Thoughts on PP if the dollar becomes gold/silver backed again

[Kel]

With Ron Paul running for President and wanting the US currency to be backed by gold (and probably silver as well) - I was wondering if the impact of the change has been considered as far as the asset allocation for HB PP is concerned. I searched around a little but did not find much on this subject.

p.s. new at this forum so please forgive me if this has already been addressed.

[MediumTex]

Ron Paul won't be elected President (though I am sure he would do a good job if he were elected)

and

No modern industrial economy will ever go back to a gold standard--the genie has already left that bottle.

Note, however, that there has always been a sort of "shadow" gold standard in the form of large governmental and central bank gold holdings, and the U.S. has the largest in the world, so in a sense we are already on a form of gold standard--i.e., the same government that issues the currency also has very large holdings of gold, even though the currency is not officially convertible into gold.

A question that no one seems to have a very good answer to is why these central banks still own so much gold in a post-gold standard world.  One answer is that we aren't really in a post-gold standard world; it may just be that the gold standard has taken on a bit more subtle form.

Just my opinions, of course.

[Ariadne22]

Ron Paul has NO chance of a nomination.  I'm pretty open-minded, but his ideas - putting aside the gold standard - are so radical he is unelectable.  Not happening.

[longeyes]

The issue isn't the gold standard, it's the Goldman standard.

[moda0306]

MT's points are all right on.

I would tend to guess that a gold portion would be still necessary, but far less-so.  Though I don't think it will happen, I find the topic interesting and have a few thoughts on this:

1) Gold is a hedge against broken promises (the value of our dollar qualifies in many ways as a promise).  Countries have broken from the gold standard in the past.  I see no reason to view a gold standard as anything but a breakable promise in terms of whether you should own gold on the side.

2) Part of the reason currencies like Japan & US have can go so low in interest rate, is that they're viewed by the world as "undefaultable" due to our monetary system where we can simply print money.  One could also argue that attaching the dollar to a gold standard would remove the fear of inflation, and therefore the same result could be reached, but it appears (to me) that the bond market fears default much more than inflation... at least today.

Therefore, my question, moreso than whether to hold gold in the PP under a gold standard, would be whether your bonds will protect you like they would outside a gold standard.  I know this sounds asinine, but if you look at the self-fulfiling fear in bond markets brought on by default risk, I'd be afraid that as the deleveraging forces push themselves upon a gold-backed currency, either abandonment of the gold standard (discussed in point one), or hard-default (my other concern) would be the natural political consequence.  So when that fear of default is in the picture, is a hard deflationary collapse going to have your bonds performing how you want them to?

The PP definitely works as a great non-gold standard investment tool, and the existance of a gold standard really brings up some interesting questions that are fun to think about, because they tend to shed some light on the nature of currencies, recessions, etc.

In fact, I tend to be against a gold standard.  I think, as MT said, the federal reserve holding gold gives the dollar clout and acts as a quasi-shield against people losing faith in their government & currency.  This, along with incorporating gold in modern portfolios, to me, seems to be a much more efficient way to incorporate a quasi-gold standard accross the US.  I'd much rather hedge against collapse myself than 1) even waste my time assuming the gov't isn't going to eventually break the gold promise and 2) subject my government to systemic issues involved with having default risk work its way into the bonds they issue.

[AdamA]

If the world were suddenly placed back on a gold standard, I would switch my PP to 1/3 bonds, 1/3 stocks and 1/3 gold or cash.

[TripleB]

If the world were suddenly placed back on a gold standard, I would switch my PP to 1/3 bonds, 1/3 stocks and 1/3 gold or cash.

What happens when the standard gets reversed again? Then your cash will plummet and gold will skyrocket.  If you wanted to do an even split between gold and cash and do 1/3 bonds, 1/3 stocks, 1/6 gold, 1/6 cash I could see that doing what you're trying to do in a safer way. But I'd still stick with 4 way split.

[Coffee]

The issue isn't the gold standard, it's the Goldman standard.

Can you explain what you mean by this?

[jco]

It would certainly change the game if massive inflation was no longer the threat it is... I wouldn't worry about it until it happens. Frankly I just can't see it happening, too much power for central banking and inflationary policies.

Ron Paul won't be elected President (though I am sure he would do a good job if he were elected)

Ron Paul has NO chance of a nomination.  I'm pretty open-minded, but his ideas - putting aside the gold standard - are so radical he is unelectable.  Not happening.

You guys listening to CNBC or what?

Ron Paul DOES have a chance... I might not have said that a few months ago, but with Perry self destructing (and expected to drop out, thank God), Paul is the #2 GOP candidate. Perry, Romney and Paul, everyone else is poling 5% or less. Paul and Romney are the only 2 candidates polled to beat O.

I don't see Romney as difficult to outshine, he's 80% haircut/20% bland populist...  I also don't see what is extreme about any of Ron Paul's views; states' rights, constitutional law, fiscal and monetary sanity, declaring (and maybe winning) wars.

[MediumTex]

Ron Paul DOES have a chance... I might not have said that a few months ago, but with Perry self destructing (and expected to drop out, thank God), Paul is the #2 GOP candidate. Perry, Romney and Paul, everyone else is poling 5% or less. Paul and Romney are the only 2 candidates polled to beat O.

I don't see Romney as difficult to outshine, he's 80% haircut/20% bland populist...  I also don't see what is extreme about any of Ron Paul's views; states' rights, constitutional law, fiscal and monetary sanity, declaring (and maybe winning) wars.

Don't misdunderstand me.  I like Ron Paul a lot.  I actually voted for him in 2008 as a write-in candidate in the general election.

I'm just saying that the establishment is never going to get behind him, and that basically means he can only go so far before the smear machine comes out.

[stone]

I'd think that under a gold standard a PP should be 75% gold:25% stocks. Debt doesn't really work under a gold standard. If debt gets used (as it always does) under a gold standard, then that debt is going to default or the gold standard is going to be jetisoned with a plummeting devaluation. Gold price volatility would not be an issue or at any rate would not be an issue that holding bonds or cash would help solve. In such a gold standard world, I personally I would rather have zero interest from gold and have a reliable reserve to rebalance the stocks against rather than having cash that moved in lock step with gold for a few years and then evaporated in value or bonds that went the way of Greek government bonds today.

[l82start]

i may be misunderstanding or misremembering what i have heard, but don't the modern Austrian economists  (and maybe Ron Paul) recommend a "gold/commodity basket" backed monetary system?  and if they do, i think it would change the PP balance in a different way than a pure gold standard money would..

[AdamA]

i may be misunderstanding or misremembering what i have heard, but don't the modern Austrian economists  (and maybe Ron Paul) recommend a "gold/commodity basket" backed monetary system?  and if they do it i think it would change the PP balance in a different way than a pure gold standard money would..

As I understand it Ron Paul believes that currencies, of all forms, should be able to compete against one another, and business owners should be able to take payment in the currency of their choice. 

I'm not sure what the exact stance of most Austrian economists is, other than to say that I've heard many say they are in favor a gold standard type system. 

[Indices]

Ron Paul has no chance. He won't even win the nomination.

[jco]

Ron Paul has no chance. He won't even win the nomination.

if the primary election is fair and honest and people vote for him he is just as capable of winning as anyone.
a new Harris pole is putting him ahead of obama in a run off, i don't know how accurate their polling is but he has some pretty strong enthusiastic supporters......
given how much the establishment on both sides don't want him to win, he is definitely in an up hill battle but i wouldn't count him out yet, and i definitely question the motives of the media and talking heads that push the "cant win" meme,
he may not be likely to win but the whole "he cant win" thing strikes me as "don't throw away your vote, you must vote for the lesser of two evils" campaign rhetoric from people who have something to loose if he did win...

Definitely... Seems like peoples' entire reality is framed by TV... TV has said R. Paul can't win so many times it must be true. At least they're mentioning him now, if only to assure people he can't win.

[Indices]

he may not be likely to win but the whole "he cant win" thing strikes me as  "don't throw away your vote, you must vote for the lesser of two evils"  campaign rhetoric from people who have something to loose if he did win...

Definitely... Seems like peoples' entire reality is framed by TV... TV has said R. Paul can't win so many times it must be true. At least they're mentioning him now, if only to assure people he can't win.

The same was said for Ralph Nader back in 2000. The fringe of any society always believe their candidate is being ignored by the media.

[Benko]

I used to be a fan because he says a lot of things that are very reasonable/I would agree with. However he also says some..."interesting" things e.g. 2nd debate recently he commented that he was not in favor of a fence (to keep illegal aliens out) because it could keep us in

Cain won the recent straw poll in Florida and while it is unlikely he will be the candidate, Paul is probably now 4th.

[jco]

The same was said for Ralph Nader back in 2000. The fringe of any society always believe their candidate is being ignored by the media.

Well, I don't consider myself "fringe" and Paul supporters do not make up a "society."

I'm not even saying it's likely, I'm just saying that those who insist it's impossible are ignoring (or ignorant of) the facts: http://articles.latimes.com/2011/sep/20 ... k-20110920

Nader was a 3rd party candidate, something Paul has refused, apples to oranges.

[murphy_p_t]

Fed Gov thinks we could go back to a gold standard w/in 10 years....
http://www.politico.com/news/stories/1011/65655.html

[Wonk]

I hope Ron Paul does not win the election, and I have a political man-crush on him.  The next 4 years are going to be more difficult financially than the last 4 years, so whoever is president will be saddled with unrealistic expectations and blame.  I would prefer a younger, more charismatic Ron Paul-esque candidate in 2016 after the system has been cleansed a bit more.  Two of the most popular presidents (Reagan & Clinton) happened to sit in office during cyclical bull markets within secular bull markets.  Coincidence between economic prosperity and approval ratings?

Anyway, the question of PP and the gold standard, I think, is "the" question to ask in the "what would happen if" scenarios.  It has the most likely chance of changing the way we construct our portfolios.  Assuming the politicos don't outlaw it again, I would think the PP remains unchanged.  Although, if they do outlaw it again, I would consider some sort of 25/25/25 stock-bond-cash allocation with the remaining 25 being some sort of real estate, timber, wine, art, etc.  At some point--perhaps 40 years into the future--they will break the gold standard again due to deficit spending.  It's a revolving door of human psychology.

[TripleB]

The issue isn't the gold standard, it's the Goldman standard.

Can you explain what you mean by this?

He's referring to Goldman Sachs being the world rulers that control everything.

[jco]

The same was said for Ralph Nader back in 2000. The fringe of any society always believe their candidate is being ignored by the media.

I couldn't resist...
http://www.theatlanticwire.com/politics ... med/43747/

[MachineGhost]

With Ron Paul running for President and wanting the US currency to be backed by gold (and probably silver as well) - I was wondering if the impact of the change has been considered as far as the asset allocation for HB PP is concerned. I searched around a little but did not find much on this subject.

Cash is not T-Bills.  True cash would waste away from not earning a real rate of interest to cover inflation.  So if the dollar become redeemed for gold again, the gold would then become de jure cash, just as it was pre-1933.  Even though the T-Bills component is a hindrance to achieving real returns historically and should really be eliminated, T-Bills will still continue to exist.

BTW, going back to a so-called "gold standard" is not economically feasible and would be unthinkable draconian austerity.  Most gold bugs don't understand that a medium of exchange (money) is not the same thing as a store of value and confuse the two.  A so-called "gold standard" didn't stop any government in history from borrowing and spending its way into oblivion.  A balanced budget amendment and term limits, etc. would be much more effective than relying on gold as money.  Gold is better off being a free market than controlled by the state.

MG

[cabronjames]

The same was said for Ralph Nader back in 2000. The fringe of any society always believe their candidate is being ignored by the media.

Well, I don't consider myself "fringe" and Paul supporters do not make up a "society."

I'm not even saying it's likely, I'm just saying that those who insist it's impossible are ignoring (or ignorant of) the facts: http://articles.latimes.com/2011/sep/20 ... k-20110920

Nader was a 3rd party candidate, something Paul has refused, apples to oranges.

Did Paul "refuse" to be a 3rd party candidate in 2012, if he doesn't get the Republican nomination?

If Romney gets the Repub nomination, and the Pres election is actually near-100% free & fair (I have some doubt given the voting machine fraud of prior years), there may be a real chance for a genuine politician like Paul.  Romney & Obama are similar in non-genuineness: 2 PR men for special interests like investment banks, health care cartel industries, defense contractors.  2 guys that care about their own power far more than actual policy.  2 guys that flip flop excessively & is difficult to know what their actual policy is.  2 guys that might give lip service to the Average Joe 99%, but only care about their funder 0.1% plutocrats.  2 guys that love the healthcare insurance industry bailout "Romneycare" Republican/Heritage Foundation plan as health care policy.

Obama v Romney is a disgusting "Lesser of 2 Evils" choice.