Anyone ever ask the question, “How did gold and silver disappear out of our coinage system?” We had them both until you could make more melting the coins down and selling them as bullion.
Go back to 1920, they actually used gold and silver coins. You had the option of paper, gold and silver. There was no real shortage of metal coins for one reason, they paid no interest. Money in the bank could be loaned to someone else with an expected rate of return.
There was however a bond between the currency and gold and silver. They were one and the same. People that understood a currency backed by gold and silver knew the paper was as good as gold. Well, we have progressed a bit. The twenty dollar gold coin is still minted by the US Mint, but they’re not selling it for $20 anymore.
Inflation as far as the general public is concerned has nothing to do with government; it’s just a fact of life. Things over time just cost more.
The only thing that has kept pace with the value of a $20 gold piece is the Dow Jones Average. A move of 500 points on the DJIA reflects your loss or gain from the year 1890. Not many people today have been holding stock that long. Of course I digress.
The thing to really examine is that in the 1920’s your bank loan was payable in gold to the bank. There was a certainty to that that every banker could appreciate. Plus even if the saver knew nothing about inflation, they were protected from it and got a real return on their savings. Twenty dollars of paper money was just as good as a 20 dollar gold piece, they were interchangeable.
Fast forward to today. Interest rates are at 1% and inflation is at 8%. People marvel at the cost of silver and gold. The real disconnect is between the banks and government inflation. The banks’ loan money long and have to cover short term. Inflation leaves them with a built in loss. In today’s world, borrowers are paying back, a hell of a lot less in real dollars than they borrowed 20 years ago. In the 1920’s with gold as base, this couldn’t happen. A dollar WAS a dollar and time had nothing to do with it. The concept that the dime you loaned would buy the same can of beans 20 years later was a given. In today’s world, that isn’t true. Bankers lose over the long term as do savers. Today’s dollar isn’t going to have the purchasing power it does today, in 20 years.
The masses have been weaned off of their commons sense that revolved around the interchangeability of printed currency for Specie. What if we returned to using silver and gold in our currency? How would it work out? We could value silver at $100 per ounce and gold at $2,000 an ounce.
Examine an old 20 dollar gold piece. Even the newly minted gold coins say 20 dollars. The copper penny had to come to an end in 1982. It cost more for the copper than the penny was worth. There was nothing stopping you from melting the pennies down and selling them back to the government to make new coins. So now we have a copper clad zinc penny (FYI a copper penny 1982 weighs in at 3.11 grams and a zinc clad weighs in at 2.5 grams).
Reality could be a new government edict. Issue a new currency backed by gold and silver (Chances are slim to none on this). But take everyone’s savings and divide it by 100 and convert it to new dollars. We would be back to 1920 and it would take two zeros off of the national debt (don’t think for one moment that it would in any way solve that problem). The penny would again represent buying power (four cent a gallon gasoline, WOW!). It could work, but what do you do if prices go up again? Gold and silver will again start to disappear out of the system. There is a saying, “bad money chases out good money.”
The sad thing is that the present financial system is working “Just Great!” No need to change anything. The European Euro is in its death throes, our real estate market has had the “Cesspool” sign removed and replaced with one saying “Government Financed Housing.” The only drawback, the smell is not going away. The thing that cracked me up today was a comment I read, “Everyone figures that they have to work to the age of 80 before they can retire, and that’s two years longer than they are expected to live!” Go Figure.
Copyright 2012 by Jim Brubaker