Oh, no, Ben, no, you really blew it...

[BigDH01]

If you have bargaining power, they do(sometimes, except stagflation, as seems to be the case now), if you are retired/unskilled/... - they don't

I don't know how the gold standard would solve a structural unemployment problem, which is what we likely have here in the US. It's not as if we go to the gold standard and rapidly deflate your employer is going to keep paying you the same amount and let your relative purchasing power skyrocket. If we move to the gold standard you'll probably enjoy about the same purchasing power you enjoy now as your wages are determined by supply and demand.

 

[Bitek]

OK, I see what you're talking about now. It really shouldn't be that big of a deal. The value of things change all the time. The amount of gold in circulation would also slightly increase every year to help offset the deflation. Its natural for the price of things to fall as they get cheaper to produce. Throughout the the 1800s there was a deflationary environment. 1 oz of gold bought more in 1900 than it did in 1800. I don't see this as that big of a problem as you make it out to be though.

Deflation is a massive problem tho. Some people like to think deflation is great, I can save a dollar now, do nothing and it will be worth more later. => Free money. I win.

One major problem is that it means the real value of your debts is also increasing, while the price of the asset is falling.

EG. In normal inflationary scenario. You bought a house in 1975 for $50000. Your monthly payment of ~$300/mo was a significant portion of your say, $8000 a year annual income. No bother, by 2000, $300/mo is dirt cheap out of your $50000 a year income, and the house (asset) value is $300000.

Deflation:
House: $50K, $300/mo, $8K/yr salary.
25 years later: Still paying $300/mo, but now wage deflation has forced your salary down to $1200/yr. What, you thought your salary would go up?
The house's market value is only say $10000. You are screwed.

Now apply this to real life. Current home asset prices and household debt. Even the National debt. Does it sound better to inflate or deflate? Expand or contract monetary supply?

Play this game again, but instead you are some nut who bought the house for 14 lbs of gold, and agreed to pay an oz/mo for 30 years. How is the debt payments going to feel in 25 yrs if inflation (really asset value fluctuation) was magically set at 0?

This is why the Chairman of the Fed is looking at the Chairman of the Senate Banking Committee like's he's a fking retard.

 

[matt0611]

Sure, the real value of your debt is increasing, but the real value of the money you hold also increases. Theres also gotta be some way to restructure long term loans to minimize or take into account this effect.

The world has survived under delflation before, its really not the end of the world if its only a few percent a year.

 

[Bitek]

Play this game again, but instead you are some nut who bought the house for 14 lbs of gold, and agreed to pay an oz/mo for 30 years. How is the debt payments going to feel in 25 yrs if inflation (really asset value fluctuation) was magically set at 0?

This is why the Chairman of the Fed is looking at the Chairman of the Senate Banking Committee like's he's a fking retard.

Hmmm.. I'm starting to think this is a great investment opportunity. Set up a mortgage company who specializes in selling goldbugs and Paulbots mortgages strictly priced and paid in gold... How much do you think gold will be going for in 2040?

 

[Bitek]

Sure, the real value of your debt is increasing, but the real value of the money you hold also increases. Theres also gotta be some way to restructure long term loans to minimize or take into account this effect.

The world has survived under delflation before, its really not the end of the world if its only a few percent a year.

That only works if you have more cash on hand than debts and you can pay it off before your income deflates. If you are paying off the loan simply from salary, which is decreasing, for a debt is not changing (effectively increasing) you are screwed.

There is a way to restructure the loan you can't pay back. Bankruptcy/default.
How else are you going to convince the creditor not to want all his money back (w/ interest)? Either way your asset is decreasing in price also.

As an aside, this is why so many Euro countries are fked. They don't have their own currency, can't inflate, so must suffer wage deflation against an increasing debt.

 

[halik]

The Bernank believes that central banks hold/trade gold because of the tradition...
And this man is running the most powerful banking organization in the world.

http://www.youtube.com/watch?v=2Dj9v9s9buk&feature=player_embedded

maybe he knows just a tad less than JP Morgan, who said in 1912:"Gold is money. Everything else is credit."

Guy with an Econ phd from a top school versus a robber baron from an era in which half of modern economic theory hasn't been developed.

Ron Paul loonies out in full force I see.

<- also went to Grad school for Econ.

 

[halik]

They also used big rocks. Indians used wampum.

Forgot big round stones, yay Yap!

 

[halik]

That only works if you have more cash on hand than debts and you can pay it off before your income deflates. If you are paying off the loan simply from salary, which is decreasing, for a debt is not changing (effectively increasing) you are screwed.

There is a way to restructure the loan you can't pay back. Bankruptcy/default.
How else are you going to convince the creditor not to want all his money back (w/ interest)? Either way your asset is decreasing in price also.

As an aside, this is why so many Euro countries are fked. They don't have their own currency, can't inflate, so must suffer wage deflation against an increasing debt.

The game theory aspect of this is even worse:

Imagine a risk-free borrower and a lender of 1 gold coin in that scenario and the global output has doubled (thus prices have halved assuming fixed supply in the limit).

As a borrower, I'd like to borrow 1 coin now and repay back 1/2 coin to keep the lender's purchasing power constant. (negative interest)

As a lender, I'm only willing to lend 1 coin if I get repaid back the full coin (negative cost of carry), otherwise I might as well sit on it.

The equilibrium outcome is no one lends, no one borrows.

 

[Trianon]

Guy with an Econ phd from a top school versus a robber baron from an era in which half of modern economic theory hasn't been developed.

Ron Paul loonies out in full force I see.

<- also went to Grad school for Econ.

And it shows how much you learned there... What you experience is first stages of crisis - denial, anger, related to crash of existing, favorable to you status quo. There is a reason why economics is considered a social science.

 

[BigDH01]

And it shows how much you learned there... What you experience is first stages of crisis - denial, anger, related to crash of existing, favorable to you status quo. There is a reason why economics is considered a social science.

So instead you want to punish those with large amounts of capital by pegging that capital to an asset that will cause monetary contraction, instantly generating these same people great returns simply by having had an initial awesome allocation of capital and sitting on mountains of cash.

 

[halik]

And it shows how much you learned there... What you experience is first stages of crisis - denial, anger, related to crash of existing, favorable to you status quo. There is a reason why economics is considered a social science.

Empty response with an ad hominem. Do you have anything of substance to add? Austrian economics has generally been debunked in both academia and professional practice; something about empirical evidence being at odds with the theory.

 

[GaiaHunter]

Deflation is a massive problem tho. Some people like to think deflation is great, I can save a dollar now, do nothing and it will be worth more later. => Free money. I win.

One major problem is that it means the real value of your debts is also increasing, while the price of the asset is falling.

EG. In normal inflationary scenario. You bought a house in 1975 for $50000. Your monthly payment of ~$300/mo was a significant portion of your say, $8000 a year annual income. No bother, by 2000, $300/mo is dirt cheap out of your $50000 a year income, and the house (asset) value is $300000.

Deflation:
House: $50K, $300/mo, $8K/yr salary.
25 years later: Still paying $300/mo, but now wage deflation has forced your salary down to $1200/yr. What, you thought your salary would go up?
The house's market value is only say $10000. You are screwed.

Now apply this to real life. Current home asset prices and household debt. Even the National debt. Does it sound better to inflate or deflate? Expand or contract monetary supply?

Play this game again, but instead you are some nut who bought the house for 14 lbs of gold, and agreed to pay an oz/mo for 30 years. How is the debt payments going to feel in 25 yrs if inflation (really asset value fluctuation) was magically set at 0?

This is why the Chairman of the Fed is looking at the Chairman of the Senate Banking Committee like's he's a fking retard.

What you forget is if you are in a deflationary environment the amount of money you need to spend on food, energy, etc is also going down and if you are in an inflationary environment the amount of money you need for the same things go up.

Additionally I like how deflation means your salary goes down and you lose purchasing power but inflation means you salary goes up and you gain purchasing power.

Are people at Intel being paid less today since their CPUs are much cheaper?

And what happens to an inflationary environment if the interest rates go up? Or are interest rates permanently 0?

I know the FED isn't increasing the interest rates but that is why the US has no growth to speak of and the unemployment remains unchanged or increasing and the trade deficit increases. And that is why nobody is lending money - why lend and get a miserable returns/negative returns when you can buy assets?

Similarly what happens to your house example if the interest rates fall? It is a deflationary environment so no one will want to burrow money since their debt will increase, right? So interest rates will have to fall for people to burrow money and interest is paid to lenders. Investing in assets isn't viable either since they are falling down.

 

[Jaskalas]

Every time gold jumps in price I check to see if the Bernank is speaking somewhere. Its usually a sign that he is. Sure enough today, he was.

Insider trading? I wonder if anyone at the Federal Reserve owns gold.

 

[Trianon]

Empty response with an ad hominem. Do you have anything of substance to add? Austrian economics has generally been debunked in both academia and professional practice; something about empirical evidence being at odds with the theory.

Well, you dismiss the argument by calling opponents "loonies", and expect fair treatment?

"Guy with an Econ phd from a top school" missed/denied signs of trouble for last 7 years, I am sorry, his booksmartness doesn't pass the test anymore. I don't think Austrian economics was properly debunked, more like dismissed by interested parties. "Modern economic theory" is dismissing reality in favor of a model, which makes it fragile and susceptable to risk

 

[GaiaHunter]

I don't know how the gold standard would solve a structural unemployment problem, which is what we likely have here in the US. It's not as if we go to the gold standard and rapidly deflate your employer is going to keep paying you the same amount and let your relative purchasing power skyrocket. If we move to the gold standard you'll probably enjoy about the same purchasing power you enjoy now as your wages are determined by supply and demand.

But apparently inflating your employer so he has to pay you less compared to the price of their goods/services doesn't work either.

 

[BigDH01]

But apparently inflating your employer so he has to pay you less compared to the price of their goods/services doesn't work either.

Inflation would cause my pay to increase as well such that my purchasing power remained roughly the same. Really, the primary effect would be borne by debtors and creditors. Seeing as most people in the US have little to no net wealth, and their largest expense is their home, deflating right now would be absolutely brutal to them as their homes would be decreasing in price, their salaries decreasing in price, but the price of their mortgages would remain the same.

 

[Turin39789]

This just in : Gold People are nuts and it is pointless to conversate with them.

 

[Thump553]

Question for you gold nuts: is there a single country in the world today that is presently on the gold standard? I couldn't turn any up with a quickie google search.

 

[momeNt]

Empty response with an ad hominem. Do you have anything of substance to add? Austrian economics has generally been debunked in both academia and professional practice; something about empirical evidence being at odds with the theory.

Please elaborate.

Also why do you vilify JP Morgan? Did he not successfully get our markets out of the panic of 1907? That very same panic that somehow convinced lawmakers that there will never be another JP Morgan so they created the Federal Reserve to swoop in and avert depressions?

 

[matt0611]

Question for you gold nuts: is there a single country in the world today that is presently on the gold standard? I couldn't turn any up with a quickie google search.

I don't consider myself a" gold nut", I'm more of a government controlled paper money hater. But anyway, no there is no country on the gold standard today.
The US basically took the world off the gold standard by ending the bretton-woods system in 1971 by renigging on our promise to pay gold. (a flawed system which I don't advocate, but better than the system we have now IMO).

Also the US had silver certificates bills and silver coinage up until 1964. We couldn't keep the silver standard because we inflated too much. We dropped the copper standard in 1982 for our pennies and now we can hardly keep the zinc standard for pennies so we'll probably switch to plastic in a few years I'm sure. Quite sad IMO.

I believe the Swiss backed their Franc 40&#37; by gold up until around 2000.
But the answer to your question is no. There are none.

People think gold is nuts because we haven't been on the gold standard in 40 years so it seems weird to people. If we were on a gold standard now people would think fiat paper people were nuts.

 

[GaiaHunter]

Inflation would cause my pay to increase as well such that my purchasing power remained roughly the same. Really, the primary effect would be borne by debtors and creditors. Seeing as most people in the US have little to no net wealth, and their largest expense is their home, deflating right now would be absolutely brutal to them as their homes would be decreasing in price, their salaries decreasing in price, but the price of their mortgages would remain the same.

But homes are already decreasing in value, are they not?

And wages aren't rising, especially for those that lost their jobs.

 

[GaiaHunter]

I don't consider myself a" gold nut", I'm more of a government controlled, paper money hater. But anyway, no there is no country on the gold standard today.
The US basically took the world off the gold standard by ending the bretton-woods system in 1971 by renigging on our promise to pay gold. (a flawed system which I don't advocate, but better than the system we have now IMO).

Actually it isn't event the government. Its the Federal Reserve which is a private bank, and Ben was pretty happy with is $200bn profit yesterday.

I believe the Swiss backed their Franc 40% by gold up until around 2000.
But the answer to your question is no. There are none.

Switzerland is discussing going back to gold standard though.

http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

 

[BigDH01]

But homes are already decreasing in value, are they not?

Yes, but not because of deflation, which would spark even greater losses.

And wages aren't rising, especially for those that lost their jobs.

Yes, people's real purchasing power is decreasing. This isn't because of inflation, this is because pretty much everyone's marginal value is dropping to zero. Deflation isn't going to change the fact that right now there are simply too many people and not enough to do. Do you want to turn this into a discussion about what purpose people serve if we approach post-scarcity?

 

[matt0611]

Actually it isn't event the government. Its the Federal Reserve which is a private bank, and Ben was pretty happy with is $200bn profit yesterday.


Switzerland is discussing going back to gold standard though.

http://www.marketwatch.com/story/swiss-parliament-to-discuss-gold-franc-2011-07-07

Right, they are a "private bank" but they have monopoly privilege of printing the legal tender granted by the government. The President also appoints the people in charge of the Fed. So I consider it pretty much government control of the monetary system.

Good for the Swiss, interesting idea with the parallel currency.

 

[BoberFett]

This just in : Gold People are nuts and it is pointless to conversate with them.

This just in: Nobody is going to "conversate" with you anyway. Try using real words next time.