We Don't Need A De Jure Gold Standard .....

[LuckyOne]

I find it interesting that the MSM are starting to talk about a de facto gold standard emerging even if it doesn't become a de jure standard.

Many of the themes described in the article appear here quite regularly although there are very different interpretations of the results of the themes.

I wonder how long it will be before we see currencies quoted more regularly in ounces of gold instead of against each other? This will be the signal that we have adopted an informal, de facto gold standard even if we don't have a formal, de jure standard.

I also wonder whether articles like this one mark the "top" much like the curse of being on the cover of Time Magazine.

I also wonder whether this move to a de facto gold standard is the first sign that monetary policy is being wrested from the hands of the central bankers by the people.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8638644/Return-of-the-Gold-Standard-as-world-order-unravels.html

On one side of the Atlantic, the eurozone debt crisis has spread to the countries that may be too big to save - Spain and Italy - though RBS thinks a €3.5 trillion rescue fund would ensure survival of Europe's currency union.

On the other side, the recovery has sputtered out and the printing presses are being oiled again. Brinkmanship between the Congress and the White House over the US debt ceiling has compelled Moody's to warn of a "very small but rising risk" that the world's paramount power may default within two weeks. "The unthinkable is now thinkable," said Ross Norman, director of thebulliondesk.com.

Fed chair Ben Bernanke confessed to Congress that growth has failed to gain traction.

"Deflationary risks might re-emerge, implying a need for additional policy support," he said.

The bar to QE3 - yet more bond purchases - is even lower than markets had thought. The new intake of hard-money men on the voting committee has not shifted Fed thinking, despite global anger at dollar debasement under QE2.

Fuelling the blaze, the emerging powers of Asia are almost all running uber-loose monetary policies. Most have negative real interest rates that push citizens out of bank accounts and into gold, or property. China is an arch-inflater. Prices are rising at 6.4pc, yet the one-year deposit rate is just 3.5pc. India's central bank is far behind the curve.

"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk.

"One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."

China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small.

"There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown's orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying.

China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China's Chamber of Commerce said this should be raised eightfold to 8,000 tonnes.

Xia Bin, an adviser to China's central bank, said in June that the country's reserve strategy needs an "urgent" overhaul. Instead of buying paper IOU's from a prostrate West, China should invest in strategic assets and accumulate gold by "buying the dips".

Step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick said it was time to "consider employing gold as an international reference point." The Swiss parliament is to hold hearings on a parallel "Gold Franc". Utah has recognised gold as legal tender for tax payments.

A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China's central bank chief Zhou Xiaochuan two years ago as a way of curbing the "credit-based" excess.

Mr Bernanke himself was grilled by Congress this week on the role of gold. Why do people by gold? "As protection against of what we call tail risks: really, really bad outcomes," he replied.

Indeed.

Edit : A further thought ...

Edited July 15, 2011 by LuckyOne

[LuckyOne]

Too true. I also laughed when I read that.

I wonder whether AEP has reached the wrong conclusion. Gold might be heading towards being the world's reserve currency which will result in a de facto gold standard with a flexible exchange rate mechanism between the reserve currency and other currencies.

I cannot see a de jure gold standard with a fixed exchange rate regime. That would give us all of the Eurozone problems on a global basis. It makes no sense at all.

That said, having gold as the world's reserve currency would still make it much more valuable than it is to-day, even without a gold standard with a fixed exchange rate regime.

[Traktion]

There doesn't need to be any gold standard. There just needs to be the freedom to use whatever people want, from grams of gold/silver, through to e-currency (like Bitcoins). There doesn't need to be a government stamp on it or the queen's head. My main hope (and expectation) is that if/when the government fiat currencies collapse, that there will be free market infrastructure in place to take up the slack - gold money, bullion vault, bitcoins etc are already examples of this, never mind physical alternatives.

We also have little need for banks to be involved in all of our savings/spendings. We have grown used to using banks to store our money, transact in it digitally and so forth, but we don't need FRBs to organise this - a simple non-lending bank could do this just fine. Whether people want the choice to risk their money for interest is another, different, decision to make. We don't need these two different functions wound into one. There are also numerous alternatives in between.

As for credit, we can also use the likes of ripplepay, for a distributed mutual credit arrangement. This cuts out the banking middle men and webs of trust are built up, instead of being centralised around the banks. That doesn't mean banks can't do this, but they aren't the only option.

It's the obsession with trying to over organise and control everything which drives governments towards their fiat currencies, but we don't need it. Regulating against risk has proven only to hide the risk, until the point where it is devastating - I'd much rather live with a little daily risk, than with a savage, life crushing, risk periodically.

Let's be clear about this - the governments want paper backed by some standard, but the people do not need this. The governments can control their fiat money, borrow against future generations and then print more when they screw up, bailing out the rich and influential, at the expense of the poor. It's high time that individuals dictated to the government what we want to use as money and it isn't their crappy paper.

Cut the fiat heart line and the banks will whither on the vine; they would have to earn trust and the abuse of it would see them collapse. This would curtail the ability of the governments to force paper on the banks, in order to plunder future generations even further. Sure, it wouldn't stop them trying, but it means tax strikes, bank runs etc will be a force to reckon with. Perhaps people would even realise that the government isn't their friend either (the violence should be a clue) and we can move onto a post-democratic model (IMO, something more like anarcho-capitalism).

We don't need one perfect money. We can do fine with a few globally competing/accepted alternatives, as decided by individuals, not bureaucrats. We already have layers of free market money, hiding in the shadows of government money and many people have savings in it - everything from bonds, through shares/equities, to PMs - so why do we need to be told what to exchange with daily? It makes no sense, other than as a tool for control... they can stick it!

[LuckyOne]

There doesn't need to be any gold standard.

<snip>

A stunningly good piece. I wish that I had the ability to write something like that.

I agree with your conclusions. It does seem like we are going down the path of freedom and democracy when it comes to money : and about time too.

I think that the internet is making this possible and will ultimately be seen as the mechanism which eventually gave birth to true democracy, reduced nationalism and significantly reduced the power of the political class, monetary authorities etc.

[R K]

Too true. I also laughed when I read that.

I wonder whether AEP has reached the wrong conclusion. Gold might be heading towards being the world's reserve currency which will result in a de facto gold standard with a flexible exchange rate mechanism between the reserve currency and other currencies.

I cannot see a de jure gold standard with a fixed exchange rate regime. That would give us all of the Eurozone problems on a global basis. It makes no sense at all.

That said, having gold as the world's reserve currency would still make it much more valuable than it is to-day, even without a gold standard with a fixed exchange rate regime.

I wondered if he has a VI.

Replace the word 'gold' with houses/btl and '06/7.

That's where we are. Same sh1t different asset class.

[Traktion]

A stunningly good piece. I wish that I had the ability to write something like that.

I agree with your conclusions. It does seem like we are going down the path of freedom and democracy when it comes to money : and about time too.

I think that the internet is making this possible and will ultimately be seen as the mechanism which eventually gave birth to true democracy, reduced nationalism and significantly reduced the power of the political class, monetary authorities etc.

Thanks!

Yes, the Internet has been a complete game changer. Everything from news, through software and communications, to commerce has been completely shaken up. I expect it will play an increasing role in our future too, with many more devices and people joining the network. We're probably only just at the end of the beginning of the Internet revolution, IMO.

[50sQuiff]

I wondered if he has a VI.

Replace the word 'gold' with houses/btl and '06/7.

That's where we are. Same sh1t different asset class.

You've been reading too much Prag Cap, RK. If it wasn't for those damn humans and their governments, MMT might have merit

Here in the real world, the progression towards freely traded Reference Point Gold - embodying the principles Traktion so eloquently describes - is picking up pace nicely.

And Ambrose is a bit of a 'bug with a virulent anti-Euro streak in him so I wouldn't be calling for any Time Magazine moments just yet.

[gravity always wins]

I wondered if he has a VI.

Replace the word 'gold' with houses/btl and '06/7.

That's where we are. Same sh1t different asset class.

Shops selling Gold on every street, 120% loans to buy a Krugerand, Gold under the Hammer, Sovereign Sovereign Sovereign hosted by Phil and Krusty.

How I made my Buy to Sell Gold fortune slapped across the Daily Express.

Gold accounts for less than 1% of financial assets globally.

Bubble! do me a favour. You definately have a VI!

[VeryMeanReversion]

I wondered if he has a VI.

Replace the word 'gold' with houses/btl and '06/7.

That's where we are. Same sh1t different asset class.

That's pretty much it, except gold yields a big fat zero compared to housing.

"I also wonder whether this move to a de facto gold standard is the first sign that monetary policy is being wrested from the hands of the central bankers by the people."

The "people" don't have gold, just a few central banks and goldbugs who seem to want to hoard enough of a relatively useless metal to create a sense of value.

Can we retire this to the gold discussion forum.

[gravity always wins]

There doesn't need to be any gold standard.

Well written.

Here in the real world, the progression towards freely traded Reference Point Gold - embodying the principles Traktion so eloquently describes - is picking up pace nicely.

It does seem to be.

[gravity always wins]

That's pretty much it, except gold yields a big fat zero compared to housing.

A yield is somebody elses liability to pay - it's a promise.

Why do you want to banish this thread? Stay a while you may learn something.

[50sQuiff]

Shops selling Gold on every street, 120% loans to buy a Krugerand, Gold under the Hammer, Sovereign Sovereign Sovereign hosted by Phil and Krusty.

How I made my Buy to Sell Gold fortune slapped across the Daily Express.

Gold accounts for less than 1% of financial assets globally.

Bubble! do me a favour. You definately have a VI!

I think it's more of an intelluctual VI if so

These folks believe in a state religion (and a very Western-specific one at that) called Chartalism - an ideology borne from so called Modern Monetary Theory. They represent the intellectual 'top' of the government bond bubble and believe that in erroneously descibing the current untenable system, they've discovered a new monetary paradigm.

It's an absolutely fascinating subject and if you're a super nerd goldbug like me then you owe it to yourself to research it, because they have an interesting viewpoint. But let me sum up just how comical this Modern Monetary Theory is in one sentence, from a doyen of the theory:

"the truth is, under sound stewardship, the fiat currency system provides all the benefits of the gold standard and all the flexibility that the gold standard didn’t contribute."

Well no shit Sherlock! As I said, if it wasn't for those damn humans...

[Stay Beautiful]

The idea of a gold standard is flawed. Just because people used gold as a MEDIUM OF EXCHANGE since biblical times does NOT mean there was a gold standard. There was NO such standard implying some settled constant value among nations. The statement is just absurd. (Martin Armstrong)

http://www.martinarmstrong.org/files/Outlook%20for%20Gold%2007-13-2011.pdf

[50sQuiff]

The idea of a gold standard is flawed. Just because people used gold as a MEDIUM OF EXCHANGE since biblical times does NOT mean there was a gold standard. There was NO such standard implying some settled constant value among nations. The statement is just absurd. (Martin Armstrong)

http://www.martinarmstrong.org/files/Outlook%20for%20Gold%2007-13-2011.pdf

Actually the medium of exchange amongst a population tended to be silver or base metals. The chief store of value, however, was indeed gold (gold also facilitated cross-border trade). This difference is one of the key tenets of RPG (Reference Point Gold) or Freegold) theory.

[Take Me Back To London!]

There doesn't need to be any gold standard. There just needs to be the freedom to use whatever people want, from grams of gold/silver, through to e-currency (like Bitcoins).

Everyone to their own, a lot of people like to gamble, but it feels me with dread that some people are putting their money into Bitcoins which has no tangible value.