Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Rebirth of the Gold Standard

Commodities / Gold and Silver 2010 Nov 09, 2010 - 07:52 AM GMT

By: Midas_Letter

Commodities

When I suggested in an editorial last year that a gold standard should be adopted, I was summarily dismissed in the most condescending fashion by economists and journalists alike who proclaimed that I didn’t understand economics or currencies or monetary history.


I’m pleasantly thrilled to discover that the president of the World Bank, Robert Zoellick, also shares my ignorance. He announced today that he felt a gold standard was just the thing to be incorporated into a “co-operative monetary system that reflects emerging economic conditions.”

Writing in the Financial Times Monday, Zoellick pointed out that, “Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”

Zoellick’s remarks were met with equal parts contempt and bewilderment by various economic groups.

Fred Bergsten, director of the Peterson Institute for International Economics in Washington, said that Mr Zoellick’s overall approach was “very sensible” but that the idea of using gold was “minor and really irrelevant”.

“I happen to think that gold is a very poor reference point because it fluctuates so widely,” he said.

The idea of the gold standard has been fluttering around the fringes of mainstream economic discourse in varying degrees of ubiquity since the end of the Bretton Woods agreement in 1971.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.

That policy made it technically impossible for signatory nations to manipulate their currency exchange rates, either through direct suppression or through massive dilution via the printing press – a condition that came to be in direct opposition to the interests of the United States Treasury Department and the U.S. Federal Reserve.

The U.S., at that time, was witnessing a phenomenon where the more money they printed, the less willing institutions were to hold dollars, preferring gold, even at the artificially fixed price of 1/32nd of an ounce of gold for each U.S. dollar. The price for an ounce of gold was fixed at US$35 an ounce.

The Nixon administration was characterized by Nixon’s proclamation that “Now I am a Keynesian”, even though he admitted that would entail having to burn up a lot of old speeches denouncing deficit spending. He introduced a Keynesian "full employment" budget, which provided for deficit spending to reduce unemployment.

This triggered a weak dollar, which saw foreign central banks converting their dollars to gold and taking it out of the United States. And that is what spurred Nixon to end the convertibility of the dollar to gold. How could he print with abandon if that would empty the United States’ vaults of gold?

And so by ending the convertibility of the dollar to gold, use and demand for gold began to dry up, and, as the dominant emerging economic power, and global leader in energy production and sales, the U.S. dollar replace gold as the standard for trade.

So when people dismiss the gold standard as unworkable, in most cases, they envision the gold standard as defined by the Bretton Woods Agreement of 1944.

What Robert Zoellick is proposing, while not specific, suggests that he envisions “employing gold as an international reference point of market expectations about inflation, deflation and future currency values."

Policy makers seem to be out of touch with the realities of the marketplace. The idea of unregulated markets for whom an infinite supply of money and credit is made available is failing before our very eyes, yet the U.S. administration can conceive of no better remedy than to continue flooding the market with a product for which there is no further demand.

More money and credit, in the face of infinite free money and credit, can neither spur economic growth nor create employment. And that is because the continued deluge of dollars has reached a bulkhead beyond which it cannot pass – namely, the banks.

In the absence of employment and economic productivity, banks cannot extend the dollars and credit to small businesses or individuals because their ability to repay is catastrophically doubtful due to general economic conditions. So we end up with this glut of money churning around in the top layer of the economy – in the financial services industry – generating fantastic paper profits while the man on main street starves and goes homeless.

The one outcome that a currency that was forced to abide the discipline inflicted by the limited amount of money in circulation a properly configured gold standard would enforce is that there wouldn’t be these huge excesses of capital sloshing around on the top of the economy like useless foam on a mug of good beer.

But that is precisely the source of the opposition to the idea. Since it’s the financial services industry, who relies on an ever increasing volume of capital in the system to support a perpetual earnings growth model in times of economic stagnation or contraction, the resistance to anything that would thwart monetary growth is fierce and intransigent.

In May this year, Sean Fieler and Jeffrey Bell of the American Principles Project submitted an essay entitled: “The Gold Standard: The Case for Another Look”.

They stipulate that, “The U.S. could return to a gold standard, a system that would not only prevent the government from running chronic budget deficits but would also curb attempts to manipulate the value of the dollar for political reasons.”

The go on to say that the value of a gold standard was “proven” in the 19th century.

“The value of a gold standard was proven in the 19th century. Following the English parliament’s passage of the Coinage Act in 1816, which created a gold standard in England in collaboration with the semi-private Bank of England, gold gradually displaced copper and silver to become the world’s sole final currency. In doing so, gold established ground rules for international trade and integrated the world’s economy. Countries that adopted the international gold standard prospered. This remarkably successful monetary system only blew apart with the outbreak of World War I in 1914.”

Fortunately, the idea of incorporating gold into the next generation of global trade unit seems to be percolating upward to where it counts. Which shouldn’t really come as a surprise. As demonstrated yet again by gold’s insistent price rise in direct opposition to the dilution of the U.S. dollar monetary base, it has, for 5,000 years, always been the standard by which all other fiat currencies are valued.

James West is the publisher of the highly influential and widely respected Midas Letter at midasletter.com. MidasLetter specializes in identifying emerging companies in gold and silver exploration at the beginning of their share price appreication curves, and regularly delivers 10 baggers (stocks that increase in value by at least a factor of 10) to his premium subscribers. Subscribe at http://www.midasletter.com/subscribe.php.

© 2010 Copyright Midas Letter - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Midas Letter Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules