Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: elmatador who wrote (15477)	2/23/2002 7:39:37 AM
From: Ilaine	Read Replies (1) of 74559

Unless the Martians invade or the earth is struck by a huge meteor or a similar catastrophe, I don't think we will go back to using gold for money. Don suggests 100% gold reserves, which would go against hundreds of years of using fractional reserve banking. But if we use fractional reserve banking with gold as reserves, what about the dollar/gold ratio? The problem with pegged currencies is arbitrage. The price of gold in the US used to be set by the Treasury and in Great Britain used to be set by the Mint. In the US the price of gold was set at $20.67/ounce in 1792 and raised to $35/ounce in 1934. That price bore less and less relationship to reality (free market price) as time went on. I expect Don to say that there were simply too many dollars. Others would say there was not enough gold. If the US had not ended convertibility it would have lost its gold reserves. As soon as the US ended the gold/dollar peg, gold shot up to $800/ounce. I think time has proven that the dollar/gold ratio (you could call this the price of gold, or you could call it the price of dollars) needs to be set by the market, not by fiat.

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