US$ backed by gold again?

Discussion in 'Business & Economics' started by Athelwulf, Apr 23, 2006.

  1. Athelwulf Rest in peace Kurt... Registered Senior Member

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    For a while now, I've been playing with the idea of the US going back to the gold standard. From what I've learned in economics class lately, money backed by gold is much more stable than fiat money. So I did some researching to try to see how feasible going back to the gold standard would be.

    A specific plan I had in mind was to define the value of a dollar as that of a gram of gold. This would make a dollar twenty times as valuable as it is now, so to compensate for this, either 95 percent of our money would have to be taken out of circulation, or new-looking money (not necessarily new currency) would have to be printed and the old money totally depreciated.

    Unfortunately, going back to the gold standard wouldn't work as smoothly as I hoped it would. There are $760 billion in circulation as of 2005 (a lot of it is overseas), but we only have $162.7 billion worth of gold in reserve as of this February. So it seems like there simply isn't enough gold.

    However, I figured out that in 1995, there was about half as much money in circulation as there is now: $380 billion. I'm sure the dollar has inflated since then, but I don't think that the 1995 dollar had much more purchasing power than the 2005 dollar. This leads me to believe that we don't really need $760 billion. Therefore, it seems to me that we might be able to cut down the amount of money we have in circulation so that it all represents 50 to 70 percent of our gold reserves. Why leave extra? This would enable us to make more money when it's needed. One reason we went off the gold standard was because the president at the time, FDR, wanted to put more money into circulation to help get us out of the Depression – something he couldn't do if there wasn't enough gold to back it.

    This would all be a very drastic change, yes, but is it feasible? Or do I not know what the fuck I'm talking about?
     
  2. Communist Hamster Cricetulus griseus leninus Valued Senior Member

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    A small note, but perhaps silver would be a better alternative to gold? There is more of it, but on the other hand it looks rather similar to many other metals, so it could be easier to "forge".
     
  3. Athelwulf Rest in peace Kurt... Registered Senior Member

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    It's another possibility, I suppose. And it's one I shall look into.
     
  4. spuriousmonkey Banned Banned

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    Why not use enriched uraninium for american currency? Or depleted uraninium if you want to be a cheap ass.
     
  5. Communist Hamster Cricetulus griseus leninus Valued Senior Member

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    Something about that, spurious, strikes me as rather impractical. I wonder if it could be the γ
     
  6. Athelwulf Rest in peace Kurt... Registered Senior Member

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    I agree. The shame of a wasted PhD.

    Edit: Oh nice, that rhymed.
    Edit: No HTML? Lame...
     
  7. invert_nexus Ze do caixao Valued Senior Member

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    Wow.
    You're serious about the statistics for how much money is in circulation today as compared to 1995? That seems like a large change, doesn't it?

    What is this tied to? Is it tied to inflation?

    It makes me think of the Confederate states pumping out their currency like it was nothing towards the end of the Civil War. The dollar doesn't seem to be going through great difficulties at the present time, so I can only assume that this is not exactly the case of what is happening here.

    Do you have statistics for how much money has been in circulation over time?
     
  8. spuriousmonkey Banned Banned

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    If you had any brain you would know that the idea of coupling enriched or depleted uranium with the dollar is just as moronic as coupling gold to that standard.

    But I guess you were thinking again with ur'anium.
     
  9. invert_nexus Ze do caixao Valued Senior Member

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    Anyway, it isn't like you'd have uranium currency. Rather, you'd have uranium certificates. Just like the old paper money used to be silver certificates.

    What about that, anyway? If it was based on gold, then why did it say "Silver certificate"?

    Answered my own question:
    "Silver Certificates were used for a time in the United States as a form of paper currency. They were produced in response to silver agitation by citizens angered by the "Crime of 1873", which placed the United States on the gold standard. The certificate was matched to the same amount of value in silver coinage. For example, one fifty dollar Silver Certificate = fifty silver dollars."
    So. It would appear that for awhile we had money based both on gold and silver. Or were silver certificates a different situation than the gold standard?
    What exactly does the gold standard entail? I know squat about economics.
     
  10. leopold i miss my coco. Valued Senior Member

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    the question i have about money is where does it come from
    yes i know it comes from printing presses
    but what determines how money is added to our economy?
     
  11. Athelwulf Rest in peace Kurt... Registered Senior Member

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    invert_nexus,

    I really doubt it's directly and solidly tied. Though I wouldn't reject the idea either.

    Yeah, I think it's the US printing more money than it strictly needs to. It's trying to pay off its debt, is the problem. But surprise surprise, the debt is climbing along with inflation. :bugeye:

    I don't, but I'm sure it can be Googled. For it to be worth anything, though, it would have to be adjusted for inflation.

    I suppose. But uranium neither a precious metal nor a tradable commodity, like gold and silver are.

    Yup. In fact, we were still on the silver standard long after the gold standard was done away with. We minted our coins with silver until 1964.

    Same here. But as I said in the OP, money backed by gold would be stable, so inflation would be hindered. Furthermore, it would be easier to trust. You may be used to the idea of using a small piece of cotton-linen blend and little disks of copper-nickel to buy things – but when you think about it, the idea of fiat money is a bit worrying.

    spuriousmonkey,

    You have one post to reasonably explain why the gold standard is moronic. Beyond that, I will no longer take you seriously within this thread. Use your one post wisely.
     
  12. spuriousmonkey Banned Banned

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    Because we switched to fiat currency a long time ago.
     
  13. Athelwulf Rest in peace Kurt... Registered Senior Member

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    Wow.

    F-
     
  14. Communist Hamster Cricetulus griseus leninus Valued Senior Member

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    Which is, of course, the origin of the British "pound". The banknotes used to say "I promise to pay the bearer [of this note], on demand, the sum of x pounds of gold." Nowadays the note omits the "of gold" part.

    So, wouldn't a gold standard eventually lead back to paper money?
     
  15. Athelwulf Rest in peace Kurt... Registered Senior Member

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    Of course it would. But the gold standard doesn't imply that we not use paper. The important thing is that the paper money would represent an amount of gold that is being held somewhere, rather than be factually worthless. That's much different from how the US dollar and UK pound work nowadays.
     
  16. spuriousmonkey Banned Banned

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    24,071
    http://www.kwaves.com/fiat.htm

    here you can see how the US has switched between fiat currency and gold standard many times during its history.


    Alan Greenspan:
    http://www.gold-eagle.com/greenspan011098.html

    Why not the gold standard?
    http://www.j-bradford-delong.net/Politics/whynotthegoldstandard.html
    Imagine being dependent on Russia for your inflation...
     
  17. Roman Banned Banned

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    11,562
    That was the reason for gold no longer being an international standard. American money was back by gold until 1971 when high inflation from the cost of 'Nam pretty much ended it.
    http://en.wikipedia.org/wiki/Bretton_Woods_system#The_.22Nixon_Shock.22

    Currently, inflation is very low in the US. So low that Bernanke, now the chairmen of the Fed, was worried about deflation.

    If the US went to a gold standard, all control the Fed has over maintaining steady economic growth would pretty much be obliterated. The conversion to gold would cause shocks to the economy. Investors would become cautious, people would be nervous, and the expectation of bad things would indeed lead to bad things. And since the Fed would have essentially lost control over the money supply, the US would have a very hard time of pulling out of a recession.
     
  18. Hapsburg Hellenistic polytheist Valued Senior Member

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    Isn't the value of gold really low these days, tho?
     
  19. Nasor Valued Senior Member

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    Oh no, it’s much worse than that. The total U.S. money supply in 2005 was around $6.8 trillion. Only a small fraction of that ($760 billion, as you correctly stated) actually exists in printed form. The rest exists electronically in bank computers. The Federal Reserve periodically prints new money to meet the demand for cash (to stock ATM machines etc.), but that’s just giving “physical form” to money that actually already existed. The total value of the U.S. money supply is probably far, far greater than the value of all the gold in world. There simply isn’t enough gold for the U.S. to switch back to the gold standard, unless the value of gold were to suddenly skyrocket.

    There are a couple of problems with the gold standard. First, it ties the value of your currency to the international value of gold; if international gold prices go down for some reason, your currency value also goes down and there’s nothing you can do about it. Second, it severely restricts the government’s ability to control the money supply to fight inflation or recessions.

    The only serious legitimate argument that I’ve ever heard in favor of the gold standard is that under our current system of fiat money the government can simply create more money to cover its expenses, basically creating a “stealth tax” via inflation.
     
    Last edited: Apr 27, 2006
  20. The_Dude Registered Member

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    There simply isn’t enough gold for the U.S. to switch back to the gold standard, unless the value of gold were to suddenly skyrocket.

    Well, if the gold standard were readopted, the price of gold would skyrocket. The value of things and the absolute value of the total wealth in the world need not change, but their relationship to the value of gold would.

    First, it ties the value of your currency to the international value of gold; if international gold prices go down for some reason, your currency value also goes down.

    Remember gold is just a conduit for the transfer of wealth. If the international value of gold falls, then your currency probably also falls, but so what. The thing that you care about is whether the stuff the goods that you can buy with your currency remains the same.

    * * *

    You folks ought to check out the recent news that the Fed has stopped reporting the M3 (the broadest survey of the total money supply), which is fascinating and quite confounding since the cost to produce the figure is limited to tabulating the data since they continue to go on collecting the constituent data.

    Please don't get the wrong idea from my comments. I am not nor ever will be a goldbug. But I find this topic endlessly fascinating. Particularly given the huge deficit spending that we Americans now run. The check that the fiat currency system usually employs to close down countries that run large current account deficits has been short-circuited by the patterns now in place.
     

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