Im curious.
Why cant the federal goverment buy gold reserves to stabilize the dollar?

wouldnt the give the dollar a higher value?

There isn't enough available gold in the world to back up as much money as we have in circulation.

And besides, we're not on the gold standard any more, or any precious metals. We have a fiat currency which means it only has value when loaned out. Gold in Ft. Knox wouldn't mean a thing.

Forget the government, put YOUR money into gold....seems like a wise investment right now.

Would be horrible for exports. It would allow us to buy more foreign goods and force people to live within their means I think. But I too like the idea of going back to the Gold Standard. I do not know how realistic it is but I have wondered about it. On the surface it seems to make sense to me. Would be interesting to see what the pros and cons are. I am certain there are people here who no something about it. I do not. Seems like Kit may.

how would gold reserves stabilize the dollar? gold fluctuates wildly in value

quote:

Originally posted by liberal90:
how would gold reserves stabilize the dollar? gold fluctuates wildly in value

I am not sure but I think the idea is that there is only a limited amount of gold. Money can always be printed. If the money supply is tied to the amount of gold it cannot simply be printed. The amount of money would be directly proportionate to the amount of gold available. I think but am not sure that is kind of how it goes. This also means that loans and the like are more expensive as money is scarcer.

quote:

Originally posted by R102:

quote:

Originally posted by liberal90:
how would gold reserves stabilize the dollar? gold fluctuates wildly in value

I am not sure but I think the idea is that there is only a limited amount of gold. Money can always be printed. If the money supply is tied to the amount of gold it cannot simply be printed. The amount of money would be directly proportionate to the amount of gold available. I think but am not sure that is kind of how it goes. This also means that loans and the like are more expensive as money is scarcer.

How would this fix anything?

quote:

Originally posted by liberal90:

quote:

Originally posted by R102:

quote:

Originally posted by liberal90:
how would gold reserves stabilize the dollar? gold fluctuates wildly in value

I am not sure but I think the idea is that there is only a limited amount of gold. Money can always be printed. If the money supply is tied to the amount of gold it cannot simply be printed. The amount of money would be directly proportionate to the amount of gold available. I think but am not sure that is kind of how it goes. This also means that loans and the like are more expensive as money is scarcer.

How would this fix anything?

Very good question. There is no evidence that it would or would not as far as I know. Of course I am no economist and my knowledge on this subject like many others is limited.

I suppose it helps secure the value of the dollar and keeps it stable. But it means foreign nations would be relunctant to invest in American companies due to costs.

England switched back and forth with the gold standard after WW2 and definitely had mixed results.

I like the idea of it as I like the idea of a stable dollar and I travel alot. But I really do not know if it is the best answer or not for the nation.

The gold standard would not work for a fundamental reason: there are too many U.S. citizens working and we produce too much. The gold standard is effective for small economies, but it does not scale to larger economies. By comparison, our fiat currency is basically valued based upon the stability of the U.S. government/economy and the productivity of its citizens. As U.S. productivity grows, the 'value' behind the dollar increases. As the U.S. government and its citizens borrow/buy on credit, the 'value' behind the dollar decreases. The ideal situation is actually that of balance, with adjustments to keep competitive with other currencies (purchasing power vs. lower priced exports). Without balance, you are faced with deflation (not enough money supply) or inflation (too much money supply).

quote:

Originally posted by R102:

quote:

Originally posted by liberal90:
how would gold reserves stabilize the dollar? gold fluctuates wildly in value

I am not sure but I think the idea is that there is only a limited amount of gold. Money can always be printed. If the money supply is tied to the amount of gold it cannot simply be printed. The amount of money would be directly proportionate to the amount of gold available. I think but am not sure that is kind of how it goes. This also means that loans and the like are more expensive as money is scarcer.

This is pretty much why FDR took the country off the gold standard during the Great Depression. It did not end the depression but helped get the economy on the way back to recovery.

The gold stanadard works just fine for my personal economy. I have been buying it since 2000 in both certificates and the maximum physical quantity allowable per annum in order to not declare it ($9999). However, our money ain't worth chit these days, thus the $983 an ounce price tag you will encounter. I stopped buying last year.

But, one thing I can say, if I ever want to buy something I can just sell my gold. It always increases in value compared to our dollar (which is worth half that of a British Pound and the Euro. And is even with the Canadian and Australian Dollars and the Swiss Franc).

quote:

Originally posted by scooter_mech:

quote:

Originally posted by R102:

quote:

Originally posted by liberal90:
how would gold reserves stabilize the dollar? gold fluctuates wildly in value

I am not sure but I think the idea is that there is only a limited amount of gold. Money can always be printed. If the money supply is tied to the amount of gold it cannot simply be printed. The amount of money would be directly proportionate to the amount of gold available. I think but am not sure that is kind of how it goes. This also means that loans and the like are more expensive as money is scarcer.

This is pretty much why FDR took the country off the gold standard during the Great Depression. It did not end the depression but helped get the economy on the way back to recovery.

He also took all of the gold held by the citizens.

As an investment hedge vehicle, gold is useful. It generally keeps pace with the times, including increasing oil prices, and will 'never' be worthless, thus probably the lowest risk investment that you can make. However, it is of variable liquidity and does not generate an actual return unless it is sold off. For returns without selling off, you can turn to investment real estate (typically rental homes, apartments, and commercial property) or private ventures (your own business).

Back when we were on the gold standard, the fluctuations in value were prevented by placing an arbitrary, official value on an ounce of gold. No matter what it was bought and sold for overseas, here you could only get so much for it and you could only sell it to the government. (This was also done when we were on the silver standard. Silver is more common and, consequently, worth less but it allowed more dollars to be in circulation.)

Under the gold standard, the amount of money in circulation (which isn't the same thing as cash) is limited to the amount of gold held to cover that money. That's to ensure financial stability because, theoretically, everyone holding a dollar can demand the gold which backs up it's value and, if they should all do it at once, there better be enough gold to cover all those dollars or it's instant default and bankruptcy.

Under our fiat system, however, money is only guaranteed by the faith we hold in the government and has no value at all until it's loaned out. It is the loaning which gives it value because that promissory note can be bought and sold.

But, the advantage to the economy is that banks create money by their ability to make loans based upon their deposits. That's why if you take out a loan from a bank in which you do not have an account, they'll generally insist you create one so they can then re-loan a percentage of the deposit of that original loan.

For instance, let's say you borrow $10,000 and put it in an account and let's say the discount rate, or percentage required to be deposited in the Federal Reserve is 10% (that's the Feds "interest" rate you're always hearing them talk about). That means the bank has $9000 of your loan available to be loaned to someone else. Your loan just created 9000 more dollars in circulation.

Obviously, the down side to that financial system is this: What happens when all those loans come due or, more likely, what happens when the economy goes south and lending institutions have to start calling in loans that are in default? Since every dollar is loaned multiple times, all of those loans can't possibly be repaid. A default on one loan immediately causes a default on several more and if the snowball starts rolling, there's no stopping it. That's the danger of the current housing problem because that's where most consumer loans are made.

To prevent being caught in that, lenders often bundle their loans and sell them to investors who are willing to take that risk. But, those investors hedge their risk by buying oil futures. That's what's driving up the cost of oil right now: investors are worried about all the loans they're holding and are buying oil futures to protect themselves and that means higher oil prices as demand raises the price.

But, here's the kicker: Globally, oil is traded in US dollars so it makes a good hedge and, incidently, provides a defacto backing to our money just like gold did. But, what happens when those investors begin to lose confidence in the value of the dollar, as they're doing now? As the value of the dollar goes down, so does the value of their oil investments, while the risk on all those loans they hold increases. A lot of investors counter that increased risk by selling off their bundled loans at a discount and converting their holdings into Euros or some other currency in which they have more confidence. Every time they do that, the dollar loses more value because people lose more confidence in it.

Ultimately, somebody is left holding the bag. That shell game can't go on forever.

There...now that we've completed Economics 101, are there any questions?

Stillkit, thanks. I never knew about the silver standard. The country reall is in a pickle.

And what's really amusing is that, other than it's use in electronics (it's a good conductor), gold has no real practical value; it's otherwise utterly without use except in jewelry, some makeup, and some off the wall holistic medical procedures such as kelation (chelation)!

As a former boss of mine used to say when somebody would ask how much a used machine was worth; he'd respond: "Whatever somebody is willing to pay for it!"

Gold is only marginally less a fiat than is paper currency.

Both have alternate uses, but which do you value more; electronics or toilet-paper?



As with our current economy, it comes down to how much faith in your methods others have.

Supply and demand.

IF US currency were tied to the price of gold, and then IF the US were to start purchasing gold, then the available gold supply would decrease which would subsequently increase the market price of gold, which in turn would cause the purchase power of the currency to go down.

Bankers through-out history have ALWAYS attempted to inflate the value of money in devious ways to enrich themselves.

Gold works as a great "security" device against this because once it is minted, it can never be altered. Bankers would shave the sides long ago, but the sophistication of weighing balances would makes this apparent.
Gold is also the only metal that will not break down in any acid or seawater. Once minted it retains itself remarkedly well which makes it the perfect currency.
It was bankers that didn't want the gold standard but they do want the gold.
The unknown bankers who instituted the federal reserve have taken as collateral nearly all the gold held at Ft. Knox. They left behind enough to make it look like there is a sufficient quantity.
Bankers .... they wreck more countries than does armies.

Keep in mind that the pervasiveness of the U.S. dollar, the huge amount of overseas investments (including government debt), and the sheer weight of the U.S. economy means that other nations, particularly trading partners with positive trade balances, have an express interest in not allowing the U.S. dollar to experience rapid devaluation. That would effectively devalue their currency as well. It's all a very interconnected web of financing.

quote:

Originally posted by scooter_mech:

This is pretty much why FDR took the country off the gold standard during the Great Depression. It did not end the depression but helped get the economy on the way back to recovery.

Exactly. And going back onto such a system would risk our economy against another possible future depression (not recession - depression), which, contrary to its public relations department, is not so "great".

Also, keep in mind that our currency is pegged to the success of our economy, and that success is based in large part on consumer spending.

If consumer spending falls, our economy weakens, and so does our currency. You can see where this is going...