the fed and the gold standard

[kiryan]

http://www.lewrockwell.com/paul/paul53.html

I don't know if I agree with Ron Paul on this. We've gone so far down this road that this equates to revolution.

[Corth]

Interestingly enough, these days its very easy for us to go on our own personal 'gold standard'. Or for that matter our own personal 'oil standard' or 'wheat standard'. All you need to do is purchase some of the underlying commodity as a hedge against the cash or cash equivalents in your portfolio. Its really not a bad way at all to insulate yourself from the targeted inflation policies of the Fed.

Actually, for a while I was tossing around an idea of selling prepaid debit cards that are backed in the commodity of your choice.. so the balance would actually fluctuate with the gold, oil, wheat, or other standard that you choose. If anyone more technical than me has any ideas on how to implement this idea, I would love to talk, as I think it could probably get a lot of attention from the press as individuals are given the opportunity to personally and easily go back on the gold standard.

[Kifle]

Actually, for a while I was tossing around an idea of selling prepaid debit cards that are backed in the commodity of your choice.. so the balance would actually fluctuate with the gold, oil, wheat, or other standard that you choose. If anyone more technical than me has any ideas on how to implement this idea, I would love to talk, as I think it could probably get a lot of attention from the press as individuals are given the opportunity to personally and easily go back on the gold standard.

The only way I could see this as happening is if you had the capital to buy the commodity then keep enough cash on seperate "banking" accounts so that people could use the money. For example

Person A, B and C buy a card from you. You, in turn, invest that cash into the commodity. At the end of each day, our accounts would reflect the ending price of the commodity through either automatic software updates or you personally going in and editing it into the equation.

However, since this "cash" is able to be spent, the monitary value of the commodity would have to be directly transferable in an instant, which you can't do with stocks. So, to solve this problem you would need the capital, in on "central" account that disperses the funds/or takes away from all sattelite accounts at the ending period of the stockmarket to reflect the new price/balance. Also, to keep the central balance exact and able to fluctuate, you'd need a second "father" account so that the "central" account would always reflect the total put into the mutual fund. So, in actuality you'd have a Resevior account to feed the central accound to reflect the actual ending stock price and and from the central account the money would be transfered to the personal "sattelite" accounts at the same time every day based of off their initial percentage of interest. With the choice of which commodity to base your dollar off of, you'd have to have even more central/hub accounts to feed sperate sattelite accounts.

Basically, the central account would be the "mutual fund" and seperate accounts would be individual percentages that change at the daily ending period. It be a huge headache and require quite a bit of personal investment to do this; however, I could see it being pretty profitable in the right environment. Mathematically, this wouldn't be hard to impliment if you had a software designer to create the software -- which I wouldn't see as being too hard either, but I'm no programmer.

Now that I think about this, it would be pretty dangerous to not have the accounts reflect the realtime price of the commodity. The more lag between realtime and realized time the more danger you and the investor take. Lets say I have 10% (10 dollars) of a 100 dollar wheat stock debit card. During the day I spend 5 dollars and my account reflects 5 dollars. Now I'm at 5% of the stock or full investment of all accounts into the stock. say the price drops to 50 dollars of the full investment (somehow wheat took a 50% hit -- making the numbers easy). This happend 5 minutes before I spent my money. I only spent 5% of the initial stock, what I truely owned; however, realistically, I just spent 10% of the full investment. I made money by spending money. This impacts all accounts, and you would have to refill the central by depleating the father. However, at realtime, this wouldn't happen as the account would only reflect $5 at the time of spending rather than 10. So by spending 5, I would be at 0 balance by spending my full 10% (5/50). Even a few seconds lag between real price and reflected balance could devistate your company. You'd have to legally figure out a contract that would prevent this from happening. Sure, if the price goes up and the opposite happens, good for you :) Just a thought. If I were seriously going into this, I'd figure out a better system, but I don't have the capital to invest in that business. Sounds lucrative if you do it right and have the right saftey nets worked into the purchasing contracts.

[kiryan]

its an idea, we'd have to have a discussion about how this is different than say having an ameritrade account with a debit card / checks that are backed by your stocks. Since you can buy "stock" in some commodities (like gold), the ameritrade essentially would be commodity backed.

[Corth]

Kiryan,

Are you referring to an already existing product? I would love to find a brokerage account that I can access with a debit card. I guess there would have to be some sort of auto-liquidation feature so that your stocks are sold when you access the balance at the ATM. Not sure how that would work exactly.

[kiryan]

yes, i believe ameritrade does it. I'm not sure there is an auto liquidation, but basically when you cash your stocks out it goes into this account for which you have a debit / checks against. If you are a rich enough customer, I believe they allow you to go negative without charges giving you the freedom to charge something up then go in and cover.

I think there is at least one company that has gold stocks where you can buy stocks that trade at market rates but are backed by a specific amount of gold per issue. Theoretically these would match the market value for gold exactly. I haven't looked too deeply into these gold stocks.

[Lathander]

It's called margin investing.

Ron Paul is wrong. If anything, the Federal Reserve acts to smooth out the ups and downs of the business cycle. By lowering and raising the risk free rate, the Fed encourages and discourages investing and lending to particular areas of the economy. Every four to six years, we get a mislocation in the economy, but those are basically pressure valves showing what actions need to be taken. For the most part, they are short and relatively shallow for most people.

The exporter/importer point is silly. Multinationals simply hedge the currency risk if they are concerned about it. It isn't that hard.

If anything, the Federal Reserve protects the middle class by preventing big downturns in the economy. The wealthy have the assets to weather a Depression but the middle class does not. The gold standard benefits the wealthy far more than the middle class because it preserves their value. Most of the middle class have to borrow to buy a house for example. Lower interest rates than would exist with the gold standard allow this. In the movie "It's a Wonderful Life" Harry Bailey is the Fed while Mr. Potter is the Gold Standard.

Just to address Corth on the government issue, you are correct that I am arguing for some regulatory intervetion by the Fed. In the short term, I do not believe in efficient markets. Having circuit breakers that stop a panic restores some calm to markets. Just look at the downturn 20 years ago when the market fell 22% in a day. Having a timeout or someone to provide liquidity stablizes the system.