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To: elmatador who wrote (15477)	2/23/2002 6:50:11 AM
From: Don Lloyd	Respond to of 74559

e - On August 1972, Nixon opted out the gold standard whereas the US would buy an ounce of gold at a certain fixed price. What conditions have changed that would make a gold standard return? Perhaps this have been already discussed here. We were discussing CB's chart, which ended in 1945 or 1946. I don't know about a gold standard return, but there certainly has been a change in the use of money. Money serves two primary purposes, as a circulating medium of exchange, and as a store of future purchasing power. Gold evolved as the primary commodity money because of a number of physical characteristics it possesses as a circulating medium of exchange. Today, the vast majority of monetary transactions in advanced economies are increasingly electronic, making even paper money increasingly obsolete, let alone gold. Also gold is just too highly priced to serve as a circulating coin, with a $30 gold coin (1/10 oz.) being one half the thickness of a penny and falling between the penny and the nickel in diameter. I don't use any bill larger than a $20, or any coin larger than a quarter, and a $30 gold coin would be ridiculous. The demand for money only comes from the need for cash balances, and not for circulating currency, since every bit of money is always in somebody's possession or account. If I have a cash account worth $10,000 on average, it doesn't matter whether I spend and earn $100 or $9,000 per month, it's the $10,000 account that forms a part of the money supply. Gold is still the best available choice for money, but only as a 100% reserve standard, as its single remaining monetary virtue of resisting the easy increase in supply provides a brake on government inflation. Regards, Don

To: elmatador who wrote (15477)	2/23/2002 7:39:37 AM
From: Ilaine	Read Replies (1) \| Respond to 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.