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Dear Congressman Mooney:
I am writing to you about something of great importance, the path to the gold standard. Thank you for introducing H.R. 5404. I agree with your findings, especially that inflation undermines jobs and retirement. Yet I must say that the dollar cannot now be defined as a weight of gold.
This would be nothing more than a price-fixing scheme.
Every attempt to fix prices has ended in disaster. Roman Emperor Diocletian set price caps in A.D. 301, which disrupted commerce. The Swiss National Bank lost 13% of Swiss GDP in the instant its currency peg failed in 2015.
The dollar is falling, because the US government is sinking into debt it cannot repay. One dollar was once worth over 1,500 milligrams of gold, but it’s now down to 23.25mg. The Fed might fix the price temporarily, while the government’s gold holds out, but it cannot prop it up indefinitely.
In a working gold standard, people deposit gold and get a piece of paper promising to return it. Paper is credit. And credit is built up, by countless decisions made by people in the market.
Our challenge today is that no dollars are gold receipts. Every dollar began life as an irredeemable promise. They cannot retroactively be declared to be gold receipts. It won’t work to try to impose a monolithic price policy, in lieu of the credit structure of debtors and creditors that evolves in the market.
Further, it would be an unfair change of the rules of the game. Creditors lent and debtors borrowed based on current law. If the gold price is fixed, they must all come to Washington to lobby for their preferred price (or game the price of gold on the critical day it is determined).
Creditors want a low price of gold. Suppose the price was fixed at $20 an ounce (the pre-1933 value). Then a homeowner with a $100,000 mortgage will have to come up with 5,000 ounces to pay the creditor. Debtors want the opposite. At $10,000 an ounce, that same homeowner only has to give 10 ounces and he is out of debt.
To move to a new gold standard, people must be allowed to make the decisions to grant and use gold credit. Here are some simple policies that Congress could immediately enact:
- Repeal capital gains tax on gold and silver (several states have done this recently)
- Allow taxpayers to make an election to keep their books in gold or silver
- Clarify that debts in gold or silver are valid
- Direct the Treasury to issue gold bonds. I have written a paper proposing how this would work.
Sincerely,
Keith Weiner, PhD
Founder, Gold Standard Institute USA
Founder and CEO, Monetary Metals
I read recently that the BOJ now owns 41% of JGB’s and is siphoning up around 3/4 of the new issuance too. I take this to mean that hardly any foreigners wish to buy longer-term JGB’s at current prices. Is there a precedent for passing through this phase in route to foreigners no longer accepting your national currency (the Yen, in this case)?
My intuition tells me that the West is looking at Japan as a crucible for the next phase of fiat monetary experimentation. But I don’t know if its actually illustrative, given their traditional trade surplus and high domestic saving rates.
I say all this only because I think the debate you’d like to spark with your letter just won’t get any attention until something significant happens to one of the major Central Banks, probably the BOJ. Maybe the SNB. The World sees no minefields because none of the Central Banks seemed to have stepped on a mine. The SNB currency peg debacle seems to have had no effect on the average Swiss citizen.
Despite Treasury Secretary Mnuchin’s dog-and-pony show at the federal depository at Fort Knox, there is quite a lot of ambiguity as to just exactly how much gold is still held in US depositories. Assuming that it is all there, and assuming that we were to count up all of the debt (dollars) supposedly represented by that gold, returning to a gold standard would sill be impossible save for one event that this country is not prepared to do.
To wit: To make the dollar convertible to gold would require, among other things, that the US government NEVER AGAIN spend more money than they take in. And that simply is impossible for this government to do. Once one wraps their brain around that fact, one realizes that the US is doomed. We are headed to yet another default on the US currency.
This is bad enough, but when the reality is that we are not yet even having the discussion about what needs to be done once it happens bodes especially poorly for all of us. The fact that Representative Mooney doesn’t understand the inherent problems with “tying the dollar to gold” means we have much to learn before we can find our way out of the “debt as currency” woods.
I agree with the letter 100%.
Eurodollars,created by ledger entries ,by foreign entities,uncontrolled by Federal Reserve,would rush back to USA and demand gold.This created “funny money” would drain away our gold quickly.
I also believe such pegging schemes may draw in a type of international speculator with grandiose designs on the world financial system who would use this method to clean out a targeted country’s foreign exchange reserves.
It speaks well of Mr Weiner that although being a gold proponent , he recognizes the dangers of ANY kind of pegging or price fixing.