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OK, sorry, my wording was loose there; nonetheless, as he is looking for gold and silver to be admissable as payment, I think there's three possible scenarios.

OK, sorry, my wording was loose there; nonetheless, as he is looking for gold and silver to be admissable as payment, I think there's three possible scenarios. One, the market ignores this and everyone continues paying in the dollars the president thinks are just another means of exchange. Sounds risky to me; it's pretty much a public statement that the gvernment won't at all seek to defend the value of the dollar so I'm not sure why anyone would want to accept such a risky asset. Two, each merchant has to manage things in multiple currencies in parallel, along with the tax offices having to do the same and keep track of relative values and when the payment came in to establish the correct rates of tax. Won't happen. Three, the market sees an unsupported national currency with little or no base backing and no national reserve bank backing it up. That's pretty much a guaranteed recipe for hyperinflation and flight to assets (remember, the historic result of not having the Federal Reserve was high inflation - it's been tried). It won't be orderly; the price of gold will rise fast due to demand against a basket of currencies, let alone against the dollar that'll be collapsing even faster. The banks aren't set up to handle physical deposits of gold, the merchants aren't set up to handle transactions in them so we'd end up with multiple, incompatible, payment systems based off private gold-measured currencies. Meanwhile industrial use of gold becomes prohibitively expensive putting brakes on the economy, while the fixed money supply inherent in a commodity-based currency puts us deliberately back into the situation that crashed the markets in 07-08 - no-one can get any credit to work with, so the economy ground to a halt. That was able to be mitigated by quantitative easing temporarily creating new money and injecting it into the economy, but under a commodity-backed economy that becomes impossible. Have a read of http://en.wikipedia.org/wiki/Gold_standard http://en.wikipedia.org/wiki/Gold_standard if you want; I'm not alone in holding these views. There's a reason why the Federal Reserve was created in 1913 and why the US ended convertibility with gold in 1971. Ron Paul seems to appreciate the lessons of neither, and I don't wish to live through him reminding the world of them again. Which is why, reluctantly, I think even Michelle Bachman would be a better candidate than Ron Paul.

BarkMore 15y ago
the historic result of not having the Federal Reserve was high inflation - it's been tried Do you have the backwards? The dollar has lost 95% of its value since the creation of the Federal Reserve. Inflation with gold based currency is rare. The California Gold Rush is the big example of inflation with a gold currency. a public statement that the gvernment won't at all seek to defend the value of the dollar The Federal Reserve and the government have already signaled through their actions that they want to devalue the dollar. Examples: Geithner asking China to revalue the yuan, quantitative easing, record deficit spending and so on. If the dollar really is so wonderful, then it shouldn't be threatened by gold.
- eftpotrm 15y ago
  Do you have the backwards? The dollar has lost 95% of its value since the creation of the Federal Reserve. Inflation with gold based currency is rare. The California Gold Rush is the big example of inflation with a gold currency. No, I don't. Firstly, the periods when the US had no national reserve bank showed either severe inflation or a depression / panic cycle that only ended with a private reserve bank being set up as lender of last resort - hardly ideal. In both cases the lack of reserve banking made the financial system volatile and unstable. Secondly, the Federal Reserve was created 99 years ago. A 95% drop in value (your numbers, I've no idea of their accuracy) is equivalent to inflation compounded for 99 years at just 3%. While I agree hyperinflation is bad, 3% is a long way from hyperinflation and a cursory examination of the Japanese economy in the 1990s shows why deflation is a bad thing. Some small inflation is good because it promotes market liquidity rather than hoarding and provides incentives to investment. Thirdly, China are being asked to revalue the Yuan because its value is being artificially manipulated down to make both Chinese exports into world markets cheaper and foriegn imports more expensive, both to the benefit of China but the detriment of global free trade and free markets. It also has the side-effect of exacerbating China's balance of payments surplus and leading to it stockpiling both resources and currency (thus artificially boosting its international buying power), which is directly parallel to the mid-19th century 'silver grave' situation that led to the Opium Wars. Revaluing the Yuan is emphatically not an indication that the dollar is inherently weak, it's an indication that China is trying to use the openness of western markets and restriction of their own to its own advantage. Fourthly, the California gold rush and resultant inflation is an example of what happens in a commodity-backed economy when that commodity suddenly becomes more abundant, a factor that is now out of state control unlike the Dollar money supply which is currently able to be tightly controlled. Commodity-backed currencies in the past have also caused severe deflation, and we're back in Japan in the 1990s. Now, the bulk of world gold mining assets are in Australia and China, and China is agressively buying up Australian mining assets - well, mining assets in general, particularly across Africa, using up its balance of payments surplus created by their artificial suppression of the value of the Yuan. A gold-backed US economy would have its money supply (and by extension both credit availability and rates of inflation / deflation) largely out of national control and primarily in the hands of China. I don't think this is a good idea. All of which is why I think Ron Paul's understanding of economics is dangerously flawed and (reluctantly) I'd regard him as the least preferable Republican presidential nominee.

BarkMore 15y ago

the historic result of not having the Federal Reserve was high inflation - it's been tried Do you have the backwards? The dollar has lost 95% of its value since the creation of the Federal Reserve. Inflation with gold based currency is rare. The California Gold Rush is the big example of inflation with a gold currency. a public statement that the gvernment won't at all seek to defend the value of the dollar The Federal Reserve and the government have already signaled through their actions that they want to devalue the dollar. Examples: Geithner asking China to revalue the yuan, quantitative easing, record deficit spending and so on. If the dollar really is so wonderful, then it shouldn't be threatened by gold.

eftpotrm 15y ago
Do you have the backwards? The dollar has lost 95% of its value since the creation of the Federal Reserve. Inflation with gold based currency is rare. The California Gold Rush is the big example of inflation with a gold currency. No, I don't. Firstly, the periods when the US had no national reserve bank showed either severe inflation or a depression / panic cycle that only ended with a private reserve bank being set up as lender of last resort - hardly ideal. In both cases the lack of reserve banking made the financial system volatile and unstable. Secondly, the Federal Reserve was created 99 years ago. A 95% drop in value (your numbers, I've no idea of their accuracy) is equivalent to inflation compounded for 99 years at just 3%. While I agree hyperinflation is bad, 3% is a long way from hyperinflation and a cursory examination of the Japanese economy in the 1990s shows why deflation is a bad thing. Some small inflation is good because it promotes market liquidity rather than hoarding and provides incentives to investment. Thirdly, China are being asked to revalue the Yuan because its value is being artificially manipulated down to make both Chinese exports into world markets cheaper and foriegn imports more expensive, both to the benefit of China but the detriment of global free trade and free markets. It also has the side-effect of exacerbating China's balance of payments surplus and leading to it stockpiling both resources and currency (thus artificially boosting its international buying power), which is directly parallel to the mid-19th century 'silver grave' situation that led to the Opium Wars. Revaluing the Yuan is emphatically not an indication that the dollar is inherently weak, it's an indication that China is trying to use the openness of western markets and restriction of their own to its own advantage. Fourthly, the California gold rush and resultant inflation is an example of what happens in a commodity-backed economy when that commodity suddenly becomes more abundant, a factor that is now out of state control unlike the Dollar money supply which is currently able to be tightly controlled. Commodity-backed currencies in the past have also caused severe deflation, and we're back in Japan in the 1990s. Now, the bulk of world gold mining assets are in Australia and China, and China is agressively buying up Australian mining assets - well, mining assets in general, particularly across Africa, using up its balance of payments surplus created by their artificial suppression of the value of the Yuan. A gold-backed US economy would have its money supply (and by extension both credit availability and rates of inflation / deflation) largely out of national control and primarily in the hands of China. I don't think this is a good idea. All of which is why I think Ron Paul's understanding of economics is dangerously flawed and (reluctantly) I'd regard him as the least preferable Republican presidential nominee.