Trump proposes returning to the gold standard.

originally posted by: nwtrucker
As one poster stated an 'asset based' system would include gold reserves without being restricted only to gold. It could already be, unofficially, in place seeing the USD stays fairly close to other currencies despite the debt.

I don't think you understand how much USD is out there. The US could confiscate 100% of the worlds supply of platinum, gold, silver, and all precious gems and it wouldn't be enough assets. The only thing for which there is enough assets is oil, and even then it would require total US ownership, and we would have to set aside using it so that it could be our underlying method of exchange (thereby making it valueless, as oil value is derived from practical applications of it). And that's just for the USD, if any other country tried to get anything, it would directly be money out of our pockets.

It's literally impossible and every day quality of life goes up in the US it becomes more impossible.

originally posted by: Aazadan

originally posted by: Krazysh0t
a reply to: nwtrucker

People need to regain their trust in systems. We let our paranoia take the better of us more often than not these days. Things aren't perfect, but many seem to use that as an excuse to say everything is #ed and want to tear everything down.

I've got the opposite opinion, look at the crypto market. There is a whole lot of blind faith in these systems, and rampant speculation.

It's so bad that many companies have started to fund themselves using what are called ICO's, Initial Coin Offerings which are a cryptocurrency generated by that company that can later be exchanged for that companies services, essentially they're gift cards. Because of the blind faith people have put in crypto's (which it's in no way deserving up) a lot of investors have put a lot of money into these coins/gift cards expecting returns rather than into actual investment vehicles.

To give a physical analogy of this. Imagine if the funding of disneyland was paid for in the issuance of disney dollars at a 1:1 ratio. Then when they went live, disney adjusted the converstion of disney dollars such that it was 100:1. That is what is going on right now with crypto, yet people are still blindly buying in because they have too much trust in the system.

Blind faith? Or sheer desperation based on complete loss of trust in the alternative?

OK. Did you read the full Forbes article? If so then where do they get the idea there is enough gold to switch to a gold standard?

originally posted by: Aazadan

originally posted by: enlightenedservant
And if we're being honest, even a balanced budget won't change anything other than to stop the national debt from increasing. We need large yearly budget surpluses to actually start paying down the national debt.

No we don't, inflation will take care of the debt over time if we stop adding to it. 20 years of a balanced budget would make our current 21 trillion debt seem similar to what 6 trillion would be to us today, to say nothing of all the additional GDP in that time. There's really no reason to ever pay any of it down, though there is a reason to stop increasing it.

Under your scenario, we would still have a $21 trillion debt though. We'd still have to have large surpluses if we were trying to pay it down, which is what I said. Just because the $21 trillion debt would look smaller in comparison to prices 20 years from now wouldn't change the fact that we'd still have a $21 trillion debt.

A gold standard would only back the US dollars in circulation that could theoretically be redeemed.
Actual gold equivalent value might only be a small percentage of the dollars circulation value, but that would make the US dollar more valuable than foreign competitors that offered no redemption value, except the world currency market value.

Its also similar to the situation with crypto currencies and stocks.
Bitcoin has no value other than investor sentiment however it has a leg up on crypto currencies that are not held by listed derivative services. The millions invested in buying up bitcoin by these derivative services will be protected to some degree.

Stocks provide dividend earnings close to 3% on top of any price appreciation or minus the price depreciation.
Stocks prices might need to correct for the purpose of attracting younger investors who are otherwise late for dinner through no fault of their own.

After all if you are just going to play price why not do it with bitcoin?

a reply to: enlightenedservant


On that point, I agree. I've heard the inflate the debt down and balanced budget for over twenty years, the spending still keeps going up.

a reply to: enlightenedservant

As inflation takes effect it takes a relatively smaller surplus to pay it down. $500 billion per year represents about a 12% increase in spending right now and would take 42 years to pay it off. If we were to simply have a balanced budget for the next 21 though, and then pay it off at a rate of 1 trillion per year (if we even wanted to pay it off, a lot of that debt is actually good) it would still take 42 years but the second scenario would be much easier to pull off financially as it would only require about 4% in spending.

originally posted by: nwtrucker
a reply to: enlightenedservant


On that point, I agree. I've heard the inflate the debt down and balanced budget for over twenty years, the spending still keeps going up.

That's because Presidents 43, 44, and 45 have had no interest in actually doing it, to say nothing of Congress. President Clinton passed a budget that would pay off the national debt by 2015. As soon as he was out of office though no one adhered to it. Instead we've increased spending and cut revenue.

originally posted by: Aazadan

originally posted by: nwtrucker
a reply to: enlightenedservant


On that point, I agree. I've heard the inflate the debt down and balanced budget for over twenty years, the spending still keeps going up.

That's because Presidents 43, 44, and 45 have had no interest in actually doing it, to say nothing of Congress. President Clinton passed a budget that would pay off the national debt by 2015. As soon as he was out of office though no one adhered to it. Instead we've increased spending and cut revenue.

Congress passed that Bill and Clinton signed it. The next President had 9/11 and a war to deal with.

originally posted by: Aazadan

originally posted by: nwtrucker
a reply to: Krazysh0t

Just another thought. Per your numbers the total value of the current gold is about 7.5 Trillion with a national debt of 20 Trillion, so the numbers don't add up.

OK. So having 7.5 trillion backing your 20 trillion debt isn't better than having nothing backing that 20 trillion debt?

The gold standard doesn't just back debt, it backs the entire money supply. One of the big reasons we can't have a gold backed dollar is that we don't know how large the money supply is. The money supply is measured in several different values, most notably M0, M1, M2, M3, and M4.

M0 is physical money. Bills and coins.
M1 is the total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits
M2 is M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).
M3 is M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.
M4 is M3 + Commercial Paper +T-Bills

So where this really gets tricky is that a lot of this is essentially credit rather than money created by the federal reserve. Fractional Reserve Banking involves giving banks the ability to make money in addition to the government. The current M4 value is unknown, and hasn't been known for over 30 years because it's not tracked. M3 was the old standard but about a decade ago they stopped tracking it because it became impossible. M2 is primarily used now because M1 is too narrow but it's not really a true representation of the money supply.

The M4 which is what a gold backed currency would have to back is north of 500 trillion dollars, it might be over a quadrillion if the estimates are too conservative.

On top of this, let me offer up another point for you, gold backed currency would require a fixed value for a dollar. This would essentially make our currency unusable on a global exchange.

Gold standards haven't covered the full money supply, just the monetary base. Even then there has not been a 100% gold reserve requirement.

Given that his business empire is based on use of debt I doubt Trump would do very proposing a 100% reserve requirement for commercial banks.

originally posted by: Aazadan

originally posted by: nwtrucker
a reply to: enlightenedservant


On that point, I agree. I've heard the inflate the debt down and balanced budget for over twenty years, the spending still keeps going up.

That's because Presidents 43, 44, and 45 have had no interest in actually doing it, to say nothing of Congress. President Clinton passed a budget that would pay off the national debt by 2015. As soon as he was out of office though no one adhered to it. Instead we've increased spending and cut revenue.

It was always complete fantasy economics that the debt would be payed off in that time.

originally posted by: nwtrucker
Congress passed that Bill and Clinton signed it. The next President had 9/11 and a war to deal with.

And you don't think we wouldn't have to deal with those things in the future under a gold standard?

a reply to: Aazadan

Of course. Even if the 'standard' only covers 'M-1' money, it would be a least partially backed currency. That puts it above any other currency out there.

It bolsters the confidence factor which approaches non-existent and makes the USD, validly, the least fraudulent fiat in the world.

a reply to: nwtrucker

No it wouldn't. USD is already backed by gold. Don't believe me? You can goto any market accepting USD and exchange it for gold right now at the going rate. You can do this with any commodity actually. All official gold backing would do is mean that you could exchange it from the treasury at the same rate you can already exchange anywhere else.

originally posted by: Aazadan
a reply to: nwtrucker

No it wouldn't. USD is already backed by gold. Don't believe me? You can goto any market accepting USD and exchange it for gold right now at the going rate. You can do this with any commodity actually. All official gold backing would do is mean that you could exchange it from the treasury at the same rate you can already exchange anywhere else.

Good point! Though being able to exchange it at the U.S. Treasury when we now cannot do so would increase the confidence level that's lacking, IMO.

originally posted by: Aazadan
a reply to: nwtrucker

No it wouldn't. USD is already backed by gold. Don't believe me? You can goto any market accepting USD and exchange it for gold right now at the going rate. You can do this with any commodity actually. All official gold backing would do is mean that you could exchange it from the treasury at the same rate you can already exchange anywhere else.

A gold standard would mean you can exchange it at a set price.

originally posted by: Aazadan
a reply to: enlightenedservant

As inflation takes effect it takes a relatively smaller surplus to pay it down. $500 billion per year represents about a 12% increase in spending right now and would take 42 years to pay it off. If we were to simply have a balanced budget for the next 21 though, and then pay it off at a rate of 1 trillion per year (if we even wanted to pay it off, a lot of that debt is actually good) it would still take 42 years but the second scenario would be much easier to pull off financially as it would only require about 4% in spending.

Are you forgetting that we still pay interest on the national debt every year, regardless of whether we have a surplus, deficit, or balanced budget? I feel like you're not factoring those yearly interest payments into your equations.

originally posted by: ScepticScot
A gold standard would mean you can exchange it at a set price.

That won't work though because gold has a global market price and methods of exchange are highly efficient today. Either our exchange rate would be above or below the set price and either would be bad for maintianing reserves.

originally posted by: enlightenedservant
Are you forgetting that we still pay interest on the national debt every year, regardless of whether we have a surplus, deficit, or balanced budget? I feel like you're not factoring those yearly interest payments into your equations.

Interest is irrelevant. It's a tiny percent of the budget. As long as you include the interest in the budget you will easily inflate your way out of it. Most of our debt is also financed at a very low interest rate right now which makes this solution particularly attractive.

originally posted by: nwtrucker
Good point! Though being able to exchange it at the U.S. Treasury when we now cannot do so would increase the confidence level that's lacking, IMO.

Confidence is not lacking though. The USD is still the most attractive currency in the world. In part because of our very good monetary policy which has allowed the government to never miss a single payment... ever. No other country can say the same.

originally posted by: Aazadan

originally posted by: ScepticScot
A gold standard would mean you can exchange it at a set price.

That won't work though because gold has a global market price and methods of exchange are highly efficient today. Either our exchange rate would be above or below the set price and either would be bad for maintianing reserves.

I agree it wouldn't work, it was your clain that the dollar is already effectively backed by gold that was wrong.