On Thursday, January 23, 2003, at 06:10 PM, Gimme Shelter wrote:
... I disagree entirely with the author of NationalRight, this is what I call the Lawrence Kudlow Pablum B.S. Gold Standard. Pulling levers to keep gold at $350 is not a real gold standard in my book.
Post article on the basis of Chairman Greenspan and Governor Bernanke�s
statements that the goal for gold is $350 and it will be fixed at that
price. That simply will not, and cannot happen in today�s floating world.
But what they're talking about in this article is really weird, see below.
Uh ... yeah. With M3 at $8.5 Trillion and gold reserves at 261 million oz, you'd have to convert at the rate of $32000 / oz... Convertibility is out of the question in light of the profuse use of dollars as the primary international settlement mechanism.
Gold is
headed back into the system by a modernized and revitalized Federal
Reserve Gold Certificate Ratio then tied to the expansion of M3 (the broad
monetary aggregate figure). The value of Treasury gold on the day of
enactment will be considered to be that value which is required to have
that size M3.
Hmm, you would think that would impose some discipline, but ...
From that point forward, more gold or a higher price for... it seems like the Treasury could kind of prime the pump here. Just print some money and when the price of gold goes up in response just say "See, our gold reserve is now valuable enough to justify the money we just printed." :-)
gold will be required in order to expand the broad based monetary
aggregate beyond a modest percentage. The Treasury could simply benefit
from a higher price or could buy gold in the open market to effect a
higher price should the need arise to expand beyond the present level in
M3 beyond a predetermined expansion of 3% per year.
Or look at it the other way. Let's say the Fed knows the price of gold is about to go to $600. By setting up their non-convertible gold standard now at $350, they will have permission to increase M3 by 70% when gold hits $600.
I mean, it's really weird the way they're talking about doing it. They will let M3 be proportional to the DOLLAR VALUE of their current gold reserve. Why can't they instead say M3 will always be proportional to the NUMBER OF OUNCES of gold in the reserve? Sheesh! Am I missing something here? Is it just me or does their plan seem fishy?
I don't think I'm misinterpreting the plan. Note that they say "The VALUE of Treasury gold on the day of enactment will be considered to be that value which is required to have that size M3."
So that means any inflationary increase in the market price of gold becomes a justification for the Fed's monetary inflation. I'm sorry, it seems so damn stupid I feel like I'm missing something.
Why didn't they say "The NUMBER OF OUNCES of Treasury gold on the day of enactment will be considered to be that size reserve which is required to have that size M3." ??
Gold�s important role in a monetary system has never been convertibility.Perhaps without convertibility there is no control. Gold's role has "never" been convertibility?? Then why did the U.S. issue gold certificates? Just for show?
It has been control.
-- Patrick
http://fexl.com
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