Breaking news, gold and silver are once again legal forms of tender! Not really, although it may be coming closer to reality and I for one am all for it. The Beehive State, or Utah as it is more commonly known, became the first state last month since 1933 to recognize those precious metals as legal tender. To be clear one cannot just waltz into a Starbucks and expect to exchange a gold coin for a cup of coffee, instead the Federal Reserve will be required by law to make all of their notes redeemable for gold, and additionally the printing of U.S dollars would be weighed against the value of gold. Growing up I assumed bank notes were used because we the weight of carrying actual silver or gold was too burdensome, and that a bank note had some sort of relation to our federal reserves of gold. It was not until recently that I understood this system of using a gold standard was not possible in this economy we have today, the total amount of gold that has ever been minted is less than the value of circulating money in the U.S. alone, and returning to a gold standard would shoot the current value of gold so high it’s use would be terribly limited. This has me worried because I feel the future of the dollar is not looking good, inflation is rising and there needs to be options for our economy, Professor of Economic Lawrence H. White from George Mason University states “…it's a statement by the state legislators that they are concerned by the state of the dollar, people need to have an alternative if the dollar melts down.” I understand this is not an end all system to prevent future crisis, but if we can stop the Federal Reserve’s habit of endless printing of money which weakens our dollar and weakens our way of life then let’s do it!
response from article:
http://abcnews.go.com/Politics/tea-party-momentum-utah-bill-brings-gold-standard/story?id=13377409&page=1
In this blog Brian Glover brings up the issue of the Federal Reserve and just how much our money is worth. Although you cannot currently use gold as a direct exchange, Grover, like many Americans, believed that the paper money used for everyday purchases is backed up by real gold in the Federal Reserve. Even though this is partially true, the amount of paper money far outweighs the value of gold in the Federal Reserve. This creates many problems, such as inflation, in an already hurting economy. Glover talks about all this in “I love Gooooooooooold”, and talks about the consequences this could have. Glover, being just an average citizen, is a great example of who is affected by the problem facing the national gold supply and just when citizens need to get concerned.
ReplyDeleteIt is no secret that the United States economy is in trouble, and something needs to be done. By creating a system on false exchanges, with no real gold to back up each purchase made, inflation will only continue to rise and soon there will be no way to reverse the problem. If something is not done the value of the dollar will melt down, and as Glover quotes, soon citizens will be forced to find alternatives in exchanging goods.
Glover does a good job in looking at the lack of gold issue as not just a concern of the government, but of all citizens. If the government does not find a way to fix the problem, then citizens will be forced to pay for all resulting monetary problems.
In your blog post, you talk about your concern for the future of the American dollar and your new understanding of our nation's system of currency. It's funny you mention you once believed our dollars served as a substitute for more "burdensome" forms of currency (like precious metals) - this is what I assumed when I was younger, too. I myself am only beginning to understand the dollar; its fluctuations and relation to currencies around the world are mostly a mystery to me.
ReplyDeleteIt would seem to me that Utah's actions have already begun to serve their intended effect, at least partially; people are beginning to notice the desperate lengths to which states are reaching to increase the value of American currency, or else make available viable alternatives. And although I recognize the strength of the symbolism in turning to gold to boost our currency's worth, I can't help but notice what detractors of this movement are worried about. For instance, the implementation of gold as currency could serve oppositely of the desired effect if economically influential countries like Japan and some European nations don't also decide to make the switch. It is suggested that "the Federal Reserve [control] the distribution of dollars instead, to rein in inflation," which sounds like a safer and less drastic move on paper.
Ultimately it is hard to say if such measures will improve the state of the dollar, but at the very least it would seem that actions like these are spotlighting the concern to our politicians. As I stated before, I'm a bit of a novice when it comes to matters of currency, but I always relish the opportunity to learn.
This comment has been removed by the author.
ReplyDeleteIn his blog post "I love Goooooooooooold," Brian Glover discusses a law passed in Utah concerning the use of gold and silver as legal currency. The post lays out details of the new law according to an ABC News article cited in the blog, however the explanation in the blog covers the federal use of the gold standard, not the new Utah law. It states that the Federal Reserve would be required to redeem dollars for a fixed amount of gold, and that the printing of money would have to be weighed against the value of gold, which would be true if the federal government adopted the gold standard, but not under the provisions of the Utah state law. The law does recognize gold and silver coins as legal tender, but they can only be used at their face value. According to the Wall Street Journal, a $50 dollar coin has a market value of $1,400, so the law really has no practical impact in that capacity. The law serves three primary functions: 1) it is a symbolic gesture against the Fed and their money-printing practices; 2) it legally classifies gold and silver as currency so that transactions involving gold and silver are no longer subject to Utah capital gains taxes; 3) it requires state officials to look into the use of an alternative system of legal tender. Articles outlining these functions can be found here and here.
ReplyDeleteAs for the blog post itself, I found the writing style to be very engaging and witty, and a pleasure to read. The use of anecdote was good, and effective in illustrating the public's lack of familiarity with the issue. The author's position and conclusions were clear and assertive, and in line with the information provided.
Having said all that, I respectfully and strongly disagree with the notion that a return to the gold standard would be a good thing. On the contrary, it would be absolutely disastrous.
Proponents of the gold standard claim that the Fed's over-printing of cash is causing rampant inflation. This assertion is false. We are in the midst of a recession, so consumers do not have enough money at their disposal to create demand and drive up prices. As of March, the core inflation rate was a meager 1.2%, a very low figure by historical standards. The headline inflation rate was normal, at 2.7%, even after the impact of rising food and oil prices. Any arguments based on the problem of inflation are simply not rooted in reality.
The value placed on gold as a resource is a relic of civilizations dating back thousands of years. Gold has little intrinsic value: we cannot eat gold, our cars aren't fueled by gold, and our homes are not made of gold or heated by it. Why should the value of all goods be based on such an arbitrarily important commodity? Furthermore, the gold standard was a major cause of the Great Depression. It forced the government to raise interest rates (a definite no-no during a recession) in order to prevent widespread trading in of dollars for gold, which would have caused U.S. gold reserves to run out. With the current trade deficit, foreign countries are amassing dollars. If they were able to redeem them for gold, and did so, the U.S.'s gold supply would be depleted, and the value of our gold-backed currency would plummet. The gold standard also limited the government's ability to use monetary policy to combat the Great Depression, until 1933, when the federal government started printing money without gold-backing and, not coincidentally, the nation began to recover from the depression. If we return to the gold standard, our ability as a nation to respond to economic crises will be severely disabled.
*a version of this post complete with embedded links can be found at:
http://presidentialinbloguration.blogspot.com/2011/04/classmate-blog-commentary-celebrities.html