Gold standard - Should we go back?

[kingkilburn]

Here is the source.

Inflation: Money & Prices | Gold News

The Y axis is millions of dollars.

EDIT:
After rereading that article that graph is meaningless but looks compelling at first glance. I guess I can leave it up though.

[kingkilburn]

Here is a better chart.



Source:

Falling U.S. Dollar / Inflation

It seems to be very hard to find a chart or graph showing inflation since before 80's or 90's.

[drift freaq]

Originally Posted by kingkilburn

And what do you think happened in the 70's? We dropped the gold standard and left the FED to control the economy. They didn't do a very good job of it.

Well this is a little obfuscating because gold money was removed from Circulation by law in 1993 a law signed by FDR. It was only allowed to be a standard for foreign currency transactions and that was finally eliminated in 1971. Though we were off the Gold standard for domestic currency by 1934.

Originally Posted by kingkilburn

It is the world standard due to our GDP and shear amount of consumption. The FED is constantly tampering with it. Any change in the interest rate or purposeful inflation is tampering. Bailing out failed banks is tampering.

You really have not studied the history of the FED that well or the value or importance of the American dollar. To just say its the world standard because of our GDP and amount of consumption is really not the complete picture. To say that the FED adjusting were needed is tampering shows your lack of understanding of macroeconomics which others have already tried to explain to you. Though I might not like bailing out of failed banks what you seem to have failed to realize is the bailout happened under TARP because if it did we would have gone into a depression because our banking system would have failed completely. Ben Bernanke was a student of the depression and understood the consequences and took appropriate action.

Originally Posted by kingkilburn

I was talking about average Joe on the street. When the interest rate changes so wildly and abruptly how can he know whether to put money into savings or invest.

Again interest rates have not changed wildly and I do not know were you getting the idea they have. They have remained relatively low even know.
Plus I will say this again the average Joe really does not have a understanding of the stock market enough to be investing in the first place. Sorry but that is the truth.

Originally Posted by kingkilburn

Actually I didn't like it when they lowered the rates. There went all incentive for the banks to give loans and for me to save. So then the government pushes the banks to make bad loans even though it is very hard for them to make money on interest that low.

If they didn't drop the interest rate to nothing there wouldn't be this outrageous debt to curb.

Personally I would let the free market determine what the interest rates will be. They would be flexible but reasonable.

Well it was actually Congress who pressed Fannie Mae and Freddie Mac to give out low interest loans. People like Nancy Pelosi and Barney Frank, Henry Waxman Etc... pushed for this. The banks followed after it especially Countrywide financial and Washington Mutual.

Fact is people went along with this, faking their income, taking loans they should not have. In turn this was part in parcel the creation of mortgage backed securities. Where loans were compiled good with bad and resold as a security. Problem arose in the fact that the actual value of the security was hard to pin. It also created a severely leveraged situation at some investment houses.

If we had not done TARP we would be in a depression right now and things would be a lot worse.

[drift freaq]

Originally Posted by kingkilburn

Here is a better chart.



Source:

Falling U.S. Dollar / Inflation

It seems to be very hard to find a chart or graph showing inflation since before 80's or 90's.

Ok lets discuss the said chart. First off nothing is relevant before the Great depression because bank rules and investing rules were significantly different.
Now in the late 70's up to the early 80's we had double digit inflation, partly due to the Oil embargo of 1973. Now move forward to the late 80's clear through 2005 the end of chart a period of 25 years and you see an inflation rate of 2-4% which is relatively low.



Plus interest rates for Houses are still currently at 5% which is extremely low.

so we are not in an inflationary period or have been in one for awhile.

I have a question, do you realize that the economy and value of the dollar is controlled more by the money supply?

[g6civcx]

Originally Posted by kingkilburn

To be totally honest I don't care where or how you or any one else acquired there knowledge as long as it is sound and you have the ability to think critically.

I know that looks aggressive or harsh but that is not the intended tone. Just speaking frankly.

If your statement is true, then a community college could be just as good as Harvard, and just as good as somebody reading textbooks in the basement.

That's very Thoreau and I have no issues with that.

The problem is that statistically, people who have not been classically trained do not fully understand the basic concepts and terminology, or they may understand but cannot communicate.

These people tend to have a big problem expressing themselves and interacting with classically trained people. Notice how I'm like the only person in your corner in most of these threads? "normal" people just don't know what you're talking about.

In a perfect world knowledge can come from anywhere. In reality self-taught people can and do have some really good insights, but oftentimes these people also really miss the boat on some very fundamental concepts.

For every Bill Gates, you have thousands if not millions of other unemployed college dropouts.

Not speculations. Just facts.

[kingkilburn]

Thank you for that.

I will admit one of my biggest problems in this thread and some similar threads is my lack of vocabulary and inability to communicate my thoughts.

People also seem to think I'm going all Hulk SMASH behind the keyboard. 99% of the time that is not the case.

[g6civcx]

Originally Posted by kingkilburn

Thank you for that.

I will admit one of my biggest problems in this thread and some similar threads is my lack of vocabulary and inability to communicate my thoughts.

People also seem to think I'm going all Hulk SMASH behind the keyboard. 99% of the time that is not the case.

I don't think it's a big deal. It just takes a bit more effort to really try to understand where you're coming from instead of just taking a conventional view on the topic like what they taught you in school.

On this particular topic, it's such a fundamental topic in macroeconomics, but yet we can spend infinity debating the merits of each side of the issue.

I didn't really participate because in theory any side can be true. It all depends on the actual implementation of the theory. Things change when people start going crazy.

[kingkilburn]

Very true.

[codyace]

Originally Posted by drift freaq

Investing in stocks.bonds, commodities etc is not for every person. It takes knowledge,skill and ability to do this successfully.

SO true. The advent of of electronic trading was such a mixed blessing...

Originally Posted by drift freaq

Oh and the FED and economic policies for the most part should be free from Politics to begin with. Every time politicians get involved it winds up screwing the American public.

On a local forum, I must have said this 1000 times to others who constantly berate our current system and how it's terrible...

I always remind them that political intervention is the largest single hindrence to economics there is.

Originally Posted by kingkilburn

And what do you think happened in the 70's? We dropped the gold standard and left the FED to control the economy. They didn't do a very good job of it.

They didn't? I mean the point is moot at this point, but it really seems like you're simply reading bias 'anti fed' stuff online, and then believing it at strue, without even really researching their claims (or the actual history of it). Being an expert with junk sources is a terrible fallacy.

Originally Posted by kingkilburn

I was talking about average Joe on the street. When the interest rate changes so wildly and abruptly how can he know whether to put money into savings or invest.

Average Joe should be using a trained financial advisor, or not investing at all.

Originally Posted by kingkilburn

To be totally honest I don't care where or how you or any one else acquired there knowledge as long as it is sound and you have the ability to think critically.

In order to truely think critically, you need to understand the opposing 'view' better than your own. Again, simply reading bias information will only set you up for failure

Originally Posted by g6civcx

I didn't really participate because in theory any side can be true. It all depends on the actual implementation of the theory. Things change when people start going crazy.

That's another interesting topic...how fear/panic by the masses over something they really don't understand, often makes things 100% worse

[drift freaq]

Originally Posted by g6civcx

If your statement is true, then a community college could be just as good as Harvard, and just as good as somebody reading textbooks in the basement.

That's very Thoreau and I have no issues with that.

The problem is that statistically, people who have not been classically trained do not fully understand the basic concepts and terminology, or they may understand but cannot communicate.

These people tend to have a big problem expressing themselves and interacting with classically trained people. Notice how I'm like the only person in your corner in most of these threads? "normal" people just don't know what you're talking about.

In a perfect world knowledge can come from anywhere. In reality self-taught people can and do have some really good insights, but oftentimes these people also really miss the boat on some very fundamental concepts.

For every Bill Gates, you have thousands if not millions of other unemployed college dropouts.

Not speculations. Just facts.

Wow, one could garner an I am smarter than though attitude, in the statement above, just how you have written it.

Perhaps that is not what you meant?


You are a lawyer, albeit probably a very good one at that. Though I am not aware of you having a background in economics.
Nor have I known many lawyers that do.

Though it is presumptuous on you part to assume the people responding in this thread are normal people. Do you know them personally?

I also think quite a few people in this thread understand his concept of going with a Gold standard, it does not mean they have to agree with it or accept it.

They have also present very good arguments for why it is not feasible.

Some of us take an active interest in the economy and financial situations due to our own place in the world. Something you may not know of with out knowing us personally.

[codyace]

Originally Posted by drift freaq

I also think quite a few people in this thread understand his concept of going with a Gold standard, it does not mean they have to agree with it or accept it.

Great point - I can see the idea of the gold standard, but much like you and I both said, it won't EVER work if only the USA converted - in fact it would ultimately be history changing, and not in a good way. The idea is a sound one, but the application in today's world is unsound at best.

[g6civcx]

Originally Posted by drift freaq

Wow, one could garner an I am smarter than though attitude, in the statement above, just how you have written it.

Perhaps that is not what you meant?

Compare your comments with this post:

Originally Posted by g6civcx

Step lightly here. If you want to know where people went to school and for how long, what they studied, etc., ask. Don't make assumptions.

There are more than a few people here who have attended top-rated universities in the country, if not the world.

Some of them are even posting in this thread.

How do I know what their background is? I asked them about it before.

Carry on.

Originally Posted by drift freaq

Though I am not aware of you having a background in economics

I did 1st year econ. I chose business and finance instead because the difference between the business school and the econ department is about $200 million.

Originally Posted by drift freaq

Though it is presumptuous on you part to assume the people responding in this thread are normal people. Do you know them personally?

Yes, I know about half of the people in this thread. We argue the same thing over and over and talk offline sometimes about the same thing.

You may not know me, but by "normal" I mean people who have classical training. This comment was not directed at any particular person because there is no such thing as being "normal".

It is well known that people who are self-taught tend to be a bit more eccentric and creative than classically trained people. This is not anything new.

If you're one or the other, or if you break the stereotype, it's no big deal. It just is.

Originally Posted by drift freaq

I also think quite a few people in this thread understand his concept of going with a Gold standard, it does not mean they have to agree with it or accept it.

They have also present very good arguments for why it is not feasible.

Some of us take an active interest in the economy and financial situations due to our own place in the world. Something you may not know of with out knowing us personally.

Al these things may be true. I don't know how to respond. Did you have a question for me?

[drift freaq]

Originally Posted by g6civcx

Compare your comments with this post:





I did 1st year econ. I chose business and finance instead because the difference between the business school and the econ department is about $200 million.



Yes, I know about half of the people in this thread. We argue the same thing over and over and talk offline sometimes about the same thing.

You may not know me, but by "normal" I mean people who have classical training. This comment was not directed at any particular person because there is no such thing as being "normal".

Err stop the presses, I suggest you re read your own words below, you will notice that you contradict your above statement of normal being classically trained. In fact you say classically trained are not normal. LOL

The problem is that statistically, people who have not been classically trained do not fully understand the basic concepts and terminology, or they may understand but cannot communicate.

These people tend to have a big problem expressing themselves and interacting with classically trained people. Notice how I'm like the only person in your corner in most of these threads? "normal" people just don't know what you're talking about.

Originally Posted by g6civcx

It is well known that people who are self-taught tend to be a bit more eccentric and creative than classically trained people. This is not anything new.

If you're one or the other, or if you break the stereotype, it's no big deal. It just is.



Al these things may be true. I don't know how to respond. Did you have a question for me?

Not so much a question, just responding to your previous post and the way it was worded.

Though it came out exactly as I called it and you are using previous posts for examples, that you may not have intended it that way.

Though perhaps you should have thought, before making the statement in the first place? It also still does not change the way it came off.


As far as who is normal and who is not it is clearly a subject of interpretation. Though you have contradicted yourself on that as well.

Mainly I see the OP getting told valid and proven reasons of why his theory will not work.

Yet he keeps on going expecting a different answer or to change our minds.

Technically that is quite close to the clinical definition of insanity. Repeating the same thing over and over expecting different results. Though I doubt he is insane. LOL

Now one may say that sometimes a little insanity can prove genius. Though in a thread like this, it turns into a beating your head against the wall contest.


I see this thread entering that phase already. Nothing the OP is going to say is going to make us feel his concept is any more logical.

As we have already present valid arguments and concrete reasons as to why it would not work.

That is all.

[ranger240]

Originally Posted by g6civcx

If your statement is true, then a community college could be just as good as Harvard, and just as good as somebody reading textbooks in the basement.

That's very Thoreau and I have no issues with that.

this came to no one else's mind?

Tread lightly

people need to tread VERY lightly when ideals found in that movie start mirroring discussion.

Killburn, i respect your desire to want understanding of something that implicitly seems like a flawed mechanism to you. You also havent taken objections towards your stance personally like some 16 year old zilvia poster who's pissed people think he shouldnt do an RB26 swap.

my advice, my strong advice to you is to pursue economics, finance or whatever you academic interest is further. From some of your responses its clear you have some animosity towards the idea of 'academic intellect' (pardon the made up words), i expressed the same degree of insubordination towards established ideals early in my post-HS education. Also, know your sources and their bias.

When something seems so obviously broken and fixable so simply its often the result of having not explored all contributing variables thoroughly enough. this rambling is dragging on a bit too much, i'm typing without my glasses so can hardly read this heap. hopefully its coherent enough to make sense


GNARRRRRRRRRRRRRRRRR

[g6civcx]

Originally Posted by drift freaq

Err stop the presses, I suggest you re read your own words below, you will notice that you contradict your above statement of normal being classically trained. In fact you say classically trained are not normal.

I was speaking directly to kingkillburn. That's it.

I put the requote up there hoping you will notice that my comments are a continuation of my previous comments directly addressed to kingkillburn.

Everything else I said is not relevant to you because my comments were directed towards kingkillburn and people currently in this thread who I do know.

If you are not kingkillburn or I do not know you, then clearly my comments do not apply to you.

If my comments are wrong, then it's up to kingkillburn or these other people to take issue. If you took issues with any comments then it's not my concern because the conversation does not involve you and was not directed at you.



If you want to argue what is and is not "normal", this is clearly something I do not want to argue because I put the term in quotes, meaning that it is subject to interpretation.


The rest of your comments don't appear to apply to me. Whether his argument is valid or not is of no concern to me, like I already said above.


If you want to argue for the sake of arguing, pick a topic and create a new thread.

[kingkilburn]

The personal attacks and insinuations really kill what could be a good discussion.

[g6civcx]

Originally Posted by kingkilburn

The personal attacks and insinuations really kill what could be a good discussion.

How do you feel about the overnight devaluation of currency?

Since our money would be cheaper relative to foreign currencies, imports go down and exports go up. GDP go up?

Good idea?

[kingkilburn]

Firstly I would think that we would announce the change some time before we did it. I think the market would start to change on it's own reflecting what investors think will happen. The question then becomes who much gold does America have vs how much does the world think it has. I think the dollar will start moving towards the later well before the date the actual change would happen.




The balance of trade will not change over night and those countries and individuals who most profit off the current balance would be very resistant to change. I think the American people would love it.

I think imports/exports would come to some sort of equilibrium that would be better for us but I don't think it would happen quickly.



The questions I ask myself when going over all this in my head are what would the buying power of the dollar be and what happens to all the debt.

I'm still not sure on the first on. The second one depends on the FED. I can see them telling the world to adjust the debt amounts to mach the deflation. I can also see the world hating that.





So good idea? I think so but the devil is in the details of implementation.

[g6civcx]

How would we do the devaluation if we went to the gold standard?

Does it require the rest of the world to be on some sort of precious metal standard as well?

[kingkilburn]

I need to think about the first question but the second I would say no.

It is already a traded commodity and has a value that is excepted by those that trade it. We would just go back to a dollar bill being a note exchangeable for a set amount of gold.

[aznpoopy]

Originally Posted by kingkilburn

I need to think about the first question but the second I would say no.

It is already a traded commodity and has a value that is excepted by those that trade it. We would just go back to a dollar bill being a note exchangeable for a set amount of gold.

there isn't enough physical gold to cover all the dollars in circulation at market price, and, more importantly, everyone pretty much knows this.

that would basically cause a "run" on the dollar (not unlike a bank run), which would quickly become worthless.

we'd basically be back at 1971.

[codyace]

Originally Posted by kingkilburn

Firstly I would think that we would announce the change some time before we did it. I think the market would start to change on it's own reflecting what investors think will happen. The question then becomes who much gold does America have vs how much does the world think it has. I think the dollar will start moving towards the later well before the date the actual change would happen.

I look at how Europe went into the Euro standard, and how defiant/slow everyone was. Sure it 'works now' but that's probably mostly because of American investment/backing of it.

Now when it comes to the gold standard, the problem is that nations now 'coming to their own' with a nice secure base monetary system (something they've never had before), don't have any gold (or much) reserves. THis would essentially knock them right back to where they were, because undoubtedly there isn't enough gold to support all of the Euros that would need be cashed in. Overnight devaluation, combined with panic, will only lead to civil unrest like we've never seen before.

Originally Posted by kingkilburn

The balance of trade will not change over night and those countries and individuals who most profit off the current balance would be very resistant to change. I think the American people would love it.

Again, I think the reverse is true, simply because of how much trade (in general) we do. Why would we purposely lower/change our currency purposely? I'm sure China would hate us, as they rely so much on our dollar it's not funny.

Originally Posted by kingkilburn

The questions I ask myself when going over all this in my head are what would the buying power of the dollar be and what happens to all the debt.

The issue here is, without some sort of leverage, the AMerican business machine wouldn't ever work. Is our debt astronomical? Certainly. Could we save billions by not providing aide to other nations, and attempting at collecting what they owe us? Certainly. The problem here inlies, that by 'asking for our dues/restricting aide' we loose allies worldwide. As simple as it sounds, and as wrong as it sounds, I think our Government/Military will easily pay off nations that way, than through other activity. Having a 'friend' in every corner of the globe is always a great thing 'in case'.

[axiomatik]

There is no intrinsic value to gold. It is just a piece of shiny metal we dig out of the dirt. The value of gold fluctuates wildly due to the fact that it is a widely traded commodity. When the stock market is doing poorly, or other commodities, are doing poorly, people dump money into gold, sending it's value higher. Once the stock market starts doing better, then traders cash out of gold to invest in stocks and its value drops. Money follows ROI. You can not base your currency on a traded commodity. I'd argue that oil is intrinsically much more valuable than gold. It is the lifeblood of the global economy. Without oil, all transportation grinds to a halt. What would happen to the economy if the supply of gold suddenly disappeared? Not nearly as much. And yet, even with oil being such an intrinsically valuable commodity, look at what commodity and futures traders did to the price of oil in the spring of 2008? The price of oil skyrocketed from $40/bbl to $150/bbl. Imagine what would happen to the economy if the US dollar was based on oil?

Going to a gold standard will then subject the value of the US dollar to the same wild fluctuations in gold values.

Also, I am not sure why people think that a "weak" US Dollar is a bad thing. A weak dollar makes goods manufactured in the US less expensive. This makes domestic production more competitive and drives exports up, as US goods are then more affordable in other markets. This is why China keeps it's currency devalued, cheap Chinese goods keep Chinese workers employed.

As for inflation, frankly, inflation is very low. Also, inflation doesn't just affect prices, it affects wages. So while goods were much cheaper 50 years go, wages were even lower. Low inflation is not a problem.

Finally, if you think the Fed's tinkering has made the cycles of boom and bust worse, you should take a look at the 1800s. There were recessions like the current one and worse happening every 5-7 years. Did the average Joe have a better idea of when to invest and in what back then? Post-war America has been very mild when it comes to recessions, this one just happens to be the worst in a long time.

[KA24DESOneThree]

Should we go back to gold? I dunno. Gold has always had value; it's never been worthless nor will it ever be worthless. Gold is a tangible asset with weight as a measure of worth. Nearly every nation on earth holds gold in high regard.

All I know, and this is an integral part of destroying the current fiat system we have now and changing to something else, is that tying worth of a currency to a tangible rather than an intangible would force government accountability for its spending. It would force corporations to be accountable for their spending. It would force the consumers to be accountable for their spending.

Credit would require tangible assets behind it. Credit wouldn't rely on the trading of intangibles, opening the door for legalized Ponzi schemes. Debt would be tangible, real debt, rather than a number with some zeroes behind it with no backing, paper or otherwise.

As long as the printing press and zeroes and ones control the value and quantity of fiat currency, there will never be a free market or true wealth using that currency. Manipulation of currency has gotten us in our current situation, both economically and politically.

Do we really want to stay on paper?

[g6civcx]

Originally Posted by KA24DESOneThree

Should we go back to gold?

Did the US ever use gold as the official currency?

[axiomatik]

Originally Posted by KA24DESOneThree

Credit would require tangible assets behind it. Credit wouldn't rely on the trading of intangibles, opening the door for legalized Ponzi schemes. Debt would be tangible, real debt, rather than a number with some zeroes behind it with no backing, paper or otherwise.

nonsense. Having money backed by gold will not change people's behavior. As long as someone can figure out how to make money by extending credit to someone else, overleverage will happen. Especially when the person extending the credit is using someone elses money.

[kingkilburn]

Originally Posted by g6civcx

Did the US ever use gold as the official currency?

Until 1933 yes. The paper money in your wallet was exchangeable for a certain amount of gold, an I.O.U. of sorts.

[KA24DESOneThree]

Originally Posted by axiomatik

nonsense. Having money backed by gold will not change people's behavior. As long as someone can figure out how to make money by extending credit to someone else, overleverage will happen. Especially when the person extending the credit is using someone elses money.

I concede that greed and immorality will allow many to overleverage, a sound monetary system would doom those companies to long-term failure.

The problem with these ideas is that, given the current political climate, in the US and around the world, they are unfeasible. At this stage, we're too far away from optimal to put them into place. Significant changes in the sociopolitical beliefs of entire countries are extremely difficult and time-consuming to enact.

Add in the fact that people are generally unreasonable and set in their beliefs and we've got a recipe for status quo.

[Mikey213]

NASA uses a lot of gold.

[mrmephistopheles]

Originally Posted by Mikey213

NASA uses a lot of gold.

In terms of a consumable commodity, yes. Relevance?