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Gold Standard Legislation proposed!

Sounds like RP is resonating with this amazing piece of legislation to return to the gold standard. Don't know much about this Tod Poe.

By Congressman Tod Poe may be found at
http://fluidsociety.com/showx.asp?articleid=6024
(subscription only, so here's the whole thing)

[Former judge and Texas Congressman Ted Poe has introduced legislation which would peg the dollar to $500/oz. But Poe is correctly leading with a radical departure over run-of-the-mill gold standard proposals, which subscribe to the mistaken notion that a gold standard must equate to a quantity rule between ounces at Fort Knox and dollars in the economy. Poe's proposal is purely Hamiltonian. As Poe states in his oped for RealClearMarkets, this is a new gold standard. Money "will be the same 'legal tender' currency that we have now. There will be no limit on the number of dollars except market demand. The big difference will be that every dollar will always be worth the same as one five-hundredth of an
ounce of gold." This excellent legislation has the hallmarks of pure
classical economics. VS]

Congress Must Stabilize the Dollar
Rep. Ted Poe

On July 31, I introduced H.R. 6690, the Sound Dollar and Economic Stimulus Act of 2008. It is vital that this bill become law.

The U.S. dollar affects every American citizen and every American business. Our economy is totally dependent upon the dollar. To have a stable economy, we must have a stable dollar.

Unfortunately, for many years we have not had a stable dollar. Today, people are angry and afraid. The crumbling, gyrating dollar has created an economic crisis.

I was a judge for 25 years. I believe in law and order. The U.S.
Constitution is the supreme law of the land. Article I, Section 8 of the
Constitution provides that:The Congress shall have Power To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures

So, what has Congress been doing about the dollar? Nothing. Since 2001, Congress has stood idly by while the dollar has lost almost 70% of its value, whether measured against gold or retail gasoline.

When a currency begins to lose value, the effects show up first in the price of gold, followed quickly by other commodities, such as oil. However, eventually the inflation works its way through the entire economy, raising prices across the board. In the process, the hard-earned savings of Americans are devalued or, the way I look at it, stolen.

Inflation creates turbulence in financial markets and provokes conflict between economic groups. People become angry because they feel that they are being robbed. They become afraid because they know that unchecked inflation can lead to economic collapse.

In 1913, Congress delegated its power over money to the Federal Reserve. Unfortunately, the Fed has been preoccupied with manipulating interest rates. Since 2001, the Fed has lowered its Fed Funds rate from 5.00% to 1.00%, raised it to 5.25% and then lowered it to 2.00%. Meanwhile, the value of the dollar has declined by nearly 70%.

Trying to regulate the value of the dollar by manipulating the Fed Funds rate makes no sense. The Fed Funds rate is the price of one type of capital. Because the Fed cannot supply capital (real resources) to the economy, it is not clear why it should be in the business of setting interest rates. Logically, interest rates should be set by the market by the supply and demand for capital.

Unlike capital, the amount of money in the economy should not be limited by anything physical. It should be determined by the demand for money, which depends upon the transactions people want to do and how much money they want to hold.

What matters about money is not its quantity but its value. In this,
dollars are no different than foot rulers. No one cares how many foot
rulers there are in the world. What matters is that each one is the length prescribed by the U.S. Bureau of Standards.

My bill directs the Federal Reserve to bring the price of gold down to
$500/oz and then to keep it there. The Fed would do this by announcing that its Open Market Desk was prepared to sell government bonds and contract the monetary base until the price of gold falls to $500/oz.

At last measure, the monetary base was about $872 billion. In December, 2005, which is the last time the price of gold was at $500, it was $827 billion. So, it is possible that the Fed might have to sell as much as $45 billion worth of bonds to implement the new policy. Because this is only about 0.8% of the total amount of bonds currently outstanding, this should not be a problem. However, I believe that the demand for the newly-stable dollar will be so great that the Fed will actually have to expand the monetary base to keep the gold price from falling below $500/oz.

Once the Fed implements its new directive from Congress, every dollar in the world will have the same market value as one five-hundredth of an ounce of gold. From then on, the monetary base will expand and contract automatically in response to market demand.

Why gold? My bill defines the value of the dollar in terms of gold because the financial markets want, and the American people deserve, a dollar that is as good as gold.

Why $500/oz? At $804/oz, the current market price of gold reflects the expectation (and fear) of future inflation. I believe that fixing the value of the dollar now in terms of gold at $500/oz will stop the current inflation without causing deflation. However, my bill also provides a powerful supply-side stimulus, in the form of first-year expensing of all capital investment, to ensure that economic growth accelerates at the same time that inflation is being stopped.

Bringing the dollar price of gold down to $500 will bring the price of
gasoline down from its current $3.50/gallon to less than $2.50/gallon. It will strengthen the dollar against foreign currencies. Most important, it will prevent Americans incomes and savings from being stolen by inflation.

My bill will not put America on the gold standard, like we had in the early part of the 20th Century. Under the old gold standard, gold was money. Limiting the supply of money to the supply of gold was a huge mistake. It was the basic error that caused the Great Depression.[BWR - we disagree on this historical point, but this does not really detract from Poe's fine proposal.]

Under my bill, our money will be the same legal tender currency that we have now. There will be no limit on the number of dollars except market demand. The big difference will be that every dollar will always be worth the same as one five-hundredth of an ounce of gold.

When I became a Congressman, I took an oath to uphold the Constitution. The Constitution commands Congress to regulate the value of our money. My bill will do this. This is why it is essential that it become law.

Representative Poe, a former judge, is a member of Congress serving the 2nd district of Texas.




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I'm not reading your entire

I'm not reading your entire post. The first few paragraphs showed it all.

This legislation is not designed to stabilize the value of the dollar, it is designed to stabilize the value of GOLD in terms of dollars.

The legislation will not change a thing. They state that the quantity of dollars will not be fixed to the amount of gold and that dollars will be made available as needed. The only difference is that $1 will always be "worth" 1/500th of an ounce of gold.

This is ridiculous. It's not a gold standard, it's a dollar standard.

...

Committee will change it anyway

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"We will never give up. We will never give in." - Dr. Ron Paul

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"We will never give up. We will never give in." - Dr. Ron Paul

Doomed to failure

If my understanding is correct, the last time we had a gold standard, it failed because there were too many dollars printed, and when foreign countries came back trying to convert the dollars they had acquired back to gold, there wasn't enough gold to repay the debt.

Poe's bill admittedly fails to tie the quantity of dollars to the quantity of gold in reserve to back the dollars.

Passing this bill essentially absolves the government and the federal reserve of what would be a fixed 1429% inflation since the Nixon administration, with no real means of preventing the same problems with the old gold standard.

None are more hopelessly enslaved than those who falsely believe that they are free. -Goethe

None are more hopelessly enslaved than those who falsely believe that they are free. -Goethe

do not understand this

There will be no limit on the number of dollars except market demand. The big difference will be that every dollar will always be worth the same as one five-hundredth of an ounce of gold.
What would stop the FR from printing money like crazy like they do now ?
If dollars are printed up by market demand how could it always be worth 500th of a ounce of gold?
This sounds like a plot to bring down the metal prices ? where am I wrong.

In a democracy you do not always get what you want, but you always get what you deserve. Edwin Albin

Good to see the awakening...

... but like so many other good ideas or anything that goes against the "established norm," I get the sense that this will be overwhelmingly shot down. Overall, congress is scared shitless of the Fed, and this bill proposal is a direct challenge to its position in the hierarchy. If passed, it seems to me that a lot of elites stand to lose a lot of power, and I do not believe they will be the least bit interested in allowing that to stand.

I'm not the sharpest knife in the drawer regarding economics so I could be wrong in my interpretation, but I do understand the mindset of criminals, and they will not be amused about this idea.

The gold standard is a game for suckers

"The definition of a crazy person is someone who keeps doing something, over and over, even though it fails to achieve his goal. It is time for defenders of sound money to cease being crazy. It is time to stop promoting the traditional gold standard. The traditional gold standard is a game for suckers."
- Gary North

won't happen anyone with a

won't happen

anyone with a reasonable background in political economy understands that no government will willingly cause a depression, which is what would happen if you contracted the monetary base to make gold $500/ounce.

The only practical solution is to make gold well over $1000 an ounce and then tie the dollar to gold.