Thread: This skeptic turned believer- Ron Paul 2012

I for one don't think most of Paul's Crazy Ideas would pass. But the ones that hit home with a majority of Americans, would sure see the pen. We've already been indoctrinated to support the troops, so when the troops come to say "bring us home" Wtf are we gonna do?

The US Dollar is backed by oil! I could have sworn that Ron Paul websites were where I first read people linking the invasion of Iraq with the attempted establishment of a non-dollar based oil bourse. Gaddafi was pushing to back Libyan oil in dinars and not dollars and look where he ended up (that's from a Ron Paul based forum).

Yeah baby!

Since Nixon

Originally Posted by Xavsnipe

Since Nixon???

You can see it in the chart linked by MaBad. Gold had been a bit over $35 for a long time. You can see right where Nixon pulled the plug (the Nixon shock).

The problem is that once you declare a gold standard as a matter of policy, you have to support it. You can't just SAY that the dollar is pegged to gold at a certain rate. You have to make it true.

So if the supply of gold changes, or the demand for gold changes, or the demand for dollars change, the central bank has to intervene directly in the international currency markets to off-set any movement in the dollar. You think the Fed is crazy to print dollars and dump them into the US economy? How do you feel about them printing dollars and dumping them into the world economy?

For a long time that wasn't so big a deal. It was post-war, the US economy was relatively strong, a stable dollar was good for everyone, and the US had a strong balance-of-payments position. But that didn't last forever (the world recovered) and eventually, supporting the completely arbitrary target of "$35 per ounce" became untenable. A "gold standard' is basically a promise to convert your currency to gold.

But your money supply is now restrained by how much metal you have in a pit; and other currencies are pegged to your dollar, and these currencies trade in an international market - because we're trading goods, and that's how we pay.

If some one starts to think that maybe - at $35 an ounce - they'd rather have the metal than the paper, you have to make good on that. If anyone suspects you might not, they want to execute that deal NOW, because they worry about the future. So there can be a run on the currency (just like a run on a bank). Now, your trading partners are having to use their currency (and pits of gold) to support YOUR currency... and might say "hey, fuck that, I'm not going to de-value my currency and risk inflation just because you're in a tough spot."

And so they don't.

And now you have a choice. You can bleed all the gold from your vaults to redeem the paper.

Or you can re-set the standard, say to $45 an ounce. But that sucks because then re-valuation is a huge political problem. If the US just one day changes the peg to $45, all the foreigners who are currently holding dollars just got fucked. Hard.

Or, and this is the big one, you can say "Hey. It's just a lump of metal. As lumps go, it's pretty shiny, but so what? You can't eat it. You can't drink it. You can't drive it. It won't suck your dick or teach you piano. It's just a lump of metal - like platinum, or silver, or aluminium, or copper, or titanium, or..."

So you let it go. What really matters if we trade with Germany is the ratio between the Dollar and the Euro. Currency traders are already setting that ratio. No one is shipping gold around to settle up anyway.

But, you may say, now it's just all based on faith!

Yeah, but what the hell do you think it was based on before?

Another problem with the gold standard is that gold is actually useful for things in the real world - just like any other metal, because gold is a metal. It's a commodity. In the real world (the one where we don't pray to a shiny metal), the value of gold goes up and down based on the supply of gold and the demand for it (got yer gold-plated HDMI cable yet?).

If we peg all the other currencies to the dollar, and we force the dollar to be convertible at a constant rate for gold, we tie the entire world financial system to things like the shock of finding a new gold deposit somewhere, or to the public's current desire for more bling. Even if we double the population and all our economies grow 10-fold, we can't get more money unless we mine and stock-pile more gold. The stuff just sits in a pit anyway. It never goes anywhere. What's the difference between having it never move from a pit in the ground, and just leaving in the ground to never move in the first place?

PLUS, we can't adjust our money supply to try and deal with inflation and/or interest rates. We have the tool to do it, but we have to use that tool to maintain the dollar/gold convertibility rather than use the tool to keep the economy healthy.

It's fucking retarded.

Cheers,


AetheLove

Originally Posted by AetheLove

It's not my book, plenty of books have been written by people who know this stuff way better than I do. A number of books have also been written by people who don't know squat about it.

Also, I glossed over a few edges. There are problems (hoo-boy, are there problems) with our current system too.

Going back to a brittle, and all together worse system like the gold standard is a really bad way to address those problems. For example, did you think you might like to earn interest on your deposited dollars? How does that work? There can't be more dollars until we get more gold. The weight of a pile of gold doesn't magically increase at 4% a year. Also, what if the majority of proven un-extracted gold reserves are in, say, China? ... or Iran? How do you feel about it now?

Most of the gold that's pretty easy to get at has already been got. Hard rock mining is very expensive. You have to dig a huge hole about 1 or 2 miles deep, and then install air conditioning. A standard gold mining method today is to find some place that has a marginally higher concentration of gold per cubic meter, dig it all up, grind it to powder, and then percolate cyanide through it. Neither of these is what you'd call "green" technology. To everyone who says they want the gold standard back, I say "hey, can I store some used dirt in your yard? ... just don't let the kids near it."

Having something at the foundation of currency values isn't necessarily a bad idea. Having that thing be gold is dumb, but there might be something else. The legacy of the post-war gold standard is that the US dollar is the de-facto reserve currency. That was nice, for a while, but there's a serious long-term problem with it (look up Triffin).

At the Bretton Woods meeting, Keynes proposed a thing called the Bancor. It's basically a world currency that central banks trade among themselves to settle international transactions (and do a few other things). A nation's currency is convertible to the Bancor, and any nation's central bank can choose to support a target exchange rate or just let their currency float.

The IMF has a thing called Special Drawing Rights, which sort of (but not really) functions as a world currency. When you join the IMF, there is a member fee - you have to give them a bunch of your currency (it's not that simple). The SDR is sort of like holding an iou against member nations. The SDR could serve as a currency standard.

The European Union already did something like this. Before they had the Euro, they all kept their own national currencies but created the European Currency Unit (the Ecu) to use as a standard. Each nation set a target exchange rate between their own currency and the Ecu. That rate was allowed to move a little, but the central bank of any one nation had to keep it within a certain range. When you graph it out, you see narrow band within which a currency could move. This was called The Snake.

Toad mentioned a petroleum-backed currency. For a country like Libya, with huge proven reserves, that might not be totally insane. There is an interesting story that fits in with that. With the establishment of OPEC (a cartel), the continuous rise in the world demand for oil, and the increasing price of oil, OPEC members (mostly Arab states) started to have a really bad problem:

They were getting way too rich.

And all their wealth was in dollars. Since the dollar functions as the reserve currency, everyone who bought oil (not just the US) paid in dollars. Now they're hugely wealthy! [actually, only a few of them in any one country. there is huge income and wealth inequality in most of those nations] But their countries have really small populations, lots of land that no one particularly wants to live in, and primitive economies. They have way more cash than they could ever invest in their own country.

So they have all these dollars. There's only so many Mercedes you can buy, so what do they do with those dollars? They put them in a bank. But you can't put dollars in a German bank, or a Japanese bank. You have to put them in a US bank.

And they did. The process was called petrodollar recycling. They send everyone else lots of oil. Everyone else sends them dollars. They send all the dollars to US banks. US banks have to pay interest on those deposits.

Uh oh.

.... hey, when was it that the US decided to stop letting people trade dollars for gold? When was that again?


I used to live and breath this stuff.

Cheers,


AetheLove

I read an article on my phone about this (and why I can't find that stupid link now), but it was talking about how Countries will try to manipulate the value of their money (in the markets) to improve their trade. If I recall, isn't it what China has been doing? Keeping the currency rate (price, whatever) low so that when they export something, it is much cheaper then products made in that country or other countries?