Gold Gives You Extremely Important Signals

[Sparky]

One could argue that the world is already on a quasi-gold standard. A gold standard means that at any time, fiat currency is convertible to actual gold bullion, and vice versa. The only difference now is that the conversion rate is not fixed, nor is it even very stable. As the money supply continues to increase over the long run, the gold conversion rate has also steadily increased, but it increases in fits and starts in the short run because of speculation.

One could also argue that because of this, the idea suggested in the article is already in place. Central banks have to limit their printing lest the gold price gets out of hand and people increasingly resort to converting. The US central bank is aware of this. They have gotten away with a lot of printing because the population is generally slow to convert their fiat. But they are aware that they are at risk of letting the cat out of the bag.

Two interesting aspects of our current quasi-gold standard:

1) Citizens (i.e. fiat users) have historically been slow to recognize the power and responsibility they have in keeping fiat in check by exercising their right of convertibility. But the price of gold rose 500% in a decade, so is certainly a lot of "concentrated" participation going on.

2) Convertibility is distorted and impeded by: a) the cost to convert, which is a 5-10% buy/sell spread, b) capital gains taxation, c) sales taxation in some states, d) reportability and privacy issues from Patriot Act type measures.

Aspect #2 is really what makes it currently a "quasi" gold standard. I guess the fact that the price of gold was able to rise 500% in a little over a decade in spite of these impediments is testimony to the level of egregious fiat devaluation that is going on. If central banks get too greedy, the participation rate (Aspect #1) will increase dramatically, which is what really keeps them in check.