"Far too many people believe that gold serves no useful purpose. I am
therefore publishing this response to The 10 Minute Gold Standard: It’s Much Easier than You Think
by Nathan Lewis. Mr. Lewis, a professed advocate of the gold standard, argues
that even if we have a “gold standard”, we don’t need actual gold. Indeed,
according to David Ricardo (quoted in the article), gold’s only job is to
regulate the quantity of paper.
Mr. Lewis notes that when the Fed buys bonds it increases the quantity of
dollars and when it sells bonds it decreases the quantity. This is true enough,
but it’s not the quantity of dollars per se that is causing our ongoing capital
crisis, or if you prefer, our solvency crisis. But I get ahead of myself.
The 10-Minute proposal is simple: the Fed should tweak its central planning.
Instead of buying bonds to control the interest rate, it should buy bonds to
control the gold price. However the unstated assumption, that the price of gold
is based on the quantity of dollars, is false.
Gold is money, and paper (the dollar) is credit. The ratio of credit to money
is not constant. Nor is the price of credit, which depends on its quality.
Trying to control the gold price by this indirect proxy would be like trying to
steer a car by opening and closing the windows.
The fatal flaw in the proposal is that paper cannot perform certain functions
that can only be performed by gold. One is to extinguish debt. Paper currency is
itself a credit instrument. The dollar is the liability of the Fed. Paying in
paper transfers a debt, but the debt itself does not go out of existence. Since
interest is constantly accruing, total debt rises exponentially..."
at http://www.zerohedge.com/contributed/2013-03-03/10-minute-gold-standard
No comments:
Post a Comment