Help!!! - Detailed Questions About the Transition to a Gold Standard

Economics Economics Questions
1

Gold standard questions:Supposition and some questions. Suppose you are Prez, Dictator, whatever, of America. You have the ability to try and institute gold standard, or currency reform, gold standard may be imprecise but. . .

A number of questions occur.

  1. Mere mention of transition might cause people to pull out of our debt and currency, collapsing it? How to combat this.

  2. So you Mint precious metal coins, denominated in weight, make them the sole legal tender. What weights/denominations would you use? Could you use silver and gold and platinum? Wouldn’t ounces, being non base 10, make trade calcs murder, unless you did 1/10th ounce, etc. Silver and gold and platinum would offer more coins, but you can’t peg value of one against other at fixed rate, so don’t you have exchange problem/complication?

  3. Transition. How to get rid of Fed Reserve notes. Redeem them for precious metal legal tender? Isn’t all gold and silver of Fed & Gov’t collateral against debt? Wouldn’t the Fed inflate mercilessly as transition date approached? And precious metal speculators? So you determine total number of Fed Res Notes (FRNs) in circulation, and freeze all inflation via Fed and fractional reserve lending. You count up all the precious metal America has in Fed, Fort Knox, etc. The American value of $40 per ounce of gold or whatever, set by gov, obviously bogus. But if you divide the total weight of say gold (if it is all gold) by the total number of dollars, you have a weight of gold per note, that allows redeemability (or a total number of dollars per weight of gold, equal to specific coin weight). But this value may not be equal to the market value of gold. But how could you go with market value of gold, wouldn’t that leave some money unredeemed?

And wouldn’t doing this destroy the American standard of living via inflation as all Fed notes rushed back in a short period, or would you redeem them based on years on note or something more gradually? The problem is exacerbated if you want to redeem dollars for gold, silver, platinum, which given the huge volume of dollars in circulation, seems necessary. Don’t you need some way to value silver and platinum relative to gold to determine exchange rate? But the changing values of these metals on market creates the classic bimetallism problem of fixed exchange value allowing speculation. What is the best way to proceed?

  1. So suppose you get it done. Fed notes out of circulation, precious metal coins circulating, in hands of people rather than bank vaults. People will deposit gold and get demand deposits which will circulate as paper money. Assuming 100% reserve banking, you still have problem, PRACTICALLY speaking, how do you prevent history from repeating itself. And should the government be able to circulate debt instruments as long as they are not pegged to the precious metal currency? If not, then aren’t they vulnerable to demise in case of invasion, etc., for lack of funding? Isn’t a uniform national paper note for trade, even if not pegged to gold coin, useful? Wouldn’t, in contrast to mid 1800s in America, a totally private system eventually be monopolized by the same people than now control Federal Reserve, and the same system arise, even with gold convertability?

  2. What would the elites profiting off the current system do to prevent the implementation of fiat currency reform.

Thanks for any time you can spare. I’m really trying to develop a comprehensive transition plan that would WORK.

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It’s already collapsing. A scheme like this is just what’s needed to make people pile back into it. Why would people prefer irrdeemable currency?

Most likely small items would be priced in silver, and expensive things in gold. Yes, silver and gold would be distinct currencies with a fluctuating exchange-rate, but in practice each has its own niche.

You don’t have to get rid of them, but just make them redeemable in gold coin. If you look at the Fed’s balance sheet, you will see that it already has 25% gold backing for the notes that it issues. The other 75% is various interest-paying securities, e.g. US treasuries. You could place the securities in a mutual fund. Then anyone who wants to redeem their dollar gets 25% in gold and the rest in shares of the mutual fund, which they can then sell. The mutual fund would be slowly wound down until all notes were backed 100% by gold.

As for the private banks, a similar scheme could operate. Anyone who wants to redeem their demand deposits immediately gets 10% in Fed notes and the remainder in bank-shares or a share of the bank’s loan portfolio. If properly managed, these should hold their value quite well. Savings account holders would be able to redeem for a share of the investments backing their savings accounts, likewise money-market account-holders, and MMMF account holders would redeem for MMMF shares. The banks would slowly switch to 100% gold backing for demand deposits, and the other accounts would be transferred to time deposits.

An immediate fire-sale to liquidate the assets of the banking system for gold would not benefit note-holders.

Initially insist on auditors for each bank, answerable to shareholders. They can check that demand deposits are 100% backed by gold, and that time-deposits and loans are in sync, or at least that the bank is on target to reach that goal.

The “elites” are just the holders of bank shares. They are ordinary people - many perhaps unwitting holders through their pension-funds.

3

Not to dispute what LanceH wrote but I also want to take a crack at this.

Isn’t that the point, to get people to pull out of the current fiat currency and into specie?

But just start up slow, first establish a gold backing for the dollar and then move away from the printing presses.

Or, allow private mints to produce specie while the Treasury keeps the supply of paper money stable until it loses favor with the people and naturally goes out of circulation. They would have to eventually sell off the gold sitting in government vaults in dollars for this plan to work.

Neither of these are perfect and I’m sure that people have come up with elaborate plans to accomplish this transition that I’m not familiar with.

There’s part of your problem, the goal is to get rid of ‘legal tender’ altogether. Let the market decide if the coins are denominated in grams, ounces or grains. Eventually a standard will develop like the previous 1 oz gold coin that dominated international trade for hundreds of years. Probably be metric this next time but I did read that there is a rhyme and reason to the ounce system because the math is super easy when determining fractions recently.

And in this system of computerized everything all you really need to do is carry around a little plastic card and let the banks do all the hard conversions for you or have a little calculator attached (or built in) to the cash register.

I heard a plan where you take all the dollars in circulation and divide by the amount of gold in the possession of the State and there’s your convertibility ratio. The people who currently hold gold will get a windfall because I believe it amounted to something like $1300/oz and this was before the current crisis this, crisis that, commodity boom we are currently involved in.

They have done it before and there is no reason to believe that they can’t do it again if they had the will.

Simple, don’t let the government prop up and bail out the banks every seven years or so when they cause a business cycle. That’s how they got away with it before, they were allowed to stop redeeming notes for specie whenever they got in trouble.

I’ve never heard the invasion defense for an argument against the demise of a fiat currency before…when was the last time the US invaded, 1812? Along with all the nukes I don’t think we’ll be seeing Red Dawn anytime soon. And trade, either do it electronically like is the standard now or have them ship gold bullion inbetween countries like in the old days.

I don’t think it’s really possible to predict what a cornered rat will do when they are fighting for their life.

I can guess though… Start a bullsh*t war so the government debt and currency exchange rate was so far out of whack that any talk about going back to a commodity currency is just crazy talk? Educate the citizens that the worst economic period of this nation’s history was caused by the gold standard? Marginalize any economic theories that don’t go along with their current methods in the almost exclusively publicly funded education system?

I have little doubt they have other tricks up their sleeves that I can’t think of off the top of my head.

I would suggest you research how they managed to kill off the prior central bank attempts and return to a gold standard since some of what they did would probably also work today. I’m sure you will also find a wealth of arguments against a gold standard that can be dusted off to oppose any attempt to institute one today.

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So? That would just make transitioning to the new gold standard that much quicker. Besides, our currency is already dropping like a rock.

If it were up to me I’d follow the same basic outline of the Coinage Act of 1792. As for exchange you leave that up to the market. A $1 silver coin consisting of 371.25 grains of silver would always be one dollar. If the value of silver should go up the dollar would buy more. If the value of silver should go down the dollar would buy less but this would be a totally natural market exercise. If I wanted to use a gold coin its value in relation to the silver dollar would be based off of current market prices.

You make it harder than it actually is. The process of getting rid of the Fed is quite simple. The first thing you have to do is abolish the legal tender laws which make Fed notes the only legal tender in this country. You now have created an opening for free market commodity money. Private banks and individuals could now start issuing their own currency backed by silver and gold. If the Fed started to inflate more people would flock to private gold and silver. The exchange rate between Fed notes and gold and silver should be left entirely up to the market. Over time people would start demanding they be paid in silver and gold instead of fiat Fed notes which continue to lose value.

Or, if you wanted to go the statist route you could, first, abolish legal tender laws. Second you would have the US Treasury issue United States Notes that were backed by silver and gold which could then compete with Federal Reserve Notes. Over time people would recognize that the United States Notes held their value whereas the Federal Reserve Notes continue to lose their value. The result would be people and businesses damanding US Notes over Federal Reserve Notes. The Fed would die a slow, sad death as US Notes backed fully by gold and silver became the dominate currency.

What do you mean? The creation of a new central bank and fiat money or fractional reserve banking? The only way it could come back into wide spread use is if the state instituted legal tender laws and brought it back.

No.

I hope so. For any real monetary reform to take place the state must first be eliminated.

Gold is gold and silver is silver. You don’t need a uniformed national anything. The nation-state is the cause of the problems in the first place. And if there was a free market in money you wouldn’t ever have a new centralized bank come up. Assuming one did it would only exist because the market allows it. The Federal Reserve exist because of government decree. But without a state to enforce such a thing this new “central bank” would have to stand on its own merits. If it began inflating the money supply the market would naturally seek out a stable alternative and this “central bank” would collapse because of market pressures.

They would use force. That’s all they know. So in order to have real monetary change we have to take away the system that gives these elites their power – the state. By abolishing the state the elites will have no weapon against us and the free market can take over.