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View Full Version : help me tear this argument apart (monetary policy)




matthylland
12-05-2007, 10:06 PM
This argument is weak, and i have a lot of things to say to refute it, but i still wanted to send it this way to make sure i can say as much as possible.
Here is the argument presented to me on my county's GOP blog:

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"Matt, I’ve been thinking about the gold standard/Fed issue that Paul and a number of the Libertarians have been pushing for some time. I have one or two problems. As to the gold standard: Do we have sufficient gold in reserve so that when the Chinese come calling and wish to cash in their trillion dollars in paper for actual gold we can give it to them? If not, the system crashes at that point and we are back on a fiat system that day after a great deal of confusion.
Gold miners and gold mining companies will be able to play with the value of our money by hoarding/flooding the markets. Many of these companies are foreign. We have no way to limit or control the amount of gold on the market and it can come from any source. We will basically be allowing anyone with a shovel and a pan to create their own money/legal tender.
Those are just a few points off of the top of my head. As to Fed: It isn’t always right but it is right more often than it is wrong. The ability to control the flow of funds has worked effectively to control panic and wild swings. The Fed will be useful in the current housing/interest rate debacle by controlling credit and working with the banks and lenders to hammer out a solution to the problem.
They are like the Supreme Court of money. We have accomplished economic academicians making long-term plans. They are not subject to the whims of the market or (with long terms and personal job security) fear of reprisal for unpopular decisions. It’s a good system that has worked well."

Lots to say in response to that, give me your best points against each of his and we will embarrass this guy!

dmspilot00
12-05-2007, 10:09 PM
The best point is Ron Paul does not want to tie the dollar to gold but to legalize gold and silver to be used as competing currencies.

matthylland
12-05-2007, 10:12 PM
The best point is Ron Paul does not want to tie the dollar to gold but to legalize gold and silver to be used as competing currencies.

yeah, I am sure to point that out, i am linking a few videos (His speech to Bernake, Larry Kudlow's interview, etc) where that is pointed out.

maxmerkel
12-05-2007, 10:17 PM
The best point is Ron Paul does not want to tie the dollar to gold but to legalize gold and silver to be used as competing currencies.

the ingenious idea behind this is, that it forces the fed to adopt a good monetary policy - otherwise everyone would switch to trading in gold an silver, and they certainly don't want to lose their 400 million customers :)

amakris
12-05-2007, 10:30 PM
1) RP would legalize competition, not mandate a particular system
2) A currency can be expressed as a scientific measure (that is this note represents 1 gram of gold, or whatever), so exchange rates can float without a problem.
3) Your friend's concern about the Chinese calling is well founded, and that's why RP wouldn't back reserve notes with gold. It'd be impossible to do for the same reason that it's impossible for the central banks to know what interest rate to set: one person can't possibly know (perfectly) how the market will price something.

kotetu
12-05-2007, 10:42 PM
As to the gold standard: Do we have sufficient gold in reserve so that when the Chinese come calling and wish to cash in their trillion dollars in paper for actual gold we can give it to them? If not, the system crashes at that point and we are back on a fiat system that day after a great deal of confusion.
See dmspilot00's post.


Gold miners and gold mining companies will be able to play with the value of our money by hoarding/flooding the markets. Many of these companies are foreign. We have no way to limit or control the amount of gold on the market and it can come from any source. We will basically be allowing anyone with a shovel and a pan to create their own money/legal tender.No matter how much gold is hoarded or released into the market, or how much jewelry is melted into coins, this money would all be backed by SOMETHING. Right now, the fed prints money backed by NOTHING. Even if twice the amount of gold available now was introduced into the market, it would not lose value like the FRN.


Those are just a few points off of the top of my head. As to Fed: It isn’t always right but it is right more often than it is wrong. The ability to control the flow of funds has worked effectively to control panic and wild swings.The FED, since being introduced in 1913, has depreciated your dollar by 96%. That is over 2000% inflation. During the FED's tenure, using practices such as greatly reducing interest rates to "stimulate the economy," setting the fractional reserve at roughly 10%, etc, have induced over-spending and credit bubbles over and over again. The great depression built up on the shoulders of the FEDs policies from 1913 to the crash in 1929.


The Fed will be useful in the current housing/interest rate debacle by controlling credit and working with the banks and lenders to hammer out a solution to the problem.The solution they will provide is to freeze the interest rates. What will this do to other sectors of the economy?


They are like the Supreme Court of money. We have accomplished economic academicians making long-term plans. They are not subject to the whims of the market or (with long terms and personal job security) fear of reprisal for unpopular decisions. It’s a good system that has worked well.Unlike the supreme court, only the chairman is appointed, and that is where government control ends. They have no oversight, no requirements, no controls, no transparency. Only the hand-shake agreement that they will behave "in the best interests of the country". Their own statements indicate that they believe 2-3 percent steady inflation per year is good for the economy. If they had managed steady 3 percent inflation from 1913 to today, that would be about 1650% inflation, and our dollars would be worth a whopping 6 cents. Unfortunately, they failed much of the time, and our dollar is worth only about 4 cents.

If a central bank's policy is not to protect the value of people's money, then what is their real policy?

apc3161
12-05-2007, 10:54 PM
I just want to make two points this this sentence:

Gold miners and gold mining companies will be able to play with the value of our money by hoarding/flooding the markets.

First off, is it easier to hoard/flood markets with something as rare as gold, or paper money that is literally just printed at will. Think about that.

Also, you said

Many of these companies are foreign. We have no way to limit or control the amount of gold on the market and it can come from any source. We will basically be allowing anyone with a shovel and a pan to create their own money/legal tender.

I could be wrong but I don't think RP wants to actually have us carry around gold coins a la 15th century. They would just issue money as they do now, the only difference would be that there would be gold in US vaults which backs that money. They can't "print" more money unless they acquire more gold and put that gold in the vault, for every "gold dollar" in circulation, there would be X amount of gold being safeguarded somewhere. So no one can "create" legal tender. It's not like we will be walking around with purses full of gold. Only the government can "create" legal tender, but they are constrained. They can only create legal tender if they acquire more gold.

Right now they can acquire more legal tender just by printing it.

kevinblack
12-05-2007, 10:55 PM
http://www.youtube.com/watch?v=4sPotAZz3Lk
http://www.brightcove.tv/title.jsp?title=1297325815

Ron Paul would not get rid of the current system, so most of the questions here are not applicable.

Ron Paul would start the process towards hard money by allowing competition.
Final video if you have the stomach for it:
http://video.google.com/videoplay?docid=-515319560256183936

gerryb
12-05-2007, 11:08 PM
I won't spend much time on this because arguing with people who prefer a piece of paper backed by nothing over something of value whether it be gold, silver, oil, grain, farming land, or anything else with intrinsic value is a massive waste of time and effort.




As to the gold standard: Do we have sufficient gold in reserve so that when the Chinese come calling and wish to cash in their trillion dollars in paper for actual gold we can give it to them? If not, the system crashes at that point and we are back on a fiat system that day after a great deal of confusion.

no.

We don't have enough paper, either. "The amount of actual physical cash, M0, was $749.6 billion in December, 2006" http://en.wikipedia.org/wiki/Money_supply



Gold miners and gold mining companies will be able to play with the value of our money by hoarding/flooding the markets. Many of these companies are foreign. We have no way to limit or control the amount of gold on the market and it can come from any source.

When you hoard money it's called saving. I thought saving was good?

I'd rather it take years "saving" in the form of planning and effort as well as massive amount of resources to bring a mine online in order to "play with the value of our money" rather than a simple press of a button at the Fed.

And so what if they save their money? You should too. But, most investors don't like companies that save, they prefer profits to be reinvested into future production, or have it distributed as dividends.



We will basically be allowing anyone with a shovel and a pan to create their own money/legal tender.

I thought Entrepreneurs were good for the economy.



Those are just a few points off of the top of my head. As to Fed: It isn’t always right but it is right more often than it is wrong.

Suuure. 94 years of successfully making our dollar worthless. He doesn't believe it? Have him name one thing that is cheaper now than it was in 1913 in dollar terms. There is only one answer; the dollar (or other paper money)

an ounce of gold bought you 35 dollars in 1934 (the Fed devalued the dollar from $20.34 to $35 in 1934. It stayed that price until 1971, in which time the "free" market has devalued the dollar from $35 per ounce to ~$800 per ounce currently.
That's called inflation.
http://www.the-privateer.com/gold2.html




The ability to control the flow of funds has worked effectively to control panic and wild swings.

Just like in 1929.



The Fed will be useful in the current housing/interest rate debacle by controlling credit and working with the banks and lenders to hammer out a solution to the problem.

Thank goodness they created $47.5 Billion dollars ine on week last month to help us out!
http://www.forbes.com/feeds/ap/2007/11/15/ap4344236.html

The most since after the 9/11 attacks. I can see your argument forming now "Exactly, it worked then and it will work now too!" I'm not going to do your homework for you here. Go look at the chart of the dollar vs. other paper currencies (or gold or silver, or any of the other things I mentioned earlier) since 2001.




They are like the Supreme Court of money. We have accomplished economic academicians making long-term plans.

Like the Supreme Court? You mean they hold their proceedings in public?



They are not subject to the whims of the market or (with long terms and personal job security) fear of reprisal for unpopular decisions. It’s a good system that has worked well."

Not subject to the whims of the market? So then why do they lower and raise the rates? You really think they "control" the "market", not the other way around? You're a kook!

Seriously though, they can control one market. The market for dollars. With a heavy bias toward making them worth less.



Lots to say in response to that, give me your best points against each of his and we will embarrass this guy!

Embarrassment will come in the form of a multi-million dollar bank account. Sorry, play again.

Cheers.

kotetu
12-05-2007, 11:30 PM
Here's a fun statistic - since 1975, (till 2006 when they decided to stop reporting the M3 numbers), the value of the dollar has gone down by 75%. (2006 dollars vs 1975 dollars) That is to say, what cost you $10 in 1975 would now cost you about $40.

So, let's take a look at the currency in the market in 1975 and in 2006. In 1975 there was about $1 trillion in circulation. Now we have about $10 trillion in circulation. But that $10 trillion is only worth about $2.5 trillion in 1975 dollars. This is the great farce of the "booming" economy. Meanwhile debt, both national and individual, has continued to skyrocket.

I saw an interesting video (many of you probably saw it), where a very honest, and very alarmed, economist was saying that looking at a 100 point rise in the DJIA looks good, until you re-price it in Canadian dollars, when you see that it is actually DOWN almost 100 points. This is what the FED is doing.

matthylland
12-05-2007, 11:31 PM
thank you guys, this is great!

slantedview
12-05-2007, 11:32 PM
any new gold standard would be a fractional standard, where we keep 1/10th (example) the amount of gold on hand for how much $ is in circulation. there isn't enough gold in the world to completely back the amount of dollars in circulation.

but having ANY standard is better than none, since it stops the ability of the government to artificially inflate the money supply, assuming the fractional standard remains constant. what we have now is virtually no backing for dollars whatsoever, which is why we have rampant inflation, devalued currency, etc., etc.

Goldwater Conservative
12-05-2007, 11:42 PM
No amount of gold can be dug up that will make our currency worth less than the Fed makes it.

runderwo
12-09-2007, 06:49 PM
the ingenious idea behind this is, that it forces the fed to adopt a good monetary policy - otherwise everyone would switch to trading in gold an silver, and they certainly don't want to lose their 400 million customers :)

http://en.wikipedia.org/wiki/Gresham's_Law

More likely people would switch to SAVING in gold and silver. Fed notes would still dominate circulation, because holding onto them is a loss.