Jim,

"Mechanically, reverting back to a global gold standard would be straightforward. First, an intrinsic global value of gold would have to be defined in order to convert various paper currencies. If the original Bretton Woods agreement were to be used as a model, we first divide the respective sizes of each central bank balance sheet by its corresponding official gold holdings. For example;

The Fed reports official US gold holdings to be roughly 8,100 metric tons, or about 286 million ounces.

The US Federal Reserve’s balance sheet liabilities (private banking system reserves) are approximately $2 trillion.

Therefore, the US dollar would have to be pegged to gold at somewhere around $7,000/ounce.

Aggregating the gold holdings of the ECB and the legacy central banks that comprise the Eurozone would imply a $6,300 gold price. Again using the Bretton Woods system as a model, the US dollar and Euro might be designated as “global reserve currencies” because they could most easily be converted to gold. The remainder of participating global currencies could then be made exchangeable into US Dollars/Euros at fixed, but amendable rates (floating foreign exchange rates)."

CIGA Pedro

Dear Pedro,

Mark Faber has the re-entrance of gold into the system down, but I feel he is not wholly clear on how Volcker will recommend the FRGCR as a major dollar crisis below .72 and near .62 on the USDX.

Some readers might consider sending Mark Faber all my articles on the "Modernized and Revitalized Federal Reserve Gold Certificate Ratio (FRGCR)." tied to a measure of international dollar liquidity and the price of gold which floats. A balance sheet problem can only be fixed by a balance sheet fix. Gold floats and fits comfortably into today’s system.

I will not argue with Mr. Farber’s price objectives.

All the best,
Jim