What do I think of the World Bank President's call for discussion of a new gold standard?

[EJ]

World Bank chief surprises with gold proposal

The world's largest economies should consider gold as an indicator to help set foreign exchange rates, the head of the World Bank said on Monday in a proposal that threw open the acrimonious currency debate just before a summit of G20 nations.

Writing in the Financial Times, World Bank President Robert Zoellick called for a new monetary system to replace the floating rates adopted in 1971 known as Bretton Woods II.

AntiSpin: On January 3, 2006 I started a site called The Fourth Currency where I asserted:

A return to the Bretton Woods international gold standard created in 1944 is inevitable

Thirty-seven years ago the world’s economies started on the circular track back to Bretton Woods. We will sooner or later be back where we started, with international transactions guided by a fixed gold price.

So there's your answer. It was inevitable to me in 2006. Still is. America's free ride is almost over. Thank the leaders of both parties who built the FIRE Economy on the foundation of the Dollar Cartel since 1971.

With any luck, the currency wars end peacefully.

The coins pictured, by the way, are three I inherited from my father who bought them in 1972 for the price shown on the original protective covers, $79. That was the year after the U.S. defaulted on its foreign gold debts, and the year that the chairman of the Bank for International Settlements (BIS) proclaimed that gold without demand from central banks as a monetary asset was free to fall from its then fixed price of $35 to its true market value as an industrial commodity, "around $7.50 per ounce."

Today each of the coins in the picture sells for $1,730, and gold trades for 188 times the price forecast by the BIS. Look here for my original arguments for buying gold in 2001.

When to sell it? When vested interests step aside and allow the nation and global economy to heal from decades of debt-financed economic growth. Don't hold your breath.

[ThePythonicCow]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

But how can an SDR possibly succeed when four of the five underlying proposed currencies: the Yen, the Dollar, the pound, and the Euro, are suspect? These debt-based currencies are basically tied to nations, that on paper, are effectively insolvent.

Excellent question. If confidence in the Dollar fails, then these other currencies fail as well. They are too entwined both in the financial world and in the way ordinary people think of them.

The strengths of the SDR-like proposals are two. The financial elite no doubt support such, and the alternative, the failure of our debt-based currencies, is difficult for people to understand, other than by expecting a return to traditional gold or silver backed currencies.

If we go down the path of dramatic change, then likely we will have to travel that path someways before we can collectively imagine where it might lead.

[doom&gloom]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

I wholly agree!

[Olduvai]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

World Bank chief surprises with gold proposal

[B]
When to sell it? When vested interests step aside and allow the nation and global economy to heal from decades of debt-financed economic growth. Don't hold your breath.

Thanks to iTulip I got myself a modest car worth of Gold/Silver and sleep much better at night.
Even when my other savings are in a supposedly partial gold-backed currency (Euro) and woodland/real estate.
But how is to tell when vested interests step aside. What will be the canarie to listen to ?

[gnk]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Zoellick also wrote on the SDR.

There has been a lot of talk of the SDR, representing a basket of currencies, as a replacement of the US dollar for international trade. Zoellick brings up the point that China's currency should also be a part of the basket - the same week, mind you, that the G20 meets amidst a lot of doubt regarding Bernanke's debt monetization announcement the week prior. To me, it smacks of appeasement to China.

But here's the rub. Yes, in an increasingly multipolar world, cooperation and power sharing is the only option aside from resolution through conflict. But how can an SDR possibly succeed when four of the five underlying proposed currencies: the Yen, the Dollar, the pound, and the Euro, are suspect? These debt-based currencies are basically tied to nations, that on paper, are effectively insolvent.

And what does the rest of the world say to potentially indirectly financing, thru inflation, the budgets of the SDR member countries? Russia, Brazil, Saudi Arabia, etc...?

My view is the emergence of gold by default, and in a chaotic way, hopefully not through war.

[c1ue]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

But how can an SDR possibly succeed when four of the five underlying proposed currencies: the Yen, the Dollar, the pound, and the Euro, are suspect? These debt-based currencies are basically tied to nations, that on paper, are effectively insolvent.

I've noted before (via reading Dr. Michael Hudson) that the World Bank and IMF are not truly international entities - they are effectively controlled by the US and UK as these 2 nations have veto power over either institutions' activities.

Similarly I've pointed out that an SDR with gold as a component is fundamentally different than gold as a reserve currency/stable store of value.

IMO the Zoellick commentary is more about the SDR than about gold as a reserve currency/stable store of value.

For the US and UK - accepting gold as part of the SDR is an excellent way to forestall the ongoing worldwide revulsion towards the dollar and pound, without actually giving up fiat.

The canary in my mind? When the US/UK lose their veto powers in the World Bank and IMF.

The other canary? When world trade denominated in dollars falls 30% from 2009 levels.

[jk]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

gold is regaining respectability. it is no longer "a barbaric relic." the ft has long hated gold, yet it now puts zoellick on its front page to say it's time to start thinking about gold: as a currency, or as part of a currency, or as a component of a basket of which a currency is a derivative, or something. we are still relatively early in the process of gold's growing desirability and fiat's loss of respectability. in american baseball terms, i would guess this is just the 3rd or 4th inning.

[ST]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

We will sooner or later be back where we started, with international transactions guided by a fixed gold price.[/B]

Int'l transactions tied to a fixed gold price, or int'l transactions tied to a market determined floating price? (determined by the market's assessment of int'l liquidity?)

[bill]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Fisher says hydrocarbon market part of the solution to be part of the basket?
Says he has not figured it out , but…

http://www.cnbc.com/id/15840232/?vid...8166520&play=1

[xPat]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Fisher says hydrocarbon market part of the solution to be part of the basket?
Says he has not figured it out , but…

http://www.cnbc.com/id/15840232/?vid...8166520&play=1

This was exactly what came to my mind when I saw this post. I was going to post the link but bill beat me to it.

For a long time, my own view has been that if you could invent a way to put 1,000 barrels of crude oil in your pocket (as you can do with a kilo bar), and save it there indefinitely, then redeem it for its energy value any time you like... If that were possible, I contend that gold would immediately lose almost all its value.

I think the argument that "For thousands of years, gold has been real money and it's what the world has always reverted to after fiat currencies collapse" is seriously flawed. Yes, what has been true for thousands of years is a very compelling argument, and that point should not be ignored. But the truth is that the world is a very different place now than it was for most of recorded history. Post-industrial planet Earth depends on energy for everything it does. At the end of the day, the world doesn't need shiny metal in order to keep modern society functioning. It needs energy. If someone could figure out a way to overcome the storage and practical problems (oil being flammable and volatile not being the least of them), I contend that energy makes a far more sensible store of value than shiny metal that happens to be rare. The only redeeming value of gold is that it is scarce, looks good on Mr. T. (a matter of taste, clearly), and has but only a few industrial and electronics applications. Energy is also scarce, and is something modern society desperately needs to function. And to see it on Mr. T. might be quite entertaining. :-)

EJ: Please comment with your thoughts on the viability of an energy-backed currency or other scheme to rely on oil or another energy proxy to back monetary transactions. Various people have talked about a crude oil-backed currency. Detractors argue that the value of oil depends on physical location and that because cost of transportation is way higher than PMs of equal dollar value, too many insidious arbitrage scenarios would be created by an energy-backed currency. I don't buy it. I personally abhor the idea of a world currency. But if I were trying to design one, I would simply decree that one GlobalBuck = 1/100th of 1 barrel of WTI crude, delivered at Cushing, OK. The point being that if you pick a specific grade and delivery point, you avoid the arb problems. Yes, different grades of crude elsewhere would be worth different numbers of GlobalBucks, but if the "standard" were a single delivery point, that should solve the problem. I chose WTIC and Cushing only because it's already the standard grade and delivery point where most financial trading already occurs.

I suppose the problem would be that shady, irresponsible borrowers (the United States Treasury comes to mind) would borrow huge amounts of GlobalBucks without having any credible plan for how to get the oil and deliver it were they ever called upon to do so. But it still seems to me that just as a "Gold Convertible" currency (1940s thru 1971) was "almost as good" as a true gold standard, an "Oil Convertible" currency would similarly be almost as good as a truly commodity-backed currency, which I don't think we'll ever see. The people issuing paper notes in GlobalBucks (competition should be allowed) would have to evidence reasonable reserves to allow anyone who chooses to convert the ability to do so. The U.S. has the SPR and could use that as collateral to justify printing and issuing GlobalBucks. Other countries wishing to issue banknotes denominated in GlobalBucks would have to provide similar collateral.

Like Fisher, I don't have this completely "figured out yet". Not even close. But on a gut level I am convinced that energy-backed money makes a lot more sense in the modern world than PM-backed money. EJ, I would greatly appreciate your thoughts on this.

xPat

[ThePythonicCow]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

Like Fisher, I don't have this completely "figured out yet". Not even close. But on a gut level I am convinced that energy-backed money makes a lot more sense in the modern world than PM-backed money. EJ, I would greatly appreciate your thoughts on this.

I may be quite confused, but I see no sign here of any PM or energy backed money.

I see rather signs of debt backed moneys of various nations and regions, that are exchanged and valued relative to each other using somehow prices of such goods as gold or oil to help determine the exchange ratio.

The strengths and weaknesses of an actual precious metal backed currency are being discussed by way of obfuscating what is really happening, which is the further entrenchment of debt backed currency (all money is lent into existence.) They are presently about changing the "Reserve Currency" (the common denominator of such exchange ratios and most commonly referenced currency in major international trade contracts) from the U.S. Dollar to some internationally agreed fabrication.

Whether the price of gold, oil or cows milk is part of calculating that fabrication matters not in the slightest to me.

What matters to me is removing the exorbitant privilege that the financial elite have by means of controlling the big banks which lend into existence, at their discretion, all our money, with its associated claim on future earnings and property to repay that debt.

[ThePythonicCow]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

an "Oil Convertible" currency would similarly be almost as good

I doubt we will see a GlobalBuck that is marked "good for one barrel of West Texas Intermediate Crude (WTIC)." Rather we will see a GlobalBuck that is good for some amount of national and regional currencies, at floating ratios computed by some gnomes in Basel, Switzerland, with the claim that those floating ratios reflect in part the prices of a barrel of WTIC in those currencies.

[xPat]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

I may be quite confused, but I see no sign here of any PM or energy backed money.

I see rather signs of debt backed moneys of various nations and regions, that are exchanged and valued relative to each other using somehow prices of such goods as gold or oil to help determine the exchange ratio.

The strengths and weaknesses of an actual precious metal backed currency are being discussed by way of obfuscating what is really happening, which is the further entrenchment of debt backed currency (all money is lent into existence.) They are presently about changing the "Reserve Currency" (the common denominator of such exchange ratios and most commonly referenced currency in major international trade contracts) from the U.S. Dollar to some internationally agreed fabrication.

Whether the price of gold, oil or cows milk is part of calculating that fabrication matters not in the slightest to me.

What matters to me is removing the exorbitant privilege that the financial elite have by means of controlling the big banks which lend into existence, at their discretion, all our money, with its associated claim on future earnings and property to repay that debt.

'Cow,

You're certainly entitled to your opinions, but based on my reading of your values I don't think you're appreciating the relevance of a commodity standard yet.

First, I agree that nobody is talking about backing currency with anything real, and that's sad to be sure. But face it: when power is as deeply entrenched as it is now with the monetary elite, you can't take it back with anything short of a very bloody revolution. That might happen some day but it will be a real mess. Meanwhile, I think it worthwhile to consider what might actually be realistic under the present power regime.

The U.S. hasn't had a true gold standard since (I think) 1944. From then until Aug. 15, 1971, it had a pseudo-gold standard, i.e. a promise of convertibility in lieu of true backing of the dollar by actual metal. When you look at the history of the gold-convertibility "standard", it worked reasonably well to keep excessive money printing under control. The government knew that if it went too far in inflating the currency (as it eventually did), the counterparties would assert their conversion right (as they eventually did), and it would be a real mess. The real trouble started after 1971, when we went pure fiat.

I'd love a truly commodity backed currency, but I don't think it realistic. The people you and I both despise have too much power to allow it to happen. On the other hand, they face a real mess with the USD not being a suitable reserve currency and needing a replacement. Bottom line, I think a convertibility standard based on energy is the best outcome one could realistically hope for. A currency truly backed by anything is beyond the reach of realistic expectations in the present global political environment, sadly. IMHO, for that to change would require a full-fledged revolution, and I don't think that's possible given the disparity in ability to project force between the people and the government that no longer serves them.

xPat

[ThePythonicCow]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

That's a good reply, xPat.

I'd love a truly commodity backed currency, but I don't think it realistic.

The way things stand at present, I agree. It doesn't seem realistic to me either.

But it is still important to keep in mind what matters, even if there is no evident path from here to there at present. (See below however for a hint of such a path.)

The people you and I both despise have too much power to allow it to happen.

Their power shall weaken. In particular, a better understanding of their dastardly ways can help weaken their power.

On the other hand, they face a real mess with the USD not being a suitable reserve currency and needing a replacement. Bottom line, I think a convertibility standard based on energy is the best one could realistically hope for.

Yes, a better reserve currency is needed, and an energy based one seems like an improvement (though it is still an issue that I don't worry about.)

A currency truly backed by anything is beyond the reach of realistic expectations in the present global political environment, sadly. IMHO, for that to change would require a full-fledged revolution, and I don't think that's possible given the disparity in ability to project force between the people and the government that no longer serves them.

If the exorbitant funding of the various and numerous U.S. military, intelligence and enforcement agencies were to decline dramatically, then they would suddenly look far less formidable.

If the exchange rate of the Dollar were to fall dramatically, then the above exorbitant funding would (in real terms) decline dramatically.

The above dramatic events do not seem impossible to me.

[jpatter666]

Re: What do I think of the World Bank President's call for discussion of a new gold standard?

xPat,
It's an interesting idea, but a few issues -- maybe you can clarify for me:

1 ) One of the reasons gold is useful as a currency (IMO) is that it doesn't have may uses (and that it is reasonably rare). Thus, we can usually have a fair estimate of how much gold is available in the world.
2 ) Energy -- especially oil, waxes and wanes with the seasons. And it is *used*. Gone forever. I just have a hard time seeing how -- as we approach peak cheap oil/energy this would be accepted (or could even be tracked effectively). And in this day and age, terrorists would *love* such a target (today, France's currency reserves went up in a ball of fire....)
3 ) The major powers will *never* hand over their printing presses to the Middle East. The oil producing nations will never accept a "worldation" of their oil/energy resources.