Thursday, October 28, 2010

Gold standard ? Will it ever happen ?

This question has come up a number of times and the answer is surprisingly simple: Get rid of the income tax !
Once there is no income tax and its incomprehensible "rules" everybody would be free to keep his funds in whatever form he wishes.
Even today you can choose to use gold (perhaps in the form of shares of GLD) as your cash position. Instead of using Dollars as cash, you could just use shares of GLD as cash. You can do this in an IRA right now.
Only remaining (unfair) disadvantage: twice the transaction costs, as you always would sell investments - buy GLD. The other disadvantage being in the "daytrading" regulations that would not allow you to purchase another security before the settlement date of your sale.
In other words, the answer is: competition ! If you don't have to keep your books in Ben's paper, you are free to chose whatever commodity or currency you wish to use.
How many people would continue to use paper ? Is it any coincidence that the income tax and the Fed were created in the same year ? (1913)

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