Judy Shelton in back in play for a Fed nominee. Please do it President Trump.
The above image is from 2020. I explain what
Gold Is Back
Times of London writer Mehreen Khan explains Why Gold Prices Keep Going Up and Up.
The shiny metal is one of the best-performing assets in the world this year, rising by 16 per cent to $2,497 per ounce, having already hit record highs in May and July. Despite being seen as simply a haven in inflationary times, gold has managed to deliver the best inflation-adjusted returns of any key asset this year, worth a juicy 20.8 per cent, according to figures from Bank of America. Investors buying US stocks will have made real returns of about 16 per cent and of 14 per cent or so in London-listed equities so far this year.
It’s easy to be sniffy about “gold bugs”, those advocates for the precious metal often caricatured as apocalyptic anti-inflationary disbelievers in the modern monetary system. I admit I’ve often fallen into the camp of gold scepticism over the past decade, particularly when gold mania descends into nostalgia for the Gold Standard or the moral panic over hyper-inflation after the financial crisis.
Yet the merit of buying gold in the 2020s is about more than simply as a lustrous store of value when people are worried about inflation eroding the purchasing power of the money in their bank accounts. As I’ve written before, gold has become the go-to hedge for large parts of the world’s central banking community, who have become increasingly worried about the potential expropriation of their assets in a US-led financial system where the dollar is king.
“[Gold] remains our preferred hedge against geopolitical and financial risks, with additional support from imminent Fed rate cuts and emerging market central bank buying,” Goldman told its clients in an investment note last week.
That was written on September 10, so it does not reflect the election surge for Trump.
The Mises Wire referred to that clip today. Mises says Gold Is Back And So Is Judy Shelton
A recent piece in The Times (of London) sums up the moment.
All of which has led to much talk about sound money, cryptocurrencies, and even the feasibility of a new gold standard, as is attested by the latest title from former Trump administration economic adviser and longtime sound money advocate Judy Shelton—Good as Gold: How to Unleash the Power of Sound Money—currently a best-seller on Amazon.
An inveterate sound money champion, Shelton argues that the present moment is especially propitious, especially on the international level. The fact that gold-buying by central banks has reached a near-frenzy “testifies to good prospects for the serious consideration of a new proposal,” she says.
And she has one, of course: a well-articulated plan to reaffirm gold convertibility for the average American for the first time since the days of the Classical Gold Standard (1815-1914); albeit beginning exclusively through the ownership of gold-linked US Treasury bonds. To Shelton, the right of dollar-to-gold convertibility—her end goal for the entire US monetary system—is essential: it wouldn’t just signify fiscal and monetary rectitude; it “provides the ultimate simple rule for regulating the money supply in accordance with individual rights and free-market principles,” one of the book’s key arguments.
Her proposal calls for a new issuance of Treasury zero-coupon securities—dubbed Treasury Trust Bonds—offering lower interest rates than conventional Treasuries (thus reducing current deficits), but with the distinguishing feature that they can be redeemed at maturity either at their face value in dollars or at a pre-specified equivalent in gold—at the buyer’s discretion.
In other words, should monetary policy continue on its current off-the-rails path, and the purchasing power of the dollar decline significantly, it could result in a significant loss of US government gold. If not, and the United States straightens out its finances, most of the bonds would be likely redeemed in dollars. In essence, they would offer a “trust-but-verify provision,” as Shelton calls it, staking the nation’s gold holdings on a new resolve to demonstrate fiscal and monetary rectitude. “All that officials would need to do to make the issuance a success is to surpass expectations,” she explains. If they do, the bonds will have led the way “for the United States to issue a dollar-denominated financial instrument that is, literally, as good as gold.”
Acknowledging that her proposal appears modest in comparison with the “impressive gold-standard proposal” that came out of the US Gold Commission during the Reagan years, Shelton argues that by successfully establishing this type of “beachhead for sound money” and “bulwark for fiscal and monetary integrity,” substantial monetary reform here and abroad would likely follow, perhaps even resulting in a new, gold-based international monetary system.
Describing her economic views as “closer to the Austrian School’s than others,” despite her long-time association with supply-side advocates and theory, Shelton agrees with Austrians that the fatal flaw in Bretton Woods (1945-1971) as well as myriad other rule-based proposals is that they ultimately rely on the “discretionary inclinations of technocrat authorities.” Indeed, she acknowledges that the classical gold standard of the late nineteenth century was “much better” than the watered-down, gold-exchange standard of Bretton Woods (in which individuals were denied direct convertibility) as a result of the fact that “it gave individuals, not the government, the power to control the money supply.”
Moreover, the new book makes it clear that 1) central planning doesn’t and has never worked, whether in the old Soviet Union or modern central banking policy; and, therefore, that 2) the Federal Reserve’s “displacement of free-market outcomes may one day breed the same sort of cynicism that caused the Soviet approach to collapse.”
The bottom line for Shelton is that “the highest level of performance to which a central bank could aspire would be to match the economic interactions and results that would likely occur under a gold standard,” an argument her book makes by surveying the results of previous monetary systems. Alternatively, she adds, alluding to Hayek’s best-known book, “substituting the perspicacity of designated monetary authorities for the shared acumen of hundreds of millions of people carrying out voluntary transactions to facilitate their daily needs and future dreams is akin to selecting the path to serfdom.”
In short, while Shelton’s new plan may represent yet another less-than-ideal monetary reform, it would certainly mark a positive step in the unambiguous direction of sound money; and possibly with some real teeth, as she outlines in Good as Gold.
With the new book, Shelton has doubled-down on everything that got her labeled as a member of the “crank right-wing fringe” and denizen of the “gold-bug circuit” by mainstream writers and analysts in 2020. And her Treasury Trust Bond plan—and greater vision for sound money—will have succeeded, she says, if it leads the nation toward a future in which “payment in future dollars is deemed literally as good as gold.”
“That,” she says, “would be historic.” It certainly would be.
Theory vs Practice
I disagree with Mises in practice but not theory. My point is we are not going from point A to point Z without some first steps.
We can label her proposal less than ideal, as Mises does. But if the “ideal” cannot and will not be done, then from my practical standpoint, the allegedly ideal way is not ideal.
Ideal must have a chance or we keep pissing in the wind.
January 19, 2020: Trump Nominates Gold Advocate Judy Shelton for the Fed
Judy Shelton is an American economic advisor to President Donald Trump. She is known for her advocacy for a return to the gold standard and for her criticisms of the Federal Reserve.
A Gold Standard and Free Trade
May 12, 2019: Judy Shelton, Trump’s Next Fed Choice, Favors a Gold Standard and Free Trade
That’s an unbeatable combination.
Attack Dogs Blast Shelton
July 22, 2020 WSJ: In a stunningly ignorant, yet hardly surprising op-ed, Steven Rattner says God Help Us if Judy Shelton Joins the Fed.
“Why do we need a central bank?” Ms. Shelton asked in a Wall Street Journal essay in 2009. She wants monetary policy set by the price of gold, a long-abandoned approach that would be akin to a Supreme Court justice embracing the Code of Hammurabi.
November 15, 2020: Controversial Gold Advocate Judy Shelton Will Soon Be On the Fed
Senator Lisa Murkowski (R-Alaska) will now back Shelton giving the candidate 51 votes for the appointment.
Oops – What happened?
One Republican Senator backed down. That’s OK because Pence would cast the tie-breaking vote if the Senate deadlocked 50-50.
But a Republican Senator got Covid, did not show up for the vote, and Trump did not try again.
We now have a chance again.
Balance of Trade
Trump proposes fixing the trade deficit via tariffs.
It’s economic lunacy.
The way to fix the trade deficit is to address the root cause of it all.
When Nixon ended gold redeemability, countries could run fiscal deficits at will. And the curse of the reserve currency is that the US lost control of trade.
Under a gold standard, fiscal deficits and trade deficits were self correcting. Now they aren’t.
Three New Trade Deficit Charts Will Have Trump Howling
The advance trade data on goods imports and exports took a huge turn for the worse in September.
Goods Imports and Exports
For discussion, please see Three New Trade Deficit Charts Will Have Trump Howling
Tariffs cannot and will not fix this. The fundamental problem is lack of an enforcement mechanism that a gold standard provided.
So Simple
- Run deficits and you lose your gold.
- Run huge surpluses like China, the currency soars, and your exports become less competitive
Tariffs are a tax on consumers. They are a piss poor enforcement mechanism.
Judy Shelton is correct. We need a way to get back towards a gold standard and free trade.
J.M.Keynes: “Here Mish shows that he doesn’t understand what the REAL reason was for Nixon to abandon the gold standard in 1971.”
Mish: Dear Mr. J. M. Clueless …
Nixon closed the gold window because US fiscal and trade deficits were soaring and France went to redeem dollars for Gold.
Treasury Sec John Connally famously said to a group of European Finance Ministers “Dollar is Our Currency But Your Problem”
Shortly thereafter, Nixon “temporarily” ended redemption of gold for dollar.
The results speak for themselves
Credit exploded, and a series of economic bubbles began, each with a bigger amplitude than the one that preceded it.
OK Mr. Clueless what the hell is your explanation?
By the way, I have posted the above lines at least three times previously.
I await the explanation of J.M. Keynes.
Please enlighten us.
AOC – economics major Boston University – favorite economist is Milton Keys.
No, AOC said her favorite economist is Alicia Keys
Posting those lines three times doesn’t automatically make that the truth. It’s still 3 times your opinion.
When 2 things happen at (almost) the same time then this doesn’t automatically mean that there is relationship between the two.
“Bretton Wood” meant that the USD was pegged to gold at $ 35. So, foreign central banks were able to buy gold for $ 35. No central bank did that because for a long time it was cheaper to buy gold at e.g. $ 20 or $ 30 in the free market.
But after say 1968/1969 that situation changed when gold rose above $ 35 and remained above $ 35. Now central banks had to spend $ 40 or 50 or $ 100 in the free markets but the FED still offerec gold for $ 35. No wonder central banks were lining up at the FED for that cheap gold.
And that in turn FORCED Nixon to ditch “Bretton Woods” in september 1971.
Did the ditching of Bretton Wood lead to building of more financial bubbles, like “Trade Deficits” ? No !!!!! Somewhere between 1965 and 1970 the US turned from a net oil exporter into net oil importer. In 1970/1971 US domestic oil production peaked. Do combine these 2 things and it’s clear that US had to import more and more oil in the 1970s and 1980s. (think: growing trade deficits).
If you want to deflate of the current bubbles in the US housing markets then one should remove all the female workers from the workforce.
More and more women entering the workforce meant that housing prices were pushed even higher.
include all the information above and you’ll have to draw the conclusion that the gold stanard would have collapsed the US economy in the 1970s.
Regarding John Conolly and the words: “it’s our currency and you rproblem”. This has nothing to do with “BrettonWoods”. This has to do with the “Triffin Dilemma”. Never heard of the “Triffin Dilemma” ???
https://mishtalk.com/economics/trump-fed-nominee-judy-shelton-says-yes-to-0-interest-rates-and-yes-to-gold
RUBBSH: Interest rates are set by a force called Mr. Market and the FED follows that Mr. Market. whether one “Mish” likes it or not.
Bernanke was asked why the FED continued to hold gold. He answered, “tradition.” It’s obviously more than just tradition.
A gold standard is a problem for governments, as it limits government over spending. The Spanish looted the America’s of mined golden treasures, to be able to over spend. Nixon “temporarily” (thus far permanently) closed the Gold window, in order to be able to continue to overspend.The official N.D. is now 1 tick from 36 trillion. It’s now like a runaway freight train. Runaway freight trains crash.
*A lot* of us voters want to see Judy Shelton on the FOMC.
According to Trump, deporting huge numbers of undocumented workers; imposing high tariffs on most, if not all, foreign goods; and increasing presidential discretion over fiscal and monetary policy will bring prosperity to American workers. In fact, every one of these measures will do the opposite. By restricting the supply of resources that U.S. businesses, workers, and households value and use, they will reduce the productive capacity of the U.S. economy.https://www.foreignaffairs.com/united-states/true-dangers-trump-presidency-economic-plans
You’re wrong. Trump is going to take us all to the promised land of milk and honey, it may take 40 years wondering in a climate hoax desert but we’ll get there.
Poppycock! The Golden Age is just around the corner!
Do you have any idea of the pedigree of the publisher/founders of the journal that you have linked (foreign affairs) to in your comment?
They ARE THE core elite of the Global Cabal that advocate for money printing as a way to fund never-ending wars to control resources in countries that they do not already control..
IE: the most evil Mutherfu@kering murderers on this planet.
Advocates include the Bush family, Cheney, Kristol, Obama, Biden, etc.
@Mish
I am searching the archives on Mishtalk and came across this post from April 2013. Very interesting read. Do you think you can reach out to “Bitcoin Jesus” again?
https://mishtalk.com/economics/mish-interview-with-bitcoin-jesus/
My only regret in life is that I didn’t buy bitcoin back in 2013. A $1000 investment in bitcoin would be worth $5.7 million dollars today.
Seemed dumb then, still does. Not in principle, but due to the cloud of scammers surrounding and permeating it.
The Sherman act, supported by farmers and silver miners, started the 1893 panic. Between Jan 1893 and June 1894 the US GDP plunged 37%. Dual currencies cannibalized each other. During the Gilded Age there was no Fed to protect the economy from from major recessions. If the gov cut debt to $30T/$25T trust in the US dollar will rise. The Fed can help the next administration to accelerate this process.
“During the Gilded Age there was no Fed to protect the economy from from major recessions.”
What are you smoking? The Fed *causes* the business cycle.
“In ancient times before a steady diet of whole grains there was nothing to protect people from getting diabetes.”.
sarc
Why does this yellow rock have any value whatsoever?
I’m don’t care much about gold but through history billions of people have highly valued it for jewelry and its also used in electronics. So until billions if people dont find it appealing, it will have value.
It is worth noting that a major reason gold is used in electronics is that it does not tarnish and therefore it does not exhibit much electrical and electronic contact resistance. Here I assume the reader has a very basic knowledge of electrical and electrinic terminology. Contact resistance is the resistance between the movable parts of a switch or relay when those parts touch each other to complete an interruptible electronic circuit. Here I am thinking of mechanical switches and electromechanical relays. The latter are treated in various places online, including at the following URL.
https://www.electronics-tutorials.ws/io/io_5.html
Although silver famously has a lower internal resistance (having the best electrical conductivity of all the elements), pure silver generally is not used in electronic (low voltage and low current) contacts because it does tarnish when exposed to oxygen (and especially sulfur-polluted air), and therefore increases the contact resistance of electrical and electronic contacts. Some electronic circuits are very sensitive to the contact resistance of switches and relays.
My apologies for not taking more time to edit this post.
When gold took off from $680 to $1,950 the jewelry industry was subjected to a systemic change. Either silver jewelry or gold/platinum with large diamonds. Warren Buffett closed his jewelry chainstore. The same systemic change might happen in the RE sector.
Are you trying to prove you are an idiot?
He convinced me.
No, it’s a serious question. It’s a freaking rock that for some reason society has valued for seemingly ever. I can’t eat it, I can’t put it in a car or an airplane and go somewhere. It has always seemed very arbitrary to me. So, enlighten me. What is the actual value of this yellow rock? Other than for ornamental jewelry and some electronics?
https://letmegooglethat.com/?q=why+is+gold+valuable
We have 92 natural elements … each has a price.
1. Sounds like you have never heard of edible gold leaf.
2. Can you eat a federal reserve note?
Paper money. No, it’s a serious question. It’s a piece of paper that for some reason society has valued for seemingly ever. I can’t eat it, I can’t put it in a car or an airplane and go somewhere. It has always seemed very arbitrary to me. So, enlighten me. What is the actual value of this paper with ink on it?
My point being that human society decided “thousands of years ago” that “this” (gold) was valuable, and began to use it as a store of wealth and a medium of exchange. The world is changing fast. And society just might “decide” that, no, this is stupid, we think this digital gold is better at that job” and,overnight, gold’s value will find a new level that reflects the supply and demand of it for jewelry and electronics, and nothing more. Not saying that this is going to happen soon, or at all, but, not at all out of the realm of possibility.
It was chosen as a store of wealth for very good reasons – that it does not deteriorate and cannot be counterfeited and its supply barely changes over time and it is perfectly fungible.
It should not be characterized simply as some petty traditional choice based on its prettiness or industrial usefulness. It is an element and there is no better substance or invention in the world for the purposes of secure trade and wealth preservation.
It’s my favorite color… shiny.
Value is neither a noun or an adjective. It is a verb. People value gold as money because of its physical features. Nothing else competes for that purpose. Gold does not “have” value. It is valued – for very good reasons.
In the world, nothing is perfect.
Any system is not perfect. There are pros and cons.
When the system is getting old and after using up the best part of that system,
only cons left. It will die.
Rinse and repeat.
Well, the Fed had better have a “Plan B” for when the whole global fiat ponzi goes haywire – which could be fairly soon.
And to have any credibility at all that “Plan B” would have to involve Gold in some way.
“Well, the Fed had better have a “Plan B” for when the whole global fiat ponzi goes haywire – which could be fairly soon.”
x1000
Its not a question of if but when the fiat ponzi falls apart.
Kitco recently interviewed Judy Shelton for anyone interested. Plan B will as you say have to involve Gold in some way.
Gold as the Solution: Judy Shelton’s Plan to Fix America’s Dollar Crisis
Some people think that Trump’s “white hats” soon will implement the Quantum Financial System” with a gold-backed digital currency.
Judy Shelton will bring much needed diversity to the Federal Reserve. Too bad they will marginalize her if she is appointed. Monopolies don’t give up power that easily.
Correct
True, but Shelton’s books will get some extra publicity and that will help to persuade others of the important differences between real and counterfeit money.
When nations collapse their bonds become worthless in apocalyptic decline, but their gold coins protect diversified investors. During the Dutch disease the USSR use gold to pay suppliers. If the Fed lower rates to accelerate debt payments, the long duration will rise. The US will not collapse in hyperinflation. SPY can protect investors. With a click of a mouse u can sell it when the Fed hikes, or if we enter a recession.
here is a list of sovereign debt defaults and crisis. I don’t recall gold being a key story in most of them.
https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises
I’d much rather see a bitcoin advocate than gold one and Trump has signaled that he is open to advancing crypto currency.
As I recall, there were many people here ridiculing El Salvador for their bitcoin investment. They have made $100 million profit since doing so and they now have their own official government bitcoin web page.
https://bitcoin.gob.sv/
Bitcoin has far outperformed gold and if Trump really does get behind it then it will go to the moon; next stop $170,000? Who’s laughing now? Who here boarded the bitcoin money train and who is sitting at the station counting their gold nugget peanuts?
Ah yes, here we go….
https://mishtalk.com/economics/el-salvadors-bonds-sell-for-40-cents-on-the-dollar-what-about-bitcoin-city/
And here was my comment back then…May 14, 2022
I applaud El Salvador for trying something different. At least they were trying to break the central bank cycle. Many here are constantly criticizing the Fed and when a country tries to do something different and break free, they get kicked while they are down. So sad and tragic for a “libertarian” site.
Of course, many here want gold to become a standard but as we can see from the price action this week on gold, it’s not that better than bitcoin.
Bitcoin is not money and will never be money. No nation will give up control of money to an algorithm.
I seriously doubt we ever go back to sound money but I applaud any step in that direction.
I would love to argue the point but I suspect I’ll be called stupid at some point because that’s what usually happens.
If Trump wants to drain the swamp and change the Fed, the easiest way is to create a parallel currency rather than fight with bankers. I think that’s what JFK tied to do before he got shot.
I will finish by just saying this, the free market will decide what is money and what is not, not you and not me; there’s $36 trillion dollar reasons for a new form of money and soon.
It sounds more like you are looking for a store of value rather than money.
In terms of money (medium of exchange) it doesn’t really matter whether there is 1 trillion or 36 trillion dollars.
But if you are looking for a longer term store of value for your wealth you definitely care that the supply is increasing.
Bitcoin, like Gold is much better suited to doing the latter (store value) and should not try to do the former.
“In terms of money (medium of exchange) it doesn’t really matter whether there is 1 trillion or 36 trillion dollars.”
Correct!
Thank You TT for getting it,
This is another way Greenspan went wrong.
If the Free Market decided what was money, we would still be on a gold standard!
People did not decide they preferred paper dollars to gold, governments forced it.
Here’s the deal, Democrats don’t want a free market, Republicans don’t want a free market, China (despite all of this BRIC silliness) does not want a free market.
And if we had an actual test, I am certain people would prefer something they can see and hold in their hand, instead of electronic digits controlled by an algorithm.
But you can believe what you want. Finally, I am OK with letting the free market decide.
We just had an election and the free market (people) decided that they rather have Trump/GOP over Harris/Dems. 75m people decided that, you can say they came out with “pitchforks and torches” proverbially to do that and they did.
When blacks were tired of being marginalized, they organized, marched on Washington and had laws passed/changed in the Civil Rights movement.
When Nixon took the U.S. off the gold standard, the free market could have taken out their “pitchforks and torches” and marched on Washington but they didn’t. Everyone seemed fine with it for some reason.
I would argue that more and more people are taking out their digital pitchforks and torches and moving to bitcoin and digital currencies. Can that change to something else like gold? Sure, it’s a free market and anything can happen at anytime but the free market is always there despite government intervention and manipulation. As you say, “sanctions dont work because new markets form.”
I read a post that TikTok and podcasts won Trump the election, guess what those Tiktokers and podcasters are all talking about, bitcoin not gold. But to be fair costco is selling gold like crazy but I suspect that’s the older folks since young people don’t have money to buy gold but they can buy a fraction of a bitcoin.
We’ll see where we are at the end of Trump’s presidency on gold vs bitcoin but the ultimate truth is that young people will decide that paradigm just as they did this past election.
Just a reminder: Ross Perot (Independent candidate in 1992) attempted to convince us that we should be responsible, but most voters chose someone else as president instead.
Younger folks (20-40 y/o) seem ok with “electronic digits”; many haven’t touched cash since they were early teens getting a Hamilton or Jackson from Grand-dad.
I’ll go with history – of which most folks are ignorant in the extreme. Gold always triumphs with silver a close second, playing a supporting role. All I know is I used to be able to buy a gallon of gas for three silver dimes. I can still do so today for the same 3 dimes. THAT is what a store of value is. That is real money. Intrinsic value (not declared by some stupid human being in a position of power); easily divisible; readily accepted by everyone; durable; and a store of value. Nothing else fills that role, despite mankind’s endless attempts since John Law and before.
You went from bitcoin is going to zero , to I don’t know where bitcoin is going. Every time you posted 3 negative articles on bitcoin in a month it has marked a bottom. Have you ever seriously considered that you might be wrong and bitcoin is the ideal digital replacement for gold. I am seriously interested in what it would take for you to recognize that bitcoin is now an embedded part of the financial system and is not going to zero. I would love to see a modern comparison of bitcoin and gold from you. Given that you have fought this at every opportunity and it has gone on to be more embedded in out system. I remember the day when the Motley Fool raised the white flag and admitted that bitcoin was here to stay. That was years ago now. The first time you said this will fail , i was 75% in agreement with you. Now i cannot see how Bitcoin gets ejected from the system , if you know how this happens please let me know. If you don’t know don’t be stubborn about that. a maximum cap on production differentiates bitcoin from fiat currency.
I gave up on Bitcoin to zero perhaps a decade ago. But I have since then, posted ways it “could” happen.
Those ways are still possible. Huge taxes, transaction bans, etc.
My position has not changed for years. It went from “Is it possible” to “How likely is it” It means a transaction ban or huge taxes that would crash Bitcoin. You are delusional if you think that cant happen. If the US treasury told banks and Bitcoin not to accept Bitcoin they wouldn’t, and that would be the end of it. You have your Bitcoin but it is nearly useless. Period! Bitcoin would be reduced to barter, instantly.
That may be unlikely, especially under Trump, but what if Democrats ever get in control?
My position on Bitcoin has not changed in one key way: It is not money, never will be money, but is an amazing vehicle for speculation. If you look closely, for a couple years has mostly tracked the Nasdaq with higher volatility.
People are under the illusion we will have a free market in money and the free market will dictate Bitcoin. If we had a free market in money, gold would still be it.
So given trump is in power you are saying bitcoin is unlikely to fail for another four years. So we will be at least 16 years deep into bitcoin not going to zero. I would argue that the longer it has been around the more likely it is to stay around. The chance of it going to Zero decreases the longer it is around. You are more likely to have been correct in that past than you are now if you base case is that its going to zero. Does it need to be money or does it need to be digital gold. I would argue that digital gold is enough for it to survive. and if it survives it will rise in comparison to fiat currencies as its inflation rates are much lower.
Also why the hell have Black Rock got on board if they don’t see long term potential?
the thing is, medium of exchange and store of value (asset) as a function of money are segregated in current monetary system. it seems like people cannot grasp the concept. the only thing that requires for something to be a medium of exchange is trust between buyer&seller, generally speaking. it does not matter what it exactly is, piece of metal, digital numbers on your screen, shells, you name it.
it just needs to be widely accepted accounting unit. all in all we just exchange or labour hours for goods and services.
system where medium of exchange and some physical/restricted supply asset part pegged to it has evolved.
any “problem” related to budget deficit, import/export imbalances etc, can be fixed without reattaching limited supply asset
You ought to read about the tulip mania in Holland. Fits your description to a “T”
Going back to the Gold Standard would be an incredibly idiotic decision.
A very simplistic Austrian school ideology which has proven very impractical. It would lead to massive crises and upheavals. But we know the so called libertarians dream of an impoverished fascist state.
Dear Andy
How many boom-bust cycles of increasing amplitude did we have from 1940 to 1971
How many did we have since?
So give us some evidence for your position.
To call an Austrian proposal “fascist” proves you are an economic idiot, and that is being polite.
The 19th century under the Gold Standard had many booms and busts too.
Agreed, and they certainly increased in amplitude all the way up to the 1929 crash. Booms and busts occur regardless of the monetary standard. If anything, a fiat currency helps prolong ‘booms’ by creating more and more ‘money’ to keep the system going.
Doug, please understand why:
Banks lent out more gold than the had, and for massive duration mismatches on top of it.
Yes that is true. Whenever you have an asset you can use it for collateral even if it is only a plough so people when they are feeling optimistic do so. The result is that credit and borrowing expand and contract according to the “animal spirits” or lack of and not the total of the assets.
They were shorter duration and not as severe as the ones we have had since monetary policy was centralized amongst 12 people.
Pray tell, what benefit has the 3rd Bank of the United States brought us?
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
Panic of 1785 – 4 years.
Panic of 1796 – 3 years.
1807 depression – 3 years.
1815 depression – 6 years.
DATA! DATA! DATA!
I must be totally wrong in saying that the Fed causes the business cycle.
LOGIC TEST
If the Fed causes business cycles then why were there severe business cycles BEFORE the Fed from 1790 – 1900?
If the Fed causes business cycles but the Fed only exists in the United States, why are there business cycles all over the world where the Fed doesn’t exist?
LOGICAL CONCLUSION
The Fed doesn’t cause business cycles, it influences them. More specifically, the Fed influences people to act greedily. No one forces anyone to take out loans when the Fed lowers interest rates to zero. Similarly, no one forces anyone NOT to take out loans when interest rates are very high. The speculation and greed or fear and loathing is all on people acting rationally or irrationally.
I bought my first home when mortgage rates were 7.5%, the fed influenced me in a negative way at that time but it didn’t make me do anything other than pay more for my loan. I made the decision to buy the house others made a decision not to buy one (much like where we are right now).
The Fed isn’t perfect but as the data from the Wikilink shows, economic cycles were far worse before the Fed, something everyone here seems to ignore despite the data and evidence.
You want to convince me, build a logical case, show your data then write up your conclusion. You “knowing” everything doesn’t hold water for me.
I rest my case.
. The business cycle is credit cycle of the private sector.
Since 1945 the US debt-to-GDP kept risng and rising. That’s the main reason why the “busts” became larger.
Quite simple. Here you’re comparing apples to oranges. Here you are wrogfully comparing the situation before and after “Bretton Woods”. The busts after 1971 became larger and larger because the total amount of debt contniued to grow ==> larger busts.
It’s the usual (neo-)classical & austrian school clap-trap. Government is all evil and the corporate sector is all good right ??
Only a HARDCORE (post-)keynesian is able to look beyond such a nonsense and it seems Mish is NOT such a keynesian.
Here Mish shows that he doesn’t understand what the REAL reason was for Nixon to abandon the gold standard in 1971.
Nixon abandoned the gold standard because it was doing EXACTLY what it was supposed to do in the face of reckless USG monetary and fiscal policy.
No, gold rising above $ 35 FORCED the US to abandon the gold standard.
“In other words, should monetary policy continue on its current off-the-rails path, and the purchasing power of the dollar decline significantly, it could result in a significant loss of US government gold.”
I will re-phrase this, and Mish: NO OFFENSE MEANT.
“THE FED IS WORKING DILIGENTLY TO keep monetary policy continuing on its current off-the-rails path: and their goal includes damaging the purchasing power of the US Dollar… and their other goals include 20% INFLATION EVERY 20 years which is now TO BE EASILY ACHIEVED!”
The denudation of our monetary golds stocks was due to the Pentagon’s “communist containment policy”. The Korean War, which began in June, 1950, initiated the chronic balance of payments deficits that persist to this time and which will probably continue as long as foreigners are willing to increase their net investments in this country.
The U.S. has had a net liquidity deficit in every year since 1950 (with the exception of 1957), Up to 1976 (when the private sector contributed its first trade deficit ) these deficits were entirely the consequence of excessive U.S. government unilateral transfers to foreigners (re: foreign policy – solely our far flung military bases and personnel).
During all this time the private sector was running a surplus in all accounts: merchandise, services and financial. The Vietnam Ten-year War administered the coup d’etat to our gold bullion standard. By 1968, in an effort to keep the dollar at the $35 par, we had exhausted nearly two thirds of our monetary gold stocks, or approximately 700 million ounces to about 260 million ounces.
Although the dollar ceased to be freely convertible in March 1968, institutional (central bank practices) and attitudinal lags were sufficient to offset, until late 1970, the excessive expansion in the supply of dollars. In August 1971, all convertibility was ended.
This further accelerated the decline in the exchange value of the dollar. All fluctuations in exchange rates prior to this time were the result of other currencies changing in value relative to the dollar. Changes in the exchange rates were negotiated by governments, usually through the offices of the International Monetary Fund.
Since 1970, the “western” world has functioned within a system of essentially free exchanges. Before 1973, exchange rates were in terms of a “fixed target”. Now the dollar is a “moving target”.
“Her proposal calls for a new issuance of Treasury zero-coupon securities—dubbed Treasury Trust Bonds—offering lower interest rates than conventional Treasuries (thus reducing current deficits), but with the distinguishing feature that they can be redeemed at maturity either at their face value in dollars or at a pre-specified equivalent in gold—at the buyer’s discretion.”
And The Fed and/or Government could, of course keep making the pre-specified equivalent smaller and smaller with every bond issue. As well as “weeellll, you know, because thiiingz are diiiiferent now, we can’t let you redeem at this point because,like national security and,like the syyyystem would collaaaaapse blah,blah…..
Gold convertibility is an once for 20 dollars. Now. This second, the next one, and any in the future.
Not “we could like, maybe, muck around arbitrarily printing up bonds and like, maybe 30 years from now, maybe, like unless some trashy wiggos can arbitrarily deem and find and hold and claim it’s “unconstitutional” since like “we” must, like, “saaaaave the syyyystem” in the meantime deem that you can’t after all. Unless “we” “deem” that you “need” to since you lobby and, like, you know you,like, inveeeested in, like Goldman and,like, blah, blah…
Again: Convertibility means every darned 20 gets you an ounce. Now. And as soon as it does not: Absolutely everyone involved with the entire government and banking racket, along with all their extended families and friends, ARE dangling from lampposts. Withing minutes of that failure first becoming apparent. No exceptions. No matter what,up to and including a literal end of the world. As not just “we”, but indeed anyone, knows it.
Gold convertibility is not about providing the trash with yet another racket for getting their hands on even more credit “at lower interest rates.” It is about CUTTING THEM OFF. Starving them out. Leaving them broke, and begging in the streets for every penny they want of The People’s hard earned funds. Exactly as is always fair and proper for those who are The People’s strict SERVANTS. Emphasis SERVANTS.
Why can’t people leave gold alone? When the currency is backed by gold, the government gets to control its price: When the Fed was created and finally got control of the banking system the Gold Price a/o November,1915 was $19.25/0z. By August 1971 when Nixon did gold investors the biggest favor in history, the price was $35.00 officially and within days rose to $40.50. or a CAGR of 1.31%. Since Nixon’s “blunder” the Gold price rose to Friday’s close of $2694.80, a CAGR of 20.02% or +6553.8%.
Over the period of 1915 to today, inflation has driven the cost of a $1 item to $31.22 or +$3021.80. Even with the 66 years of the Government’s meddling in the Gold market the price has beaten inflation by 216.8%. Leave the Gold market alone. If the government wants to set up an alternative currency using Gold, just simply make trading in it non-taxable
Meanwhile, the purchasing power of the dollar since the Fed was created has declined by 98%. Not much further to go to make it worthless. Not likely in the limited time left in my life by good chance my kids will see it. Dead certain my grandkids will. It is how all empires end, and the USA is on the backside of its empire. Actions have predictable consequences and the demise of the USA has been predictable for some time. It’s obvious to anyone with a grasp of history, the life of empires, what causes them to fail, and what the empire lifetime has historically proven to be. All that’s happening now is we are riding on hot air…and lots of it.
As an alternative to the gold standard we could have a constitutional amendment requiring a balanced budget. The COS movement is advocating this and is endeavoring state by state to request a convention. I believe Switzerland has this. Their currency is very strong.
HMK: this is impossible now. THEY ARE WIRED to fun deficits and they are getting away with it!
A balanced budget amendment must include a provision limiting taxes and debt.
re: “The fundamental problem is lack of an enforcement mechanism that a gold standard provided.”
The Gold Cover, Joseph C. Ramage, Monthly Review of the Federal Reserve Bank of Richmond, July 1968, pages 8 – 10)
The Gold Standard, the last legal link to gold (prior to the “gold cover” bill of March 19, 1968), was fictional, the economic tie tenuous, and its protection was a myth.
President Roosevelt and his Treasury Secretary, Morgenthau, exercising the crisis powers delegated to the executive branch by Congress, took the U.S. off the gold standard in April 1933 by making the dollar inconvertible into gold at a fixed price. And to make matters worse they periodically kept raising the price of gold from $20.67 per ounce to a final price in Dec. 1933 of $35.
This had the effect of depreciating the exchange value of the dollar. All of this was done by a creditor nation operating with a chronic surplus in its balance of payments.
Alan Greenspan had an excellent article “Can the U.S. Return to the Gold Standard” in the WSJ on 9/1/1981.
Spencer, your link is broken. I did find the Greenspan article.
https://newworldeconomics.com/alan-greenspan-wsj-1981-can-the-u-s-return-to-a-gold-standard/
This is where Greenspan goes wrong “The immediate problem of restoring a GOLD STANDARD is fixing a gold price that is consistent with market forces. Obviously if the offering price by the Treasury is too low, or subsequently proves to be too low, heavy demand at the offering price could quickly deplete the total U.S. government stock of gold, as well as any gold borrowed to thwart the assault. At that point, with no additional gold available, the U.S. would be off the GOLD STANDARD and likely to remain off for decades.”
You do not fix the price of gold. You need to define a dollar as X ounces of gold.
Nixon ended redeemability because there were too damn many dollars relative to gold.
The reason it’s difficult to go back is that it will dramatically change the ability of banks to print $ out of thin air. As long as we continue to do so, it is impossible to fix the price of gold. Greenspan is correct about that part.
But the idea we can make a “dollar as good as gold” as Greenspan suggests, is of course idiotic. It cannot be done unless and until a dollar is defined as X ounces of gold.
So, Greenspan F’d up his explanation.
We can’t be the world’s policeman and still expect convertibility. It’s too big a drain on the dollar.
That is correct!
It’s good to see the roster of professionals coming together that will get blamed by regime media for the upcoming overdue collapse of fiat.
The fed has needed a breath of fresh air for years and a new member who is not from the “good ole boy network.”
She would be a positive contributor to this group of bureaucrats as she has a mind of her own and isn’t afraid to speak it.
Hope she makes it but not holding my breath.
For your stated reasons, it takes a LOT OF DEEP HITS on the PIPE to achieve belief in the system. I do not smoke dope, so I am clear-eyed and carry no such illusions.
More good news
a break from the hum drum
Did you know they are taking over the world and that they are awesome!
https://x.com/Paracelsus1092/status/1855218017430356264