The US Dollar vs. The Gold Standard

[Guest]

Growth should be limited by the market. That is the American way. Not inflated by the government. Deflation is something Bernanke can't stand and something the market gladly accepts daily.

The amount of gold doesn't matter. The amount of gold wasn't an issue in 1970 and it wouldn't be an issue now. There might be runs on the bank for cash the way we're stacked now but there aren't going to be runs on the bank for gold unless you're anticipating a currency crisis after the gold standard rather than before. Looking at all of US history I'm not sure how someone can think rock solid value for 100 years under the gold standard is a currency crisis while ignoring <100% devaluation <100 years. If a gold standard is adopted and eventually there "isn't enough gold" it's going to drive gold prices higher. Higher gold prices is inflationary without a gold standard and deflationary with one. More affordable housing, insurance, health care, college tuition, gasoline, electricity, food etc. doesn't scare me.

Without just making statements about what's naive, you should explain how you figure the world would flounder and become ruinous just because the US (as opposed to China, India, Europe or someone else) decided to base its currency on gold and silver like it's done in the past. Countries can simply peg to the dollar, adopt a gold standard themselves, or if they believe deflating their currency is good for their own economies (e.g. Switzerland) or simply do nothing at all (until they decide to).

If $1 of gold is impossible to get, so what? If that's what the problem is with the idea then it's an awesome idea.

Supporting the status quo without offering any alternatives ultimately isn't saying much. Banks don't have the cash to liquidate their balance sheets, to meet the digital values that are printed on their customers bank statements, they turn what you deposit into 10x the original amount, and nobody suggests making one dollar bills worth $10 to compensate for that practice, much less marching in the street protesting for the end of fractional reserve banking. Changing the rules on a metals backed currency when determining valuations is completely unnecessary.

The explosion of growth in the past 30 years has occurred due to the explosion of credit. Debt as money has its limitations and when we take a look at current events, we should start to be able to identify those limits. I'm all for the free market setting interest rates and giving loans to responsible lenders. I'm not interested in the insanity in going from $1 trillion in credit in 1980 to $50 trillion in credit today over a single generation of Americans. Just how entitled do these boomers think they are? What's ruinous is putting our children in chains to pay back all our credit card bills, because it's clear there isn't a wick's worth of willpower in Washington to pay the debt off.

The Great Depression in America involved a run on the banks - and America was on the Gold standard at the time.

I am certain there are multiple other examples of runs on currencies on the Gold standard - do you want me to find them or will you simply accept that your claim that a Gold standard is universally stable is simply an article of faith on your part.

Br Cornelius

[Yamato]

The Great Depression in America involved a run on the banks - and America was on the Gold standard at the time.

I am certain there are multiple other examples of runs on currencies on the Gold standard - do you want me to find them or will you simply accept that your claim that a Gold standard is universally stable is simply an article of faith on your part.

Br Cornelius

Runs on the banks were a result of the Great Depression, not the cause of it. Dollar stability is an historical fact, 97-years long under the gold standard. Crashes happen when values get carried away and are far greater than what the market would have them be. So long as you keep defending the bank robbers you won't be able to accept the tough medicine to rein the pie in the sky prices in. American expectations of endless growth are foolish. Government mismanagement caused the Great Depression just like it's causing the next one a few of us can't see coming.

[Guest]

Runs on the banks were a result of the Great Depression, not the cause of it. Dollar stability is an historical fact, 97-years long under the gold standard. Crashes happen when values get carried away and are far greater than what the market would have them be. So long as you keep defending the bank robbers you won't be able to accept the tough medicine to rein the pie in the sky prices in. American expectations of endless growth are foolish. Government mismanagement caused the Great Depression just like it's causing the next one a few of us can't see coming.

I have never defended the bankers - not once. I have never defended the Fiat currency system or the FED. Is that clear NEVER !!!

If you cannot see that that doesn't mean that I have to adopt a one size fits all solution then you are not really open to reason.

The Great Depression was caused by a contraction of the money supply because the American Government didn't have enough Gold to meet its debt obligations. It happened under a Gold Standard and was caused, in part, by the Gold standard. There have been many other runs on the Gold standard currencies for exactly the same reasons as the American run on the bank.

The intrinsic stability of the Gold Standard is a figment of your imagination.

Br Cornelius

[Yamato]

If you want to set money to a standard the only possibility is to use something that grows or shrinks dynamically adapting the value of money in circulation. Something like capping the circulation according to the GDP would work. Or capping it to the national productivity. Just arbitrarily using a stockpile of something has proven to cause more problems than it solves.

But I can understand that some companies want to push the metal they mine as "money". They just don't have thought it through: If what they mine is money, with what would they get paid? Or are we just going to switch banker for gold miners to sit on the money bin?

For that to work we would have to go back to the old system when actual gold and silver was used as payment: All gold and silver belonged to the state and those exploiting it were paid fractionally for their effort (if at all).

And debtors want central banks to push the paper they print as "money" but it has no real value but for the real value already out on the market. It's just a number on a digital screen. And every use for that funny money that has real value is going to find a place for all that cheap easy money once its deployed there. The banks are buying commodities. You should be pounding the lectern about that fact but instead you ridicule the individuals when they do it? There shouldn't be this flood of paper inflating these commodities in the first place. If I had it my way prices on all of these important assets would collapse to levels the market deems acceptable.

You both demand this price inflation and act like you can't see it at the same time. Something clearly isn't honest about that.

[Yamato]

I have never defended the bankers - not once. I have never defended the Fiat currency system or the FED. Is that clear NEVER !!!

If you cannot see that that doesn't mean that I have to adopt a one size fits all solution then you are not really open to reason.

The Great Depression was caused by a contraction of the money supply because the American Government didn't have enough Gold to meet its debt obligations. It happened under a Gold Standard and was caused, in part, by the Gold standard. There have been many other runs on the Gold standard currencies for exactly the same reasons as the American run on the bank.

The intrinsic stability of the Gold Standard is a figment of your imagination.

Br Cornelius

I'm still waiting on the better alternative. It isn't food and it isn't work, as we've already discussed. Debt obligations are caused by spending, not gold standards. You can't have rampant spending with a gold standard, that's why we want one!

[Guest]

And debtors want central banks to push the paper they print as "money" but it has no real value but for the real value already out on the market. It's just a number on a digital screen. And every use for that funny money that has real value is going to find a place for all that cheap easy money once its deployed there. The banks are buying commodities. You should be pounding the lectern about that fact but instead you ridicule the individuals when they do it? There shouldn't be this flood of paper inflating these commodities in the first place. If I had it my way prices on all of these important assets would collapse to levels the market deems acceptable.

You both demand this price inflation and act like you can't see it at the same time. Something clearly isn't honest about that.

I have made suggestions about tying currency to things of real value - you simply want to tie it to a shiny thing.

There are more than two alternatives !!!

Br Cornelius

[Guest]

I'm still waiting on the better alternative. It isn't food and it isn't work, as we've already discussed. Debt obligations are caused by spending, not gold standards. You can't have rampant spending with a gold standard, that's why we want one!

Rampant inflation is caused by printing to much money - the simple solution is to prevent that from happening by setting the rules.

All systems (including Gold) are subject to instability and abuse - if you fail to regulate them properly.

Br Cornelius

[Guest]

I'm still waiting on the better alternative. It isn't food and it isn't work, as we've already discussed. Debt obligations are caused by spending, not gold standards. You can't have rampant spending with a gold standard, that's why we want one!

Multiple people have made real suggestions of alternatives - you simply wont accept that they are real alternatives.

Br Cornelius

[Yamato]

The top 5 most cited causes of the Great Depression by economists and historians:

1. Stock Market Crash of 1929

Many believe erroneously that the stock market crash that occurred on Black Tuesday, October 29, 1929 is one and the same with the Great Depression. In fact, it was one of the major causes that led to the Great Depression. Two months after the original crash in October, stockholders had lost more than $40 billion dollars. Even though the stock market began to regain some of its losses, by the end of 1930, it just was not enough and America truly entered what is called the Great Depression.

2. Bank Failures

Throughout the 1930s over 9,000 banks failed. Bank deposits were uninsured and thus as banks failed people simply lost their savings. Surviving banks, unsure of the economic situation and concerned for their own survival, stopped being as willing to create new loans. This exacerbated the situation leading to less and less expenditures.

3. Reduction in Purchasing Across the Board

With the stock market crash and the fears of further economic woes, individuals from all classes stopped purchasing items. This then led to a reduction in the number of items produced and thus a reduction in the workforce. As people lost their jobs, they were unable to keep up with paying for items they had bought through installment plans and their items were repossessed. More and more inventory began to accumulate. The unemployment rate rose above 25% which meant, of course, even less spending to help alleviate the economic situation.

4. American Economic Policy with Europe

As businesses began failing, the government created the Smoot-Hawley Tariff in 1930 to help protect American companies. This charged a high tax for imports thereby leading to less trade between America and foreign countries along with some economic retaliation.

5. Drought Conditions

While not a direct cause of the Great Depression, the drought that occurred in the Mississippi Valley in 1930 was of such proportions that many could not even pay their taxes or other debts and had to sell their farms for no profit to themselves. The area was nicknamed "The Dust Bowl." This was the topic of John Steinbeck's The Grapes of Wrath.

http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm

[Yamato]

I have made suggestions about tying currency to things of real value - you simply want to tie it to a shiny thing.

There are more than two alternatives !!!

Br Cornelius

I want it to be the legal tender thing. Let's pretend we're a nation of laws for just a minute, okay?

Alternatives? I'm still asking for them and I'm still waiting.

[Yamato]

Multiple people have made real suggestions of alternatives - you simply wont accept that they are real alternatives.

Br Cornelius

I won't? Seeing as it that I haven't seen them yet, that's pretty presumptuous of you. Since you know of these alternatives, fill me in and stop making me ask over and over again.

[Guest]

I argued in a paper titled, "The Role of the International Gold Standard in Propagating the Great Depression," published in Contemporary Policy Issues in 1988, that counting on a gold standard to enforce monetary and fiscal discipline in an environment in which speculators had great doubts about governments' ability to adhere to that discipline was a recipe for disaster. International capital flows became more erratic, not less, as doubts were raised about whether first the pound would be devalued and then the dollar. Britain gave in to the speculative attacks and abandoned gold in 1931, whereas the U.S. toughed it out by deliberately raising interest rates in 1931 at a time when the economy was already near free fall.

Because of this uncertainty, there was a big increase in demand for gold, the one safe asset in this setting, which meant the relative price of gold must rise. If everybody is trying to hoard more gold, you're going to have to pay more potatoes to get an ounce of gold. Since the U.S. insisted on holding the dollar price of gold fixed, this meant that the dollar price of potatoes had to fall. The longer a country stayed on the gold standard, the more overall deflation it experienced. Many of us are persuaded that this deflation greatly added to the economic difficulties of those countries that insisted on sticking with a fixed value of their currency in terms of gold.

http://www.econbrows...old_standa.html

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[/media]

How come this widely accepted explanation for the Great Depression never appeared in your list ??

Br Cornelius

Edited October 1, 2012 by Guest

[Guest]

I won't? Seeing as it that I haven't seen them yet, that's pretty presumptuous of you. Since you know of these alternatives, fill me in and stop making me ask over and over again.

You have not actually engaged with any of the suggested alternatives so you may actually imagine that they were not made. Try rereading the thread and others on the subject.

Br Cornelius

[Yamato]

You have not actually engaged with any of the suggested alternatives so you may actually imagine that they were not made. Try rereading the thread and others on the subject.

Br Cornelius

I haven't actually engaged with any of the suggested alternatives? I haven't read through the replies on my own thread or responded to them? This is fascinating Cornelius but I think the reason why you can't provide any alternatives is because there aren't any.

You tried work. You tried grains. I engaged on those and maybe you should reread the problems with them.

[Yamato]

Br Cornelius, we have a recession every four years in this country and all the fiat Keynesian adventures we've had in the past 100 years haven't prevented any of them. The gold standard won't prevent recessions either and that's not the point. If we're still trying to pad next quarter's GDP or figure out how to maximize employment from the White House, we're still not understanding the problem. Government wants to grow whatever is politically popular to grow (where's the money?) and then protect and preserve whatever it is they grew with tooth and nail, spending infinite amounts of money to protect very small centers of value, outright stupidity, and even corruption. It exists, therefore it must continue to exist! It's literally "too big to fail".

Anyone who wants to have get in bed with big business and big government, get your pillow and there's your room. You'll fit right in. Or more accurately, they'll fit right in you. Government rubber baby buggy bumpers and risk police keeping people from crossing the street and taking the chance of getting run over, and Milton Friedman "the most respected free market economist in modern history" telling us over and over again that big government caused the Great Depression and the Fed didn't play by the rules aren't great reasons to trust the government or the Fed with monetary policy. Bringing Milton Friedman into this thread is a fatal mistake for a Keynesian to make. And does Milton Friedman even have an alternative? What's that? A video uploaded by a Keynesian with a ridiculous Keynesian title showing Milton Friedman blaming the Federal Reserve over and over again has nothing to do with convincing me that the gold standard isn't a better alternative to what we've got now.

Recessions are natural and necessary events in any free economy because the delusional expectation of endless growth is thrust upon indoctrinated and entitled people and they're not educated to know better. There is no such thing as infinite growth. It's a figure of the Keynesian's imagination. The last thing I'm interested in is whether Barack Obama or Mitt Romney can "run the economy" better because politicians don't care about the widespread long term damage they cause. They'll only shrug their shoulders and say "nobody could have seen this coming" after it happens.

People should be allowed to speculate and they should be allowed to pay the price when they speculate incorrectly. Government preventing either one of these or both destroys responsibility and common sense in the marketplace and like the climate we're living in in this 21st century, it's impossible to know the true values of anything anymore. What's the price of failure? It's "free", as of 2007. What the hell is anything worth anymore? It's worth whatever some bureaucrat says it is because they've got the giant checkbook in the sky to be paid for later by the back breaking work of someone's kids.

What are the alternatives to this? Food going rotten? Work nobody cares about? There's no real value there. Your work is only as valuable as where you can get a job. Food is good today and spoiled tomorrow. What are the alternatives? Some of us are revoltingly opposed to the legal one and the idea of being a nation of laws. Putting that aside, I'm asking everyone to ante up. The craziest idea might wind up being the best one.

[acidhead]

I have made suggestions about tying currency to things of real value - you simply want to tie it to a shiny thing.

There are more than two alternatives !!!

Br Cornelius

Just curious....

Can you list some of these 'things of real value' other than extrinsic metals?

[acidhead]

Rampant inflation is caused by printing to much money - the simple solution is to prevent that from happening by setting the rules.

All systems (including Gold) are subject to instability and abuse - if you fail to regulate them properly.

Br Cornelius

who sets these rules and who do they regulate? Name any system where no individual will abuse the system for personal gain.... there is none, including Gold.

yes Gold is just as subject to abuse as well but it's limited to endless exploitation... the risk is stopped.

Edited October 2, 2012 by acidhead

[Guest]

And Gold is just a shiny metal - you cannot get past that. It only has the value we place in it. It is no different to any other money.

Br Cornelius

[+and-then]

And Gold is just a shiny metal - you cannot get past that. It only has the value we place in it. It is no different to any other money.

Br Cornelius

Except for the traditions of MILLENNIA. The whole concept of value is about human perception so why shouldn't gold be more valid as currency since it has been sought after greedily for thousands of years? I think that we are becoming too sophisticated to keep it forever and now, in this digital age where everything exists in the aether anyway, a system of electronic credits which will be given some arbitrary but mutually acceptable name will become our currency. Call them Geos or something and multiply and subdivide them for values but their true value will be tied to the labor or other essentials of life that they will be traded for. Some of the earliest mass produced items found by archeologists were food dishes of a specific size. The writings found in conjunction showed that each dish held the food for a day's wages.

[Yamato]

And Gold is just a shiny metal - you cannot get past that. It only has the value we place in it. It is no different to any other money.

Br Cornelius

Everything only has the value that we place in it. It's not rhetoric one can assign to only gold.

Your thinking suggests that what is utilitarian is good money. Nothing is more utilitarian than a personal computer. Nobody should have to ask what need a computer serves in this day and age with software so prevalent. So, how much is this 8086 IBM PC from the '80s worth today? Surely not the $3500 that bought it. Computers would be a terrible idea for money because they have no historical value. Food goes rotten even faster than outdated electronics get dated. Utility from rapidly obsolescent goods like electronics or satisfying immediate needs like hunger from perishable commodities like food and grain are horrible ideas for money. That's a worse alternative than we have already and common sense should be enough to see why.

[Yamato]

Except for the traditions of MILLENNIA. The whole concept of value is about human perception so why shouldn't gold be more valid as currency since it has been sought after greedily for thousands of years? I think that we are becoming too sophisticated to keep it forever and now, in this digital age where everything exists in the aether anyway, a system of electronic credits which will be given some arbitrary but mutually acceptable name will become our currency. Call them Geos or something and multiply and subdivide them for values but their true value will be tied to the labor or other essentials of life that they will be traded for. Some of the earliest mass produced items found by archeologists were food dishes of a specific size. The writings found in conjunction showed that each dish held the food for a day's wages.

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.

[Guest]

Everything only has the value that we place in it. It's not rhetoric one can assign to only gold.

Your thinking suggests that what is utilitarian is good money. Nothing is more utilitarian than a personal computer. Nobody should have to ask what need a computer serves in this day and age with software so prevalent. So, how much is this 8086 IBM PC from the '80s worth today? Surely not the $3500 that bought it. Computers would be a terrible idea for money because they have no historical value. Food goes rotten even faster than outdated electronics get dated. Utility from rapidly obsolescent goods like electronics or satisfying immediate needs like hunger from perishable commodities like food and grain are horrible ideas for money. That's a worse alternative than we have already and common sense should be enough to see why.

I do not accept that tying currency values to a range of standard commodities, including food, is a bad idea. We are not asking to trade in food afterall - we are simply relating the value of things to the value of food. What is so strange about that as a concept.

Money in its entirety is an abstract and arbitrary concept into which we can place any meaning we choose - just so long as it serves the necessary utility of the application.

Br Cornelius

[Yamato]

I do not accept that tying currency values to a range of standard commodities, including food, is a bad idea. We are not asking to trade in food afterall - we are simply relating the value of things to the value of food. What is so strange about that as a concept.

Money in its entirety is an abstract and arbitrary concept into which we can place any meaning we choose - just so long as it serves the necessary utility of the application.

Br Cornelius

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.

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.

[Guest]

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.

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.

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

[Yamato]

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

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.