10 December 2013

A metallic standard to save the economy and one central bankers will accept

Forget the gold standard people, central banks are never going to go for that. However a UK professor has unwittingly identified a metallic standard a central banker can live with - from this BBC article on why humans have always tended to choose gold as currency:

"Take iron. In theory it looks quite a good prospect for currency. It is attractive and polishes up to a lovely sheen. The problem is rust: unless you keep it completely dry it is liable to corrode away. 'A self-debasing currency is clearly not a good idea,' says [professor] Sella."

Not a good idea? Hasn't he heard of inflation targets - debasement is the stated policy of central banks. So forget this talk of a Gold Standard, an Iron Standard is what we need.

One great advantage of an Iron Standard is that everyone has some rusted piece of metal lying around, so it would be a form of QE/monetisation for the common people. Everyone will be instantly wealthy, that has got to get everyone's animal spirits going and turn the economy around. Every country also has iron, so it should get worldwide support. China's got a lot of it, just knock down those empty apartments.

It will also market well with the public - iron is "strong" - and I'm sure Obama's political advisers will see the spin/MOPE benefits of the following announcement:

"An indispensable element in building a new prosperity is closely related to creating new jobs. We must protect the position of the American dollar as a pillar of monetary stability around the world.

Accordingly, I have directed the Treasury Secretary to sell all of America's gold reserves, which is a soft, ductile and wimpy metal, and institute convertibility of the dollar into strong Iron, in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action — which is very technical — what does it mean for you?

Let me say that this new Iron Standard will make all Americans, who buy American-made products in America, wealthier and your dollar will be worth just as much tomorrow as it is today. The effect of this action, in other words, will be to strongize the dollar."

To sex it up a bit, politicians might also want to consider Izabella Kaminska's idea of central banks issuing their own digital crypto currencies. Iron is heavy to carry around, so do away with physical coins and notes and issue BitIron instead.

Finally, an Iron Standard will encourage a lot of recycling, which is a Good Thing. It will also probably result in people scrapping perfectly good goods to monetise the iron in them - economists will love that as it is similar to Keynes' idea of filling old bottles with banknotes, burying them, and having people digging them up.

There is one potential problem with an Iron Standard, being that iron's debasement rate, or rustment rate, is constant and thus out of control of the central bankers. However I think an Iron Standard is a fair compromise between the hard money advocates and meddling central bankers who think they alone know what the one right interest/inflation rate is for a massively dynamic and complex economy. Come on guys, compromise. Central bankers - give up your omniscient delusions and omnipotency. Hard Money - give up your rigid money stock, a little rustment will discourage hoarding and encourage people to spend spend spend, and what could be wrong with that?


  1. What about Mercury? Should increase liquidity and run through peoples fingers too


  2. You mentioned that 400oz 99.5% pure bars don't have any premium at the moment. But have you ever seen 400oz bars trade at a premium/discount to the spot loco London since you started working in this industry?

  3. No I've never seen 9950 400oz bars with a premium.

  4. Bullion banks have plenty of reserves, they are parked at GLD. I don't think they will ever desperately bid for gold unless there is a benefit to extending their timeline that I'm not seeing. When their current reserves naturally run dry everyone will be settled in cash, gold will be determined to be an important monetary asset, and bullion banking (lending denominated in gold) will be a thing of the past. Fractional reserve banking of a hard asset isn't designed to last forever.

  5. Sam, I disagree with the FOFOA coatcheck theory re GLD, see http://www.goldchat.blogspot.com/2013/11/more-on-bullion-bank-reserves-delta.html?m=1

  6. Then have you ever seen 9950 400oz bars with a discount to the spot?
    By and by, you mentioned 9999 bars had a premium due to the Asian demand. But 9999 bars are purer than 9950 bars. Shouldn't purer bars have a premium?

  7. The point of 400oz 9950 bars is they are what "spot" is, and should never trade at discount or premium ex-London.

    And, no, a BB isn't going to pay a premium for 9999 400oz bars. If a refiner can't sell its output as value added product and has to make 400oz bars to ship to London (and decides to make 9999 purity) then that is their problem and the wholesale market just takes them in an treats them the same as any other 400oz bar.

    It is rare for those 9999 bars to get a premium, but BBs will charge a premium if there is demand.

  8. in case you didn't know....turd is the word and knows all and see's all.

    the gomer "pyle" of gold and silver crusaders is calling everyone out and taking on all who dare question or imply any other outcome then his vision of JPM being vanquished....unless of course they manipilate gold and silver much higher....then everything is ok.

    the hypocrisy and the grandiose pompocity of it all is simply incredible. good thing he wears a very large hat.

  9. Seems reasonable. Certainly no more f****d up than the present system of a central bank issuing obligations of indeterminable quality, though really junk, it's just that no one realises.

    You do realise Bron that once again you've inferred the quality theory of money? Rusting iron is a decline in quality, not quantity. Rust is Fe to Fe Oxide.

  10. And a serious question for you Bron. You say you're looking for some premium in the bid of bullion banks for Perth Mint Gold.

    Have people in important circles asked your advice in this respect?

  11. "Fe to Fe Oxide" ha ha, of course - you expect me to remember high school chemistry?

    And no, no one asks. That sort of info would be known to BBs but maybe would not make it any further unless 2nd tier orgs like Perth Mint or GoldMoney dealing in 400oz bars say so.