The Gold Standard

Off Topic Politics and World Issues
21

[quote]Liha wrote:
orion wrote:
yes, you are missing that any amount of money is enough to supply an economy, what is important is the relation of prices to each other.

So, you simply print a new dollar, a blueback or something and say it represents exactly one ounce of gold. Or half an ounce or whatever. Afterwards you outlaw fractional reserve banking and M3 will rapidly approach M1.

That would be very bad news for investment bankers, but good for almost everyone else.

Unfortunately and that really is a problem, even if you did that, another currency could do the same the US has done and create cheap money that floods the world, however, since there is no new world reserve currency in sight it is unlikely for the near future.

How come “any amount of money” could secure trading being commenced in an economy?

…

Also, I have read Rothbard’s “mystery of banking” (which btw. taught me many things that a Master’s degree in economics didn’t) and I realise, that in a libertarian world/utopia, people would find an effective currency through some commodity. But should we at this point stick to analysing a single, official currency backed by gold in government vaults, I think there is a problem.

Regarding fractional reserve banking, it should be abolished.[/quote]

Good on you for reading Rothbard! He is one of the most intellectually rigorous scholars promoting the libertarian philosophy. He also explains the question you ask in the Mystery of Banking.

Prices are a function of supply and demand for both the goods in question and the commodity of exchange so prices will always be a refection of how much money is actually in existence; the implication is that any amount of medium is enough to sustain trade. The more of a medium that exists the relatively higher prices will be and the less of a medium in existence the lower they will be; however, it is not a linear phenomenon.

In a fractional reserve system such as the US some goods will be much more expense because there is tendency for inflated currencies to create increased demand for goods that would otherwise not be there – for example, the housing boom created by lowered interest rates in 2001.

Ideally, there should be competition between currencies and not one promoted standard over an other.

22

[quote]LIFTICVSMAXIMVS wrote:

Good on you for reading Rothbard! He is one of the most intellectually rigorous scholars promoting the libertarian philosophy. He also explains the question you ask in the Mystery of Banking.[/quote]

Thanks, it’s a highly recommendable book. I first read about it somewhere on this site.

[quote]LIFTICVSMAXIMVS wrote:

Prices are a function of supply and demand for both the goods in question and the commodity of exchange so prices will always be a refection of how much money is actually in existence; the implication is that any amount of medium is enough to sustain trade. The more of a medium that exists the relatively higher prices will be and the less of a medium in existence the lower they will be; however, it is not a linear phenomenon.

…

Ideally, there should be competition between currencies and not one promoted standard over an other.[/quote]

Yes, there is the fact that the less currency in relation to other goods there is in circulation, the more the prices would fall, which would eventually cause people to buy more and thus again cause an increase in prices, since an important attribute of money supply is of course the velocity of it. But if all commerce were to be done with too little of it in circulation, wouldn’t that potentially cause amazing velocity swings? Wouldn’t that in turn cause major price swings? And with today’s large businesses requiring some sort of price stability over mid- and long-term, they would be severely hampered. All of this is of course assuming, that only one single currency would have the legal tender.

I guess I still simply disagree with the notion that ANY amount is enough to make a currency any more reliable than a fiat one.

What interest me as well, is how you finance projects that will pay themselves in one or two decades, if the goal is to have falling prices?

For the record, I don’t share all the libertarian views anyway, although we all do want the governments’ size to go into the same general direction.

23

[quote]Liha wrote:
Yes, there is the fact that the less currency in relation to other goods there is in circulation, the more the prices would fall, which would eventually cause people to buy more and thus again cause an increase in prices, since an important attribute of money supply is of course the velocity of it. But if all commerce were to be done with too little of it in circulation, wouldn’t that potentially cause amazing velocity swings? Wouldn’t that in turn cause major price swings? And with today’s large businesses requiring some sort of price stability over mid- and long-term, they would be severely hampered. All of this is of course assuming, that only one single currency would have the legal tender.

I guess I still simply disagree with the notion that ANY amount is enough to make a currency any more reliable than a fiat one.

What interest me as well, is how you finance projects that will pay themselves in one or two decades, if the goal is to have falling prices?
[/quote]

Well, the general notions that we work with is the fact that we assume that prices always increase…even when technology allows for a greater productive capacity. This is due to the fact that the money supply under a fractional reserve system tends to increase and not decrease.

If we abolished fractional reserve banking we would just reverse our planning activities around the notion of price decreases. For example, we would wait to buy goods that we know will come down in price which would signal producers to decrease production to stabilize their prices. We must also remember that costs on production will also decrease so producers would not necessarily have issues with decreasing prices.

Since labor prices would also follow this trend employers would tend to want to hire more people but workers would be more resistive to seek this employment. This would be enough to work to stabilize labor prices. The more productive industries would still pay higher wages on the whole.

Basically, our planning activities will change with the signals we receive from the price structure and trends. Though, as with any entrepreneurial activity there is the possibility that we could be wrong.

24

[quote]Liha wrote:
Here’s a question I can’t find an answer for. How the hell could a gold-backed currency work with today’s massive economies.

The numbers are as follows (Source: Wikipedia):

  • The US gold reserves: 8133.5 Tonnes = 261 498 097 Oz.

[/quote]

Yeaaaah, I kinda wonder about that figure.

Attached above is a chart of the figures for the United States custodial gold and silver reserves, compiled from audits of the Department of the Treasury from 2001 to 2008. You may find the reports for yourself at the Treasury’s website.

As you can see, in 2001 the Treasury’s reserves comprised 245,262,897 fine troy ounces (FTO) of gold, and 7,075,171 FTO of silver. These numbers have remained unchanged until the present day.

Note that starting in 2005, the audit divided the figures into Deep Storage and Working Stock. Before that, additions to the reserves of new bullion from mining, and subtractions for minting and sale of bullion coinage, were not counted in the total.

Deep Storage is defined as that portion of the U.S. Government-owned gold and silver Bullion Reserve which the United States Mint secures in sealed vaults. Deep storage gold comprises the vast majority of the Bullion Reserve and consists primarily of gold bars. Deep storage silver is also primarily in bar form.

Working Stock is defined as that portion of the U.S. Government-owned gold and silver Bullion Reserve which the United States Mint can use as the raw material for minting coins. Working stock gold comprises only about one percent of the Gold Bullion Reserve and consists of bars, blanks, unsold coins, and condemned coins. Similarly, working stock silver consists of bars, blanks, unsold coins, or condemned coins.

(Definitions courtesy of the Treasury reports.)

Now, I don’t know about you, but I would expect these numbers to fluctuate. I would expect a certain amount of bullion to be added to (or subtracted from) Deep Storage. I would further expect the working stock to be used up in the production of minting gold and silver Eagles and other numismatic articles, and to be replenished each year as a result of new mining and refining activities.

I would NOT expect the numbers to remain as constant as the atomic weight of lead, down to a single ounce, as they seem to have year after year.

Either the Treasury is remarkably efficient and 100% accountable, or they are lying.

Oh, and ask yourself how accurate an audit could be of gold and silver reserves which are “secured in sealed vaults.”

At the risk of discrediting myself through association with an organization regarded by some to be a bunch of gold-bug kooks, here is a Wall Street Journal ad by the Gold Anti-Trust Action Committee, who basically pose the question, “What Gold Reserves?”

Enjoy.

http://www.gata.org/node/wallstreetjournal

25

420×717 200 KB

One more random musing abut gold before I go off to buy a bit more.

Take a look at the graphic above. It’s a chart of the gold price from September 1979 to April 1980. As most of us are aware (and some of us can even remember being there at the time), the price of gold peaked at an all-time high of $895 in January of 1980, before dropping again due to profit-taking.

This chart becomes interesting when adjusted for inflation. Note the red numbers at the right of the chart. Here I have restated the price per ounce of gold in 2008 dollars, on the assumption that one 1980 dollar has the equivalent buying power of $2.6135 in 2008.

By that reckoning, the peak price of gold in 2008 dollars was close to $2339. The current price of gold, just for a laugh, is indicated by the red arrow in the chart, near September 11, (coincidence?!?!?!) 1979.

Of course, friend Lifticvs will be the first to tell you that history never, ever, ever repeats itself, and who am I to argue?

However, as we enter the worst financial crisis since 1929, presided over by the most socialist administration since Franklin Roosevelt, I can’t help but think that we’re in for a wild ride.

I wasn’t old enough in 1980 to have much more gold than what I carried in my molars, and I distinctly remember feeling like I missed out on all the excitement.

Not this time.

26

[quote]Varqanir wrote:
Yeaaaah, I kinda wonder about that figure.

Attached above is a chart of the figures for the United States custodial gold and silver reserves, compiled from audits of the Department of the Treasury from 2001 to 2008. You may find the reports for yourself at the Treasury’s website.

…

I would NOT expect the numbers to remain as constant as the atomic weight of lead, down to a single ounce, as they seem to have year after year.

Either the Treasury is remarkably efficient and 100% accountable, or they are lying.

Oh, and ask yourself how accurate an audit could be of gold and silver reserves which are “secured in sealed vaults.”

At the risk of discrediting myself through association with an organization regarded by some to be a bunch of gold-bug kooks, here is a Wall Street Journal ad by the Gold Anti-Trust Action Committee, who basically pose the question, “What Gold Reserves?”

Enjoy.

http://www.gata.org/node/wallstreetjournal
[/quote]

Don’t you worry about minor details such as whether the actually exists or not. I’m sure Barry has an explanation for it. I’ll go get me some more of them blue pills.

Seriously though, I did not think that far really, so thanks a bunch for the links.

BTW. Oil might also be a good investment. If no other reason, simply because Peter Schiff says so. He argues that when China really gets fed up trying to keep the exchange rates of the Yuan vs. the Dollar low, because americans still won’t buy anything, they will allow it to gain value and start buying commodities for a much cheaper (Yuan-)price.

27

[quote]Varqanir wrote:
Of course, friend Lifticvs will be the first to tell you that history never, ever, ever repeats itself, and who am I to argue?
[/quote]

Oh and I guess all the previous mass hysterias and bubbles were just individuals without any sort of “typical human weaknesses” (which don’t exist) doing rigorous macroeconomic and financial modelling on their home computers and simply happened to get it all wrong with their individual parameters that lead to a gross overvaluation. Yeah, that’s probably it.

28

[quote]Liha wrote:
Here’s a question I can’t find an answer for. How the hell could a gold-backed currency work with today’s massive economies.

The numbers are as follows (Source: Wikipedia):

  • The US gold reserves: 8133.5 Tonnes = 261 498 097 Oz.
  • M3 money supply in 06: roughly 10 000 bn. dollars
  • M1 money supply in 07: roughly 1 400 bn. dollars

Meaning that for every ounce of gold there is roughly 38 000 M3-dollars and 5350 M1-dollars in circulation. Would converting these to gold vouchers make any difference? E.g. a fifth of an ounce of gold for a powerful laptop.

I do understand the destructive nature of a fiat-currency, but shouldn’t the basket of something tangible backing the currency at least be something that actually has enough value to back the entire economy? I mean, if the above-mentioned example isn’t enough, think of China, that only has gold reserves of about 6% of those of the US, but a GDP of about a quarter of the US’ and growing. There are other, more extreme examples as well.

Am I missing something here?[/quote]

If convertiblity were restored, the upper end is $56,000 per ounce. Of course, being prudent and owning a lot of gold would mean you made ‘windfall’ profits — as if the wind blew your profits into your lap.

Seriously, the people running this show are totally stupid/evil. Our world is like a machine running amok, with the 3 Stooges pushing buttons.

Yeah, vote Obama. Vote Bush. Vote McCain. Yeah…

29

[quote]Headhunter wrote:
Seriously, the people running this show are totally stupid/evil. Our world is like a machine running amok, with the 3 Stooges pushing buttons.

[/quote]

Mikeyali’s avatar seems strangely appropriate here.

30

[quote]Varqanir wrote:
One more random musing abut gold before I go off to buy a bit more.

…
Of course, friend Lifticvs will be the first to tell you that history never, ever, ever repeats itself, and who am I to argue?

…
Not this time.
[/quote]

As you, V, have pointed out, history may not repeat, but it certainly rhymes.

So, in honor of Samuel Clemens, I present the Four Stooges:

31

[quote]DrSkeptix wrote:
Varqanir wrote:
One more random musing abut gold before I go off to buy a bit more.

…
Of course, friend Lifticvs will be the first to tell you that history never, ever, ever repeats itself, and who am I to argue?

…
Not this time.

As you, V, have pointed out, history may not repeat, but it certainly rhymes.

So, in honor of Samuel Clemens, I present the Four Stooges:

[/quote]

Those, my dear doctor, are the Four Horsemen.

32

We are truly witnessing major historical events here, gents. The simple fact remains that we are inundated by debt. There is ABSOLUTELY NOTHING that can make that debt disappear without consequence. Either the debt has to simply self-destruct through deflation or be paid off with paper money worth about the value of a napkin.

No matter how our leaders may seek to evade this simple fact; no matter how our ‘brilliant’ voters refuse to admit it — the debt will not go away nicely.

Totalitarianism is next. People want their healthcare and retirement benefits, afterall.

33

[quote]Headhunter wrote:
We are truly witnessing major historical events here, gents. The simple fact remains that we are inundated by debt. There is ABSOLUTELY NOTHING that can make that debt disappear without consequence. Either the debt has to simply self-destruct through deflation or be paid off with paper money worth about the value of a napkin.

No matter how our leaders may seek to evade this simple fact; no matter how our ‘brilliant’ voters refuse to admit it — the debt will not go away nicely.

Totalitarianism is next. People want their healthcare and retirement benefits, afterall.[/quote]

Hurrah

UK is pretty f*cked too, almost broke :frowning:

Even worse for us though is we are lumbered with Europe and all their idiots.

I mean in times of crisis do you REALLY want to be counting on the French for ANYTHING other than to screw up… its their national pastime after all (wars won?)

34

[quote]300andabove wrote:
I mean in times of crisis do you REALLY want to be counting on the French for ANYTHING other than to screw up… its their national pastime after all (wars won?)[/quote]

Yeah, good point. They haven’t started wars since the 18th century. I mean it’s as if they almost learned their lesson with Napoleon.

35

[quote]300andabove wrote:
Headhunter wrote:
We are truly witnessing major historical events here, gents. The simple fact remains that we are inundated by debt. There is ABSOLUTELY NOTHING that can make that debt disappear without consequence. Either the debt has to simply self-destruct through deflation or be paid off with paper money worth about the value of a napkin.

No matter how our leaders may seek to evade this simple fact; no matter how our ‘brilliant’ voters refuse to admit it — the debt will not go away nicely.

Totalitarianism is next. People want their healthcare and retirement benefits, afterall.

Hurrah

UK is pretty f*cked too, almost broke :frowning:

Even worse for us though is we are lumbered with Europe and all their idiots.

I mean in times of crisis do you REALLY want to be counting on the French for ANYTHING other than to screw up… its their national pastime after all (wars won?)[/quote]

They did fine against England :-).

In fact they did so good that you all are half French, so there.

Though the Normans were really just a bunch of Vikings.

36

[quote]LIFTICVSMAXIMVS wrote:
300andabove wrote:
I mean in times of crisis do you REALLY want to be counting on the French for ANYTHING other than to screw up… its their national pastime after all (wars won?)

Yeah, good point. They haven’t started wars since the 18th century. I mean it’s as if they almost learned their lesson with Napoleon. [/quote]

It´s as if they believe that a nuclear arsenal that can wipe out human civilization is enough to defend a country.

37

[quote]orion wrote:
LIFTICVSMAXIMVS wrote:
300andabove wrote:
I mean in times of crisis do you REALLY want to be counting on the French for ANYTHING other than to screw up… its their national pastime after all (wars won?)

Yeah, good point. They haven’t started wars since the 18th century. I mean it’s as if they almost learned their lesson with Napoleon.

It´s as if they believe that a nuclear arsenal that can wipe out human civilization is enough to defend a country.
[/quote]

And they nearly went broke getting it.

Dopey guy wanted so much to be at the top table that he went for nukes.

(p.s. i dislike the french)

What we SHOULD do is set up a new community to share everything.

US and the UK.

Be great, all get along, go kick some ass all over the world, no other idiotic countries to fuck it up.

Call it the USUK.

38

[quote]300andabove wrote:
Call it the USUK.

[/quote]

Pronounced “You Suck?”

39

[quote]varqanir wrote:
Pronounced “You Suck?”[/quote]

That certainly would reflect the attitude of the citizens, no?

40

[quote]Varqanir wrote:
300andabove wrote:
Call it the USUK.

Pronounced “You Suck?”[/quote]

You have to admit, if this is on the flags of the people who just “liberate” your country you instantly know where you stand with them.

Kind of refreshing.