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The Economics Game: Understanding Monetary Policy

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SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: 3chordcharlie
Originally posted by: Dissipate

This short book written by a well known looney-tunes nutjob economist explains why the Fed and central banking is a scam.
fixed;)

The case against central banking is as strong as the one against democracy. But as easy as it is to criticize, a position needs to offer an alternative, and so far, I see none.

Ending central banks requires at a minimum, a viable alternative with either automatic or interventionary control of any defaltion, and excessive inflation to become an actual position.

The gold standard fails spectacularly, and the history of private banks is terrible. In fact, it's half the reason for central banking existing at all (with seniorage being the other half).
Privatizing our money supply is the way to go. Here's one idea, let the $ be a unit of currency. Let banks issue currency denoted by the $ in whichever commodity/thing they wish. Let's say one bank issues a $1 note. This $1 note is a promise by the bank that one can redeem $1 worth of whatever commodity they choose to have their currency backed by.

This will create standardization in the marketplace where all businesses won't have any problems using any currency or doing any math, but they will obviously only accept currencies that are dependable. Basically just decentralizing our current institution, backing our currency by items of value that the market decides, and allowing it to compete. The marketplace will decide the best currency to use and any bank failures won't destroy the entire US economy. Sound like a reasonable idea?
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: Dissipate
Originally posted by: halik

Re-read what I said, we're heading into a bad place because of FISCAL policy (spending on stupid crap like iraq and not financing it through taxes), not MONETARY policy. Even Greenspan was bitching about Bush's wide open wallet limiting his options.

I've do have an issue with nutjobs claiming that FED is stealing their money or that gold standard will fix all of the world's problems.

How could such flagrant spending continue on without a fiat monetary system to support it? Without the Fed the SOBs in Congress wouldn't be able to conjur up trillions of borrowed money for war adventures.

Hyperinflation would not be possible with a commodity backed currency, and it looks like we are heading in that direction right now. Unless you think the government can just print up $54 trillion and spend it without prices going to the moon.
Exactly. Now when the government needs money it will go back to taxing its citizens instead of playing around with our money. The government will once again be held strictly accountable by its taxpayers. People may not understand how the Fed works, but they would sure as hell understand how a big fraction of their paycheck is being spent!
 

halik

Lifer
Oct 10, 2000
25,708
1
0
Originally posted by: SleepWalkerX
Originally posted by: Dissipate
Originally posted by: halik

Re-read what I said, we're heading into a bad place because of FISCAL policy (spending on stupid crap like iraq and not financing it through taxes), not MONETARY policy. Even Greenspan was bitching about Bush's wide open wallet limiting his options.

I've do have an issue with nutjobs claiming that FED is stealing their money or that gold standard will fix all of the world's problems.

How could such flagrant spending continue on without a fiat monetary system to support it? Without the Fed the SOBs in Congress wouldn't be able to conjur up trillions of borrowed money for war adventures.

Hyperinflation would not be possible with a commodity backed currency, and it looks like we are heading in that direction right now. Unless you think the government can just print up $54 trillion and spend it without prices going to the moon.
Exactly. Now when the government needs money it will go back to taxing its citizens instead of playing around with our money. The government will once again be held strictly accountable by its taxpayers. People may not understand how the Fed works, but they would sure as hell understand how a big fraction of their paycheck is being spent!

That's where you're wrong though - we had gold standard and government DID NOT go back to taxing people. It goes back to my original point of libertopian ideas .... it's been tried and it did not work.
 

halik

Lifer
Oct 10, 2000
25,708
1
0
Originally posted by: Dissipate
Originally posted by: halik

Re-read what I said, we're heading into a bad place because of FISCAL policy (spending on stupid crap like iraq and not financing it through taxes), not MONETARY policy. Even Greenspan was bitching about Bush's wide open wallet limiting his options.

I've do have an issue with nutjobs claiming that FED is stealing their money or that gold standard will fix all of the world's problems.

How could such flagrant spending continue on without a fiat monetary system to support it? Without the Fed the SOBs in Congress wouldn't be able to conjur up trillions of borrowed money for war adventures.

Hyperinflation would not be possible with a commodity backed currency, and it looks like we are heading in that direction right now. Unless you think the government can just print up $54 trillion and spend it without prices going to the moon.
Well first of all, the gold standard and the FED are two different things. We've had the FED since 1913 and fiat money since 1972. Government can finance with debt under both the gold standard AND fiat currency . We've had national debt even under gold standard.

Second of all, I would LOOOOVE to hear how the US is heading into hyperinflation, seeing that inlation has been steady at ~3%


 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: halik
Originally posted by: Dissipate
Originally posted by: halik

Re-read what I said, we're heading into a bad place because of FISCAL policy (spending on stupid crap like iraq and not financing it through taxes), not MONETARY policy. Even Greenspan was bitching about Bush's wide open wallet limiting his options.

I've do have an issue with nutjobs claiming that FED is stealing their money or that gold standard will fix all of the world's problems.

How could such flagrant spending continue on without a fiat monetary system to support it? Without the Fed the SOBs in Congress wouldn't be able to conjur up trillions of borrowed money for war adventures.

Hyperinflation would not be possible with a commodity backed currency, and it looks like we are heading in that direction right now. Unless you think the government can just print up $54 trillion and spend it without prices going to the moon.
Well first of all, the gold standard and the FED are two different things. We've had the FED since 1913 and fiat money since 1972. Government can finance with debt under both the gold standard AND fiat currency . We've had national debt even under gold standard.

Second of all, I would LOOOOVE to hear how the US is heading into hyperinflation, seeing that inlation has been steady at ~3%
They forget that the Fed was created to *save* the gold standard and try to add stability to the system which was wrought with instability. The gold standard had been saved several times, most recently by JP Morgan in 1895, after foreign creditors had drained the treasury of almost all of the gold. It took a $200MM loan to get enough gold back into the system, which was organized by Pierpont.

Then they ignore the massive debts under the gold standard, including all of the new deal initiatives, WW2, Korea, and Vietnam.

I would agree with them that the amount of unfunded government liabilities is a massive number and *if* the government uses printed dollars to fund those liabilities then inflation could become hyper inflation. However, that's assuming that those unfunded liabilities aren't funded through taxes, or reduced through cuts *and* the government does fund them through printing dollars rather than selling debt.
 

3chordcharlie

Diamond Member
Mar 30, 2004
9,861
1
81
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
Originally posted by: Dissipate

This short book written by a well known looney-tunes nutjob economist explains why the Fed and central banking is a scam.
fixed;)

The case against central banking is as strong as the one against democracy. But as easy as it is to criticize, a position needs to offer an alternative, and so far, I see none.

Ending central banks requires at a minimum, a viable alternative with either automatic or interventionary control of any defaltion, and excessive inflation to become an actual position.

The gold standard fails spectacularly, and the history of private banks is terrible. In fact, it's half the reason for central banking existing at all (with seniorage being the other half).
Privatizing our money supply is the way to go. Here's one idea, let the $ be a unit of currency. Let banks issue currency denoted by the $ in whichever commodity/thing they wish. Let's say one bank issues a $1 note. This $1 note is a promise by the bank that one can redeem $1 worth of whatever commodity they choose to have their currency backed by.

This will create standardization in the marketplace where all businesses won't have any problems using any currency or doing any math, but they will obviously only accept currencies that are dependable. Basically just decentralizing our current institution, backing our currency by items of value that the market decides, and allowing it to compete. The marketplace will decide the best currency to use and any bank failures won't destroy the entire US economy. Sound like a reasonable idea?
Sounds silly. Any commodity you use to back currency falls into the deflation trap, just like any fiat currency can be inflated invisibly.

We already had a system like you describe. It didn't work!
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
Originally posted by: Nebor
Do you really feel that gold has intrinsic value?

If we lived in a gold standard economy, and the economy was in deep, dark recession, and I came up to you and said, "Hey there, PC Surgeon, I've got these 5 lbs of gold. I'll trade it to you for 7,000 rounds of 5.56mm ammunition, 50 cans of tuna, and 20 rolls of toiletpaper." Would you take that deal?

Of course not. Because gold, outside of making circuits and other highly technical tidbits, has little practical value. I don't see it as much better than fiat money, other than people don't wear rings made of US dollars.
*Sigh*

Gold is always desirable and does indeed have real, sustainable value in modern society, in good times and in bad because its properties make it unrivaled as a common means of exchange and store of wealth. We're not talking about caveman days here, where people only care about food and basic necessities to sustaining life. If you are sitting on a bunch of dollars, and the economy collapses, that paper is going to become as worthless as wood pulp, because paper is a common substance. The only reason it ever had any value was because it was fiat, an intrinsically worthless item made unique in some way and enforced as an official common means of exchange by authority. Subsequently, how in the world do you think that after this happens, people continue to trust payments for goods and services in that paper currency or begin to trade chickens and beaver pelts with each other and treat gold like some worthless hunk of metal? Chickens are far more difficult to transport, require time and resources to upkeep, are perishable. Good luck with your chicken currency, or storing barrels of oil in your backyard. Start assessing gold's properties in comparison to other goods and you'll finally figure out why people have been naturally drawn to it as a common means of exchange (money) and storing wealth, which yes, is something that everyone needs, making gold more than just a lovely trinket.

This thread is seriously depressing. Libertopian? Federal Reserve passed to save the gold standard? Stick a fork in this country, it's done.
 

LegendKiller

Lifer
Mar 5, 2001
18,261
68
86
Originally posted by: BansheeX
Originally posted by: Nebor
Do you really feel that gold has intrinsic value?

If we lived in a gold standard economy, and the economy was in deep, dark recession, and I came up to you and said, "Hey there, PC Surgeon, I've got these 5 lbs of gold. I'll trade it to you for 7,000 rounds of 5.56mm ammunition, 50 cans of tuna, and 20 rolls of toiletpaper." Would you take that deal?

Of course not. Because gold, outside of making circuits and other highly technical tidbits, has little practical value. I don't see it as much better than fiat money, other than people don't wear rings made of US dollars.
*Sigh*

Gold is always desirable and does indeed have real, sustainable value in modern society, in good times and in bad because its properties make it unrivaled as a common means of exchange and store of wealth. We're not talking about caveman days here, where people only care about food and basic necessities to sustaining life. If you are sitting on a bunch of dollars, and the economy collapses, that paper is going to become as worthless as wood pulp, because paper is a common substance. The only reason it ever had any value was because it was fiat, an intrinsically worthless item made unique in some way and enforced as an official common means of exchange by authority. Subsequently, how in the world do you think that after this happens, people continue to trust payments for goods and services in that paper currency or begin to trade chickens and beaver pelts with each other and treat gold like some worthless hunk of metal? Chickens are far more difficult to transport, require time and resources to upkeep, are perishable. Good luck with your chicken currency, or storing barrels of oil in your backyard. Start assessing gold's properties in comparison to other goods and you'll finally figure out why people have been naturally drawn to it as a common means of exchange (money) and storing wealth, which yes, is something that everyone needs, making gold more than just a lovely trinket.

This thread is seriously depressing. Libertopian? Federal Reserve passed to save the gold standard? Stick a fork in this country, it's done.
Gold has no real value, not like a cow or a house, it's nothing more than a market driven commodity that people perceive as valued because others want it. If that stopped then gold would be worthless and when it comes down to it, it could stop just as easily as dollars.

The Fed Reserve Act was put into place because the wild movements of the individual banks under the gold standard *and* the runs on gold which drained treasury.

You can debate monetary theories all you want, but fact is fact and what happened in 1895 on, is fact.
 

3chordcharlie

Diamond Member
Mar 30, 2004
9,861
1
81
Originally posted by: BansheeX
Originally posted by: Nebor
Do you really feel that gold has intrinsic value?

If we lived in a gold standard economy, and the economy was in deep, dark recession, and I came up to you and said, "Hey there, PC Surgeon, I've got these 5 lbs of gold. I'll trade it to you for 7,000 rounds of 5.56mm ammunition, 50 cans of tuna, and 20 rolls of toiletpaper." Would you take that deal?

Of course not. Because gold, outside of making circuits and other highly technical tidbits, has little practical value. I don't see it as much better than fiat money, other than people don't wear rings made of US dollars.
*Sigh*

Gold is always desirable and does indeed have real, sustainable value in modern society, in good times and in bad because its properties make it unrivaled as a common means of exchange and store of wealth. We're not talking about caveman days here, where people only care about food and basic necessities to sustaining life. If you are sitting on a bunch of dollars, and the economy collapses, that paper is going to become as worthless as wood pulp, because paper is a common substance. The only reason it ever had any value was because it was fiat, an intrinsically worthless item made unique in some way and enforced as an official common means of exchange by authority. Subsequently, how in the world do you think that after this happens, people continue to trust payments for goods and services in that paper currency or begin to trade chickens and beaver pelts with each other and treat gold like some worthless hunk of metal? Chickens are far more difficult to transport, require time and resources to upkeep, are perishable. Good luck with your chicken currency, or storing barrels of oil in your backyard. Start assessing gold's properties in comparison to other goods and you'll finally figure out why people have been naturally drawn to it as a common means of exchange (money) and storing wealth, which yes, is something that everyone needs, making gold more than just a lovely trinket.

This thread is seriously depressing. Libertopian? Federal Reserve passed to save the gold standard? Stick a fork in this country, it's done.
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
We already had a system like you describe. It didn't work!
Negative, a gold standard with no central bank is far, far preferable to anything we were doing after 1913. What didn't work was government intervention in the free market via the federal reserve act. And historically, fiat always fails. Have fun with your wheelbarrows full of paper in the coming years. Look at what the Fed is doing now. Bailing out banks who made improper loans with liquidity generated from nothing. No production backs that money, and as it enters the economy, it causes nothing but rising prices via inflation (inflation is too many dollars chasing a finite amount of goods, which makes each dollar worth less and forces suppliers to raise their prices to compensate).

That hurts the people. The justification for their continued existence is based on fixing problems that they themselves create. When the tech stocks collapsed, Greenspan lowered interest rates artificially to 1% for an entire year. This created an artificial demand for real estate, allowing people who had no business getting homes to get them, under the delusion that they were investing in something which would continue to appreciate. They borrowed from that phony equity to finance other expenditures. That is now collapsing, and people are unable or unwilling to pay their mortgages. People are now forced to stop spending money they don't have and many banks are now about to go under for lending money to people who couldn't pay it back. Good thing, right? But wait! Wall Street and economic ignoramuses everywhere see all the red arrows pointing down! No, we can't let nominal values go down, we can't have a slowdown! We can't have a recession! Please, give us one more fix, one more injection! Please, please! The economy depends on consumption, no production! Please!

Dun Duna-naah! Here comes the Fed to remove all future incentive for careful lending by giving free money away to the banks so that they can keep lending to the idiots who bought these homes and prevent them from cutting back on their spending. Know-nothing politicians pat themselves on the back and the complacent American goes back to his spendthrift slumber. Disaster averted, right? But wait, money from nothing has consequences. Money from nothing creates inflation. So while all of the fools who got us into this mess get rewarded, everyone who worked hard obtaining legitimate wealth will now have to pay higher prices on everything due to the inflation caused by the free liquidity. Sorry! But hey, since it's incremental over a longer period of time, and it's not a direct tax, and you know nothing about economics, you won't rise up in protest. You'll think we actually fixed something and next time, you'll be crying out for us to fix it again! Ha ha! We banker folks sure are smart!
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
Nice, thorough rebuttal there. I'd personally ban you for it, since it's pure spam to just post "you're wrong" in a political discussion forum, followed by a backhanded compliment. But, you know, that's just my high expectation.
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
Gold has no real value, not like a cow or a house, it's nothing more than a market driven commodity that people perceive as valued because others want it. If that stopped then gold would be worthless and when it comes down to it, it could stop just as easily as dollars.

The Fed Reserve Act was put into place because the wild movements of the individual banks under the gold standard *and* the runs on gold which drained treasury.

You can debate monetary theories all you want, but fact is fact and what happened in 1895 on, is fact.
Utterly, utterly false and my entire post already explained it. People DEMAND cows to eat them. People DEMAND homes in which to live. Those are also market driven, their value comes from supply and demand. People also DEMAND a common means of exchange, and a way of storing the compensation for all their labor. Gold, because of its aforementioned properties, has served this purpose better than any other substance throughout history, though it has uses in industry as well. Go find out what money is and why we need it and use it in modern society. Your contention that precious metals will become as worthless as dirt is an utter confusion, likely peddled to you by people who really shouldn't be giving economic advice.

As for the Federal Reserve, that is how the program was sold, but that justification itself is invalid and a misunderstanding of historical circumstances. Morgan and Rockefeller both supported a central bank. They wanted cheap credit and an inflated money supply to finance the expansion of their empires. They did, in fact, try to sell this idea using the banking runs as an excuse, and eventually got it passed the day before Christmas when most of congress was at home (it's sort of a gentleman's agreement not to hold votes for important legislation on that day). But if a bank, through their own incompetence and fractional reserves, goes under because of it, that's a good thing. You don't see the government coming in footing the bill for bankrupt businesses with taxpayer money under the pretense of helping the economy, right? Why is this so hard to understand? Why blame gold?
 

halik

Lifer
Oct 10, 2000
25,708
1
0
Originally posted by: BansheeX
Gold has no real value, not like a cow or a house, it's nothing more than a market driven commodity that people perceive as valued because others want it. If that stopped then gold would be worthless and when it comes down to it, it could stop just as easily as dollars.

The Fed Reserve Act was put into place because the wild movements of the individual banks under the gold standard *and* the runs on gold which drained treasury.

You can debate monetary theories all you want, but fact is fact and what happened in 1895 on, is fact.
Utterly, utterly false and my entire post already explained it. People DEMAND cows to eat them. People DEMAND homes in which to live. Those are also market driven, their value comes from supply and demand. People also DEMAND a common means of exchange, and a way of storing the compensation for all their labor. Gold, because of its aforementioned properties, has served this purpose better than any other substance throughout history, though it has uses in industry as well. Go find out what money is and why we need it and use it in modern society. Your contention that precious metals will become as worthless as dirt is an utter confusion, likely peddled to you by people who really shouldn't be giving economic advice.

As for the Federal Reserve, that is how the program was sold, but that justification itself is invalid and a misunderstanding of historical circumstances. Morgan and Rockefeller both supported a central bank. They wanted cheap credit and an inflated money supply to finance the expansion of their empires. They did, in fact, try to sell this idea using the banking runs as an excuse, and eventually got it passed the day before Christmas when most of congress was at home (it's sort of a gentleman's agreement not to hold votes for important legislation on that day). But if a bank, through their own incompetence and fractional reserves, goes under because of it, that's a good thing. You don't see the government coming in footing the bill for bankrupt businesses with taxpayer money under the pretense of helping the economy, right? Why is this so hard to understand? Why blame gold?
What he's trying to point out is that posession gold creates NO utility (outside the small use for medical and jewelry). It's value is based solely on market forces, as it is useless for all other purposes.
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
It's minor utility is of no minor significance in becoming a monetized metal:

The gold standard is a monetary system which, unlike the regime of irredeemable currency, is free of coercion. Its main significance is not to be found in the stabilization of prices, which is neither possible nor desirable, but in the stabilization of interest rates.

A gold standard is established when the unit of currency, or standard of value, is defined by the Constitution as a definite weight of gold of definite fineness. All other forms of currency are then redeemable in gold on demand at the statutory rate. To be effective, a gold standard must have a paraphernalia such as the standard gold coin, minted free of charge (exclusive of the cost of refining) at the Mint in unlimited quantities on the account of anyone tendering the metal. Furthermore, owners of the gold coins of the realm may hoard them, melt them, export them freely without penalty or the threat thereof. This right is part of the right to own property which cannot be curtailed, abrogated, or summarily suspended without due processes of law. It should be noted that, although the right of owning property in general may be subject to limitations and could be suspended temporarily in case of extreme emergency (a typical example is the ownership of grain in a town under enemy siege), gold is explicitly exempted from this provision. A shortage of gold, unlike a shortage of grain, never gives rise to an emergency. The consumption of gold is mostly in the arts and jewelry, and is never for the satisfaction of the most urgent needs of society. A shortage of gold is always a symptom of mismanagement of the credit system by the banks, usually under the sponsorship of the government. If gold is in short supply, it simply means that individual citizens and creditors of the government are dissatisfied with credit policy. Hoarding gold is the only way they can protest effectively. They will release gold in their control as soon as they have been persuaded that the banks and the government mend their ways and they will keep their promises to pay. They will keep their sight liabilities within the limits of their quick assets. They will create no debts without seeing clearly how these debts can be paid. A shortage of gold, therefore, is not a real shortage and can be ended quickly through corrective measures in bank and government credit policies. The Constitution and the legal system should recognize this by specifically exempting gold from arbitrary seizure under sections of the legal code governing eminent domain.

The gold standard has been criticized for reasons of variation in the exchange value of gold. Critics have charged that gold is not sufficiently stable to serve as the standard of value. To assess this charge we must observe that variations in the exchange value of gold during the past 500 years were the result of the over-issue of fiduciary media redeemable in gold. In the absence of this abuse the exchange value of gold would have conformed to its intrinsic value governed by gold's marginal utility. Gold was promoted to the status of a monetary metal by the markets over thousands of years of evolution that has made the marginal utility of gold as nearly constant as possible (while the marginal utility of other goods is subject to steep decline, more or less. No other commodity would be more stable when used as money. Least stable is the irredeemable currency based on debt. We may therefore conclude that if the exchange value of gold appears undermined, the culprit is to be found in the unwarranted issue of fiduciary media by the banks under the sponsorship of the government. Moreover, this abuse takes the form of illicit interest arbitrage as we have seen in this course (Lectures 11 and 12). The criticism must be re-directed from gold to the legal system of the country, which has failed to outlaw illicit interest arbitrage and borrowing short to lend long.

There is, therefore, need to re-define a gold standard in such a way that these credit abuses by the banks under the protection of the government are eliminated. In particular, the exemption of banks from the full penalty under contract law for breach of contract (including the right of creditors to sue for liquidation), and the double accounting standard aiding and abetting banks guilty of understating liabilities and overstating assets, must be abolished. The definition of the unadulterated gold standard must stipulate the removal of all special privileges for the banks. It was these privileges that allowed banks to carry on business as usual after they have defaulted on their promises to pay gold to their depositors. It was these privileges that have let banks borrow short to lend long. It was these privileges that made it possible for them to milk society through the practice of illicit interest arbitrage. The very idea that banks may be allowed to suspend payments in gold coin and continue in business is preposterous. The gold coin is there, in the first place, to protect the bank's creditors against unsound credit practices. Legalizing suspension is tantamount to condoning the practice of declaring bankruptcy fraudulently, and to confirming the thief in the possession of stolen goods. At any rate, legal protection of banks against the legitimate claims of creditors rewards incompetence and fraudulent behavior while penalizing competence and integrity. With such a code, problems will never be solved, only compounded.
Source:

http://www.silverbearcafe.com/...ate/unadulterated.html
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: BansheeX
Gold has no real value, not like a cow or a house, it's nothing more than a market driven commodity that people perceive as valued because others want it. If that stopped then gold would be worthless and when it comes down to it, it could stop just as easily as dollars.

The Fed Reserve Act was put into place because the wild movements of the individual banks under the gold standard *and* the runs on gold which drained treasury.

You can debate monetary theories all you want, but fact is fact and what happened in 1895 on, is fact.
Utterly, utterly false and my entire post already explained it. People DEMAND cows to eat them. People DEMAND homes in which to live. Those are also market driven, their value comes from supply and demand. People also DEMAND a common means of exchange, and a way of storing the compensation for all their labor. Gold, because of its aforementioned properties, has served this purpose better than any other substance throughout history, though it has uses in industry as well. Go find out what money is and why we need it and use it in modern society. Your contention that precious metals will become as worthless as dirt is an utter confusion, likely peddled to you by people who really shouldn't be giving economic advice.

As for the Federal Reserve, that is how the program was sold, but that justification itself is invalid and a misunderstanding of historical circumstances. Morgan and Rockefeller both supported a central bank. They wanted cheap credit and an inflated money supply to finance the expansion of their empires. They did, in fact, try to sell this idea using the banking runs as an excuse, and eventually got it passed the day before Christmas when most of congress was at home (it's sort of a gentleman's agreement not to hold votes for important legislation on that day). But if a bank, through their own incompetence and fractional reserves, goes under because of it, that's a good thing. You don't see the government coming in footing the bill for bankrupt businesses with taxpayer money under the pretense of helping the economy, right? Why is this so hard to understand? Why blame gold?
Impressive posts. Informative and to the point.

The deciding factor here though is the human aspect. Regardless of which currency is used, it will always be in danger of human greed. How can you stop this from happening? IMO you cannot, no matter which monetary policy you choose it will fail in time.

In golds defense I can see where it gives people more power over government because it limits government expenditures to the amount of gold on hand which means there would have to be a direct tax instead of an "inflation tax" as you have mentioned. I feel we would have a lot less worthless programs and a lot less wars were we on the gold standard.

I lean towards gold as the standard for currency but its nearly impossible to implement that now. Unless of course we have a repeat of the Wiemar Republic and then people may be more willing to accept it. Until then though, we will have to deal with what we have and make the best of a sinking ship.
 

halik

Lifer
Oct 10, 2000
25,708
1
0
Originally posted by: BansheeX
It's minor utility is of no minor significance in becoming a monetized metal:

The gold standard is a monetary system which, unlike the regime of irredeemable currency, is free of coercion. Its main significance is not to be found in the stabilization of prices, which is neither possible nor desirable, but in the stabilization of interest rates.

A gold standard is established when the unit of currency, or standard of value, is defined by the Constitution as a definite weight of gold of definite fineness. All other forms of currency are then redeemable in gold on demand at the statutory rate. To be effective, a gold standard must have a paraphernalia such as the standard gold coin, minted free of charge (exclusive of the cost of refining) at the Mint in unlimited quantities on the account of anyone tendering the metal. Furthermore, owners of the gold coins of the realm may hoard them, melt them, export them freely without penalty or the threat thereof. This right is part of the right to own property which cannot be curtailed, abrogated, or summarily suspended without due processes of law. It should be noted that, although the right of owning property in general may be subject to limitations and could be suspended temporarily in case of extreme emergency (a typical example is the ownership of grain in a town under enemy siege), gold is explicitly exempted from this provision. A shortage of gold, unlike a shortage of grain, never gives rise to an emergency. The consumption of gold is mostly in the arts and jewelry, and is never for the satisfaction of the most urgent needs of society. A shortage of gold is always a symptom of mismanagement of the credit system by the banks, usually under the sponsorship of the government. If gold is in short supply, it simply means that individual citizens and creditors of the government are dissatisfied with credit policy. Hoarding gold is the only way they can protest effectively. They will release gold in their control as soon as they have been persuaded that the banks and the government mend their ways and they will keep their promises to pay. They will keep their sight liabilities within the limits of their quick assets. They will create no debts without seeing clearly how these debts can be paid. A shortage of gold, therefore, is not a real shortage and can be ended quickly through corrective measures in bank and government credit policies. The Constitution and the legal system should recognize this by specifically exempting gold from arbitrary seizure under sections of the legal code governing eminent domain.

The gold standard has been criticized for reasons of variation in the exchange value of gold. Critics have charged that gold is not sufficiently stable to serve as the standard of value. To assess this charge we must observe that variations in the exchange value of gold during the past 500 years were the result of the over-issue of fiduciary media redeemable in gold. In the absence of this abuse the exchange value of gold would have conformed to its intrinsic value governed by gold's marginal utility. Gold was promoted to the status of a monetary metal by the markets over thousands of years of evolution that has made the marginal utility of gold as nearly constant as possible (while the marginal utility of other goods is subject to steep decline, more or less. No other commodity would be more stable when used as money. Least stable is the irredeemable currency based on debt. We may therefore conclude that if the exchange value of gold appears undermined, the culprit is to be found in the unwarranted issue of fiduciary media by the banks under the sponsorship of the government. Moreover, this abuse takes the form of illicit interest arbitrage as we have seen in this course (Lectures 11 and 12). The criticism must be re-directed from gold to the legal system of the country, which has failed to outlaw illicit interest arbitrage and borrowing short to lend long.

There is, therefore, need to re-define a gold standard in such a way that these credit abuses by the banks under the protection of the government are eliminated. In particular, the exemption of banks from the full penalty under contract law for breach of contract (including the right of creditors to sue for liquidation), and the double accounting standard aiding and abetting banks guilty of understating liabilities and overstating assets, must be abolished. The definition of the unadulterated gold standard must stipulate the removal of all special privileges for the banks. It was these privileges that allowed banks to carry on business as usual after they have defaulted on their promises to pay gold to their depositors. It was these privileges that have let banks borrow short to lend long. It was these privileges that made it possible for them to milk society through the practice of illicit interest arbitrage. The very idea that banks may be allowed to suspend payments in gold coin and continue in business is preposterous. The gold coin is there, in the first place, to protect the bank's creditors against unsound credit practices. Legalizing suspension is tantamount to condoning the practice of declaring bankruptcy fraudulently, and to confirming the thief in the possession of stolen goods. At any rate, legal protection of banks against the legitimate claims of creditors rewards incompetence and fraudulent behavior while penalizing competence and integrity. With such a code, problems will never be solved, only compounded.
Source:

http://www.silverbearcafe.com/...ate/unadulterated.html
You're citing a site that has a huge picture of Ron Paul on the cover and features such gems as "The Illuminati and the House of Rothschild". Take that garbage elsewhere please, we'd like to keep this an intellectual debate.
 

extra

Golden Member
Dec 18, 1999
1,949
6
81
As some people have pointed out, it isn't the money system per say that creates inflation. There could still be high inflation in a gold based economy, it would just work differently.

The problem we are having now is *not* due to our money system. Although it does have flaws. The problem we are having now has to due with a gigantic shift in the way our debt in this country is held, and an unsustainable amount of debt held by our citizens and government.

In the 70's 80's and to some extent the 90's much of the government's debt was essential owed to us. Now much of our government's debt is owed to other countries. This is a big difference that people do not realize. The national debt isn't all about how big it is--much of it is about who we owe it to.

The other reason our economy is crumbling is that the middle class is shrinking and real wages are declining for most americans.

Hopefully this will start to change, but likely it will not.

However a move to a gold-based system would not change anything regarding to wages. It would not help re-create a strong middle class in this country.
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
Originally posted by: Dissipate

This short book written by a well known looney-tunes nutjob economist explains why the Fed and central banking is a scam.
fixed;)

The case against central banking is as strong as the one against democracy. But as easy as it is to criticize, a position needs to offer an alternative, and so far, I see none.

Ending central banks requires at a minimum, a viable alternative with either automatic or interventionary control of any defaltion, and excessive inflation to become an actual position.

The gold standard fails spectacularly, and the history of private banks is terrible. In fact, it's half the reason for central banking existing at all (with seniorage being the other half).
Privatizing our money supply is the way to go. Here's one idea, let the $ be a unit of currency. Let banks issue currency denoted by the $ in whichever commodity/thing they wish. Let's say one bank issues a $1 note. This $1 note is a promise by the bank that one can redeem $1 worth of whatever commodity they choose to have their currency backed by.

This will create standardization in the marketplace where all businesses won't have any problems using any currency or doing any math, but they will obviously only accept currencies that are dependable. Basically just decentralizing our current institution, backing our currency by items of value that the market decides, and allowing it to compete. The marketplace will decide the best currency to use and any bank failures won't destroy the entire US economy. Sound like a reasonable idea?
Sounds silly. Any commodity you use to back currency falls into the deflation trap, just like any fiat currency can be inflated invisibly.

We already had a system like you describe. It didn't work!
Banks that over extend credit fall into the deflation trap. Any bank can fail just like the Central Bank can fail. The point is to spread out any failures so it doesn't destroy the entire US economy. That would be ideal, no?

Plus, if we decentralize our banks they would compete with each other. Each bank would essentially be competing with each other for customers ensuring strict business practices to remain in business. ie, if one bank's currency is being devalued, is about to fail, or perhaps the customer only wants to put his trust in a bank that does not practice fractional reserve lending then he can easily chose another bank that does better business.

We have never had a system like I've described. We've always had fiat money whether it be gold, silver, paper/debt, etc. I don't think you understand how radically different this idea is. I've been reading up on some proposals from Hayek and one day it just clicked and made sense. :)
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: halik
Originally posted by: SleepWalkerX
Originally posted by: Dissipate
Originally posted by: halik

Re-read what I said, we're heading into a bad place because of FISCAL policy (spending on stupid crap like iraq and not financing it through taxes), not MONETARY policy. Even Greenspan was bitching about Bush's wide open wallet limiting his options.

I've do have an issue with nutjobs claiming that FED is stealing their money or that gold standard will fix all of the world's problems.

How could such flagrant spending continue on without a fiat monetary system to support it? Without the Fed the SOBs in Congress wouldn't be able to conjur up trillions of borrowed money for war adventures.

Hyperinflation would not be possible with a commodity backed currency, and it looks like we are heading in that direction right now. Unless you think the government can just print up $54 trillion and spend it without prices going to the moon.
Exactly. Now when the government needs money it will go back to taxing its citizens instead of playing around with our money. The government will once again be held strictly accountable by its taxpayers. People may not understand how the Fed works, but they would sure as hell understand how a big fraction of their paycheck is being spent!

That's where you're wrong though - we had gold standard and government DID NOT go back to taxing people. It goes back to my original point of libertopian ideas .... it's been tried and it did not work.
What are you talking about? It was tried and it did work. When people realized how much the government had inflated the dollar they began to trade the dollar back for their gold. Don't blame the gold, it had worth. Blame the government for creating the bubble that busted in to the Great Depression.
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: LegendKiller
Originally posted by: BansheeX
Originally posted by: Nebor
Do you really feel that gold has intrinsic value?

If we lived in a gold standard economy, and the economy was in deep, dark recession, and I came up to you and said, "Hey there, PC Surgeon, I've got these 5 lbs of gold. I'll trade it to you for 7,000 rounds of 5.56mm ammunition, 50 cans of tuna, and 20 rolls of toiletpaper." Would you take that deal?

Of course not. Because gold, outside of making circuits and other highly technical tidbits, has little practical value. I don't see it as much better than fiat money, other than people don't wear rings made of US dollars.
*Sigh*

Gold is always desirable and does indeed have real, sustainable value in modern society, in good times and in bad because its properties make it unrivaled as a common means of exchange and store of wealth. We're not talking about caveman days here, where people only care about food and basic necessities to sustaining life. If you are sitting on a bunch of dollars, and the economy collapses, that paper is going to become as worthless as wood pulp, because paper is a common substance. The only reason it ever had any value was because it was fiat, an intrinsically worthless item made unique in some way and enforced as an official common means of exchange by authority. Subsequently, how in the world do you think that after this happens, people continue to trust payments for goods and services in that paper currency or begin to trade chickens and beaver pelts with each other and treat gold like some worthless hunk of metal? Chickens are far more difficult to transport, require time and resources to upkeep, are perishable. Good luck with your chicken currency, or storing barrels of oil in your backyard. Start assessing gold's properties in comparison to other goods and you'll finally figure out why people have been naturally drawn to it as a common means of exchange (money) and storing wealth, which yes, is something that everyone needs, making gold more than just a lovely trinket.

This thread is seriously depressing. Libertopian? Federal Reserve passed to save the gold standard? Stick a fork in this country, it's done.
Gold has no real value, not like a cow or a house, it's nothing more than a market driven commodity that people perceive as valued because others want it. If that stopped then gold would be worthless and when it comes down to it, it could stop just as easily as dollars.

The Fed Reserve Act was put into place because the wild movements of the individual banks under the gold standard *and* the runs on gold which drained treasury.

You can debate monetary theories all you want, but fact is fact and what happened in 1895 on, is fact.
That's the problem with using government to fix problems that can be traced back to the government. Eventually, you won't be able to use the government to fix the problem (unless you give them control over the entire economy! I wonder what kind of system we'd have then..).
 

SleepWalkerX

Platinum Member
Jun 29, 2004
2,650
0
0
Originally posted by: 3chordcharlie
Originally posted by: BansheeX
Originally posted by: Nebor
Do you really feel that gold has intrinsic value?

If we lived in a gold standard economy, and the economy was in deep, dark recession, and I came up to you and said, "Hey there, PC Surgeon, I've got these 5 lbs of gold. I'll trade it to you for 7,000 rounds of 5.56mm ammunition, 50 cans of tuna, and 20 rolls of toiletpaper." Would you take that deal?

Of course not. Because gold, outside of making circuits and other highly technical tidbits, has little practical value. I don't see it as much better than fiat money, other than people don't wear rings made of US dollars.
*Sigh*

Gold is always desirable and does indeed have real, sustainable value in modern society, in good times and in bad because its properties make it unrivaled as a common means of exchange and store of wealth. We're not talking about caveman days here, where people only care about food and basic necessities to sustaining life. If you are sitting on a bunch of dollars, and the economy collapses, that paper is going to become as worthless as wood pulp, because paper is a common substance. The only reason it ever had any value was because it was fiat, an intrinsically worthless item made unique in some way and enforced as an official common means of exchange by authority. Subsequently, how in the world do you think that after this happens, people continue to trust payments for goods and services in that paper currency or begin to trade chickens and beaver pelts with each other and treat gold like some worthless hunk of metal? Chickens are far more difficult to transport, require time and resources to upkeep, are perishable. Good luck with your chicken currency, or storing barrels of oil in your backyard. Start assessing gold's properties in comparison to other goods and you'll finally figure out why people have been naturally drawn to it as a common means of exchange (money) and storing wealth, which yes, is something that everyone needs, making gold more than just a lovely trinket.

This thread is seriously depressing. Libertopian? Federal Reserve passed to save the gold standard? Stick a fork in this country, it's done.
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
 

BansheeX

Senior member
Sep 10, 2007
348
0
0
You're citing a site that has a huge picture of Ron Paul on the cover and features such gems as "The Illuminati and the House of Rothschild". Take that garbage elsewhere please, we'd like to keep this an intellectual debate.
Here is a better source. I believe it was written by Professor Antal E. Fekete with references to Benjamin M. Anderson, an accomplished Austrian economist. Don't disregard or imply falsity of something by associating it with the other opinions of those who are citing it. That's a complete cop-out and diversion. In fact, you don't even want to disregard the merit of something based on other opinions of the source. If the KKK supports free speech, that doesn't make free speech wrong. Address what's being said on its own merits, please.

http://professorfekete.com/art...onEcon101Lecture13.pdf

His post seems pretty spot on to me. How is he wrong?
People who support socialist policies like a central bank often do so with a very selective and narrow mindset. Keynesian nonsense is easily debunked provided you have the capacity and knowledge to do it. There's a lot of misinformation out there. My fear is that when we finally pay the piper with all this borrow and spend nonsense, perhaps in the form of a hyperinflationary depression, the blame will be placed on capitalism and the sale of even larger and more interventionist government will be peddled to the American people, further dissolving the ideas and practices that once saw a carpenter's wage capable of supporting seven children. The economic standard of living in this country has actually decreased since 19th century America, but technological progress tends to make people think the opposite.
 

3chordcharlie

Diamond Member
Mar 30, 2004
9,861
1
81
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,716
6
76
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
I would say neither gold or fiat is a system that works beyond the greed of men. Sad really, but I cannot see anything else that could take their place and remove that factor. So in short, the Gold standard is no better nor worse than fiat.
 

rchiu

Diamond Member
Jun 8, 2002
3,850
0
0
Originally posted by: PC Surgeon
Originally posted by: 3chordcharlie
Originally posted by: SleepWalkerX
Originally posted by: 3chordcharlie
You waited 6 months to make your first post... and still managed to be wrong!

Nice!

At least your spelling is pretty good.
His post seems pretty spot on to me. How is he wrong?
He is wrong for the same reason that everyone who supports a gold standard is wrong.

For all the myriad arguments about whether gold has any actual value, etc, the gold standard fails for being deflationary. It doesn't need any other destabilizing failures to be a bad idea.

edit - broke the quotes
I would say neither gold or fiat is a system that works beyond the greed of men. Sad really, but I cannot see anything else that could take their place and remove that factor. So in short, the Gold standard is no better nor worse that fiat.
You are correct in saying both are just instrument of people and it's up to people how it will be used. But you are wrong saying one is no better or worse. Gold standard is like a box cutter and fiat system is like a semi-auto weapons. Gold standard is very limited and you cannot do too much with it. Fiat is much more powerful and with it, there are many more ways to defend the economy or boost the economy when it is necessary.

What you don't understand that most of the time, the problem with the Economy is unrelated to the monetary system we use. There are business cycle,there are wars, there are natural disasters, and many others that can have huge impact on the economy. Monetary system is there so we can use it to do something about the economy when necessary. We need a powerful and flexible monetary system, not an ancient, inflexible one for today's economy.
 

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