Why do so many people oppose hard money when the government never allowed it to work?

[ShawnD1]

I'm not talking about banks being allowed to loan out peoples' deposits, I'm talking about them loaning out their own money, that they get for storing peoples' money, for example.

And a money manager could take care of loaning out peoples' savings.

If this were to happen, the cost of having a bank account would go waaaaaaay up. Right now I pay $0 for a bank account. What you're suggesting is a lot more like an investment trading account where a single stock purchase is $10. Can you imagine debit cards having a $5 or $10 transaction fee? The problem with this is that the economy is driven by spending. Anything to discourage spending is bad for the economy.

The other issue is that clamping down on the amount of money that can be lended would drive interest rates up a lot. With our current system, the pool of money to borrow is enormous, so borrowing money for something like a car can be had for maybe 2.9% interest. If there's a hard physical limit on how much money can be borrowed then you could expect that interest rate to be more like 10-20% and people only be able to borrow small amounts of money (because 20% interest on a large debt would be impossible to pay back).

 

[Anarchist420]

That's true that interest rates would be higher, but people would borrow less, and saving would help. The artificially low interest rates are just that--artificial. Besides, when the interest rates get too low and inflation rears its ugly head, the interest rates go up and they could reach 20%.

And economies aren't driven just by spending.

 

[ShawnD1]

but people would borrow less, and saving would help.

What happens when the car you need to get to work finally dies? Right now, you can bite the bullet and borrow some money for a replacement. Under a credit crunch, it's not that easy. When there's a lack of credit, small problems quickly turn into huge problems.

And economies aren't driven just by spending.

For the most part, they are. Canada never really had a housing crash like the US did, but Canada's economy is still way down because Americans are spending less. We all do our jobs because someone is willing to pay for the work to be done. When people decide they don't want new cars, people who make cars lose their jobs. When people no longer want to spend money on movies, people who make movies lose their jobs.

Putting a hard limit on currency makes the system too rigid. When people run out of hard money, they can't buy anymore, and that means I can't get paid to produce more. A system like that always has a sort of lag to it. I can't get paid until a client has money and they don't have money until someone else gives them money and that person doesn't have money until...

 

[piasabird]

What the hell is hard money?

 

[ShawnD1]

What the hell is hard money?

http://lmgtfy.com/?q=what+is+hard+money

 

[Siddhartha]

Not really true. China had paper currency a very long time ago. Don't recall how far back, but it was well over 1000 years ago.

I will change my post on this.

 

[Thump553]

Governments never allowed hard money? Hah. OP you need to go back to the Dark Ages and other primitive societies when there was nothing but so-called hard money and barter. I often wonder if that is the sort of world you truly desire given your past posts.

BTW, piasbird had an excellent question that deserves a serious answer. Specifically what specific commodity would be a concrete and unwavering basis of monetary value. Through the ages societies have been based on many types of hard money, from gold, silver, seashells and salt, among many others. Ultimately the true value of money is the general perception of its value.

 

[Siddhartha]

So what is so desirable about gold? Why does the OP keep starting these threads about gold?

 

[ShawnD1]

So what is so desirable about gold? Why does the OP keep starting these threads about gold?

Gold is a good form of money because it's in very short supply. In the old days, the reason for having gold coins was because a single gold coin had a lot of value, sort of like an SOJ. If a more abundant material is used for money, then the material has less value per unit. Instead of buying a loaf of bread with 1 gold coin, you would need two arm fulls of iron. Not only do you need to carry around all this iron, but you need to store it somewhere. Abundant currencies are wildly impractical like that.

Gold is also a good currency because it's almost useless and can be held in reserve. Using something like copper as currency would totally fuck up the price of things like house wires or batteries. Using gold as currency doesn't change anything because gold doesn't do anything. It's good for oxidation resistant coatings on top of copper conductors and I think it's found in microprocessors, but that's about it.

Now that we use bank notes, only the second point would apply. Bank notes saying they are worth X amount of copper or X amount of iron would screw up commodity prices. Requiring something like 100% reserve banking would mean billions or trillions of dollars of iron and copper would need to be kept in storage and not used, which is a total waste. Using a useful metal as currency also means that the value of the currency itself fluctuates a lot depending on what that metal does. For something like copper, a surge of copper demand for wiring would mean the value of money itself would increase dramatically; major deflation. That kind of deflation can have severe effects on the market as a whole.


All of the above is why money systems often use something that is of little or no usable value. Gold does almost nothing. Some tribes use feathers as money, and those feathers do nothing. Some tribes use sea shells which are basically useless. Useless things like paper money are the best kinds of money because they are not as strongly affected by commodity demand.

 

[Darwin333]

That's true that interest rates would be higher, but people would borrow less, and saving would help. The artificially low interest rates are just that--artificial. Besides, when the interest rates get too low and inflation rears its ugly head, the interest rates go up and they could reach 20%.

And economies aren't driven just by spending.

Aaaand you just nuked the entire economy and bankrupted the Federal government. Thanks for playing.

And to simplify why a commodity based money would be a bad idea, consider the following:

Would you support a monetary system in todays world that was based on diamonds instead of gold?

 

[werepossum]

I would love a hard currency; I just can't see any practical basis for it. There's simply not enough valuable material - gold and silver are valued primarily for their scarcity, after all. Constraining a hard currency means constraining your economy, and it's still not immune to inflation; mine 10% more gold and gold - everyone's gold - becomes 10% less valuable. It can also just drop; gold is valuable primarily because we all agree it's valuable.

100% reserve banking on the other hand is lunacy in my opinion. The rate of investment, the primary means of wealth building, would slow to a crawl. You might not be in danger of losing your savings, but neither would you be able to afford to start or expand a business.

 

[Siddhartha]

I would love a hard currency; I just can't see any practical basis for it. There's simply not enough valuable material - gold and silver are valued primarily for their scarcity, after all. Constraining a hard currency means constraining your economy, and it's still not immune to inflation; mine 10% more gold and gold - everyone's gold - becomes 10% less valuable. It can also just drop; gold is valuable primarily because we all agree it's valuable.

100% reserve banking on the other hand is lunacy in my opinion. The rate of investment, the primary means of wealth building, would slow to a crawl. You might not be in danger of losing your savings, but neither would you be able to afford to start or expand a business.

Maybe the OP advocating a gold based economy and 100% reserve banking has more to do with his desire to get rid of the Federal Reserve and Central banking than any thing else.

 

[Darwin333]

I would love a hard currency; I just can't see any practical basis for it. There's simply not enough valuable material - gold and silver are valued primarily for their scarcity, after all. Constraining a hard currency means constraining your economy, and it's still not immune to inflation; mine 10% more gold and gold - everyone's gold - becomes 10% less valuable. It can also just drop; gold is valuable primarily because we all agree it's valuable.

Why not use diamonds instead of gold and silver?

100% reserve banking on the other hand is lunacy in my opinion. The rate of investment, the primary means of wealth building, would slow to a crawl. You might not be in danger of losing your savings, but neither would you be able to afford to start or expand a business.

Completely agree.

 

[Anarchist420]

Aaaand you just nuked the entire economy and bankrupted the Federal government. Thanks for playing.

And to simplify why a commodity based money would be a bad idea, consider the following:

Would you support a monetary system in todays world that was based on diamonds instead of gold?

Yes, because you could halve the diamond. What ever the market demands works best. Centralization never works.

 

[silverpig]

Why not use diamonds instead of gold and silver?



Completely agree.

You can easily grow diamond. You can't really make more gold unless you have an LHC and even then, you only produce atoms of it.

 

[Darwin333]

You can easily grow diamond. You can't really make more gold unless you have an LHC and even then, you only produce atoms of it.

First of all I wouldn't say "growing" a diamond was exactly easy.

However, you missed my point. Currently the value, market, supply, etc of diamonds is pretty much controlled by a single entity. They could easily devalue diamonds by 50% if they wanted to and they have had that control for much longer than we have had the technology to make them in the lab.

Other commodities aren't much different. A few people or companies or banks or governments can quite easily manipulate the value of any single commodity whenever the hell they want. You have shithole countries that mine a ton of gold that can be manipulated even easier and the fact remains that most of the gold mined is done so outside of the United States . Hell, we don't even like mining here so I highly doubt to see our gold production increase.

I don't like the current actions of the Fed and I would love nothing more than to see them audited. With that said, taking control of our currency out of the Feds hands and putting it into the hands of shithole countries, another "rich country", or anybodys hands that is entirely outside of our own border and control is flat out retarded. FFS, look at what they claim speculators did to the value of oil and its ups and downs, are yall really saying that is what you want our currency to be like? Look at gold itself, the goldbugs love to talk about how it has been outperforming the market and everything else but it has risen well above the rate of inflation. The current value of gold is well above historical norms which kinda throws "stable" out of the window.

 

[ShawnD1]

Why not use diamonds instead of gold and silver?

Because diamonds are made from carbon which is one of the most abundant elements in the universe.
http://moneycentral.msn.com/content/savinganddebt/p97816.asp (firefox users will need to scroll to the right because the person who made this website is a retard)

most of the gold mined is done so outside of the United States

This is a major problem. When a country cannot control its own currency supply, problems cannot be inflated away. Everything gets worse and worse. As much as inflation sucks, it's a critically important part of maintaining stability.

 

[Darwin333]

Yes, because you could halve the diamond. What ever the market demands works best. Centralization never works.

The diamond market is very "centralized" which was my point. It would be quite easy for anyone or a group of anyones with enough resources to manipulate any commodity that the "market" demanded and if those "anyones" and that commodity are produced outside of our own borders there is fuckall we can do about it. Really really bad idea.

 

[Darwin333]

Because diamonds are made from carbon which is one of the most abundant elements in the universe.
http://moneycentral.msn.com/content/savinganddebt/p97816.asp (firefox users will need to scroll to the right because the person who made this website is a retard)



This is a major problem. When a country cannot control its own currency supply, problems cannot be inflated away. Everything gets worse and worse. As much as inflation sucks, it's a critically important part of maintaining stability.

I was simply trying to make a point about some external entity controlling our currency like DaBeers does with diamonds, evidently I did a poor job of that.

Even worse than not being able to "inflate away" our problems, inflation or deflation can be literally planned and forced upon us by whoever has enough cake and clout. To make it even worse, those people can and will likely be outside of our governments jurisdiction which means we will have absolutely no authority to do anything about it.

 

[sandorski]

One day, some Prospector Space Pilot will find a group of asteroids which contain as much Gold as all the Gold ever mined on Earth. "Poof", goes the Value of Gold.

 

[Cerb]

I'm not talking about banks being allowed to loan out peoples' deposits, I'm talking about them loaning out their own money, that they get for storing peoples' money, for example.

Ah. Then, we reach a point where it is significantly more costly for the user, as there will be a monthly/yearly/etc. fee to keep your money. If there were, and it were loaned out, why would the bank want to let you, who has money in there, earn money from it?

And a money manager could take care of loaning out peoples' savings.

In this scenario, how many years will it take before we are right back at what you don't want, then? From what I see, you are largely advocating a regression, and human nature will just make it bad like it is today.

What you have the in your OP, and what you C&Ped from the dailypaul vary quite a bit. What you C&Ped, FI, can work just fine with fractional reserves, and fiat currency--it's more about separating power, which could go a long way towards stabilizing money the world over.