Are the chances of moving back to the gold standard going up?
Zoins
Posts: 34,353 ✭✭✭✭✭
The US President-elect said the following recently and his party is also a supporter of the gold standard.
Bringing back the gold standard would be very hard to do, but, boy, would it be wonderful. We’d have a standard on which to base our money.
Would this be good for coin collecting, and especially collecting gold coins, if it happened?
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Comments
It won't happen and it can't happen. There is more money floating around than there is gold to cover it, unless the price of gold goes up by an order of magnitude or more.
But what if it did?
The ability to issue debt at will is an exceptional resource for controlling monetary policy. For the US to voluntarily forbid themselves from doing this would be incredibly stupid. Obviously it could happen but it seems a waste to worry about events of this likelihood.
Obviously, the effect would be fantastic for coin collecting, gold in particular.
No chance whatsoever.
When Washington finishes its destruction of the US dollar we'll probably use a gold standard as a stopgap measure until a new currency can be introduced. Think of it this way; we get closer to this at the rate of one day for every day that goes by.
You're misunderstanding how a gold standard works. It is not required or even desired to have enough gold in the system to cover ever $1 of commerce, and the sum of bills, payables, or treasuries, etc. Real Bills (promises to pay in gold) were used by merchants in the building process of bringing an item to market. Gold real bills matured in 91 days and were paid out with real gold. However in getting there, dozens or even hundreds or more of transactions could be accomplished with the same real bill/promissary note. Even during the various US gold "standards" of the 19th century there was minimal gold to cover all the notes out there. And fwiw, the only true US gold standard that ever existed was from 1900-1913. All the others lacked critical ingredients. If you dig deeper, you'll find most of the problems assigned to previous gold standards was with too many bank notes, and bankers cheating on the regulations.
I too don't think it can ever go back to a precious metal standard. We've "reamed" the value of currency too much to ever get back. That toothpaste can't be pushed back into the tube.
Be careful what you wish for. FDR put an end to private gold ownership to take control of it. It could happen again if a big time activist president decided to do it.
At any rate there is not enough gold in the world to cover the current money supply unless the artificial rate were pegged at an unbelievably high level. The gold standard wasn't all that great when it supposed to be "working." Just read the history and the causes of the Panics of 1837, 1873 and most especially 1893.
It depends, I think this decision would reside upon what other world actors are doing, and what threat these moves have on the U.S. dollar as the world reserve currency. I'm no expert in these matters; but from what I've read China is pursuing a path to back the Yuan with gold- the newly created Asian Infrastructure Investment Bank along with the alliance of BRICS nations with trade- Brazil, Russia, India, China, and South Africa show a shift away from a U.S. / European dominated world banking / trade system. I look upon this as financial / trade warfare. How this plays out is anyone's guess.
Not to get too conspiratorial on you- if we did go back to a gold standard it would be to preserve our standing as world reserve currency based on the aforementioned threats. I'd be worried about holding gold, even numismatic items pre- 1933 as there are a lot of common DE out their slabbed by our host, and ATS that wouldn't be considered "rare and unusual" per FDR's Executive Order 6102 in '33 even though that's history- but this does show how executive overreach can effect numismatics with a gold standard. If we did go back to the gold standard; I wouldn't want my lowly common gold type set confiscated, or, even my small hoard of common Morgans going back to the vault or melted. FIAT forever!!!!
Just some tin-foil hat thoughts to consider...
All of those panics occurred when there was not an official and technical gold standard in play. Just having the govt mint US gold coins and people using them for commerce is not a full blown gold standard. If real bills didn't circulate, there was no gold standard. 1893-1894 was a full blow depression after 16 years of bi-metalism. Let's not even mention all the crony bankers and their national bank notes that proliferated in the 19th century. The first and only true classic gold standard to ever exist in the US occurred from 1900-1913. So you can judge all of US gold standard history based on that period...and no others.
And for the final time, you don't need enough gold to cover all the notes in circulation. That's the same straw man argument that keeps getting told. The US has approx $1.4 TRILL in FRN's around the world. The US gold inventory is worth around $250-$300 BILL. That simple 20% ratio would be more than enough to have a workable gold standard. Any time the gold standard was not "working" in the 19th century, you don't have to look much further than too many paper notes in circulation, and bankers who kept too little gold on deposit. What you really mean to say is that the currency standards in play didn't work. And if what you say is true, there should never have been the need to have notes in circulation during 1800-1900 as there was plenty of gold to cover it. We know that isn't true by any stretch. The near worthless green backs issued during and after the Civil War are one good example. But blame it on gold. Any time there was a war, insurrection, or crisis in the 19th century, the gold standard was ignored and money got printed. It started with the War of 1812 (1813-1823) when southern banks created massive inflation and instability to finance the war with "paper,"..... and continued like that throughout the 19th century. Maybe if the paper that circulated were gold "real bills" then a gold standard might have worked. That last real gold standard that existed was in 1913. Everything since then was a farce of a standard....right up to FDR's 1934 Gold Reserve Act.
There's about $6 TRILL in gold in the world today. I'd guess there's a similar amount of paper currency in circulation. It could be covered if that was your definition of a gold standard. That's not my definition though. Until you understand how gold real bills worked including their maturity and trading function, they you don't know Bo.
China wants to back their currency with gold.
When that happens, petro-dollars might have competition.
The above view is a revision of actual history and incorrect. Read David Ganz's article on the 1933-1978 gold confiscation/ban/and definitions article. Very enlightening. In a nutshell your definition of "rare and unusual" is completely wrong...a littoral interpretation that was really never used by the US govt or collectors of that era. In 1933/34 a simple 1928 BU Saint was considered "rare and unusual"...as was a 1904 $2-1/2 Lib. Both very common coins. The actual definition was essentially all pre-1933 US gold. If you were a "collector" you could have assembled without concern 5 complete US gold coin sets in all denominations say from 1877-1928....made up of approx 90% common coins. By the 1960's "rare and unusual" was redefined again to include most common world gold coins minted prior to the 1960's....for example dirt common English sovereigns...which today are still plain bullion coins.
FDR took control of gold in 1934 for the primary reason of increasing the paper money supply without the linkage to gold that had existed before. That allowed the govt to flood the economy with paper money to get the economy moving again. Every person in the US that had any gold could have claimed they were a collector...and kept nearly all of their gold. All of them improperly assumed they just had to turn it in. They never read into the collector exemption that was offered and what "rare and unusual" really meant. A nice end around by the US govt. Collectors like Bareford, Eliasberg, Pittman and others took full advantage of the "collector" clause from 1934-late 1960's to load up on numerous gold coins and small premiums to melt.
What's going on with the gold-backed Chinese yuan and gold-backed Russian ruble?
Once the Chinese have enough official gold at the PBOC they will let us know. Right now they have around 1750 tonnes or about 3X what they reported back in 2002. They probably need 4,000-5,000 tonnes to take the 2nd seat in the world holdings. They could have that now. Thing is, we only know what they report...not how much they really own. It's estimated that the Chinese govt and their people have increased their total gold holdings by over 10,000 tonnes over the past 10 years.
Some irony here that there isn't enough gold to go around for a gold standard. Yet, we don't have enough FRN's in circulation ($1.4 BILL world wide) to cover our sovereign debt ($19 TRILL) let alone all the daily commerce and transactions that occur. Try buying a car with $25,000 in cash or a new IPhone with cash. Yet no one is complaining this "standard" in play for years/decades cannot work. The gold real bills of yesteryear have been replaced by credit cards, checks, and other instruments. Of course those are only debt instruments since they only increase debt, rather than extinguish. Only gold real bills when they matured extinguished all the debts that bill incurred on the way to its 91 day maturity and subsequent payment.
What would happen today if everyone wanted all their assets back in FRN's or say something tangible? It wouldn't work and the govt would have to declare a banking holiday and special controls on FRN's, prices, and hoarding. Fwiw, this was just done in India last week where Pres. Modi announced that all their old 500 and 1000 Rupee notes were no longer good. They all have to be turned in at banks/merchants for a new series of notes by Dec 31st. That's 80% of their total currency just declared no good. Great standard those paper notes.....lol. This would be like our govt requesting all $10's, $20's be turned in. The inexorable advance towards a cashless society with 100% accountability on every transaction....even tipping bell hop.
Problems with gold contributed to the 1837 and 1893 Panics.
Andrew Jackson's Specie Circular, which forced purchasers of western lands to pay for that real estate in hard money (gold and silver) sucked a lot of gold to the west which left the eastern banks with a shortage of gold to back their currency. The contributed to the problem when specie payments were suspended on the famous day, May 10, 1837, that appears on some Hard Times tokens.
The ill conceived Sherman Silver Purchase Act of 1890 prompted a run on the treasury's gold reserves. That bill allowed silver producers to sell their product to the government in exchange for notes that could be redeemed in gold or silver. The silver producers' mothers did not raise fools. They redeemed their notes for gold, which was worth far more than silver. That threatened to bring down the U.S. monetary system at a time when most of the civilized world was on the gold standard. Govern Cleveland's presidential reputation was seriously damaged as a result, both then and now in the minds of many historians.
The 1873 Panic was based more upon the failure of Jay Cook and Company, the Chicago and other fires that drained the property and casualty insurance companies, the failure of railroads due to over expansion and European stock market woes. In that case gold had little to do with the problem although the attempt by Jim Fisk and Jay Gould to corner the gold market four years earlier did cause a short term problem on Wall Street.
Yes, IMO the chances of the US "going back on the gold standard" have gone up since last week.
The probability has probably even as much as doubled!
From 0.0000000001% to 0.0000000002%
Liberty: Parent of Science & Industry
It might help if the OP would define what he means by "gold standard."
Does he have to mean anything other than the Webster definition?
Definition of gold standard
A monetary standard under which the basic unit of currency is defined by a stated quantity of gold and which is usually characterized by the coinage and circulation of gold, unrestricted convertibility of other money into gold, and the free export and import of gold for settling of international obligations
Liberty: Parent of Science & Industry
I am skeptical such a thing would happen and would face fierce opposition from various institutions.
If it did, I believe gold would go into the stratosphere and silver would follow (fairly strongly) as well. The coin market would go crazy, the bourse would be jammed packed, the sheet going up 10-15% or more a week......
A $20000 per ounce gold price and $300 silver price? Better sell your expensive coppers and nickels now lol. A MS 69 common date ASE might be a $350 coin, a 70 around $400-500?.
To better understand this issue - who is trying to buy up all the gold now? What country owns the most and who are the big time players? Mining stocks thru the roof. If the stuff is out there on Mars or in the belt in huge quantities once a lot is mined and brought back to Earth or stored on the outer worlds, expect the price to come down. I can see future entities on Mars, Ceres, Titan, Callisto, Europa, having a gold backed monetary system even issuing gold and silver coins and simply waving the middle finger at an over crowded Earth. Combine that with the AI tech depicted on West World it cb like the wild west out there.
Very true. The only fully qualified "gold standard" imo was the one from 1900-1913. We can debate what type of gold standards were in play in other parts of the 1795-1971 periods....but none of them measure up to 1900-1913. Refer to monetary specialist Dr. Antele Fekete on what gold standards should be and what they ended up being. If you didn't have "gold real bills" playing a major role in daily commerce, you didn't have a gold standard.
There will never be another gold standard like 1900-1913. Whatever standard the govt and bankers put into play gets cheated upon and eventually fails....only to be replaced by another one. The problem is less with the standard and more with liars and cheats. Current govts are happy to cheat on paper currency and treasury bond paper. That's the standard in play today.
"Gold Standards and the Real Bills Doctrine in ... - Econ Journal Watch
https://econjwatch.org/file_download/88/2005-08-timberlake-tyranny_statquo.pdf
by RH TIMBERLAKE - 2005"....one article basically stating that most of the 1861-1933 period had no real gold standard. It still comes down to influential people doing the wrong thing at the wrong time.
gold-standard.procon.org/sourcefiles/crs-brief-history-of-gold-standard-in-us.pdf
This article supports the notion of gold "backing" all the currency to be a fallacy. That is not needed in any gold standard. While this article suggests that 1879-1933 was the only time in US history that a true gold standard might have been in play, I disagree. Once the gold standard was suspended during WW1, what came back from 1919-1933 was a shadow of the old standard, ultimately leading to the abuses of the 1920's. 1834-1862 might be considered by some as a gold standard era. Note the references to "merchant bills" (ie real gold bills) in this article...again supporting the notion that currencies or transactions had to be covered $ for $ with gold. It just didn't work that way.
Several of the above comments are why I asked the "definition" question. The "standard" was both superficially simple and extraordinarily complex in real world use. Pre-August 1914, it was also heavily dependent on Bank of England decisions.
The "return to the gold standard" question them becomes "to what 'standard' do we return, and is there an advantage?"
Exactly. And the most important question, will the bankers and politicians cheat on such a new standard at the first crisis or war? History has shown they always do.
i know libya was going to do this...but we see how that turned out. any thoughts?
I think we should forget about a Gold Standard and let the Government focus on basing the economy on a BS Standard. there's enough of that going on in Washington DC to cover everything, everywhere until they choose to stop. same old same old as the ball keeps rolling along.......................
Gold Standard: Very few alive who "lived" under it, and a TINY TINY group alive who understood it when it was active.
98% of populace: Why would our electronic money (credit cards, electronic checks, paypoint, paypal, direct deposit, etc.) need to be backed by jewelry?
The gold standard horse has come and gone, ran it's race, put out to pasture, and sent to the glue factory.
The gold standard is merely the surviving vestiges of neo-classic decadent bourgeoisie puppets of the running dogs of imperialistic fascism who have their hob nail boots on the throats of the peace and freedom proletariat masses who will rise up and shake of the yoke of despotically crushing tyranny,
Or something like that.
The world of today is one of extremely intertwined, complicated and fast moving global finance. Anybody actually proposing moving to a gold standard is either a smart person thinking outside the box (which I can respect) or (as is the case 99% of the time) a bumbling buffoon who snatches at ideas like a toddler popping bubbles because it entertains them.
It is deluded, reckless, and purely in the realm of fantasy.
Edit:
Would it be good for coin collecting?
I guess in a way. It be would 2010 all over again. A mad scramble of bullion scrappers entering the markets. Now when the entire US economy collapses when the entire rest of the world looks at the US and says "Ok those guys have officially gone insane. We would have less risk investing in a D.R.C goat farm than with those nuts. Pull everything out as fast as you can."; then coin collecting would probably be the least of our concerns.
Not a chance, maybe with Ron Paul, but even if he were treasury secretary, the powers that be would oppose it.
Coin collectors DO NOT want the gold standard if you want to continue to collect gold coins. The price of bullion will be driven sky high, and the possibility of government controls on bullion transactions would be great.
Careful what you wish for. Do you really want more government in your life and your hobby.
In the 16 years I have been a member of the forum, we have been around this mulberry bush many times with the same arguments. There is virtually zero chance of it happening for all the reasons stated, both this time and in all the other discussions.
While not germane to a coin forum, but better question is, will monetary policy shift soon and if so, How? For myself, I see higher interest rates (Mortgages are now about 4% for a 30 year fixed, moving up). Rising wages and rising inflation will move the needle on interest rates IMHO. Your opinion may differ.
There is a greater chance of moving back to a modified Bretton-Woods agreement with international implications, not a full Smith/Ricardo gold standard but one which has some gold requirements for monetary policy.
Yeah, the big question is, as always, "How do you force everyone else to do it?"
Good luck!
Liberty: Parent of Science & Industry
https://en.wikipedia.org/wiki/Gold_standard
Since my economics background included "only enough to get an engineering degree", I did a little reading above. Frankly, the historical record laid out is pretty hard for a novice to follow. But the "Advantages" and "Disadvantages" at the bottom are illuminating.
For what it's worth.....