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100 percent gold backed system

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  • Tue, Dec 16, 2008 - 09:35pm

    #1
    Brainless

    Brainless

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    100 percent gold backed system

I am reading about Austrian economics and found this piece i find intruiging. It might be a method to calculate what then price of gold should be when a 100 percent gold system is implemented.

Could someone more knowledgable subsitute the current numbers in the following quote?

The quote comes from http://mises.org/rothbard/genuine.asp 

How might the United States go over to a 100 percent gold system? At the end of December 1981, total demand liabilities issued by the entire commercial banking system (that is, M-1), equaled $445 billion (including Federal Reserve notes and demand, or rather checkable, deposits). To go over immediately to 100 percent gold, the dollar would be newly defined at 1/1/696 gold ounce. Total gold stock at the Federal Reserve would then be valued at $445 billion, and the gold could be transferred to the individual holders of Federal Reserve notes as well as to the banks, the banks’ assets now equaling and balancing their total demand deposits outstanding. They would then be automatically on a 100 percent gold system.

From the standpoint of the free market, there is admittedly a problem with this transition to 100 percent gold. For the Federal Reserve’s gold would be transferred to the commercial banks up to the value of their demand deposits by the Federal Reserve’s granting a free gift of capital to the banks by that amount. Thus, overall, commercial banks, at the end of December 1981, had demand deposits of $317 billion, offset by reserves of $47 billion. A return to gold at $1,696 an ounce would have meant that gold transferred to the banks in exchange for their reserve at the Federal Reserve would also have increased their reserves from $47 to $317 billion, via a writing up of bank capital by $270 billion. The criticism would be that the banks scarcely deserve such a free gift, deserving instead to take their chances like all other firms on the free market. The rebuttal argument, however, would stress that, if a 100 percent gold requirement were now imposed on the banks, their free gift would do no more than insure the banking system against a potential holocaust of deflation, contraction, and bankruptcies.

 

  • Tue, Dec 16, 2008 - 10:15pm

    #2

    xpatUSA

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    Re: 100 percent gold backed system

[quote=Brainless]

I am reading about Austrian economics and found this piece i find intruiging. It might be a method to calculate what then price of gold should be when a 100 percent gold system is implemented.

Could someone more knowledgable subsitute the current numbers in the following quote?

[/quote]

 Can’t help with the numbers, but Professor Antal E Fekete is a proponent of separate gold and fiat currencies in the expectation that fiat money would perish pretty quick in such an environment, see here and read all his stuff. ’tis truly amazing, but heavy (as befits gold) going. He says that linking gold directly with USD will simply not work.

In another post, I mentioned a step in the Prof’s direction: the use of gold itself as currency, Wiki DGC (digital gold currency). The Prof extends the simple use of coin to the creation of 91-day bills that  are, literally, "as good as gold".

 Ted.

  • Wed, Dec 17, 2008 - 03:51am

    #3
    radiance

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    Re: 100 percent gold backed system

Professor Antal E Fekete takeon things makes sense and is real scary.

Thanks for the link Ted

Ron Fink

  • Wed, Dec 17, 2008 - 12:59pm

    #4

    cat233

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    Re: 100 percent gold backed system

Brainless,
If you are interested in the Austrian School of economics, you can try these sites.  The first has a forum and the second is a blog. Ludwig von Mises Institute, http://mises.org/ and The Austrian Economists, http://austrianeconomists.typepad.com/
Thinking there is someone there more than willing to answer your question. A good read is The Trillion Dollar Melt Down, by Charles Milton.  He will points out  among other things most economist don’t have a clue what they are talking about (What a surprise).  Please let me know when you find an economist who really knows what is going on, I am sticking with Chris and the CC in the meantime.
Would love to know the answer to your question about gold if you ever find one.
Cat
  • Wed, Dec 17, 2008 - 01:47pm

    #5

    tom.

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    Re: 100 percent gold backed system

To get deep into these theories in my opinion is counterproductive to your task at hand .. Mises (Rothbard) and Fekete were at odds on their views (ARTICLE) on calculating gold values. It will have you going back and forth trying to figure things out, and reminds me of an old poem ..

The centipede was happy quite
Until the toad, in fun,
Said, pray, which leg moves after which?
This raised her doubts to such a pitch
She fell distracted in the ditch,
Not knowing how to run.

My point is, buy as much physical gold as you can possibly afford, (Krugerrands seem the easiest to acquire right now) if you can’t afford any .. buy silver.

  • Wed, Dec 17, 2008 - 02:05pm

    #6

    tom.

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    FEKETE vs MISES

On the other hand, if you would like to read some Fekete’s opinions on gold values, try

Where Mises went wrong

Where Friedman went wrong

If you really want to curl up for a couple weeks, I uploaded all Fekete’s articles a few days ago. You can make copies from my files.

  • Wed, Dec 17, 2008 - 02:20pm

    #7
    Brainless

    Brainless

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    Re: 100 percent gold backed system

I have read Feteke’s articles and now am reading on mises.org.

In the mean time every single euro i have left is in gold. I buy in Thailand so physical gold is very easy, just walk to the shop on the corner and buy it.Smile 

The reason i asked is to have an idea of what is going to happen after the collapse of the dollar. A dollar that is worth 1/10000 oz or a dollar worth 1/1000 oz is quit a big difference. You can ask also will it even matter? But having an idea of how the number will be can help in judging if the reserves of the bank at this moment will be sufficient to keep a strangehold, or if they are going to loose it.

 

  • Wed, Dec 17, 2008 - 03:56pm

    #8

    xpatUSA

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    Re: 100 percent gold backed system

[quote=Tom Loftus]

To get deep into these theories in my opinion is counterproductive to your task at hand .. Mises (Rothbard) and Fekete were at odds on their views (ARTICLE) on calculating gold values.

[/quote]

Thanks, Tom. A fine article which hurt my brain but appeared to make good sense.  The fractional reserve system, as opposed to 100% gold, made sense too.  However, I did get stuck when "bank notes" appeared.

 I can see that a bill of exchange would be directly linked to gold, irrespective of the fraction of the reserve; and did I get it right that the fraction of gold reserve need not be mandated by any law or regulation?

 Reason I ask is that I’m having difficulty imagining the value of a banknote vs. goods and services. Is our dollar "bill" the equivalent of a banknote i.e. are banknotes "fiat"?

Item of trivia: Paper money in England (where I’m from) is called "notes" as opposed to "bills" here in the USA.

 Cheers all,

 Ted

 

  • Thu, Dec 18, 2008 - 02:51am

    #9

    tom.

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    Re: 100 percent gold backed system

OK Ted, we have two adversaries, both of which are for a gold backed economy, fighting among each other, each one determined to prove the absolute purity of their doctrine. Ten minutes into either ideology I am already lost in the language of financial science & unfamiliar acronyms … then along come what I call the groupies for Fekete and Rothbard who try to simplify things for the not so scientific (me). Some of their links are bad now, so I have to try to find where they are …

I lean toward Fekete, just because he seems to think more logarithmic than linear, such as his acceptance of the "fullerton effect" which he describes in "Where Mises Went Wrong".

Long story short.. I feel like I’m wasting my time quibbling over which gold backed economy I am for or against. The central banks hate them both .. that’s good enough for me.

 

 

"The limits of my language are the limits of my mind. All I know is what I have words for."

— Ludwig Wittgenstein

  • Thu, Dec 18, 2008 - 03:38am

    #10
    Golden Age

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    Re: 100 percent gold backed system

GOLD NEWS

ASSET OF LAST RESORT

Swiss gold bullion in huge demand as trust in banks dives

Swiss
gold refiners are having great difficulty in keeping up with demand for
gold bullion leading to long delivery times as investors wary of other
stores of wealth.


Author: Arnd Wiegmann and Lisa Jucca
Posted: 
Wednesday
,
17 Dec 2008

MENDRISIO/ZURICH, Switzerland (Reuters) – 

Sealed
off by grey concrete walls and barbed wire, the workmen in protective
glasses and steel-toed boots at this smelter cannot work fast enough to
meet demand from the nervous rich for gold.

This refinery near Lake Lugano in the Alps is running day and night
as people worried about recession rush to switch their assets into
something that may hold its value.

"I have been in the gold business for 30 years and I have never
experienced anything like this," said Bernhard Schnellmann, director
for precious metal services at the refiner Argor-Heraeus, one of the
world’s three largest.

"Production has dramatically increased since the middle of the year.
We cannot cope with demand," said Schnellman, wearing a gold watch on
his wrist.

Spot gold hit a record $1,030.80 an ounce on March 17. It fell below
$700 in late October, partly because investors sold their holdings to
cover losses in equity and bond markets hit by the credit crisis, and
is now around $830 an ounce.

link to the rest of the article…..

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=75294&sn=Detail

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