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Where will you get the metal?
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Thread: Where will you get the metal?

  1. #1
    buff Guest

    Default Where will you get the metal?

    About forty years ago when the government separated gold from paper there was five cents of gold for every dollar. And, that was only for international dollars. I guess that was confidence builder for somebody. Now, here is my same my question. Where do you expect to get the gold and silver for your metal money or even a metal reserve? How much reserve do you want? How do you expect the US government to have enough metal to redeem international dollars which will represent a net drain of gold reserves? And more importantly, what do you expect to do when the value of gold and silver deviates from the face value of your metal money? If you advocate a gold reserve, what do you do when the price of gold declines and the government suddenly has to come up with a billion pounds more of gold to meet the reserve? A few words only please.

    The truth requires few words......Ghandi

  2. #2
    oroborean Guest

    Default

    i have never advocated metal-backed currency on this forum, only the purchase of silver as a hedge against inflation, and, even better, as a sector that's outperforming most of the market. therefore, i don't feel any particular imperative to explain where metal reserves would be obtained, other than to say that the most reasonable solution i've heard is the following two steps:

    1. issue a single global currency backed by the world's existing gold and/or silver
    2. create a minimum price for gold and silver, a la hugo salinas price's prayer for the mexican peso

  3. #3
    buff Guest

    Default

    Oroborean......You do not feel an imperative to explain where the metal reserves will come from because you know they do not exist and have never existed in the quantities sufficient to provide a reserve to the world's currency. The gold reserve for the dollar...when it was used...was never more than 25%. It was 5% in America when it was abandoned by the executive order of Richard Nixon. After that, gold currency reserves were quickly abandoned worldwide. Silver left in the early sixties. The issuance of a single 100% metal backed money is the worst idea. The value of any currency (and metal) depends on a banking systsem's ability to control its supply. Without any control, the money supply could not be expanded or contracted when an economy is over producing or under producing. Inflation and deflation could not be curbed. Unemployment would drift a low equilibrium. And, with a 100% metal backed currency, no credit could be issued. Also, fixing the price of gold would eventually stop all new exploration and production as cost came to exceed your price fix. Everybody here at this forum keeps harping about a currency unbacked by a nonexistant supply of metal. I am just wondering how we are worse off now than we were during the depression when the gold reserves for currency were at their highest. Establishing price controls for gold as you advocate would require the confiscation of all gold bullion like was done during the depression or you could have complete chaos and hording of gold in private hands.

  4. #4
    oroborean Guest

    Default

    first, the risks of the highly-leveraged derivative markets and fractional reserve lending far outweigh the risks of a metal-backed economy. the low reserve rates you describe hardly indict the metal-backed currency, but simply describe the dollar's transition from actual redeemable note to worthless paper.

    second, creating a minimum price for gold and silver does not prevent the price from increasing. however, in a true metal-currency system, production costs would tend to get lower, not higher, as a relatively fixed money supply creates deflation as productivity rises. money supply could be regulated through government purchases or sales of metal and/or creation and destruction of actual circulating notes.

    third: credit could absolutely be issued in the form of promissory notes or metal-backed currency and repaid with interest in through a similar instrument.

    fourth: there is no incentive to hoard physical metal when paper currency is easily redeemable. in fact, metal-back currency is a disincentive to hoarding, therefore, it's unlikely there would be any confiscation or prohibition. fiat paper is the only incentive to hoard physical metal.

  5. #5
    buff Guest

    Default

    Can I just ask one more time...Where is the metal going to come from to support a metal backed currency? That kind and amount of metal has never existed and never will. I wish all you guys here knew something about money, banking and monetary policy. Another thing, could you explain how a gold backed dollar with maximum of a 25% fractional reserve helped the depression. Once more, where is the metal going to come from to support a world wide metal backed currency. Or do you only want the US to back its currency? Buying and selling huge amounts of gold and silver in some ill advised scheme to control the money supply would only serve to run the price up and down and create the worst kind of speculators market. Where is that gold and silver going to come from anyway?

  6. #6
    buff Guest

    Default

    P.S. I forgot to mention again that bills and coins are less than 10% of the money supply. Do you really think the economy can be controlled by managing coins and bills in micro amounts. Does it really matter if less than 10% of the money supply has some fractional metal reserve?

  7. #7
    buff Guest

    Default

    Is all of the world going to support their currencies by gold or is it just the US? If it is just the US then let us pretend for a moment that sufficient amounts of gold exist and can be bought on the world market without running up the price and creating a world wide banking crisis. If only the US backs its currency by gold then how will we keep all of the annual trade surplus from being redeemed in gold from the American government? You also want the money supply to be expanded and contracted by buying and selling gold. Would that require an army of trucks to be constantly shifting gold from one place to another? Where would banks get the money to purchase gold? Now here is the big question. when the government buys gold from a bank, a payment in gold backed dollars will be required. That would be like I buy a bar of gold from you and then I pay you with a bar of gold. So, where is the contraction in the money supply? And, when banks settle their check transfers every day, will that also require the daily physical shifting of gold among thousands of banks in the US. What will we do about foreign deposits?

  8. #8
    oroborean Guest

    Default

    what happened to a only a few words? and why are you asking me these questions, i'm not the one who's going to redesign the monetary system -- i don't even have an economics degree. what i do know is that the fractional reserve lending you describe above, the 25% during the depression, is not an indictment of metal-backed currency. the speculation caused by that fractional reserve lending is what caused the market crash and ushered in the depression.

    but, if you want me to speculate on how a metal-backed banking system might work, i suppose that a $100 cash deposit at a bank would appear as $100 credited to an account with the bank holding a note with which it can redeem $100 worth of gold to satisfy the account holder should he or she demand metal. at every step of the way, all of the currency, digital and paper is backed by metal. increase in money supply would occur when the government bought metal that wasn't already represented by a note, such as new production from a mining company, or private holdings not previously monetized. you correctly point out that a trade deficit, like the one we currently maintain, would draw down the gold reserves, but don't mention that for most of America's history it actually had a trade surplus, which created an accumulation of reserves. eliminating the trade deficit is sound monetary policy advocated by more than one member of congress.

  9. #9
    buff Guest

    Default

    You talk like eliminating the trade deficit is a voluntary act. Since a huge part of the trade deficit is oil. How do you think that is going to happen? Eliminating a trade deficit would also eliminate low priced, high quality products from American retail centers. And, eliminating the trade deficit would require a larger labor force of skilled workers that just does not exist in America. Now, about your cockamamie metal backed constitutional money......
    where is the metal going to come from? Do you think it might create a trade deficit?

  10. #10
    oroborean Guest

    Default

    for most of america's history, it produced a trade surplus. there certainly are, or can be, enough skilled workers in this country to create the products americans consume. if instead of financing a war, we took the burden of healthcare costs off of employers, then we could keep the cost of those american products competitive. the bottom line is that there are lots of possibilities. if you believe metal-backed currency would create a trade deficit, i'd like to know how.

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