Gold standard - Should we go back?

[kingkilburn]

I can refute your arguments all day long but I am tired of going over the same shit as when the thread was started. Nothing new has come to the table and no one has made a single point that absolutely refutes using a gold standard.

If you want to continue with this go read an essay on the subject or something. I'm done.

P.S.
Zimbabwe is the pinnacle of fiat currency. Why be in debt? Just make more money.
Gold has NOT risen. That is the crux of my argument. Over the last few hundred years the value of gold has remained almost unchanged while in comparison the dollar has dropped of sharply since going away from the gold standard.

[axiomatik]

Originally Posted by kingkilburn

I can refute your arguments all day long but I am tired of going over the same shit as when the thread was started.

100% predictable response. You have not provided a single solid argument nor one shred of evidence in this entire thread, just vague assertions and instructions for everyone else to go read elsewhere. Meanwhile, you do not show any evidence of understanding the ramifications of what you are espousing.

Nothing new has come to the table and no one has made a single point that absolutely refutes using a gold standard.

That's because your mind is closed to opposing viewpoints. Nothing any economist or expert could say would ever sway your opinion. Besides, as I explained, a Gold standard is unworkable when we have such high trade imbalances. As long as we import $50 billion dollars a month more than we export ($600 billion dollars a year), it will be impossible to keep reserves of gold, as foreign countries will be free to cash their dollar surpluses into gold, constantly eroding our gold reserves. And there is no easy solution for our trade imbalances as long as we need so much oil to run our economy, and until we re-import much of our manufacturing.

P.S.
Zimbabwe is the pinnacle of fiat currency. Why be in debt? Just make more money.
Gold has NOT risen. That is the crux of my argument. Over the last few hundred years the value of gold has remained almost unchanged while in comparison the dollar has dropped of sharply since going away from the gold standard.

Another baseless assertion. You reject any valuations based on currency. So that only leaves valuations based on such arbitrary things such as loaves of bread, or number of pigs, or cords of wood. And you haven't exactly provided any evidence to say that gold is worth the exact same number of pigs as it did in 1700. Not that it would prove anything.

It is nothing more than your opinion that the value of gold has not changed. That is hardly a strong basis for upending the entire currency system.

[kingkilburn]

Keep blowing hard, windbag.

I expected to come in here and discuss the possibility of going back but instead was forced to be defensive the entire time while people throw around condescension and personal attacks.

Until you are ready to openly discuss it instead of spouting public school Keynesian nonsense this is over.

[axiomatik]

Insults and name-calling now? I have never attacked you personally nor called you any names. I have only addressed people's claims, arguments, and lack of evidence. I am having a civil discussion here, and presenting evidence to back my claims and refute other's claims.

This is the Loud Noises section, you should expect insults and condescension by the very nature of the controversial topics discussed here. But the proper response is to rise above it and prove your opponents wrong. Instead you sank to their level and wallowed about in angst and self-pity. Go ahead and take your ball and go home then.

[S14DB]

Watch the personal attacks please.

[Strider]

I can't believe there are people who would even argue going back to the gold standard. The fact that there are people who strongly believe this is the solution leads me to believe they've never taken a economics class or even done the data gathering to find out why this is a bad idea.

Good article:

Inflation is coming…
For as long as I can remember, Jim Grant has never been a cheerful fellow. In fact, there was a standing joke in my office that after reading Grant you could cheer up by reading King Lear. The thinking in Grant’s latest missive in the WSJ runs parallel to my recent post Giving inflation chance that with the massive fiscal and monetary stimulus coming down the pipe, inflation is inevitable. Jim wryly notes that “Frostbite victims tend not to dwell on the summertime perils of heatstroke.” He continued:

Prescience is rare enough in the private sector. It is almost unheard of in Washington. The credit troubles took the Fed unawares. So, likely, will the outbreak of the next inflation. Already the stars are aligned for a doozy. Not only the Fed, but also the other leading central banks are frantically ramping up money production…It is far less certain that, once the cycle turns, the central banks will punctually tighten.

A return to the gold standard would be disastrous
Given the enormity of the recent crisis, there have been calls for radical solutions. The hard money crowd, for example, has called for the return of the gold standard. However, a return to the gold standard would be disastrous. It would be a prelude to an global downturn of unprecedented proportions and doom future generations to heightened economic volatility.

First, a history lesson: Many years ago, people decided on the use of gold as a monetary standard. It turned out that gold has many nice properties that could be used as a store of value. Throughout human history, money has been predominantly based on gold but not always. It has also been based on other commodities. Peter Bernstein’s book The Power of Gold details the history of gold and commodity based monetary standards throughout history, from salt to large stones, some of which lay at the bottom of the sea.

As time went on, people found that gold, along with other commodity based monetary standards, was hard to carry around. Used in coinage, they could be difficult to divide and this division problem was a hindrance to commerce.

Then came the financial innovation called banking. You could deposit your gold in a bank. The bank would issue you a receipt and you could use that paper receipt for trade and commerce. The bank would lend out your deposit of gold to others. This was credit creation, which expanded the money supply. For every ducat lent out, that ducat would usually wind back up in the banking system, creating another ducat available to be lent out. Even with the imposition of reserve requirements that constraine the amount of loans they could make based on their deposit base, this form of fractional bank lending expanded credit and created enormous number of jobs and raised prosperity.

When kings and political rulers got into financial trouble, there was always a temptation to debase the currency. The current episode of paper money debasement began in earnest when Richard Nixon took the U.S. off the gold standard and the world went to a Dollar standard for monetary reserves. The trouble was, the U.S. Dollar wasn’t based on anything, other than the good name of the U.S. government.

Today we stand on the edge of a precipice. America is in recession but deeply in debt. It is about to print money to try to climb out of its hole. This consensus has been supported by pretty much all of the central banks and governments around the world. Some analysts have argued that the imposition of a gold standard would create the discipline on the monetary authorities from debasing the currency in this manner.

What does a gold standard really mean?
Let’s think this through – what does a gold standard really mean? Does the hard money crowd want us to go back to carrying around pieces of gold coinage around? In that case, how do we facilitate global trade?

Do we just want to revive a gold backing for money? There isn’t enough gold around in the world to support a gold standard at current gold prices. Rough back of the envelope calculations show that the Fed’s holdings of gold, assuming that it is unencumbered and not lent out, is worth around $200 billion at current prices. Remember that the U.S. Federal Reserve is one of the larger central bank holders of gold in the world. While that change might satisfy the gold bugs, it wouldn’t help the vast majority of the population around the world.

One of the assumptions of a gold standard is that the currency is backed by gold at a fixed rate. Anyone could turn in their Dollars, euros, Yens, Pound Sterling and so on, to the appropriate central bank and get gold at a fixed gold price. Such a monetary regime also implies a fixed exchange rate arrangement like Bretton Woods. Instead of allowing the market to determine currency prices, the world would return to fixed exchange rates and periodic exchange rate revaluations. Is that really the regime that we want to return to?

A gold standard also creates economic volatility in the economy. Monetary theory is based on the elegant formula MV = PQ. Holding V (monetary velocity) constant, changes in money supply directly changes the GDP level. Under a gold standard, money supply is restricted by the supply of gold, based on world mine output. National gold supply could shrink because of shocks. As an example, the Roman empire was subjected to credit crunches during wartime when hostile forces captured Roman gold and territory.

The problem of fractional lending remains under a gold standard. The banking system could still create credit. Under such a regime, if everyone decided to redeem their paper currency for gold, the money supply would collapse and the result would be another Depression. Do we want to get rid of the banking system?

If we were to take the radical step of eliminating fractional lending, going to a gold standard would mean a drastic shrinking of world GDP given the amount of money sloshing around the world today.

Culling the herd?
This is financial Armageddon. The result would be the financial equivalent of mandatory infection of the population with the Ebola virus. Maybe we could get Disney to lend a PR hand as we play “The Circle of Life” while we infect everybody with Ebola so people would be persuaded to sacrifice themselves for the Common Good.

The end of the Dollar as THE Reserve Currency
Let’s face it, the days of the USD as the principal reserve currency are numbered. Roger Ehrenberg over at Information Arbitrage believes that the US is at a strategic inflection point and the start of a downward spiral and I would tend to agree. The long term path of the Dollar and US influence is downward. Investors should prepare themselves for that eventuality.

[unlegendary]

i'd rather invest in currency than gold lol.

[theicecreamdan]

Still, show SOME reason why gold should have any more value than ____.

You're trading one fiat currency for another.

[bb4_96]

I don't really know much about gold standard and whatnot. Unless your an econ major it doesn't seem to get hit very hard in economics class. But it seems to me that if there is a limited supply of gold wouldn't there be a limited supply of wealth? If the economy grows where does the new capital come from? As the population grows where does then new populous' money come from? It isn't the california gold rush anymore. We aren't procuring gold at the same rate as then. I'm ignorant on this topic so any light shed is appreciated.

[wallaka]

Originally Posted by bb4_96

I don't really know much about gold standard and whatnot. Unless your an econ major it doesn't seem to get hit very hard in economics class. But it seems to me that if there is a limited supply of gold wouldn't there be a limited supply of wealth? If the economy grows where does the new capital come from? As the population grows where does then new populous' money come from? It isn't the california gold rush anymore. We aren't procuring gold at the same rate as then. I'm ignorant on this topic so any light shed is appreciated.

You are pretty much dead-on. There would be little venture capital, and it would be nearly impossible to respond to changing financial systems. There was a constant boom-bust cycle before we switched from the gold standard. There still are periods of recession and always will be, but they don't reach the lows that they did previously. Fiat currency has a way of leveling out the spikes in the graph.

[kingkilburn]

Originally Posted by wallaka

There was a constant boom-bust cycle before we switched from the gold standard.

That has more to do with the FED changing interest rates and directly affecting the stock market than not being on a gold standard.

If we did nothing else but go back to a gold standard the above would remain almost completely unchanged.

[codyace]

Originally Posted by kingkilburn

That has more to do with the FED changing interest rates and directly affecting the stock market than not being on a gold standard.

If we did nothing else but go back to a gold standard the above would remain almost completely unchanged.

As I've said in the past in this thread, if the dollar sinks, what do we base the value of gold from?

I think you're main argument is you want a 'backed' system, not a credit based. Unfortunatly that sort of system prohibits many things that keep our businesses growing/expanding/mvoing onward...credit. A backed system or 1:1 system simply would never work in today's world, nor has it ever since 'paper' systems have come in place.

[bb4_96]

Nobody answered my questions. If the system is 1:1 then how does the economy grow? Is gold then worth more wth? I'm fairly clueless with this concept.

[kingkilburn]

The exchange rate from currency to gold gets better. If the economy does better it takes less dollars to buy/exchange for the same amount of gold(assuming gold remains the same value over this time).

[axiomatik]

Originally Posted by bb4_96

Nobody answered my questions. If the system is 1:1 then how does the economy grow? Is gold then worth more wth? I'm fairly clueless with this concept.

The only real way to expand the money supply is to acquire more gold, then more currency can be issued that is backed by that new gold. Or, you could adjust the exchange rate of dollars/gold, but that would pretty much defeat the purpose of using a Gold Standard.

Long-term, if you hold the money supply constant, and economic activity increases, than you get deflation, as each dollar can buy more and more goods/services. However, deflation stifles economic growth. Why invest your money when you can just sit on it and watch it grow in value?

[theicecreamdan]

Growing in size and growing in value are two different things.

[axiomatik]

uh, yes, that's true and I addressed both. If the economy is growing (that means more productive work is being done), and the money supply remains fixed, then each and every dollar represents a larger and larger amount of labor. This is deflation: the value of the dollar grows. To avoid deflation, the money supply needs to grow to match the growth of the economy. Under a Gold Standard system, the US would then have to acquire more gold to back any additional money put into the money supply.

[Walperstyle]

Originally Posted by Walperstyle

best foolproof investment is food commodities. (and owning some of your own farmland and contract it out to neighbor farmers)

reason 1) world expands, more people = more need for food = less land to grow it on
reason 2) in worst case senereo where money is worth $0, so is every 'precious metal', and those with food will always provide for family, and have the ability to trade for other goods and services at face value.
reason 3) food is the no1 necessity for every living being... 2nd comes shelter.

quoted for obvious truth. So far I'm making good money. Cheers!

btw. I strongly urge nobody to buy gold right now. Infact, sitting on it is not safe. Its over inflated.

[axiomatik]

I agree on not buying gold right now. As the price climbs, more and more people will start to believe that it is over-priced, and start cashing out of gold. Especially as the economy picks up and people think that they will get a better return on the stock market.

[ranger240]

Originally Posted by kingkilburn

Keynesian economics - Wikipedia, the free encyclopedia


Rather than try to poke semantic holes in my claims maybe you should learn more about what you have been trying to use to back up yours. Wikipedia is as good a place as any to start.

have you read the general theory?

anyway,

i ignored this stupid thread for a month and a half as its dimwitted retorts drove me nuts. they dont anymore, its apparent how sad they are.

Good 'ol Kilburn thinks that he's ''winning'' the argument because he's ignorant of reasons why nobody is clamoring to go back to the gold standard. he hasn't actually read anything of substance on the matter. he's an ''empirical economist'' of the most insular form (he should be happy i called him an economist). by that i mean someone who comes up with a correlation of events and mistakes them as causation. sticking your head further into the sand (or up one's own ass) doesnt change the world around you.

he cites Zimbabwe as his ultimate 'checkmate' in regards to fiat currency, ergo an outlier is the best representation of a spectrum. that's like saying ''hey eating cheeseburgers is bad because you will get fat, checkout this example, i am right"


the sad thing is that instead of learning about the matter he'll be scouring the internet for suspect sources like this one Gold News | Gold Market Analysis & Gold Investment Research - Gold Price Commentary & Forecasts (one hes cited) and other garbage ones exampled previously.

killburn... for gods sake read Globalizing Capital... its a book, not some trash website.


in closing, killburn is mistaking two things, 1. what the gold standard actually is and 2. if the fed should adjust money supply.

he's pissed off about number 2. happening and saying we should go back to number 1. but as other posters have pointed out, that just cannot happen.

furthermore the u.s. could NEVER revert back to the gold std, because every other major trade partner isnt and as we know (except killburn because he hasnt read books on international monetary policy), france really screwed up exchange rates back between wwi and wwii by hoarding gold. such ''specie flow'' (another term he'll google) has a propensity to distort things.

i could go on and on and on and on and on and on and on and on and on, as could many other informed zilvia posters but you cannot expect to teach someone calculus when they've only just barely learned how to count.

[kingkilburn]

Please continue. Don't stop your ad hominem arguments on my account.

:l 101:

[axiomatik]

Originally Posted by ranger240

he cites Zimbabwe as his ultimate 'checkmate' in regards to fiat currency, ergo an outlier is the best representation of a spectrum. that's like saying ''hey eating cheeseburgers is bad because you will get fat, checkout this example, i am right"

Actually, a better analogy is "being a lesbian makes you fat, see what happens:"
[I'm not quoting the pic because it doesn't need to be shown anymore than it already has]

[rc1honda]

This is a great thread and i just read all 5 pages and learned a lot. I have no real formal education in econ, but seeing as i now have a lucrative career my money and fiances is something i have been taking a huge interest in.

That said, i have been reading a lot of doomsayer articles about the fall of the US dollar as the global standard currency. Apart from conspiracy theories, and one world currencies, are the consequences as dire as they are purported to be?

The Fed as it seems, is determined to leave me homeless, jobless and hungry with excessive spending. And it's easy to take a alarmist perspective against this future. What does one do as a upper middle class worker do protect their wealth and fiances?

Is the dollar really going to collapse? Should we of bit the proverbial "bullet" and let those banks fail and lived through the following depression? I mean i just wanna know. As a outsider looking in, all of this is really unsettling.

I guess what i am asking, is who do i vote for? What polices should I back. What do i do as a citizen to help keep my family and wealth stable seeing as a gold standard is now completely out of the question and appears more akin to communism then economics.

[kingkilburn]

If the banks were not coerced into making decisions which directly led to their failure I would say let them fail. In reality I am undecided but lean towards letting them fail.