From fiat to gold

I have a couple questions for those who have some knowledge in this subject, please refrain from turning this into a political debate, I am only interested in the facts.

1. Currently we have fiat currency with paper bills, if we return to a gold standard what will our currency look like? Will it be gold coins or still paper just backed by gold?

2. What would happen either immediately or in the first year after full implementation? Will prices drop suddenly, will the purchasing power skyrocket? What will be the immediate effects?

3. Per se I bought something for $20 using fiat currency just before we switch to gold. What will the cost of that product be immediately after implementation of gold currency in comparison to current prices?

(Current price setting meaning what will the gold cost of that product be in comparison to current money (1 gold backed dollar bill = 20 fiat dollar bills, for example))

4. How would the markets react to the passing of legislation implementing gold as our currency?

5. Will our purchasing power rise or fall?

6. What will be the effects on the economy in the first 5 years after implementation? GDP growth, debt value, trade balance, job growth.

7. What are the chances of this happening in the next 5 years?

If there are any questions you do not understand, they do not make sense, or you do not know the answer to, just skip them.

Thank you in advance.

Ideally, paper money would be backed, and thus exchangeable for the stated amount of gold/silver.

When silver is used as well in currency, there's basically a 16:1 ratio, or sixteen dollars in silver equals one dollar in gold. Right now we don't have any silver in currency, so that ration is not kicking in. But just about every time that metals have been in currency, there's that 16:1 ratio.

The dollar amount for gold is arbitrarily set. I have $20 gold pieces, $10 gold pieces, $5 gold pieces, and even $.50 gold pieces - and man, they're small!

So if you set the dollar/gold at a price of $20 per ounce of gold, then twenty dollars will buy or exchange for one dollar. The beauty of using silver for coin is it's much easier to make change and a little goes a long way.

Copper is another medium of exchange that has real value, and is handy for coinage.

I can tell you this. This thing we call a dollar is toilet paper. Inflation is starting to gather some serious steam, and the dollar is devaluing so fast that the price of gold is rapidly rising.

Keep in mind. Gold is gold and doesn't really change in value. Only the increasing uselessness of our dollars keeps driving the price up. Gold stays the same, money becomes more worthless - thus it takes more to buy the same gold.

You get a 10% salary raise? Right now the increasing worthlessness of the dollar means you're actually losing money although your salary dollar number went up.

This nation right now exists from week to week, and one day soon, it's all going to crash down around us.

Because our money isn't worth a damn.

Originally posted by Misoir
I have a couple questions for those who have some knowledge in this subject, please refrain from turning this into a political debate, I am only interested in the facts.

1. Currently we have fiat currency with paper bills, if we return to a gold standard what will our currency look like? Will it be gold coins or still paper just backed by gold?

2. What would happen either immediately or in the first year after full implementation? Will prices drop suddenly, will the purchasing power skyrocket? What will be the immediate effects?

3. Per se I bought something for $20 using fiat currency just before we switch to gold. What will the cost of that product be immediately after implementation of gold currency in comparison to current prices?

(Current price setting meaning what will the gold cost of that product be in comparison to current money (1 gold backed dollar bill = 20 fiat dollar bills, for example))

4. How would the markets react to the passing of legislation implementing gold as our currency?

5. Will our purchasing power rise or fall?

6. What will be the effects on the economy in the first 5 years after implementation? GDP growth, debt value, trade balance, job growth.

7. What are the chances of this happening in the next 5 years?

If there are any questions you do not understand, they do not make sense, or you do not know the answer to, just skip them.

Thank you in advance.

First thing I'd like to point out is that fiat is fine if it's hard-marked to a summation figure of production & real depreciation using real & productionable assets as a base. (which is not how the Fed has been doing it)

1. There's no point to backing fiat currency with metals. The point of fiat is to tie trade to real value and production in an economy. If you are going to use gold, then it will be coins - and they won't all be gold. Other metals would be used for small transactions.
2. What will happen is the economy will seize up for a period of 3-7 years. Prices are a relational concept not necessarily related to value or purchasing power. The same standard applies to gold coins as fiat money. Increase tradable supply of gold and prices will decrease, or decrease the tradable supply and prices will increase. Purchasing power in the end is related to production and real assets - gold doesn't change that.
3. I don't know, what units are you going to call your coins? Drakmas? Dubloons? Relationally speaking, the price would increase due to a generally seizing of market conditions during such a transition.
4. Which markets? Totally depends which markets you are talking about. For one, it wouldn't read in dollars any more. Secondly there would be general unease, and no money ready for lending. What you would have is a serious lack of liquidity during the transition period.
5. Purchasing power would stay the same in the long term or decrease slightly due to reduced production caused by economic turmoil. In the short term, it would be lessened due to this economic friction.
6. GDP would fall because of the transitional friction. Debt value would depend upon whether a set value of dollars to (whatever new gold coin) would be honored and beyond that would be affected the same as purchasing power - because that is what debt is. International trade balance would be impossible to predict, but the amount trade occurring would decrease over that 5 year period as an aggregate. That would be matched by job decline. Though longer term, those jobs would return in some fashion as the market adjusts.
7. ZERO

Good questions and ones that TPTB may still be debating. I doubt that we will have gold coins in circulation as they are too bulky. Rather we will likely see a hybrid fiat/gold standard currency that is "nominally" backed by gold but not redeemable for specie or bullion per se (even tho there will be gold coins in limited circulation; such as gold eagles). Think of the "gold standard" feature as being like the reserve requirement for banks whereby they are required to keep so much cash on hand and then loan out the rest. There can never be a run on the gold which could not be satisfied if everyone wanted there gold but the ratio of gold to currency will be fixed. IF this has been planned since the first release of the gold eagles in 1986 then we would see possibly a 100:1 dial back in the currency (not 20:1) for the nominally gold backed unit. I doubt that gold can go back to $500/oz under some deflation scenario to facilitate a 10:1 switch so it will have to go to 5000/oz but there are reported plans to call in the gold at 2000 and revalue it (but FDR only upped it in 1933 by 69% not 250%)....so they would have to have a two tier gold market: commoditized gold and monetized gold (which is the one that would go to $5000 but you couldnt sell it for that - just $2000). The difference represents a gift of $3000/oz to gold pledged to the currency or 5/2 which in turn could be considered a 2/5 defacto write off in the govt debt on this restructuring that would be part and parcel of a new "gold-backed" currency.

As we all should know there is only between 1-2% of paper money (actually cotton/linen) currency in circulation...the rest is digital on bank computers. I believe that a new US dollar is the first step in the machinations towards a single world currency. Ultimately the final product will probably be Carbon Credits in a cashless society. Commerce will be conducted electronically and everyone will be required to have a chip (initially on a card and later an implant - yes MOTB). By eliminating cash (under the guise of crushing terrorist financing, counterfeiting, drug trafficing and the underground economy (including other criminal activity from garage sales to contraband sales) TPTB will be able to control the populace. And concomitant with the Carbon Credits (CCs) will be the carbon tax structure which will be set up to allow the government access to your bank (there will only be one bank....all others mere "branches") account to collect their "carbon tax" and shut down your ability to buy or sale if deemed an enemy of the state (ie, "dometic terrorist"). Somewhere between the initial change in our currency (nominally gold backed) there will be regional trade currencies (ie NAU like we have with the EU) which will eventually replace the currencies of the US, Canada and Mexico. Then we will go to a world currency unit (combing the regional units as world government is introduced) which will be converted to energy backed and digitalized in its final form. My 2 cents worth (in old money)

Technically, things are only worth what people are willing to pay.

It does not matter if TPTB or anyone else for that matter says something is 100 dollars, if people refuse to pay that then it is not worth 100 dollars, it then becomes what the people are willing to pay as the value. Just imagine if we currently operated that way, we could bring prices down by ourselves and taking control of certain aspects of our economy.

reply to post by Misoir

1. Currently we have fiat currency with paper bills, if we return to a gold standard what will our currency look like? Will it be gold coins or still paper just backed by gold? 2. What would happen either immediately or in the first year after full implementation? Will prices drop suddenly, will the purchasing power skyrocket? What will be the immediate effects?

ONE

A return to a "gold standard" is already underway, since gold is already a component of SDR's.

Another indication of gold figuring prominently in a future global medium of exchange is the fact that central banks around the globe have been net buyers of gold (especially nations like India and China).

SO, things may not "look" that much different, we would likely still use paper bills, and even more importantly, electronic entries, but with a twist, there would be some measure of "redemption" value, in terms of gold.

If this was the case, then disincentives could be built right in that encourage the average person to keep their paper, even though they could technically redeem for metal.

This would be especially important for the big corporations and mega wealthy, who could perhaps take their huge wealth and abuse it by making demand of metal that undermined the system. That potential power to upset the applecart must be taken into account. The last thing they would want is some vulture like Soros ready to flush it all down the toilet, as he walked away literally with the gold.

If this was the case, actual gold coins would command a "premium" in keeping with the disincentive mechanism chosen. In other words, if it "cost" a person "x" to redeem for metal, that "cost" translates to immediate "premium", nicely benefiting those who already hold gold.

The "spot" price of gold would be under considerable pressure (if not "control") if the system was implemented globally, and at least the major central banks would have to agree to cooperate, in the face of any concerted effort to derail the plan by powerful interests. Of course, no one (that we know of) can possibly compete with the combined wealth of the world's central banks, working together.


TWO

The immediate effects of any major transition, as already pointed out are likely to be ugly. However, the negative effects could be mitigated substantially by proper planning.

As far as "real" price action, of things like fuel, and food, theoretically, there should be NO substantial change, as prices for anything are based on supply and demand fundamentals (which wouldn't change). The problem would come in if suppliers were able to refuse acceptance of the new exchange medium, or if they had good reason to do so.

Which should remind some of the older folks on ATS about price control, and rent control. These things don't really work well, since those who produce, or have goods to offer, will not want to offer at unreasonably "low" prices. Even if "forced" by government fiat to supply at a determined price, the supply will ultimately fall, as existing inventories run out, and further incentive to produce fails.

The above scenario would likely lead to "real" price increases (even if "official" prices were controlled), since supply would have fallen. Perhaps that would be something to watch out for months or a year down the line.

Of course, in any scenario, we would want to determine what the real goal of such massive change was to begin with. While it's obvious that something needs to change, as the USD must eventually be replaced by something else, will TPTB get a lot of mileage out of the chaos during transition? Is that part of "the plan"?

The thing is, just like "bank holidays", for the thing to work best, they almost would need to "surprise" the sheeple, else they could all make arrangements that might tend to slow the process down. In other words, if you "knew" that your USD would be worth 10 cents on the dollar (so-to-speak), what would you do NOW? Well, EVERYONE would be doing it, which is why surprise, even though chaotic by nature, may be required.

I wish I could believe that the PTB are mostly benign, but when your slogan is "order out of chaos", all bets are off. I personally don't see how chaos can be completely avoided, since QEI and II are already versions of "gentler" transition, and they can't keep that going forever.

JR

reply to post by Skewed

Yes, but....they can set the value of money but if it isnt accurate then there will be a two tier market to reflect reality. But if say we have $5000 gold and they do a 100:1 currency exchange (where a gold eagle would be worth $50 and usable as legal tender) then the cost of wages, good and services would correspondingly readjust lower as well. That would be like going back to the early 1970s (altho gold was illegal to own by us citizens until 1974...gold was officially at $35 in 1971 but was trading in the $50-60 range in the black market overseas). If such a change is too much of a shock (say bye-bye to that 100K salary, 400K house, 1MM net worth) vonsider that it could be worse....we could go back to 1913 prices (general price level not the fixed gold price per se) - Pre-FRB.

reply to post by Misoir

4. How would the markets react to the passing of legislation implementing gold as our currency? 5. Will our purchasing power rise or fall? 6. What will be the effects on the economy in the first 5 years after implementation? GDP growth, debt value, trade balance, job growth.

Legislation is quite likely going to come "after the fact", IMO. As counter-intuitive, and perhaps silly as that may sound to most people, this thing has "emergency" written all over it.

We may suffer a real Wiemar event, before any "legal" changes, and at that point, everyone will demand "change", whatever it happens to be. No doubt, legislation will already be prepared, mysteriously, ready to implement the desired plan all along.

"Purchasing power", in the US, assuming a transition to a replacement currency has occurred, must fall considerably, since the assumption is that the US would no longer own the reserve currency of the world. The Us would finally have to join the rest of the world, and since they have enjoyed tremendous privilege for so long, the shift will be felt the most by Americans.

Five years out, post dollar hegemony, the US will either continue to fall (if the internal forces unleashed are too much to get under appreciable control), OR, their fortunes could be on the way to improving, as the old trade imbalances disappear, creating new incentives for internal production once again.

The "real" question that we should be asking is "Can US sovereignty survive a massive currency transition, that almost necessitates a new global order?"

I suppose conspiracy theorists should have some fun with that one.

JR

S & F by the way, great job Misoir

reply to post by JR MacBeth

I used to think that a currency exchange would necessarily require chaos first to make people demand a solution but anymore with the apathy of the american people and the "audacity: of (change not hope)" of the administration that I think they could and might just issue it by decree along with something from the IMF at the same time regarding debt restructuring. Bretton Woods and the Plaza Accord squared.

Originally posted by CosmicCitizen
reply to post by JR MacBeth

 

I used to think that a currency exchange would necessarily require chaos first to make people demand a solution but anymore with the apathy of the american people and the "audacity: of (change not hope)" of the administration that I think they could and might just issue it by decree along with something from the IMF at the same time regarding debt restructuring. Bretton Woods and the Plaza Accord squared.

I actually hope you are right Cosmic. I'd love to think we could get through this without too much pain. But the people running the world seem to get mileage out of chaos at times, and they seem to be able to use it to get what they want.

As far as the arrogance of those in power, and the apathy of the populace, well yeah, I'd have to agree, it's almost shocking at times to consider.

I suppose they could still "surprise" everyone, and manage to avoid major chaos, and as I mentioned before, I do think it's possible, with proper planning, but is that what they really want to do? Or, would they prefer to let things get a bit crazy (and no doubt make fortunes in the process, taking advantage of their advance knowledge)?

I'm not sure what the future will bring, but in any transition, we all should have some good old-fashioned prudent reserves of the basics, food, ammo, and some precious metals. When things settle back down, perhaps we can get back to normal, find those awesome companies to invest in again, with bright futures, etc. But right now, I think the conservative thing to do is "be prepared", for just about anything.

JR

reply to post by JR MacBeth

JR,
Subconsciously, I, too, would like to go thru to the other side (inevitable) with the least amount of pain. Perhaps it is wishful thinking as TPTB seem to enjoy Chaos to be able to have full authority to do ''what they will'' under the guise of establishing Order. Btw, isnt that the satanic motto? "do what thy will." I am with you and prefer the Boy Scout motto, "Be Prepared" or in this case "Hope for the best and prepare for the worst."
CC

reply to post by FarArcher

When silver is used as well in currency, there's basically a 16:1 ratio, or sixteen dollars in silver equals one dollar in gold. Right now we don't have any silver in currency, so that ration is not kicking in. But just about every time that metals have been in currency, there's that 16:1 ratio.

I don't think silver can ever really be used as currency again, it's just too valuable, too rare, with it being rarer than gold (regarding above-ground supplies).

Just for fun, taking the old traditional ratio of 16:1, as you point out, and translating that into a price today, based on gold, we would get $90/oz. silver. And yet, we're at 40:1 at the moment.

Still some nice upside for silver I think!

JR

reply to post by Misoir


This is slightly off topic but I thought everyone should read about Ft Knox and it's LACK of gold.

The Great American Disaster: How Much Gold Remains In Fort Knox?

In a word most of the US gold, confiscated from US citizens by FDR, is gone. WORSE no one has EVER done an outside audit of the amount of gold in Ft. Knox!

reply to post by Misoir


1. Most of the currency these days is digital. While the CIA still controls the drug trade cash is going to be needed for the black market. Legalise drugs and a cashless society gains more traction.

2. The transaction will happen over one specific day for all the digital currency, perhaps a week or two for most of the paper cash. Any price adjustments will be based on the exchange rate between the new and old value. The first month will be the most confusing, after 3 months people will be fine with it.

3. Depends on the exchange rate, this is based on how much money is in the system now and how much gold is there to back the new stuff.

4. Confidence will start to build again as long as the unregulated anarchy is cut out.

5. Should remain equal, but it is a complex procedure so likely to be some winners and losers as some try to capitalise on the confusion.

6. War and corporate policy will have more of an impact here unless there is major reform and regulation of the banking and stock markets as well. Stopping the decent into the debt black hole will improve international relations.

7. If civil war breaks out, very likely but then the implementation will take a lot longer and be more messy as things go back to the dark ages. There is a high chance some type of reform will take place in the next 5 years as current policy is unsustainable. The outline by pirhanna it what I consider most likely:

hard-marked to a summation figure of production & real depreciation using real & productionable assets as a base.

This is because it is more inclusive of what the economy actually is and we have the tools now to perform this. Getting it setup free of corruption, loopholes and kick backs is the hard part.

reply to post by Misoir


I am not an economist but allow me to offer my opinion on this topic.

I do not know that it is possible to switch back to a Gold Standard without a collapse of the USD. The reason being, we (The United State of America) do not own enough Gold and Silver to cover the amount of dollars that have been issued. I'm not too sure the United States really owns ANY gold. Fort Knox? Isn't that one of Federal Reserves vaults now?. How can we take dollars out of circulation without someone taking a loss? If America was out of debt this could be done, but we are not.

In the long run, returning to a Gold Standard would be a good thing. High levels of Inflation would become extremely rare and hyperinflation would be non existant. The Fed would no longer be needed, as intented by the US Constitution. Long term price stability is another benifit. Runaway deficits and spending by the government can no longer be inflated.

Inflation/deflation only really occurs when the supply of Gold/Silver is increased or decreased. Like the 1849 CA Gold Rush for example caused inflation.

If we switched to a Gold Standard now we would likely see a market collapse. It would correct after time as the extreme price volatility became stable. Once stability is attained it will remain that way for a long long time.

Think about it... 100 years ago 1 ounce of gold would allow you to purchase a really nice bicycle. Today, 1 ounce of gold ($1450) will allow you to purchase a really nice bicycle.

The Federal Reserve is a cancer upon the US. This country is destined to implode until we rightfully seize control of the power to print our own money.

Originally posted by Misoir
I have a couple questions for those who have some knowledge in this subject, please refrain from turning this into a political debate, I am only interested in the facts.

1. Currently we have fiat currency with paper bills, if we return to a gold standard what will our currency look like? Will it be gold coins or still paper just backed by gold?

there is not enough easily exchangeable assets in the form of any precious metals to back
a American/USA currency...



see:

.
What is the total worth of all assets on Earth? - Yahoo! Answers
[Mar 7, 2008] As a guess, the total worth of all assets in the United States is rough 110 trillion,
and that of the entire world roughly 1 quadrillion dollars. ~ by Scythian... ( 4 comments )
answers.yahoo.com/question/index?qid=20071029233836AAnbTnr - Cached.

presently the 12 or so financial entities which the Federal Reserve so lavishly defends
as the Primary Dealers, Too-Big-To-Fail, NGOs (like Goldman Sachs that 'runs' the Treasury)
has Derivatives Positions, CDOs/MBS/and other exotic 'bets' that borders on the surrealistic
valuation of over one-half a Quadrillion dollars already....

Or basically, these US firms have issued Paper that approaches the total wealth
of the whole Global Economic Community... so the immediate situation of issuing a PM backed
monetary unit would see this small handful of monied giants corner the global wealth into
their own hands and we would still be in the same situation we are in now.

the only realistic way to rectify the dilemma is to Erase the derivatives from the record,

in the USA only the Federal Govt may issue paper money/script/moola
the States individually can coin monies
but neither course would be able to handle the $666 Trillion that is presently outstanding---
and annually adding hundreds of Billions of newly issued Derivatives, ( most of which
have no assets backing them, but generate fees & commissions for the
creator of the derivative.)