Some people argue there is not enough gold in the world to manage exchange. At the same time, they seem to believe that there is no self-regulation on the fiat money. There is a self regulation on money. The regulation is the bond market. The bond market works like gold. Here is how: during periods of high inflation, the bond prices climb upward as money flows from foreign countries seeking refuge in long term securities; during periods of deflation, the bond price collapses, the economy slows, interest rates rise, bond yields rise, and taxes increase. The bond market rise follows a power law correlation of inflation=inflow, deflation=outflow of foreign money. The bond market is not a good replacement for the gold standard because fiscal policy can cause speculative overvaluation that can lead to a bond bubble. We are left to ask ourselves, "Why are we so clueless about the bond market?"

The fed fiscal policies have been a disaster for the dollar. Lets look at QE3 operation twist. The fed sells 3/7 year short term securities and buys 10/30 year long term securities. The long term security yield drops giving cheaper credit for large banks, state and local municipalities, and large corporations. Unemployment remains high and growth is not stimulated. The fed will probably modify its policy by removing yield incentives that pay banks to deposit money in reserves; the fed raised the reserve requirements for banks; the fed set a maximum yield rate on 10 year treasuries. The stock market becomes the vehicle for transmitting fed policy. The stock market divergence from the mean is painful. The stock price has diverged away from stock earnings over the past decade; Price/Earnings are the conservative and proven method of valuating price. As a result, money is hot and any sign of fiscal policy will swing the stock market violently. Based on the 10 or so year of speculative divergence, it is very probable that another 10 to 15 years of deflated stock market price is pending, if not all ready in progress.

Pensions move out of treasuries and into more speculative investment. Pensions are investing in "emerging market stocks. Pensions may invest into high yield junk bonds or commercial paper. Electronic Trade funds have become increasingly popular and pensions may find themselves bets on price direction on those commodities securities. I don't like the trend because pensions have typically been very conservative. However, the pension under funding crisis has started to create a wide variety of fix income speculation that will be subject to severe loss that pension insurance can not protect.

The Gold Standard will help regulate the temperature of the economy and slow down speculation and inflation. Gold will move into the country and out of the country according to competitive growth or stagnation. Gold prevents banks cartels from inflating the money supply. Savings will accumulate, be invest in projects subject to failure and no bailout, and the economy will heal as a result of smart money chasing smart projects. Social programs will stop and excessive government spending will stop and the size of government will decrease. The Gold standard may lead to the abolishment of OTC derivatives and speculative option betting. Investing rather than betting may return to America as it returns back to a policy of isolationism.

The Gold Standard would stop the Fed from supporting derivatives. Derivatives are the financial cancer that is spread through out the world. The wealthy use derivatives to invest in emerging markets. Derivatives have a winner and a loser. The wealthy are most often the winner exploiting the emerging markets. The gold standard would reduce the need for the fed to become the derivatives clearing house and thus reduce its importance. Currently the fed has $2.86 trillion in assets of which $1.66 trillion are us debt. Image how much power and control the fed would get if it became the derivatives clearing house. US treasuries sum at $9 trillion in 2007 and total derivatives passed the $1.14 Quadrillion mark. The Gold Standard is the only way to contract the power of the fed.

Ask yourself, "why did the fed increase yields on short term debt?" Money markets invest in short term debt. Money markets will be a winner as the pensions will be a loser. More money will move into money markets as yields increase. The incentive will be to move money out of stock, out of commodities, and into short term debt. To what end?