The Real Problem with Gold Standards (and the radical but effective solution)

by birtanpublished on August 4, 2020

What's up everybody welcome to heresy financial my name is Joe Brown and I wanted to make this video because I've been getting a lot of questions recently and comments about the problems with returning to a gold standard or questions about hey what will happen

After this kind of the fiat currency collapse that we're witnessing starting to take place right now what is that going to do you know how are we going to resolve the issues that we've seen historically with the gold standard so

Wanted to address those with a really really an unpopular opinion even among gold bugs and hard money enthusiasts what what what some good solutions are that circumvent some of the problems with the traditional gold standard that

Also circumvent some of the issues that we're seeing right now with with fiat money let's dive in alright so as you're aware we are on a Fiat standard right now fiat means by declaration so that means the money that we use is money by

Declaration just by law it doesn't have anything of intrinsic value let's do a quick trip down memory lane going by some of the major events in monetary history so I can show you exactly how we got here and where it's kind of leading

Couple thousand years ago people realized that the best form of money was something that was universally accepted as having value something that was really difficult to destroy and something that carried a fair amount of

Value in a small amount of space so that it was easy to store wealth in it that's how things like gold and silver became widely accepted as money couple thousand years ago but as you might imagine free market solutions to carrying around bags

Of coins that could be easily stolen came about pretty quickly as well and so the Goldsmith's who made the coins started offering services where they would store the gold or the silver for you and they'd issue you a note a

Receipt that would say hey anytime you come back you give me the receipt I'll give you your gold back well pretty soon the Goldsmith's realized that those receipts those notes were trading hands and so if I needed to buy some shoes

From you instead of me going to the Goldsmith getting in my receipt getting my gold coming over to you giving you my gold getting my shoes from you you then taking that gold and then going back to the Goldsmith and getting a

See instead going through that whole rigmarole I would just I give you the receipt and sign it over to you so that you could then have the claim on that same piece of gold that I used to have claim on it's a much easier process and

So after a while this the Goldsmith's realized hey nobody's coming us coming to us and returning the receipts in exchange for gold and if they do it's rarely ever you know at everybody at the same time and so what they realized was

We've got all this gold why don't we start to put it to work and they didn't tell anybody they were doing this but they started loaning out that gold and charging an interest rate on it so now you have one gold piece that belongs to

Me that's being lent out to somebody else that doubles the supply of money in that case because I've got a receipt a claim on that gold that's being traded as money but now that's new money entering into the system that's being

Traded by that other guy and so very quickly you have the amount of money start to explode in the system because then if that guy then takes that gold and goes and deposits it with a goldsmith and gets a receipt that new

Goldsmith can lend that same piece of gold out so you very quickly had local economies where the amount of money in the system started to explode as the same piece of gold was deposited lent out deposited lent out deposited lent

Out and that pushed prices up because when the amount of money in the system increases that doesn't change the amounts of goods and services so supply and demand right you've got more money chasing the same amount of goods and

Services that means the only way to accommodate for that is prices go up to compensate for that right and so you had massive inflation locally happen and pretty soon people would wise up realize what was happening realize that the

Goldsmith's had all been scheming them they went to go get their gold back wasn't all there there'd be a local collapse well instead of outlawing this practice country's decided to nationalize it instead of saying no you

Have to honor contracts and you're not allowed to take a deposit that's redeemable at any time and then loan it out for a loan that is of a you know long term duration instead of outlawing that they just said no we're gonna

Backstop that and we're gonna do it ourselves and so central banking was developed and in eighteen for the bank charter in England said that the fractional reserve system they didn't outlaw it they said that was that

That was okay and so that set precedents going forward in America we didn't have a central bank for most of our history we tried it three times throughout our American history and the last time after the Civil War up until the creation of

The Federal Reserve we didn't have a central bank and we had the greatest prosperity the world has ever seen the greatest amount of growth at the same time as deflation because when you have is a supply of money that doesn't change

You have real growth that the result of that is falling prices so falling prices for everybody everybody gets richer you get more stuff for less cost that was the way people's real wages actually went up even with prices falling across

The board and so that was the that was the system that was in place well we finally got a Federal Reserve we finally got a central bank with the Federal Reserve in 1913 that put a backstop to banks because banks wanted to be able to

Operate under fractional reserve banking without going bust they wanted to be able to issue more receipts more notes for the actual amount of gold that they held without having to you know be exposed to a run on the bank so Federal

Reserve was gonna be their backstop be the bank of the banks and so the Federal Reserve said we're gonna backstop you and and be the bank of the bank's well the Federal Reserve was still held to a fractional reserve system and so even

Though they were the bank of the bank's they still had to keep some gold in reserves again this wasn't really a 1 this wasn't a 100 percent gold standard it was a fractional reserve system set by the precedents of 1844 bank charter

Act in England and so there's more there were more claims on money in the system than there was actually money to to be redeemed that happened in 1913 and there was some big inflation that happened up until the the end of you know 1919 1920

Which led to a collapse now the government didn't do anything during the the Great Depression 1920 this was called the Great Depression at that time they didn't do anything to rescue the economy it fixed

Itself in about a year and a half and then they resumed they resumed their growth and there was more money expansion more credit expansion and more inflation that led to the real that what we call the Great

Depression now at this point and at this time they did do stuff to try and fix it and instead of actually fixing it it the Great Depression the impacts of that lasted for decades so one of the things they did to try and fix this was outline

Gold and confiscated everybody's gold and so FDR said everybody you need to turn in your gold and what we're gonna do then is that you know you can't now people can't own gold anymore you can't claim gold in in as a payment for debts

Because that was a clause that everybody said was I they said if I don't want dollars from you I can ask for you to pay me back in gold that was to prevent the loaners the lenders from being taken advantage of due to inflation because if

Inflation happens the person who borrowed money benefits because you're giving back dollars that are worth less and so there was a gold clause in every debt contract that said you know if I want I can get gold back from you

Because that prevents me from getting getting screwed by inflation so FDR outlawed that he said nope the dollar is actually money you guys can't trade with gold anymore you guys can't own gold anymore and after he confiscated all the

Gold then he upped the price of gold and so that meant that now the Federal Reserve could print a lot more money because they only had to keep 40% reserves in gold compared the amount of dollars that were in circulation so they

Got more gold from the confiscation then they raised the price of gold so they were able to issue a lot more money into circulation that gave the government a lot of spending power for all of its rescue plans which didn't actually work

They just made things worse so now you have an entire world enter World War two Europe destroys itself spends all of its gold because war is extremely expensive and instead of rebuilding themselves going back on a gold standard what they

Did was they said we'll just back up our currencies with the United States of America because the USA got pretty rich in gold from the from the war because we stayed out of it till the end and so America had a lot of gold so they just

Said hey we'll back up our money with less dollars because their money is back to the gold so it's basically the same thing and so that America has this advantage they're saying hey look everybody in the world is you

Using dollars as the reserve for their currency and so we're just gonna start printing dollars and we're gonna start buying stuff from all around the world and we're gonna take advantage of everybody using dollars here and so they

Started buying stuff from around the world America experienced a lot of false prosperity during that time until the rest of the world wizened up and realized America's printing a lot more dollars than than the gold they actually

Have to back it up and they've told us that if we redeem our dollars for gold they'll do that and so everybody said you know I want to be the first one to get my gold back because if I wait too long there's not gonna be enough gold

Because they've been printing a lot more than they actually have and so the rest of the world started go to redeem their dollars and Nixon said look we're two weeks away from running out of gold so I'm gonna you know renege on the promise

To redeem dollars for gold for the rest of the world and basically confiscating the wealth of the world at that point now the rest of the world was very used to just using dollars for transactions and so the system stuck even though that

Paper for anybody was no longer actually worth anything in terms of something redeemable for something with intrinsic value so historians economic historians look at this and say hey you know the the all of the problems that we saw in

The last hundred years have been as a result of the gold standard as a result of governments going broke because they're you know held to these limitations on what they can spend that are artificial limitations based on you

Know a 40 percent reserve requirement or a 50 percent or 25 percent or whatever the reserve requirement is it holds them to these arbitrary limitations on spending that ultimately causes them to go broke but under a Fiat standard

Especially the mmm tiers are the ones who are talking about this right now under a Fiat standard there are no limitations to what the government's can the central banks can print there's no you know reserve requirement but here's

The thing it wasn't a problem with the gold standard it was the problem with the fractional reserve if you issue more claims on something then can actually be redeemed that's fraud and it will always cause problems and so that is the core

Issue of the problems that have originated from gold standards across the board the only time they're issues and these big booms and busts and is from an artificial expansion in the money supply and then a contraction

Snapback crash due to the fact that the money supply has been expanded beyond what the actual redemptions would allow now because of this there are some there are very few of them but there are a few you know hard money enthusiasts out

There that say the only way to really do a gold standard is to have a hundred percent reserve requirement that you can't have fractional reserve banking be in the system because that's what causes the problems and they're right but they

Don't go far enough you see we don't actually need the government to have any reserves to do a gold standard I'll say that again because even most gold bugs don't understand this but you don't need a government to have any reserves to

Have a gold standard the Constitution gives the federal government the power to mint coin and set the value thereof mint coins specifically because the founding fathers had all experienced paper money in their economies in their

Colonies and they knew it led to disaster that's where the saying not worth a Continental comes from because they said I think Thomas Jefferson said you could a barrel of a barrel of Continentals is hardly worth a barrel of

Goods something like that I probably butchered the quote but you get the point they had all experienced massive inflation that happens as a result of paper money and they said this cannot be allowed in our country so in the

Constitution which was it was a change from the Articles of Confederation actually so in a constitution they wrote the federal government has the power to coin money not print money and set the value thereof it they didn't say coin

Money because paper money hadn't been invented yet paper money has been around for thousands of years and has been tried over and over but he tried to themselves doesn't work they said coin money on purpose and

Guess what it had nothing to do with government having a monopoly on what money is or what money people can use the money in circulation it was Spanish Queens at that point there was no government monopoly on a currency or in

America you could only use you know silver and gold coins that were minted by the United States at governments mint that wasn't the case gold and silver was money the power the federal governor had was to create an official coin with

A certain amount of gold or silver in it and then they could name that thing the dollar but everybody did transactions in money that came from all around the world and you could travel anywhere in the world and transact in any gold or

Silver because gold and silver were actually money you didn't need to do currency exchanges it was just the amount of gold or silver that you were transacting with and this is how money is supposed to operate it isn't supposed

To be controlled by a government it's the actual government control of money the monopoly on what money is that causes the problems you don't need the government telling you this is money and this is not now they say that printing

Dollars printing paper dollars doesn't cause inflation and it doesn't devalue money but the reality is and the way you know it is is because they have a monopoly on it if it didn't actually devalue money they would make it legal

For anybody to print their own money but if anybody could print their own dollars nobody would work for dollars because you can just print them without doing any work and so it would overnight the value the intrinsic value of the

Paper dollars and paper money would be gone versus something like gold or silver that you actually have to do labor in order to accumulate more you can't press a button and print it you actually have to mine it you have to

Refine it there's a labor cost associated with getting commodities and so you would you wouldn't you don't you never had that same problem when governments were not controlling what money was the money still had value

Because the free market sets the value and again the issue with gold and silver standards or no standards where the government doesn't determine what money is and people free markets determine what money is the problems that arise

From that are fraud and fractional reserve and if you have a legal system set up where fractional reserve banking is illegal because that kind of system is illegal in any other service or industry you can't say I'm gonna hold

This for you to somebody make a contract that says you can come get it at any time and then if too many people trying fulfill their contract you're just bankrupt because you lent too many of them out that should be illegal it's

Illegal everywhere else it should be illegal with money and banking and you say okay well what about why would we trust private businesses over the government you know what that's that's why we have a government that is

Has a monopoly on our money because you know what's to stop a private business from doing the same thing that the government does oh I don't know maybe the fact that if they do that they'll actually go bankrupt if a government

Does that the only consequence is that they just get to do it more I mean I think the free market has just a little bit better of a track record of not committing fraud and not wasting money then governments do that have a complete

Monopoly on being able to do whatever they want by the use of force without any ramifications especially regarding money for thousands of years every time every time you have a government monopoly of money they do the same thing

They destroy the value of it by clipping the coins by diluting the metal by forcing people to use paper receipts or paper notes instead of the actual money itself by stealing the purchasing power of it through hidden inflation it's like

Governments have a 100% track record of doing all of the wrong things to money yet we say they're the more trustworthy ones than the free market so I'll end here we do not need government to control or monopolize what is money the

Free market can decide on its own and in fact it will be because every time you have government's doing the same thing they're doing right now where they massively start to abuse the power of issuing money you have a currency

Collapse and Arisa and every time for thousands of years that this has happened and it's happened plenty of times the people will naturally resort to using gold and silver again with technology today who knows it might be

Bitcoin this time around history says it'll probably be gold and silver but it happens and it's important to realize that we don't mean a government monopoly on money even a 100 percent gold backed gold standard a 100 percent reserves

System is not going far enough let's get government out of our money because very soon here we will probably have the opportunity to have some say in what happens to money and what is money currency resets happen all the time

Throughout history a Gold Exchange standard isn't far enough an actual gold standard with fractional reserves isn't nearly far enough a gold standard with 100 percent reserves isn't far enough get government out of our money let the

Free market choose what money is and may the best money win thank you for watching if anything that I said was confusing didn't make sense you disagree let me know in the comment section below because I have a feeling that I'll be

Making a follow-up video about this topic just because it's really something that even most hard money enthusiasts don't really talk about most of time they're looking for you know at the at the most a 100% reserves gold standard

And so let me know what you think and if there are enough you know common questions and thoughts I'll probably make a follow-up video about this topic as well so thank you for watching really appreciate you guys have a great day

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