interesting musings on a sunday ...

'morning,

Once again I was thinking about the dollar and gold, and doing some searching on the net .. and I thought I might share it with anyone interested.

The world normally thinks of the price of gold in US dollars. That's nuts. It's the cart before the horse. Dollars are defined as a fixed amount of gold - actually it's silver rather than gold, but let's not split hairs.

America won independance from Great Britain in 1770.

Shortly thereaffter the Coinage Act of 1792 became the law of the land. The Act is still in legal force - it's simply been continuously ignored since 1913.

From Wikipedia -

The Coinage Act or the Mint Act, passed by the United States Congress on April 2, 1792, established the United States Mint and regulated coinage of the United States.[1] The long title of the legislation is An act establishing a mint, and regulating the Coins of the United States. This act established the dollar as the unit of money in the United States, declared it to be lawful tender, and created a decimal system for U.S. currency.[2]

Not only did the Act establish the dollar to be the unit of money for the US, it determined exactly what a dollar was worth -

"Dollars or Units - $1 - 371 4/16 grain (24.1 g) pure or 416 grain (27.0 g) standard silver"

Further the Act defined " the proportional value of gold and silver as 15 units of pure silver to 1 unit of pure gold".

In that way, the dollar was determined to be worth 24 3/4 grain (1.61 g) of pure gold.

The Act also provided that - "Any person could bring gold or silver bullion and have it coined free of charge or for a nominal fee exchange it immediately for equivalent value of coin." (... and there goes the hoarding fallacy.)

Thus was the "Gold Standard" established in the US. Under it inflation was almost negligible for the next 140 years!


Then entered the Federal Reserve!

'Dollars' now are not the legal currency defined under US Law. In fact a true description of the current 'dollar' is a Federal Reserve Note. That's all it is. A piece of paper printed by the Federal Reserve backed by nothing real, just an 'understanding' (more properly described as a 'misconception'.)

Now instead of a dollar being priced/valued in gold, the world has somehow switched to see gold as being priced/valued in Federal Reserve Notes aka 'dollars'.

But let's suspend belief and assume they are the same, ie that a Federal Reserve Note/'dollar' is somehow the same as a legal US dollar. Then it must, by law, be worth 1.61 g of pure gold.

But wait. At last market, 1 kg of pure gold = 29247.53 'dollars' - which means 1 g of gold = 29.24753 'dollars'.

Now the Coinage Act of 1792 states that 1.61 g of gold (actually it works out to 1.606666...) = 1 US$.

But 1.61 g of gold (at Friday's close) = 46.9999 'dollars', which must, by law, equal 1 US$.

Whoops - but surely they are the same!

Aren't they?

No, sucker, they are not!



Since it's inception in 1913, the Federal Reserve has systematically reduced the value of the US 'dollar' (which at Bretton Woods in July, 1944 was declared to be the basemark/reserve currency for the world) to 1/47 of it's real/proper/true/legal value!

So, don't think of gold in terms of 'dollars', think of 'dollars' (which aren't worth very much at all) in terms of gold (which certainly is).

ref: http://en.wikipedia.org/wiki/Mint_Act

but, as I said at the beginning, just an exercise for my own interest.

bye.

dub