ASC 2008 Gold Standard

8/7/2019 ASC 2008 Gold Standard

1/20

J. Bradley JansenThe Transition to Sound Money

Austrian Scholars Conference

Mises Institute March 14, 2008


2/20

Global Possibilities Free Banking for developing

countries Scottish example similar to conditions

in many developing countries today:need competition

Gold-denominated bonds by goldproducing countries

End IMF discrimination against gold


3/20

Free Banking: The Scottish Experience

as a Model for Emerging Economies

Randy Kroszner

World Bank Policy research working paperNo. 1536 (1995) In the beginning of the eighteenth century

Scotland was much poorer than England. By

the mid-eighteenth century the GNP percapita in Scotland was roughly half of that inEngland. By the mid-nineteenth century,however, Scotland's GDP per capita nearlyequaled that of England.


4/20

Scotland as a Model for LDCs The relative poverty

of many emergingcountries is similar to1700s Scotland

GDP per capitadisparity wider now

Proximity and

dependence on largerfinancial center inLondon


5/20

Emerging Law and Economics Scotland 1700s

Infancy of contract

law Uncertainty with

new financialproducts

Development of

new marketsolutions withcompetition

Developing worldnow

Lack of marketsolutions

Lack of privatesector competition

Barriers to newentrants in market


6/20

Brash New Zealand Reforms Don Brash, Governor,

Reserve Bank

the only thingmonetary policy candeliver in the longterm is an inflation

rate, and the bestinflation rate is pricestability


7/20

Reserve Bank of New

Zealand Act of 1989 Bank accountable for delivering price stability--

fire governor for inadequate performance

Need for fundamental change after dramaticforeign exchange crisis in 1984

Mandatory transparency of the objective and themodus operandi of the Bank

Reduced staff from about 600 in the late '80s to

about 285 in ten years Considered remuneration inverse to inflation

Negotiated seigniorage 5-yr budget income


8/20

NZ Finance Minister RuthRichardson to Don Brash

Ruth: "Look there's no way I can agree to a 1 percent

annual increase in resources for the Bank; I'm askinggovernment departments to live with no increase at all."

Don: "Yes, but in the case of government departmentsyou're doing that one year at a time. This is a five-year

deal. To fix this in nominal terms for five years is a heck ofa lot to ask and you know a lot of things can happen in fiveyears. That's pretty aggressive."

Ruth: "Sorry, I'm not willing to agree to any higher

number. You believe in price stability, prove it."


9/20


10/20

Dispose ofGlobal Tools for

Discretionary Monetary Policy

Abolish the ESF Exchange

Stabilization Fundwas created with1934 goldconfiscation

Funded from gold

revaluation paperprofit

Gold from IMF Withdrawal from

International Monetary

Fund (Article 26) The US would be

entitled to buy up to23.6 million ounces ofgold from the IMF atSDR 35, orapproximately $40, perounce, if approved byIMF (as of August1975)

US Gold Commission


11/20

CAN THE U.S. RETURN TO A

GOLD STANDARD?

Wall Street Journal

September 1, 1981

after a decade of

destabilizing inflation and

economic stagnation


12/20

Greenspans

Gold Bond Proposal

Problem fixing gold price with market forces

Make the dollar as good as gold, i.e., stabilizethe general price level

Convertibility can be instituted gradually by, ineffect, creating a dual currency with a limitedissue of dollars convertible into gold. Initiallythey could be deferred claims to gold, forexample, five-year Treasury Notes with

interest and principal payable in grams orounces of gold

Each $10 billion in equivalent gold notesoutstanding would, under stable gold prices,save $1.5 billion per year in interest outlays


13/20

US Gold Commission Report Several witnesses at the hearings we conducted suggested that

Treasury issue of gold-backed notes or bonds would be a meansof introducing gold into our monetary system. A limited issue,for example, of five-year Treasury notes with interest andprincipal payable in grams or ounces of gold, would providedeferred claims on gold. Initially, according to the advocates,the yield spreads between gold and inconvertible dollarobligations of the same maturities might be wide. Success inrestoring long-term confidence in monetary discipline wouldeventually narrow the yield spreads. At that time, full gold

convertibility of all dollar obligations might be contemplated.These witnesses emphasized the savings on interest paymentsby the Treasury, assuming the price of gold remained stable orrose only moderately, and hence a positive effect on Federalbudget deficits


14/20

Recommendation: oppose issue of

Treasury gold-backed notes/bonds In our deliberations, it was noted by opponents of gold-backed

Treasury securities that a gold-backed Treasury note or bond, ifconvertible at maturity at the market price of gold at the dateof issue, would in effect be a warehouse certificate for gold. Such

an instrument would provide the owner the same chance of gainor loss as owning gold, without his incurring the cost of storageand insurance. No obvious guideline exists for pricing theinstrument. A Treasury issue of gold-backed notes or bonds,paying even a low rate of interest, would permit speculation ongold with a sweetener of a coupon. Such issues would becomparable to a bond convertible into the common stock of a

corporation that has a low coupon because of the possibility ofspeculative gain. Purchase of Treasury gold-backed issues wouldindicate an expectation that the price of gold would rise. TheTreasury would then be betting against the market, with noassurance of gain and a major risk of Treasury losses. From adebt management viewpoint, no need exists for gold-backedTreasury issues.


15/20

Trim Fed Functions Examination of federal banking regulations concerning

effects on price signaling of money and credit allocationsuch as the Community Reinvestment Act

More transparency especially for the FOMC dealings End Federal Reserves contradictory dual mission of price

stability and full employment (focus on prices)

End discrimination in Fed-sponsored research

List all functions and activities of the Fed, examine each

and determine whether that function, in the currentenvironment, is best placed to remain with the Fed, theCongress, the states, U.S. Treasury or the private sector


16/20

End Discrimination Against Fiat

Dollar Alternatives

End Lincolns tax on competing currency notes

End IRS discrimination of businesses using goldor other precious metals for moneyhttp://www.wethepeoplefoundation.org/UPDATE

/Update2007-09-30.htm

End federal persecution of non-governmental

monetary alternatives such as The Liberty Dollar


17/20

Sunset the FederalReserve Act Every 5 years

Then Federal Reserve Board ChairmanAlan Greenspan has personally argued

this position to both the U.S. Senate

and House banking committees.


18/20

Survey of Congressional Proposals

Pricing of Fed services

Interest on reserve requirements/reg burden

GAO audit of Fed/gold holdings Protect privacy/increase transparency

Set inflation law/long-term price stability

Shorten Fed board terms/add Treasury Sec.

Congressional appropriation to fund Fed Regulate margin requirements

Abolish Fed/impeach Chairman Volker


19/20

Gold Clauses in Contracts

Landlord shall have the right torequire rent payments to be madein cash, money order, by cashier'sor certified check or in gold coin

of the United States of orequal to the standard ofweight and fineness existingon the date of this contract.


20/20

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www.financialprivacy.org

ASC 2008 Gold Standard

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