Learning from Europe while it is , in effect, on a gold standard

[EdwardBaiamonte]

Watching the current European crisis is a great way to learn about the gold standard. The gold standard is similar to the Euro standard Europe is on.

Greece, for example, cant print Euros to pay its debts so it must spend less and earn more to get the money it needs to pay its debt. This is very healthy and realistic for a country or person or family.

On a gold standard you cant print money either because only the amount of gold, not politicians, determines the amount of money

America is not on a gold standard or a Euro standard. We can and do print paper money at will. But, printing at will cause 4 problems

1) it rips off our creditors, who then won't trust us, since they are getting paid with devalued dollars.

2) it rips of the American people since prices go up by the exact amount of the liberal money printed

3) it makes the economy less efficient since prices rise erratically as the new money works its way through the economy. Prices then don't reflect real costs, and thus make comparison shopping and economic efficiency impossible

4) Most importantly, there is little obvious pain so there is little incentive to discontinue the irresponsible 3rd world behavior that got us into debt in the first place.

 

[expat_panama]

...On a gold standard you cant print money either because only the amount of gold, not politicians, determine the amount of money...

Lots of people believe that. Lots of poeple also believe that hot water freezes faster than cold water too. Let's look at how things really are. This is what US currency looked like when money used a gold standard:

The US government just printed it, and the money supply was not limited by the amount of gold. The year after it was printed the inflation rate peaked over 15% one month and the next month deflation was -7%. Wildly unstable prices was typical with the gold standard. In fact, 1920 had 16% inflation for the year and 1921 had -11% deflation.

The more we look at it the more we see that the gold standard was crazy and stupid.

 

[Mad Scientist]

The more we look at it the more we see that the gold standard was crazy and stupid.

Oh really? How's that "Printing Press Standard" working out?

Gold prices were stable until the Fed took over money printing (yes, I know they tell the Treasury to print) Gold was about 18.90 an oz before the Fed took over, what is it now?

And that's not because Gold is worth more, it's that the dollar is worth less.

Let's revue:

Pre-Federal Reserve: Stable Gold Prices, Low/Non-Existant Inflation.
Post Federal Reserve: Gold Skyrockets, Massive Inflation.

 

[expat_panama]

...Gold prices were stable until the Fed took over money printing...

Saying stuff like that is so much easier than actually looking at numbers. That's fine for little kids but adults have to have hard numbers in the bank, so let's talk adult numbers with the Fed. The fed was put into law around 1913, although the US still backed dollars with gold into the '70's. First say what year you understand the Fed's presses kicked in, and then we'll look at what the affect was on gold prices.


Or not.

 

[likeabird03]

While you have some points, especially in regards to the printing of money. Using Europe as an example of what a better economic system is a little foolish.

 

[likeabird03]

Also, let's not forget that Europe too has been reliant on the feds printing presses to keep their financial system from collapsing too.

 

[EdwardBaiamonte]

The US government just printed it, and the money supply was not limited by the amount of gold.

I think the point is that if its really a gold standard the amount of money printed is really in direct proportion to the amount of gold.

 

[Sundial]

Not that I think a real debate will emerge out of this, but -

I would have thought the comparison between Europe and America would have been that America is not in a debt crisis, and that America's economy is improving.

 

[Flopper]

I was listening to a good discussing today about the European financial situation. It appears Europe will drift into a recession because they have chosen to do so.

 

[likeabird03]

I was listening to a good discussing today about the European financial situation. It appears Europe will drift into a recession because they have chosen to do so.

Chosen because they want to go into recession to try and sort out imbalances or just as a side effect to the fact they haven't addressed so many of their issues? Just interested in knowing what the discussion said about it.

 

[FireFly]

Unless Europe adopts a unified government that can control every countries budget, their financial system will collapse possibly as soon as Monday morning.

 

[Mad Scientist]

...Gold prices were stable until the Fed took over money printing...

Saying stuff like that is so much easier than actually looking at numbers. That's fine for little kids but adults have to have hard numbers in the bank, so let's talk adult numbers with the Fed. The fed was put into law around 1913, although the US still backed dollars with gold into the '70's. First say what year you understand the Fed's presses kicked in, and then we'll look at what the affect was on gold prices. Or not.

http://www.nma.org/pdf/gold/his_gold_prices.pdf
Gold Price 1833: $18.93 oz
Gold price 1913: $18.92 oz
Gold Price Now: $1,733.00 oz

That doesn't mean that gold is worth more, it means it takes more dollars to buy one ounce of gold because the dollar has devalued.

The Fed by the way has been expanding and contracting the money supply since it's inception but you want a starting point? Ok, 1913.

And please, can the insults. You're not just explaining yourself to me, but everyone else who reads this so try to be civil.

 

[expat_panama]

...if its really a gold standard the amount of money printed is really in direct proportion to the amount of gold.

--which means that 'really' having gold standard is impossible, and trying to have a 'real' gold standard is a stupid waste of time attempting the impossible. Meanwhile the adults in the room work on stable prices of things we buy.

 

[Flopper]

I was listening to a good discussing today about the European financial situation. It appears Europe will drift into a recession because they have chosen to do so.

Chosen because they want to go into recession to try and sort out imbalances or just as a side effect to the fact they haven't addressed so many of their issues? Just interested in knowing what the discussion said about it.

Basically Europe is moving toward fiscally tightening while the ECB is no longer aggressively pursuing credit easing. Banks are much more concerned with safety of assets than economic expansion, similar to what we saw in the Great Depression. Moving toward austerity when business is starting to slow down pretty well guarantees a recession. The question is not whether the economy will contract in Europe, but how severely.

[ame=http://www.youtube.com/watch?v=N9AmAyGMl9k]"Europe Clearly Going Into Recession" - Dominic Konstam, Deutsche Bank | 11.7.11 - YouTube[/ame]

 

[samjones]

On a gold standard ... only the amount of gold, not politicians, determines the amount of money

No it didn't.

 

[expat_panama]

...Gold prices were stable until the Fed took over money printing...

Saying stuff like that is so much easier than actually looking at numbers. That's fine for little kids but adults have to have hard numbers in the bank, so let's talk adult numbers with the Fed. The fed was put into law around 1913, although the US still backed dollars with gold into the '70's. First say what year you understand the Fed's presses kicked in, and then we'll look at what the affect was on gold prices. Or not.

http://www.nma.org/pdf/gold/his_gold_prices.pdfGold Price 1833: $18.93 oz Gold price 1913: $18.92 oz Gold Price Now: $1,733.00 oz That doesn't mean that gold is worth more, it means it takes more dollars to buy one ounce of gold because the dollar has devalued.The Fed by the way has been expanding and contracting the money supply since it's inception...

No it hasn't, it took a year just to name the fed's regional banks, another decade to come up with the Open Market Committee, and we still had gold and silver certificates into the '30's. The prices you're mentioning point to how pegging the dollar to gold for over a century--

-- made things easy for people that bought gold, but that was a really stupid idea for everyone else. Gold markets are notoriously volatile and dollar pegging made purchasing power volatile for everything else. People need money to buy food not gold. What happened is that for over a century food prices went all over the place--

--until gold got phased out from the 30's into the '70's and gold price swings were ignored by adults buying food, as well as fuel, housing, clothing, and all other consumer goods:

...[/B]...And please, can the insults. You're not just explaining yourself to me, but everyone else who reads this so try to be civil.

People are important, and it's bad form to scold people here and tell them how to post. Ideas are what we kick around here, in fact if my ideas fall to pieces here I'm grateful. I'm so much better off finding out things on a forum like this than finding out the hard way in the market place. Insulting people is wrong so we're careful what we say to and about each other. What's needed with ideas and facts about money is that they have to fit reality, and when an incredibly stupid idea comes around we need to blast it all we can.

 

[samjones]

Gold markets are notoriously volatile

True.... Gold isn't really good for much. It's extremely conductive, but there are replacement materials and the amount of gold required to benefit from its conductivity is extremely small. It's not "valuable" any more than the diamonds that are used to cut glass are valuable.

Gold is good for ornamentation because it's shiny and incredibly soft and durable.... they make great little statues with it and furthermore it has proved valuable for virtually all cultures and in every era, so it has staying power, that's for sure.

It's main use is to store wealth. The supply of gold probably won't be increasing any time soon. It can't really be manufactured in a practical way. It can't be counterfeited easily. It doesn't spoil. It isn't hard to keep.

It's value relative to other goods is extremely volatile and that's why it makes a poor basis for a currency. When there was a gold standard the government artificially fixed the price of the gold to control its effect on the paper currency.

 

[expat_panama]

...It's main use is to store wealth...

Then again, according to this source and others--

...78 percent of the yearly gold supply—is made into jewelry...

...The supply of gold probably won't be increasing any time soon. It can't really be manufactured...

The supply of gold we've mined doubles every 40 years or so, and can keep doing so for another ten thousand years with just the gold on the earth's surface. There's a lot of gold.

...It's value relative to other goods is extremely volatile and that's why it makes a poor basis for a currency. When there was a gold standard the government artificially fixed the price of the gold to control its effect on the paper currency.

Bingo! Government control of prices is always a headache.

 

[Toro]

There is a time to own gold and a time not to own gold. Now is one of those times. One day, it will not be a time to own gold, just like it has not been the time to own stocks over the past decade.

FTR since the last vestiges of the gold standard was severed in August 1971, the return to owning gold has been slightly less than the return to owning stocks with dividends reinvested. If you spent your dividends instead of reinvesting the cash into stocks, gold has far outstripped equities since that time.

 

[EdwardBaiamonte]

On a gold standard ... only the amount of gold, not politicians, determines the amount of money

No it didn't.

On a real gold standard the politicians don't determine the supply of money.

Gold is the peoples money, while fiat money is liberal government money.