Should Congress return to the gold standard?

Discussion in 'Political Discussions' started by me again, Aug 5, 2017.

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  1. me again

    me again Active Member

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    Johann and SteveFoerster made some interesting comments on using physical gold (or silver) to retain value, especially as global paper currencies continue to lose value due to:
    - overprinting of paper monies
    - that are not backed by any government with gold or silver

    So exactly what gives currency it's value, since no government is on the gold standard anymore?

    It is not possible for the United States to return to the gold standard, especially with:
    - the abolition of paper currencies (thousand dollar bills are no longer printed)
    - the increased reliance on electronic currency (debit cards & credit cards)
    - all bank withdraws over 10k are now reported to the government

    On a different note:
    - Taxes must be paid on gold (or silver) stocks that increase in value (at cash out)
    - No taxes are paid on physical gold (or silver) when it increases in value (at cash out)

    Two thoughts come to mind: (1) Everything in the Western world is becoming increasingly reliant on electronic currency and (2) it's impossible for the Western world to return to the gold standard.

    Back to the original question: What gives paper currency (that is printed by the government) its value?
     
  2. Johann

    Johann Active Member

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    Interestingly, (I thought), some sources say there was a plot by the late Moammar Ghadaafi ( or any alternate spelling you prefer) of Libya, to overthrow the U.S. economy by demanding payment for oil in gold. ISIS is said by some to work towards the same overthrow by instituting a gold standard, based on the gold dinar, which was being minted in some African countries. Some connect this plot of Ghadaafi's somehow with Hillary's emails . . .

    Whatever. All I know for sure is -- the coins are now available in the U.S., made in the U.S. and sold by a U.S. company. The following link is for proof only - not a solicitation to buy. Dinar Wakala - Introducing Gold Dinar & Silver Dirham in United States of America

    J.

    * Here in Canada, tax DOES regularly apply to gold / silver at cashout. It's called Capital Gains Tax. All such profits are required to be declared on our annual Income Tax return or... well, you know.
     
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  3. Johann

    Johann Active Member

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    Nothing. Nothing, that is, but the faith people put in it and the government that prints it - plus the "full faith and credit" of the nation that issues it. Loss of faith is usually followed by hyperinflation - e.g. Germany, Hungary, France in the 1790s etc.

    Outside of crisis-mode is the slower erosion of value. As the nation's credit report gets messier, down goes the buying power of the currency. That's why, where I live, a new car or four years of university, either of which cost around $2,000 in 1960, now cost $30,000. Even worse, it's why a house, built here for $12,000 in 1960 can now sell for $400,000+.

    J.
     
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  4. Johann

    Johann Active Member

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    The Dinar Wakala site also refers us to the opencurrency-dot-com site. This is a movement to re-establish "sound" (.e. gold and silver-based) currency in the U.S. -and sell coins, of course. Many, many different coins. :smile: Congressman Ron Paul is advocating such a return, to "sound" money.

    Many links to his work, including: Sound Money |

    J.
     
  5. me again

    me again Active Member

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    If the U.S. government were to return to the gold standard, what would the exchange rate be for each paper dollar? The spot price is currently $1261 (at the time of this writing) for one ounce of gold. Click here to see the changing spot price: Spot Gold

    The U.S. government (and all other western governments) will NEVER return to the gold standard for many reasons. However, two primary reasons include:
    1. It would force each government to surrender it's gold reserve on-demand.
    2. It would prohibit governments from printing paper money on an as-needed basis.

    This is an old article, but it list the top 10 countries with the largest gold reserves:
    Top 10 Countries with Largest Gold Reserves - U.S. Global Investors

    1. United States
    Tonnes: 8,133.5
    Percent of foreign reserves: 74.9 percent

    2. Germany
    Tonnes: 3,381
    Percent of foreign reserves: 68.9 percent

    3. Italy
    Tonnes: 2,451.8
    Percent of foreign reserves: 68 percent

    4. France
    Tonnes: 2,435.7
    Percent of foreign reserves: 62.9 percent

    5. China
    Tonnes: 1,797.5
    Percent of foreign reserves: 2.2 percent

    6. Russia
    Tonnes: 1,460.4
    Percent of foreign reserves: 15 percent

    7. Switzerland
    Tonnes: 1,040
    Percent of foreign reserves: 6.7 percent

    8. Japan
    Tonnes: 765.2
    Percent of foreign reserves: 2.4 percent

    9. Netherlands
    Tonnes: 612.5
    Percent of foreign reserves: 61.2 percent

    10. India
    Tonnes: 557.7
    Percent of foreign reserves: 6.3 percent
     
  6. Johann

    Johann Active Member

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    I think you're right, me again. I can't see a return to the gold standard. I note Saudi Arabia is missing from the "top 10." That surprised me for a bit - but who needs gold reserves when you're sitting on oil?

    Gold still fascinates me, though I own very little of it. I do have a 1960's Cuban banknote that says "pagará al portador en oro" (will pay to the bearer in gold) but I'm sure I'd be a desaparecido if I tried to redeem it back then! And now? Not a chance, I'm sure. No matter - microscopic quantity at today's prices, anyway.

    I have some other notes from the Hong Kong and Shanghai Banking Corporation that are denominated in "Customs Gold Units." I have never been able to discover how much gold a "Customs Gold Unit" represents, but:

    (a) It must be awfully small because
    (b) I only paid a couple of dollars for each note.

    The notes are just like me - chances of redemption slim to none. :smile:

    J.

    PS - I think the Hong Kong and Shanghai Banking Corporation is the parent or ancestor of HSBC Bank that operates internationally today. Not sure.
     
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  7. Johann

    Johann Active Member

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    The various rationales, religious and otherwise, surrounding the attempted revival of the gold dinar and silver dirham are given on the Dinar Wakala site, here: WhyGoldDinar.

    I know the history and I can see the religious implications. I think the jury's out on the rest, but there are believers. I hope they sell some coins - I think that's their sole intent and I can't see anything wrong in that. Wow. Put a bit of Arabic calligraphy on a coin and it sure looks beautiful!

    Places like Dinar Wakala aren't going to undermine our money system, here in the West. That will eventually do itself in! Meanwhile, I like calligraphy and copied my first Arabic alphabet a few days ago. Hey, it's a start! :smile:

    J.
     
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  8. me again

    me again Active Member

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    Savvy westerners (and Middle Easterners) will acquire those gold coins through bartering and/or through paper currency -- and will slowly stockpile them. Thus:
    - There will be a slow trickle of gold from the Middle East to the West
    - Leading to a depletion of gold from the Middle Eastern
    - Public Middle Eastern transactions of gold coins will lead to this slow trend.
     
  9. SteveFoerster

    SteveFoerster Resident Gadfly

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    Just because the movement is Islamic doesn't mean the gold comes from the Middle East (Malaysia, for example, is nowhere near the Middle East). Besides, if the gold does move from somewhere else to here, it means they got something for it that they wanted. Trade benefits both parties.
     
  10. me again

    me again Active Member

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    Agreed. But the point is that if those countries (wherever they might be) choose to mint gold coins for currency transactions in the public domain, then gold horders will will slowly acquire them and will stockpile them -- thus removing them from the public domain.

    The trend of Western governments is to horde gold -- and not to use it as currency in the public domain. If Muslims in Malaysia mint gold coins for currency transactions in the public domain, then those gold coins will eventually disappear from the Malaysian public domain (over the long-term).
     
  11. SteveFoerster

    SteveFoerster Resident Gadfly

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    That might happen if those who want to stockpile gold didn't have options now, but it's already perfectly easy for Westerners (or anyone else) to accumulate gold and silver rounds.
     
  12. Ted Heiks

    Ted Heiks Moderator and Distinguished Senior Member

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    How would going back to the gold standard federal budget defecit?
     
  13. me again

    me again Active Member

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    However, lower gold prices could conceivably be negotiated in countries that have gold floating around in the public domain (as gold currency). Either way, the hoarding of gold from nations that mint gold coinage is a slow process. It will slowly disappear from the public domain (look forward 50 years). It's not something that happens overnight.

    The concept of minting gold coins and issuing them as currency (in the 21st Century) by Muslims cannot and will not last. It's no longer economically feasible as a long-term endeavor (at least not for sovereign governments).
     
  14. me again

    me again Active Member

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    First, it's impossible for the U.S. government to economically go back to the gold standard (long term).

    Second, if the U.S. government did go back to the gold standard, then it would bankrupt the nation and it would be impossible to keep raising the federal deficit every year/decade because:
    (a) Gold currency cannot be manufactured out of thin air. It is limited.
    (b) Whereas paper currency (that is not back by gold or silver) can be printed in unlimited amounts, as long as people will accept it.

    Every nation that prints paper money (without backing it by gold) eventually has to return to gold. However, in the technology age, things have changed as never before. Printing paper money that is un-backed by anything of value cannot go on forever. Or can it? The dollar is currently backed by the military might and the economic strength of the United States. From a currency perspective, it will be interesting to see what unfolds in the next 100 years.
     
  15. SteveFoerster

    SteveFoerster Resident Gadfly

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    Negotiated by whom, in exchange for what?

    It's not something that would happen at all. Even if circulation went down, more can be minted. If noteworthy scarcity happens, their purchasing power would go up, and if it went up enough the hoarders would have more incentive to sell.

    It's politically infeasible in the West, but that's the only deal breaker. There's no special economic reason that the state has to be the provider of a monetary system, regardless of the century.
     
  16. me again

    me again Active Member

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    Bartering is not an exact science. Savvy gold investors can get better deals if they are willing to accept X number of gold coins for:
    - Small scale: one washing machine (or a/c, sofa, car, etc)
    - Large scale: X number of ship containers filled with (insert volume merchandise here)

    Bartering is frequently not taxed, which increases the profitability even more. Conversely, in the traditional Western market, deals are made "down to the penny" and are taxed.
     
  17. me again

    me again Active Member

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    A government can only mint and release gold coins if it has sufficient gold reserves to do so. Governmental gold reserves are finite. Thus, it's not as simple as saying:

    "Then more gold coins can be minted and released into the public domain, based on supply and demand (scarcity)."

    The more gold coins that are minted and released means that more gold coins will be taken and hoarded -- to the point where a government no longer has sufficient gold reserves to continue that unsustainable practice. The past 3000 years of Western history is evidence of that.

    Also, as long as a Muslim caliphate is willing to mint and release it's gold, then others will be happy to take (it via bartering and economics) -- and then hoard it -- thus depleting the caliphate's finite gold supply.

    As long as stable Western governments continue to print money, then gold hoarding will continue. Conversely, if the solvency of an unstable government implodes, leading to printing too many devalued paper units (paper currency), then gold hoarders would have an incentive to sell small amounts of their gold, to meet their personal and business needs.
     
  18. SteveFoerster

    SteveFoerster Resident Gadfly

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    No aspect of trade is an exactl science. That's the point -- trade happens because the parties disagree on the relative values of what's being exchanged, whether barter or using a medium of exchange. But that doesn't mean that people are going to habitually offer a huge discount relative to spot just because it's barter. It also doesn't mean that literal gold coins are going to be the only thing circulating, in a gold or silver system warehouse receipts circulate, and nowadays their online equivalents would as well. I used to run an online gold-based payment system, so believe me, it can be done.
     
  19. me again

    me again Active Member

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    When governments become unstable... and when paper currency experiences runaway devaluation... then he who has the gold WINS! In every nation where runaway inflation happens, gold is the only currency that retains its full value. The United States has been blessed, since going off the gold standard. Conversely, by getting rid of the gold standard, the United States now has the largest gold reserve in the world. (1) Exactly how much can the U.S. dollar be devalued and (2) how how long will it take before it cannot be sustained? Those are two questions that no one can answer (yet). Some people say that it can go on for at least another 100 years. Time will tell.

    - In the year 1920, a 20 dollar gold piece would buy the finest men's suit in town.
    - Today, almost 100 years later, that same 20 dollar gold piece will still buy the finest men's suit.
    - However, a 20 dollar bill (paper money) will only buy 2 movie tickets.
    - In 100 more years, what will a 20 dollar bill buy?

    In the above real-life analogy, you can see the trending devaluation of paper currency. Will the devaluation trend eventually force the world to abolish money in another 100 years? And if so, then what will money be replaced with? Food for thought.
     
  20. Life Long Learning

    Life Long Learning Member

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    It will never happen with the Dems/Reps.:cussing: They hate America.
     

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