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Source link: http://archive.mises.org/14537/can-gold-stop-the-evil-dollar-empire/

Can Gold Stop the Evil Dollar Empire?

November 8, 2010 by

Many finance ministers and officials of central banks around the world are fed up with the U.S.’s inflationary policies, and QE2 seems to have turned quiet anger into open rage. The issue isn’t the inflation so much as the complete lack of coordination. The U.S. is trying to devalue the dollar on international exchange to boost exports, and to heck with everyone and everything else. The latest protest comes from Robert Zoellick, who writes in the Financial Times of the need for a new global monetary system to stop this cowboy behavior. He even raises the great taboo: gold! (FT is a paid link but this site offers the crucial passages.)

The relevant passage: “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

Well, that’s a far cry from a real gold standard, in which gold is not just a metric or “reference point of market expectations” or even a good moved from country to country to maintain trade balances. Under a real gold standard, gold is the money itself, and everything itself is a money substitute. Yes, gold would disable U.S. government imperial ambitions but it would also rein in all over governments in the world. It would be the single greatest change to “force” a restoration of economic freedom.

All of this is explained in great detail in Joseph Salerno’s Money, Sound and Unsound, published this year by the Mises Institute. It is a good book to pick up to understand the latest discussions and debate.

{ 18 comments }

King George November 8, 2010 at 11:09 am

Bah. When normal, everyday people are allowed to use private currencies in transactions, and not only central bankers, then I’ll be happy. Otherwise, this is just a way of leveraging gold for the benefit of the elite and the expense of everyone else. Still, at least it puts some added pressure on the reserve currency.

Arthur Krolman November 8, 2010 at 2:17 pm

I agree your majesty. The world bank should be saying, “After much consideration of the damage caused to human health and prosperity over the centuries, we have concluded that Kings and their successor tyrannical governments should be completely removed from the money business. No central banks, no paper money printing, no coin minting. Nothing. We’ve also decided that mail is not a core government function either.” As it is, Zoellick’s just playing for time here.

Just Isaac November 8, 2010 at 2:51 pm

I’m not sure I really understand the focus on gold by austrians. Shouldn’t the focus be merely on not having a government monopoly on exchange mediums? Does it really have to be gold, or couldn’t it be anything the market determines has merit as a store of value and a medium of exchange?

Arthur Krolman November 8, 2010 at 3:51 pm

Yes, you’re exactly right. It doesn’t have to be gold. Anything you’d like! Go ahead, think of something. Sea shells, cigarettes. All just fine to me (at my preferred exchange rate). Rothbard, a famous Austrian, mused about printing up “Rothbard Bucks” to pay for his expenses. He conceded though that millenia of trial and error and the conclusion that gold was likely more acceptable at his favorite sandwich shop — along with the shop owner’s likely preference — was hard to argue with. Anyway, to answer your point: I’m not aware that Austrians are all “wedded” to gold and would rather have fiat money if gold isn’t voted as the market’s money. And you’re right, just the government not dictating what money is would be fine and dandy.

BioTube November 8, 2010 at 7:08 pm

Even if gold becomes commonly accepted, it’s not likely to matter to your average Joe, though – most people are probably going to be dealing with silver(you want to try fumbling with a 1400th of an ounce?).

Arthur Krolman November 8, 2010 at 8:55 pm

Sure. I’ll take silver any day at the prevailing silver-gold exchange rate. I actually think there’ll be even easier payment options. Walmart has been itching to get into banking for a while to handle their credit card transactions. Here’s the perfect entree. You hand over a dozen ounces of silver to Walmart customer service and they hand you a Walmart Silver Debit Card you can use at retail establishments across the country including Walmarts. Voila! No need to fumble for pesky ounces of any metal in your pockets of any color!

waramess November 9, 2010 at 4:05 am

Doesn’t have to be physical gold, just a warehouse receipt

cret November 9, 2010 at 1:34 pm

does gold and silver offer you some tax advantage over the current dollar curency if govt isnt going anywhere??

Walt D. November 8, 2010 at 4:16 pm

I just saw the following headline – Gold hits record high, tops $1,400 an ounce
The headline should be – Dollar hits record low, gold tops $1,400 an ounce

Scott Branigin November 8, 2010 at 4:27 pm

Maybe someone more enlightened could explain this to me but what good does debasing your currency do for exports?

The way I see it sure you may sell a few extra trickets but the money you get for them has less purchasing power than the money you used to buy your raw materials. So when you go to purchase more raw materials you end up paying more. How is it exactly that you made extra money?

If you get money for a product and your replacement cost is more than what you sold it for then you didn’t really make any money at all and would have been better off not selling. To compensate for the fact that you now need to pay more for material costs to continue production you would need to raise prices and then you are now back were you started with overpriced goods that are not selling.

Arthur Krolman November 8, 2010 at 5:08 pm

I’m an exporter. And I don’t want my products sold more cheaply, thank you very much Mr. Bernanke. I took action myself last Friday to stop the Fed’s interference in my world wide pricing. http://www.lewrockwell.com/orig11/krolman3.1.1.html

What the government means when they say debasing the currency will “help” exporters is this: “We will debase the currency (mainly because we need new money to pay for out-of-control spending) and make it fall in value. This will “help” you exporters by causing a stealth wage cut to all your employees with no pesky collective bargaining required! We’ve helped you all become cheap low paid workers to better compete against low-wage countries! You can thank us later. And, oh yeah, if you give your employees raises so they can actually pay for the same groceries, more of them will be pushed into higher tax brackets and AMT — which will help the coffers of the state! Aren’t we just so helpful all around!!” Not.

Daniel November 8, 2010 at 10:45 pm

Just another broken window. It doesn’t help anyone except the people stupid enough to believe in that kind of tripe.

Ned Netterville November 8, 2010 at 7:05 pm

“Although textbooks may view gold as the old money…” ??? Who writes those text books?

In the late 1970′s, with gold’s dollar price hovering just under $200, up from $38 only a few short years earlier, the U.S. Treasury announced that it was embarking on a sustained effort to terminate once and for all “the international monetary role of gold.” Its plan was to sell off the nation’s gold reserves through continuing monthly auctions, thereby depressing its value and proving gold was no longer needed as a backing for the almighty dollar. Along with those sales Treasury conducted a p.r. campaign of verbal assurances to a presumably gullible worldwide public that gold’s role as money was an anachronism, a thing of the past with no future whatsoever in the brave new world of fiat money and powerful central banks.

Foreign private banks in particular were not fooled. They bought up those auctioned ounces at a feverish pace so that few American investors were able to successful bid for their own nation’s gold. Within nineteen months, as gold continued to increase in value to just under $400 in the teeth of the government’s effort to suppress the price, a thoroughly chastised Treasury canceled its auctions and backed off it idiotic scheme, although there have been subsequent indications and accusations that Treasury and/or the Fed have continued to manipulate the gold market though secretive sales. Attempts to learn of any such illegal (any market manipulation in the US is a crime) activities by the Fed through FOI requests have been thwarted by the Fed’s claim of immunity from FOI for its management of the nation’s money supply. (http://www.gata.org/node/8052)

In 1949 the nation’s gold reserves, bolstered in 1933 by Roosevelt’s illegal confiscation of private citizens’ gold, stood at over 700 million ounces. It then fell to under 270 million ounces as the government inflated the supply of dollars, and foreigners wisely traded their depreciating dollars for Treasury gold at $35 per ounce. Meanwhile, during most of those years, US citizens were prohibited from owning gold. Of the 430 million ounces wasted supporting the dollar, a total of merely 3600 ounces–that is, one ounce out of every 134,375 ounces–went to private Americans. Most of the rest went into the hands of foreigners. Today those 430 million ounces would be worth $602 billion.

If my calculations are correct, if Treasury decided to use its current gold reserves of approximately 260 million ounces to retire all those US$ federal reserve notes as measured by M1, and put the nation back on gold as its monetary unit, it would need to price its gold at about $6788 per ounce. If it wanted to retire all of the dollars as measured by M2, it would need to price gold at $33,500 per ounce. By those fiat currency measures, gold looks pretty cheap at $1400 per.

Arthur Krolman November 8, 2010 at 8:50 pm

Yup. Thorsten Polleit would agree with you entirely as he said in April 2009:
“If, for instance, US M2 were backed by gold, the resulting gold price would, under current circumstances, climb to more than US$31,000 per ounce; in the case of a 100% gold backing of M1, the gold price would exceed US$6,000 per ounce.”
http://mises.org/daily/3386
The question is: will the Fed take rational life-saving (literally) action like this to prevent the catastrophic chaos of a total dollar collapse? Sadly, I think they’re too stupid. They’re the same people you so properly point that tried to convince the world that gold was an anachronistic relic by selling boat loads of it for $35 an ounce all those years before finally looking in the mirror and recognizing a buffoon. Time’s Man of the Year notwithstanding, I think Bennie is your run-of-the-mill Fed bureaucrat. Full of himself, truly. But also truly a few bricks short of a full load.

Ohhh Henry November 8, 2010 at 9:51 pm

The question is: will the Fed take rational life-saving (literally) action like this to prevent the catastrophic chaos of a total dollar collapse? Sadly, I think they’re too stupid.

I think if you examine the history of places like Zimbabwe and Argentina, you will find that the central bankers who managed the collapse of their currency and the near-destruction of their countries’ economies did not lose their lives, their mansions, their limousines or their domestic servants. But they would have lost their jobs, their perks and possibly their lives if they had defied the ruling powers and carried out a monetary policy which was beneficial to the country as a whole but not to the top elites.

Thus Bernanke is behaving in an entirely rational and intelligent way. In his mind the scorn and ridicule of future generations is nothing compared to the hammer that would fall on him if he tried to pull the plug on the Pentagon/Wall Street empire.

You can see that something is eating him – I commented elsewhere on this blog that he looks drugged or brainwashed. He comes up with arguments supporting his lousy policies like he’s some kind of zombie. But as bad as he may be feeling about overseeing the destruction of the US economy, it is useless to expend time and energy wondering why he doesn’t “do the right thing”. The personal cost of that would be, on the whole, far more than the cost of continuing with QE2, 3, 4 until a new currency is required to remove the stink of the Bernanke Dollar.

Likewise every politician in Washington, London, Paris, etc. has essentially zero interest in making any concrete and universally beneficial changes to the currency regime. All of them expect, and quite reasonably, that as bad as things are getting they will in all likelihood be able to get through their current terms and then retire and go into hiding – protected by bodyguards and funded by the banking and other interests whose bidding they are now doing.

There is after all, no real downside from stealing the life savings and careers of the world’s entrepreneurs, shopkeepers and farmers. These are peaceful people who will always conclude that quietly going about your business is the best policy (relocating, rebuilding capital, preserving what’s left for their children, emigrating), no matter what the SOBs have done to the country. But try taking away the gravy train from millions of welfare recipients, bankers and merchants of death!

One must consider the true interests and motivations of the actors in this human drama in order to determine how to proceed. Instead of relinquishing power, the current elites will continue squeezing the lemon until the West has virtually no capital left (financial, political or military). In this environment one must consider carefully the best way to avoid the worst effects of these actions. The future is a minefield of capital controls, pension confiscations, currency devaluations, high taxes, government nationalization of businesses, immigration restrictions and in some places there may be conscription and war.

Arthur Krolman November 9, 2010 at 9:55 am

“But try taking away the gravy train from millions of welfare recipients, bankers and merchants of death!”

But, my dear Henry, the gravy train will become the little engine that can’t as it tries to haul 10 gazillion Bennie Bucks up the mountain to those bankers’ body guards so they can buy groceries. — Not to mention the trains full of freshly printed money needed to supply all those other feeders you mention. Don’t you see? The Fed will cease to be “the Feed”! (Jim Grant calls the US dollar the most well accepted “brand” of currency in the world. “Like Classic Coke,” he said. Well Bennie’s pissing more and more in each can of dollars and — amazingly enough — folks are starting to switch brands!) He will in fact be taking away the gravy train entirely by causing a dollar collapse. I stand by my comment of the Fed being stupid. And isn’t it easier to believe that they were stupid before (selling boat loads of gold @ $35/oz in the late 70s in an vain aborted attempt to prove that dollars were the new gold) and they’re still stupid now? …Instead of trying to argue, yes the Fed was stupid in the past but now Bennie is brilliantly rational in causing a dollar collapse that will miraculously keep resource-laden gravy trains running night and day to the welfare masses, the elites and the military machine. Ain’t gonna be no resources there no more. I do concede, however, that Bennie is under tremendous pressure from the Obama and his banksters et al to not pull the emergency stop as Train USA hurtles towards the cliff edge. I agree with his zombie-like appearance. I think you’re also dead-on in your prediction of capital controls, conscription etc. Unlike Zimbabwe, which I’m guessing received a nice big check from the UN/USA/IMF for the elites to stay in their mansions. No such rich friend will come to help the elites here in this country when the dollar collapse happens. Running a police state isn’t as much fun when there are no bountiful piles of stolen loot from industrious entrepreneurs to hand out…although Kim Jon Il didn’t seem to mind too much! But how many rooms in the palace will there be for all the ex-Goldman Sachs guys?

cret November 9, 2010 at 1:29 pm

if govts started buying the gold mines with the gold they tax would that be much different than the currency banking-currency system?

Arthur Krolman November 9, 2010 at 4:47 pm

If the government buys a gold mine, pretty soon no more gold will come out of the mine. This will be excellent for the purchasing power of gold. Yippee! Castro bought the Coca Cola bottler in Cuba when he took over (using the term “bought” loosely, as governments will often do themselves). Pretty soon Castro Coke started tasting like crap. (“Waiting for Snow in Havana” tells you all about this. Great book.) and nobody would buy it anymore. Cret, smarter governments have generally learned: don’t bother running something. Let entrepreneurs do that and then just steal/tax almost (that’s the tricky part) all the value they create. You’re interested in taxes. The pesky little problem the Republicrats have now is that the maximum they can collect in taxes (yes, they’re very interested in knowing how much you can step on the golden goose’s neck without killing it)…is only enough to pay about half of the money they “need” to spend every year. Oops.

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