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Wednesday, October 8, 2008

Trying everything, but nothing works

Yesterday it was "How about we buy commercial paper?" This morning it was "How about an interest rate cut?" And the responses were the same both days -- "I'm getting out of stocks while there's still something left to get out of them."

Comments (8)

How about going back to the gold standard for the dollar. Some wonk on the picture box last night said it would turn the econ overnight and make everything good again.

Sounds to good to be true, but I bet if you polled regular folks, most of them would think we still are gold backed. Try it with you friends, you might be shocked at their answers.

But if we re-introduce the gold standard, we'd just have to resurrect the law that makes it a criminal offense to own gold. What's the point?

Leno had a great line last night about the late-night TV ads that say, "Bring us your unwanted gold and we'll turn it into cash." Who's got unwanted gold lying around? "Johnny, get those gold bars out of the driveway before somebody trips over them."

Allan L. ~


Because there isn't enough gold to support the currency.

There's nowhere near enough gold in private U.S. ownership to back up the money supply.

If you assume that all exchange traded gold was held by U.S. dollar owners (it's not) and the U.S. Government could confiscate all of it (they can't), there is roughly 1,029 tons of gold not held by foreign governments...then add that to the U.S. Gold Reserve (roughly 8,133 tons) and multiply that total by $30 million per ton, that's worth $275 billion dollars.

The current M2 money supply is approximately $7.7 trillion, which means that there is only 3.6 cents worth of gold for every dollar in circulation or in the banks.

Assuming gold doubled in U.S. Dollar price, then each dollar of M2 would be worth 7 cents in gold.

If the dollar were to crash, then we are likely to experience hyperinflation and double digit interest rates. The U.S. economy would unwind: it is the absolute worst case scenario, with foreign currencies (Swiss Franc?) being the relative safe haven.

We have a fiat currency: it's worth something because the U.S. Government says it is.

Mister Tee: there is only 3.6 cents worth of gold for every dollar in circulation or in the banks

Perhaps we could employ some form of financial derivative to leverage the apparent supply of gold up to the full M2 value. After all, by today's standard, 25:1 is pretty gentle.

Why not alchemy? We have plenty of lead, and Democrats seem to like technology based solutions.

Ironically, even as global equity markets are down 30% (or more), the U.S. Dollar is still benefitting from a "flight to safety" rush of foreign investors.

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