Steve Forbes Predicts a Return to the Gold Standard

Former presidential candidate and financial magazine millionaire Steve Forbes predicted a return to the gold standard in five years. This would be precipitated by the collapse of the dollar and rampant inflation, as we are starting to see now.

Banking is very predicable if you understand how money works and ignore the main stream economist like Krugman, Geithner and Summers.

Steve Forbes Predicts a Return to the Gold Standard in Five Years

The gold and silver standard is pretty simple for those not acquainted with it. You put $100 of gold into a bank and get a receipt that is exchangeable for goods and services. You spend the $100 note and buy a new dress. The merchant can take the $100 note and redeem it for the gold or spend it elsewhere.

The secret to keeping the banks honest is that there has to be a exchange system in place that is convenient where merchants and the public can go to that will exchange various bank notes for gold or silver. These exchanges then go to the bank where the note originated and demand gold or silver for the note. It seems a little complex but it worked like clockwork from 1837 to 1862 in the northeastern United States.

The bank can make money two ways. First it can charge for its service a handling fee.

Second and more popular it will loan out some of the excess gold in its vaults. Generally anywhere from 85%,very risky, to a very conservative 50%.

Today the Federal Reserve requirement is 10%. That means banks today can loan out 90% of a deposit they receive. Much more aggressive and inflationary than traditional banking in the 19th century. In the past with the gold standard banks generally loaned out about 65% of their gold reserves in the form of loans. Any more than this would put the bank at risk of depositors losing confidence in the bank and a subsequent run on the banks gold reserves eventually destroying the bank.

A History of Money and Banking in the United States: The Colonial Era to World War II

Some gold proponents think there should be no fractional reserve banking and all paper should be backed by 100% gold like a wheat warehouse. In the wheat warehouse the farmer deposits 100 tons of a certain grade of wheat and gets a receipt for 100 tons of that grade of wheat. The farmer then pays the warehouse for the privileged of storing the wheat and that is the end of the transaction. The warehouse does not loan out any portion of the wheat to other buyers. Proponents of 100% reserve banking argue this is how banks should operate.

Let the market decide but banks should report to customers what activities and loans they are engaged in. No matter which bank becomes dominate full disclosure is paramount to eliminating fraud and abuse.

The biggest positive of the gold and silver standard is that prices remain stable. If you own gold or silver the central bank cannot inflate the currency and kill your life savings. Our central bank has destroyed 98% of the value of the dollar since 1913. In 1913 a ounce of gold cost $18.92. In 1860 a ounce of gold cost $18.93. Today gold is $1,500 a ounce. Gold serves one propose very well. It exposes the reckless spending and increase in the money supply by our politicians and Federal Reserve.

What will soon be apparent to all but the dullest among us is that the politicians, Wall Street, Federal Reserve and the powerful elite have ripped us off of our savings and destroyed our economy and ability to make a living. Every politician in Washington is guilty. All should be ostracized, tarred and feathered. These bastards, the smart ones like Schumer and Frank, know exactly what they are doing.