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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Zeev Hed who wrote (75136)	3/3/2001 10:57:38 PM
From: brightness00	Read Replies (1) of 436258

Zeev, The more recent Gold Standard models (since the mid-70's at the least) do not recommend holding significant amount of cold in reserve at all. You do not have to have 20% in reserve at all as your previous post suggested; a tiny amount of gold would suffice if you have rapidly responding interest rate mechanism in place. As soon as gold market shows upward price bias, you raise interest, and vice versa. Think of it this way, if you want more gold, you can put down X bars of bullion down payment to put together a digging operation to get more gold, or you can sell X bars of bullion for cash to start whatever other business in return for future stream of cash which you can turn back into gold, or you can let the money earn interest to buy more gold in the future. The simplified FED only have to make sure that the last course of action will be a wash with the previous two, therefore there will be no advantage in holding gold or cash. That's precisely what a successful monetary regime should be: money supply keep apace with the growth of the economy, no more, no less; zero inflation. Why gold specificly? because the likelihood of a sudden huge easy supply is extremely unlikely, and the metal itself is of very limitted use so a sudden surge in demand is also unlikely unless there is inflation threat (which the monetary response would immediately move to curb in this regime). The cost of labor and technology of digging gold will reflect the growth of the economy and its growing ability to extract resources from the nature itself; i.e. the most likely candidate to make sure the afore mentioned first course of action and the second course of action would be naturally balanced, without dependence on government statistics that are prone to rigging. A good place to read up on the "reserveless gold standard" can be found at polyconomics.com Jim

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