panduranghari wrote:I am calling for separating unit of exchange from store of value function of money. right now its the same. later fiat as unit of account. gold as store of value.
I'm not sure what your plan is, perhaps you can elaborate. I`m pretty sure you are proposing a gold standard, just that you are not aware of it.
Taxation is the only thing that gives fiat its value. i.e. sales tax, capital gains tax, income tax, property tax..etc. Banking goons make sure its only payable in one medium and no other. i.e. the fiat they issue. That preserves their monopoly over the monetary system.
Without taxation and without a condition where tax is only payable in fiat money (as is the case right now), paper money would have no value.
So what you proposing
I am just stating the plan already in motion which lead to the formation of EURO.
In 1999, the Euro came into being as a official international currency.
Euro is different from all other global currencies in 2 aspects:
1-It's not controlled by a national government- notwithstanding the constant statements in the press that Germany controls it.
2- it's completely severed its link to gold.
The ECB when formed after Maastricht treaty in 1992 was like a company. Every country contributed to its finances by contributing gold and Euro-dollars. The necessity was that out of the total contribution 15% should be in physical gold. Rest in currency. The contribution was akin to buying a share in the ECB. You can contribute as much gold as possible but the rest of the currency contribution should be equivalent to a minimum required contribution. They decreased the standards when the allowed Greece - Cyprus to join but the 15% gold was mandatory requirement. The president of ECB has only 1 goal. To keep currency inflation to 2% max annually. He or she cannot print euro and give it to A national government even if a national govt is desperate. The ECB board decides this based on the the books provided by the participating bullion banks. But they can give it to a WELL CAPITALISED bank. The bank can get loans from ECB and the bank in turn if they wish can give money to a national government. This was amply demonstrated in Greek and Cypriot situations recently. Compare this to Bank of England or US federal Reserve.
These 2 institution claim to keep inflation below 2% but according to shadowstats.com it's running at above 10%. And they print money at governments request and give it to the banks. The Bank of England thus acts like a official arm of government.
They ECB has severed link to gold. This means the gold is not linked to the value of fiat.
Here is the latest consolidated financial statement of ECB which published every quarter.http://www.ecb.int/press/pr/wfs/2012/ht ... 06.en.html
The first line in assets in gold. This gold is valued at that days price. I.e the price of gold is allowed to float at the days price.
Now how does this differ from gold standard?
Let's answer a different question first,
Who sets standards and why is gold an important element in the international economics?
All throughout the early times, prior to BC and into some AD, people didn't see the gold coins as we think of money today. These various gold coins had tremendous value, but they were just gold pieces. They were wealth for trade like everything else was.. That's simple logic, I know, but the vessel of oil, for instance was just as tradable as a gold coin. In fact, within most of the medium sizes city states of that era, barter of like goods was just as good or better than gold coin. One's life was better if he owned wealth he used.
Humans of that period didn't live all that long a time span. Even though some accounts prove otherwise, the majority of life went by rather quickly. If you were a regular part of society in general, your wealth was what you had and consumed during those short days. There were no banks or investment houses and the average person's return on a wealth unit was his length of use and it's quality of life enhancement. More to the point, this logic made these guys spenders of gold, rather than savers! If you had gained gold in trade, for your services or goods supplied, you had no reason to save it. There was no other money that needed to be hedged against value loss.
It's becoming more and more apparent that average people of that time quickly traded (spent) their gold for something useful of value, for both them and their family. They didn't have the excess we know today. In modern nomenclature; this logic dictates that a much smaller amount of gold money circulated and circulated faster than many supposed. All forms of jewlery and art objects were in the same situation.
For longer savings, even for those of above average means that had all they wanted, people tended to spend their most valuable gold coins first, while saving the least valuable (bronze, silver, iron) for emergencies and later use. To us, today this sounds strange, but place yourself in that time. It was better to build your most useful and needed store of things while times were good.
Therefore, you traded the gold, which brought the most equal trade, first. If things got so bad that one had to dig up the stash, you were trading for last ditch things anyway. Kind of like wrapping up and burying cto get yThis use of lower metal is suported. Remember, lots of things served as money objects them. Even much later, AD, it was common in the world to trade big iron bricks that were forged as a bull. It's use was in trade for "one bull" or something of that animal's value.
This tends to explain why so many hordes of lesser quality, non gold coins are always being found today. Roman silver, bronze, iron, copper coins are very common in digs at various archaeological sites in southern Bharat. The classic belief is that all the gold was found, melted down and recast. But that action just didn't fit the whole profile of life's need back then. The majority of gold in average and even upper hands was always on the move, in trade or payment for service. Each succession of ruler, simply reused the old coins or melted them down and restruck with a new image. And new gold was minted only if it was easy to find. Especially stolen jewlery. Mined gold was a very last resort.
Remember, real useful goods crowded a rich ruler's house, too and these were just as valuable and tradable as gold. Besides, far too many finds have come up with jewelry and no coins to suggest some robbery by thieves sold the coins to new rulers with melting pots. The gold would have been taken whether coin or art.
Taxes were paid in goods, service or coin (preferably gold) and regular people knew it. Far better to trade your gold and save your wealth in a bulky form so the tax man's take at least has a chance of taking less than enough. To store your wealth in gold and risk him finding and taking it all was just not acceptable.
The great gold stores we have found almost always point to their being the reserves of a rich ruling class. Just like modern billionaires, after too much comes excess and gold was the only alternative for someone with guards and regular army.
More and more evidence is mounting that the largest portion of gold, during this early period was, "On The Road"! The perception that every person had some portion of gold as savings is blunted by their lack of need for such wealth. Gold was needed and used to spend "On The Road" more so than in local domains. Whether for armies or traveling merchants, gold moved more than it was saved. Even gold in the form of art was "fair game" for the regular people to use as a tradable medium. In fact it was just as likely used as money "on The Road" as coins. This further explains the findings of small amounts of jewelry in most of the locations where small towns were located.
We find gold more in the "upper status" burial places of great cities in Europe than in the areas where common man traded, lived and kept his personal worth. We further conclude that gold was much harder to find and utilize, back then than many supposed. Yes, great amounts were around, but the reality was that these amounts were perhaps 1/2 or less than many others conclude. Simply because finding or producing gold meant displacing labor that could be making barter able goods of equal value. Besides, gold that was in trade, was valuable enough that what existed mostly covered it's need in long distance commerce. This further points to a much greater value for a much lesser amount of gold while it was used during this period.
When evaluating lifestyle wealth, back them, many often find themselves comparing things in a relative mode with today's perspective. In this position we think the mark has been far missed for gold worth. It's possible that gold payment, in these early times amounted to a hugh premium compared to today. The various goods and lifestyle conditions in existence, indicate a much higher relative worth for their goods of daily life. Thereby giving gold a much greater relative worth within one's life also. If a one stater Darius of gold, from Cyrus of Persia was worth a very valuable vessel of oil, why utilize the effort to find gold just to trade for some oil. Better to skip the gold production and make the oil. This was the norm for thinking by people not trading on the road, living "within local" city states. Indeed, outside the need to pay armies, a much smaller amount of gold did the job much better than us modern thinkers thought was necessary. Further, the use of oversea warfare and trade perhaps lost more gold into the ocean than we will ever know. The oft heard statement by roman Caesars was the draining of gold from Rome into the coffers of India is not lies.
Consider these possibilities well. In that gold today is in a much lesser existence, compared to modern goods supply and lifestyle enhancements, when comparing it to it's value in life in the past. It's true worth as a wealth medium could be a 1,000 times higher!
A bit of historical perspective sets up the discussion of gold standard perfectly.
Gold standard- I ask again "who sets the standard?"
UK did until 1912 as they had a huge empire then US took over because Europe was embroiled in a war of attrition through 1918. Of course Breton woods was an attempt to formalise the move away from fixed exchange rates, the hijacking lead to the disbandment of gold standard by Nixon on 15 aug 1971. Where are we now?
On the verge of explosive price of physical gold unconstrained by paper gold.
The Euro is taking us there.
Imagine with me a three stage rocket which has just launched to take us to our next level of stasis and equilibrium. In the first stage of this ride, the fractional reserve paper market for gold will break up and all the existing gold demand will rush from paper into physical. These are the "gold bugs" that were fooled into paper promises. This stage represents a newfound equilibrium between already existing supply (physical gold) and demand (all gold investors). You can do your own calculation of the ratio of paper gold to physical, but I will tell you it is not small.
The second stage of this rocket ride begins as the first stage propellant (paper gold market) is jettisoned. During this second stage we will witness the massive force of trillions of dollars as dollar reserve holders all over the world bid on rising physical gold as there will be not much else for them to do with their dollars at that point.
As the first stage brought "the gold market" into equilibrium, this second stage will bring "the dollar" into equilibrium, as it finally reaches a depth of value to match its long term history of over-creation - 50 years worth!
The third and final stage of the rocket ride could be called "the momentum effect". Seeing the first two stages in full swing, everyone else will rush out of any paper asset still liquid enough to obtain even a tiny amount of gold. And with this stage will come the hyperinflation in the prices of all other real goods as the US Fed frantically prints more dollars to pay the government's nominal obligations in addition to its hyperinflating daily expenses.
This printing response will add fuel to "the momentum effect" stage rocketing it from what would normally be a bubble into a sustainable rise which will only plateau once the madness ends.
And may I remind you, the madness has only just begun.
When things finally settle down, we will enter a new era of equilibrium. Some things will remain the same while others will have changed forever. Here are just a few of the changes I imagine.
Gold will trade in physical form only. No longer will the owners of gold trust the custodianship of foreign nations.
Fiat currencies will still function in trade and as a unit of account, repositioned at their new values, wherever debt is required. But they will have to undergo a process of credibility re-establishment, much like a bankrupt individual, before they will ever again be used by people as a reliable store of value.
For producing individuals and nations alike, gold will become the wealth reserve of choice for the preservation of purchasing power earned through productive labor. Believe it or not, I think that our freshly neutered governments will support this development as they will ultimately view it as the only means to slowly rebuild what has been lost, in a sustainable way.