In one of Lew Rockwell's articles a while back, it talked of the prospective first 30 days of a Ron Paul presidency. On Day Fourteen, he says "The shaky fiat dollar is defined in terms of gold, with the ratio determined by dividing the government's gold stock by all existing dollars on that day."
According to Wikipedia, there are over $760 billion in cash (2005) in circulation, and 8,133.5 metric tons of gold in US reserves (264.5 million troy oz) worth about $200 billion. So, the USA would need four times more gold to do this at the current price of gold.
If the government just offered a gold exchange rate of $2870 per ounce of gold, everyone would sell off all their private gold, and the government couldn't buy it all unless they started printing more dollars. . . see where I'm going here?
Would the only way be to have the government slowly destroy much of the printed bills, raising the value of the dollar until it was on par with gold? Or could it somehow get away with manipulating gold prices upwards until we can back all the bills we've printed?
The treasury could begin with a simple peg to gold the way other countries have pegged their currency to dollars.
What Lew Rockwell describes is the treasury setting a price at which it will sell its gold reserves, meaning the redeemable value the dollar currently has. You can only withdraw an ounce of gold from the treasury by paying 3000$ish, which is much higher than what you can get on the market today. That doesn't mean the treasury is buying any gold, just that it's defaulting.
The fallacies of intellectual communism, a compilation - On the nature of power
Okay, I see. Would it make sense to work toward getting the dollar closer to the market value of gold, or just not worry abotut it? Would the dollar still lose value until it was worth 1/3000 of an ounce of gold, and then it would stop? Or would the drop in the dollar's value slow down immediately?
If the treasury were to stop the creation of any additional money, then the dollar would not drop in value. (In fact gold might instead.)
If the treasury kept inflating, then eventually the value of gold would be 3000$ an ounce and the treasury would have to disburse gold for the excess dollar supply. The 3000$ thus places a strict ceiling on the supply of dollars possible. Of course the point of dividing the gold reserve by the money supply is to have a 100% reserve, so creating more dollars really defeats that purpose.
I've been considering this for awhile. Like you, I considered the idea of the government slowly destroying fiat money. Then I decided there was a great way to let the market decide: auction off all U.S. gold holdings for fiat dollars, and then destroy the fiat dollars. Then let the market take over.
Then I contemplated silver, and decided the state should auction off not only all of its gold, but all of its silver, and indeed all of its other property as well. Then it should destroy the dollars, and then it should commit self-immolation.
Some anarchists make the case that the proper moral way for the government to dispose of property is abandonment. This has the advantage of providing for likely homesteading of the newly abandoned property by those currently making use of it, i.e., government factories will likely become owned by those who are its current workers. Some state that this abandonment should not occur until reasonable claims to legitimate ownership of property have been considered. Abandonment of all government property, including gold and silver, concurrent with elimination of all intent to honor value for fiat dollars, may also be a viable way of transitioning, although there would likely be some economic chaos as concentrated gold holdings are suddenly claimed. (But this economic chaos would doubtlessly be handled better by a free market than any conceivable system of coercion.)
Are there laws keeping people from using alternative currencies? There is a company issuing gold and silver backed Liberty Dollars, and though they've had a few legal run-ins, I think they are still going at it.
Two things to consider when discussing gold and silver for backing the U.S. Dollar:
1) There has not been an audit of America's Gold Reserves (a.k.a. Fort Knox) since the 1950s and the U.S. Government has refused all requests by various entities. It is strongly rumored that most/all of the gold has been lent/swapped. The Gold Anti-Trust Action Committee (GATA) just announced that it has secured a large law firm to go forward with a lawsuit and submission of Freedom of Information Requests. GATA stated that it is in a strong position and will see this to a conclusion. A formal Press Release should be available in a couple of months.
2) Since the establishment of the Silver User's Association in 1947, America's stockpile of approximately 3B ounces of silver has been sold into the market. It appears that the entire stockpile was finally depleated in 2003, which is when silver started its rise, only to be illegally manipulated by the paper scam run by the NYMEX/COMEX.
This being said, it is very possible that there is NO gold/silver to back the U.S. Dollar.
The gutting of America continues.....
LoneStarHog (Hog)
I was thinking about this a lot today.
I think we need to look to history. Once before we went from a fiat-money system to a gold-backed system -- directly following the War Between the States (aka Lincoln's Conquest). Believe it or not, it was the bankers who wanted a return to gold at this point, because they had made loans in the inflationary greenbacks, which, if they were repaid in real gold dollars, would result in a major gain for them.
I think the only way to get government to go back to sound money is through a Constitutional amendment. Yes, it's already in the Constitution, but it isn't clear enough. And as part of this constitutional amendment, I think there should be a coupling of FRNs (to be phased out) to the government's gold, but a stated rate of 2.5% (or so) inflation for the next 30 years (i.e. the value of the dollar in gold would be decreased by 2.5% per annum, on a daily basis).
The reason: People have bought mortgages, etc., with the built-in expectation of inflation. To stop inflation in its tracks would result in yet another massive giveaway to the banking class, who would be repaid for loans in dollars worth more than their borrowers anticipated.
I have never heard this subject broached by free-market thinkers, but I think it's vital in order to avoid another (socialist) Populist Revolt, which was brought into being by the unfair manner in which soundness was restored to the currency post-Civil War, and which eventually led to all of the socialism of the "Progressive" Era.