http://www.lewrockwell.com/north/north512.html
The Gold-Plated Sting
by Gary North
***Begin Quote***
If a free market gold standard ever arrives, it will be the result of an unplanned response by men and women to a disaster created by the existing central bank cartel. This would require that the switch be preceded by massive inflation, followed by deflation, producing the bankruptcy of the existing banks and brokerage houses.
***End Quote***
Well, I clearly agree, it probably would take some catastrophe to get back to a gold currency. There may be a peaceful solution.
Gresham’s Law, “bad money drives good out of circulation”, ensures that gold can’t circulate alongside FRBies at the same time.
I look at the times of Hyperinflation as the “BIG entrance door” to getting back to gold. It has to be the sudden awakening from the fiat currency delusion. There have been examples of a country’s economy stopping. The Politicians keep inflating, after all it’s free money to them, and eventually the food prices escalate faster than earning power. I have had the phenomena of “wait an hour and your money is worthless” described to me by people who lived thru it. She described going to her husband’s office several times a day, taking what he had been paid for his work, and buying anything in the marketplace. Anything was better than paper. That was an economics lesson for me. Paper is paper. It only has value as long as the marketplace takes it. And, as we know, when the market crashes, the exit door isn’t wide enough for everyone at the same time.
The “little door” peaceful solution might be that people recognize the scam of paper fiat currency and “game” the system. Clearly, owning something is better than owning dollars. Owning something that generates wealth is better than something that doesn’t. Inflation is the hidden tax on holding dollars. If we guesstimate that the inflation rate is 5%, then a dollar to day is .95 next year, .9025 in two years, .8573 in three, .2146 in 30, and .0769 in 50. Suppose that the rate goes to 10%, the progression is 0.9000, 0.8100, 0.7290, 0.6561, 0.5905 with .0424 in 30 years and .0052 in 50! So the actual rate of inflation is very important. So you NEVER want to hold dollars. Envision burying a cash horde in your back yard. Dig it up in fifty years and you’ve got waste paper.
So how does one deal with the reality.
- Holding dollars is always wrong! (i.e., do you want the pirate’s chest to be full of dollars?)
- Having a commodity is a long term store of value. (i.e., two gold coins have historically always bought a fine’s mens suit)
- A productive asset is intrinsically valuable (i.e., the cow gives milk every day).
One “games” the system by not being fooled into thinking that FRBbies are “money”. Money is a store of value.
Reinke Faces Life 