The Gold Standard The Gold Standard Institute

Issue #16 ! 15 April 2012

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The Gold Standard
The Journal of The Gold Standard Institute
Editor Philip Barton
Regular contributors Rudy Fritsch
Keith Weiner
Louis Boulanger
Occasional contributors Publius
Sandeep Jaitly
Publius
Jason Keys
Michael Moore
Thomas Allen

The Gold Standard Institute
The purpose of the Institute is to promote an
unadulterated Gold Standard
http://www.goldstandardinstitute.net/
Patron Professor A. E. Fekete
President Philip Barton
President Europe Thomas Bachheimer
President USA Keith Weiner
Senior Research Fellow Sandeep Jaitly
Feedback and subscribe: pb@monetarymetals.org
Membership Levels
Annual !75 per year
Lifetime !2,500
Gold Member !25,000
Gold Knight !250,000
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Contents
_______________________________________
Presidency USA.... 1
Editorial.... 2
News & Open Letter to Ben Bernanke. 3
Something Better Than Gold?.. 6
Erroneous Thoughts on Gold.... 8
Fractionalization Under Real Bills... 8
Gold Standard Murders Bernanke 9
Floating Exchange Rates. 12
How to Return Part 2 13

FOR RELEASE APRIL 15, 2012

Keith Weiner Will Head
The Gold Standard Institute USA

Vienna, AUSTRIA and Scottsdale, AZ USA (April
15, 2012)The Gold Standard Institute is pleased to
announce that Keith Weiner will be establishing The
Gold Standard Institute USA to promote the gold
standard in this large and important market. The Gold
Standard Institute USA will work closely with The
Gold Standard Institute in Vienna to further develop
the high-quality journal The Gold Standard, a large
international mailing list, and papers and quick-sheets
explaining how a proper gold standard works. Further
details will be announced soon.
A proper, unadulterated gold standard is not
only necessary for the economy to coordinate the
actions of millions of productive people, but it is the
keystone. Today, people are suffering as the 40-year-
old irredeemable paper money system is becoming
unstable and approaches total collapse. The burden of
debt is rising as the rate of interest falls,
unemployment is rising, infrastructure is failing due to
lack of capital to maintain it, and at the same time the
productive class is being replaced by the speculator
class and the government-crony class.
I am excited to work with The Gold
Standard Institute, which is the only organization that
is defining and promoting a real gold standard. I think
that there are millions of Americans who would be
interested and it is now my job to bring them the
knowledge and the tools to promote the gold standard
in the US, said Keith Weiner.
We have been fortunate to have Keith
Weiner as a friend and ally for several years, and we
are very pleased that he has agreed to take up the task
in the USA. Keith is a successful entrepreneur who
understands both urgency and scalability, and the
demands and work involved in promoting the gold
standard, said Philip Barton, founder and President of
The Gold Standard Institute.
About The Gold Standard Institute
http://www.goldstandardinstitute.net
The Gold Standard Institute, founded in 2009, exists to
disseminate the virtues of the gold standard widely
and to establish gold as the basis of money. With the
financial system heading towards collapse, and with
gold forgotten and misunderstood, this is the most
important mission in the world. The Institute
publishes a monthly journal with gold-related news
and articles about gold and money. The Institute is
composed of people from all walks of life who cherish
The Gold Standard The Gold Standard Institute
Issue #16 ! 15 April 2012
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the ideals of liberty, prosperity and peace and who
understand that sound money is a necessary
component to achieve this.
About Keith Weiner
Keith Weiner has been a technology entrepreneur. He
was the founder of DiamondWare, a VoIP software
company, which he sold to Nortel in 2008. Keith is an
adherent of Ayn Rand's philosophy of Objectivism,
and a student at the New Austrian School of
economics, working on his PhD under Professor Antal
Fekete, with a focus on monetary science. Keith is
now a trader and market analyst in precious metals
and commodities. Now that central planning has
failed, he would like the world to return to a proper
gold standard and laissez-faire capitalism.
For more information, contact:

The Gold Standard Institute Europe
www.goldstandardinstitute.org
Thomas Bachheimer
+43-676-3348-124
bachheimer@yahoo.de

The Gold Standard Institute USA
Keith Weiner
602-478-9275
weiner.keith@gmail.com
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Editorial
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April in Munich
Your humble editor-in-chief has just returned from the
fourth full session of The New Austrian School of
Economics, held for the last ten days in Munich,
Bavaria. Aside from another brilliant, enlightening
performance by our patron Professor Antal E. Fekete,
the highlight of session four was a to be announced
talk.
This talk was given by yours truly; an
acceptance speech I was asked to deliver in honor
of a Masters Degree in New Austrian Economics
bestowed upon me by Professor Fekete. I must add
that this honorary degree is a signal honor; there will
certainly be other NASE degrees awarded to deserving
students, including PhD degrees but there will only
ever be one first degree handed out!
As my dear wife Ilona points out;
Congratulations for your degree, this is I
think the culmination of years of hard work,
dedication.
I cannot deny her statement. I have not only
studied Austrian economics, studied all of Professor
Feketes work, but have attended and recorded all the
live sessions delivered by the Professor, including the
early Gold Standard University Live sessions, as well
as later sessions delivered under TGSI and the NASE.
After the acceptance speech, I went on to deliver a talk
about the re-emergence of Gold and Real Bills, in
particular the re-emergence of Real Bill funded, Gold-
backed international transactions. See my article
coming up in the next issue of the Journal but also
see my current article, The Gold Standard Murders
Bernanke. Incidentally, the full DVD set of this
NASE event will be available at a steep discount to all
TGSI members as soon as I finish the work of
rendering videos of the twenty individual classes to
DVDs
Other important issues came to light while
we were busy in Munich; The Canadian penny has
been officially demonetized! I have long predicted this
move; it was simply a matter of when. As the
purchasing power of fiat money depreciates ever more
quickly, it becomes crystal clear that Gold must return
into general circulation, along with its sidekick Silver.
If this does not happen soon, Western civilization will
continue its accelerating decline, the world economy
will be decimated through ongoing capital destruction,
and subsequent recovery will become ever more
difficult. If the penny is gone, how long before the
nickel follows suit? And the Dollar? Already the melt
value of the US five cent coin the nickel- exceeds its
face value.
One other extremely important and highly
encouraging fact has also come to light; TGSI
members have worked hard to bring into existence a
brand new Gold denominated life insurance policy.
This policy is being backed by an internationally
known insurance company based in Lichtenstein. The
policy will accept premium payments in paper
currency, use the currency to buy physical gold, and
pay out benefits in physical Gold.
This is a major advance in the transition
from paper to Gold and will do much to bring Gold
into the hands of the general public. Under an honest
Gold Coin standard, Gold needs to be well distributed,
freely circulating, and not locked up gathering dust
in CB vaults. Contact TGSI for more information
regarding this new policy.
The next step in the return to Gold is the
introduction of Gold bonds bonds that will also help
to sop up the false liquidity of paper, and channel
real wealth into real money Gold and Silver- where it
belongs. Most interestingly, TGSI members are
presently working hard promoting Gold Bond issues.
In the meantime, heed the sage advice of TGSI
member and author Mr. Darryl Schoon;
Buy Gold Buy Silver Have Faith.
Rudy J. Fritsch, Ma.- Editor in Chief
The Gold Standard The Gold Standard Institute
Issue #16 ! 15 April 2012
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News
From Europe
Thomas Bachheimer, President of The Gold Standard
Institute Europe, was interviewed by one of
Germanys finest financial magazines Smart Investor
a couple of weeks ago. The interview was headed
Interview with Thomas Bachheimer of The Gold
Standard Institute. The interviewer encouraged
readers to send a copy of the interview to all decision-
makers in politics and the economy. I have attached it
for those who speak German.
"""
Last week a radio interview was aired with Herr
Bachheimer on one of the main State stations in
Austria. The Gold Standard Institute was mentioned
five times. It was aired to a mainly elderly audience
and got a lot of positive feedback. These are the
people who remember the Weimar Republic stories
from their parents.
"""
http://www.perthmintbullion.com/blog/blog/12-03-
26/Fake_Bars_-_The_Facts.aspx
Tungsten adulterated gold bar
"""
http://www.mineweb.com/mineweb/view/mineweb/en
/page103855?oid=147852&sn=Detail
and not only Turkey
"""
http://gata.org/node/11138
Court overturns order to slash Dutch pension fund's
gold allocation regulator faces claim for losses.
"""
Keith Weiner
New Austrian School of Economics
The Gold Standard Institute

Benjamin Bernanke
Chairman of the Federal Reserve
Mar 25, 2012
Re: Open Letter to Discuss Your
Misunderstandings About Gold

Dear Ben:
You have publicly gone on record with some off-the-
wall assertions about the gold standard. What made
you think you could get away with it? Your best
strategy would have been to ignore gold. Although I
concede that with the endgame of the regime of
irredeemable paper money near, you might not be able
to pretend that people arent talking and thinking
about gold. You cant win, Ben. In this letter I will
address your claims and explain your errors so that the
whole world can see them, even if you cannot.
Before I get into your specious claims, I
want to point out two of important facts. First, the
gold standard exists when people are free to choose
what they wish to use for money. Gold has won this
market competition over thousands of years, but the
key is that when people are not forced to use
government-issued scrip they choose gold. And thats
the shabby little secret of your irredeemable paper
money, Ben. You have legal tender laws to force
creditors to accept it, whether they would or not. Will
you please let people be free?
Second, central planning does not work.
The Politburo in the since-collapsed Soviet Union did
not know how many shoes to make of what sizes.
And you dont know what rate of interest to set.
Central planning has always led to the collapse of the
specialization of labor and the economy with it, to the
degree that it is attempted. The Federal Reserve, the
central bank of the USA, is the central planner for
money, credit, interest, and discount. Given the
importance of money to every single aspect of the
economy, it is no exaggeration to say that there is no
such thing as a free market built on top of a centrally
planned monetary system.
In your speech at George Washington University,
you made the following claims:
1. The gold standard hasn't really worked since
the end of WWI.
2. To have a gold standard, you have to go dig
up gold in South Africa and put it in a
basement in New York. It's nonsensical.
3. The gold standard links the currencies of
every country, causing policy in one country
to transmit to another. So for example, if
the U.K. fixes the number of pounds to an
ounce of gold, and the U.S. fixes the number
of dollars to an ounce of gold, then the
pound and the U.S. dollar inadvertently
become linked.
4. It creates deflation, as William Jennings
Bryan noted. The meaning of the "cross of
gold" speech: Because farmers had debts
fixed in gold, loss of pricing power in
commodities killed them.
5. The gold standard tends to cause interest
rates to rise during downturns and interest
rates to fall during good times, the exact
opposite of what monetary policy should be
doing.
6. The economy was far more volatile under
the gold standard.
7. The only way the gold standard works is if
people are convinced that the central bank
ONLY cares about maintaining the gold
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standard. The moment there's a hint of
another priority (like falling unemployment)
it all falls apart.
8. Gold standards leave central banks open to
speculative runs, since they usually don't
hold all the gold.
9. The gold standard is based on the "desire to
maintain the value of the dollar"implying
a "desire to have very low price stability.
10. The gold standard is based on an aversion to
allowing the central bank to respond with
monetary policy to booms and busts, and a
desire not to give the central bank that
power.
11. There's simply not enough gold
12. The commitment to the gold standard is that
no matter how bad the economy gets, we're
going to stick to the gold standard.
13. The gold standard was one of the main
reasons the Great Depression was so bad
and so long.
Please forgive me if my takedown runs a little bit
long. Ive found that it is much easier to commit a
logical fallacy in a sound bite than it is to explain the
full context. I will take your assertions in order.

1. The gold standard hasn't really worked since the
end of WWI.
This is true. Just prior to Christmas in 1913
(which is before the beginning of the war, by the way)
the Federal Reserve Act was passed into law. Ever
since, the Fed has taken for itself and been granted
more and more power to try to centrally plan money
and credit. You and your predecessors have been in
power for a century, but this fact is in no way an
argument against the gold standard.

2. To have a gold standard, you have to go dig up gold
in South Africa and put it in a basement in New York.
It's nonsensical.
The fact is that for thousands of years,
people have been digging gold up and putting it in
basements. To call the behavior of so many people
over so many years nonsense is arrogant. A free
country has room for arrogant men, but no place for
arrogant men to back their whims with a gun. From
1933 until 1975, one could be imprisoned for the
crime of possessing gold. To this day, it is not legal
for a creditor to demand payment in gold. If you are
so confident that you are right and all good men
should be happy that you print dollars at your
discretion, can we agree on an experiment? Lets
repeal the laws that force creditors to accept paper,
and the laws that nullify gold clauses in contracts, and
the taxes on the gains in gold, and the laws that
force taxpayers to use dollars as their unit of account
for bookkeeping purposes, and see what people choose
when the gun is not compelling them. I will wager
one ounce of good gold against a frayed old dollar bill
that people will choose gold if you let them. Should I
book my flight to Washington to pinky-shake on our
bet?

3. The gold standard links the currencies of every
country, causing policy in one country to transmit to
another. So for example, if the U.K. fixes the number
of pounds to an ounce of gold, and the U.S. fixes the
number of dollars to an ounce of gold, then the pound
and the U.S. dollar inadvertently become linked.
Actually, Ben, you are describing the gold
exchange standard that prevailed from the insane
treaty at Bretton Woods until it collapsed in 1971 with
Nixons default. The choice is not between price
fixing vs. excluding gold altogether. The choice is
between the freedom for people to choose gold vs.
your smart and efficient central planning.

4. It creates deflation, as William Jennings Bryan
noted. The meaning of the "cross of gold" speech:
Because farmers had debts fixed in gold, loss of
pricing power in commodities killed them.
By the way, Ben, the Coinage Act of 1792
fixed the price of silver in terms of gold at (15:1).
Like every instance of laws that attempt to interfere
with the markets, this provision was an unmitigated
disaster. Whichever metal is officially valued at less
than its market value will be pulled out of circulation
and sent elsewhere for its market price. Whichever
metal is overvalued will be imported from every
corner of the earth and come flooding into the country.
In 1873, the government was ready to open
the US Mint again. But when they wrote the list of
which coins the Mint was authorized to coin, they
somehow forgot to include the one ounce silver
coin. Silver was demonetized. I am sure it had
nothing to do with lust for power by the good men
who ran the government, nor with any lobbying that
might have occurred around that time. This was
dubbed the Crime of 73.
Demonetizing silver destroyed enormous
amounts of capital, Ben. Just imagine that a farmer, to
use your example, has been working hard and saving
all his life. And then the government, in callous and
cavalier fashion, passes a law that destroys the value
of his savings. But this is the power you crave, isnt
it? This is the power of central planning, to sit in an
office in Washington, taking into account your whims,
pet theories, and the desires of lobbyists and casually
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dispose of the income and wealth of the people
without their consent.

5. The gold standard tends to cause interest rates to
rise during downturns and interest rates to fall during
good times, the exact opposite of what monetary
policy should be doing.
You have pushed interest rates down to zero
on the short end. This has achieved nothing good, and
yet you are unwilling to consider that, just maybe,
your pet theory is wrong? Good thing your pet theory
is enforced on the rest of us at gunpoint, eh Ben?
We should pause for a moment to reflect on
the nature of downturns. The original promise of the
central bank was that it would prevent downturns! As
recently as the Great Moderation which abruptly
ended in 2001, this myth was widely believed. But we
see that downturns are not prevented by the central
bank. Instead, much larger downturns (such as the
one which began in 2008) are caused by the central
bank.
Let us look at the nature of these downturns.
For a while, the bank encourages credit expansion by
various means. The bond speculators (which did not
exist under the gold standard) jump onto the
bandwagon and the result is that interest rates have
fallen for more than 30 years in a row.
During this long period, as you can imagine,
much counterfeit credit is created. By counterfeit
credit, I mean where either the saver is unwilling to
lend or even unknowing (such as anyone who deposits
in a bank nowadays) or when the borrower lacks either
the means or intent to repay (such as the government,
or many bond issuers and banks). Sooner or later, the
game is up. The borrower can no longer keep current
on the interest payments. Not even by rolling the
debt. As an aside, Ben, this is another dirty secret of
the irredeemable currency: there is no way for any
debt, ever, to be repaid; it only moves from one debtor
to another and ultimately ends up at the Fed or the
Treasury.
So what you blithely call a downturn is
the painful process of writing off bad loans. Capital
has been destroyed, and everyone who made bad loans
must write it off. You are correct that interest rates
should rise as a result! Capital is far more scarce than
people believed during the boom.

6. The economy was far more volatile under the gold
standard.
I dont think even you believe this, so I will
not comment further except to note that the 1929 crash
occurred under the tender ministrations and brilliant
central planning of the Fed.

7. The only way the gold standard works is if people
are convinced that the central bank ONLY cares about
maintaining the gold standard. The moment there's a
hint of another priority (like falling unemployment) it
all falls apart.
8. Gold standards leave central banks open to
speculative runs, since they usually don't hold all the
gold.
No, Ben. I will address these points
together: a gold standard is when there is no central
bank. What you are substituting in your confusion is
if the Fed were to somehow try to centrally plan gold.
But you know that doesnt work, so I need not spend
time arguing against it.
Speaking of unemployment, as you know, if
the portion of the population who is deemed to be in
the workforce hadnt been shrinking so much, the
unemployment rate right now would be just below
staggering. And this is despite (or perhaps because
of) your central planning activities.

9. The gold standard is based on the "desire to
maintain the value of the dollar"implying a "desire
to have very low price stability.
The gold standard is about many things.
Speaking of the value of the dollar, you are aware, I
am sure, that it has lost about 98% of its value in the
100 years since your organization began centrally
planning. Under gold, prices do not remain constant.
That kind of stasis is neither possible nor desirable.
Prices, and more importantly changes in prices, signal
to consumers and entrepreneurs what is scarce and
what is in demand. No, what remains stable is the rate
of interest. And it is this rate that is manifestly
unstable under the Feds careful designs. As recently
as 30 years ago, the rate on the 10-year US Treasury
was almost 16%. Today it is 2.2%, having recently hit
a low under 1.8% (and this rise of more than 22% in a
short period of time is both staggering and revealing).
Changes in the rate of interest cause
enormous destruction to industry. A rising rate
destroys businesses one by one as each looks at
financing new capital projects, or replacement for
worn plant. But at each higher interest rate, fewer and
fewer capital projects make any sense. So factories
shut down, and ever more workers join the
unemployment line. Does this strike a note, Ben?
Falling interest rates cause a more
pernicious and subtle damage. Bond speculators make
risk-free gains on their bonds. This money does not
come out of thin air, however. Each bond issuer now
has a higher present value of their liabilities. Good
thing that FASB does not require them to mark
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liabilities to market when the bond price rises, or else
there would be a serious problem! Actually, there is a
serious problem even if we all close our eyes and
pretend otherwise. Is that a fair characterization, Ben:
that the purpose of the Fed is to help everyone play
make-believe?
Under paper, neither prices nor interest rates
have been stable. Have you taken a look at the chart
for crude oil or most other commodities, Ben?

10. The gold standard is based on an aversion to
allowing the central bank to respond with monetary
policy to booms and busts, and a desire not to give the
central bank that power.
Here you are correct, Ben. You should not
have that power. No one should have that power. A
brilliant author by the name of JRR Tolkien wrote a
story about power. Have you ever read The Lord of
the Rings or seen the version Peter Jackson made into
film?

11. There's simply not enough gold
How much gold do you think there is, Ben?
How much gold do you think a gold standard would
need? You dont know either number, of course. This
is just an old wives tale. Do you also wear copper
bracelets to ward off the common cold, or is that
vampires (I forget)?

12. The commitment to the gold standard is that no
matter how bad the economy gets, we're going to stick
to the gold standard.
This is an interesting logical fallacy. You
are lumping together commitment to gold with bad
economy. This called begging the question. You
are presuming what you ought to be asking.

13. The gold standard was one of the main reasons the
Great Depression was so bad and so long.
So you think that the disastrous adventure
that combined both taxes and protectionism that led to
a trade war and thence to collapsing trade had nothing
to do with it? Or FDRs constant threats to change the
rules of the game, thus rendering investments
previously made worthless (theres that problem
again)? What about the various other central planning
interventions of both Hoover and the New Deal?
Or how about the falling interest rate
structure that I mentioned above? When the
government outlawed the ownership of gold, that
herded people into the next-best choice: US Treasurys.
This caused the interest rate to fall. Have you ever
stopped to think what this does to savers, such as the
small farmer for whom you weep crocodile tears?
Ben, I wrote a paper entitled Gold Bonds:
Averting Financial Armageddon
(http://keithweiner.posterous.com/gold-bonds-to-
avert-financial-armageddon) because I am convinced
that the regime of irredeemable paper money and
hence the Fed is going to come to a sudden and
catastrophic end. One way or the other, your power
and the power of the Fed will be ended. I would
prefer that it be ended without also ending western
civilization, which is the course were headed on right
now. You remember that bit earlier about capital
being rare and precious? Your policies are helping
accelerate an unprecedented destruction of capital.
When the capital is gone (if not sooner) the game will
be up.
I would like to avoid plunging into a new
Dark Age. Can we agree at least on this, Ben?
Sincerely,
Keith
Keith Weiner 2012 (weiner (..dot..) keith (..at..)
gmail (..dot..) com)


Something Better Than Gold?
Publius
In difficult and desperate cases, the boldest counsels
are the safest. -
Titus Livius, Ab Urbe Condita, Book XXV, Sec. 38

Muscles must be maintained through exercise,
intellectual skills kept ready by rigorous practice.
Sound wealth allocation decisions are no different.
They too must be routinely revalidated that we might
continue to confidently rely upon them. As the crisis
evolves, we should constantly ask ourselves if another
means of wealth protection exists to diversify our
positions. For the exact nature of the endgame is
maddeningly unpredictable. Over-reliance on a
golden Maginot Line may leave us vulnerable to
unorthodox moves by the enemies panzers.
When managing wealth in a global financial
hurricane, often, the best defense is a good offense.
The old conservative rules of investing will ultimately
apply once more, but not right now. To use another
martial arts metaphor, we stand halfway across a high,
narrow bridge with our antagonist directly in front of
us. Retreat is impractical, and there is no way to go
around the enemy. Facing the threat head on is the
best way to overcome it and survive.
Gold mining stocks appeal to many bullion
owners, and other aggressive or complex trading
strategies also attract peoples time, energy and
capital. But for typical conservative readers of these
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pages, owning anything except bullion comes with
many qualifications and reservations.
Is there something else that might be held
for the short- to medium-term, in the service of
purchasing power maximization? Something,
perhaps, hiding in plain sight? Something requiring
comparatively little ongoing management? Something
often derided as an investment only a sucker would
buy?
Seven years ago, Professor Antal Fekete
wrote a series of related essays including such titles as
Is the Linkage Broken? and Tsunami in the Bond
Market. They described the massive transfer of wealth
he demonstrated to be already taking place because of
the distortions to the monetary system, and how that
transfer might accelerate. That is to say, without the
anchor of gold to stabilize the interest rate structure,
bond speculation becomes not only possible, but
highly profitable. Profitable, and essentially risk free.
Did these works contain a viable trading
strategy? The Professor certainly did not promise it.
In fact he explicitly noted he was not advocating the
purchase of bonds by his readers. It was merely his
calculated guess that bond prices could easily keep
rising.
So, what was the markets verdict since
2005?
I will use round figures, leave out trading
commissions, and simplify the example somewhat to
illustrate the principles involved. If a 30-year zero-
coupon bond was yielding 4.5% in 2005 and the same
bond yields 3% today, what was an investors return?
The price per $1,000 of face value for this
bond in 2005 is found by
1,000 / (1.045^30) = $267
Today, that same bond would be valued at
1,000 / (1.03^23) = $507
This is an annual compounded return of
9.6% over the past seven years, before any leverage.
Bond investors qualify for generous margin, and have
other sources of credit available if margin interest
rates are uncompetitive. Had this position been
levered 4:1 at 6% interest, the annualized return
becomes 17.4%, accrued borrowing costs included.
Assuming the maximum available leverage
for such trades is 20:1, there is relatively low risk of a
margin call when levered 4:1. And, in any case, there
is a limit to the amount of downside volatility
governments and central banks will tolerate in the
bond market. (By contrast, as we know, authorities
have no problem with sharp declines in the gold or
silver markets, whether natural or engineered.)
Will interest rates continue falling? The
question is closely tied to the health of the fiat dollar.
But just as the distortions to the financial system are
accelerating, so, too, is the rate of increase in bond
prices.
If most of that one-third decrease in interest
rates happened during the latter part of the previous
seven years, as the crisis took hold in earnest, then we
can make some reasonable extrapolations. Were 30-
year rates to lose one-third again from present levels,
falling from 3% to 2% over, say, the next 2 years, the
unlevered annualized return for the above trade would
be 18%, with the 4:1 levered return being 48% per
year.
Higher than golds potential dollar return,
over the next 24 months? Maybe. Safer? Absolutely
not. At least, not in the sense a proper student of gold
would use that word. A useful diversifying tool when
added to a core holding of unlevered bullion?
Quite possibly. Because we cannot predict
how long the fiat dollar will last. It could be some
time yet. And we cannot know whether some interim
solution from authorities might not deprive gold
owners of the metals full benefits, or at least delay
those benefits substantially.
Now, assuming one can successfully tap this
free-flowing river of dislodged wealth, another
question arises: is it moral to enrich oneself through
the operation of todays corrupt monetary system?
The short answer is yes.
Provided a man is not committing any fraud
or dishonesty, he cannot be faulted for making the
most of circumstances into which he is thrust.
Especially if he cannot single-handedly change those
circumstances.
But keep the bigger picture in mind. If you
master todays controlled financial climate, consider
donating to organizations such as the Gold Standard
Institute. For, far better than a mere bag of gold, is the
chance to live in a world free from the banking elites
stealth taxation.
To paraphrase Bob Landis, people who
endured years of playing the wrong side of a rigged
market make poor philanthropists. If it is possible to
position oneself on the right side, without detracting
from the cause of honest money, then Game On!
Let the banks see there are still people who cannot be
bought, but who might instead use new wealth to
overthrow the tyrannical regime.
Publius





The Gold Standard The Gold Standard Institute
Issue #16 ! 15 April 2012
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8
Erroneous Thoughts on Golds Role in the
Financial System
Sandeep Jaitly

When it comes to gold and it's role in the financial
system, there is widespread confusion. We will try to
address some of the mainstream erroneous thought
here. This is the first in a series of short essays.
As gold - and only gold - exists in vast
multiples of annual production, it is the only suitable
medium to carry accounts in. Whatever value gold is
deemed to have, it would change the least at the
margin (if it were going to) compared to any other
substance. This is a direct consequence of existing in
vast 'stock to flow.'
The integrity of any accounts measured in a
defined volume of gold would be compromised the
least from any potential valuation flaws that could be
associated with gold itself as a substance. This is an
important point to grasp.
1. The amount of economic activity is restricted by the
amount of gold.
'Social interaction' - that more lucid
description of the state of human affairs than the term
'economic activity' - occurs first before all. Gold is
merely the 'measure' of various aspects of that social
interaction. To say that gold restricts economic action
is akin to saying that a 3mm width nail will fit into a
1mm width hole if one redefines what a mm is at each
stage.
2. The gold standard controlled the price level.
This is a common but understandable
mistake to make. Gold has its principle role as the
medium through which the people express their
opinion on the rate of interest. An interest rate that is
too excessive sees gold flow into the bond market and
a rate too low sees the opposite. A stable interest rate
promotes stable prices for all kinds of goods,
especially reproducible goods such as soft
commodities. However, this aspect should be
considered a consequence of stable interest rates,
rather than using gold as the medium of exchange.
3. A stratospheric gold price rise will signal the end of
the regime of fiat currencies.
This is a seductive assumption to make, but
probably wide of the mark. As has been previously
mentioned, gold has its role in the stabilisation of
interest rates. This role is still there for gold, but
behind the scenes.
Backwardation in the gold markets, when
accompanied by a falling paper interest rate structure,
shows that time preference is gaining ground. Paper
interest rates can be brought down indefinitely, but
gold interest rates cannot. There must always be a
marginal lender of gold to drive gold interest rates
lower.
The occurrence of backwardation is a far
more important signal than the escalation in the fiat
price of gold.
This is the first in a series of short essays
examining common erroneous thought on gold's role
in the financial system.
Sandeep Jaitly http://www.feketeresearch.com/

The following is the final essay on Real Bills in a
twelve-part series by Thomas Allen. Mr. Allen has
been a backbone of The Gold Standard for its first
twelve months and I would like to give him my
sincere thanks for his contributions. I hope that The
Gold Standard will again be graced and illuminated
with his byline in the future. Philip Barton

Does Fractionalization Occur
Under the Real Bills Doctrine?
Thomas Allen

Under the real bills doctrine with sound decentralized
banking, fractional reserve banking as such does not
exist. Fractional reserve banking exists when a bank
creates money out of nothing or allows multiple
parties to use the same money simultaneously. The
former occurs when banks add to the money supply by
creating money out of nothing but computer data
entries or the printing press. The latter occurs when
banks lend demand deposits (current accounts or
checking accounts) or use them as reserves for loans.
Neither occurs under the real bills doctrine.
Specie (gold or silver) or commercial money
(real bills) backs all credit money (bank notes and
checkbook money) that a bank creates (more
correctly, converts). The specie and commercial
money remains out of circulation. No one has use of it
while the bank money representing that specie or
commercial money is in circulation or available for
use. Thus, if specie or commercial money maturing
into specie backs all bank notes and demand deposits,
fractional reserve banking as such does not exists.
The following example illustrates that the real
bills doctrine does not require fractionalization of
gold. A retailer accepts a bill of exchange from a
wholesaler for 100,000 dwt. (pennyweight) of gold.
To pay his supplier, the wholesaler discounts the bill
to his supplier for 98,000 dwt. of gold (assuming the
quarterly market discount rate is 2 percent). In turn the
supplier pays the manufacturer 98,000 dwt. with this
bill. Then the manufacturer pays the 98,000 dwt. that
he owes the raw material supplier with this bill. The
The Gold Standard The Gold Standard Institute
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9
raw material supplier keeps the bill to maturity. Thus,
the retailer pays the 100,000 dwt. due on the bill at
maturity to the raw material supplier.
Has gold been fractionalized? No. As this
example shows, 294,000 dwt. of gold are moved, but
only 100,000 dwt. of physical gold are moved, which
is the final payment that extinguishes the bill. The bill
of exchanged or commercial money has economized
the movement of gold. It enables 100,000 dwt. of
physical gold to do the work of 294,000 dwt. of gold,
yet it has not fractionalized the gold.
Now lets look at the same example, but with
banks getting involved. Instead of the wholesaler
using the bill to pay his supplier, he sells the bill to a
bank. In return the bank buys the bill with bank money
(bank notes or checkbook money). To simplify the
example, the wholesaler has the bank to credit his
checking account with 98,000 dwt. of gold. Has the
bank created new money? No, it has converted
commercial credit money (the bill of exchange) to
bank credit money (checkbook money). Now, the
wholesaler writes his supplier a check for 98,000 dwt.
to pay his debt to the supplier. That is the wholesaler
transfers 98,000 dwt. of gold to the supplier via the
check. The supplier deposits the check in his checking
account, and the bank credits the suppliers account
with 98,000 dwt. of gold. Has this bank created
money? No, it has not. The example continues with
the supplier paying the manufacturer with a 98,000-
dwt check, who deposits the check in his checking
account. Again 98,000 dwt. of gold has been
transferred via check; this time it is from the supplier
to the manufacturer. In turn the manufacturer pays the
raw material supplier with a 98,000-dwt check who
likewise deposits the check. Has 392,000 dwt. of new
money been created? No, the checks are merely
transferring gold from one account to another. The
retailer ends up covering all these checks with the
100,000 dwt. of gold that he pays the wholesalers
bank when the bill matures. Again, the gold is not
fractionalized. The intervening credit money enables a
small amount of gold to do the work of a great deal of
gold.
In both examples, the need for gold to change
hands has been reduced from four times to one: from
the retailer to the raw material supplier in the first
instance and to the bank in the second case.
Fractionalization has not occurred.
Has this process created any new money? If this
process has created any money, the retailer has created
it when he accepted the bill of exchange. If the
wholesaler sells the bill of exchange to a bank, the
bank does not create any new money. It merely
converts commercial credit money (the bill of
exchange) to bank credit money (bank notes and
checkbook money). The bank has not created any new
credit money. It has merely changed the form of the
credit money. It has sliced the bill of exchange into
small and more easily used pieces.
Moreover, the real bills doctrine does not involve
borrowing or lending as Professor Fekete has
explained. As no lending is involved, banks are not
lending demand deposits or using them as reserves for
loans. Since banks are not creating money or lending
money under the real bills doctrine, fractional reserve
banking as such does not occur under the real bills
doctrine.
Thomas Allen

Gold Standard Murders Bernanke
Rudy Fritsch

If you have not yet heard of Mr. Bernankes great
blunder, you should before reading this article; see
http://www.businessinsider.com/ben-bernanke-
explains-why-well-never-see-another-gold-standard-
2012-3
The gloves are now off; Bernanke reveals
that the emperor truly is naked. He exposes the
abysmal ignorance of his Keynesian school. Either
abysmal ignorance, or else Mr. Bernanke is spouting
outright lies.
There is not enough Gold;
This is Gold myth Number One. In fact,
Gold is the most abundant resource in the world if
measured by its stock to flow ratio. There are at least
160,000 Tons of pure Gold known to exist above
ground, while primary mine supply is about 2,000
Tons per year. This means that there are 80 years or
more of Gold supply on hand, compared to a few
weeks of stock for other commodities like crude oil or
copper or grains.
Why is there so much Gold around?
Because Gold is money, Mr. Bernanke! People
treasure and save money... not IOUs. Gold has
positive value; it is not a debt note like a Dollar bill or
Euro masquerading as money. Gold is not just a
precious metal like Platinum. Platinum is NOT
money, never was and never will be. Platinum has a
stock to flow ratio no different from that of copper or
lead.
Gold is the monetary metal par excellence.
Gold is the ultimate extinguisher of all debt. IOU
notes like Dollars or Euros do not extinguish debt,
merely shuffle debt around. Fiat currencies cannot
extinguish debt; they ARE debt. Dollars and Euros
appear as liabilities on the Central Banks balance
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sheet. In stark contrast, Gold is nobodys liability
Gold is a pure asset. It needs no backing as do bank
notes. Bank notes today are backed by treasury
bonds and treasury bonds are more IOUs, liabilities
of the treasury. Gold is never a liability on anyones
balance sheet.
Any suggestion that there is not enough
Gold is nonsense; and at best, suggests that Gold is
undervalued in terms of the USD or the Euro. Do you
know that the British Empire under the classical Gold
Standard ran world trade on 150-200 Tons of Gold
held in the vaults of the Bank of England? Do you
know that the USA alone has 8,000 Tons of Gold in its
vaults? Silly to say there is not enough Gold. The
bottom line is that the quantity of Gold is not the
problem; quality trumps quantity every time.
Not convinced? Crude oil is the single
largest trade item in the world today; about 80,000,000
barrels change hands every single day. At $100 per
barrel, this amounts to about 8.5 Billion dollars per
day. Gold at todays price of $1,650/oz. is
$39,000,000 per Ton; so 215 Tons of Gold is enough
to support all this trade if a daily netting out occurs,
like in commodity markets. If a bit of modern
computer technology is introduced, and netting out is
done 3 times per day, only 72 Tons of Gold would be
sufficient to support the enormous and vital
international oil trade.
The magic of this netting out is
accomplished by multilateral circulation of Real Bills,
as recognized by Adam Smith. Real Bills in
circulation serve as the clearing mechanism of the
Gold Standard, allowing a ton of Gold to do the work
of a hundred tons. As long as trade nets out, as long as
there are no trade imbalances, not an ounce of Gold
has to move; Real Bills do all the work. Gold only
moves if grievous trade imbalances are allowed to
develop. Gold imposes desperately needed discipline
on international trade. Does Mr. Bernanke understand
any of this? Is he truly this ignorant of Gold Standard
fundamentals or is he lying by rote?
Gold is deflationary;
Gold is dug out of the ground at real risk and
expense, not borrowed into existence like fiat paper.
More fiat paper borrowed into existence equals more
debt period. Extinguishing any given quantity of fiat
debt is impossible without the destruction of a
corresponding quantity of fiat paper. What is
borrowed into existence as debt must disappear on
repayment of the debt.
Gold never disappears unless it is forced
into hiding, perhaps by fear of Government
confiscation. There is never a true reduction of Gold
stocks; how would Gold supply be reduced? Would
people grind up their Gold, mix it with dirt, and stuff it
back into the mines it came from? Please!
Deflation under freely circulating Gold is
impossible. In contrast, paper money can indeed
deflate, or literally disappear; but before any deflation
is possible, there must first come inflation. Paper
money must be created before it can be destroyed
not the other way around. If previously created credit
money disappears, we experience deflation. This is
pretty obvious, is it not Mr. Bernanke? Of course, Mr.
Bernanke does not admit this, but blames all on
Gold
Throughout the history of the classical Gold
Standard, countries repeatedly went off Gold,
usually in wartime inflated like mad then went
back on Gold. The so called business cycle, which
in reality is a credit cycle, is caused by this very
process; leave Gold, inflate, go back on Gold. As the
inflationary paper disappears, blame Gold; but the
cause of deflation is not to be found in the return to
Gold the cause is to be found in going off Gold in
the first place. Going off Gold sets the
inflation/deflation cycle into motion.
Prices do not remain stable on a long term basis;
Prices are an essential market signal, and
while wild short term price swings should be
avoided as they indeed are under Gold long term
steadily declining prices are marvelous. This is the
very situation that prevailed under the classical Gold
standard. Increasing productivity reflected in slowly,
steadily dropping prices. By contrast, ongoing Central
Bank fueled inflation punishes savers, pensioners, and
all productive members of society. Gentle, steady
deflation, or more exactly steadily increasing
purchasing power is beneficial for all... except for
banksters and politicians.
The real benefit of Gold is not long term
price stability but long term interest rate stability.
Gold regulates interest rates admirably, so well that
interest rate speculation under Gold is unprofitable.
Speculation that is unprofitable does not come into
existence who in their right mind would start up an
inherently unprofitable business?
The Great Depression was so long and so bad
because of Gold;
Government interference with natural
market feedback mechanisms is what prolonged the
Great Depression. The root cause of the Great
Depression was Central Bank interference in the credit
markets, made possible by the abandonment of the
Gold Coin Standard and the Real Bills Doctrine of
Adam Smith before WWI. The proximate cause of the
Great Depression was the injection of excess credit
into the economy through expansionary Central Bank
The Gold Standard The Gold Standard Institute
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policy during the credit fueled boom of the roaring
twenties. Under an Unadulterated Gold Standard the
creation of excess credit is impossible.
No depression, great or otherwise, is
possible without fiduciary (promise based) bank notes
in circulation. Fiduciary bank notes are backed not by
Gold or by fully liquid Real Bills but are issued
fraudulently against long term (Government) bonds...
Government promises. In plain terms, cash obligations
in the form of Federal Reserve Notes aka Dollar
bills are backed not by liquid assets like Gold or
Bills that mature into Gold within 91 days, but by long
bonds. Bonds are illiquid because if there is a sudden
demand for cash, selling bonds for cash causes bond
prices to fall. Falling bond prices decimate the banks
balance sheet as the asset side now holds bonds, not
Gold or Bills.
The inevitable collapse comes when
confidence in the system is lost, and the short term
borrowing offsetting long term obligations cannot be
rolled over and the run on the banking system starts
big time. Such a run is starting right now. Even
Bernankes famous helicopters cannot drop Dollar
bills fast enough to stop the run.
Gold standards leave central banks open to
speculative runs;
As we saw above, bank runs are not possible
under an Unadulterated Gold Standard. Indeed, there
is no need or any use for a central bank under an
honest Gold money standard. No wonder Mr.
Bernanke is a mortal enemy of Gold. The central bank
system was created to offset the evils of property
rights invasion with regards to money. Specifically,
laws were passed in the nineteenth century decreeing
that once money is deposited in a bank, that money is
no longer the property of the depositor, but becomes
the property of the Bank. Central banks were also
chartered at that time. Coincidence?
Imagine taking your furniture to a
warehouse for storage, and having the law deem that
your furniture has suddenly become the property of
the warehouse owner. The warehouse owner can
legally do whatever he wants with your furniture;
lease it out or sell it meanwhile leaving you as a
common creditor of the warehouse company, with no
rights to your money... er furniture. If the bank er
warehouse goes bankrupt, you have no legal
recourse to recovering your property... as it is no
longer recognized as being your property.
This is unconscionable, but is exactly what
happens to your money today. Inevitably banks grab
demand deposits and lend them out long term at great
profit. This is why a lender of last resort is needed;
to help banks in trouble when they cannot meet calls
for depositors money. The depositors money is not
available; it has been lent out long term.
The answer to this problem is to let the true
owners of money decide what they want done with
their deposits. Do they want their money in a demand
deposit that pays no interest, or in a term deposit that
does but locks up their money for an agreed length
of time? If loan maturities match deposit maturities,
runs are impossible. Demand deposits remain
available for immediate withdrawal and time
deposits must stay with the bank until maturity.
Even if ALL demand depositors were to ask
for their money at the same time, the banks could
deliver. Of course, in such an honest banking system
banks would have to forego the illicit, dangerous, but
profitable practice of borrowing short to lend long.
Furthermore, Bernanke never talks about what
happens when the lender of last resort is tapped out,
as it is right now. Today not only central banks but
government treasuries are bankrupt; see Greece,
Portugal, and the sovereign debt crisis. Only tax
payers are left to bail out the CBs and they cannot
possibly do this, as the amount of debt in existence is
impossible to repay, or even to hold steady. The debt
tower keeps growing and the real economy
supporting the tower is collapsing.
The gold standard tends to cause interest rates to
rise during downturns and interest rates to fall
during good times;
More mythology; in fact, Gold serves to
maintain steady interest rates; rates so steady, that
interest rate speculation did not exist under Gold. Such
speculation was not profitable. Steady interest rates
are most important to industry, pension funds,
producers, etc. Along with the steady value of the
Golden numeraire, or Golden unit of account, low and
stable interest rates allow the real economy to thrive.
Managerial attention is focused on running and
improving the business, not on planning for inflation
or deflation, and not on hedging or speculating on-
interest rate swings and forex swings. Under Gold
there is no forex; Gold is Gold in any language.
Without forex, there can be no forex speculation. With
interest rate speculation and forex speculation
impossible, the only way to profits is the old fashioned
way; one earns profits by serving ones customers
better than ones competitors do.
Mr. Bernanke does not (yet) seem to realize
that he has a tiger by the tail; even Allen Greenspan,
the Maestro, has admitted that in extremis, fiat has
no place to go except to Gold. The process of
remonetization of Gold is under way; Iran is already
buying food for Gold as it has no choice but use
Gold or go hungry; extremis indeed.
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The sweet irony of this is that Washington,
the very epicenter of Dollar printing, is putting
extreme pressure on Iran, literally forcing Iran to turn
to Gold. As the trend toward Gold remonetization
accelerates, as fiat paper collapse puts intolerable
pressure on other countries as well, you can be sure
that it is Bernanke who will be murdered by Gold
not the other way around.
Rudy J. Fritsch

Floating Exchange Rates:
Unworkable and Dishonest
April 5 by Keith Weiner

Milton Friedman was a proponent of so-called
floating exchange rates between the various
irredeemable paper currencies that he promoted as the
proper monetary system. Many have noted that the
currencies do not float; they sink at differing rates,
sometimes one is sinking faster and then another. This
article focuses on something else.
Under gold, a nation or an individual cannot
sustain a deficit forever. A deficit is when one
consumes more than one produces. One has a
negative cash flow, and eventually one runs out of
money. The economy of a household or a national is
therefore subject to disciplinesooner or later.
Friedman asserted that floating exchange
rates would impose the same kind of forces on a
nation to balance its exports and imports. He claimed
that if a nation ran a deficit, that this would cause its
currency to fall in value relative to the other
currencies. And this drop would tend to reverse the
deficits as the country would find it expensive to
import and buyers would find its goods cheap to
import.
Friedman was wrong.
To see why, one must look at the concept
known to economists as Terms of Trade. This
phrase refers to the quantity of goods that can be
purchased with the proceeds of the goods exported.
For example, country X uses the xyz currency. It
exports xyz1000 worth of goods and it can thereby
pay for xyz1000 worth of imports. But what happens
if the xyz drops relative to the currencys of Xs
trading partners, because X is running a trade deficit?
The country exports the same goods as
before, but they are now worth less on the export
market. So X can pay for fewer goods than before.
Buying the same amount of goods will result in a
larger deficit.
At this point, one may be tempted to say
Ahah, Friedman was right! But remember, we are
not talking about a gold standard. We are talking
about an irredeemable paper money system. Money is
borrowed into existence. Looking at the trade deficit
from the perspective of Terms of Trade, we see that
trade deficits lead to budget deficits, which leads to a
falling currency, which leads to increased trade
deficits. It is not a negative feedback loop, which is
self-limited and self-correcting. It is a positive
feedback loop.
There is no particular limit to this vicious
cycle until the country in question accumulates so
much debt that buyers refuse to come to its bond
auctions. And this is not a correction or a reversal of
the trend; it is the utter destruction of the currency and
the wealth of the people who are forced to use it.
And, of course, Friedman had to be aware
that America was likely to be biggest trade deficit
runner in the world. Its currency, the dollar, was (and
is) the worlds reserve currency. That means that
every central bank in the world held dollars as the
asset, and pyramided credit in their own currencies on
top of the dollars.
What would happen if the dollar weakened
because the US was importing real goods and
exporting paper dollars? The US would simply import
the same goods next year and export even more paper
dollars to compensate for the drop in the dollar!
Friedman would have also been aware of the
economist Robert Triffin, who wrote in the early
1960s about a problem that became known as
Triffins Dilemma. In essence, the issue is that the
world needs to expand credit to grow and so has
demand for more US dollars. But this can only occur
if the US runs a perpetual trade deficit, which would
weaken the US dollar.
To the central banks that hold dollars as the
reserve asset, this is deadly. Like any bank, a central
bank has assets and liabilities. If a significant
component of the assets are composed of US dollars,
and the US dollar falls, the central banks balance
sheet deteriorates. The liabilities side, of course, is the
central banks own currency. So the asset is falling
and the liability is not. This is a dangerous situation
and unsustainable.
And to blithely propose this as a system is to
propose open theft. Why should any country agree to
allow the US to dissipate its savings, defaulting on the
US dollar obligations in slow motion, a few percent
per year as Friedman proposed?
The scheme of floating exchange rates of
irredeemable paper currencies is therefore dishonest as
well as unworkable. Today, some 40 years after the
plunge into the worldwide regime of irredeemable
paper currencies, its starting to matter.
The Gold Standard The Gold Standard Institute
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Keith Weiner has been a technology entrepreneur. He
was the founder of DiamondWare, a VoIP software
company, which he sold to Nortel in 2008. Keith is an
adherent of Ayn Rand's philosophy of Objectivism,
and a student at the New Austrian School of
economics, working on his PhD under Professor Antal
Fekete, with a focus on monetary science. Keith is
now a trader and market analyst in precious metals
and commodities. Now that central planning has
failed, he would like the world to return to a proper
gold standard and laissez-faire capitalism. As of
today, 15
th
April, 2012, Keith is the President of The
Gold Standard Institute - USA.

A Gold Standard
by Michael Moore
Part 2 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
Ron Paul
A return to the gold standard is very much
the flavour of the month not just with gold bugs but
with some countries and even US states 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 want 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 (they)
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.
The Gold Standard The Gold Standard Institute
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Of course it would take some time. But the
direction of a nations 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 worlds 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 worlds reserve
currency. The door will then be open for a new gold
standard.
Michael Moore