Is it time to return to the gold standard?

[Darth Picardous]

Just out of curiosity, why start a thread with a question in the title and include a poll (which would indicate you WANT to know the opinion of others), if you really don't care what other people think?

I've always found it odd that people start threads saying "What do you think? Do you agree or disagree?" when they have no interest in what other people have to say (no matter how clear and logical their argument) and really don't want to discuss it at all.

I mean, why ask the question if you're only interested in preaching your belief? It seems rather a waste of time and effort, doesn't it?




Oh, yeah. I forgot. It's the internet.

I'm not preaching a belief, i'm telling facts. I've seen no argument that others have offered that is clear and logical. I think history has proven that the current system has not worked. I put a poll because I do want to know other peoples opinions. Has anyone actually took the time to watch the video? Maybe they would understand better what it is i'm talking about. Furthermore, what makes everyone so sure that I am so wrong anyway?

The current system has produced and distributed more wealth than any previous system--perhaps all prior systems combined. Do you think it's a coincidence that the enormous expansion of the post-WWII global economy coincides with the world's largest economies dropping the gold standard? I don't.

Yeah, we have downturns and recessions and uncertainty, but it's foolish to pretend those same things didn't happen under the gold standard.

What you want is to return to a system that limits the creation of wealth and controls inflation while providing no other benefits. If you want to reduce living standards across the globe, by all means, bring back gold!

What you're doing right now is judging the past 60 years of economic development through the lens of current economic turmoil. Because we're in a rough spot right now you just assume the whole system "doesn't work."

Few things are as annoying as people coming in with judgments and opinions and calling them "facts." You haven't presented any compelling facts to encourage a return to the gold standard. The world's economy experienced unprecedented expansion after going off the gold standard. That's a fact.

I don't understand what you are saying. Yes, wealth has been created, that is false wealth generated by a fiat currency system which has caused the false belief of a prosperous currency! The gold standard prevents a reckless money supply increase, i.e counterfieting by Ben Bernanke at the Federal Reserve. The only people who whinge about a gold standard are those who know their future ability to decrease everyones wealth by stealth inflation caused by excess money printing is at an end.

You don't think a gold standard can increase the money supply? Easy, just increase the value of the gold standard relative to YOUR currency and watch it drop relative to other currencies.

And to everyone else: THE PRICE OF GOLD IS CONSTANT. IT IS YOUR FIAT DOLLARS THAT VARY IN STRENGTH HENCE THE CHANGE IN GOLD PRICES. In other words, stop thinking in terms of fiat dollars.

You Americans are in for a rude shock when China, Russia, Europe and Saudi Arabia say up yours and return to a gold standard, turning your currency into mush overnight. Who do you think has been buying all the golds world production in the last ten years?

Just a few sayings for everyone to think about:

'All paper currencies eventually return to their nominal value-zero ' Voltaire

'Gold is money. Nothing else.' John Pierpont Morgan, Sr

'In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.' Alan Greenspan
http://www.brainyquote.com/quotes/quotes/a/alangreens136390.html

 

[Darth Picardous]

I guess you are all fine with a credit based economy...

I definitely am. Credit facilities have allowed us to advance far more quickly than we would have without then. On average, credit is an incalculably large boon to society and has driven up the average standard of living of the average person hugely. I'll come back to this in my final paragraph in this post.

created false up ticks in the economy.

Any economy is always "false", then, because any financial transaction involves an arbitrary assignment of value to a physical object. Where do you draw the line? Is it just fiat money that's false? Why is gold more "real" than fiat money? If someone finds a large new gold deposit, under a gold standard, all money would suddenly devalue massively; is that really more "real"? The only "real" economic transaction is one that doesn't involve money at all; a barter system. Money itself is automatically unreal, whether backed by gold or not.

I would strongly argue that since any non-barter, money-based, economy is already disengaged from "reality", it's much more logically consistent to permit money itself to be treated as a tradeable commodity, able to reflect the relative strengths and weaknesses of the country creating it.

That's a much more accurate way of setting the value of money than linking it to how much of a single metal dug up from the earth one has! The narrowness and inflexibility of the gold standard is its problem.

It's no different, logically, to linking the value of money to how many trees there are in the world. Nonsensical, topsy-turvy way of determining value.

You must realize that all those guys on Wall street that almost broke the bank, they will just do it all over again and we will be right back in this same spot again. If we were under a gold standard then all of this could have been prevented. There would be no fractional banking system. Each company or bank would have to spend within it's own means. There would be no such thing as too big to fail. If a company practices bad business then it simply fails. It doesent take down the whole world with it. The gold standard keeps em honest. No speculating, no fractional banking. The banks would have to keep 100 % of reserves and the FDIC would insure 100% and not 10 %

Firstly, fractional-reserve banking is independent from a gold standard. A gold standard alone still allows for speculation and fractional-reserve banking. The gold standard that used to exist in our countries operated under a fractional-reserve banking system. No banks since well before the 19th century have operated under a full-reserve requirement.

The system you are recommending is a hybrid combination of a gold standard with a full-reserve requirement. In fact, if you want to have a full-reserve requirement, you don't necessarily need a gold standard, merely that the bank hold any form of asset of equivalent value.

But I accept that a bank would probably prefer to hold high value-density assets under such a system, rather than having vaults full of chickens, or whatever...

So for the sake of argument let's think through your scenario of full-reserve banking combined with a gold standard:

It is completely incompatible with the modern world. It just about works when you have a cash economy, with little international trade outside of key hubs (or rather, little trade beyond a radius of a few hundred miles). You would certainly shut down international trade almost completely.

Why? Think through the logistics... let's take a simple example eg. how does a US tourist buy something in France? Their bank has to ship gold over to a French bank? Now think of the trillions of financial transactions taking place across the globe every day and the amount of gold that would need to be moved around. Madness.

The entire global banking system would collapse instantly in the face of this transportation impracticality and then you'd have a global economic Depression that would make the Great Depression seem like a mild headwind. (fractional reserve banking under a gold standard WOULD avoid this transportation problem, but would do nothing to stop the "speculation" you are so concerned about)

You would turn the clock back to Feudalism, or at best, the early days of Mercantilism. Banking would effectively be abolished as a means of being an intermediary in the exchange of money from one person to another. It would have a purely depository function. The bank can no longer invest in society (I don't mean charity, I mean by moving money around from one group to another) so society becomes increasingly dependent on individuals with large amounts of assets.

It is a recipe for plutocracy at best, far more so than presently, or tyranny by a feudal overlord at best. Much as this might raise eyebrows from left-wingers, there is a solid argument to be made that fractional-reserve banking has done more for social mobility than almost any other human invention.

Just because our current system sucks doesn't mean we should go to an even worse one which is what the gold standard would be.

+1 for the brevity.

OK everyone, lets get back to basic economics.

Gold = Money.
Fiat = Currency

If we can't get past that point your stuffed.

So whats easier to inflate? Paper dollars or gold? You do realise we have hit peak gold production in 2001 don't you? I haven't seen peak note production yet.

So a American to purchase French items overseas has to move gold as well? Ridiculous. Look up the Real Bills doctrine that was used prior to WW1 for currency exchanges backed by gold. You want to know why the 1930's depression occurred? May have something to do with Real Bills being taken out of circulation to cripple Germany after WW1, and woops, it came to bite everyone else in the world as well. Geez, and why did FDR confiscate gold? Maybe to prop up bullshit fiat American money.

And lets get this straight. Everyone believes going back to a gold standard is feudalism. Do we all realise that many of the worlds greatest achievements were done during a gold standard? Quantum mechanics, Special Relativity? The best world trade occured prior to WW1 on a gold standard and only matched this level in the late 1990's.

I await everyones reply in this fun debate.

 

[sidious618]

Dear god, why would you quote Alan Greenspan?!

 

[Darth Picardous]

Dear god, why would you quote Alan Greenspan?!

Smart man you are.

Believe it or not, in 1962 when Greenspan finished his doctoral thesis, he was a strong gold standard enthusiast. Once joining the board of the Fed Reserve that changed. Now that he is no longer on the board, he is now stating that a return to a gold standard or a basket of commodities would be good, after seeing the mess he created by causing ultimate bubble cycles in the US economy.

Then there is the ultimate conspiracy theory that makes me laugh, that Greenspan purposely stuffed the US economy up to show the foolishness of moving away from a gold standard.

 

[Holdfast]

You don't think a gold standard can increase the money supply? Easy, just increase the value of the gold standard relative to YOUR currency and watch it drop relative to other currencies.

And to everyone else: THE PRICE OF GOLD IS CONSTANT. IT IS YOUR FIAT DOLLARS THAT VARY IN STRENGTH HENCE THE CHANGE IN GOLD PRICES. In other words, stop thinking in terms of fiat dollars.

If you put these two contradictory paragraphs together, you'd realise that you're simply using gold as a proxy currency here. The price of gold is not constant under your model. By altering the peg, you alter its value.

I know this is difficult for goldbugs to take on board, but there really is nothing special about gold; it's just a commodity. There is no specific value carried by gold, other than its relative scarcity/durability compared to other metals. That makes it inherently less satisfactory as a means of judging value than a free-floating system where ALL commodities AND currencies have no fixed value, but can range from zero to infinity depending on relative supply and demand.

Gold = Money.
Fiat = Currency

If we can't get past that point your stuffed.

This is fundamentally incorrect.

Gold is not money. Gold is a tradeable commodity. Currency is also a tradeable asset, though not a commodity. Money is never real, it is always a contractual agreement. Fair Value is not the same as a money, or currency, or commodity. The value of anything, including money, or a currency or a commodity is dependent on the situation and cultural context.

Now, I do agree with your point that gold is relatively less susceptible to inflationary pressure that fiat money. That much is certainly true. But it doesn't follow on that a gold standard would be a better way of determining the value of money.

Also, you're also confusing a gold standard with fractional versus full reserve banking when you rushed to object to my point about moving gold. I agree that a gold standard in itself doesn't require that, but the other poster wanted BOTH a gold standard AND a full reserve banking system, and real bills won't work under that hybrid system. They will work with a gold standard and fractional reserve banking though, I certainly agree with that, but that's not my objection to that model.

Everyone believes going back to a gold standard is feudalism. Do we all realise that many of the worlds greatest achievements were done during a gold standard?

Again, my Feudalism analogy was specific to the other guy's suggestion of a combination of a Gold Standard WITH a full reserve banking system. If you have Gold Standard with a fractional reserve banking system, you just have a very inflexible and unhelpful way of dealing with the world's economic situation, not Feudalism.

Just so you don't think I'm an ardent Keynesian, I actually have quite a bit of instinctive sympathy with Austrian vs supply-side economics. But there are limits!

 

[Darth Picardous]

You don't think a gold standard can increase the money supply? Easy, just increase the value of the gold standard relative to YOUR currency and watch it drop relative to other currencies.

And to everyone else: THE PRICE OF GOLD IS CONSTANT. IT IS YOUR FIAT DOLLARS THAT VARY IN STRENGTH HENCE THE CHANGE IN GOLD PRICES. In other words, stop thinking in terms of fiat dollars.

If you put these two contradictory paragraphs together, you'd realise that you're simply using gold as a proxy currency here. The price of gold is not constant under your model. By altering the peg, you alter its value.

The purchasing power of gold has not diminished since Biblical times. According to the Old Testament, during the reign of King Nebuchadnezzar, an ounce of gold bought 350 loaves of bread. Today, an ounce of gold still buys 350 loaves. The use of the term 'price' is to allow the fiat users to understand the value, or store of value that a material such as gold can provide. Essentially you are correct with the terminology but fiat users can only think in terms of 'price'.

I know this is difficult for goldbugs to take on board, but there really is nothing special about gold; it's just a commodity. There is no specific value carried by gold, other than its relative scarcity/durability compared to other metals. That makes it inherently less satisfactory as a means of judging value than a free-floating system where ALL commodities AND currencies have no fixed value, but can range from zero to infinity depending on relative supply and demand.

Disagree. Bury gold, silver, copper or Fed Res Notes in the ground for 10 years and see whats happened. The copper and silver have corroded, the fiat paper (or plastic in Oz) is gone while gold remains unchanged. True, this is not 'value' but provides confidence that the store of labor that can be exchanged for future work will not dissappear. Thats the beauty of a real store of value, it is hard to destroy but easily subdivided. Yes , the term value is a human concept, but so is mathematics and thus can't be ignored.

Gold = Money.
Fiat = Currency

If we can't get past that point your stuffed.

This is fundamentally incorrect.

Gold is not money. Gold is a tradeable commodity. Currency is also a tradeable asset, though not a commodity. Money is never real, it is always a contractual agreement. Fair Value is not the same as a money, or currency, or commodity. The value of anything, including money, or a currency or a commodity is dependent on the situation and cultural context.

Disagree. In the last few generations it has been taught that gold is a commodity. Gold is money, a true store of the value of labour that can be passed on into the future. A commodity is used and consumed such as platinum, copper and silver and therefore is not a good item to use as money, a permanent store of value. Gold is used is small quantities for space craft and high performance electronics but should not be considered a commodity. If gold is not money, why do reserve banks still hold it? It is a final extinguisher of debt. True, it is dependant on cultural context, but it seems amazing that many cultures chose gold as their ultimate store of value who were not connected together by commerce.

Now, I do agree with your point that gold is relatively less susceptible to inflationary pressure that fiat money. That much is certainly true. But it doesn't follow on that a gold standard would be a better way of determining the value of money.

True, hence the term 'freegold'. When you are ready I will point to the correct sources of information on this, material written by a non-gold-bug but describes the floating of gold for trade.

Also, you're also confusing a gold standard with fractional versus full reserve banking when you rushed to object to my point about moving gold. I agree that a gold standard in itself doesn't require that, but the other poster wanted BOTH a gold standard AND a full reserve banking system, and real bills won't work under that hybrid system. They will work with a gold standard and fractional reserve banking though, I certainly agree with that, but that's not my objection to that model.

That poster is a newbie with lots to learn which is good. The ultimate system, I believe, would be no fractional reserve amounts as that which occurred when banks were first formed by goldsmiths when money = gold. The currency can then fluctuate against permanent store of value that would be gold holdings. Any form of fractional reserve banking leads to counterfeiting and corruption. I'm sure a Real Bills system would work in a zero fractional reserve system.

Everyone believes going back to a gold standard is feudalism. Do we all realise that many of the worlds greatest achievements were done during a gold standard?

Again, my Feudalism analogy was specific to the other guy's suggestion of a combination of a Gold Standard WITH a full reserve banking system. If you have Gold Standard with a fractional reserve banking system, you just have a very inflexible and unhelpful way of dealing with the world's economic situation, not Feudalism.

Just so you don't think I'm an ardent Keynesian, I actually have quite a bit of instinctive sympathy with Austrian vs supply-side economics. But there are limits!

Agreed. Both theorems have holes large enough to drive a tank division through. However the planet needs a method of limiting the reckless printing of money by all countries we are currently experiencing and evidenced by the price of gold against fiat currencies. Unfortunately the only material that suits this purpose at the present time is gold. I concur it wouldn't be perfect, but it would be a great deal better than what we have now. If the US just set gold to $55K per ounce and then traded in a gold standard backed currency all their debt problems would be covered by their 8,000 tonnes supposidly at Fort Knox

 

[Alidar Jarok]

You really don't think the purchase power of gold has varied throughout history? You don't think gold could buy fewer loaves of bread when Phillip of Macedon started circulating it as currency or when the Spanish brought ships of it back from the Inca and Aztecs? You don't think it bought fewer supplies and food in California during the gold rush where minors had nothing else to spend and no way to hoard it than back east where it was scarce?

That's nice it coincidentally matches the current purchase power of bread, but that doesn't mean much overall.

 

[Nowhere Man]

Here is how it would work: http://www.youtube.com/watch?v=nHPSmslIOfc

 

[Nardpuncher]

[yt]http://www.youtube.com/watch?v=LS37SNYjg8w[/yt]

 

[Marc]

There's also one big problem with backing your currency via the gold standard.

It only works as long as you've got Gold.

Ask the Germans what happened to their Gold Standard backed currency in the wake of WWI when they had to hand over all their gold.

Say China started to call in the massive debt the U.S currently has and they demanded in paid it was paid in Gold - wouldn't that be ironic if the U.S had forced everyone back on the Gold Standard.


And what about the gold currently in private hands - would you risk a repeat of the scenario from WWII where the U.S government tried to get hold of the gold held by private citizens.

 

[Rincewiend]

Yes most countries would have to follow our lead, but they usually do that anyway.

I think it's not that set anymore, thanks to the Euro...
Heck, there are more countries using the Euro as a currency then there are in the EMU...

 

[RJDiogenes]

Wowee. I never realized that gold is a magical substance that exists outside the laws of reality.

 

[Darth Picardous]

You really don't think the purchase power of gold has varied throughout history? You don't think gold could buy fewer loaves of bread when Phillip of Macedon started circulating it as currency or when the Spanish brought ships of it back from the Inca and Aztecs? You don't think it bought fewer supplies and food in California during the gold rush where minors had nothing else to spend and no way to hoard it than back east where it was scarce?

That's nice it coincidentally matches the current purchase power of bread, but that doesn't mean much overall.

Both true and false. Indeed the Spanish did create gluts of silver from their South American mines in the 16C and reduced the purchasing power of the silver coin at that time but this took over 100 years to occur. However this is not the case today as all the easy obtainable metal has been mined.

Say I want to devalue Americas currency tied to a supply of gold by 50%. That means overnight I would have to mine/process or find 8,000 tonnes of gold. Not going to happen, ever. As I have mentioned in earlier posts, we have passed peak gold production.

Now say I was Mr Bernanke and wanted to reduce the value of your Fiat currency overnight. Easy, being the Fed Reserve I would magically create 5 trillion dollars electronically out of thin air. You've just lost 50% of your purchasing power due to the presence of these new dollars in circulation that are now chasing the same goods. Have you noticed the price of materials valued in US dollars going up recently? Thats because Mr Bernanke is doing just what I have described.

 

[Darth Picardous]

There's also one big problem with backing your currency via the gold standard.

It only works as long as you've got Gold.

Ask the Germans what happened to their Gold Standard backed currency in the wake of WWI when they had to hand over all their gold.

Say China started to call in the massive debt the U.S currently has and they demanded in paid it was paid in Gold - wouldn't that be ironic if the U.S had forced everyone back on the Gold Standard.


And what about the gold currently in private hands - would you risk a repeat of the scenario from WWII where the U.S government tried to get hold of the gold held by private citizens.

Countries without gold can work equally well on a gold standard. Those countries that manufacture and spend less will gain gold quantity, those who spend and produce less will lose their gold.

As each currency is devaluating now, the first country to move back to a gold standard will win first.

And why is gold so good for confiscation? Because bad money (paper notes) drives out good money (gold) and is stored. Who is to say the US government wont confiscate all fiat notes as well? I will bet you a dollar that the US 401k's will be targeted for confiscation first. Target gold, and all that gold will flow out of the US to other countries.

 

[Darth Picardous]

Here is how it would work: http://www.youtube.com/watch?v=nHPSmslIOfc

Expand your understanding. This will be a little hard to understand, but read it slowly and it will sink in! Happy reading. Written by a person studying the written notes of who he believes set up the Euro currency.

http://fofoa.blogspot.com/

 

[stj]

Money is not just a store of value. In real life, money also serves as capital. (This is where the subterfuges confusing a gold standard with the abolition of fractional reserve banking come in.) Having the amount of capital depend upon currently available quantities of natural resources is absurd. Worse, economic development means the quantity of physical capital increases, the price of capital, interest, must decrease. That's simple supply and demand. The value of money as capital must decrease. The desire to revert to a gold standard is a banker's dream of preserving the value of money, even at the expense of deranging economic growth.

Money of the gold bugs, in short, are shills for bankers. Others are nuts foreseeing (hoping for, more likely, whether they admit it or not,) an economic apocalypse that will starve the unworthy masses, while they sit tight on their moneybag.

 

[Alidar Jarok]

Both true and false. Indeed the Spanish did create gluts of silver from their South American mines in the 16C and reduced the purchasing power of the silver coin at that time but this took over 100 years to occur. However this is not the case today as all the easy obtainable metal has been mined.

We assume. However, if we're wrong and some new deposit is discovered or some new method of mining is invented, the value of gold will drop.

Now say I was Mr Bernanke and wanted to reduce the value of your Fiat currency overnight. Easy, being the Fed Reserve I would magically create 5 trillion dollars electronically out of thin air. You've just lost 50% of your purchasing power due to the presence of these new dollars in circulation that are now chasing the same goods. Have you noticed the price of materials valued in US dollars going up recently? Thats because Mr Bernanke is doing just what I have described.

Bernanke is doing it in a managed way (and we certainly haven't lost 50% of our purchase power). Inflation isn't always a bad thing. People aren't doing this randomly. Maybe if we had just switched to currency that wasn't backed by anything, I could see a fear, but people are generally aware of the consequences and take that into consideration.

 

[Nowhere Man]

Here is how it would work: http://www.youtube.com/watch?v=nHPSmslIOfc

Expand your understanding. This will be a little hard to understand, but read it slowly and it will sink in! Happy reading. Written by a person studying the written notes of who he believes set up the Euro currency.

http://fofoa.blogspot.com/

Well, value as opposed to commodity is one argument, but we can use corn or chickens if we want. The reason we used to use gold is because it was a medium most can agree on. I think the core of Ron Paul's argument is that switching back would not be as hard and destructive as people think. We've gone on and off the gold standard before. I also believe he was advocating for paper money that is backed by gold 100%. so, we don't have to transfer gold back and forth to France or China. We don't have to carry 100 gold coins around to go to the movies, we can just use gold certificates that are completely exchangeable. Someone mentioned going back to gold would be a bankers dream. Bullshit, the system we have now is a bankers dream. The fractional reserve banking system is what allows dirivites to exist, it's what allowed Alsn Greenspan to divert inflation into FIRE. You are right, Greenspan was for a gold standard before he became fed chairman. He's been an advocate since leaving the fed. I don't think there is a conspiracy, but he probably knew that the policies he was implementing would fail eventually. Gold is called a comodity because it is a medium. I understand your value argument and everything has a value, but gold is a commodity because of the world agreed on it being a medium.

All of that being said, I am not a big Ron Paul supporter or Glen Beck supporter. I think Beck is a foney and a prick and Paul, well I agree with some of his views, but not all.

 

[Nowhere Man]

Both true and false. Indeed the Spanish did create gluts of silver from their South American mines in the 16C and reduced the purchasing power of the silver coin at that time but this took over 100 years to occur. However this is not the case today as all the easy obtainable metal has been mined.

We assume. However, if we're wrong and some new deposit is discovered or some new method of mining is invented, the value of gold will drop.

I'm not seeing a whole lot of new gold bieng found in mass like in the gold rushes of the 19th century. We have found most of the gold on Earth. At the pace it takes to get to other planets, it will be a long time before new gold is found in large quantities

Now say I was Mr Bernanke and wanted to reduce the value of your Fiat currency overnight. Easy, being the Fed Reserve I would magically create 5 trillion dollars electronically out of thin air. You've just lost 50% of your purchasing power due to the presence of these new dollars in circulation that are now chasing the same goods. Have you noticed the price of materials valued in US dollars going up recently? Thats because Mr Bernanke is doing just what I have described.

Bernanke is doing it in a managed way (and we certainly haven't lost 50% of our purchase power). Inflation isn't always a bad thing. People aren't doing this randomly. Maybe if we had just switched to currency that wasn't backed by anything, I could see a fear, but people are generally aware of the consequences and take that into consideration.

Bernankie is following the failed policies of his predicessor, who now is coming out for the gold standard and has repeatidly stated that the stimulus efforts are not enough and will fail. Some inflation is ok, but the printint of money is causing more and more inflation at a faster rate than natural. Inflation is an increase in the money supply. The more money we create out of thin air, the more inflation. Our currency is not backed by anything, but faith. We have a faith based economy. I can't take my federal reserve note and echange it for anything other than another piece of paper. Even worse, our dollar is bieng replaced by the Euro which is worth more. Under gold, all money is worth the same. You keep mentioning that there are people who are watchingout for all of this. If they are, they are not doing a good job. Why does the government have to be involved in everything? They produce nothing and if they were a business, they would be forced to go bankrupt by now.

 

[Alidar Jarok]

Bernankie is following the failed policies of his predicessor

You attribute the state of our current economy entirely to the policy of not using a gold standard? You realize things are more complicated than that. Are you able to separate all other policies out of the way and say, if we had a gold standard, even if all other policies were maintained, we wouldn't be in the current situation?

BTW, you're welcome to take your money and exchange it for gold. Nothing is stopping you. Then you won't have a faith-backed currency.