A Return to Gold

BUENOS AIRES, Argentina ­– “What if you were appointed to head the Fed? In your first week on the job, what would you do?”

The question was not exactly serious. Neither was the answer.

“We’d call in sick.”


the-us-federal-reserve-board-building-susan-candelario-1Sorry boys and girls, you’ll have to start without us…

Photo credit: Susan Candelario


Drought, old age, traffic congestion, meanness, purple drink, bad taste, rap, suburbs, cancer, government, Hillary Clinton, restaurant music, shorts, Facebook, obesity – there are a lot of things wrong in the world. And most of them are not easily put right.

But there are some problems that could be solved overnight. Economic and financial problems, for example, solve themselves… if you let them. Almost all the macro-money wounds suffered by the modern world are self-inflicted.

Central banks and treasury departments around the world keep shooting themselves in the foot. But rather than stop manipulating the system… they buy another pair of shoes.

If we were miraculously appointed by President Trump to run the Fed, our first act would be to put the gun down. We would announce that, henceforth, anyone waiting for the next rate hike would have to wait a long time.

Because we wouldn’t be making any rate hikes… or rate cuts either. Instead, interest rates would have to take care of themselves. Lenders and borrowers would set their own rates.

But what about if banks got into trouble? Ah… we’d take care of that too. We’d point out that the Fed would no longer lend to them in an emergency. Our announcement: “To any bank that runs out of money: Drop dead.”


drop deadAdvice to insolvent banks from the hypothetical Bonner Fed


Then, we would put the entire Fed balance sheet – the more than $4 trillion in dodgy bonds it bought over the last eight years – up for sale. And we would send layoff notices to the entire staff…telling them to clean out their desks, admonishing them that henceforth they would have to seek honest employment or try to land a job on Wall Street.

Had we the power, we would take one further step: We would declare that Americans could use whatever currency they wanted, that the dollar would once again be exchangeable for a fixed quantity of gold, and that the U.S. Treasury would accept any major currency – including bitcoin – in payment of taxes.

See how easy it would be? All of the heavy lifting could be accomplished before lunchtime on our first Monday on the job. Then we would slip out the back of the Eccles Building… with luck, just before posse caught up to us.


posseThe posse (John Law chapter)


Solid Dollar

And yet, those simple changes would eliminate most of the money troubles facing the U.S. With no further gas coming in, the debt bubble would deflate. Bad investments, bad business, and overpriced assets would all lose air… and disappear.

The dollar would be solid again. It would represent real value, not counterfeit wealth. Borrowing would be based on real savings, not just more hollow credits. And – with only scarce capital to work with (rather than an unlimited supply of phony-baloney credit) – investors and entrepreneurs would be careful about what they did with their investments.

They would put capital to work only in projects that increased the real value of America’s assets, rather than those that merely shifted wealth from Main Street to Wall Street.


1882-liberty-head-gold-quarter-eagleHonest money: an 1882 gold quarter


Admittedly, this would be a lot for the American people to take in. Most people have no idea how the money system works. The credit dollar is all they know. And they still have faith that the big heads at the Fed know what they are doing.

The newspapers and pundits would howl in alarm. Respectable economists would choke on their indignation. Lynch mobs would form. They would call our program “radical” and “irresponsible,” unaware that today’s system is the most radical, experimental, and irresponsible in history.

Our proposals would take the country back to a traditional and sensible money system. People would decide for themselves what kind of money they wanted to use… whether to save it… or spend it… and what price to put on it if they wanted to lend it out. Would it work?

We don’t know, but we’d like to see someone give it a try.


US_$10,000_1882_Gold_CertificateA certificate for sound money, and quite a bit of it too. Our benevolent modern-day social engineers would be appalled: not only is this a certificate for gold, it is one for 10,000 smackers worth of the stuff! Only über-turrsts could possibly have use for such a thing…it clearly embodies way too much freedom and responsibility for the average tax serf. If you’re not convinced, ask Larry Summers, and if that doesn’t help, think about the children!


Image captions by PT


The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


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3 Responses to “Yes, the Dollar Should Be Backed by Gold…”

  • therooster:

    No6 …. In short, no. A fixed peg was the best we could do in a process that brought us to a time when the tools and real-time technology became available for what was already theoretically understood, but could not yet be implemented on the capability axiom.

    One thing leads to another but we cannot pour new wine into old wineskins.

    As long as you understand that gold is debt-free (at any price) , then your personal journey of full understanding just has to shift from a national fiat currency (USD) being a currency (unit of account) to gold weight/mess being the unit of account. That unit of weight (as the accounting unit) is debt-free on the basis that what circulates is the actual metal or a fully backed derivative (currency) that is also denominated in weight/mass. In simple terms, we distribute weight with variable values on the fixed weight in real-time.

    Distributing weight that has a fixed value would not work until such time that the measure (USD) and the weight (bullion) went from the fixed relationship (Bretton Woods and beforehand) to one where the weight’s value was variable and a fixed amount of gold could have expandable liquidity in terms of purchasing power …. debt-free. In this context, the dollar shifts its role and becomes the price measure of value, which is the dollar’s true value in the support of any debt-free trading.

    The dollar’s journey has taken it through an “apprenticeship” because without the “baptism” of its role as a currency (by fiat), how could the dollar’s price model develop at “the other end”. Impossible.

    “There are necessary evils written into God’s script” , my dad used to say. “Just follow it. The understanding will come later”. ;-)

    We can now price economic widgets in a fiat currency (any) , while settling the trade, directly, with anything else that also has a price measure. The two widgets can trade directly with no debt involved in the trade. Gold is simply another widget that can be be used globally as a trade standard.

    Now we have a system that provides debt-free trading along with fully scalable liquidity, based on the trade value of the bullion. (price)

    Examine the business model for yourself. It’s best done by opening a free account so you can see the workings of the back office tools. You can loosely compare the web based interface to the use of PayPal,but the accounts hold gold weight rather than dollars. http://BitGold.com/r/0UZxqF

  • therooster:

    It’s not the dollar that should be backed by gold. Gold weight (ounces, grams, etc. ) as the unit of account for gold bullion (not dollars) is the thing that should be fully backed if a gold proxy (currency) was to be /is being circulated. (see link)

    The Bretton Woods process was important to make the USD the lone official measure for gold with the fixed peg being severed almost 3 decades later. Nevertheless, the dollar still stands as the “measure of measures” in the application of gold as a settlement currency by weight. The real-time “bridge” of USD/oz connects the fiat price model to the weighted settlement of bullion ….. debt-free. Price things in fiat, settle with weight, DEBT-FREE !

    With bullion’s floating trade value, gold liquidity (coverage) can come from monetary weight in circulation and/or the trade value (price) of that same weight. (USD/oz)

    This gold monetization and circulation process is growing with each passing day now. It is governed by the market as it MUST be. Bullion being entered into circulation by any process of government fiat or legislation would likely crash the fiat currency markets. This concern makes the rate of change and migration a perfectly suitable task for the market, bottom-up.

    We move to a symbiotic yin-yang.

    A gold backed dollar suggests a fixed peg as was present during Bretton Woods. A fixed peg on gold does not work (as currency) because of highly restrained liquidity issues. Gold is a limited and finite resource.


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