Bring Back the 'Gold' Standard

[Toro]

The money supply should not be determined by the profitability of mining companies.

A dam sight better than protecting the profitability of fiat banksters, who don't even have the "money" they lend on hand, to then dole out and collect interest on it.

Possibly.

However, the gold standard of the 1870s to 1913 was marked some of the longest recessions in global history. It also lead to a worsening of the Depression when the Fed was forced to raise interest rates from 1.5% to 3.5% in 1931 to stem the flow of gold outside the country when Britain went off the gold standard.

The supply of money should grow over time with the economy. It should not be determined by the whims of a poorly run industry.

Plus, it is probably unrealistic. There are only about 160,000 tons of gold in existence today. That would put the aggregate global money supply at about $5 trillion, which probably is not enough for a global economy worth $30 trillion. Too little money would lead to an unnecessary economic contraction, given that tight money would cause interest rates to rise.

 

[Paulie]

The money supply should not be determined by the profitability of mining companies.

A dam sight better than protecting the profitability of fiat banksters, who don't even have the "money" they lend on hand, to then dole out and collect interest on it.

Possibly.

However, the gold standard of the 1870s to 1913 was marked some of the longest recessions in global history. It also lead to a worsening of the Depression when the Fed was forced to raise interest rates from 1.5% to 3.5% in 1931 to stem the flow of gold outside the country when Britain went off the gold standard.

The supply of money should grow over time with the economy. It should not be determined by the whims of a poorly run industry.

Plus, it is probably unrealistic. There are only about 160,000 tons of gold in existence today. That puts the aggregate global money supply at about $5 trillion, which probably is not enough for a global economy worth $30 trillion.

I've come to understand that the supply of gold grows around ~2% per year, according to some reports I've seen.

Is this something you agree with, and if so, what's so wrong with a 2% yearly increase in the money supply?

 

[Kevin_Kennedy]

If the market is dictating that interest rates need to rise then that is what needs to happen. Artificially keeping them low only misallocates more resources.

 

[Oddball]

Possibly.

However, the gold standard of the 1870s to 1913 was marked some of the longest recessions in global history. It also lead to a worsening of the Depression when the Fed was forced to raise interest rates from 1.5% to 3.5% in 1931 to stem the flow of gold outside the country when Britain went off the gold standard.

The supply of money should grow over time with the economy. It should not be determined by the whims of a poorly run industry.

Plus, it is probably unrealistic. There are only about 160,000 tons of gold in existence today. That would put the aggregate global money supply at about $5 trillion, which probably is not enough for a global economy worth $30 trillion. Too little money would lead to an unnecessary economic contraction, given that tight money would cause interest rates to rise.

Part of the what caused the Great Depression and its bank runs was that more currency was printed up than there was specie to redeem it.

Also, recessions and depressions are as much failures of dispersion of information as the are industrial and monetary misallocations....All things being more or less equal, better information should be helping to make recessions less severe and less likey to degenerate into depression.


Of course, the savvy can see that the Fed and the gubmint are artificially trying to pump up demand and bailing every bad actor in sight, so they're sitting on their hands until at least a little certainty can be seen.

 

[Paulie]

Also, recessions and depressions are as much failures of dispersion of information as the are industrial and monetary misallocations....All things being more or less equal, better information should be helping to make recessions less severe and less likey to degenerate into depression.


Of course, the savvy can see that the Fed and the gubmint are artificially trying to pump up demand and bailing every bad actor in sight, so they're sitting on their hands until at least a little certainty can be seen.

While there's CERTAINLY not enough AVAILABLE information, there's PLENTY for the average person to do the right things with their money by seeking out the information that IS there, and using it wisely.

I don't have a college degree in finance or econ or anything of the sort, and I'm not rich, but I've been doing pretty well through this recession by virtue of my strict personal policy on saving. And my line of work lives and dies on the state of the economy, too, so there's been a TAD bit of luck involved so far in 2009, because I expected my employment/income situation to be much worse, frankly.

It could always get bad at any time though, but I'm prepared well enough because I had the foresight to save. There's no valid reason why anyone who's not wealthy should be spending money like it's going out of style, simply because SOMETIMES there are multi-year periods of economic prosperity. How many recessions does the country have to go through before the idiots wise up?

 

[Oddball]

You and I did pretty much the same thing, Paulie.

 

[Toro]

Part of the what caused the Great Depression and its bank runs was that more currency was printed up than there was specie to redeem it.

Where do you get that from? There was no run on gold that I am aware of. Also, if there was too much currency relative to gold, it is extremely unlikely that there would have been severe deflation as there was during the Depression. How do prices collapse when there is excess money in the system? Usually, that leads to inflation, not deflation.

 

[Oddball]

Where do you get that from? There was no run on gold that I am aware of. Also, if there was too much currency relative to gold, it is extremely unlikely that there would have been severe deflation as there was during the Depression. How do prices collapse when there is excess money in the system? Usually, that leads to inflation, not deflation.

Ever read this one??

Creature from Jekyll Island (softbound book)

 

[Toro]

Where do you get that from? There was no run on gold that I am aware of. Also, if there was too much currency relative to gold, it is extremely unlikely that there would have been severe deflation as there was during the Depression. How do prices collapse when there is excess money in the system? Usually, that leads to inflation, not deflation.

Ever read this one??

Creature from Jekyll Island (softbound book)

I have read a fair amount on the Depression and monetary economics but I cannot say I have read that one.

Ever read this one?

[ame=http://www.amazon.com/Monetary-History-United-States-1867-1960/dp/0691003548/ref=sr_1_1?ie=UTF8&s=books&qid=1243905034&sr=1-1]Amazon.com: A Monetary History of the United States, 1867-1960: Milton Friedman, Anna Jacobson Schwartz: Books[/ame]

 

[Paulie]

Creature from Jekyll Island should be required reading for anyone even slightly interested in econ.

 

[editec]

Screw that.

Bring back the tobacco standard.

Tobacco was currency a lot longer in this nation than gold was.

Plus there's an unlimited amount.

 

[Oddball]

I have read a fair amount on the Depression and monetary economics but I cannot say I have read that one.

Ever read this one?

Amazon.com: A Monetary History of the United States, 1867-1960: Milton Friedman, Anna Jacobson Schwartz: Books

Haven't had the pleasure.

Griffin's book is the least jargon-filled work on the topic of general economic history in general and the Fed in particular that I've come across.

 

[Oddball]

Screw that.

Bring back the tobacco standard.

Tobacco was currency a lot longer in this nation than gold was.

Plus there's an unlimited amount.

You're not really trying to be taken seriously here, are you??

 

[Toro]

I have read a fair amount on the Depression and monetary economics but I cannot say I have read that one.

Ever read this one?

Amazon.com: A Monetary History of the United States, 1867-1960: Milton Friedman, Anna Jacobson Schwartz: Books

Haven't had the pleasure.

Griffin's book is the least jargon-filled work on the topic of general economic history in general and the Fed in particular that I've come across.

Friedman's book is considered the seminal work on monetary policy and the Great Depression.

 

[Oddball]

So is Griffin's.

The big difference I can see is that Griffin wasn't involved in putting the idea of tax withholding in FDR's head.

 

[auditor0007]

The money supply should not be determined by the profitability of mining companies.

A dam sight better than protecting the profitability of fiat banksters, who don't even have the "money" they lend on hand, to then dole out and collect interest on it.

Possibly.

However, the gold standard of the 1870s to 1913 was marked some of the longest recessions in global history. It also lead to a worsening of the Depression when the Fed was forced to raise interest rates from 1.5% to 3.5% in 1931 to stem the flow of gold outside the country when Britain went off the gold standard.

The supply of money should grow over time with the economy. It should not be determined by the whims of a poorly run industry.

Plus, it is probably unrealistic. There are only about 160,000 tons of gold in existence today. That would put the aggregate global money supply at about $5 trillion, which probably is not enough for a global economy worth $30 trillion. Too little money would lead to an unnecessary economic contraction, given that tight money would cause interest rates to rise.

Not enough gold to go around. That would be a problem. This is very true. The gold standard is out of the question.

 

[Kevin_Kennedy]

A dam sight better than protecting the profitability of fiat banksters, who don't even have the "money" they lend on hand, to then dole out and collect interest on it.

Possibly.

However, the gold standard of the 1870s to 1913 was marked some of the longest recessions in global history. It also lead to a worsening of the Depression when the Fed was forced to raise interest rates from 1.5% to 3.5% in 1931 to stem the flow of gold outside the country when Britain went off the gold standard.

The supply of money should grow over time with the economy. It should not be determined by the whims of a poorly run industry.

Plus, it is probably unrealistic. There are only about 160,000 tons of gold in existence today. That would put the aggregate global money supply at about $5 trillion, which probably is not enough for a global economy worth $30 trillion. Too little money would lead to an unnecessary economic contraction, given that tight money would cause interest rates to rise.

Not enough gold to go around. That would be a problem. This is very true. The gold standard is out of the question.

Not true, it doesn't matter how much gold you have.

 

[Toro]

So is Griffin's.

The big difference I can see is that Griffin wasn't involved in putting the idea of tax withholding in FDR's head.

Another big difference is that Friedman is one of the foremost economists ever while few outside of a narrow ideological spectrum have ever heard of Griffin. I might get around to it though. I have several Austrians on my shelf.

Not true, it doesn't matter how much gold you have.

Of course it does. The less there is, the more dear it will be and the cost of using it will be higher, and vice-versa. Think of this in extremes - if there was only one pound of gold in the world, the cost of obtaining it would be astronomical whereas if gold were as abundant as sand, then its use as money would be worthless.

The cost of money is dependent on the supply and demand for money. If demand is too high relative to supply, the cost of money - the rate of interest - rises. In an economy in perfect equilibrium, interest rates should equate to the increase in output of the economy since the marginal cost of capital should equal the marginal return of capital, and the marginal return on capital should equal the growth rate in the economy. If the supply of money is constrained, i.e. the supply curve shifts upward, interest rates will rise above the equilibrium rate of the economy and economic growth will slow.

 

[JW Frogen]

I think we should base our currency on female orgasims.

This would of course imply some risk of counterfitting.

 

[editec]

Part of the what caused the Great Depression and its bank runs was that more currency was printed up than there was specie to redeem it.

Where do you get that from? There was no run on gold that I am aware of. Also, if there was too much currency relative to gold, it is extremely unlikely that there would have been severe deflation as there was during the Depression. How do prices collapse when there is excess money in the system? Usually, that leads to inflation, not deflation.

Good question.

Dude mistakenly believes that the outcome of the crash was inflation.

Of course the outcome of the '29 crash was DEflation.

Gold bugs don't really understand money, what it is why it works or doesn't work, either.

They understand why inflation is a problem, but they cannot understand why DEflation is a problem.

We explain it to them every time this goofy notion comes up but they cannot understand it.

I often ask them how a gold standard economy would work in a growing economy and they pretend I didn't ask the question.

Typically they presume that since I think the gold standard is a bad idea, I must therefore think that the system we have now is good.

It is somewhat frustrating trying to discuss this issue with people who imagine that there are only two possible ways of doing things.