The US Dollar vs. The Gold Standard

[Guest]

History tells you that. It did a fantastic job of stabilizing the dollar as the video indicated and you can't acknowledge that. You're making up your own facts as you go and your preferences go from there.

I personally would be no better off under a Gold standard. I would have no greater control over my destiny than in the current system. It would be controlled and manipulated by an elite of Gold bankers. I would be subject to arbitrary fluctuations in the money supply which would have impacts on my working situation.

The same is true of almost all of the worlds population.

That is totally unsatisfactory and can be addressed by adopting an intrinsically equitable system that doesn't relies on the possession of a shiny piece of metal with a very limited range of uses. You may find it an attractive proposition to have a constant flow of rare metals moving around the world and dictating economic stability - but I do not share your certainty or belief.

What is actually needed is a fixed and immovable international yardstick which is not subject to the whims of any given government. It would be best to have that pegged to commodities which have a real baring on the day to day lives of real people.

My proposal is hardly new and has the backing of the Chinese as a viable means of shedding the dead weight of the debauched dollar;

Interestingly, China has raised the possibility of an alternative peg for the SDR based upon commodities:

China's government has floated a variant of this idea, suggesting a currency based on 30 commodities along the lines of the "Bancor" proposed by John Maynard Keynes in 1944.

(Keynes was the most prominent economist of the first half of the 20th century, conventionally credited with ending the Great Depression.)

Indeed, the head of the China's central bank wrote recently:

Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back in the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may have been more farsighted. The IMF also created the SDR in 1969, when the defects of the Bretton Woods system initially emerged, to mitigate the inherent risks sovereign reserve currencies caused. Yet, the role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system.

Keynes proposed that the Bancor should be fixed to a basket of 30 commodities, including gold.

Keynes' arguments for a currency fixed on a basket of commodities was that it would stabilize the average prices of commodities, and with them the international medium of exchange and a store of value.

As China's central banker said, the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

But Keynes proposed a lot more than simply pegging SDR's to a basket of currencies:

He proposed a global bank, which he called the International Clearing Union. The bank would issue its own currency - the bancor - which was exchangeable with national currencies at fixed rates of exchange. The bancor would become the unit of account between nations, which means it would be used to measure a country's trade deficit or trade surplus.

Every country would have an overdraft facility in its bancor account at the International Clearing Union, equivalent to half the average value of its trade over a five-year period. To make the system work, the members of the union would need a powerful incentive to clear their bancor accounts by the end of the year: to end up with neither a trade deficit nor a trade surplus. But what would the incentive be?

Keynes proposed that any country racking up a large trade deficit (equating to more than half of its bancor overdraft allowance) would be charged interest on its account. It would also be obliged to reduce the value of its currency and to prevent the export of capital. But - and this was the key to his system - he insisted that the nations with a trade surplus would be subject to similar pressures. Any country with a bancor credit balance that was more than half the size of its overdraft facility would be charged interest, at a rate of 10%. It would also be obliged to increase the value of its currency and to permit the export of capital. If, by the end of the year, its credit balance exceeded the total value of its permitted overdraft, the surplus would be confiscated. The nations with a surplus would have a powerful incentive to get rid of it. In doing so, they would automatically clear other nations' deficits.

http://georgewashing...es-replace.html

The thing that most people fail to realize with their fantasy Gold standard is they imagine that it will represent both a stabilizing influence whilst relying on a free market of Gold transfers with independent sovereign nations in control of their own destiny. The reality is the only way to make such a thing work would be surrender money sovereignty to an "impartial" Global third party clearing house. This side of things sits far less well with most enthusiasts.

The Bancor strikes me as an entirely more feasible alternative to the Dollar than a pure Gold standard. The wiki article is factually incorrect in stating that the bancor would be expressed in Gold.

http://en.wikipedia.org/wiki/Bancor

At this stage Yamato - I think you have a very shallow understanding of the actual complexities of international money.

Br Cornelius

Edited October 2, 2012 by Guest

[questionmark]

Gold is one possible solution - that is all.

History tells us that it has many intrinsic flaws so I choose not to adopt it as my preferred solution to the current crisis.

Br Cornelius

Let me explain it to you: The big wet dream of all gold hamsters is that governments reintroduce the gold standard, appreciate the gold to the level to cover the money in circulation, then stop the trading of gold and buy the whole stash of the "investors" to keep the value of gold controllable (because else we still would need a stable price to have a constant valued currency) and prohibit the free trade of gold to avoid value swings.

Even somebody who invested $10,000 in gold would end up multimillionaire under that scheme.

The problem is that they have not thought their great idea through: If the government prohibits the free trade of gold the only possible customer is the government, so they can plain and simply depossess them by offering $1 an ounce, they have nobody else to sell it to.

Edited October 2, 2012 by questionmark

[+and-then]

Our currency is already nominally tied to our labor. The value of your work is represented by your salary. It's already digital too. You described what we have already you just changed the word dollars to geos.

I never claimed to be an expert of any kind Yam. My point is that whatever currency we choose will still reflect the need for VALUE. And we value necessities above all else. And ultimately our labor/skill is all we have to trade, no?

[Yamato]

I personally would be no better off under a Gold standard. I would have no greater control over my destiny than in the current system. It would be controlled and manipulated by an elite of Gold bankers. I would be subject to arbitrary fluctuations in the money supply which would have impacts on my working situation.

The same is true of almost all of the worlds population.

That is totally unsatisfactory and can be addressed by adopting an intrinsically equitable system that doesn't relies on the possession of a shiny piece of metal with a very limited range of uses. You may find it an attractive proposition to have a constant flow of rare metals moving around the world and dictating economic stability - but I do not share your certainty or belief.

What is actually needed is a fixed and immovable international yardstick which is not subject to the whims of any given government. It would be best to have that pegged to commodities which have a real baring on the day to day lives of real people.

My proposal is hardly new and has the backing of the Chinese as a viable means of shedding the dead weight of the debauched dollar;

http://georgewashing...es-replace.html

The thing that most people fail to realize with their fantasy Gold standard is they imagine that it will represent both a stabilizing influence whilst relying on a free market of Gold transfers with independent sovereign nations in control of their own destiny. The reality is the only way to make such a thing work would be surrender money sovereignty to an "impartial" Global third party clearing house. This side of things sits far less well with most enthusiasts.

The Bancor strikes me as an entirely more feasible alternative to the Dollar than a pure Gold standard. The wiki article is factually incorrect in stating that the bancor would be expressed in Gold.

http://en.wikipedia.org/wiki/Bancor

At this stage Yamato - I think you have a very shallow understanding of the actual complexities of international money.

Br Cornelius

Well thank you for expressing how shallow my understanding is. That's a great way to treat someone who initiates a discussion and participates in it heavily. I'm sure that everything I know, you already know all about.

No, undoing what the almighty omniscient and illustrious Richard Nixon did would not make you controlled and manipulated by an elite of Gold bankers. LOL I don't know what crazy website you're getting this from. And you are exponentially more subject to arbitrary fluctuations in the money supply right now than you were in the 1950s, 1960s or 1970s. I don't need perfection in my solutions, I want something tried and proven throughout history and dramatically better than we have now.

The facts in the video up for discussion haven't even been broached yet, and up to this point you've ignored them in your discussion to arrive at comments like "I would be no better off with a gold standard." I've given you the reason why you're better off with a gold standard. You keep telling me what it'll be like when we already know what it's like and it's nothing like you're talking about. I mean, watch the video. If you claim you're somehow immune to how you're better off under a gold standard (your 'working situation"?), then you need to explain how that's so before I accept your claim. If you want to claim something in the video is wrong, you should point out what that something is and then follow up by explaining how and why.

You have given me no reason to think the Wikipedia article is wrong.

Basing on commodities is going to favor the land of plenty and US hegemony anyway if you really think a gold standard will do so simply because you believe the US has the most gold. So what seems to be your reason not to accept a gold standard (US hegemony) won't exactly be dealt with amicably to all under a commodities standard.

I honestly hope China adopts a new currency on these lines and I wish they'd do it sooner not later. Simply unpegging their currency from the dollar would be all it takes for them to begin appreciating their own currency somewhat, and give their budding middle class (especially their saving class) the purchasing power it needs to take part in their economy.

You're being way too defensive in thinking I won't accept alternatives when that's what I've been asking for the whole time. Up to this point, you've been quick to complain about the tried and proven old idea in favor of your new global currency that replaces the dollar as the reserve. At this point it's clear that you're opposed, perhaps morally, to US-hegemony and have written off the US dollar as dead. I don't know if the latter is due to malice or not, but I'm interested in saving the dollar not surrendering to its demise. Thank you for redirecting to a solutions-oriented discussion.

[Yamato]

I never claimed to be an expert of any kind Yam. My point is that whatever currency we choose will still reflect the need for VALUE. And we value necessities above all else. And ultimately our labor/skill is all we have to trade, no?

We have a medium of exchange, our currency.

If work was money it's a death sentence to everyone who isn't a "worker", Comrade.

[+DieChecker]

Dollar stability is an historical fact, 97-years long under the gold standard.

Man had stable economys that lasted hundreds of years based on the oldest system... Barter, yet that does not mean that Barter is what we should use in the present day. Because gold was stable in the past does not make it stable today.

I do believe that if the US went to a system where money was backed, the rest of the Fiat driven world would have a distict advantage over us on the international stage. So, unless we plan on not trading with anyone I think we're going to have to stick with the Fiat system for now. That is not to say the Fed needs to remain as is. There is definately room for improvement.

[ian hacktorp]

This may be the ultimate reason why a return to a gold standard will not happen in the US...right, wrong, or indifferent:

a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets

http://sprottglobal.com/markets-at-a-glance/maag-article/?id=6590

On the day the US goes to a gold standard, the people discover their asses really ARE owned by China, et al.

[ninjadude]

What I mean is, the government should be responsive to the popular will, the will of the people, as it was in George Washington's day.

What makes you think that it was? There was no mass communication (phone, tv, internet, mail, few and limited newspaper). It is and was responsive by having popular elections.

[sam12six]

Therefore let's choose something that has proven historical value, doesn't degrade in air or in time, and isn't something to throw out the moment it smells funny.

Why? Let's imagine we went to $10 gold pieces that had an intrinsic gold value of $2 in today's world (good luck keeping up with your tiny coins):

Do you think our economy would be better if the government paid thousands of times the cost of today's ten dollar bill to circulate more money? Would it help things for the government to add the massive debt of collecting the gold to make into this currency in the first place?

What Cornelius has been trying to explain when stating that gold has an arbitrary value is that early in history, people DECIDED it made a good currency medium (because it doesn't corrode and people couldn't easily run out and get more to make their own currency). If humanity hadn't decided to use it this way, before electronics, its only value compared to other metals was the fact that you didn't need to constantly clean it to keep it shiny.

The reason people who don't think too deeply on the subject want to return to the gold standard is that they imagine a collapse of our economy and themselves sitting on a pot of gold that they can use to start over.

We have to end the Fed and get the government policy out of the market regardless. A lot of your concerns just don't play out in history. Eisenhower and Kennedy didn't call the gold mine before figuring out who to appoint or how much money to create. Reversing Nixon Shock as a first step is prudent, not naive.

The supply of money at the time was a tiny fraction of what exists today. Early in history, fractional reserve banking meant that the banks only kept a little of the money deposited in them and loaned out the rest. Today, it means that new virtual money is created every time they make a loan - which has been going on for decades. Short of completely scrapping the current economic system to make the switch, there's no way to go back to a precious chunk of material standard. Even if we did, as Die Checker mentioned, we would then be at a tremendous economic disadvantage unless we also convinced every other government on the planet to follow suit.

The only problem with our current system of money is that the Fed controls the supply of it instead of the government itself doing so (that and that the government pays the Fed to do so). To fix it, there are a couple of simple set of steps the government could take (simple, but unbelievably hard, politically speaking):

Kill the bank. Eliminate the Fed and take back control of the money supply.

Tie the value of currency to something real. This could be the GDP or it could be a formula like stock indices (only based on real commodities) - This formula would be something like : The value of a dollar = The dollar cost of a barrel of crude + the value of an ounce of gold + the dollar cost of a bushel of corn / whatever. The more commodities involved in the calculation, the more stable the currency.

[Yamato]

Man had stable economys that lasted hundreds of years based on the oldest system... Barter, yet that does not mean that Barter is what we should use in the present day. Because gold was stable in the past does not make it stable today.

I do believe that if the US went to a system where money was backed, the rest of the Fiat driven world would have a distict advantage over us on the international stage. So, unless we plan on not trading with anyone I think we're going to have to stick with the Fiat system for now. That is not to say the Fed needs to remain as is. There is definately room for improvement.

Why???

Interesting that Br likes your post when he's the one advocating a barter-based Bancor. Even more interesting that he likes your post claiming a fiat driven world has an advantage after claiming he understands the problems with fiat currency. I see someone slopping whatever criticism he can find on the wall with no real conviction to saying anything (just poo poo gold and he's good).

[sam12six]

Why???

Interesting that Br likes your post when he's the one advocating a barter-based Bancor. Even more interesting that he likes your post claiming a fiat driven world has an advantage after claiming he understands the problems with fiat currency. I see someone slopping whatever criticism he can find on the wall with no real conviction to saying anything (just poo poo gold and he's good).

First, the value of our money wouldn't be tied to the strength of our economy, it would be based on the market value of a commodity. The US economy could be booming and the value of our gold money tank because someone in South Africa discovered a massive deposit of gold. The opposite extreme applies too. A country who doesn't like us could use their fiat money to buy up a bunch of gold. The material our money represented in that case would be more than the currency value. People would start gathering up our money and either hoard it or sell it in the international market. Our economy would grind to a halt because no one would actually be using the money as money.

The only way to avoid such things would be to make the gold value of our money so tiny that it wouldn't be susceptible to swings in gold value. You know what it would be then? Yep, fiat currency. Only it would be fiat currency made of a material that cost hundreds or thousands of times what other nations spend to circulate money.

Generations ago, the gold standard was exactly that - a standard. It applied because pretty much every nation agreed that this rare, pretty metal with no practical application that wasn't better served by other metals would be a good representation of value. In today's world, the gold standard is a fear based imaginary shelter. People feel that if the world should go to hell in a handbasket, they'd be sitting there with their valuable gold. They never stop to consider that if the government could make all the money into gold, it could just as well hand out gold to people for no reason and keep the current money system. Neither's going to happen because of the sheer expense of the idea.

Anything that people can't easily duplicate is a good representation of value. Any government stupid enough to use something unnecessarily expensive for the purpose would deserve the handicaps that policy would create.

[Yamato]

Why? Let's imagine we went to $10 gold pieces that had an intrinsic gold value of $2 in today's world (good luck keeping up with your tiny coins):

Do you think our economy would be better if the government paid thousands of times the cost of today's ten dollar bill to circulate more money? Would it help things for the government to add the massive debt of collecting the gold to make into this currency in the first place?

What Cornelius has been trying to explain when stating that gold has an arbitrary value is that early in history, people DECIDED it made a good currency medium (because it doesn't corrode and people couldn't easily run out and get more to make their own currency). If humanity hadn't decided to use it this way, before electronics, its only value compared to other metals was the fact that you didn't need to constantly clean it to keep it shiny.

The reason people who don't think too deeply on the subject want to return to the gold standard is that they imagine a collapse of our economy and themselves sitting on a pot of gold that they can use to start over.

The supply of money at the time was a tiny fraction of what exists today. Early in history, fractional reserve banking meant that the banks only kept a little of the money deposited in them and loaned out the rest. Today, it means that new virtual money is created every time they make a loan - which has been going on for decades. Short of completely scrapping the current economic system to make the switch, there's no way to go back to a precious chunk of material standard. Even if we did, as Die Checker mentioned, we would then be at a tremendous economic disadvantage unless we also convinced every other government on the planet to follow suit.

The only problem with our current system of money is that the Fed controls the supply of it instead of the government itself doing so (that and that the government pays the Fed to do so). To fix it, there are a couple of simple set of steps the government could take (simple, but unbelievably hard, politically speaking):

Kill the bank. Eliminate the Fed and take back control of the money supply.

Tie the value of currency to something real. This could be the GDP or it could be a formula like stock indices (only based on real commodities) - This formula would be something like : The value of a dollar = The dollar cost of a barrel of crude + the value of an ounce of gold + the dollar cost of a bushel of corn / whatever. The more commodities involved in the calculation, the more stable the currency.

I'm not suggesting gold as money. Like there won't be any tiny coins in this problem that's somehow unique only to gold backing of our currency in exactly the same way we won't be storing oil drums and grain bags and slaves in our basement if we base our currency on various commodities or labor, the idea Br has been trying to sell me. Obviously we're not going to own the basis for our currency when we propose these ideas, I can't understand why people create these double standards solely for gold? Because it has historical value? Because it's legal tender? Tiny coins aren't necessary because Federal Reserve Notes are legal tender.

Maybe it's easier to accept the destruction of the dollar when we can agree on its demise? Talk about economic devastation!

I'm glad you admit humanity decided to use gold that way instead of arbitrarily deciding to use ANYTHING ELSE YOU CAN POSSIBLY THINK OF. What I'm telling you is that everything has value when we perceive it to have value. There is no exception. My opinion about gold notwithstanding. If it's even a criticism at all, it's not just a criticism of gold, it's a criticism of everything. Maybe these people just don't like money? But whatever, we need to come up with an alternative policy. It's pretty telling in this thread that people interpret "alternatives" to mean alternatives to the dollar and not alternatives to the policy.

Even if we did, as Die Checker mentioned, we would then be at a tremendous economic disadvantage unless we also convinced every other government on the planet to follow suit.

I see no economic disadvantage of a responsible currency that can't be printed to destruction. I see no reason to convince every other government or even one other government. Even if you believe this, and I have no idea why you do, then how does a multiple commodities basis not pose the same problems?

The world already has commodities based currencies whose value is determined by the demand of the raw materials these companies export. I've been using these currencies as inflation hedges the same way I use gold. Earlier in this thread I mentioned the New Zealand dollar and the Canadian dollar as better alternatives to the US dollar.

If you'd like to see this correlation demonstrated graphically, you will notice the the predictability of price action between the Canadian dollar FXC and the materials ETF XLB.

http://finance.yahoo.com/q/ta?t=1y&s=FXC&l=on&z=l&q=l&c=xlb&ql=1

You can easily notice the same correlation with the Australian Dollar, FXA.

However, when comparing the US dollar to materials index, correlation is as likely to be negative as it is positive, with random price action and noticeable divergence between prices through time.

http://finance.yahoo.com/q/ta?s=UUP&t=1y&l=on&z=l&q=l&p=&a=&c=xlb

Having a commodities-based global currency (no different than what you spoke of with gold, it would be after we have to convince every government in the world to adopt it) will favor the commodities producing nations. The Middle East and Russia will love the oil based money. Looking past the US dollar and imposing a global currency favoring the production of foreign countries is a ruinous idea for the US. It's loaded with an acceptance of the death of the dollar. This is an even more hazardous attitude about money than the fiat money printers have because they ignore the damage their inflation causes or simply deny it exists at all. Actually accepting the death of the dollar is a new high in jeopardizing our nation's economy I haven't seen until I read the replies here.

[Yamato]

First, the value of our money wouldn't be tied to the strength of our economy, it would be based on the market value of a commodity. The US economy could be booming and the value of our gold money tank because someone in South Africa discovered a massive deposit of gold. The opposite extreme applies too. A country who doesn't like us could use their fiat money to buy up a bunch of gold. The material our money represented in that case would be more than the currency value. People would start gathering up our money and either hoard it or sell it in the international market. Our economy would grind to a halt because no one would actually be using the money as money.

The only way to avoid such things would be to make the gold value of our money so tiny that it wouldn't be susceptible to swings in gold value. You know what it would be then? Yep, fiat currency. Only it would be fiat currency made of a material that cost hundreds or thousands of times what other nations spend to circulate money.

Generations ago, the gold standard was exactly that - a standard. It applied because pretty much every nation agreed that this rare, pretty metal with no practical application that wasn't better served by other metals would be a good representation of value. In today's world, the gold standard is a fear based imaginary shelter. People feel that if the world should go to hell in a handbasket, they'd be sitting there with their valuable gold. They never stop to consider that if the government could make all the money into gold, it could just as well hand out gold to people for no reason and keep the current money system. Neither's going to happen because of the sheer expense of the idea.

Anything that people can't easily duplicate is a good representation of value. Any government stupid enough to use something unnecessarily expensive for the purpose would deserve the handicaps that policy would create.

Practical application? What application does my paper have? It obviously doesn't matter. Why do you insist on assigning these bizarre double standards just to gold and not to anything else?

They would use their fiat money to buy "a bunch of gold"? That's some baseless faith in the value of fiat that ignores the very problem we're trying to fix here. That's also probably the biggest admission that gold is actually demanded as we can get. They could also do the same with any other commodity.

I'm more interested in looking at what did happen than entertaining crazy notions that never did. People were worried about inflation long before "today's world". They remember the Continental in this country, which went to zero like every other fiat of centuries ago. It's not "imaginary" beyond any other storehouse of value we can discuss. It's superior because of worldwide transferability, portability, survivability, historical value, and a proven track record of currency stabilization. It has nothing to do with being "pretty" or the bogus claim that gold isn't useful or demanded by the market ex-financials.

[Guest]

Why???

Interesting that Br likes your post when he's the one advocating a barter-based Bancor. Even more interesting that he likes your post claiming a fiat driven world has an advantage after claiming he understands the problems with fiat currency. I see someone slopping whatever criticism he can find on the wall with no real conviction to saying anything (just poo poo gold and he's good).

I didn't agree with all the sentiments. The principle a of a paper based money system is not intrinsically flawed - just the version we operate at the moment. I have expressed my prefered option for a paper based money tied to a basket of real commodity values.

I do not fundamentally disagree with you objections to the current money system - but do not agree with your solution. As such you can see that you do not have to agree with everything someone says all of the time Its not been wishy washy or lacking in understanding - its called nuance.

Br Cornelius

Edited October 3, 2012 by Guest

[sam12six]

I'll second what Cornelius said.

I've said in a couple of posts in this thread that gaining control of the economy means killing the Fed (or whatever the Central Bank is called in the country in question).

The problem I have is (the double standard you keep trying to point out) isn't solely with gold. It's just that the title of this thread is dollar versus gold standard, so that's the aspect I've focused on. Pre electronics, gold had very little practical value. Anything you could use it for, other metals would serve better.

You're right that most things have a value only because we perceive them to have value. I'm saying the perceived value of gold came about only because governments so widely chose that as the medium for money.

I'd love to see an end to central banks and governments control their own money. I'd also love to see that money tied to the value of real commodities. I just reject the idea of the value being tied to any single commodity whether that's gold, pork bellies, or tulip bulbs. The stability of gold value is more open to fluctuation than those who blindly espouse the gold standard want to believe. In large part, that's because there's never been a global economy with our speed of transaction where economies using fiat currency competed against those using money with intrinsic value. The flexibility of a fiat system would be a huge advantage in such a competition.

Anyway, I think we're on the same page about what's wrong. I just think the gold standard is an over-simplified solution that can neither be put in place nor perform competitively in today's world.

[Yamato]

I didn't agree with all the sentiments. The principle a of a paper based money system is not intrinsically flawed - just the version we operate at the moment. I have expressed my prefered option for a paper based money tied to a basket of real commodity values.

I do not fundamentally disagree with you objections to the current money system - but do not agree with your solution. As such you can see that you do not have to agree with everything someone says all of the time Its not been wishy washy or lacking in understanding - its called nuance.

Br Cornelius

That's interesting, I hope you can elaborate on what sentiments you didn't agree with and why. When I remember the reasons you cited that a gold-based money system is "intrinsically flawed" how can you now say that a paper-based money system isn't? What utility is paper? What intrinsic value is paper? Can I write on it or something? Can I wipe something with it?

To be frank, you've evolved from the beginning of the discussion to land on this basket of commodities based money I want paper backed by commodities too, and I put my money where my mouth is as far as that goes. The reason you can't agree with a gold standard per-se is because you introduce all kinds of unique and bizarre practices for how you imagine a gold standard must work and at the same time, you haven't identified one flaw with gold that doesn't exist with other commodities. I have to throw out history to entertain your conjecture about what will happen and I'm not able to do that. If your only point is to support a modified gold standard but with a broader diversification of other commodities (for an alleged greater stability) I've already agreed with taking some initiative on that and I've already mentioned more than once how I favor commodities-based currencies already out there, so it seems to me we actually do agree on the solution but nuance got in the way of that as well.

Some things aren't nuance however, like when you claim that the encyclopedia is wrong and I ask you to back up your assertion and you ignore me.

[Yamato]

I'll second what Cornelius said.

I've said in a couple of posts in this thread that gaining control of the economy means killing the Fed (or whatever the Central Bank is called in the country in question).

The problem I have is (the double standard you keep trying to point out) isn't solely with gold. It's just that the title of this thread is dollar versus gold standard, so that's the aspect I've focused on. Pre electronics, gold had very little practical value. Anything you could use it for, other metals would serve better.

You're right that most things have a value only because we perceive them to have value. I'm saying the perceived value of gold came about only because governments so widely chose that as the medium for money.

I'd love to see an end to central banks and governments control their own money. I'd also love to see that money tied to the value of real commodities. I just reject the idea of the value being tied to any single commodity whether that's gold, pork bellies, or tulip bulbs. The stability of gold value is more open to fluctuation than those who blindly espouse the gold standard want to believe. In large part, that's because there's never been a global economy with our speed of transaction where economies using fiat currency competed against those using money with intrinsic value. The flexibility of a fiat system would be a huge advantage in such a competition.

Anyway, I think we're on the same page about what's wrong. I just think the gold standard is an over-simplified solution that can neither be put in place nor perform competitively in today's world.

The title is comparing the historical gold standard to the quantitative easing fiat dollar we have today. And the contest is no contest. But you weren't discussing the title or taking exception to it, you were replying to a comment I made that Dwight Eisenhower and John F Kennedy didn't call the gold miners before their appointed Fed Chairman inflated the money supply, thereby demonstrating that we aren't going to be the slaves of the evil gold miners that Br claimed we would. I think you probably agree with me on this as well or at least I hope you do. If you can't advocate for the gold standard over today's fiat because you're convinced that it's unstable, I don't know what you're basing that belief on. Throwing out all US history would seem to be prerequisite though.

One commodity not enough? Tie it to gold, silver, platinum, palladium, bronze, brass, copper and aluminum then. Pork bellies and tulip bulbs are foolish ideas because you cannot keep these things. They do not store. You cannot save them. Money must be capable of being saved, among other things.

[sam12six]

The title is comparing the historical gold standard to the quantitative easing fiat dollar we have today. And the contest is no contest. But you weren't discussing the title or taking exception to it, you were replying to a comment I made that Dwight Eisenhower and John F Kennedy didn't call the gold miners before their appointed Fed Chairman inflated the money supply, thereby demonstrating that we aren't going to be the slaves of the evil gold miners that Br claimed we would. I think you probably agree with me on this as well or at least I hope you do. If you can't advocate for the gold standard over today's fiat because you're convinced that it's unstable, I don't know what you're basing that belief on. Throwing out all US history would seem to be prerequisite though.

The problem with comparing historical performance with future performance is that the world changes. If you were arguing that to make our army more effective all we need is more horses, should we agree because horses have made armies more effective throughout history?

I definitely agree that we wouldn't be slaves to gold miners. If we were going to be slaves, it might be to those who own gold mines. What I think would happen in reality is that those in control of our economy now would simply concentrate on controlling the world's gold supply.

One commodity not enough? Tie it to gold, silver, platinum, palladium, bronze, brass, copper and aluminum then. Pork bellies and tulip bulbs are foolish ideas because you cannot keep these things. They do not store. You cannot save them. Money must be capable of being saved, among other things.

I think this might be the base of why we seem to disagree even though what we're saying is not very far apart. You're wrong. Money does not need to be kept indefinitely because money isn't supposed to have value of its own. Money is supposed to REPRESENT value. Again, gold became a valuable thing because most of the powerful governments in history chose this mostly useless metal as their medium for money. With that historical perception plus actual uses the modern world has developed for the material, it has actual value far beyond its use to represent value.

If the decision were mine, I'd tie the dollar's value to a formula that included every category of commodities traded on the open market in the United States. Some commodities will rise while others will fall, but the more that are considered, the better the whole thing represents the health of the country's economy.

[Guest]

That's interesting, I hope you can elaborate on what sentiments you didn't agree with and why. When I remember the reasons you cited that a gold-based money system is "intrinsically flawed" how can you now say that a paper-based money system isn't? What utility is paper? What intrinsic value is paper? Can I write on it or something? Can I wipe something with it?

To be frank, you've evolved from the beginning of the discussion to land on this basket of commodities based money I want paper backed by commodities too, and I put my money where my mouth is as far as that goes. The reason you can't agree with a gold standard per-se is because you introduce all kinds of unique and bizarre practices for how you imagine a gold standard must work and at the same time, you haven't identified one flaw with gold that doesn't exist with other commodities. I have to throw out history to entertain your conjecture about what will happen and I'm not able to do that. If your only point is to support a modified gold standard but with a broader diversification of other commodities (for an alleged greater stability) I've already agreed with taking some initiative on that and I've already mentioned more than once how I favor commodities-based currencies already out there, so it seems to me we actually do agree on the solution but nuance got in the way of that as well.

Some things aren't nuance however, like when you claim that the encyclopedia is wrong and I ask you to back up your assertion and you ignore me.

Any statement I have made concerning a Gold standard is based on the historic operation of the Gold standard - and they are all valid critiques, not bizarre.

A Gold standard has never operated in a computer driven age so there are a whole new set of issues which operating a Gold standard will have to face. How will transnational accounts be settled in a world of seconds only trades which can see billions flow between currencies on an hourly basis. It certainly not obvious how that little issue would be addressed in a traditional hard Gold currency situation.

The actual concept of real gold been used to settle accounts is the bizarre element at this stage in history. The elegance of a basket of commodities is that the currency is not dictated by the amount of each commodity which any given country holds - it is the perfect abstract yardstick which the world needs. If a state decides to print excess notes then its relative value on the world currency market would automatically fall and hence its purchase power - but accounts would not be deflated since they are held in the intermediary currency. Finally a system which discourages countries from running up debts and then trying to devalue their way out of them.

I don't think you have ever thought beyond the issue that the current system is flawed and Gold once worked better. That really won't cut it as the basis of a modern monetary system of the computer age. Ultimately my position is that I am content to read a range of informed academic opinion on the subject of and then draw my conclusions based on what seems the best option. I will not be basing my opinion on the positions of posters here, though if they point me towards good source material I will hopefully learn from it. So far all you have provided is your own opinion and that is probably why I remain unconvinced.

Br Cornelius

Edited October 3, 2012 by Guest

[Yamato]

The problem with comparing historical performance with future performance is that the world changes. If you were arguing that to make our army more effective all we need is more horses, should we agree because horses have made armies more effective throughout history?

I definitely agree that we wouldn't be slaves to gold miners. If we were going to be slaves, it might be to those who own gold mines. What I think would happen in reality is that those in control of our economy now would simply concentrate on controlling the world's gold supply.

I think this might be the base of why we seem to disagree even though what we're saying is not very far apart. You're wrong. Money does not need to be kept indefinitely because money isn't supposed to have value of its own. Money is supposed to REPRESENT value. Again, gold became a valuable thing because most of the powerful governments in history chose this mostly useless metal as their medium for money. With that historical perception plus actual uses the modern world has developed for the material, it has actual value far beyond its use to represent value.

If the decision were mine, I'd tie the dollar's value to a formula that included every category of commodities traded on the open market in the United States. Some commodities will rise while others will fall, but the more that are considered, the better the whole thing represents the health of the country's economy.

If you ignore history you're bound to repeat it. One Continental was enough for me. I'm trying to save the dollar not collect inventories of defenseless rhetorical statements about a theoretical future blind of history where the dollar doesn't even exist anymore and then tell the other guy that he's the one threatening the economy.

Money must be capable of being saved because it's supposed to represent value. There is no value in tulip bulbs and pork bellies because they're on fast tracks to zero, and far faster tracks to zero than the fiat currency you agree is a problem. You cannot maintain a steady dollar represented by commodities whose value is only propped up by the promise of continued production due to the fact that they're perishable and subject to absolute price deterioration when they spoil. You would subject the value of our money to every commodities-based calamity we could conceive of and that's why the diversification that sounds good in theory will never work better than hard assets that have proven historical value.

[+DieChecker]

I also don't like the idea of linking the value of the Dollar to something that is as ephemeral as food or household purchases. I think it should be linked to stuff that would count as collateral to the banking system. Property, raw resources, vehicles, artworks (?). Stuff that is not going anywhere.

I can see the linking it to GDP and such, but that seems a different linking/thinking then it would be if you're linking it to actual goods and services.

[Yamato]

Any statement I have made concerning a Gold standard is based on the historic operation of the Gold standard - and they are all valid critiques, not bizarre.

A Gold standard has never operated in a computer driven age so there are a whole new set of issues which operating a Gold standard will have to face. How will transnational accounts be settled in a world of seconds only trades which can see billions flow between currencies on an hourly basis. It certainly not obvious how that little issue would be addressed in a traditional hard Gold currency situation.

The actual concept of real gold been used to settle accounts is the bizarre element at this stage in history. The elegance of a basket of commodities is that the currency is not dictated by the amount of each commodity which any given country holds - it is the perfect abstract yardstick which the world needs. If a state decides to print excess notes then its relative value on the world currency market would automatically fall and hence its purchase power - but accounts would not be deflated since they are held in the intermediary currency. Finally a system which discourages countries from running up debts and then trying to devalue their way out of them.

I don't think you have ever thought beyond the issue that the current system is flawed and Gold once worked better. That really won't cut it as the basis of a modern monetary system of the computer age. Ultimately my position is that I am content to read a range of informed academic opinion on the subject of and then draw my conclusions based on what seems the best option. I will not be basing my opinion on the positions of posters here, though if they point me towards good source material I will hopefully learn from it. So far all you have provided is your own opinion and that is probably why I remain unconvinced.

Br Cornelius

No, your statements about the gold standard are NOT based on history; they ignore history.

I've provided the video here giving you the historical facts, which you haven't acknowledged. You make statements that you oppose fiat currency. At this point I have to wonder why. You just deny the history or make empty assertions that what worked historically can't work now. I've provided links here you've completely ignored. I've challenged you repeatedly to back up your claim that the encyclopedia is wrong and you act like you can't hear me. Listen Br, I'm the kind of guy who doesn't stop asking you to do that, so as long as you're here, that's how long your claims will go undefended. You're not deaf, Br. Either pony up how Wiki is wrong after I ask you three times, or own up to the credibility loss for claiming that it is.

I've provided charts proving to you that what you thought is your own novel idea already exists in the world. You've completely ignored those too, or the fact that export-rich countries like Australia are heavily weighted in metals. You have provided no real world history behind any of your claims and so while they sound appealing to me rhetorically I have to reject them on a total lack of evidence. The reason you say I haven't convinced you is the reason you haven't convinced me. My position isn't based on blind faith. It's based on fact. I don't share in your rhetoric-based faith and I don't understand what your real agenda is here to ignore 234 years of US history. There is no precedent of dollar instability you can cite nor reason provided for me to believe the increasingly random statements you keep collecting here.

Now "the computer driven age" is the next excuse we're squirreling into. This is exactly what I mean about someone throwing all the crap they can find on the wall and hoping something sticks. If you had remained constant about the problem with the gold standard from the beginning, instead of exploring every theoretical problem with it you can come up with, I would at least be able to take your militant opposition seriously. I would at least be able to trust that you genuinely believe in the problem that you have but you're all over the road Br. You're just collecting every rhetorical problem imaginable and dumping them onto my thread without backing them up.

Is there a problem with the gold standard you don't have? I have to wonder.

"That really won't cut it as the basis of a modern monetary system of the computer age."

HOW NOT?

Again, you offer no explanations for how or why you make the statements you do. What does this latest reason you've escaped into have to do with a stable currency? Here again you're just making statements. I can just make statements too but I think I'm the one on solid ground here because I've backed up every assertion I've made with facts, charts, history, common sense, and examples for money that one can actually SAVE, thus have the ability to return us to a capital-based economy where credit is based on savings and not nominal digital values printed on a printing press or typed onto a digital balance sheet with a magical keyboard. We have enough computer-driven monopoly money with no value to speak of except for the value of everything out there it borrows itself from. That is the one thing discussed here so far that truly has no value in and of itself. The other alternatives discussed already are better. I'm not so intractable about this issue that I can't even admit that much. But on the contrary, computers are a good reason why a stable currency is more important now than ever because they don't even have to print the money they create anymore. I shouldn't have to explain the problems with monetary policy the modern world has created if you're genuinely opposed to the fiat system.

Again, I agree with someone out there in this great big world taking the initiative and implementing a commodities-based currency (apparently above and beyond the commodities-based currencies already out there?) whether it's China, India, Japan, the US, Europe, or anyone else with an economy of scale on the global marketplace who decides to do this. I see you've refined your idea from previous posts to at least include commodities that the US produces in a US commodities-based currency. If that's the entirety of the changes we make to our currency, I won't have to sell US dollars, Euros and Pounds to buy Australian and Canadian dollars and Renminbi anymore and we'll have a solution that I think and genuinely hope we can both agree on. I hope you can finally acknowledge the agreement here instead of belittling me to prop up new rhetorical problems that are somehow unique to gold in every new reply.

[Yamato]

I should also add, the nuanced agreement we've all hopefully reached here is only going to be effective if we combine it to the other half of the solution that we should all be able to agree on here; Ending the Federal Reserve system. Sam12six is at least on board, and that's really the elephant in the room nobody's paying enough attention to. Replacing the Fed with open float on the world market and letting the dollar value itself on macro economic merits is good enough for me without giving the federal government even more incentive to manipulate industries it has no business being in already. We've had enough military waste. We've had enough agricultural waste. We've had enough loss of life, limb and treasure. Price fixing gurus from Washington will be the death of us all if this madness continues.

[sam12six]

I should also add, the nuanced agreement we've all hopefully reached here is only going to be effective if we combine it to the other half of the solution that we should all be able to agree on here; Ending the Federal Reserve system. Sam12six is at least on board, and that's really the elephant in the room nobody's paying enough attention to. Replacing the Fed with open float on the world market and letting the dollar value itself on macro economic merits is good enough for me without giving the federal government even more incentive to manipulate industries it has no business being in already. We've had enough military waste. We've had enough agricultural waste. We've had enough loss of life, limb and treasure. Price fixing gurus from Washington will be the death of us all if this madness continues.

I'm more than on board with the concept of killing the bank. As I mentioned before, I believe the only real difference in our stances is that your statements and loyalty to the gold standard don't match the definition of money that you've accepted on the surface as something that represents value.

I'll try to make more clearly the distinction I think is separating us:

You seem to believe money should have substantial intrinsic value, not represent it. If that's the case, it's a commodity of its own subject to price fluctuations like any other commodity. While it seems a subtle distinction as a semantic argument, it's a fundamental difference in world view. Money itself is supposed to be as worthless as possible while also being as durable as possible and as difficult for the average person to duplicate as possible. The value of it is what it represents (a backing by the government in today's world), not what it's made of.

As far as whether valuation should be tied to GDP, a broad spectrum of commodities, or only nonperishable commodities, it's really a different discussion, but I personally believe GDP is composed of too much "imaginary" money to use it. Only nonperishable commodities do not reflect the value of our country's agricultural productivity. Yes, a wide-scale disaster could drastically lower (or increase) the value of the currency tied to it, but doesn't that make sense? We would have just lost a monster amount of our country's economic strength. Shouldn't such a huge loss be reflected somehow by the currency of the country?

Lastly, being doomed to history repeating itself is a matter of human nature. It means when a country that is taking similar steps to other countries that have encountered disaster down that path, we should correct our course. This is wise. It does not mean we should do something because it has been effective for most of history while ignoring the changing world. That's just being closed minded. Horses no longer turn a bunch of guys walking around into an unstoppable army. Pillaging a neighboring community is no longer the accepted way to simultaneously stimulate the economy and control the population. Making money out of a material that has a value inflated by a combination of fear, nostalgia, and industrial usefulness is not a wise choice.

The stability and value of a currency (as money) is based solely on its supply. This applies to wampum as much as it does to gold coins. Straightening out our currency issues is almost completely dependent on eliminating central banks. It's also almost completely impossible in today's political world.

[Yamato]

I'm more than on board with the concept of killing the bank. As I mentioned before, I believe the only real difference in our stances is that your statements and loyalty to the gold standard don't match the definition of money that you've accepted on the surface as something that represents value.

I'll try to make more clearly the distinction I think is separating us:

You seem to believe money should have substantial intrinsic value, not represent it. If that's the case, it's a commodity of its own subject to price fluctuations like any other commodity. While it seems a subtle distinction as a semantic argument, it's a fundamental difference in world view. Money itself is supposed to be as worthless as possible while also being as durable as possible and as difficult for the average person to duplicate as possible. The value of it is what it represents (a backing by the government in today's world), not what it's made of.

As far as whether valuation should be tied to GDP, a broad spectrum of commodities, or only nonperishable commodities, it's really a different discussion, but I personally believe GDP is composed of too much "imaginary" money to use it. Only nonperishable commodities do not reflect the value of our country's agricultural productivity. Yes, a wide-scale disaster could drastically lower (or increase) the value of the currency tied to it, but doesn't that make sense? We would have just lost a monster amount of our country's economic strength. Shouldn't such a huge loss be reflected somehow by the currency of the country?

Lastly, being doomed to history repeating itself is a matter of human nature. It means when a country that is taking similar steps to other countries that have encountered disaster down that path, we should correct our course. This is wise. It does not mean we should do something because it has been effective for most of history while ignoring the changing world. That's just being closed minded. Horses no longer turn a bunch of guys walking around into an unstoppable army. Pillaging a neighboring community is no longer the accepted way to simultaneously stimulate the economy and control the population. Making money out of a material that has a value inflated by a combination of fear, nostalgia, and industrial usefulness is not a wise choice.

The stability and value of a currency (as money) is based solely on its supply. This applies to wampum as much as it does to gold coins. Straightening out our currency issues is almost completely dependent on eliminating central banks. It's also almost completely impossible in today's political world.

is that your statements and loyalty to the gold standard don't match the definition of money that you've accepted on the surface as something that represents value.

HOW NOT? I've got over 6000 years proving you wrong. Find me another form of money from 6000 years ago still in circulation today. Good luck.

Gold isn't any more outdated than paper, or grain, or work, or pork. So the continuous references to irrelevant examples of obsolescence having nothing to do with this subject aren't making much of a point here. Unless you think that something like oil, which didn't exist until long after man domesticated fighting horses, makes a better basis for money.

If you don't have something of historical value to base your money on, it is as good as worthless eventually. All history proves this is true, and based on current trends, there's no reason I can see to believe that imminent fact has changed because of strange references to horses in the army, evil gold miners, US hegemony, or a computer driven society (am I leaving anything out?). If you don't know you can get a fixed amount of something for the currency you've got, you won't get it eventually because the increases in money supply the gurus can't stop selling us on will not cease. There's nothing under it to hold it up. There is a lack of substantial intrinsic value. That's the problem we must overcome here. We thought there was fiat holding ours up but unfortunately 99 years of US history have proven that belief false and if you can acknowledge the video presented here for discussion, you should be able to concede to that too.

Let's examine your three criteria for money:

1) That it's as durable as possible. Is paper as durable as possible? Then why does the papered-over world not agree with you? And I already see you're against valuable coins. That fits into the Fed's MO who quickly had to stop making valuable coins when it realized that it was printing the value right out of the money it was creating but couldn't do the same thing to the metal the coins were made of. If you don't want to destroy the value of your money you have to base it on something of value. Such that gold is the value that keeps our money constant, gold is money, and it's as durable as possible because it doesn't burn away, doesn't degrade in time, doesn't devalue because it becomes torn or ripped or stamped, or crushed, or melted, or anything else you want to do to it, save vaporize it.

2) That it's as difficult for the average person to duplicate as possible. Regulation and tight controls on money production also serve current monetary policy. The central bank doesn't want competing currencies. That would be another solution unto itself we haven't broached here yet and probably should. The federal government has no interest in individuals minting their own coins as money because that directly threatens the fiat system. If you want to fix the system you have to push against it until our illustrious leaders find the political will to do something about it. The fact is, eventually nobody would even use the dollar values stamped on real gold and silver money because the value would quickly become obsolete due to inflation. The weights and measures of the Liberty coins of recent years are case in point. I nabbed one myself on Ebay several years ago. It's a conversation piece in its own right.

3) That it should be as worthless as possible. Physical currency perhaps. The value of money, the intrinsic value of the money the worthless physical currency represents, should be anything but worthless, that's why we want to end the Fed in the first place. It must meet all of the criteria I've listed several times throughout this thread and if it doesn't, it's a sub-optimal alternative at best, and in the case of tulip bulbs, a ridiculous alternative.

The stability and value of a currency (as money) is based solely on its supply.

Not quite. It's based on the change in supply. As baselines go, the market doesn't care whether a hundred billion dollars or a hundred trillion dollars serves the economy. The spot price of gold, just like the basket of commodities, doesn't matter so long as value can't be printed out of nothing and there's always a storehouse of value keeping that value constant. In weight. There's no distinction here either to make you run away from gold. There is plenty of distinction to make you embrace it. Since the underlying value is in weight and not in spot price, we should use bases that have historical value and can't be wiped out by climate changes, by heat, by oxygen, by erosion, by lack of portability, and all the other reasons I'm not going to keep repeating. Nobody is going to want to exchange their dollars for putrid sausages or anything else that they can't sell on the open market after even their pork-based currency went belly up. I can't sell oil on Ebay. I can't sell a lot of things on Ebay. Gold, like silver, is one thing I can sell and not only sell for full value, but even for above full value. What else can achieve that?

Shouldn't such a huge loss be reflected somehow by the currency of the country?

Somehow how? That reflection should be mitigated by prudent weights and measures that don't deal in destructible, perishable goods that are fine today and spoiled tomorrow, huge loss or not. And that's just another fold in the issue that's missing the larger point. If I can't exchange my currency for a stable amount of something I can sell, that money is only worth as much as God knows what, even without the Federal Reserve system.

Again, even just replacing the Fed with open float on the world market and letting the dollar value itself on macro economic merits is good enough for me without giving the federal government even more incentive to manipulate industries it has no business being in already. None of these ideas mean anything under the auspices of a central bank. They replace the purpose for having central bankers in the first place, sans the Fed's new "dual mandate" i.e. conflict of interest. And none of these ideas are even possible under a central banking system because they will not let go of their power unless they're forced to by Congress.