Gold standard debate need help!

[WilliamShrugged]

I was talking about going back to a gold standard in a open chat room and this is what someone said


"The gold standard is a bad pipe dream . Anyone who advocates on it's behalf is just dreaming of a Iong forgotten era . I doubt any central banker today would support the idea of tying the money supply directly to gold. The reason is that there is essentially a fixed supply of gold in the world. Annual mining output does not have much impact, since the gold that can be mined in any one year represents a small fraction of all the gold which has been mined previously. Unlike, say, oil, gold that is produced is almost never consumed. It just ends up in someone's jewelry box or coin collection or, most likely, in a bullion vault, where it sits until it is sold to someone who will put it in a similar place. Thus, if the supply of money is set as some fraction of the supply of gold, the money supply becomes fixed.
The need for money, however, is not fixed . It expands as commerce expands. The need for money also increases when the money's velocity , the rate at which people spend it, slows down. If the money supply is not increased in response to decreases in velocity, the economy contracts sharply. Back in the days of the gold standard, recessions were sharp and frequent, and bouts of deflation were common. There were literally shortages of money. The greatest money shortage of all became known as the Great Depression. In 1933, one of President Frank Roosevelt's first acts in office was to break the tight link between gold and the U.S. money supply. Imposing a gold standard would be similar to erecting a brick wall to stop a runaway train. It might halt the collapse of the dollar, but it would do a lot of damage in the process. Rather than throwing up a wall, we need to get the train back under control. That will require us to restore balance between spending, raising taxes, and cuts"



What should i say as a response?

[Kregisen]

He brings a valid point.

On top of that, when two countries fix their currencies to the same commodity, the exchange rate between those two countries becomes fixed, instead of the market deciding what the exchange rate will be. This brings a whole host of problems to the table.

I 100% support a full audit of the fed, I'm just not sure I want the fed eliminated....because I don't know of a better solution.

[awake]

Move back from the gold standard and introduce competing currencies (medium of exchange) of which gold would be one of many. If life is a series of exchanges, fiat money forced upon all of us poisons each and everyone.

[oyarde]

Well, if the dollar was backed with any metal , it would be worth something . It would not even have to be something as valuable as gold .

[forsmant]

Tell him the greatest shortage of money of all came about because of bank manipulation and the multiplier affect. When those loans went bad, money substitutes became worthless in terms of gold. People scrambled for gold only because of the massive increase in paper money substitutes and bank inflation. AKA fractional reserve banking. The gold standard didn't fail because there was not enough gold, it failed because the banks pretended there was 10 times the amount of gold available.

If you do that its no wonder why people needed more money. But his point is still valid. Silver or even copper would be a good substitute. I vote for plastic.

[thorin]

He is completely wrong. The money supply would "expand" to meet the demand by appreciation of the currency as it becomes more scarce (more people competing for it).

What the gold standard doesn't allow you to do is counterfeit money and loan it out. If that's why he means by "expand" then that's not a good thing. If they want to "expand" the money supply that way, all you need are some counterfeiters. I'd volunteer to help them!

Let's say there is a 100 hundred tons of gold in the entire world. As the population grew and demand for a medium of exchange increased the gold would be devided into smaller and smaller portions that had the same value as before

So instead of your one ounce coin being worth $1000 as the need for more and more money grew it would be worth $2,000. That in itself is expansion of currency.

Picture yourself on an island. There are 100 people. There are 100 gold coins. Then you added 100 more people to give you 200 people that will labor for the 100 gold coins. The gold coins would double in value. You could "expand" the money supply by breaking all the gold coins in half and using those. Eventually, you could flip to a paper currency as the units of gold got very small.

[Vessol]

Let the market decide. All the answer you need.

[tremendoustie]

"The gold standard is a bad pipe dream . Anyone who advocates on it's behalf is just dreaming of a Iong forgotten era . I doubt any central banker today would support the idea of tying the money supply directly to gold.


Nor do most teenagers support credit card limits.

Credit rate distortions by central bankers have been the main direct cause of the boom/bust cycle, as well as massive malinvestment and loss of wealth.



The reason is that there is essentially a fixed supply of gold in the world. Annual mining output does not have much impact, since the gold that can be mined in any one year represents a small fraction of all the gold which has been mined previously. Unlike, say, oil, gold that is produced is almost never consumed. It just ends up in someone's jewelry box or coin collection or, most likely, in a bullion vault, where it sits until it is sold to someone who will put it in a similar place. Thus, if the supply of money is set as some fraction of the supply of gold, the money supply becomes fixed.


People should be free to create and trade in alternative currencies as well. Perhaps someone will offer currency based on a basket of goods, which would by definition eliminate price inflation/deflation relative to these goods.



The need for money, however, is not fixed . It expands as commerce expands.


Money's simply a means to facilitate trade, and it's infinitely divisible. There is no particular "amount" of money that's needed, nor does that amount change with GDP.



The need for money also increases when the money's velocity , the rate at which people spend it, slows down.


Now that's just absurd. When people are trading less and saving more, they need more currency?



If the money supply is not increased in response to decreases in velocity, the economy contracts sharply.


That's completely false.

If people are prioritizing saving over spending, there's likely a good reason they're making that choice. Trying to artificially create spending by inflating the money supply is what creates malinvestment, and recession.



Back in the days of the gold standard, recessions were sharp and frequent,


Correlation does not equal causation -- there were many federal distortions of credit markets at that time as well -- try reading this: http://mises.org/books/historyofmoney.pdf (http://mises.org/books/historyofmoney.pdf)



and bouts of deflation were common. There were literally shortages of money. The greatest money shortage of all became known as the Great Depression.


That is patently absurd. The central planning of Hoover and later Roosevelt lengthened a market crash into a decade of stagnation.

Try this: http://mises.org/rothbard/agd.pdf



In 1933, one of President Frank Roosevelt's first acts in office was to break the tight link between gold and the U.S. money supply.


He stole the gold of the American people, further destroying hope for meaningful recovery.



Imposing a gold standard would be similar to erecting a brick wall to stop a runaway train. It might halt the collapse of the dollar, but it would do a lot of damage in the process.


Rather than imposing a gold standard, how about just eliminate legal tender laws, and let people use whatever means to facilitate trade they like?

It's central planning that's destroying the economy. All that's needed is the free exchange of goods and services -- and valid signals in the credit markets, so people can accurately invest and plan for the future.



Rather than throwing up a wall, we need to get the train back under control. That will require us to restore balance between spending, raising taxes, and cuts"

Balance means ending the insane delusion that a few central bankers and politicians can better plan 300 million people's lives than they themselves can.

[Sentient Void]

Free Banking, folks. Free, fucking, Banking.

There's your solution. It's called the free market, capitalism, and private enterprise.

[Travlyr]

What should i say as a response?

Tell him that you read Murray Rothbard's book "The Mystery of Banking" and that, since then, you have been spending every extra cent you have on silver, and if he isn't doing the same, then you feel sorry for him.

[emazur]

"The need for money, however, is not fixed ."

That is essentially his only argument against the gold standard, but it's no argument at all. Prices of goods will adjust to the availability of gold. If no one is lending gold, prices will drop, but people who have gold will be enticed to lend the gold as higher interest rates are offered in exchange. It's basic supply and demand.

What was responsible for recessions before the Federal Reserve while we were under the gold standard? We had central banks before the Fed. The Second Bank of the United States would expand and contract credit artificially, and in fact Nicholas Biddle, who ran the bank, intentionally caused a recession when Andrew Jackson was going after the fraud Biddle was committing. The U.S. essentially was in a central bank halfway-house after the Second Bank of the U.S. was abolished b/c there were laws on the books that basically said it was OK for banks to inflate the money supply. FDR went of the gold standard b/c the United States essentially bailed out the Bank of England after a meeting between Montagu Norman (Governor of the Bank of England) and Benjamin Strong (New York Fed Governor) that took place July 1, 1927 (VERY important event - read more about it in Creature from Jekyll Island pg. 425-428).

[WilliamShrugged]

Thanks guys im learning so much keep it up.

[Bruno]

By Murray N. Rothbard. Great read!

http://mises.org/money.asp

I. Introduction by Murray Rothbard

II. Money in a Free Society

1. The Value of Exchange
2. Barter
3. Indirect Exchange
4. Benefits of Money
5. The Monetary Unit
6. The Shape of Money
7. Private Coinage
8. The Proper Supply of Money
9. The Problem of Hoarding
10. Stabilize the Price Level?
11. Coexisting Moneys
12. Money-Warehouses
13. Summary

III. Government Meddling With Money

1. The Revenue of Government
2. The Economic Effects of Inflation
3. Compulsory Monopoly of the Mint
4. Debasement
5. Gresham's Law and Coinage
6. Summary: Government and Coinage
7. Permitting Banks to Refuse Payment
8. Central Banking: Removing the Checks on Inflation
9. Central Banking: Directing the Inflation
10. Going Off the Gold Standard
11. Fiat Money and the Gold Problem
12. Fiat Money and Gresham's Law
13. Government and Money
IV. The Monetary Breakdown of the West

1. Phase I: The Classical Gold Standard, 1815-1914
2. Phase II: World War I and After
3. Phase III: The Gold Exchange Standard (Britain and the United States)

1926-1931
4. Phase IV: Fluctuating Fiat Currencies, 1931-1945...
5. Phase V: Bretton Woods and the New Gold Exchange Standard

(the United States) 1945 1968
6. Phase VI: The Unraveling of Bretton Woods, 1968-1971
7. Phase VII: The End of Bretton Woods: Fluctuating Fiat Currencies,
August-December, 1971

8. Phase VIII: The Smithsonian Agreement, December 1971-February 1973
9. Phase IX: Fluctuating Fiat Currencies, March 1973-?

[Teaser Rate]

Move back from the gold standard and introduce competing currencies (medium of exchange) of which gold would be one of many. If life is a series of exchanges, fiat money forced upon all of us poisons each and everyone.

The problem I have with competing currencies without central banking is that I don't see how their value would remain stable enough to enable fair long-term transactions.

The benefit of having a central entity controlling the money supply is that the rate of inflation is always going to be stable and widely known (at least in theory). So if I want to lend someone $1000 over a 5 year period with a X% return in a situation where the central bank targets a Y% inflation rate, I know exactly how much money they need to pay me back at the end of the term.

By targeting an explicit inflation rate and conducting appropriate monetary policy to meet it, central banks ensure than neither lenders or borrowers are going to lose out in long term contracts.

Wouldn't people be more adverse to enter in mutually beneficial contracts in a situation where there is no such insurance ?

[awake]

The problem I have with competing currencies without central banking is that I don't see how their value would remain stable enough to enable fair long-term transactions.

The benefit of having a central entity controlling the money supply is that the rate of inflation is always going to be stable and widely known (at least in theory). So if I want to lend someone $1000 over a 5 year period with a X% return in a situation where the central bank targets a Y% inflation rate, I know exactly how much money they need to pay me back at the end of the term.

By targeting an explicit inflation rate and conducting appropriate monetary policy to meet it, central banks ensure than neither lenders or borrowers are going to lose out in long term contracts.

Wouldn't people be more adverse to enter in mutually beneficial contracts in a situation where there is no such insurance ?

The way you have explained it sounds very much workable, but in reality it is a crooked system; it will not be made better by more intelligent men - men should have enough intelligence not to engage in actions when they do not know the complete repercussions. Especially when the consequences are able to be offloaded on to others. Central planning by a few monetary "experts" have damaged human exchange severely. Our job is to correct these mistakes not continue them. By simply swapping out the men you ignore the inherent systematic failure of central fiat currency planning - it does not work. You only need to observe current events to understand that manipulation of the money supply for political purposes has brought ruin.

[Sola_Fide]

Have you ever heard the phrase "Starve The Beast"? It refers to starving the Federal government. It argues that if Congress cuts taxes, spending cuts will necessarily follow. The problem with this metaphor is that it conjures up a mental image of an overweight person who cannot has no inner Richard Simmons, longing to get out. The problem is this: this obese person has an inheritance that he can tap into whenever money runs short: the Federal Reserve System. He just keeps getting fatter.

http://www.lewrockwell.com/north/north915.html


Hey OP, don't let the guy you are arguing with fool you: the reason that he loves "flexible" fiat money is because it is the feul that powers government expansion.

Inflexibility is a great asset of gold or silver. Governments can't inflate them to feed themselves.

[PaulineDisciple]

Just expand into other PM's, silver, platinum... if or when those run low, used precious gems for larger denominations. Also, we should be allowed to trade whatever we want for just about anything, where I live, small farms are everywhere and we swap for this for that all the time, it's just normal human nature to trade one good for another. Just start doing as much business as you can this way and you will starve the beast. Craigslist and other classified ad type websites have people mentioning things they are willing to trade for all the time. The small town I live in started a consignment shop a few years ago and they have grown 4-5 times larger than when they started, everytime I walk in there they are expanding to accomodate new sellers. As the Nike comercial says, "Just Do It!"

[Bern]

On the merits: http://www.cato.org/pub_display.php?pub_id=9181

Big picture: Doesn't matter what governments do vis a vis monetary policy, people are already voting with their wallets. Gold and silver are increasingly becoming the safe haven of last resort as capital flight from Europe, Asia and the USA seeks refuge from currency crises.

[Cutlerzzz]

Were recessions back then really worse than anything since? How many recessions saw unemployment reach double digits, much less stay around there for years? I saw a chart just a few weeks ago that said unemployment was much lower from the beginning of American history up until 1913 then it has been from 1913-today.

[Travlyr]

What should i say as a response?
A stable dollar which is also a store of value is desirable. That is the beauty of the gold standard (not bimetallism). It puts everyone on equal footing. Everybody understands what is a dollar, and you can keep it for a day, or a lifetime, while it maintains its purchasing power forever. Savings and investment are encouraged by policy.

If the dollar was fixed at a specific weight and purity of gold, then the dollar would set the standard for all other goods and services. The dollar would always be equal to say, .10 oz. of pure gold, for example. The value of all other goods and services would be based on a static base of reference. It would never change. That is what we need, and it is simple.

[WilliamShrugged]

He also said this:



gold has value aside from the dollar. According to our own capitalist system, the more of something we have, the less its value. The less of something we have, the greater its value. If we run out of gold, it will have a high value, and it will be hard for people who have little gold in the first place (why do you think FDR took people's gold an why do you think we eventually got rid of the gold standard?) If we discover a large amount of gold, it will have a near-worthless value, and the gold-standard economy will collapse very quickly. Also, there's something else: as my friend virtuealliberals said, people do not spend their gold, they hoard it, just as people have done throughout history.

[oyarde]

http://www.lewrockwell.com/north/north915.html


Hey OP, don't let the guy you are arguing with fool you: the reason that he loves "flexible" fiat money is because it is the feul that powers government expansion.

Inflexibility is a great asset of gold or silver. Governments can't inflate them to feed themselves.

Well said .

[Petit Tonnerre]

I was talking about going back to a gold standard in a open chat room and this is what someone said





What should i say as a response?


Show him that:

YouTube - DE GAULLE predicted the US monetary crisis in 1965 (http://www.youtube.com/watch?v=i-g2iGskFPE)

[Travlyr]

He also said this:
gold has value aside from the dollar. According to our own capitalist system, the more of something we have, the less its value. The less of something we have, the greater its value. If we run out of gold, it will have a high value, and it will be hard for people who have little gold in the first place (why do you think FDR took people's gold an why do you think we eventually got rid of the gold standard?) If we discover a large amount of gold, it will have a near-worthless value, and the gold-standard economy will collapse very quickly. Also, there's something else: as my friend virtuealliberals said, people do not spend their gold, they hoard it, just as people have done throughout history.

gold has value aside from the dollar.
Gold is not unique like that; everything has value aside from the dollar.

According to our own capitalist system, the more of something we have, the less its value. The less of something we have, the greater its value.
Law of Supply and Demand - air is abundant so it is free ... and young beautiful ladies are in high demand.

If we run out of gold, it will have a high value, and it will be hard for people who have little gold in the first place
Where would it go? Hording? That's good! hording = savings = investment opportunity.
(why do you think FDR took people's gold...
Because he could or else he would put them in jail.

"Senate Document # 43; SENATE RESOLUTION NO. 62 (Pg 9, Para 2) April 17, 1933. "The ultimate ownership of all property is in the State; individual so-called "ownership"is only by virtue of Government, i.e., law, amounting to mere user; and use must be in accordance with law and subordinate to the necessities of the State."


...an why do you think we eventually got rid of the gold standard?)
So that the people would be at the mercy of government. Socialism.

If we discover a large amount of gold, it will have a near-worthless value, and the gold-standard economy will collapse very quickly.
OR ... the more likely scenario would be that the gold miners realize that they just became rich beyond their wildest dreams and started partying and rejoicing in their new found wealth.

Also, there's something else: as my friend virtuealliberals said, people do not spend their gold, they hoard it, just as people have done throughout history.
Again, hording is saving money... that's a good thing... a good thing for sure.

[Teaser Rate]

The way you have explained it sounds very much workable, but in reality it is a crooked system; it will not be made better by more intelligent men - men should have enough intelligence not to engage in actions when they do not know the complete repercussions. Especially when the consequences are able to be offloaded on to others. Central planning by a few monetary "experts" have damaged human exchange severely. Our job is to correct these mistakes not continue them. By simply swapping out the men you ignore the inherent systematic failure of central fiat currency planning - it does not work. You only need to observe current events to understand that manipulation of the money supply for political purposes has brought ruin.

I don't think you quite understood my question, I'll try to rephrase it;

When entering a contract using US dollars, both the lender and the borrower have an insurance from the Fed that neither of them is going to lose out due to currency appreciation/depreciation.

Wouldn't investment be diminished in a situation where no such guarantee is provided ?

[awake]

I don't think you quite understood my question, I'll try to rephrase it;

When entering a contract using US dollars, both the lender and the borrower have an insurance from the Fed that neither of them is going to lose out due to currency appreciation/depreciation.

Wouldn't investment be diminished in a situation where no such guarantee is provided ?


Sorry, I think I have misunderstood,

Yes, if a contract is in nominal U.S. Dollars then both parties have an contractual and legal stance for complete payment in said amount of dollars (not purchasing power). The government is only guaranteeing face value.

Inflation is not preventable with gold, but there would be a natural production limit, and it would be outside of populist central control. Besides, central bank planned inflation was meant to mimic gold inflation, theoretically, but political corruption has clearly taken its course with the current bust as evidence of that fact. Gold inflation is tied to production; new mines are lengthy in the structure of production, planning for increasing gold production would be much easier due to the longer time frames to bring new supply online - you could see it coming and calculate properly with supply/demand / prices.


"By targeting an explicit inflation rate and conducting appropriate monetary policy to meet it, central banks ensure than neither lenders or borrowers are going to lose out in long term contracts. " They claim this but are consistently producing the opposite.

Speaking of investment uncertainty, currently no one knows how much money the Fed is going to create and at what rate... Rabid politicians and keystrokes from a madman tend to keep investment on the sidelines. Whats worse, you have cooked CPI and GDP calculation which does more to obscure and confuse people in the task of saving and investment.

By allowing competing currencies you are allowing 300 million minds (The U.S. market) to decide the best currency by evaluation and use. Gold may take its rightful place, who knows.

[fisharmor]

What should i say as a response?

It's tempting to go with "UH-DUUUUHHHHHH!!!!"

Everything he is saying is a problem is actually an argument in favor of using a gold standard: like "contracting economies". The economy would contract to a sustainable level which wouldn't experience such wild booms and busts.

The bit about sharp recessions is factually wrong. Ask him to name a single recession prior to 1913 that lasted more than a year: he can't, because they don't exist. Also, they didn't tend to stuff like monkey fuck everybody's property values.

The Great Depression doesn't count as an anti gold standard argument because our official gold standard was over at that point: it was fiat money that was backed by gold.

[Kregisen]

The Great Depression doesn't count as an anti gold standard argument because our official gold standard was over at that point: it was fiat money that was backed by gold.

What's the difference?

[Teaser Rate]

Sorry, I think I have misunderstood,

Yes, if a contract is in nominal U.S. Dollars then both parties have an contractual and legal stance for complete payment in said amount of dollars (not purchasing power). The government is only guaranteeing face value.

Inflation is not preventable with gold, but there would be a natural production limit, and it would be outside of populist central control. Besides, central bank planned inflation was meant to mimic gold inflation, theoretically, but political corruption has clearly taken its course with the current bust as evidence of that fact. Gold inflation is tied to production; new mines are lengthy in the structure of production, planning for increasing gold production would be much easier due to the longer time frames to bring new supply online - you could see it coming and calculate properly with supply/demand / prices.


"By targeting an explicit inflation rate and conducting appropriate monetary policy to meet it, central banks ensure than neither lenders or borrowers are going to lose out in long term contracts. " They claim this but are consistently producing the opposite.

Speaking of investment uncertainty, currently no one knows how much money the Fed is going to create and at what rate... Rabid politicians and keystrokes from a madman tend to keep investment on the sidelines. Whats worse, you have cooked CPI and GDP calculation which does more to obscure and confuse people in the task of saving and investment.

By allowing competing currencies you are allowing 300 million minds (The U.S. market) to decide the best currency by evaluation and use. Gold may take its rightful place, who knows.

Actually, the whole point of having a stable, widely known inflation rate controlled by the central bank is to ensure compete payment of purchasing power. I’ll try to use an example to demonstrate:

Assume you want to borrow $1000 from me for one year and I’m willing to lend it to you at 2% interest; if the fed targets an inflation rate of 2%; then we sign an agreement that you’ll pay me back $1040 next year and neither of us will win or lose out assuming the Fed does its job. I know the Fed gets criticized a lot here, but the fact is that it’s done a very good job at keeping a stable price level over the past 25 years.

I would think such a transaction would be much harder to arrange in a fair way without the dollar or the Fed. If lent you $1000's worth of gold or silver at a certain rate of interest, how would we know how much you’ll need to pay me back? There’s no way of knowing which way the price of commodities will shift over a long period of time; if we agree that you’ll pay me back 1.02 grams of gold for the 1 gram I lent you one year ago, the result might be a large gain or loss of value on either side.

[awake]

Actually, the whole point of having a stable, widely known inflation rate controlled by the central bank is to ensure compete payment of purchasing power. I’ll try to use an example to demonstrate:

Assume you want to borrow $1000 from me for one year and I’m willing to lend it to you at 2% interest; if the fed targets an inflation rate of 2%; then we sign an agreement that you’ll pay me back $1040 next year and neither of us will win or lose out assuming the Fed does its job. I know the Fed gets criticized a lot here, but the fact is that it’s done a very good job at keeping a stable price level over the past 25 years.

I would think such a transaction would be much harder to arrange in a fair way without the dollar or the Fed. If lent you $1000's worth of gold or silver at a certain rate of interest, how would we know how much you’ll need to pay me back? There’s no way of knowing which way the price of commodities will shift over a long period of time; if we agree that you’ll pay me back 1.02 grams of gold for the 1 gram I lent you one year ago, the result might be a large gain or loss of value on either side.

1.Your assumption is fatal, the Fed is not doing a very good job. Stable prices? What? Have you seen the"price stability"of oil in the last 25 years? Health care? Tuition? Home prices? Food?

2. Free competing currencies inherently mean free forming market interest rates. These rates would reflect commodity(money) price uncertainty over time as well as scarcity of loanable funds.

3.Wild commodity swings are inherent effects of boom and bust cycles induced by current Fed policy. Absent these wild swings, production would become much more predictable; forecasting interest rates and price movements over time would become much easier.

There are no market guarantees; supposedly "safe"government bonds are now ticking time bombs.

Please have a look at this book... Money; Sound and Unsound - Salerno (http://mises.org/books/sound_money_salerno.pdf)

[fisharmor]

What's the difference?

My understanding of post-fed creation money supply, especially what led to and exacerbated the GD, is that the Fed was given the ability to inflate the money supply way beyond what was actually held in reserve.

Thus the redefining of the dollar during the GD. The tenuous link to gold is the only thing that has kept the system going so long: if they had simply cut the link to gold in 1913 then our current economic crisis would have happened a lot sooner.

Rome didn't go bust in 40 years either when they started to take the metal content out of their coinage. A 16 Karat coin is worth a lot less than a 24 karat coin, and the way I see 1913-1972 America is that basically they were taking the content out of the dollar, until finally nothing was left.


Assume you want to borrow $1000 from me for one year and I’m willing to lend it to you at 2% interest; if the fed targets an inflation rate of 2%; then we sign an agreement that you’ll pay me back $1040 next year and neither of us will win or lose out assuming the Fed does its job. I know the Fed gets criticized a lot here, but the fact is that it’s done a very good job at keeping a stable price level over the past 25 years.

I would think such a transaction would be much harder to arrange in a fair way without the dollar or the Fed.

OK, then, riddle me this: why is inflation beneficial? Still waiting for an answer to that one.
In a deflationary situation, if I want to borrow $1k from you, and the money supply deflates by .5% each year, I could borrow it at 0% interest and you'd actually make money, since the $1k I pay you back next year is worth $1050 of today's dollars.
Or, instead of going into debt, I could, you know, WORK FOR THE MONEY, and it's made even easier than any of us can envision because every penny I save is going to be worth more tomorrow than it is today.

The whole fed argument rests on the false axiom that inflation is good for us. I call bullshit. It has never been good for me or anyone else here.

[Jordan]

In a deflationary situation, if I want to borrow $1k from you, and the money supply deflates by .5% each year, I could borrow it at 0% interest and you'd actually make money, since the $1k I pay you back next year is worth $1050 of today's dollars.

Why would I even lend it to you if I get a guaranteed positive return by holding onto it?

Ever heard of the Sharpe ratio? It would take an extreme rate of interest to get someone to accept risk in lending when a return can be achieved by simply holding onto currency.

[Jordan]

As for the stability in prices in terms of gold, can anyone tell me why gold in 2010 is worth only slightly more than in the 1980s, but six times more than in 1990?

[awake]

As for the stability in prices in terms of gold, can anyone tell me why gold in 2010 is worth only slightly more than in the 1980s, but six times more than in 1990?

1. Inflation adjusting (the price of gold needs to surpass 2000 dollars to reach peakish1980 inflation adjusted prices).
2. Market drop in demand turns to increased demand with prices rising 6 fold from that data point.

[hazek]

Just listen to this and you'll have all your answers: http://mises.org/media/963

[Jordan]

1. Inflation adjusting (the price of gold needs to surpass 2000 dollars to reach peakish1980 inflation adjusted prices).
2. Market drop in demand turns to increased demand with prices rising 6 fold from that data point.

I'm not sure the price of ANYTHING was that volatile over that period. And you want something that volatile to be currency?

I thought gold was supposed to store your purchasing power, not take it for a rollercoaster ride.

[awake]

I'm not sure the price of ANYTHING was that volatile over that period. And you want something that volatile to be currency?

I thought gold was supposed to store your purchasing power, not take it for a rollercoaster ride.

You do understand that the Fed fiat money boom and bust cycle inflates and crashes prices in commodities right? Not to mention the outright central manipulation of the prices of monetary metals. And no, I am for competing currencies not just gold or silver.

[Jordan]

You do understand the the Fed fiat money boom and bust cycle inflates and crashes prices in commodities right?

Well, on the topic of boom and bust, wouldn't the sheer amount of inflation of the money supply from 1980 to 2000 mean that gold should have risen during that time instead of losing 60+% of its value? M2 doubled, gold lost 60% of its value. :-/

The economy was surely "booming" a lot more in 2000 than in 1980, so why wasn't the value of gold? 2000 was the defining age of boom.

Also, I'm not sure, but did prices rise by almost 600% from 2000 to 2010? How can we even pretend that in this reality gold is a store of value? Pink Sheet stocks have probably been less volatile.

Besides, why would we base our money supply on a manufacturing input that other than wild speculation and jewelry is demanded only by a few industries, most notably the manufacture of electronics. Should we base dollars on MSFT, APPL, or RIMM? Maybe throw in a few jewelry producers for good measure? Those companies rise and fall, and just like gold, are dependent on electronics and jewelry demand.

How do we deal with the fact that other nations would have an interest as well as the ability to increase or decrease the supply of our money?

And how about the fact that a gold standard would bring about the biggest wealth transfer in history?

[Teaser Rate]

1.Your assumption is fatal, the Fed is not doing a very good job. Stable prices? What? Have you seen the"price stability"of oil in the last 25 years? Health care? Tuition? Home prices? Food?

The things you mention are affected by factors other than the value of money. To the extent that the Fed can control the price level, it’s done a very good job in recent years.

http://img254.imageshack.us/img254/1106/usinflationbyyear.png


2. Free competing currencies inherently mean free forming market interest rates. These rates would reflect commodity(money) price uncertainty over time as well as scarcity of loanable funds.

1-That argument has nothing to do with the subject we were discussing, as I already assumed an interest rate in my example.

2-Interest rates already reflect the scarcity of loanable funds; what would be the benefit of introducing price uncertainty into the equation? Even the best of models wouldn’t be able to incorporate enough knowledge to bring the same level of assurance a central bank does.


3.Wild commodity swings are inherent effects of boom and bust cycles induced by current Fed policy. Absent these wild swings, production would become much more predictable; forecasting interest rates and price movements over time would become much easier.

There are no market guarantees; supposedly "safe"government bonds are now ticking time bombs.

That’s not true. The price of commodities is affected by numerous factors which we’re never going to be able to fully control or forecast. Unlike gold and silver, the value of fiat money can always be stabilized because it’s just a piece of paper. If the value of a commodity is significantly affected by external forces in a world which uses competing commodity-backed currencies, you run the risk of systemic failure. Here’s an example:

You lend me 5 grams of gold to invest in my business and I spend it. During that time frame a 9/11-type terrorist attack occurs and sends the price of gold skyrocketing. I then have no way of paying you back because my business doesn’t generate enough revenue, so I default on my loan. You then don’t have enough money to pay back you obligations, and you default, and then your bank follows suit, etc.

To safeguard against that kind of scenario, you’d have to significantly slow down economic growth to the point where paper money is the better alternative.


Please have a look at this book... Money; Sound and Unsound - Salerno (http://mises.org/books/sound_money_salerno.pdf)

I don’t want to come off as jerk but when people start telling me to read a book about a subject, I see it as an admission that they don’t really know what they’re talking about

If the book provided you with the knowledge to understand why my claims are wrong, then you should be able to articulate that knowledge in your own words without having to use it as a reference. Either the book doesn’t provide a clear answer or you didn’t understand it; in either case, you shouldn’t be linking it in this context.

[awake]

Well, on the topic of boom and bust, wouldn't the sheer amount of inflation of the money supply from 1980 to 2000 mean that gold should have risen during that time instead of losing 60+% of its value? M2 doubled, gold lost 60% of its value. :-/

The economy was surely "booming" a lot more in 2000 than in 1980, so why wasn't the value of gold? 2000 was the defining age of boom.

Also, I'm not sure, but did prices rise by almost 600% from 2000 to 2010? How can we even pretend that in this reality gold is a store of value? Pink Sheet stocks have probably been less volatile.

Besides, why would we base our money supply on a manufacturing input that other than wild speculation and jewelry is demanded only by a few industries, most notably the manufacture of electronics. Should we base dollars on MSFT, APPL, or RIMM? Maybe throw in a few jewelry producers for good measure? Those companies rise and fall, and just like gold, are dependent on electronics and jewelry demand.

How do we deal with the fact that other nations would have an interest as well as the ability to increase or decrease the supply of our money?

And how about the fact that a gold standard would bring about the biggest wealth transfer in history?

Ok, let's take everything you have said as true. You should be wondering why the price of gold is moving rapidly higher. Why are people diving into gold as a store of wealth? Are they nuts? Do fiat currencies and their derivatives truly offer more protection? The market is answering this loud and clear. The competition between gold and the U.S. Dollar is revealing your answer.

Forcing a man to use your currency at gunpoint isn't freedom. Under competing currencies you can choose what ever one you wish for market clearing.

[awake]

The things you mention are affected by factors other than the value of money. To the extent that the Fed can control the price level, it’s done a very good job in recent years.

http://img254.imageshack.us/img254/1106/usinflationbyyear.png



1-That argument has nothing to do with the subject we were discussing, as I already assumed an interest rate in my example.

2-Interest rates already reflect the scarcity of loanable funds; what would be the benefit of introducing price uncertainty into the equation? Even the best of models wouldn’t be able to incorporate enough knowledge to bring the same level of assurance a central bank does.



That’s not true. The price of commodities is affected by numerous factors which we’re never going to be able to fully control or forecast. Unlike gold and silver, the value of fiat money can always be stabilized because it’s just a piece of paper. If the value of a commodity is significantly affected by external forces in a world which uses competing commodity-backed currencies, you run the risk of systemic failure. Here’s an example:

You lend me 5 grams of gold to invest in my business and I spend it. During that time frame a 9/11-type terrorist attack occurs and sends the price of gold skyrocketing. I then have no way of paying you back because my business doesn’t generate enough revenue, so I default on my loan. You then don’t have enough money to pay back you obligations, and you default, and then your bank follows suit, etc.

To safeguard against that kind of scenario, you’d have to significantly slow down economic growth to the point where paper money is the better alternative.



I don’t want to come off as jerk but when people start telling me to read a book about a subject, I see it as an admission that they don’t really know what they’re talking about

If the book provided you with the knowledge to understand why my claims are wrong, then you should be able to articulate that knowledge in your own words without having to use it as a reference. Either the book doesn’t provide a clear answer or you didn’t understand it; in either case, you shouldn’t be linking it in this context.

Look I like a good debate...

Interest rates not only reflect supply of loanable savings, they reflect inflationary and default risks as well.

Gold on 9/10 was Approx. 273 U.S.D per oz , Gold on 9/11 moved to aprox. 286 per oz, topping a high for that month at 290-ish levels... Is this the skyrocket effect?

Why are you so afraid of competing currencies? If you're right, everyone simply stays in fiat dollars when they want to be...

Can you not see the absolute inherent failure of centrally planning a currency? Manipulating interest rates like a lever on a machine. You use the term stability, where is the stability? The Fed is dumping keystroke money like there is no tomorrow. And for what? Stability? They have not stabilized anything. How can a private institution that is causing instability create stability?

We are staring hyper inflationary default directly in the face and you call this stable? You call it a " very good job" when systemic failure is evident in Iceland, Greece, Ireland, soon to be Spain, Portugal...followed by a subsequent Euro collapse? All of them more than likely being printed back to life by the Fed. which will bring about its own crisis.

Don't give me "stable", you are blatantly ignoring whats happening around you.

Go ahead deny every other alternative to central planned money, but I am with the market on this one, not the planners. If you believe in what you are saying and stay in the dollar for long term protection please by all means hold to your convictions.

BTW - When I link to a book that has many answers to much of your questions please be a little bit cordial. I am saving you time by showing you the most convincing answers.

[Adolfo Mena Gonzalez]

You do understand that the Fed fiat money boom and bust cycle inflates and crashes prices in commodities right? Not to mention the outright central manipulation of the prices of monetary metals. And no, I am for competing currencies not just gold or silver.

The price of gold, like any commodity, has to do with supply and demand, and less with monetary expansion. You could print 600 billion dollars, like the Federal Reserve just did, and the price won't dramatically rise. The fact is, we have better days for gold, in regards to a price per ounce increase, before the monetary expansion. How come there that hasn't been the case afterwards? How come the best days were prior to, and not after? The reason the price of gold is so high is because there is an increased demand for it, and many media outlets are hyping it. Eventually, the price will go down. If the economy does collapse, the last thing you will want is gold. You will want dried foodstuffs and seeds, those will be far more valuable as a means of exchange and as a sign of wealth. Maybe as the economy reorganizes after a great inflation(which I don't see happening, i see inflation, but more moderate over a long period of time, rather than a single event which spurs hyperinflation), silver and cooper will be the means of exchange in regards to coinage.

[fisharmor]

Why would I even lend it to you if I get a guaranteed positive return by holding onto it?

Ever heard of the Sharpe ratio? It would take an extreme rate of interest to get someone to accept risk in lending when a return can be achieved by simply holding onto currency.

Your question assumes that going into debt is a good thing. You need to back that up before I accept that lending, other than out of the goodness of one's heart, is even necessary.
But I will give you an easy answer: in a deflationary situation, one does not need to borrow at 6-10% in order for the lender to make money, because there is no inflation to overcome.

And once again, I go without an answer. Answer the question!
Why is inflation beneficial?
Here are two follow up question:
Why is lending and getting into debt beneficial, when I have clearly articulated that the alternative is savings?
How is lending and getting into debt anything other than a response to guaranteed annual inflation?

I know what you're going to say: you're going to give me the traditional Fed defense that lending is what moves the economy.
This is only true because it's true at the point of a gun.
The economy moves through lending only because the system has been rigged to make it impossible for anyone to make it move through savings.
Saving money is a money-losing prospect. The longer your money sits in a savings account, or in a jar, or under your mattress, the less money you have.
This is the result of inflation.
So, bearing in mind that I do not accept the argument that lending is necessary to drive an economy, bearing in mind that the only proof of this is that alternate ideas are currently financial insanity (if not illegal), please explain to me why inflation is a good thing.


I'm not sure the price of ANYTHING was that volatile over that period. And you want something that volatile to be currency?

The point is that there is absolutely something with that volatile a price - DOLLARS.
It's not the price of gold which is swinging that wildly - it's the value of the dollar.


Can you not see the absolute inherent failure of centrally planning a currency? Manipulating interest rates like a lever on a machine. You use the term stability, where is the stability? The Fed is dumping keystroke money like there is no tomorrow. And for what? Stability? They have not stabilized anything. How can a private institution that is causing instability create stability?

I'm always amazed at how all the pro-fed arguments are actually anti-fed arguments that are simply double-thought into support.
I'm an adherent to the law of noncontradiction, which states that a thing can not both be a thing and not be a thing.
The Fed can not be both a stabilizer of prices and an abject failure at stabilizing prices.
Given that prices are not stable, whether or not the ultimate cause of unstable prices is directly attributable to the fed, the fed has nevertheless failed at one of its goals.
And arguing otherwise violates noncontradiction.

[Jordan]

So, bearing in mind that I do not accept the argument that lending is necessary to drive an economy, bearing in mind that the only proof of this is that alternate ideas are currently financial insanity (if not illegal), please explain to me why inflation is a good thing.


(Deleted half of that because it was the same thing over and over again.)

I shouldn't have used the word lending, maybe I should have used instead "financial risk." Apparently not all of us believe that lending is necessary? Hmmm..

The idea is just the same with using your own savings to start a business or otherwise follow some entrepreneurial pursuit. Knowing that you're going to get a guaranteed return to simply sit on your money, it is going to require an exceptionally awesome reward to risk level to get you to invest. Why go out and try to hit the jackpot when guaranteed returns await you for sitting on your ass?

In fact, it would be mathematically illogical for anyone to consume more than is necessary to survive or invest in anything that doesn't provide for an extreme return. Remember, you improve your standard of living by doing nothing. You could go out and try to become the next Donal Trump, but that requires effort and risk. You could lose. Why do anything?



The point is that there is absolutely something with that volatile a price - DOLLARS.
It's not the price of gold which is swinging that wildly - it's the value of the dollar.


Honestly, I should have ignored anything above this because it is, in your own words, "financial insanity."

If this were true, the cost of your existence would have plunged 60% from 1980 to the year 2000, and risen almost 500% from 2000 to 2010.

There's a very simple reason why gold shouldn't be currency that I mentioned earlier. I'll prove it with this:

How the average American Spends their money. (http://www.visualeconomics.com/wp-content/uploads/2009/07/wheredidthemoneygo.jpg)

Sources of Gold Demand (http://www.nzmint.com/bullion/webmaster/gold-demandpng)

The demand profile for gold is not at all representative of how the average person spends their money. If you want to truly free yourself from awful inflation, doing so is easily done by investing in the companies and businesses that produce what you consume most.

Of course, there's always just leaving it in a bank. I'm still not entirely sure that $1 put in the bank in 1913 to today would've lost any purchasing power at all. (If someone has historic data, I'd love to take a gander and whip out a calculator.)

[Jordan]

Ok, let's take everything you have said as true. You should be wondering why the price of gold is moving rapidly higher. Why are people diving into gold as a store of wealth? Are they nuts? Do fiat currencies and their derivatives truly offer more protection? The market is answering this loud and clear. The competition between gold and the U.S. Dollar is revealing your answer.

Forcing a man to use your currency at gunpoint isn't freedom. Under competing currencies you can choose what ever one you wish for market clearing.

Under the assumption everything I said is true, the real meat of the discussion is over. Apparently now I have to entertain your what-if scenarios about the irrationality of markets, and mob mentality?

Regardless, the majority isn't good enough reason to buy gold, nor does the majority's interest in gold lend it any credibility. You know, I was also wondering why people were piling into tech in 1999-2001, and real estate in 2003-2005.

I guess those people just thought Yahoo, Ebay, Amazon, Juniper (for the lulz), were stores of value. Remember what happened last time the world piled into a "store of value?" "Home prices always go up!" Replace homes with another word...I've been hearing that a lot lately.

[awake]

Under the assumption everything I said is true, the real meat of the discussion is over. Apparently now I have to entertain your what-if scenarios about the irrationality of markets, and mob mentality?

Regardless, the majority isn't good enough reason to buy gold, nor does the majority's interest in gold lend it any credibility. You know, I was also wondering why people were piling into tech in 1999-2001, and real estate in 2003-2005.

I guess those people just thought Yahoo, Ebay, Amazon, Juniper (for the lulz), were stores of value. Remember what happened last time the world piled into a "store of value?" "Home prices always go up!" Replace homes with another word...I've been hearing that a lot lately.

Ask a person on a fixed income about the falling purchasing power of the dollar; if it is indeed a real phenomenon. Look at the size of your government and ask yourself whether planned inflation has worked for them... You raise the issue of various bubbles that have collapsed, ask yourself what money system created these deceptions?

We should just stick with it, it will take care of itself ? In a way you might be right... It will take care of itself in a bout of monetary chaos.

If you dislike gold, so be it, but competing currencies is the solution regardless if you admit that or not. The problem is the monopoly of money.

"The demand profile for gold is not at all representative of how the average person spends their money. If you want to truly free yourself from awful inflation, doing so is easily done by investing in the companies and businesses that produce what you consume most."

If you want to truly free yourself from awful inflation then lets not have it as a policy. If gold were money the "demand profile" would be that of money.

So you are saying put your money in the stock market? This will abate inflation? What of the companies your money is invested in miscalculating inflation as added profits leading them to make bad business decisions thus lowering or even collapsing your stock price? Bailout?

On the volatility of gold, take a look at the price chart... You tell me where you see stable and volatile.

http://www.maldongold.com/maldon_gold/gold/gold_images/au883-999.gif

In 1971 the detachment of gold linkage was completely severed, did we all just go insane or did we trade stability for stupidity?

[Teaser Rate]

Look I like a good debate...

Me too, I didn’t mean to come off as negatively as I did in my last post, I’m just a bit tired of debating with people who bring up the you need to read this obscure 500 page book written by a second grade economics professor to understand what’s actually going on card when they run out of answers.

I believe that the whole point of reading a 500 page book is gaining the knowledge to summarize it in a few sentences.


Interest rates not only reflect supply of loanable savings, they reflect inflationary and default risks as well.

In a place where you have a stable currency backed by the actions of an independent central bank, you don’t need to worry about the risks of inflation or possible default. That guarantee is a huge asset to any economy, an asset you seem to have no qualms about discarding in exchange for nothing.


Gold on 9/10 was Approx. 273 U.S.D per oz , Gold on 9/11 moved to aprox. 286 per oz, topping a high for that month at 290-ish levels... Is this the skyrocket effect?

Actually, during the day of 9/11 Gold went up from $215.50 to $287 an ounce (http://en.wikipedia.org/wiki/Economic_effects_arising_from_the_September_11_att acks), if an economy were to use gold as its main unit of exchange; it would mean an overnight deflation of 33%, which would likely trigger an instant 1929-style depression.


Why are you so afraid of competing currencies? If you're right, everyone simply stays in fiat dollars when they want to be...

I have no problem with competing currencies, in fact, they’re perfectly legal. You don’t have to use US dollars to conduct exchanges; you can always use foreign currencies or commodities.

What you’re arguing for is not the legalization of competition, you’re arguing for the abolition of the world’s most stable currency for reasons which I frankly don’t quite understand.

Let me ask you this: if you were given absolute power, how would you transition the country from the current system to the competing currencies’ model, and how would that system work?


Can you not see the absolute inherent failure of centrally planning a currency? Manipulating interest rates like a lever on a machine. You use the term stability, where is the stability? The Fed is dumping keystroke money like there is no tomorrow. And for what? Stability? They have not stabilized anything. How can a private institution that is causing instability create stability?

We are staring hyper inflationary default directly in the face and you call this stable? You call it a " very good job" when systemic failure is evident in Iceland, Greece, Ireland, soon to be Spain, Portugal...followed by a subsequent Euro collapse? All of them more than likely being printed back to life by the Fed. which will bring about its own crisis.

Don't give me "stable", you are blatantly ignoring whats happening around you.

Go ahead deny every other alternative to central planned money, but I am with the market on this one, not the planners. If you believe in what you are saying and stay in the dollar for long term protection please by all means hold to your convictions.

1 - The Fed is not a private institution

2 - Monetary policy is a complicated subject which can't be refuted by listing a series of over-simplified straw men.

3 - Believe it or not, before the Fed came along, the dollar was much less stable, as you can see in this chart.

http://img221.imageshack.us/img221/6995/c52c2800pxushistoricali.png

And as I've shown in my previous post, the Fed (along with other central banks) has gotten better and better at controlling the rate of inflation.

What you're essentially arguing is that all empirical observation of money and banking done in the last 50+ years which suggests that fiat money and central banking works has been the result of a statistical abnormality and that all reputable economists who have devoted their careers to the betterment of such a system have been wasting their time because a sustainable central banking is nothing but a fantasy.

...or could the more plausible explanation be that the few fringe economists who have been arguing the opposite and unsuccessfully predicting collapses and hyperinflation every step of the way might have it wrong ?

[johnny.rebel]

...or could the more plausible explanation be that the few fringe economists who have been arguing the opposite and unsuccessfully predicting collapses and hyperinflation every step of the way might have it wrong ?
if one guy gets a printing press then why can't we all have one. it seems like they have the advantage and if i try and do what they do they'll put me in jail. how is that fair?

[awake]

"1 - The Fed is not a private institution

2 - Monetary policy is a complicated subject which can't be refuted by listing a series of over-simplified straw men.

3 - Believe it or not, before the Fed came along, the dollar was much less stable, as you can see in this chart."


1. It doesn't matter anyway... It's the central control aspect that matters.

2. Saying "monetary policy is complicated" is just another way of saying buzz off, your not smart enough to understand centrally planned money. Even the experts who claim that they understand these complexities, they are simply lost as well. How many QE's does it take? do we go to 10? [Let me pull that lever and see what it does...]

3 Dueling with charts gets old fast. My chart can beat your chart any day...lol.

4. "Fringe economists"... Hmm I like it.

"In a place where you have a stable currency backed by the actions of an independent central bank, you don’t need to worry about the risks of inflation or possible default. That guarantee is a huge asset to any economy, an asset you seem to have no qualms about discarding in exchange for nothing."

"Independent" is laughable, and "stable currency" is simply absurd.

No pure fiat (government monopolized currency) has ever survived or has ever been stable (1971 - stagflation upon the breakdown of Breton Woods is a great example).

Fiat money’s sole engineered purpose is to fund government spending. It is specifically designed to expropriate and transfer wealth without consent for the sole benefit of the monetary monopolists. You should recognize coin clipping when you see it.

Nothing says that fiat paper is more advantageous from a transaction standpoint than any other good such as gold or silver.

Gold prices “skyrocketing” have never occurred from 1791 up to1912, in fact the word stable would best describe the price of gold in that period. Once gold backing was removed from the U.S. dollar in 1971, devaluation and rapid price increases resulted, corresponding to, and clearly indicating monetary instability. The recent historical rapid price increases in gold are reflective of direct dollar devaluations to “stabilize” the economy. This creates market uncertainty further exasperated by government intervention risks.

Advocating that the government restrain its abuse of its monopoly position in money and to hold to “targeted inflation” is ignoring the root problem – the national monopoly in money itself.
If you think that target inflated “stable” money can be provided by a monopolist, there is no denying the result; constant and relentless debasement for political purposes and chronic instability.

If the FED is doing such a good job, then why is the gold price increasing and the dollar falling? It’s certainly not reduced production causing the price increases in gold. Gold has always been an indicator of the confidence in government paper.

The cost benefit analysis of mining and using gold for money far outweigh the repercussions of a hyperinflation and currency breakdown, these costs of production are a true social insurance premium against political monetary manipulation leading to such societal destruction. It is frankly the cost of having stabilized money and the concrete foundation it provides for an advancing human civilization.

So we need centrally controlled money incase of 9/11 type of events? This is absurd.

The solution is competing currencies to find the best medium of exchange. And to prevent government encroachment and monopoly control of money. Anything short of this is simply inviting and willfully engineering disaster.

[awake]

"In relation to a fiat currency regime, the key element of
a commodity standard is its potential for automaticity and
consequent absence of political control over the quantity of
money and the absolute price level.…The choice among different
monetary constitutions—such as the gold standard,
a commodity reserve standard, or a fiat standard with fixed
rules for setting the quantity of money—may be less important
than the decision to adopt some monetary constitution.
On the other hand, the gold standard actually prevailed for
a substantial period (even if from an “historical accident,”
rather than a constitutional choice process), whereas the
world has yet to see a fiat currency system that has obvious
“stability” properties." -Robert J. Barro

"From 1792 into the 1930s Britain was on a gold standard and
the United States was on either a bimetallic standard or one
of gold alone. During all those years, in both countries, price
inflations and subsequent deflations average sensibly to zero.
The result: for both the U.K. and the U.S. the wholesale price
index numbers at the end of the gold standard were at just
the level of 1800. - Roy W. Jastram

"The reason for using a commodity money is precisely to prevent
political influence from affecting directly the value of
the monetary unit. . . Gold is the standard money primarily
because an increase or decrease in the available quantity
is independent of the orders issued by political authorities.
The distinctive feature of the gold standard is that it makes
changes in the quantity of money dependent on the profitability
of gold production." - Mises

"The quantity of money is the decisive problem. The quality
that makes gold fit for service as money is precisely the fact
that the quantity of gold cannot be manipulated by governments.
The gold standard has one quality, one virtue. It is
that the quantity of gold cannot be increased in the way that
paper notes can be increased. The usefulness of the gold standard
consists in the fact that it makes the supply of money
depend on the profitability of mining gold, and thus checks
large-scale inflationary ventures on the part of governments.
Gold cannot be produced in a cheaper way by any governmental
bureau, committee, institution, office, international
agency, or so on. This is the only justification of the gold standard.
One has tried again and again to find some method to" - Mises

"The fundamental reason for preferring the 100 percent gold standard
to other gold-based proposals for monetary reform is that it is
the only monetary system which effects the complete separation of the
government from the supply of money. Under this system, the money
supply process is totally privatized: the mining, minting, certification,
and storage of the money-commodity as well as the issuance of fully
covered notes and deposits are carried out by private firms operating
in a free market. In thus removing all vestiges of the government
monopoly over money, the pure commodity standard provides a practically
inflation-proof currency. This becomes clearer once it is realized
that inflation occurs for no other reason than that it benefits that
group or institution—in almost every case the national government" - J.T. Salerno

The fringers...lol

[Teaser Rate]

if one guy gets a printing press then why can't we all have one. it seems like they have the advantage and if i try and do what they do they'll put me in jail. how is that fair?

Central banking is to counterfeit what taxation is to theft.

If you want to use the purist libertarian argument, I’d have to agree with you that the Fed, like all aspects of the state is deeply immoral.

However, reality does not have a libertarian bias; in certain cases, such as law-enforcement, national defense, roads, or the issuance if money, it’s to everyone’s benefit to accept the coercion of the state rather than deal with the coercion of nature.

[Teaser Rate]

"1 - The Fed is not a private institution

2 - Monetary policy is a complicated subject which can't be refuted by listing a series of over-simplified straw men.

3 - Believe it or not, before the Fed came along, the dollar was much less stable, as you can see in this chart."


1. It doesn't matter anyway... It's the central control aspect that matters.

2. Saying "monetary policy is complicated" is just another way of saying buzz off, your not smart enough to understand centrally planned money. Even the experts who claim that they understand these complexities, they are simply lost as well. How many QE's does it take? do we go to 10? [Let me pull that lever and see what it does...]

3 Dueling with charts gets old fast. My chart can beat your chart any day...lol.

4. "Fringe economists"... Hmm I like it.

"In a place where you have a stable currency backed by the actions of an independent central bank, you don’t need to worry about the risks of inflation or possible default. That guarantee is a huge asset to any economy, an asset you seem to have no qualms about discarding in exchange for nothing."

"Independent" is laughable, and "stable currency" is simply absurd.

No pure fiat (government monopolized currency) has ever survived or has ever been stable (1971 - stagflation upon the breakdown of Breton Woods is a great example).

Fiat money’s sole engineered purpose is to fund government spending. It is specifically designed to expropriate and transfer wealth without consent for the sole benefit of the monetary monopolists. You should recognize coin clipping when you see it.

Nothing says that fiat paper is more advantageous from a transaction standpoint than any other good such as gold or silver.

Gold prices “skyrocketing” have never occurred from 1791 up to1912, in fact the word stable would best describe the price of gold in that period. Once gold backing was removed from the U.S. dollar in 1971, devaluation and rapid price increases resulted, corresponding to, and clearly indicating monetary instability. The recent historical rapid price increases in gold are reflective of direct dollar devaluations to “stabilize” the economy. This creates market uncertainty further exasperated by government intervention risks.

Advocating that the government restrain its abuse of its monopoly position in money and to hold to “targeted inflation” is ignoring the root problem – the national monopoly in money itself.
If you think that target inflated “stable” money can be provided by a monopolist, there is no denying the result; constant and relentless debasement for political purposes and chronic instability.

If the FED is doing such a good job, then why is the gold price increasing and the dollar falling? It’s certainly not reduced production causing the price increases in gold. Gold has always been an indicator of the confidence in government paper.

The cost benefit analysis of mining and using gold for money far outweigh the repercussions of a hyperinflation and currency breakdown, these costs of production are a true social insurance premium against political monetary manipulation leading to such societal destruction. It is frankly the cost of having stabilized money and the concrete foundation it provides for an advancing human civilization.

So we need centrally controlled money incase of 9/11 type of events? This is absurd.

The solution is competing currencies to find the best medium of exchange. And to prevent government encroachment and monopoly control of money. Anything short of this is simply inviting and willfully engineering disaster.

Rather than answer your points one by one and continue driving this conversation towards an increasingly dull direction where I’ll eventually be re-living my old macroeconomics courses I suggest we focus on the crux of the issue. There are two main things I’d focus on:

1-You keep mentioning that central control is the problem; I’d like to know why. When I argue in favor of less central control and regulation, my two main arguments against centralization are capture and lack of knowledge, and I don’t see how either one of them applies here. For the most part, financial markets are very regulated and highly condensed into a few centers and most financial transactions of any significant volume are done by a few players. As such, there isn’t much dispersed information or knowledge the Fed doesn’t have access to. The Fed might be wrong in its treatment or diagnosis, but it can easily identify the symptoms which ail financial markets.

Regarding the capture issue, the Fed is legally set up to remain insulated it from the other branches of government or outside influences. (its independence is similar to that of the Supreme Court) If you want to argue that the Fed is still vulnerable to political pressures, I can provide many other examples of central banks around the world which are perfectly independent and able to job their jobs effectively.

2-I’d honestly like to know how you envision that the process of the privatization of money would work. If you were put in charge of monetary policy tomorrow, what would be your first reform? How would you handle the outstanding debt? Would all the holders of US dollars across the world be wiped out? How would the government be financed?

You can quote all the anti-fed books you’d like and point out their every mistake, but as long as you can’t explain how an alternative monetary system would work, and how that transition would realistically take place, my default answer to all your criticisms of the Fed is going to be well, that just means we need to improve it.

[jacque]

Why would I even lend it to you if I get a guaranteed positive return by holding onto it?

Ever heard of the Sharpe ratio? It would take an extreme rate of interest to get someone to accept risk in lending when a return can be achieved by simply holding onto currency.

That was his point. Don't borrow and what you have is worth more.

[jacque]

Teaser Rate"3 - Believe it or not, before the Fed came along, the dollar was much less stable, as you can see in this chart."

Was this effect supply and demand for goods and services or control? Which is better?

[jacque]

I have learned a lot from all of these discussions but what I know is reality. The back and forth confuses me and if your main points are to educate the public, well you have educated both sides if the "coin".

Example:
Today $1 is worth the true $1 of gold. Tomorrow my $1 is worth $2 of gold. Can I now buy two loaves of bread instead of one? I think not. It is not just gold or silver but demand. If no one wants bread anymore, I can get 10 loaves of bread for my $1 paper. Does that increase the valve of my paper in regards to gold, no.

Control or guidance? The Fed controls rather then guide us to a stable market.

The chart the said we are more stable now then before, in who's prospective? The free market, bartering, needs vs. wants, may not be stable but we control our own future and fate.

Who controls better, the Fed or the people? Why are we worse off now then we were in the past? Money and big government all are playing a part in our demise.

I am just a simple working person that finds it harder everyday to get by. I am storing copper, brass, lead, beans, seeds. This is my wealth and I will survive long after the people that are hoarding gold. I can not eat gold but I can trade lead for a can of beans.

[fisharmor]

I shouldn't have used the word lending, maybe I should have used instead "financial risk." Apparently not all of us believe that lending is necessary? Hmmm..
I don't, because it isn't. Not in the traditional sense that you espouse.


The idea is just the same with using your own savings to start a business or otherwise follow some entrepreneurial pursuit. Knowing that you're going to get a guaranteed return to simply sit on your money, it is going to require an exceptionally awesome reward to risk level to get you to invest. Why go out and try to hit the jackpot when guaranteed returns await you for sitting on your ass?

Why do some people choose to start businesses and provide goods and services to society when they can do the exact same thing you suggest in an inflation-based monetary system? I have never suggested that hyperdeflation would be a good thing: I merely posited that mild deflation is not a bad thing and that people would adjust to it just fine without the mainstream economists' prophesied dimensional rift to hell opening up.

And since the fabulously wealthy can already sit on their asses and still make guaranteed returns, you have yet to prove that mild deflation is worse than mild inflation.


In fact, it would be mathematically illogical for anyone to consume more than is necessary to survive or invest in anything that doesn't provide for an extreme return. Remember, you improve your standard of living by doing nothing. You could go out and try to become the next Donal Trump, but that requires effort and risk. You could lose. Why do anything?

Same bogus argument. Why? Because they want iPods.
You're suggesting that the whole of humanity is going to sit at home in candlelight and eat nothing but porridge, just because their money gained slight value over time. Are you listening to yourself?

Yeah you might be right if we were talking about 10%, but I'm not. I have the advantage of showing what actually happened when the world was on a gold standard for over 100 years, which coincided with a population explosion and the greatest increase of standard of living in the history of the world, and the graphs I've seen show a slight increase in gold supply over that time due to mining. For some reason, if people want it, they go find it. Go figure.

I'm also not arguing in favor of a gold standard - I'm on board with competing currencies, and the reason why is because if your rift to hell opened and gold actually was deflating by 10% per year, people would need to be able to adapt rapidly and use something else for transactions which isn't suffering from this OR massive inflation. Right now there is no choice: they are at the mercy of helicopter Ben.


Honestly, I should have ignored anything above this because it is, in your own words, "financial insanity."

I'm only asking a single question, and I'm still not getting an answer! That is financial insanity?


If this were true, the cost of your existence would have plunged 60% from 1980 to the year 2000, and risen almost 500% from 2000 to 2010.

Well, I don't know how to respond to this one. QE2 happens, and I watch the price of gas go up, I watch the price of milk go up, I watch the price of fast food go up. No, I don't have a Keynesian style formula I pulled out of my rear end that "proves" this, I'm relying on empiricism. When the fed increases the money supply, prices go up. When it decreases the money supply, prices go down.
Are you suggesting that this doesn't happen? I'm not old, and I've watched it happen several times now.


Of course, there's always just leaving it in a bank. I'm still not entirely sure that $1 put in the bank in 1913 to today would've lost any purchasing power at all. (If someone has historic data, I'd love to take a gander and whip out a calculator.)

Again, I have only my own data.
If I leave money in the bank and don't touch it, it gets confiscated, one way or the other, by the bank or the state.
Try it sometime - it has happened to me twice now.

And please, somebody please answer the question:
Why is inflation good for society? How does it benefit society that our money is guaranteed to be worth less tomorrow than it is today, some years to the tune of 6%?
Don't repeat that it's not all that bad for me, because that's not what I asked.
Don't repeat that it facilitates lending, because lending hasn't even been in the economy's driver seat long enough to say that it has to be this way.

[awake]

Rather than answer your points one by one and continue driving this conversation towards an increasingly dull direction where I’ll eventually be re-living my old macroeconomics courses I suggest we focus on the crux of the issue. There are two main things I’d focus on:

1-You keep mentioning that central control is the problem; I’d like to know why. When I argue in favor of less central control and regulation, my two main arguments against centralization are capture and lack of knowledge, and I don’t see how either one of them applies here. For the most part, financial markets are very regulated and highly condensed into a few centers and most financial transactions of any significant volume are done by a few players. As such, there isn’t much dispersed information or knowledge the Fed doesn’t have access to. The Fed might be wrong in its treatment or diagnosis, but it can easily identify the symptoms which ail financial markets.

Regarding the capture issue, the Fed is legally set up to remain insulated it from the other branches of government or outside influences. (its independence is similar to that of the Supreme Court) If you want to argue that the Fed is still vulnerable to political pressures, I can provide many other examples of central banks around the world which are perfectly independent and able to job their jobs effectively.

2-I’d honestly like to know how you envision that the process of the privatization of money would work. If you were put in charge of monetary policy tomorrow, what would be your first reform? How would you handle the outstanding debt? Would all the holders of US dollars across the world be wiped out? How would the government be financed?

You can quote all the anti-fed books you’d like and point out their every mistake, but as long as you can’t explain how an alternative monetary system would work, and how that transition would realistically take place, my default answer to all your criticisms of the Fed is going to be well, that just means we need to improve it.


Sorry , the last thing I want to do is bore you. But before I risk that. I will leave you with this; To find out why fiat money is doomed to fail you should remember where and how money originated. You should know, but if you don't, find out; this is how to transition. It has nothing to do with plans, it more has to do with de-legitimizing the planners. All that's needed is for the controllers to not block the exits in the burning building.

Monetary central planning is the attempt to collect all the related information, armed with barely enough understanding to try and control it, and not enough wisdom to realize why you shouldn't.