This is what I've never quite understood. Let's just say we actually re-adopted the Gold Standard, what things would start happening? What would the process look like? How noticeable would it be?
This is what I've never quite understood. Let's just say we actually re-adopted the Gold Standard, what things would start happening? What would the process look like? How noticeable would it be?
It is impossible to do. There are more US dollars in circulation than gold that has been mined in the entire world. The US would have to radically devalue the dollar (China would declare war on the US if we did anything like that). OPEC would poop their pants.
The only way it could possibly happen is through some sort of return to the Bretton Woods agreement. China would not be happy with that either, much less the rest of the world that has fiat currency.
Precious Roy,
It's certainly not impossible to do. Nobody said that gold had to stay priced at the current $1400/oz.
The key to your (faulty) assumption is that gold stays at its current price. There is more that enough gold to tie it to the dollar but, as you mention, it would have to be at a much higher price (i.e. lower value for the dollar).
The price of gold would skyrocket and/or we would enter a depression
dhdhdhhdh wrote:
Precious Roy,
It's certainly not impossible to do. Nobody said that gold had to stay priced at the current $1400/oz.
The key to your (faulty) assumption is that gold stays at its current price. There is more that enough gold to tie it to the dollar but, as you mention, it would have to be at a much higher price (i.e. lower value for the dollar).
If you are talking about an intellectual exercise, then, yes, you could do it by devaluing the dollar. If you are talking about the real world (which Ron Paul-ites have a lot of trouble doing), then it would be impossible without some sort of world wide coordination like the Bretton Woods agreement. If the US went for it alone, the rammifications of a devalued dollar would send the world financial system into a tailspin. Bond holders would watch their fortunes vanish, oil producing countries would be crushed by the shrinking dollar, the resulting inflation would be worse than anything a fiat system could impose.
Even the most ferocious advocates of the gold standard don't advise an overnight transition to gold. The transition should be an incremental process, whereby gold and silver are introduced as competing currencies.
devistate wrote:
The price of gold would skyrocket and/or we would enter a depression
The prices of precious metals are already skyrocketing and we are already facing a depression of gigantic proportions that will coincide with the collapse of the dollar. The sooner we adopt a commodity standard, the sooner the depression will end.
Precious Roy,
My assumption is that anything legitimately reflecting a gold standard will not happen until it is the only choice (i.e. FORCED on our government(s)).
It will be avoided like the plague for as long as possible, because a gold standard limits government spending (and corresponding power) and forces some level of responsibility. The governments we've had in this country the last several decades certainly do not/will not want to voluntarily sign up for this.
Who will do the forcing? I could imagine different scenarios. One, other countries, eventually forcing the US. Two, if hyperinflation happens and enough people feel enough pain they will eventually wake up and demand a stable system. This could take years, if not decades to play out.
There could even be a long limbo-period where there is a black-market while the current system still hobbles on for years.
There have been tons of fairly recent examples of hyperinflation on a country-level. This is the granddaddy of them all, the US Dollar (among others), the reserve currency of the world, the largest most powerful country(ies) in recent memory.
The current system will be milked as long as it can be. It sounds kind of silly to say, but it will continue to work until it doesn't. Then, look out.
Rational Economics wrote:
The prices of precious metals are already skyrocketing and we are already facing a depression of gigantic proportions that will coincide with the collapse of the dollar. The sooner we adopt a commodity standard, the sooner the depression will end.
You talk about this as if it were a certainty, when it's at best an unlikely possibility. Care to provide some kind of proof of your prediction? As in, at least a moderately well-known economist stating that the dollar will collapse.
Big fail Ron Paul-ites. As is typical with nut job political/economic theories, nothing happens when the rubber hits the road. Competing gold/silver currencies? Are you saying the US should actually go beyond a gold standard to an actual gold/silver currency? Look up the word "fungible" in the dictionary. Gold and silver melt.
And the gold standard after the economic apocalypse isn't much better. You are basically conceding the impossiblity of implementation by imagining a world where all the barriers to implementation have vanished due to post-economic apocalypse conditions. Currencies are intertwined with world wide investments, debt, trade and commodities. The US cannot make a massive move on its currency without massive cooperation from other nations (i.e. Bretton Woods).
And the main problem with the apocalypse theory is that the non-Ron Paul economic right wing is far more powerful than the Ron Paul economic right wing. The traditional reaction to fiscal crisis is a Friedmanite shock treatment. Government spending is slashed, government functions and assets are privatized and sold off to the highest bidder (which is never very high) to pay down debts. And this is the fatal flaw with your apocalypse theory. The shock treatment works (at the great expense of the population, but given a good propaganda machine and steel booted military/law enforcement and you can get it done). The fiat currency system is always able to save itself from disaster, which is part of the reason it is better than the gold standard.
Ho Hum wrote:
[quote]Rational Economics wrote:
You talk about this as if it were a certainty, when it's at best an unlikely possibility. Care to provide some kind of proof of your prediction? As in, at least a moderately well-known economist stating that the dollar will collapse.
It's a certainty that the dollar will fall dramatically in the coming years. The only matter of uncertainty is how much value it will lose. Our current course will lead to a complete dollar collapse and Wiemar Germany style hyperinflation. If we have a 180 degree change of course within the next few years, the dollar might only lose 50% of its value. Your demand for "proof" that a future event will occur is blatantly irrational and I doubt that a person capable of saying something so stupid is capable of learning anything. The most well-known economist predicting a dollar collapse is Peter Schiff, but he doesn't have a Ph.D, doesn't teach in a university and isn't a liberal, so I doubt that you would be take him seriously. But that's your loss.
If an international conference met and actually made an agreement to slowly move towards a commodity backed reserve currency, markets would immediately flee their real assets in anticipation. Bond and equity markets would instantly collapse and businesses, no longer able to acquire debt or raise capital, would go bankrupt overnight. The Tea Party would have its wish because the country would look identical to what it did in 1775.
Everyone do me a favor. Think of what the market capitalization of all the gold in the world is (that is the price of gold per troy ounce times the number of troy ounces in human possession). I don't know what it is exactly, but I imagine it is somewhere in the trillions of dollars. Those trillions of dollars of capital aren't being used in a productive capacity, they are just sitting in a hole in a safe somewhere.
why would opec poop its pants? because it cannot defend its resources from oil-hungry countries?