66 Greenspan article supports gold standard

[momeNt]

The fact that you don't see the correlation tells me you don't understand the inherent argument that dollars not keeping their value is, in fact, irrelevant. See if you can answer this; if a currency yields 6%/yr in real terms (adjusted for inflation), compounded annually, over a multi-decade period, why would anyone care if we consistency experienced moderate inflation year-by-year over those several decades? People's savings haven't been destroyed if they're yielding that 6%, so that's not it. Access to credit hasn't been destroyed, we've had an abundance of credit access for most of the last 80 years save for the disastrous consequences of the lack of credit in the 1930's. So what is the negative, quantifiable result that has occurred as a result of the devaluation of the dollar in the last 80 years? Has it destroyed real income and standards of living? Nope, both have risen considerably, even despite us being a very mature industrialized economy. Can you come up with anything?

Bottom line is that fixed exchange rates don't work, so keeping the dollar fixed to gold artificially does nothing but strain the ability of governments to expand credit and limits the ability of gov't to adjust the inequities that result when free market solutions fail. And they do fail, this is conclusive and easily verifiable.

Sigh... I hate having to teach economics to people who have no fucking clue.

1. Stocks are not currencies, period. Currency is money, the discussion is about money, quit confusing the two.

2. Your saying inflation is okay because look at the long term returns of the stock market. Inflation creates these credit bubbles sends stock soaring and when it all crashes because the free market realizes the bubble, they rush to create another bubble and expand even more on that inflation. There can come a day when that theory no longer works, and the world is no longer willing to accept our inflated dollars. So the hazards of inflation are those.

3. Lack of credit in the 1930's? No, we had too much credit in the 1920's and it collapsed.

4. The inequities of the free market you talk about are probably references to credit bubbles created by anything but the free market. The inequities or crashes that you may feel are the causes are the free market are actually the response to these bubbles once the businesses and people that make up the free market see through imbalances that are caused by these credit bubbles.

5. Concluding that they fail because currencies are no longer backed by gold or silver is not conclusive evidence that properly run commodity backed currencies will lead to failure. Economics is a social science and cannot be tested empirically because man's wants are constantly changing. I could conclude that money printing and inflationary bubbles always result in a collapse because Weimar Germany collapsed due to hyperinflationary printing. Examples such as these are not valid when discussing economics because you would be belying the nature of the study.

 

[First]

Sigh... I hate having to teach economics to people who have no fucking clue.

This is funny coming from a guy with no understanding of economics talking to a guy with a degree in economics. But continue, lol.

1. Stocks are not currencies, period. Currency is money, the discussion is about money, quit confusing the two.

Stocks are dominated in dollars. But sorry, gold isn't money either, you don't have a sound understanding of money if you think it is, so I'm sorry you don't understand what's going on here.

2. Your saying inflation is okay because look at the long term returns of the stock market. Inflation creates these credit bubbles sends stock soaring and when it all crashes because the free market realizes the bubble, they rush to create another bubble and expand even more on that inflation. There can come a day when that theory no longer works, and the world is no longer willing to accept our inflated dollars. So the hazards of inflation are those.

Except your argument is based on unprovable ether, since moderate inflation has never led to any of this. Severe inflation would, but since that doesn't actually exist, well, hopefully you can figure out the rest.

3. Lack of credit in the 1930's? No, we had too much credit in the 1920's and it collapsed.

It's well known the contraction of the money supply created the Depression and/or made it considerably worse than it ever would have been. This is agreed upon among the vast, vast majority of economists from libertarian-leaning Milton Freedman to Paul Krugman.

4. The inequities of the free market you talk about are probably references to credit bubbles created by anything but the free market. The inequities or crashes that you may feel are the causes are the free market are actually the response to these bubbles once the businesses and people that make up the free market see through imbalances that are caused by these credit bubbles.

The Fed nor federal gov't told CC companies to offer 5&#37; down <600 credit mortgages. They didn't ask for CDS/CDO to go unregulated (as in, entirely unregulated) leading up to 08. The Fed wasn't running Bear Sterns, Lehman or AIG, their risk managers were. I'm sorry, but your ideological talking points really don't hold water with anyone particularly well informed.

5. Concluding that they fail because currencies are no longer backed by gold or silver is not conclusive evidence that properly run commodity backed currencies will lead to failure.

That's right. In other words, you believe a fixed exchange rate affixed to gold the right way will work, you have faith. You just don't have any evidence or examples. Got it.

Economics is a social science and cannot be tested empirically because man's wants are constantly changing. I could conclude that money printing and inflationary bubbles always result in a collapse because Weimar Germany collapsed due to hyperinflationary printing. Examples such as these are not valid when discussing economics because you would be belying the nature of the study.

Weimar isn't relevant, they aren't anything like the 21st century United States. They weren't a reserve currency, they de-coupled from the rest of the planet, and they didn't have nearly the same reach, trust or resources of the United States.

Btw, how's that U.S. hyperinflation theory working out for you these last 3 years? What's the CPI since 08, 0.9%?

 

[matt0611]

Gold is money if there were no legal tender dollars. Things like gold and silver would start to be used as money if there were no fiat money. The only thing keeping gold from being used as money is governments. This is the reason gold is going higher in terms of dollars, both from inflation and the fact that more people are valuing it as money and moving from dollars (or other fiat) into gold.

 

[First]

Gold is money if there were no legal tender dollars. Things like gold and silver would start to be used as money if there were no fiat money.

Since we're quite clearly dealing with the reality that exists today, neither gold or silver is money.

 

[matt0611]

Also, contraction of money supply + price controls during great depression = fail. Another government fail.
The market can adjust to changes in the money supply over time just fine. Its no legitimate reason for a decade long depression. That's just a cop out.

 

[First]

Also, contraction of money supply + price controls during great depression = fail. Another government fail.

If by fail you mean the gov't failing to act, sure. And yes, price controls are bad, and thankfully the gov't doesn't do that anymore (well, except for stupid rent control).

The market can adjust to changes in the money supply over time just fine.

No actually they can't, we have very clear case studies of this reality from the 1930's and late 2000's.

 

[matt0611]

Markets respond to decrease in money supply by lowering prices and wages. This is a fact
It takes time for them to adjust and it isn't instant but it does happen.

 

[First]

Markets respond to decrease in money supply by lowering prices and wages. This is a fact

Huh? How is a sharp deflation of prices and wages good for the economy? There has never been a point in U.S. history where we had deflating wages and prices that led to growth or a boom.

It takes time for them to adjust and it isn't instant but it does happen.

Except the consequences are disastrous.

 

[matt0611]

I never said it was good for the economy, its not, its actually quite bad. Any sharp changes in an economy is bad, the sharper the change the longer it takes to adjust.

There can be deflating wages and prices + growth just fine, just like there can be inflating wages and prices + growth. As long as they're both mild there is no problem.
There's no magic to it, prices adjust.

 

[First]

I never said it was good for the economy, its not, its actually quite bad. Any sharp changes in an economy is bad, the sharper the change the longer it takes to adjust.

There can be deflating wages and prices + growth just fine, just like there can be inflating wages and prices + growth. As long as they're both mild there is no problem.
There's no magic to it, prices adjust.

Except prices and wages don't adjust gently during recessions where there's a sharp decline in credit/money like in the 30's and late 00's. You may believe it, and I'm telling you it doesn't happen. That's because wage earners generally don't like seeing their wages decrease even if it's nominal and not real purchasing power just as business owners don't like to see the price of their goods decline even if it's nominal and not real earning power. That's just how humans react in a market place.

 

[sarsipias1234]

The fact that you don't see the correlation tells me you don't understand the inherent argument that dollars not keeping their value is, in fact, irrelevant. See if you can answer this; if a currency yields 6%/yr in real terms (adjusted for inflation), compounded annually, over a multi-decade period, why would anyone care if we consistency experienced moderate inflation year-by-year over those several decades? People's savings haven't been destroyed if they're yielding that 6%, so that's not it. Access to credit hasn't been destroyed, we've had an abundance of credit access for most of the last 80 years save for the disastrous consequences of the lack of credit in the 1930's. So what is the negative, quantifiable result that has occurred as a result of the devaluation of the dollar in the last 80 years? Has it destroyed real income and standards of living? Nope, both have risen considerably, even despite us being a very mature industrialized economy. Can you come up with anything?

Bottom line is that fixed exchange rates don't work, so keeping the dollar fixed to gold artificially does nothing but strain the ability of governments to expand credit and limits the ability of gov't to adjust the inequities that result when free market solutions fail. And they do fail, this is conclusive and easily verifiable.

People saving haven't been destroyed if they're yielding that 6%.

Even though 6% is possible return on money most people do not yield 6%.

Most people do not even keep up with inflation.

Just look at all the pensions that have failed in our country.

There a very few companies that have not defaulted on their pension plans for employees.

The California public pensions are all going to bankrupt the state.

 

[First]

People saving haven't been destroyed if they're yielding that 6&#37;.

Even though 6% is possible return on money most people do not yield 6%.

No actually, it's just the opposite; the average investor yields about 6% (5% with most index funds) over 30 years. This is fact. Those who don't invest, obviously cannot receive a return.

Most people do not even keep up with inflation.

Verifiably false.

Just look at all the pensions that have failed in our country.

There a very few companies that have not defaulted on their pension plans for employees.

The California public pensions are all going to bankrupt the state.

Huh, examples? And pensions don't fail because of the value of the dollar or the perceived inadequacy of fiat currency. They will fail if they're unrealistic because too much is promised.

 

[frostedflakes]

The only appeal for gold is that through the centuries of market psychology people decided that it was a good store of wealth due to the fact that it is homogenous, the inability to counterfeit, not very much of it so the value/oz is higher than say... oil. resistant to degradation via oxidization.

Money was developed due to the complicated transactions that needed to take place if a person had chickens to sell for cattle, and the person who wanted to sell cattle only wanted goats, so the chicken holder had to find someone to trade their chickens for goats in order to get cattle. Eventually this created the idea of money as the intermediary for all transactions because everybody was willing to accept it.



You are linking money supply growth to economic growth. That sort of thinking is not how it would work in a proper gold standard, in paper fiat currency the federal reserve inflates the amount of money and credit in circulation to encourage lending and economic growth, these bubbles that are created are not really economic growth, just growth in the money and credit, which then contracts when it becomes unsustainable.

A growing economy in relation to others would require more gold, so you are correct in that one sense. But gold would be transferred from one country to another due to what is called the balance of trade. When a country imports more than they export, gold flows out of the country causing, and the opposite is true for a country that exports more than they import. In a fiat currency system, deficits are just printed and debt grows, especially if the currency is not weakened by the central bank to allow for the balance of payments to be brought back into equilibrium.

In theory fiat currency could work, but it would require very diligent control by the fed and treasury for it not to interfere with our economy. Governments that are in control of the currency will want to inflate and erode the purchasing power of the currency. Inflation encourages investment over savings because savings' purchasing power devalues when the currency is inflated, this brings a disconnect to what people actually want to do and what the government is essentially forcing them to do.

Inflation is the hidden tax on wealth that nobody cares about and everybody is letting happen every day you keep allowing the government to control the money.

Ron Paul 2012!

This seems to be a common mistake for some reason. Money is not wealth, it's merely a means of exchange. You can have growth without an expanding money supply, because growth (at least real, sustainable growth) isn't created by making more money. It's created by entrepreneurs who start up businesses that employ people and provide goods and services that consumers want. What the money supply affects is the prices of these goods and services. If demand for goods increases and the money supply is relatively constant (what would be the case with a healthy, growing economy on a gold standard), the money will become more valuable and prices of goods and services will drop accordingly. Contrast that to the current system, where the money supply is growing faster than the economy and consumer demand, so you end up with more dollars chasing roughly the same amount of goods. Now your dollars are worth less and the cost of goods goes up to compensate for this devaluation. This is the ideal according to many economists because it encourages spending now (consumption) and discourages saving, because why save if your money is just going to be worth less in the future? Consumerism probably is good for the economy in the short run, but many correctly recognize that is it unsustainable in the long term.

 

[ConstipatedVigilante]

looks like Mr Morgan died in 1913.

had he lived through 1929-1933 or so, do you think he would be singing the same tune?

roflsocks at the ron paul idiots.

Gold was not the principal cause of the great depression. The main cause was the same one that caused the recent recession - consumer banks pretending to be investment banks. The circle of lending over war debts between the U.S., France, and Germany was also a major factor.

 

[momeNt]

This seems to be a common mistake for some reason. Money is not wealth, it's merely a means of exchange. You can have growth without an expanding money supply, because growth (at least real, sustainable growth) isn't created by making more money. It's created by entrepreneurs who start up businesses that employ people and provide goods and services that consumers want. What the money supply affects is the prices of these goods and services. If demand for goods increases and the money supply is relatively constant (what would be the case with a healthy, growing economy on a gold standard), the money will become more valuable and prices of goods and services will drop accordingly. Contrast that to the current system, where the money supply is growing faster than the economy and consumer demand, so you end up with more dollars chasing roughly the same amount of goods. Now your dollars are worth less and the cost of goods goes up to compensate for this devaluation. This is the ideal according to many economists because it encourages spending now (consumption) and discourages saving, because why save if your money is just going to be worth less in the future? Consumerism probably is good for the economy in the short run, but many correctly recognize that is it unsustainable in the long term.

Good post.

I posted a few weeks back what what I think is a pretty good article on the pending death of America's consumer economy, an article by Charles Hugh Smith on his blog www.oftwominds.com

http://www.oftwominds.com/blogjune11/post-consumer-economy6-11.html

I've only read a little of his stuff but what I have read I felt was spot on.

 

[momeNt]

And First, can you do me a favor and please read the first chapter of America's Great Depression by Murray Rothbard, it's good economic analysis and probably wouldn't offend you too much.

Seeing as Rothbard was a libertarian and had a far different view of copyright, it's available for free.

http://mises.org/resources/694/Americas-Great-Depression

 

[sarsipias1234]

No actually, it's just the opposite; the average investor yields about 6% (5% with most index funds) over 30 years. This is fact. Those who don't invest, obviously cannot receive a return.

The majority of people in the united states has very little money to invest in the stock market.

That is why most people do not yield 6% return on investment.

75% of people own only 13% of the total wealth in the country as of 2009.

So 7 Trillion in wealth that can be invested in the stock market.

Or $23,000 dollars per person. So each if each person could put all this wealth into the stock market at 6% this would yielld $1380 per year per person. This would be the max interest gained on each persons wealth.

But most people wealth is not liquid. This is especially true for people with smaller incomes.

I would guess that maybe 10% would be the upper limit to invest for most peoples budget.

That leaves you with a whopping $138 per year per person.

See what I mean how most people are not protected from inflation?

 

[blackangst1]

Gold is money if there were no legal tender dollars. Things like gold and silver would start to be used as money if there were no fiat money. The only thing keeping gold from being used as money is governments. This is the reason gold is going higher in terms of dollars, both from inflation and the fact that more people are valuing it as money and moving from dollars (or other fiat) into gold.

If there were no fiat money, just about anything could be used as currency. Wheat, corn, anything, really. Im not sure why everyone thinks the world would default to gold...

 

[sarsipias1234]

Huh, examples? And pensions don't fail because of the value of the dollar or the perceived inadequacy of fiat currency. They will fail if they're unrealistic because too much is promised.[/QUOTE]

I'm not sure what I meant about the pensions.

 

[WhipperSnapper]

Alan Greenspan and Ayn Rand, were collaborators, if not lovers for many years.

What? Lovers?!? As far as I know her only extramarital lover was Nathaniel Branden.

 

[matt0611]

If there were no fiat money, just about anything could be used as currency. Wheat, corn, anything, really. Im not sure why everyone thinks the world would default to gold...

Because it has much better properties to be used as money than wheat or corn.

Its very costly to hold your wealth in wheat or corn. It takes up a lot of space (its bulky), it would go bad eventually, its a lot more and harder to transport, there's many different kinds of corn and wheat etc. Back in older times things like this could be used as money (I know tobacco was used as money in colonial times). But nowadays wheat and corn are too abundant that they are not worth that much. You can store a lot more wealth in gold and silver.

Its not 100&#37; but I would bet people would start to revert to using gold and silver and probably other metals too as money.

 

[First]

And First, can you do me a favor and please read the first chapter of America's Great Depression by Murray Rothbard, it's good economic analysis and probably wouldn't offend you too much.

Seeing as Rothbard was a libertarian and had a far different view of copyright, it's available for free.

http://mises.org/resources/694/Americas-Great-Depression

The Austrian school and Murray Rothbard have been debunked many multiple times here, and elsewhere. He's also a race-baiter and I really don't have time for that nonsense. http://www.lewrockwell.com/rothbard/ir/Ch75.html

 

[Rainsford]

I never understood the gold standard arguments. Gold has no more inherent value than dollars do. It looks nice, and has been treated as having value for a long time, but there's little built in reason to value it in the absense of an economy based on using it as a currency. In other words, it has value for almost exactly the same reason pieces of green paper do.

Really the only benefit of gold over paper currency is that you can't just create gold, so the theory goes that you'll avoid all economic problems coming from inflation. Except economic expansion in a gold standard economy suddenly makes the gold more valuable (ie, it's deflationary), which is actually a bigger problem than inflation. Deflation makes the currency itself a sound investment, which means people won't want to spend it or invest it in other things. Which in turn means much less economic growth.

Controlling the rate of inflation, but making sure some level of it happens, is useful for a growing economy. And it's the primary reason we got off the gold standard a long time ago.

 

[matt0611]

I never understood the gold standard arguments. Gold has no more inherent value than dollars do. It looks nice, and has been treated as having value for a long time, but there's little built in reason to value it in the absense of an economy based on using it as a currency. In other words, it has value for almost exactly the same reason pieces of green paper do.

Really the only benefit of gold over paper currency is that you can't just create gold, so the theory goes that you'll avoid all economic problems coming from inflation. Except economic expansion in a gold standard economy suddenly makes the gold more valuable (ie, it's deflationary), which is actually a bigger problem than inflation. Deflation makes the currency itself a sound investment, which means people won't want to spend it or invest it in other things. Which in turn means much less economic growth.

Controlling the rate of inflation, but making sure some level of it happens, is useful for a growing economy. And it's the primary reason we got off the gold standard a long time ago.

Nothing has "inherent" value, all value of things are subjective.
Dollars and other fiat currencies have value because of government legal tender laws and taxes.
Gold has many properties that make people value it as money.

Nixon took us off the gold standard in 71 because we inflated too much to pay for the welfare and warfare state, and the gold was starting to drain out of the US.

The total money in an economy does not limit its growth, its simply a medium of exchange. Its a fallacy to connect the supply of money with the amount of wealth in a society.
The world grew fast in the industrial revolution and we were on a gold standard then, we were on a gold standard in the roaring 20s, the late 40s and 50s, we grew then too.

 

[frostedflakes]

I never understood the gold standard arguments. Gold has no more inherent value than dollars do. It looks nice, and has been treated as having value for a long time, but there's little built in reason to value it in the absense of an economy based on using it as a currency. In other words, it has value for almost exactly the same reason pieces of green paper do.

Really the only benefit of gold over paper currency is that you can't just create gold, so the theory goes that you'll avoid all economic problems coming from inflation. Except economic expansion in a gold standard economy suddenly makes the gold more valuable (ie, it's deflationary), which is actually a bigger problem than inflation. Deflation makes the currency itself a sound investment, which means people won't want to spend it or invest it in other things. Which in turn means much less economic growth.

Controlling the rate of inflation, but making sure some level of it happens, is useful for a growing economy. And it's the primary reason we got off the gold standard a long time ago.

Well even in a slightly deflationary environment, people would still spend their money, just like many people still save their money in an inflationary environment despite the fact that it will be worth far less in 40 years or whatever when they go to retire than it is now. People would still have to buy necessities (food, clothing, energy, etc.), people would still want their big screen TVs and iPhones and other luxuries, people would still invest in businesses and other ventures that offered greater return than just letting their money sit around and appreciate in value, etc. But yes, it would encourage savings over spending and consumption. Considering America's problem with rampant consumption and lack of savings, I don't think that's a terrible thing. Economic growth probably would be lower than the boom years of the dot com bubble and other "successful" periods in our history, but modest and sustainable growth is far better than rapid, unsustainable growth IMO. The growth from credit and monetary expansion is mostly an illusion and is always wiped out when the bubbles burst.