquistadors had different ideas regarding the value of gold. Which one are you?
posted by JustAsItSounds at 3:56 PM on November 17, 2008


pharm -- "Mutant: any thoughts on what's driving the disconnect between physical and spot prices? It seems that right now, large buyers could be buying Comex futures & demanding delivery in a months time for considerably less than people are reported as paying for physical gold in the open market, where such trades are being reported. This is a bit weird, to say the least."

It is pretty weird, I've got no clue as to the cause and suspect if anyone does they ain't talking as they've more than likely found a way to make money from it. But that doesn't stop loads of speculation about price fixing and conspiracies.
posted by Mutant at 4:25 PM on November 17, 2008


Most of DW's points are academic - big deal if your million dollar house is worth $71k new dollars. And foreign trade would be fine too, a barrel of oil would cost 90 new cents.
The key point seems to be that the folk against fiat money do not trust those in charge to grow the money supply responsibly - they believe it is only a matter of time until someone helicopter drops bales of newly printed notes. Leading to inflation and the devaluation of existing money.
By linking money to a commodity, which could be done fairly easily, there is less scope to grow the money supply (more of the commodity must be secured to back new money) without true productive growth (as the commodity must be purchased with real money) so inflation is constrained.
The key problems are:
- commodity producers hold disproportionate power - and the whole process distorts free flows of capital.
- the economy can really only grow as fast as the money supply, so if commodity supplies were interrupted, there would be money shortages, artificially holding back economic growth.
- it just moves the perceived problem. If the gold bugs are concerned about unrestrained money creation leading to inflation, a commodity backed currency could be similarly manipulated - revising a dollar from 1/20 an oz to 1/25th for example. The heart of their concern is that central powers can't be trusted, but a commodity backed currency does not make those powers magically trustworthy. Any system to prevent manipulation of a commodity backed currency could work equally well if applied to a fiat currency.
posted by bystander at 4:29 PM on November 17, 2008 [1 favorite]


So, the positives of fiat currency are, ... What?
posted by Balisong at 8:51 PM on November 17, 2008


I had always understood that gold would be used a lot more in electronics if it weren't for the extra value added to it for its goldiness.
posted by pompomtom at 9:29 PM on November 17, 2008


Fiat currency positives:
- free to produce (printing costs, or even just electrons), compared to holding billions of dollars worth of gold
- totally scalable, so it can be grown as fast as productivity/economic growth
- no distortion of the commodity market, as pompomtom alludes
posted by bystander at 3:33 AM on November 18, 2008


Balisong: The huge advantage of fiat currency is that more can be printed as the economy expands. Using a random physical good as your money can lead to all sorts of painful problems with the supply of money drying up and choking the economy off, or alternatively with the economy suddenly being flooded with extra money when the supply/demand curve for the commodity in question shifts.

Of course the major problem with fiat currency is that more can be printed whenever the agency controlling it's supply wishes, not just in response to economic growth. The occasional bout of hyperinflation tends to make people a bit wary for obvious reasons.
posted by pharm at 12:39 PM on November 20, 2008


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