Ben Bernanke said in testimony in front of congress that he did not understand what was causing the gold price to go up. In fact he said he didn’t understand gold. Larry Kudlow has been asking everyone on his program "what is causing the price of gold to move up?" The use of the term "gold standard" and "new reserve currency" has been used more in the last few months than in the last few decades. Perhaps that is the tip off.

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Some commentators are beginning to join the debate on the pro’s and con’s of a return to the gold standard. One said he would bet his career that this will never happen. Most laugh at the prospect. The fact is it is happening now.

The new controversy over a reversion to a gold standard is welcome. Many who comment, pro and con on the possibility are new to the subject, and as such have not really thought through some of the implications. I have been writing articles on the gold standard since the early 70’s and I welcome the new commentators to this debate. Two points I would like to make to anyone who participates: One, any return to a gold standard will come well into the future. A return to the gold standard will be incremental. You can not graft a gold standard onto the present system. It presupposes fiscal responsibility, balanced budgets, monetary stability and free trade. A political and economic transformation would need to occur first. And two, it will look much different from gold standards of the past. No one knows  or can know  what a future gold standard will look like. The reason is that technology has changed.

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Today we can compute values of gold, silver, ETF’s in precious metals, or anything else and convert those values into paper claims in a nano second. Which means we could pay for goods and services with a credit or debit card which are backed by our savings or checking accounts. Which means we could save in gold or silver or whatever we want and use the credit or debit card as our medium of exchange.

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My suggestion to Ron Paul and all those wanting to return to gold, is the best way to accomplish this is not by proclaiming your determination to replace the Federal Reserve Board with the gold standard, but to attack the legal tender laws of this country. I was one of the few back in the early 70’s along with Ron Paul that fought for the legalization of gold to be allowed back into the American system. That was the first step in returning to the gold standard. Today is very much the same. The next step is to institutionalize competing monies.

The key is to go after the governments monopoly on money. If broken, gold will find it’s way into the monetary system, as it is today, and reclaim it’s superior role as long as it is not prevented from doing so. Legal tender laws do just that. They prevent choice.

Today, to be an advocate of a gold standard is to be laughed at and ridiculed as naive. But, to be against legal tender laws, wipes the snickers off the face of those against gold very quickly. To be against legal tender laws is to be for freedom of choice and against government coercion. You will not find the same chuckles from "intellectuals" when confronted with a proposal of this nature. On the contrary, you will find terror.

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This goes to the heart of government power. It goes to the use of force. It goes to governments ability to control people, raise taxes, borrow money, and inflate. This is the tactic and strategy required to achieve an honest money once again in this country. Let the private market develop a private money and compete with government money, and then we will see who has money and who does not.

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With this in mind, the following is an article I wrote recently on the subject:

Government has a monopoly on money. It declares what can and can not be legal tender. It controls the value of money through setting the supply and the price of money by setting short term interest rates. We have been on a fiat standard for a century. Fiat means "decree" and that is what government does  sometimes subtly, sometimes brutally. But make no mistake, the government controls money.

The force of a monopoly alone, however, is insufficient to prevent individuals from protecting their wealth. So, governments best chance of preserving stability is through trust, confidence, and credibility. Lose these things and government will eventually lose control. Today, we see this very scenario playing out before our eyes.

Over the last few years, there has been a move away from government money and towards gold. Not too long ago, governments were net sellers of gold. Every year they would announce how much gold they were going to sell into the market. It was part of "demonitization", which represented a monetary philosophy that accepted the fact that gold was a "barbarous relic" that had little relevance in today’s modern financial system. If governments needed money, they would simply print it. If they needed more gold, they would print that too. They created "paper gold", known as Special Drawing Rights, or SDR’s. These would act as reserves instead of the metal itself.

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June 23, 2010