First, and most importantly, I have come to realize that most money in our economy is created by banks via loans. That money is quite separate from the money issued by the Federal Reserve, over which we in any event have no control (Bernanke is even now considering a third many-billion dollar grant to large member banks).
The only TRUE gold standard, the only way in which it is not easy to monkey with money, is the use of gold coins. Back when we knew the gold was in Fort Knox, we were on a fractional gold reserve, which meant that some percentage of our money in circulation was backed by gold. After FDR’s little adventure in currency devaluation, which involved coerced gold confiscation, the gold was redeemable to foreign governments, but not Americans. After 1972, we frankly don’t have the faintest clue what happened to the gold. I have done work at Fort Knox, and most of the soldiers there don’t think the gold is still there. It has in their view been looted, likely by the Federal Reserve banks, who have control of that gold, and the apparently even larger cache at the Federal Reserve Bank of New York.
Most money today is electronic. This raises serious questions about the viability of a return to the gold standard. In its essence, a gold standard simply makes it harder to print money, since in theory you have to add physical gold in order to add to the physical money supply. However, I suspect EVERY nation that has had a fractional gold standard has monkeyed with it. Physical money printing is secret, so nobody really KNOWS when you’ve printed some. It will have inflationary effects, but most people always think inflation is like forest fires–it’s just something that happens–and it is of course often difficult to separate inflation from supply and demand.
As an example, we are told inflation has been low for years. But the fact of the matter is that wherever fiat money is directed, inflation is enormous. The bubble in housing prices was not the result of supply and demand, but inflation. This is a point that is missed by many: you can have local inflation while other items, like food and clothing, remain relatively untouched. The boom of the 1920’s was characterized by inflation in the stock market enabled by margin lending and relatively easy credit.
In my own proposal I have suggested printing 50 currencies backed by a VERY fractional gold standard. The issue arises, though, as to the ratio of physical money to electronic money. I have seen proposals for chits which store value, but I don’t like the potential abuse of those by power mongers. I actually think it might be simplest to revert to 100% physical money. For electronic transfers, you could store your physical money at the bank, and they could transfer it electronically. But for every dollar in existence, there would be a physical dollar somewhere. Most would, I think, be in banks, for safekeeping and convenience, and titles would simply float around.
This is perhaps clumsy, and I may do better, but I think a core consideration needs to be keeping the power of money from centralizing anywhere. We need many banks. We need many money printers (all the States).
I have been in correspondence with Ben Dyson at Positive Money. He has some interesting ideas, and I am hoping soon to allocate a day to contemplate them. I have a method: I get a bunch of cigars, and a bottle of vodka, and spend the day in a cloud of smoke, contemplating. It is useful, even if perhaps a bit odd.
What I would suggest is interesting is that conservatives in this country are more preoccupied with the Federal Reserve’s creation of money, and in Britain they are more concerned with the bank’s creation of money. In my view BOTH have to be addressed, but of the two I think money creation by the banking private sector is actually numerically the much larger, and thus the more pressing. Bernanke printed something over a trillion dollars and disbursed it to his pet banks, and no inflation resulted. This is because nobody is borrowing because nobody at present has faith in a future where we have a socialist president, and the pending destruction of our healthcare system as we have known it.
But that money is all poised to create inflation, if reinvested in this country (we of course have no idea where it went, and there were of course no strings attached to receiving it), if and when people start borrowing in earnest again. The wealth transfer has already happened. Its signs have simply not manifested.
Long story short, I absolutely, enthusiastically support auditing the Fed, but think putting us back on some version of the gold standard is a policy decision that should be postponed until the public has a better general understanding of how banking works.