"The gold standard would keep you from printing money and destroying the middle class. Every country where you have runaway inflation, there's no middle class. Mexico, there's no middle class, you have a huge poor class, and a lot of wealthy people. Today we have a growing poor class, and we have more billionaires than ever before. So we're moving into third world status..."
There are six very important reasons for a gold standard, not the least if which is the current economic situation around the world.
Europe and the US have accumulated so much debt that its paper money is virtually worthless, unless you have hugh amounts of it. Something only one percent of the population has. The US debt, for example, is greater than all the other countries debt put together, including Europe and incurring around 200 Billion dollars a year in interest payments alone. And that is at the current low rate of interest. With an increase in the interest rate to a reasonable 6 percent, the US would have to borrow 77 percent of the money the government spends each year instead of the current 40 percent just to pay the interest bill.
The only thing that has been bolstering up the US dollar is the government's ability to simply print more money to pay its debts. And the ONLY reason they can do that is because the US dollar currently has the luxury of being the world’s reserve currency.
Now, because many countries are seeking a way out of this, countries such as India, Iran, Russia and even China are looking to trade around the world in other currencies and even gold rather than the US Dollar.
And of course we are all aware of the issues in Europe whose currency, the Euro, is faring no better.
Interest rates on savings are minimal if at all. Treasury Bonds are almost at the point of going into 'negative return' which means that one would have to pay interest to buy treasury bonds. Who is going to do that I wonder? Not only that, recommendations coming out of the Federal Reserve indicate that the US economy should have an inflation of 33 percent over the coming years.
Property prices in the US are in the doldrums and unlikely to recover any time soon. They took a massive dive after the Freddie Mac & Fannie Mae fiasco in 2008. The US government responded to that by guaranteeing their debt and bailing them out with, you guessed it, more printed money.
And just recently the US government has printed hundreds of billions of dollars to buy their own government bonds.
Quantative easing is like having a credit card and continually increasing the limit while spending UP TO the limit at the same time. The amount owed on the credit card not only increases but the interest payments do to.
Some companies, those that are cashed up and do not have to invest more in capital in order to earn can make good earnings on their shares and so can seem like a good investment. Coca Cola, McDonalds, Apple etc are some examples. But even these depend on future sales and if the economy takes a dive through massive inflation, who then is going to be able to buy their products?
Throughout the ages this scenario has played out. Rome in its hey day, Russia, German. Even the UK. By devaluing its currency the pound by 14 percent, in one fell swoop in one day in 1967 the British government caused inflation to skyrocket 26.9 percent over the coming ten years.
In hindsight of course it is obvious that pegging the US dollar to gold or even NOT removing the gold standard would have prevented that and would have prevented the wild undisciplined printing of monopoly money that has resulted in such massive debt. That was a fatal mistake for the US economically as debt has risen disproportionately since and the value of the dollar has fallen to 3 percent of its prior value.
How would it be then if the Gold Standard had NOT been removed? Well we can only speculate but the following seems fairly obvious.
1. The economy would have remained stable. There would have been no inflation or deflation. The fact that the dollar was pegged to gold and each dollar would have simply represented a amount of gold held in trust would mean that the value of the dollar would not rise or fall on speculation or trade of the dollar.
2. It would not be possible top spend more than the amount of gold held by the nation and so debt to the nightmarish levels we now see would not be possible. In short we would not be spending more that we are making.
3. Being backed by gold, money would not be an idea backed by confidence where such confidence can be eroded (as we speak) despite current frantic attempts to bolster it.
4. People would own something other than a piece of paper, the value of which deteriorates yearly so it is worth less and less and more is needed to buy the same goods and services.
5. Prices would not continually rise to compensate for the decreasing value of the dollar because, of course, pegged to gold the dollar would not decrease in value but remain the same. The demand for salary increases would not be so prevalent since prices are not rising and more money would not be needed to buy the same goods and services.
6. Companies would not have to seek cheaper labor and so more industry would remain in the country. This would boost production and the balance of payments.
There is in short, a lot to be said for the discipline of a gold standard
How to Return to a Gold Standard
"It (the gold standard) maintains a stable currency and a stable value. If the Fed concentrated more on stable money rather than stable prices... They push up new money in stocks and in commodities and in houses, and then they have to come in to rescue the situation. They create the bubbles, then they come in and rescue it, and they do nothing more than try to do price fixing. Capitalism depends, and capital comes from savings, but there's no savings in this country, so this is all artificial. It creates the misdirection and the malinvestment and all the excessive debt, and it always has to have a correction. Since the Fed has been in existence, the dollar has lost about 97% of its value. You're supposed to encourage savings, but if something loses its value, why save dollars? There's no encouragement whatsoever…"
A return to the gold standard is very much the flavour of the month not just with gold bugs but with some US states and even countries it seems.
Whereas once upon a time the idea would have been pooh poohed, desperate times call for desperate measures and to many the return to a safe and stable gold standard now seems like a wonderful dream.
But, given the turmoil, heavy debts, vested interest etc, how would one go about instituting a gold standard? In fact, it might not be so much a how as a 'who'. Who is the most likely to benefit from and so desire a gold standard? Perhaps not an international gold standard, but maybe a national gold standard for a country who does not want to be a party to the existing ever increasing debt crisis?
As well as the economic issues there are also political issues to take into account so, why not have more gold standards? Many countries could each have their own currency pegged to their own gold standard.
Agreements on trade would be very simple as would be expressed in ounces of gold. E.g. Australia might say 2000 dollars buys one ounce of gold. The US might say the same about their currency (I would expect it to be more but this is for the sake of demonstration) The UK might state that 1500 pounds buys one ounce of gold and you might need 160,000 Japanese yen to buy an ounce.
Each country could peg their own currency against gold and so achieve economic stability for that country. Trade could thus be successfully conducted between nations as all would then be operating on the same page or platform if you will.
This then would likely be easier to manage than setting one currency pegged to gold and then trying to adjust and or peg other currencies to that currency.
It would immediately stop further debt from being incurred for that country as currency would not be printed unless it is back by gold. Governments would be keen therefore to buy gold in order to increase their currency. This will be only good news for gold mines and miners around the world keen to sell their gold. A stable price also will provide more predictability for miners and ensure a more stable operating basis for production.
But as a stable currency, there would be no inflation and no deterioration of the currency as it would be backed by gold. In effect the currency would represent an amount of gold and it is the gold that has the value. The currency would simply be the receipt of ownership to the bearer that they own, while they have the transferable currency that established quantity of pure gold, the currency represents. The question then becomes, What about the existing debt? Well first no further debt is being incurred so there is a stop on the interest rates. The debt would be effectively frozen at that point. No more credit on the credit card.
Such activities as economizing on spending would assist to reduce the existing debt. As there is no inflation there is no incentive for companies to raise prices, no requirement for wages to rise, and production would increase. Increase a countries production and you increase their income. Increased income means more opportunity to repay the capital on debt and so reduce the interest and so leave more room in the spending to reduce the capital. Just as the debt was built on false money (paper money with no value) so it can be reduced with real money, i.e. gold back currency.
Of course it would take some time. But the direction of a nation's economy and debt would have, at that point, been reversed and would start to stabilise out.
It would not be easy and there would be a multitude of problems. A considerable amount of confusion and a lot of work on the detail but moving through that in a disciplined way would ensure that a country could restore balance to its economy. It could be done.
A gold standard provides stability to a nation and, indeed, would provide stability to the entire planet, when put into place.
It will only take one county to start it and this is very likely to be China or one of the prominent Asian nations. China is now the world’s biggest producer of gold and is also importing as much as India and on track to be the biggest owner of gold on the planet. They seem determined to reduce their foreign debt, which is mostly in eroding US dollars, and increase their asset wealth through gold. It is probably only a matter of time until they decide to stabilise their currency and we may well see the first nation with a gold standard taking first place in the economic world.
The US, losing its place as leader in the economic world and losing the US dollar as the reserve currency of the world will in all likelihood have to follow suit to keep the value of their dollar from eroding further and losing the strategic trade value of their dollar.
Other countries are looking at it and some, trading with gold and other currencies, are obviously preparing to drop the US dollar as the world’s reserve currency. The door will then be open for a new gold standard.