errr...

[Isaac]

I just want to double check this with you all. I had a friend who was all about the "gold standard" so we did some math and now he's not all about it.
Here's what we worked out to see if it would be possible:

Tons of Gold in Fort Knox = 5046 http://en.wikipedia.org/wiki/United_Sta ... Depository
Total Quantity of Gold On Earth = 19 million kg http://www.physicsforums.com/showthread.php?t=2774 -- Someone might want to recheck this calculation. I'm a bit unsure of how he got it.
Gold per ounce = $1664 http://goldprice.org/gold-price.html

Total Quantity of Gold On Earth = 19 million kilograms = 670,205,277 ounces
Gold in Fort Knox = 5046 long tons = 180,848,640 ounces

ounces * Gold per ounce:
Estimated Gold Value in Fort Knox =180,848,640 * 1664 = $300,932,136,960.00
Estimated Gold Value in the Entire World = 670,205,277 * 1664 = $1,115,221,580,928.00


US GDP = $14,590,000,000,000.00 (debt might need to be estimated and removed, but I don't think it will matter much, since this is in the trillions while the world's gold variable is $1.1 trillion... )

All the gold in the world is only worth 7.6% of our GDP?
All the gold, which isn't all the US gold, in For Knox is only 2%?
So we'd need 13 times more gold in the world, if it all were in the US possession, to cover the value of the US GDP?
Let me know if you can come up with different numbers. I'm sure I've made a mistake or I'm missing something big.


So how could a gold backed currency perform at the same level of our current US dollar? Just revalue everything, so it somehow works out? If that's the case, how much will that wealth dilute per dollar so that every american can have a few?

Ron Paul, I think, believes this is possible. I don't think it is.

Help me out here.

http://www.newyorkfed.org/aboutthefed/f ... fed01.html

[roid]

afaik, inflation is one of the problems that the gold standard is supposed to fix. So yeah there'd have to be some DEflation to compensate for all those decades of inflation.
Basically everyone is telling themselves that they're rich, coz our current monetary system allows for such delusions. But it's not actually the case, and has technically never been the case (?), in reality we're not rich - it's just all bubbles, smoke and mirrors.

I think the whole thing is about popping bubbles.
USA's currency is overvalued

[Isaac]

Roid, I'm trying to be more practical than conceptual here regarding gold backed green backs; is my math right or wrong?

[Heretic]

The dollar is only worth 19 cents. So your statement Gold Standard wont work is wrong.

According to data from the University of Illinois professors Lawrence H. Officer and Samuel H. Williamson, the value of the dollar had depreciated so much by 2008 that it took $5.31 to buy what it cost $1 in 1971 when Nixon decided that the dollar would no longer be backed by gold. Until then, $35 could buy a troy ounce of gold every day. Our dollar today is worth less than 19 cents when compared to 1971 and the price of gold fluctuates between $1,500-1,700 per ounce.

http://beforeitsnews.com/story/1960/981 ... rency.html

[fliptw]

Switching to the gold standard practically means three things: reducing the amount of greenbacks in circulation,getting more gold, and accepting the fact that other nations can more directly dictate the value and volume of the greenback.

The reason no nation's currency is backed by gold is it hampered the ability to provide capital, and you could run out of gold, which hampers trade.

[Isaac]

Heretic, you think I'm smart, or something. Explain it to me like I'm 5 years old. 19cents, right? So if you create a new currancy backed by gold, how will its total value be higher than our current dollar?
If it would work, show me the math behind it. I gave you some easy math showing what I mean. You understood it. Do the same for me.

[Sergeant Thorne]

The reason no nation's currency is backed by gold is it hampered the ability to provide capital, and you could run out of gold, which hampers trade.

Hampered the ability to print their own money. Let's be honest.

Also, doesn't running out of gold just increase the value of it compared to goods and services?

[Isaac]

Sergeant Thorne! You're a coder! Tell me what you think.
Look at my figures above. I defined the variables and made calculations. What do you think?

[Jeff250]

The federal government doesn't need to have enough gold to cover every dollar for the same reason a bank doesn't need to have enough dollars to cover everyone's investments. As long as everyone doesn't collect at the same time...

[Isaac]

Thanks Jeff!

The federal government doesn't need to have enough gold to cover every dollar for the same reason a bank doesn't need to have enough dollars to cover everyone's investments. As long as everyone doesn't collect at the same time...

Exactly. That's kinda why I'd like help with this.

edit:
So I guess one would have to separate actual dollars with dollars created by lending?
Is there a straight forward way to do that?

[Sergeant Thorne]

The good old fashioned way to do it would probably be to send the actual dollars to their room, and have the dollars created by lending sit on chair. That's how my Mom used to separate us, anyway.

[Isaac]

Yup... Well I'm done. I'll go draw something...

[roid]

i dunno if your figures look right, but they don't look wrong? if that helps.
have you seen those videos about how money is created? They all basically say the same thing (which is nice), I think there was some in the Zietgiest movies, i don't really remember where this Money as Debt (47mins - one was from.
The Ascent of money (watch online, click in the blank space to the edge of the page to get rid of popup) was also a nice documentary series that talks a lot about what money is, where it came from etc, why debt is necessary, etc.

i'm not parroting, i don't even know if i agree with this stuff one way or the other.
What i'm doing here is really trying to find out what page you're on. is it the same page as me? ie: have you seen these types of videos?

I guess what i'm saying is that OP looks correct, and the explanation is that the USA dollar is overvalued. Re-evaluations-of-value happen all the time in economies, like the stock market. It gets fixed, bit of a shakeup, but it's just part of how it works.
Why do you say it "won't work"?

[Sergeant Thorne]

Assuming the accuracy of the numbers that isaac references, the conclusion that should be drawn, I believe, is that Gold is not presently valued as a currency, but more as a commodity--that it is at present valued at much less than it would need to be in order to back trade. Combining this understanding with the knowledge that the dollar is inflated (not "overvalued", but undervalued/overabundant), and you have a Gold-backed currency to USD exchange rate that is so drastic that the only way to move to a Gold standard without causing a major, undesirable shift in economic power, would be a government seizure of this precious metal (probably world-wide).

In order to be certain of that as a possible scenario, I would have to be able to be more certain of the estimated quantity of Gold in the world.

So it could work, it just might not work the way your friend thinks.

[Sergeant Thorne]

Actually I think the number we should be using is Gross National Product, not Gross Domestic Product. Even then, though, I don't think I (we?) am (are) handling the numbers properly, because GDP/GNP are amount-per-year figures, not somehow totals of currency in the U.S. Basically comparing 2-D with 3-D, without any defined method for understanding the results...

[Sergeant Thorne]

According to Wikipedia: The U.S. Gold holdings as of 2011 (Dec 2010) are 8,133,500 kg. The Federal Reserve Money Stock Measures - M2 puts the total USD as of 2012 (Jan) at $9,785,800,000,000.

Let's run these numbers again...
U.S. Gold = 8,133,500kg = 286,900,769.52oz = ($1664/oz * 286,900,769.52) = $477,402,880,481.82

Gold-Backed-USD to Current USD value ratio = 1 - 20.498

In looking at these numbers it should be recognized that not all USD should be expected to be backed purely by U.S. gold reserves, at present, since the U.S. is not the only one using USD... however as other countries dump USD this could very well be the conversion rate we'd be looking at in the future. So perhaps you could call this the figure for simultaneously converting to a gold standard and losing support of the dollar in the world market.

[Isaac]

Gold-Backed-USD to Current USD value ratio = 1-20.498

Real quick. Is this not backwards? You've written 1 to 20.498? Meaning one GB.USD to 20.498 USD? You mean 20.498 GB.USD to 1 USD.

[Sergeant Thorne]

No, the currency would buy less Gold than it does now, by a factor of 20-1, assuming my numbers are accurate. So either a new currency would be issued (God help us, they're trying to take it all digital... but that's another topic), at 5 cents on the dollar ($1 for every $20 in your wallet, bank account, etc.), or the price of Gold would just jump to 2049.8% what it is now, after our government demands that everyone cash their gold in at pennies on the dollar.

[Isaac]

Ok, I had a brain fart in my last post. 1GUSD/20USD makes sense.


Going to your comment, I have a problem with this valuation.

Let me present it in a simplified problem:

Apples = $0.20 each
Oranges = $1 each.

The entire country has 10 Oranges and 100 Apples to trade.
Fewer oranges to go around. More apples to go around. If we had to pick one, which is better?

[Sergeant Thorne]

Mangos! Mangos are known as the king of fruit. I would import mangos. Final answer.

Hehe. I'm not understanding what you're trying to say. And which comment are you referring to?

(apples are 10 times as plentiful, but only 1/5th the price...)

[Isaac]

Sorry, I should quote.

No, the currency would buy less Gold than it does now, by a factor of 20-1, assuming my numbers are accurate. So either a new currency would be issued (God help us, they're trying to take it all digital... but that's another topic), at 5 cents on the dollar ($1 for every $20 in your wallet, bank account, etc.), or the price of Gold would just jump to 2049.8% what it is now, after our government demands that everyone cash their gold in at pennies on the dollar.

True. The GoldUSD would be worth about 20 times the current USD. This is the reason to switch. However, there's a problem!

Because the total value of GoldUSDs is too low. That is why it won't work. Total value is what we need to look at, not value per unit.

Alternate explanation (I like explanations in simple math):
people = 300
YellowCoin = 100value
GreenCoin = 1000value
YellowCoin/people = poor ratio
GreenCoin/people = good ratio

[Sergeant Thorne]

You're thinking about it wrong. The total value doesn't change (which is why the value of Gold would have to go up were it to back our money)--total value is preserved. People more savvy and experienced than you or I deal with value, and cash in on such a happening. We're just talking about gold/unit, because the number of units remains unchanged (except in my first scenario, where, instead of changing the value of gold, the number of dollars in everyone's possession is changed. However, historically, and most likely to avoid public outrage, this is not the way it is done).

The idea of going to a gold standard has nothing to do with changing value, it's about a solid currency that is not subject to artificial inflation. That is the only reason to move to a gold standard.

[Isaac]

You're thinking about it wrong. The total value doesn't change (which is why the value of Gold would have to go up were it to back our money)--total value is preserved.

It's divided.

Mathematical explanation:
( Total Gold Holdings ) / ( Number of Printed Gold Backed dollars ) = Represented gold per dollar.

Can I please get a mathematical explanation of what you mean?

[Sergeant Thorne]

You've got the equation right, you just don't seem to understand economic theory (for lack of a better term) well enough to totally grasp these things. Despite your quote of the material in question, I'm not able to divining enough about what exactly is perplexing you from what little you've written.

It's divided.

Oh well, I'm gonna go eat a mango, and I don't care how many apples and undervalued oranges I have to walk over to get to it!

[Isaac]

What I see is a country with a gold standard not having enough wealth to buy everything it needs, even if you triple its total value with securities.

[Sergeant Thorne]

Do you mean not having enough wealth for international trade?

[Isaac]

That too, but I wasn't including that in order to simplify.

Next week...
I will make a cartoon explaining what I mean.
Same bat thread! Same bat forum!

[Isaac]

Update:


http://www.newyorkfed.org/aboutthefed/f ... fed01.html
I have to check this but I now believe there might only be $829 billion actual dollars in circulation worldwide. However, that's double holdings of gold, 477 billion, which is a bit over 50% of the value of regular dollars.

I still don't think it could work...
Or maybe it can domestically, meaning 477billion is enough for just us, but who knows...

[Sergeant Thorne]

Isaac you can't change the title of the topic. It makes it hard to follow! It's obnoxious .

That's not right. $829 billion is a ridiculously low number. Maybe you're looking only at the actual physical dollar bills in circulation. Think of the U.S. National Debt. Certainly that must be included in the figures (even if you don't include that, the number is still way too low...

[Isaac]

$829 billion is a ridiculously low number. Maybe you're looking only at the actual physical dollar bills in circulation.

YES YES YES!!!! Stop right there! Correct!

[Sergeant Thorne]

Isaac, for the love of God, stop playing "give us a clue". Experiment with communicating your entire point!

[Jeff250]

In any case, Ron Paul doesn't want a return to the gold standard, just to allow gold and gold-backed notes to be used as legal tender.

[Isaac]

I'll just invest in bonds...