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Michael:
This is a very interesting posting. Please write some more on this topic!
Lionel
At 11:17 PM 7/11/97 -0500, Michael L. Robb wrote:
>If any major trading nation were to establish a gold standard, the gold
>"price" for others would tend to equal all hard currency in print divided by
>above-ground gold supply; less a discount for present value of future
>production.
>
>If you take U.S. currency of $5 T and divide by the 260 M oz. on the FedRes
>balance sheet, you get $19,000/ oz. Of course, there is additional gold
>here, in private hands; and there is the discount for future production. New
>gold can be produced for what is equivalent to less than $200/ oz. today.
>
>At the same time, some might say you should take the present value of U.S.
>obligations - not just the FR notes in print - for the dividend. Guessing
>300 million oz. for the divisor and 20 trillion for the debt/obligations you
>get an even higher price; over $60,000/oz. before discounting for future
>production.
>
>All of this is merely academic hypothesis, however, because as soon as a
>government or legislative body announces an intention to establish sound
>money via a gold standard, demand for gold delivery will outstrip supply
>for so long that prices will be driven by only the wildest of speculative
>madness.
>
>It really won't matter how high the price rises, if there is no gold for
>delivery; and once the standard goes into effect it won't matter what the
>price is in FR notes, because FR notes, no longer being legal tender, will
>be worthless. The temporary price peak for gold futures in FR notes is
infinity.
>
>Contracts in general, notes, bonds, mtges. etc. will be revalued in units
>of the new money, whether gold or silver.
>
>If you take the CPI figures the 1967 dollar is worth 20 cents. That is a
>deterioration of 5.5% per year for the past 30 years. Whatever thse CPI from
>1913 is it couldn't justify a dollar of over 5 or 10 cents; and some would
>say even less, i.e. 1 to 3 cents.
>
>In addition to CPI, one should also take into consideration that under
>"normal" circumstances... of free enterprise and sound (commodity) money...
>the price level declines regularly by 2 or 3% per year, or at a rate
>approximately equal to the rate of economic growth, as a mechanism for
>providing the cash purchasing power to finance the increase in commerce and
>industry.
>
>Adding 2 or 3% to the CPI of 5.5% produces a range of 7.5 to 8.5% in dollar
>value deterioration. Taken back to 1913, the first official year of Fiat
>money yields a current value of 1 cent.
>
>Therefore, one could say, a gold oz. of $20 value in 1913, would
>presumably level off at about 100 times that amount as supply meets demand.
>$2000 gold would also equal official FedRes liabilities, nearly $500 B
>divided by official gold on hand of 250 M oz.
>
>To add to this excercise similar calculations should probably be applied to
>all hard currencies and then divided by known world gold supply.
>
>It wouldn't matter what standard were established. For example, the U.S.
>dollar is supposed to be 1 ounce of Silver; and 1/ 42nd ounce of Gold;
>according to the Constitution. A standard has to start somewhere, and this
>might be as good a place as any for Americans.
>
>The interesting question is guessing how much price levels in general will
>decline.
>
>
>
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