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Very Hot Topic (More than 25 Replies) The Return to the Gold Standard (Read 536 times)
SkyChief
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Re: The Return to the Gold Standard
Reply #20 - Aug 31st, 2018 at 2:54pm
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Here's a good explanation of why a fiat currency is fine, and we no longer need gold to back the dollar. 

Keynesean economics for dummies.

Economics Professor Stephanie Kelton says that deficit spending is good - government needs to "rev the economic engine" a little by dumping money into the economy.  (LOL)

The goal is not to balance the budget, the goal is to balance the economy

We could try "quantitative easing".    That has a nice ring to it!






  
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JW
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Re: The Return to the Gold Standard
Reply #21 - Aug 31st, 2018 at 4:00pm
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So I've been pretty disturbed this week on Argentina.  That makes three currencies that have collapsed since the tariffs started; Turkey, Venezuela and Argentina (half collapse). 

In searching to figure out the scope (probably less than 1% of world currency so far, but definitely 1000% more than have collapsed in the last decade).  I found this chart.

http://money.visualcapitalist.com/worlds-money-markets-one-visualization-2017/
  
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Snarky Sack
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Re: The Return to the Gold Standard
Reply #22 - Sep 2nd, 2018 at 9:25am
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Snarky Sack wrote on Aug 30th, 2018 at 8:50am:
What's the point of government sitting on huge vaults of gold to back paper?




I was hoping you'd answer that one, Jeff.  If a government announced that it was going to strengthen the currency by backing gold with paper and the people expressed a desire that the gold be coined, why would government want to stick with gold-backed paper?

  

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BobK71
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Re: The Return to the Gold Standard
Reply #23 - Sep 3rd, 2018 at 7:56am
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SkyChief wrote on Aug 31st, 2018 at 2:54pm:
The goal is not to balance the budget, the goal is to balance the economy



How elegant the term 'balanced economy.'  Such a term can have many meanings.  In the minds of the political and financial elites, the specific 'balance' being sought is: stable asset values, gentle and positive inflation, and good innovation and growth to give value to the financial assets issued by the elites.

In short, an environment in which the elites can benefit steadily, if not explosively, by issuing money and debt.

Alas, 'nirvana' is impossible, due to the incentives for the elites to maximize the issuance of money and debt under the modern system.  This has also been shown by the history of recurring financial crises.

Going back to some form of non-state-money standard will probably lessen the suffering due to instability, over the long term.  Still, this would not get to the very bottom of the rigging of the system, which is central planning rather than free markets in money and finance.  And BTW, mainstream economists were unanimously in favor of the gold standard, in contrast to today's economists.  Both groups just happen to say what the elites of their day want(ed) to hear.
  
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BobK71
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Re: The Return to the Gold Standard
Reply #24 - Sep 3rd, 2018 at 8:12am
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Snarky Sack wrote on Sep 2nd, 2018 at 9:25am:
...If a government announced that it was going to strengthen the currency by backing gold with paper and the people expressed a desire that the gold be coined, why would government want to stick with gold-backed paper?


Under a gold standard, encouraging both physical gold (coins) and paper money (redeemable for physical gold at a fixed rate) to circulate allows the elites to receive extra power and wealth from issuing paper.

The system is designed so people won't demand a 100% physical gold circulation.  The mantra during the gold-standard period was 'gold earns no interest,' so much of the money would go into deposits or other debt, anyway.  While the gold standard was believable, as before World War I in Britain, for example, people didn't mind holding even cash in paper form, which was more convenient.

Only during financial crises did people want gold coins.  Even then, in the UK (up to 1931) and the US (up to 1971) things didn't work out great for the gold hoarders.  The message is clear!
  
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Andrew_Armao
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Re: The Return to the Gold Standard
Reply #25 - Sep 3rd, 2018 at 11:00pm
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BobK71 wrote on Aug 30th, 2018 at 2:10pm:
As for whether it will happen, I think most likely it will, over the next few decades at the latest.  Any way you look at it, you just can't continue to have these highly perverse incentives to inflate money and cause instability.  90% of the modern period was under a precious metal standard, for a reason.  (Of course, whether official commentary will communicate this ahead of time is a totally different story, as the elites won't want people to rush into gold and destroy asset values overnight.)

But I believe the public narrative won't be the old 'gold is money and paper money is debt.'  That rigid stance caused endless troubles for the elites, including exposure of the dishonesty of the whole system.  The new narrative will be, that gold, silver and maybe crypto values are a sign of the public's confidence in the system.  When these values are too high, a storm is coming, so we'd better get our house in order: cut back printing and borrowing money, rein in bankers, etc.

Over the long term, state currency will be effectively devalued against non-state money on a rolling basis, with short-term U-turns for deception and bubble-support.  From the elites' point of view, this would combine the best features of both the gold standard and 'fiat' periods.

(Note that this system would not be very different from our 'fiat' system, except that today's official narrative, which might be going away gradually, is that gold is just a shiny barbarous relic.  It's a subtle but important distinction, and I would listen carefully to the mainstream news, etc. for signs of the shift.)

Sure, the 'fiat' system gave the elites a huge amount of power, and no one wants to give up power, everything else being equal.  But I think the state of the world today is such that the elites are thinking the 'benefits' were temporary and not worth the instability.  Also, the elites received enough power and unearned wealth under the gold standard too.


True, but we won't have our work earned dollars stolen from inflation anymore. We must rebel against the Oligarch. Gold coinage in America would be a beautiful thing!
  

Andrew J Armao
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Re: The Return to the Gold Standard
Reply #26 - Sep 3rd, 2018 at 11:09pm
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SkyChief wrote on Aug 31st, 2018 at 2:54pm:
Here's a good explanation of why a fiat currency is fine, and we no longer need gold to back the dollar. 

Keynesean economics for dummies.

Economics Professor Stephanie Kelton says that deficit spending is good - government needs to "rev the economic engine" a little by dumping money into the economy.  (LOL)

The goal is not to balance the budget, the goal is to balance the economy

We could try "quantitative easing".    That has a nice ring to it!








A worry I have Skychief, is China building up their gold reserves. They are partially the reason why gold has dropped in value from them buying so much of it. If they switched to gold standard, they would become an economic super power even though they are communist. We have to beat them to it.
  

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Jeff
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Re: The Return to the Gold Standard
Reply #27 - Sep 4th, 2018 at 8:23am
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Snarky Sack wrote on Sep 2nd, 2018 at 9:25am:
I was hoping you'd answer that one, Jeff.  If a government announced that it was going to strengthen the currency by backing gold with paper and the people expressed a desire that the gold be coined, why would government want to stick with gold-backed paper?

People would rather carry redeemable notes in their wallet than gold and silver coins in their pocket is my guess, but they will only accept notes that they feel certain will be redeemed in gold or silver on demand.

If you accept a banknote from a bank that says it will redeem the note on demand with gold or silver, and they don't, their note is worthless.

BTW, I'm sure you didn't mean to say "back gold with paper"...
  
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Jeff
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Re: The Return to the Gold Standard
Reply #28 - Sep 4th, 2018 at 8:57am
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BobK71 wrote on Sep 3rd, 2018 at 8:12am:
The system is designed so people won't demand a 100% physical gold circulation.  The mantra during the gold-standard period was 'gold earns no interest,' so much of the money would go into deposits or other debt, anyway.  While the gold standard was believable, as before World War I in Britain, for example, people didn't mind holding even cash in paper form, which was more convenient.

Only during financial crises did people want gold coins.  Even then, in the UK (up to 1931) and the US (up to 1971) things didn't work out great for the gold hoarders.  The message is clear!
Notes that are actually redeemable in gold or silver don't earn any interest either if you hide them under you mattress, but if you deposit either with a bank, they will pay you interest, or if you use either of them to buy a CD, it will pay you interest, or if you buy preferred stocks that pay interest... You get it.

Banks use fractional reserve systems so they can earn money on deposits by loaning out part of what has been deposited with them. If a bank can't loan the money you deposit with them to earn money, they can't pay you any interest.

Governments are not banks and should not operate like banks, but an honest government can do good for people by printing redeemable gold and silver certificates for convenience.

Where the problems start is when dishonest governments start printing more notes than they can redeem in order to try to do good things (or bad things) under the discredited theories of Lord Keynes.

A dishonest or reckless bank can cause it's issued notes to lose value and become worthless, and the bank can (and should) fail because of that.

A dishonest or reckless government that starts operating like a bank and issuing more notes than it can redeem can cause a national currency to lose value and become worthless, and an entire national economy can fail because of it.

Honest government issued money (which to me means they can redeem all of it), free banks (which means unregulated and not protected by governments) and a free economy will produce the best results.

If a government wants to borrow money for a social engineering project like the New Deal or the Great Society, let them try to borrow the money from free private banks... The same for wars.

In the case of social engineering projects, it would be entirely better to require that taxes be raised to pay for them in real time with no borrowing allowed.

In time of a war that was an existential threat to the nation,  I'd be inclined to advocate raising taxes first, borrowing from private banks and citizens second,  and, if necessary, issuing more redeemable U.S. notes than could actually be redeemed (on a temporary basis), with the understanding that if the nation survived, taxes would be raised to redeem the extra notes as soon as possible.

People always want to redeem the notes they hold for gold and silver during economic corrections, which, under a good system of free banking, causes reckless and dishonest banks to go out of business, which is a necessary thing for the health of an economy, just as it's necessary to have poorly run or dishonest businesses go out of business.

That's what economic corrections do if Keynesians will let them, they punish speculators and bad businessmen with economic losses and divert the resources those speculators and bad businesspeople were using to better uses.


  
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Snarky Sack
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Re: The Return to the Gold Standard
Reply #29 - Sep 4th, 2018 at 9:24am
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Jeff wrote on Sep 4th, 2018 at 8:23am:
People would rather carry redeemable notes in their wallet than gold and silver coins in their pocket is my guess, but they will only accept notes that they feel certain will be redeemed in gold or silver on demand.

If you accept a banknote from a bank that says it will redeem the note on demand with gold or silver, and they don't, their note is worthless.
  Almost the same with government.  Government has the power to require that its worthless notes be accepted, so it isn't exactly the same. 

I guess no one sees this but me?  The reason that government would resist strongly the idea of giving actual gold coins and would prefer to issue gold-backed notes and keep the gold in storage is "just in case."

Just in case of what?

Just in case the government "needs" that gold for something else besides backing the currency.  During WWII, other countries sent a lot of gold to the U.S. in  exchange for war materials.  Why didn't the U.S. government just accept paper notes?  It knew better.

But it hopes that the citizens of the U.S. don't know better and clearly many of us don't.  Issuing gold-backed notes instead of gold still relies on our trusting the government that the notes really are gold-backed.  If the U.S. should provoke another country into attacking us, and needs to start buying weapons on the international market, gold will be the best way to get them.  So they will switch back to fiat money, institute severe penalties for "unpatriotic" Americans who question it and we'll be right back to where we are now.

I'm always amazed at how many libertarians trust government.  Especially that they trust government to not do exactly what they always have done:  debase currency to pay for government programs through the hidden tax of inflation.

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BTW, I'm sure you didn't mean to say "back gold with paper"...
Correct.  Thank you. 
  

"Taxes are morally justified theft" - Jeff
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