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

[samjones]

Well there was a time where there was NO paper money. But that's not a gold standard, that just GOLD!

We're talking about having a monetary system called the GOLD STANDARD.

I can't think of any nation that imposed a gold standard on itself that it could not change by fiat. (that is change the greenback to gold ratios at will)

If you know of a nationin modern times that had a gold standard it could NOT change at will, please tell us which nation did that to itself.

And for additional credit, tell us what happened to that nation and why it changed its monetary system, too.

Right. A gold specie standard. Or a guarantee that a minted coin will have embedded or alloyed a specific amount of gold within. Or a guarantee that a paper will be backed by gold that is actually *in* a vault, rather than simply the promise to provide gold at set price.

Gold *specie* standard was the norm for mellenia and is what the radical right Ron Paul types seem to be calling for. In this standard - $35.00 *IS* one oz of gold, no ifs ands or buts. You don't got the gold, you don't print the note. You got the gold, you print the note.

Of course nations have been able to more creatively manage the money supply to accomplish various goals - financing the repelling of an invasion and maintaining sovereignty jumps to mind - but regardless of the merits of these goals this still remains a smoke-and-mirrors approach to imbuing on a piece of paper value it does not have to take from those who got.

In fact, Ed is not 100% wrong to complain about the nature of fiat. He's just full of shit when he calls everything that isn't a gold standard to his liking "liberal fiat".

 

[EdwardBaiamonte]

The Great Depression was the result of deflation.

If I mentioned the Great Depression I'll pay you $10,000.Bet??

You are trying to change the subject because as a liberal you know nothing.

For the third time, liberal, why or how does inflation cause investment.

 

[EdwardBaiamonte]

I can't think of any nation that imposed a gold standard on itself that it could not change by fiat. (that is change the greenback to gold ratios at will)

As a liberal you should not try to think. Liberals are those who cant think. Sad but true. Sorry. Of course, a gold standard is made by man and can be broken or changed by man. Did someone tell you that a gold standard could be enforced by extraterrestrials??

 

[samjones]

The Great Depression was the result of deflation.

If I mentioned the Great Depression I'll pay you $10,000.Bet??

You said that inflation causes depressions and bubbles. That's a combination of not true and oversimplified. I merely pointed out that the Great Depression was caused by deflation.

You're getting a little touchy, don't you think?

You are trying to change the subject because as a liberal you know nothing.

This is the same attitude Ron Paul brings to the debates and its why nobody takes him seriously.

For the third time, liberal, why or how does inflation cause investment.

It doesn't. Increasing the money supply does. There are a number of ways to increase the money supply. Lower interest rates and banks order more of it to lend to their borrowers..... that's called "investment".

Sooner or later this will all come together for you, I know.

 

[samjones]

As a liberal you should not try to think. Liberals are those who cant think. Sad but true.

*Exactly* the attitude that makes Ron Paul 100% unelectable. Go through life bitter that you aren't getting your way. It's the surest way to make sure that you never do.

 

[EdwardBaiamonte]

Lower interest rates and banks order more of it to lend to their borrowers..... that's called "investment".

In econ 101 they teach, S=I, savings equals investment. Wouldn't it be so nice if liberals could just lower rates to magically get perpetual investment and boom!!

 

[samjones]

Lower interest rates and banks order more of it to lend to their borrowers..... that's called "investment".

In econ 101 they teach, S=I, savings equals investment. Wouldn't it be so nice if liberals could just lower rates to magically get perpetual investment and boom!!

But that's what the Fed does, no? Sometimes as we discuss these matters I don't know if you're trying to somehow trick me into responding a certain way or whether you happened to simply climb out from under a rock and there stood Ron Paul.

If the Fed wants to stimulate the economy through spending and investing they lower interest rates. If they get concerned about inflationary pressures they raise them.

Can this go on in perpetuity? Sure! Why not!? It's not even real money. It's only fiat.

 

[EdwardBaiamonte]

Lower interest rates and banks order more of it to lend to their borrowers..... that's called "investment".

In econ 101 they teach, S=I, savings equals investment. Wouldn't it be so nice if liberals could just lower rates to magically get perpetual investment and boom!![/QUOTE]

But that's what the Fed does, no?

no no no!! the Feds mandate is stable prices, if it perpetually lowers rates to get perpetual investment and boom rates reach zero and you have huge inflation and huge bubbles. Economic growth comes from private innovation not liberal bureaucrats.

 

[samjones]

[
no no no!! the Feds mandate is stable prices, if it perpetually lowers rates to get perpetual investment and boom rates reach zero and you have huge inflation and huge bubbles. Economic growth comes from private innovation not liberal bureaucrats.

Well price stability is one of the Fed's mandates. Low inflation=Price Stability, no? Most people (me included) seem to agree that DEFLATION is bad and a little inflation is good. They seem to keep things usually in the black and below 5%. We haven't seen any double-digit inflation in a good long while.

What's the gripe with fiat again? Is it the fact that fiat currency brings price stability that has you so up-in-arms?

 

[EdwardBaiamonte]

a little inflation is good.

how can it be good if it creates bubbles and mal-investment. If a little is good why isn't a lot better??

 

[samjones]

a little inflation is good.

how can [inflation] be good if it creates bubbles and mal-investment.

Because it doesn't. End of story. We had housing and tech in the last ~10 years. Neither happened during inflationary periods. We had the Great Depression - double-digit DEflation.

Glad I could answer your simple question. I propose you take my answer to heart and internalize it.

If a little is good why isn't a lot better??

The Fed writed ad nauseum about their goals for inflation. The number doesn't really matter as long as everyone knows what the target is and the target doesn't change. 2% is pretty good. We tend to stay pretty close to that. I would rather see 8% than -2% because if there's one thing that sucks it's that deflation.

 

[EdwardBaiamonte]

a little inflation is good.

how can [inflation] be good if it creates bubbles and mal-investment.

Because it doesn't. End of story. We had housing and tech in the last ~10 years. Neither happened during inflationary periods.

OMG!!!the housing bubble was an inflation bubble!! Prices for houses went up. It was in all the papers.

 

[DSGE]

how can [inflation] be good if it creates bubbles and mal-investment.

Because it doesn't. End of story. We had housing and tech in the last ~10 years. Neither happened during inflationary periods.

OMG!!!the housing bubble was an inflation bubble!! Prices for houses went up. It was in all the papers.

That's not what inflation means. When the price of housing goes up, that's not inflation. When the price of fuel goes up, that's not inflation. When the general level of prices goes up, that's inflation. So much for that Econ 101 you keep bragging about...

Anyway, you've not managed to explain how inflation causes bubbles or mal-investment.

 

[EdwardBaiamonte]

That's not what inflation means. When the price of housing goes up, that's not inflation.

when prices bubble way up in a huge % sector of the economy it can be very very inflationary especially if this happens in a world awash in credit based on entirely new financial derivatives as ours was.

 

[DSGE]

That's not what inflation means. When the price of housing goes up, that's not inflation.

when prices bubble way up in a huge % sector of the economy it can be very very inflationary especially if this happens in a world awash in credit based on entirely new financial derivatives as ours was.

Explain how it raises the general level of prices. Because that's what inflation is. When one sector experiences a bubble, that's an increase in relative prices.

 

[EdwardBaiamonte]

That's not what inflation means. When the price of housing goes up, that's not inflation.

when prices bubble way up in a huge % sector of the economy it can be very very inflationary especially if this happens in a world awash in credit based on entirely new financial derivatives as ours was.

Explain how it raises the general level of prices. Because that's what inflation is. When one sector experiences a bubble, that's an increase in relative prices.

cpi( not housing) was up 3% per year 2000 -2007 while housing was up 7%. OF course Bernanke would have popped that inflationary bubble if he had it to do over again.

 

[DSGE]

when prices bubble way up in a huge % sector of the economy it can be very very inflationary especially if this happens in a world awash in credit based on entirely new financial derivatives as ours was.

Explain how it raises the general level of prices. Because that's what inflation is. When one sector experiences a bubble, that's an increase in relative prices.

cpi( not housing) was up 3% per year 2000 -2007 while housing was up 7%. OF course Bernanke would have popped that inflationary bubble if he had it to do over again.

The average year-on-year CPI is about 3.7%. So inflation was below average in that period. So it's hard to claim inflation caused anything. Take the most inflationary period though, 1970-80. Not too many bubbles there... What does you fear tell you?

Even if it wanted to, the Fed couldn't pop a bubble. Not without destroying the rest of the economy.

 

[samjones]

The average year-on-year CPI is about 3.7%. So inflation was below average in that period. So it's hard to claim inflation caused anything. Take the most inflationary period though, 1970-80. Not too many bubbles there... What does you fear tell you?

Even if it wanted to, the Fed couldn't pop a bubble. Not without destroying the rest of the economy.

Irrational exuberance cause the tech bubble, not inflation.

Mark to market accounting caused the housing bubble (and it probably will again), not inflation.

 

[DSGE]

The average year-on-year CPI is about 3.7%. So inflation was below average in that period. So it's hard to claim inflation caused anything. Take the most inflationary period though, 1970-80. Not too many bubbles there... What does you fear tell you?

Even if it wanted to, the Fed couldn't pop a bubble. Not without destroying the rest of the economy.

Mark to market accounting caused the housing bubble (and it probably will again), not inflation.

How do you figure?

 

[samjones]

Mark to market accounting caused the housing bubble (and it probably will again), not inflation.

How do you figure?

Easy - the banks were fine with lending more of our money at favorable rates as long as housing prices went up and housing prices kept going up as long as banks continued to lend money at favorable rates. FAS 157 was (truthfully) *imposed* on Fannie and Freddie in '06 and was widely used before that. The problem wasn't really that people were buying more house than they could afford. The problem was simply that house prices were falsely high because the positive feedback loop created by FAS 157 made home ownership unreasonably expensive. That is the root cause and all the problems that came afterward, from obscene bankers bonuses to the subprime derivatives crashing the investment banking sector to the high unemployment rate - it all traces back to FAS 157.....


.... which is still the accounting standard used. But it doesn't matter because the housing market sucks. If it ever recovers we'll be screwed again.