Adaptable Gold Standard is the Answer:
The Central Bankers have no power to turn the economy around:
There is no anchor against the ever-increasing money supply that is destroying the world’s reserve currency, the US dollar. New air-printed money is constantly created to fight deflation to avoid a depression. The world Central banks cannot accept deflation; they are trying to offset this by printing money to generate inflation.
As there is no velocity in the money circulation, they cannot generate the outcome they want. The Central Bankers have no power to turn this around, but resort to continuously print money that no one spends, so the money has little effect on the economy. If they don’t find a way to increase the velocity of money, there will be no inflation and higher prices, if money velocity keeps slowing down, the world will be mired in a deflationary trap that scares the hell out of the central bankers, as debt burdens go up in real terms. Tax revenues decrease. Banks fail. When the role of complication is ignored, they are putting the system at risk of collapse.
The use of multiple reserve currencies –SDRs- will also descend into chaos, as these also are without valuable backing and the existing encountered problems will not be solved. It is still an open question whether the world needs a reserve currency and it certainly does not when money is linked to something tangible. There is no need for central banks to create money without limits either – as has been proven during the era 1870 – 1914 when the gold standard acted independently and effectively.
Adaptable Gold Standard is the Answer:
An innovative adaptable gold standard should be adopted to reduce uncertainty about inflation, interest rates, and exchange rates. Once entrepreneurs and investors have greater certainty and price stability, they can take greater risks with new investments. There is enough uncertainty in entrepreneurship without adding inflation, deflation, interest- and exchange rates. A radical split is required from the world economy, guided by privately-owned central banks that have created continual asset bubbles, crashes, panics, booms and busts in the last forty years. It is time to diminish the role of finance and empower commerce. Gold produces the greatest price stability in costs and asset values and therefore provides the best outlook for businesses and investors.
An adaptable Gold Standard deserves consideration as it basically suits all economic circumstances. The money supply could be backed by gold, for example varying from 20% – 100%. At its launch, the highest percentage is required to encourage confidence.
What should be the dollar price in gold under this adaptable gold standard? Choosing the wrong price was the single biggest flaw in the gold exchange standard of the 1920s. But based on the level of debt in the world today, the existing money supply M1, M2, etc., the initial proportion of gold backing implies that for 100% backing, the gold price should lie around US $ 45.000 and in the event of 20 % backing around US$ 2.500/ounce. The appropriate price peg needs special attention to avoid the mistakes of the 1920s.
To impose discipline on whatever combination is chosen, a free market in gold should be allowed to exist side by side with the official price. In order to maintain the market price at or near the official price, open market operations could determine the market price.
The degree of adaptability is to be considered in advance – with pre-set qualifications explicitly describing the conditions and when it would be desirable to be permitted to deviate from the strict coverage ratio, for example in cases of economic emergency, such as events involving a true liquidity crisis or an emerging deflationary spiral when rapid money creation in excess of the money to gold coverage ratio would be necessary.
Two essential elements to create confidence in the gold-backed system are, a strong legal regime and mandatory open-market operations to stabilise prices. Those are the pillars to consider which may possibly cause circumstances under which it could be allowed to create excess paper money and exceed the coverage ratio ceiling.
Presumably in extreme circumstances such as deflationary contraction, the open market operations would constitute a kind of democratic referendum on the decision. If the market responded with the judgement of deflation, then there would be no run on gold – in fact there may even be sellers of gold – as other countries with a trade deficit would be buyers – that would maintain the gold price. Conversely, if the market questioned the judgement, then a rush to redeem paper for gold might result. Which would be a powerful signal to return to the original money to gold ratio.
Other parallels could be realistic too; important to comprehend is the concept of adaptability in the gold standard. A more in-depth discussion lies outside the scope of this consideration, that simply intends to explain the feasibility and realistic practicality for an adaptive gold standard.
The crisis issues involved and explained previously are strong enough to consider the implementation of an adaptive gold standard. Given the loss of confidence by citizens in central banks and the continual experience of debasement of currencies by the banks, it is likely that a broader money supply definition and the highest coverage ratio is required to secure confidence in a new gold standard.
Greater economic stability:
In any case, the issues involved in re-establishing a gold standard with enough flexibility to accommodate modern finance, deserve serious study and extensive research, based on the need to restore confidence on a global scale, rather than ridiculing the concept without any further consideration. An important additional advantage; every country can independently manage their own currency, contributing to greater economic stability.
The mere announcement of this undertaking could have an immediate benefit and stabilising impact on the global economy, because the market would begin to price in the future stability, a procedure similar to the euro convergence years before the euro was launched. Once the appropriate price level is determined, it could be announced in advance and open-market operations could commence immediately to stabilise currencies according to the new gold equivalent.
Eventually, the currencies themselves could become pegged to gold. Then the world is ready to undergo new creativities, further innovations, improve productivity, and apply advanced technologies as the market is finally freed from manipulations. And last but not least, real global growth would be fuelled by real rather than paper wealth.
A serious caveat; it’s not likely that the central bankers will accept their defeat and relinquish their power. So, the more likely outcome from this economic crisis is not the most logical solution, but more conceivably, global chaos, as a consequence of currency wars and the debasement of paper money will wreak catastrophic chaos, with the collapse of investor confidence, resulting in emergency measures being taken by governments to maintain some semblance of a functioning monetary system for trade and investment.
Even worse, the next financial collapse will resemble nothing we’ve seen in history. This one is going to happen like an avalanche brought about by the layering of one last financial snowflake on an unstable mountainside of insurmountable debt.
History of broken promises:
The history of Central Banking in general has been one of broken promises when it comes to the convertibility of money into gold, and particular promoting ZIRP and NIRP banking interest at the expense of the general public’s interest.
If the US were not so big and powerful at the time, it couldn’t impose its money as the world’s reserve currency. Without its position as the issuer of the world’s reserve currency – dollars instead of gold – the US wouldn’t be able to flood the world with its cash. Without the rest of the world’s need for dollars, the credit bubble couldn’t continue growing. And without the credit growth there wouldn’t be a way to pay the expenses for all the unnecessary wars and the maintenance of a worldwide empire.
Forty years of artificial markets.
In essence, Central Banks aren’t as powerful as most people think. They may be responsible for triggering this crisis – and partially to blame for 40 years of artificial
markets. But they don’t have the power to hold off market forces indefinitely. And they certainly won’t have the power to reign them back in now that they’re unleashed. The far greater danger, unless we the people don’t revolt en masse against it, is the implementation and control of a new Global Monetary System. The very same purpose they have in mind with this is for sure, NOT in the interest of We the People.
There still is – albeit very limited – time left to WAKE UP and see the true picture, revealing the terrible truth of the “powers that be” that fundamentally act on behalf of an elite cartel, employing governments and politicians as their front men that manipulate the media and markets with the objective of exploiting all of us. We are at the complete mercy of their parasitic – privately-owned – central bankers that are more than willing to not only implode the world’s economy, but also finance both sides of any newly created conflict for personal gain and control, in which most authorities, as their paid minions, are accomplices.
Hopefully readers will start to grasp the monstrosity of what is going on around us, and how gravely urgent a change for the better is needed.