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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 09/12/2008 : 16:23:49
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Mr. Nadler tends to take a bearish stance towards gold and silver (at least that is my take) here is information concerning one congressman trying to peg the dollar to gold.
At first glance it seems like a good idea, until you read what Congressman Poe had to say. Key problems pointed out by me are in bold.
Congress Must Stabilize the Dollar
Rep. Ted Poe
On July 31, I introduced H.R. 6690, the “Sound Dollar and Economic Stimulus Act of 2008”. It is vital that this bill become law.
The U.S. dollar affects every American citizen and every American business. Our economy is totally dependent upon the dollar. To have a stable economy, we must have a stable dollar. Unfortunately, for many years we have not had a stable dollar. Today, people are angry and afraid. The crumbling, gyrating dollar has created an economic crisis.
I was a judge for 25 years. I believe in law and order. The U.S. Constitution is the supreme law of the land. Article I, Section 8 of the Constitution provides that: “The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures…”
So, what has Congress been doing about the dollar? Nothing. Since 2001, Congress has stood idly by while the dollar has lost almost 70% of its value, whether measured against gold or retail gasoline. When a currency begins to lose value, the effects show up first in the price of gold, followed quickly by other commodities, such as oil. However, eventually the inflation works its way through the entire economy, raising prices across the board. In the process, the hard-earned savings of Americans are devalued—or, the way I look at it, stolen.
Inflation creates turbulence in financial markets and provokes conflict between economic groups. People become angry because they feel that they are being robbed. They become afraid because they know that unchecked inflation can lead to economic collapse. In 1913, Congress delegated its power over money to the Federal Reserve. Unfortunately, the Fed has been preoccupied with manipulating interest rates. Since 2001, the Fed has lowered its Fed Funds rate from 5.00% to 1.00%, raised it to 5.25% and then lowered it to 2.00%. Meanwhile, the value of the dollar has declined by nearly 70%.
Trying to regulate the value of the dollar by manipulating the Fed Funds rate makes no sense. The Fed Funds rate is the price of one type of capital. Because the Fed cannot supply capital (real resources) to the economy, it is not clear why it should be in the business of setting interest rates. Logically, interest rates should be set by the market—by the supply and demand for capital.
Unlike capital, the amount of money in the economy should not be limited by anything physical. (And yet this bill does exactly that.)
It should be determined by the demand for money, which depends upon the transactions people want to do and how much money they want to hold. (Demand for money is always higher than supply, otherwise you end up with an increase in money supply and an increase in inflation.)
What matters about money is not its quantity but its value. (Quantity helps determines money's value, too much money printed or minted decreases its buying power.)
In this, dollars are no different than foot rulers. No one cares how many foot rulers there are in the world. What matters is that each one is the length prescribed by the U.S. Bureau of Standards.
My bill directs the Federal Reserve to bring the price of gold down to $500/oz and then to keep it there.
The Fed would do this by announcing that its Open Market Desk was prepared to sell government bonds and contract the monetary base until the price of gold falls to $500/oz.
(How do you contract the money supply by selling bonds when bonds create US FRNs in the first place?)
At last measure, the monetary base was about $872 billion. In December, 2005, which is the last time the price of gold was at $500, it was $827 billion.
So, it is possible that the Fed might have to sell as much as $45 billion worth of bonds to implement the new policy.(Sell bonds to bring down the quantity of dollars, sell bonds and increase the national debt.)
Because this is only about 0.8% of the total amount of bonds currently outstanding, this should not be a problem. (Should not be a problem for whom?)
However, I believe that the demand for the newly-stable dollar will be so great that the Fed will actually have to expand the monetary base to keep the gold price from falling below $500/oz.
(Don't worry congressman, the $9-$10 trillion in debt the US is in will keep gold from falling any time soon.)
Once the Fed implements its new directive from Congress, every dollar in the world will have the same market value as one five-hundredth of an ounce of gold.
From then on, the monetary base will expand and contract automatically in response to market demand. (The monetary base will either expand or the nation will go into recession or depression, something no congressman wants if he wants to stay in office.)
Why gold? My bill defines the value of the dollar in terms of gold because the financial markets want, and the American people deserve, a dollar that is “as good as gold”.
Why $500/oz? At $804/oz, the current market price of gold reflects the expectation (and fear) of future inflation.(Too late on the inflation fears.)
I believe that fixing the value of the dollar now in terms of gold at $500/oz will stop the current inflation without causing deflation. (Too late on both counts. i.e. houses going down in price, food, energy, going up.)
However, my bill also provides a powerful supply-side stimulus, in the form of first-year expensing of all capital investment, to ensure that economic growth accelerates at the same time that inflation is being stopped. (Please oh please tell us how we are going to pay for all this with $9-$10 Trillion in debt on the books?)
Bringing the dollar price of gold down to $500 will bring the price of gasoline down from its current $3.50/gallon to less than $2.50/gallon. (Provided Asia stops buying oil and peak oil proves to be false. )
It will strengthen the dollar against foreign currencies. Most important, it will prevent Americans’ incomes and savings from being stolen by inflation.
My bill will not put America on the gold standard, like we had in the early part of the 20th Century. Under the old gold standard, gold was money.(It still is.)
Limiting the supply of money to the supply of gold was a huge mistake.(A 'mistake' that gave the US Dollar stability and credibility from 1792-1933.)
It was the basic error that caused the Great Depression. (I suppose excess speculation in real estate and the stock market had absolutely nothing to do with it.)
Under my bill, our money will be the same “legal tender” currency that we have now. There will be no limit on the number of dollars except market demand. (No limit on dollars=inflation.)
The big difference will be that every dollar will always be worth the same as one five-hundredth of an ounce of gold.
When I became a Congressman, I took an oath to uphold the Constitution. The Constitution commands Congress to regulate the value of our money. My bill will do this. This is why it is essential that it become law."
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Verdict: While his heart is in the right place and the dollar should be backed by something, (gold, silver, copper, nickel, hub caps, beanie babies, baseball cards, spools of yarn, anything but the empty promises of the government) the method of making the dollar strong by making gold weak is not going to sit well with those who bought gold at prices above $500 per ounce. Furthermore, the Keynesian economic model (inflate or die) is so deeply ingrained in treasury departments of governments around the world that the US would be forced to abandon the 1/500th ounce gold standard or lose exports. Switzerland was the last gold backed currency until they gave up on gold to increase their exports, the US would most likely be forced to do the same. Besides, as mentioned with all of the debt the US has, how can it buy gold to back its dollar, even at 1/500th an ounce, without running even deeper deficits, and who would willingly sell the US Government gold knowing how weak the dollar really is?
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Edited by - pencilvanian on 09/12/2008 16:28:04 |
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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
Posted - 09/12/2008 : 16:32:21
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Quote the raven
"gold backed dollar- Nevermore" |
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horgad
1000+ Penny Miser Member
USA
1641 Posts |
Posted - 09/13/2008 : 16:11:44
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| Wow that was a twisted read, but I think the bottom line is that he thinks the US should print more money and use that money to manipulate the gold price $500 and keep it their forever. That way, no matter how much money we print, it will always be worth the same. Talk about crackers... |
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Kurr
1000+ Penny Miser Member
2906 Posts |
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Gold standard returns? Not with this plan.
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