Forbes published this surprising piece by John Tamny. I sure hope he is right.
French economist Jacques Rueff once said “Tomorrow, to save man, we will give him a real currency.” For a world that has suffered nearly 40 years of economy-retarding currency instability, that tomorrow is very near.
If history is any kind of indicator, by 2013 we’ll return to money defined in terms of something real. No currency in history has lasted longer than 42 years after its intrinsic backing has been abandoned, and it was 39 years ago that President Nixon severed the dollar’s link to gold.
Over the ensuing decades the U.S. economy alone has suffered three dollar-driven oil “shocks,” more than three recessions and a contraction of its capital base thanks to a unit of account that has collapsed in value.
It’s time to give the world a real currency once again, and in the coming years the dollar will be redefined in terms of the most stable currency known to mankind–gold. And with the dollar still the world’s currency, central banks around the world–including China’s–will follow our responsible lead and peg their currencies to the newly stable dollar. Only then will the world economy achieve a reasonable facsimile of its growth potential.
The catalyst for such a momentous change will be the financial crisis of 2008, and more unrest ahead related to falling global currency values. Tired of the intermittent pain caused by monetary error, the citizens of the world will demand stable money.
The economic result of such a move promises to be profoundly good.
No longer fearful of their savings being destroyed by mercantilist governments, individuals all over the world will put money away with great comfort. Jobs will be plentiful because all jobs are the result of delayed consumption. Rather than worry about how they’ll find work, by 2015 the world’s citizens will reclassify their problems with the more pressing question being where they will choose to work.
Hedge fund traders and their counterparts in banking will find their ability to generate profits greatly reduced absent monetary chaos, but their loss will be the global economy’s gain. Indeed, with trading profits more difficult to amass, some of the greatest minds in the world will lend their brilliance to the productive economy. Past and present investor darlings Google, Microsoft and Intel will seem positively pedestrian once these accomplished minds unleash their brainpower on technology, transportation and health care.
OPEC, formerly an economic power thanks to soggy, undefined dollars driving up the nominal price of oil, will by 2020 have returned to its former, 1960s irrelevance once the greenback is stabilized. As for the Middle Eastern countries that use debased petrodollars to fund terrorism, they’ll find their ability to do so compromised once a fixed dollar sets the price of crude on a multi-year decline that will end with the commodity settling at a cheap and stable price.
Most important of all, stable money will foster an era of world peace. With gyrating currencies no longer slowing global exchange on the way to trading friction, the world’s division of labor will expand on the way to a self-interested avoidance of war.
The clock is ticking. Fiat money has never lasted long, and with good reason. Bad as things may seem now, future historians will write positively of today’s economic crackup for allowing our stable-currency rebirth. Hope springs eternal.
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Here’s to hope.
A breath of fresh air. Thanks for sharing!
¨Most important of all, stable money will foster an era of world peace.¨
Let´s hope it will be the end of the power of the military industrial complex…
While I am pleased somebody wrote this in Forbes, I don’t agree with this article at all.
The only way I see gold become the reserve money again is if everything, and I mean EVERYTHING in the current financial system is crushed. It takes a punch in the face like that for things to change. And as bad as things are right now, there’s a long way to go.
amen. it would be panglossian to believe anything else.
anyway, governments always act after the fact. gold/silver/whatever will first become the de facto money, and then governments will be dragged kicking and screaming to acknowledge the obvious and undeniable.
Nice word newson.
In the novel “DUNE” by Frank Herbert, the evil Baron told his commisars to ” control the money and the courts, let the rabble have the rest.” Even science fiction writers understand this basic principle. Gold is freedoms money.
Not to be technical, but the Canadian dollar has been fiat for a while:
The federal Parliament passed the Uniform Currency Act in April 1871,[3] tying up loose ends as to the currencies of the various provinces and replacing them with a common Canadian dollar. The gold standard was temporarily abandoned during the First World War and definitively abolished on April 10, 1933. At the outbreak of the Second World War, the exchange rate to the U.S. dollar was fixed at 1.1 Canadian dollars = 1 U.S. dollar. This was changed to parity in 1946. In 1949, sterling was devalued and Canada followed, returning to a peg of 1.1 Canadian dollars = 1 U.S. dollar. However, Canada allowed its dollar to float in 1950, only returning to a fixed exchange rate in 1962, when the dollar was pegged at 1 Canadian dollar = 0.925 U.S. dollar. This peg lasted until 1970, after which the currency’s value has floated.
http://en.wikipedia.org/wiki/Canadian_dollar
It was pegged against the dollar until the 70s, which means that it was indirectly pegged to gold since the US dollar was pegged to gold (however poorly) until the 1970s. Technically, Canada has only been totally fiat for about as long as the dollar has.
John Tamny takes a piece of the pie and tells us what gives it flavor and he even tells us that we will be satisfied by its nourishing qualities and since we are satisfied we will get along peacefully with each other.
But what he talks about is only a piece of the pie. He does not talk about the snarling dogs of the earth that are greedily guarding the pie. In a roundabout way though, returning to a gold standard does imply getting rid of the counterfeiters which would neuter the dogs! That should help!
“No currency in history has lasted longer than 42 years after its intrinsic backing has been abandoned” – does anybody know where this number comes from?
There’s no such thing as fiat money. All money is backed by the assets of its issuer. If a bank issues a trillion dollars, and has assets equal to a million soldiers, then each dollar is backed by a millionth of a soldier. If the bank issues another trillion dollars and hires another million soldiers, there would be no change in the amount of backing per dollar. There’s no reason to use gold as backing instead of the military-industrial complex, the best backing money can buy.
makes you wonder why the barbarians’ gold was more acceptable than the money of imperial rome in the final days.
The barbarians had sharper swords, longer spears, and thicker armor.
And the Romans debased their coinage to pay for their wars.
and so weren’t able to adequately meet the battlefield technological challenge. a bit like the substandard armour on the humvees in iraq.
Any of you guys read “The New Deal in Old Rome”? I had mixed views on it. Very interesting overview of Roman history, but the economic discussion wasn’t as fulsome as I had hoped for.
Actually the Gaul-Celts fought naked (Dying Gaul http://www.utexas.edu/courses/introtogreece/lect35/dyinggaul2.html). Fierce bastards. Only the Gael-Celts never bowed to Romans until St. Patrick (a Roman Breton-Celt) dazzled them with mysticism and they bowed to the Roman catholic church.
The Goths, Huns, and Vandals didn’t.
The discussion was about the “barbarians” whose gold the Romans preferred, wasn’t it? The Gaul-Celts and Breton-Celts were those the Romans pillaged. They had their hands full enough trying to control them to go after the eastern multitude.
Are you saying we’re all slaves subdued by brute force…Money is just the proof of it? So then the real issue is that of Murphy: what idea could replace (and supplant) the State military to be adopted by the populations?
Nice article but it felt a bit too Utopian to me.
Most important of all, stable money will foster an era of world peace. With gyrating currencies no longer slowing global exchange on the way to trading friction, the world’s division of labor will expand on the way to a self-interested avoidance of war.
There was no war during periods when there was a gold standard?
Exactly Rick. Only elimination of the nation-state will eliminate war. War keeps the parasitic oligarchy in power and the oligarchy’s prime motive is to seize more power over both its subjects and rival oligarchies.
There was no war before nation states?
Will: “Only elimination of the nation-state will eliminate war.”
scineram: “There was no war before nation states?”
I appreciate your quibble, but Will is correct.
Insofar as war’s definition is “declared hostility among nations and/or states,” then Will’s statement is a necessary, and inescapable, deduction.
No war that threatened all humanity. Tribal and clan war only, and that was mostly reivers stealing livestock, wives and other chattel.
When stealing land went large-scale is when the plunderers started thinking about how to preserve the land holdings by introducing the concept of “nations” and the use of nationalism to enslave their subjects. Feudalism was all about setting one’s friends up as nobility to keep watch on chunks of territory and keep that territory and its inhabitants subservient to the tyrant. The tyrant had two potential enemies then: the nobility and the multitude. A very subtle and delicate balancing act and they readily embraced religion as an ally to maintain it.
” Jobs will be plentiful because all jobs are the result of delayed consumption ”
WOW!!! Where’s michael when you want him?
Bala shhhh! Not so loud! If we wait until the sun comes up and he’s not back in his cave, maybe he’ll turn to stone.
I thought this article was excellent and it’s just great to see these ideas discussed in the mainstream media. I’m skeptical about the chance of a real currency anytime soon, but then again it’s hard to appreciate the full extent of the internal tensions and contradictions in a system until it collapses, and then they become plain for everyone to see.
I don’t want ANY standard. Let there be a free market of money, and stop imposing standards, whether gold, fiat, or anything else.
How can the current promises of the state (and others) to be covered since there isn’t enough value around to be taxed/collected to pay them once the ability to print is removed?
So these all default? Sounds like a very bumpy ride along with many attempts at very high taxation or confiscation of property in general…
George, just to carry on the conversation, I would need some convincing that the current promises of the state even SHOULD be covered, given they’re mostly made to pork barrel re-election by short sighted politicians prepared to promise away the future wealth of others to those of today’s voters with a sufficiently strong sense of entitlement and a sufficiently weak ethical system.
Second, even without monetary reform, many of these promises would be likely to default anyway, as the state continues to implement policies that undermine the productive, wealth generating capacity of the private sector, in part but not only through its “ability to print” money. So we should strap ourselves in and prepare for the ride however it should shake out.
There’s already a counterfeit Bill G, sputtering about the military/industrial complex. Oh well, you know what they say about imitation.
But anyway, once we return to the gold standard, it’s inevitable that some central or private bank will go bankrupt and be unable to meet its gold obligations. Given the choice between liquidation and suspension of convertibility, any bank that has a choice will choose suspension. Then we’re right back to where we are now: Currencies backed by the issuing bank’s assets, convertible into things like bonds and tax obligations, but not convertible into gold. The worst part is that we’ll have to listen to the Mises goldbugs all over again.
Exactly. Screw the gold standard. Remove legal tender and let the chips fall where they may.
To remove ‘legal tender’ power has to be taken from the usurpers and so it seems much more likely that the gold standard will have to come first before the artificial and corrupt ‘legal tender’ is abandoned.
I don’t think they’ll return to any kind of gold standard until they can figure out how to steal half or more of people’s gold, or else they will forbid the ownership of gold or its use in transactions by ordinary people.
While they could in theory return to a system similar to the 19th C in which the money is sound and taxes are low, in practice there are too many dependents on government money, and these people are too debauched and unable to conceive of life without free handouts. Drastic monetary reform is probably impossible without the breakup and replacement of the entire political systems of the countries which have welfare states – that is, almost every developed country in the world.
Barring a war, plague or other catastrophe, I think that the most likely event to bring down the current system is that the baby-boomer pig in the python will kill the snake and then Gen X, Y, Z will be left to pick up the pieces.
THIS MADE MY DAY.
Considering that Forbes is a bankers-owned magazine, one can view this piece as the start of a meme that will eventually benefit the bankers: assign a gold ratio to the currency.
It would be to the public’s benefit if that occurred today or at any time in the past 39 years, when the gold price was below $1,265. That’s why a gold ratio won’t happen now.
Because the article writer’s views received the necessary approvals before publishing, one can view 2013 as the gold ratio milestone in the bankers’ plans. The primary unknown is the gold price at that time.
The secondary unknown is what the Fed/government will do from now until 2013. One can safely assume that another round of quantitative easing/bad asset purchases will take place. We can assume from QE’s past performance and Austrian business cycle theory that this next round will also fail to improve economic conditions.
If the Fed follows up the expected QE2 failure with outright money printing, one can expect the gold ratio milestone to be moved up in time.
So what can one do now? To me, its a matter of acting now to avoid future punishment. If one didn’t avoid the punishment of holding currency the past ten years, and didn’t buy when the currency was 1/$260, 1/$400, 1/$750, or 1/$910 of a gold ounce, buy now at 1/$1,265 of a gold ounce.
If one waits under the gold ratio milestone is here, there won’t be any choice but to be punished as one’s currency holdings devalue to 1/$X,XXX of a gold ounce. Those who don’t buy at that time will be taking the risk that the first attempt at a gold ratio will fail, and will be subsequently punished when their currency holdings devalue to 1/$XX,XXX of a gold ounce.
Dare to dream. The world is so veiled in darkness right now, that any light piercing through appears otherworldly.
The devil is in the details.
The US holds about 147 million ounces. M3 is about $11 trillion. Divide the M3 money supply by the gold claimed to be held by the Treasury and I get about $75,0000/ounce. I have about 6 ounces of gold caps in my mouth . . . .
in order to have a complete monetary reform there would have to be major bank reform i.e. the end of fractional reserve banking and ending the evil system of the federal reserve that makes us pay interest just to have money that we earn.
i just can’t understand why most american’s do not see the moral hazards of those to systems that chains the masses in servitude to a handful of private interest.
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