The New Gold Standard

AS CONFIDENCE in the U. S. dollar approaches an all-time low, the price of gold continues to soar with no end in sight. For the first time in nearly a century, the question of whether to return to the gold standard is being hotly debated in both the press and academic circles. It isn't hard to see why: in the wake of the global credit crisis and successive rounds of quantitative easing, nervous investors have begun seeing the specter of Weimar-era hyperinflation looming around every corner. But can restoring the gold standard really bring sustained stability to the global economy as its advocates contend, or will it, as its detractors insist, only serve to put the brakes on economic growth? As author Paul Nathan sees it, the question of whether or not governments decide to make the move to a gold standard has been made irrelevant by the new international gold rush. The market has spoken, and, like it or not, we are already on our way to a de facto gold standard. The New Gold Standard is the definitive guide to establishing a gold standard designed for the realities of the 21st century. Offered here, is a scrupulously researched, deeply thoughtful consideration of the core issues along with thought-provoking solutions, elements of which will appeal to even the most left-progressive of readers. Under the gold standard, as first devised by no less a genius than Sir Isaac Newton and refined by Thomas Jefferson and the Founding Fathers, the U. S. dollar had the same buying power at the end of the 19th century as it did in the beginning. During the 20th century, after having moved entirely off the gold standard, the dollar was worth 97% less. But, according to Paul Nathan, that doesn't mean we can simply set the clocks back to 1913. Ever mindful of the realities of a technologically integrated world financial system, he explains the nature of sound money, the causes and cures of inflation and deflation, the roots of recessions and depressions, and the meaning of fiscal responsibility within a sound monetary system. He then describes steps governments can take to gradually reintroduce a gold standard that will strengthen the dollar, reduce debt, and help stabilize the economy. Finally, he offers investors sound strategies for investing in gold now and in the future. Informative, thought-provoking, and controversial, The New Gold Standard is must-reading for policymakers, finance professionals, and individual investors, as well as thoughtful readers searching for answers amidst the chaos of a global economy at the precipice.

Foreword xiii
Preface xvii
Part I: Gold and the Domestic Economy
Chapter 1 Why Gold? 3
Gold: The King of Metals 4
Gold Becomes the Standard of the World 5
Too Little Gold-Or Too Much Paper? 6
The "Gold Prevents Prosperity" Myth 8
In Gold We Trust 10
Chapter 2 The Gold Standard: A Standard for Freedom 13
What Money Is 15
. AndWhat Money Is Not 18
The Nature of Inflation 20
The Fiat Standard at Work 22
The Illusion of Prosperity 23
The Meaning of the Gold Standard 25
Chapter 3 Why Prices Have Not Skyrocketed 27
On Human Action 28
Quantity versus Values 31
The Quantity of Money and the Gold Standard 32
Too Little Fiscal Responsibility Chasing Too Many Politicians 33
Chapter 4 The Inflation/Deflation Conundrum 35
The Cause of the Recent Spike in Commodities 38
Chapter 5 Central Banking in the Twenty-First Century 41
The Rise of Populism 42
A World in Transition 45
The Fed of the Twenty-First Century 48
Part II: The International Gold Standard
Chapter 6 The Making of an International Monetary Crisis 55
 
Monetary Theory: Past 57
No Curb on Governments 58
The Policy Makers 59
The Process of Confusion 60
Condemnation of Gold 61
Evolution of the Theory 62
Fractional Reserve Banking 63
The Great Depression 65
Devaluation in 1934 66
Bretton Woods 67
The Theory Projected 67
"If at First You Don't Succeed ." 69
The SDR: As Good as Gold Again! 70
Debt Amortization or Default: The False Alternative 71
The Frightening Prospect of an International Debt 72
Toward an International Fiat Reserve System 74
Simply Repetitious 75
The Real Meaning of Monetary Reform 75
Chapter 7 The Death of Bretton Woods: A History Lesson 79
Fixed Exchange Rates, Flexible Rules 80
Export or Devalue: Institutionalizing the Devaluation Bias 82
"Hot Money" Blues 84
The Role of the Dollar under Bretton Woods 85
Limited Gold-Unlimited Dollars: A Formula for Disaster 86
Confidence versus Liquidity-A Two-Tier Tale 87
Gold's Limitations: A Blessing in Disguise 87
U. S. Balance of Payments Problems 89
The First Straw 89
On Selling One's Cake and Wanting It Too 89
The Illusion of the Last Straw 90
The High Price of Gifts 91
On Domestic Dreams and International Nightmares 92
Chapter 8 Who's Protected by Protectionism? 95
A Few Principles 97
Enter Protectionism 98
Trade between Nations 99
To Protect the Balance of Trade 100
To Protect Domestic Markets 102
To Protect Domestic Wages 102
Protectionism: The Greatest Threat to Prosperity 104
The U. S. Balance of Payments Problem in Perspective 106
The Protection Racket 106
Part III: Returning to a Gold Standard
Chapter 9 Are the Fiat and the Gold Standards Converging? 111
A Monetary System Needs to Know Its Limitations 113
Reduced Leverage Equals Reduced Speculation 115
The Process of Convergence 116
A New Day 118
Chapter 10 Gold: The New Money 121
Rediscovering Gold 123
The International "Walk" on Gold 124
Competing Monies 125
Chapter 11 How Not to Advocate a Gold Standard 129
The Intrinsic Worth Argument 130
The Store of Value Argument 131
Gold Price Predictions 132
The Legal Tender Argument 133
The Official Price of Gold Fetish 134
The Devaluation Syndrome 137
The Stop Printing Money Argument 139
The Demonetization Threat 140
On Context, Cause, and Effect 142
Part IV: Investing in Gold
Chapter 12 Lessons of a Life-Long Gold Investor 147
On Trading 151
The Rules of the Game 152
When to Be Flexible 154
And When to Stick to Your Guns 156
On Investing 157
Shakeouts 160
Turning a Disadvantage into an Advantage 163
On Leverage 164
When to Sell a Stock 167
"Be Afraid. Be Very, Very, Afraid " 168
How to Own Gold 170
Chapter 13 My Final Word on Gold 173
On Bretton Woods II 173
The New SDR Threat 175
On QE 2 178
The Banking System of a Free Society 181
In Conclusion 183
Recommended Reading 185
Bibliography 189
About the Author 191
Index 197