Republicans in a Goldy populism...

Will the Republicans resurrect the Gold Standard? No. Clearly No. Everything is just an election populism. Just like the nomination of Paul Ryan for vice-president and the promise to audit the FED, this move is addressed to Ron Paul's supporters. I.e. this is the third victory of Paul in this campaign, although it is obvious he has no chance of a real nomination. But the chance to put serious questions is repaying very profitably for Paul.

Ron Paul is one of the keys to Mitt Romney's election success. Paul has 10-15% national support that can give him 1-3% of real voters if he decides to go on an election as independent candidate. These voters can cost Romney the victory. Mitt even now is behind Obama and the margin is more that 5%. Without Paul's supporters and with Paul as third candidate, his chances go further down. That's why it is of vital importance to make Paul a strong ally.

But let's see what Republicans are suggesting. They do not say: "Gold Standard is back". They say: "A commission will be formed to think". As we know making a commission is the proven way not to do anything. Commissions are the tool of imitating activity when such activity is expected, but without leading to any real change. I.e. making the gold standard commission is nothing else than a waste of time and an imitation of a real monetary reform.

In fact Republicans do not want Gold Standard. Led by Romney the party is almost equal to Democrats. Romney is Obama-2, and both parties are almost equally socialist. They offer only palliative reforms, do not think of a real rebirth of American dream and entrepreneurial spirit.

There is a reason more why Republicans do not think seriously of a Gold Standard. At current moment it can not be implemented. After years of money print (and money click :)) ) the market is so flooded with dollars that there is no enough Gold to back it. To have Gold Standard the price of Gold must skyrocket.

At the moment the money supply of USA in dollars is about 10 trillion dollars. The country has less than 9000 tons of gold, that is about 300 million troy ounces. With current price this means $500 billion. I.e. the Gold must be 20 times more expensive so US can back with it all artificial money created by FED in recent years. I.e. this means more that $33000 per troy ounce.

Theoretically it is possible to establish a Gold standard with having only 50% coverage, or in more risky attempt - 25% coverage. But even then. and even if we accept the risk of disastrous speculative attack on not fully covered dollar, even then the needed price of Gold is more than $8000 per troy ounce.

If eventually in future such a price appears this will be only after an entire inflation catastrophe that will erase both US living standard and US debt.

The debt is the other reason of no one really planning a Gold Standard. If money supply is limited then the interest rates on US debt will skyrocket. Today rates are low because the main buyer of bonds is FED, using newly printed (clicked) money. If you can not print, then you will have to rely on real investors. And the rates will not be 1-2%. The Gold Standard is incompatible with Government debt of over 100% of GDP.

In fact it is even more probable we see not Gold Standard but exactly the opposite - anti-Gold measures to ruin the Gold as competitor of fiat-money. All Governments are afraid of Gold. Even in USA in 30s Roosevelt has banned the possession of Gold. And this ban was active till 70s and Nixon. Dictator governments generally ban having Gold and even send to jail for a breach of the ban-law. So making a mess in money supply with speeding up the money print, soon the politics will have problems with inflation and people leaving the fiat money and buying Gold as a protection. Then a threat of "Gold-speculators" will become a major problem, I think even "Gold-terrorists" as a concept will appear. And instead of Gold Standard we will see an anti-Gold policy.

The result of all this will be the final crash of financial system. After that may be Gold standard will be re-established by itself. Not thanks to politics, but regardless of them. People will simply stop believing to fiat money and will start accepting only real valued money. I.e. Gold...

August 25th 2012

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