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

[EdwardBaiamonte]

I'm not afraid to tell you why it would lead to volatility. I just have to point to history.

We all like to imagine that history supports our point of view. If you don't know why a gold standard would end volitility why not read about it or ask questions. You fool no one by evading the question.

 

[Toro]

I'm not afraid to tell you why it would lead to volatility. I just have to point to history.

We all like to imagine that history supports our point of view. If you don't know why a gold standard would end volitility why not read about it or ask questions. You fool no one by evading the question.

You're evading the question.

 

[EdwardBaiamonte]

I'm not afraid to tell you why it would lead to volatility. I just have to point to history.

We all like to imagine that history supports our point of view. If you don't know why a gold standard would end volitility why not read about it or ask questions. You fool no one by evading the question.

You're evading the question.

actually it was you. Your argument was, history supported you- remember?

 

[Toro]

We all like to imagine that history supports our point of view. If you don't know why a gold standard would end volitility why not read about it or ask questions. You fool no one by evading the question.

You're evading the question.

actually it was you. Your argument was, history supported you- remember?

Yes. You can argue all you want about why something should or should not happen. I'm most interested in what does happen, not some theoretical construct. And history shows that economic volatility is no lower under a gold standard. Since you're arguing the opposite, the onus is on you to tell us why history is wrong and you are right.

 

[expat_panama]

I'm not afraid to tell you why it would lead to volatility. I just have to point to history.

We all like to imagine that history supports our point of view. If you don't know why a gold standard would end volitility why not read about it...

Let's get real people...

The gold standard mean stable prices only for buying volatile gold and it meant volatility for all other prices.

 

[EdwardBaiamonte]

I'm not afraid to tell you why it would lead to volatility. I just have to point to history.

We all like to imagine that history supports our point of view. If you don't know why a gold standard would end volitility why not read about it...

Let's get real people...

The gold standard mean stable prices only for buying volatile gold and it meant volatility for all other prices.

That would mean the quantity of gold was less stable than the quantity of paper money and thats 100% absurd of course. What makes gold nearly perfect is that quanity is fixed. Liberal paper money is exactly the opposite.

 

[samjones]

That would mean the quantity of gold was less stable than the quantity of paper money and thats 100% absurd of course. What makes gold nearly perfect is that quanity is fixed. Liberal paper money is exactly the opposite.

No - it's not absurd at all. It simply means that the demand for gold is highly variable, but that the value of gold ultimately returns to just a little more than the cost to extract it.

The demand of fiat currency and promises of it in the future is highly variable as well, but much easier to meet.

 

[EdwardBaiamonte]

. It simply means that the demand for gold is highly variable.

and your best example is?????????????

 

[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 its government 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 causes 4 problems

1) it rips off our creditors, who then won't trust us, since they are getting paid with devalued dollars. They then rip us off with higher interest rates on future borrowing.

2) it rips of the American consumer 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 very difficult.

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

 

[samjones]

. It simply means that the demand for gold is highly variable.

and your best example is?????????????

The last few years is a great example. Since gold has little actual intrinsic value, it's real value is that people view it as a good store of wealth, therefore they flock to it as safe have in uncertain economic times.

Just like they do to dollars.

What was gold doing for the 20 years before this financial crisis? Not much.... and ultimately the price of gold will return to just a little more than it costs to extract it.

 

[samjones]

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

If this is so then we should celebrate the efficacy of fiat currency. We want prices to rise in such a predictable and sensible manner.

Yay liberal money!

 

[EdwardBaiamonte]

. It simply means that the demand for gold is highly variable.

and your best example is?????????????

The last few years is a great example. Since gold has little actual intrinsic value, it's real value is that people view it as a good store of wealth, therefore they flock to it as safe have in uncertain economic times.

Just like they do to dollars.

What was gold doing for the 20 years before this financial crisis? Not much.... and ultimately the price of gold will return to just a little more than it costs to extract it.

I think the issue is that gold appears to be unstable to you only because it is limited by the government as the people's currency,i.e., the only way to escape liberal government fiat money. If it was "the" currency it would be the most stable possible currency because the quanitity is more fixed than an other on earth. Now you know the basis of the gold standard.

To help you understand further: if the government prints too much gold backed currency people simple return it to the bank in exchange for gold and thus liberal inflation is impossible. With fiat money the liberals can print what they want and spent what they want, on what they want, without much consent from the people.

 

[EdwardBaiamonte]

it[inflation] rips of the American consumer since prices go up by the exact amount of the liberal money printed

If this is so then we should celebrate the efficacy of fiat currency. We want prices to rise in such a predictable and sensible manner.

This is not even econ 101 Sam! All agree inflation(rising prices) is bad. You want stable prices so you know whether things are getting more or less expensive and by how much. When prices are going up you lose track of what things cost and so cant be an efficient shopper. You don't pick up price signals and the efficiency of the economy is lost.

There are other negatives with inflation too. Hope that gets you off square one though

Yay liberal money!

and now you know better. This is a big day for you.

 

[DSGE]

Only unexpected inflation rips of creditors. If creditors expect say, 2% inflation a year (most central banks now have an explicit inflation target), then the interest rate on loans will have a 2% inflation premium.

Prices rise, but so does the price of labour (ie, wages). Inflation does not permanently lower your buying power because wages and prices end up rising in equal proportion, maintaining the real wage.

Even if you wanted 0% inflation, the Gold Standard is the absolute worst way to go about it. See the problem is that the money supply isn't the only thing that causes prices to rise/fall. Changes in the demand for money do too. Inflation happens when the growth in the supply of money outpaces the growth in demand for money. So with a fixed money supply, swings in the demand for money create large swings in the price level. You're better off just giving the central bank an equally binding rule that they must maintain a stable price level, in which case they would counter changes in the demand for money, preventing wild swings in the price level.

Either way though, nobody who complains about it really seems to actually understand inflation (especially ron paul). 2% inflation per year is not a problem at all.

 

[EdwardBaiamonte]

You said "90% of economic volatility would be eliminated." [with a gold standard] That is what I'm "comprehending." And it is wrong.

We had a gold standard for ~40 years from the 1870s onward.

you are 100% confused. Do you remember William Jennings Bryant's "cross of gold" . We did not have a true gold standard. There was huge huge controversy about it. It was the main topic in presidential election precisely because it was by no means a settled matter. Liberals openly wanted fiat inflation so farmers in debt would be better off when they had to pay back with inflated fiat currency. Read your HS history!!

Want to give up or do you want to challenge the gold standard from another era??

 

[EdwardBaiamonte]

Only unexpected inflation rips of creditors.

You are 100% confused! inflation is not expected or controllable. Many many long term leases are not getting signed as we speak because
no one can agree on what inflation will be over the term of a lease- typicially 40 years in the case of McDonalds, for example. Live and learn.

Many people signed long term leases back in the 50's, 60's and 70's having no idea that their rent would be worth 15% of what it started out to be thanks to liberal inflation.

 

[DSGE]

Only unexpected inflation rips of creditors.

You are 100% confused! inflation is not expected or controllable. Many many long term leases are not getting signed as we speak because
no one can agree on what inflation will be over the term of a lease- typicially 40 years in the case of McDonalds, for example. Live and learn.

Many people signed long term leases back in the 50's, 60's and 70's having no idea that their rent would be worth 15% of what it started out to be thanks to liberal inflation.

Well over here we know that inflation is going to be on average about 2.5% per year. We expect that because it's what the Reserve Bank is legally obliged to do. In the US it's marginally harder since they don't have a legal target, but they have an implicit target of 2% per year.

But anyway, you understand the point that for price stability you still shouldn't use a gold standard, right?

 

[EdwardBaiamonte]

You're better off just giving the central bank an equally binding rule that they must maintain a stable price level, in which case they would counter changes in the demand for money, preventing wild swings in the price level.

actually our Fed was created to be used along with our gold standard.
This makes it much harder for the liberals to inflate the currency as long as the mandate is only price stability.

 

[EdwardBaiamonte]

In the US it's marginally harder since they don't have a legal target, but they have an implicit target of 2% per year.

over the last 40 years its averaged 4%. Now, with BO in office and a $15 trillion debt and China targets are stupid and meaningless and worthless.

 

[DSGE]

You're better off just giving the central bank an equally binding rule that they must maintain a stable price level, in which case they would counter changes in the demand for money, preventing wild swings in the price level.

actually our Fed was created to be used along with our gold standard.
This makes it much harder for the liberals to inflate the currency as long as the mandate is only price stability.

Actually it was created for two reasons: 1) Lender of Last Resort - to attempt to prevent bank runs; 2) Currency elasticity - because the gold standard was resulting in, as mentioned, gigantic swings in the price level. Huge inflation followed by huge deflation. The Fed was supposed to keep the currency elastic (ie, offset the demand for money) so that there'd be short run price stability as well as long run price stability.

Liberals don't want inflation. Nobody likes the idea of monetising government debt. And at the same time, most conservative economists recognise that the gold standard is a terrible way to run monetary policy.