The semi-return of the gold standard

It's as if all these gold bugs have forgotten that there are other commodities out there. At least you can sell agrocommodities to people who are hungry. Who are you going to sell gold to once the (supposed) inflation is over?

[...] http://curiouscapitalist.blogs.time.com/2009/10/26/the-semi-return-of-the-gold-standard/?xid=rss-to... a few seconds ago from Gwibber [...]

What the Chinese are trying to do here is have all of the benefits of a currency tied to the Dollar, i.e. access to the US market with a favorable exchange rate for exporting, while not being stuck with a boat load of dollars that they can't convert. What China needs to do is let their currency float so that their products become more expensive for us to import and we here in the US consume less and this forces us to fix our trade deficit. With either of these scenarios there is short term pain for the US, but probably long term gain if we get our house in order. What this is trying to address is the biggest bubble--bigger than the housing bubble by far--the huge pile of dollars that our trading partners hold because they think they can export their way to prosperity and we have no problem consuming their stuff as long as they will trade it for our funny paper.

Well not surprising to see China rooting for gold now, since they know they are gonna make losses on their dollar holdings (it's a feature, not a design flaw of their policy).
It makes sense for them to buy gold now, talk it up, convince gold bugs that gold is gonna be 'it' again and then hopefully be able to sell it without making losses.

Basically trying to create a gold bubble.

[...] Martin Murenbeeld reports that people are starting to use gold as money and a store of value – not that you will be able to use it to buy an airline ticket out of trouble any time soon, but there are arguably signs that the wind begins to blow. [...]

Time magazine ran an excellent feature on gold in your June 22nd 1981 edition. It was after the gold price had spiked to a peak of $850, worth over $2000 in today's money. Your article is accessible on line, well worth a read and quoted in The Goldwatcher.

You took the line that though central banks had not used gold to settle account between them for over a decade, as Richard Nixon had ended the gold standard in 1971, gold had remained ‘the barometer of world tension.' Nervous people every in the world were still stashing away Kruger Rand coins and gold jewellery ‘at the first sign of political or economic unrest.'

‘Making the dollar as good as gold again' was on the political agenda in the election that brought President Ronald Reagan to the Whitehouse in January 1981. After the election a congressional commission examined whether the gold standard should be re-introduced but found no case for reintroduction. As Martin Murenbeeld says:'It's a hell of a poor way to set up a monetary system' and there is no case for it now.

Yet gold has a ‘stateless money franchise' that has endured for millennia. Part of the franchise is universal protection against political and economic unrest. Part is a universal store of value neither politicians or central banks can print. That's why it's back on the agendas of central banks. And it will stay there because it's a good reason.

John Katz. Author : The Goldwatcher.

Sound kind of familiar? Our system is going to crash. It's designed to. Gold will be money as long as the concept of money exists. People need to wake up and realize they have no control over the value of their labor (life) as long as bankers, lawyers and politicians control the issuance of THEIR currency (and it's purchasing power). Work your whole life to make the boss man rich, then have him turn around and steal your retirement when your too old and common to do a thing about it? No thanks. 

What this article predictably overlooked (considering the source) was the role of silver in that basket of commodities. Less of it above ground than gold. Consumed in it's industrial/medical uses (where gold is not), highest reflectance of light, highest conductivity of heat and electricity, anti bacterial, anti microbial, and used in currency for thousands of years. In short, higher intrinsic value than gold. Not to mention it has been price suppressed for years by no more that 4 and usually 1 or 2 huge banks on the paper exchanges by holding massive short positions exceeding the value of the entire deliverable reserves at times. You can do that if you are JP Morgan/Chase, or Goldman Sachs and you OWN the CFTC, the SEC as well as CNN and TIME.

What is most interesting to me is that this article starts off by reinforcing the marginalization of "gold bugs and their tales of apocalypse" and goes on to promote one of their main arguments for "hard backed" currency; It's inflation proof.

Why is it apocalyptic to assert that the same process' which created hyper inflation in Wiemar, Zimbabwe, etc will have the same effect here?

Five years ago people who questioned the dollar's status as world reserve currency couldn't get ink in a magazine like Time. Now they tout the same information as the sources they ridicule.

Truth: First ignored, then ridiculed, then violently opposed, then accepted as self evident.

I always am puzzled by the mystical faith in gold.

First, gold has minimal utility. Yes, some is used for jewelry and a bit for dentistry and electronics, but essentially gold is useless. Its value was based on the same faith that supports the dollar bill. Today, its value is based on less faith than that, because the dollar at least, is supported by the U.S. government's full faith and credit.

Second, the Great Depression occurred while we were on a 100% gold standard. Some have argued that was one cause of the Depression. In any event, gold did not prevent that Depression, nor did it prevent any of the prior depressions.

Third, the current recession is being cured by the government's unlimited ability to pump money into the economy, something that would be impossible if we were on a gold standard or on any other standard based on a physical product or "basket of products" as has been suggested.

Fourth, the U.S. government can control both the supply and the demand (interest rates) on the dollar. That control over supply and demand gives the U.S. complete control over the value of the dollar. The U.S. would have little to no control over the value of gold, a serious problem when trying to control our economy.

In short, gold is one of those commodities, the value of which is based solely on faith. Just as there have been real estate bubbles, stock market bubbles, oil bubbles, tulip bulb bubbles, sugar bubbles, coffee bubbles and diamond bubbles, there have been gold bubbles, the biggest coming in 1980 and perhaps today.

The fact that people traditionally have coveted gold is irrelevant to today's economy. It also is irrelevant to the future safety of gold, which could disappear with the discovery of, for instance, a massive undersea or antarctic gold vein.

Because gold is supported by no nation, it is less safe than the dollar. Worse yet, it is expensive to own. While saving a dollar will earn you interest, saving gold will cost you for storage, insurance and shipping. In essence it is a wasting asset, the value of which is based on the “greater fool” theory (“A fool buys it because he expects to sell it to a greater fool.”). Ownership of gold historically has been far less profitable than ownership of a CD.

We finally went off the gold standard in 1974 for a good reason: A growing economy requires a growing supply of money, and basing money on gold prevents that money growth. Had we stayed on the gold standard, the U.S. would be bankrupt – unable to pay its bills.

Those who yearn for the good old gold standard days, would be well to learn the realities of money. A decent place to begin might be at http://rodgermmitchell.wordpress.com/

Rodger Malcolm Mitchell

I'm convinced and have been for a while. I'm on my way to Northwest Territorial Mint now to buy some gold Eagles. Or maybe even silver, which is less costly per ounce and easier to get into now.

Rod Argentum