The Gold Standard and the Great Depression

Are you still running your ignorant foul mouth on this forum? If you can show that Goldman made all that money, do so. If you can show that Paulson benefitted personally from it, do so.
Otherwise shut the fuck up and go back to the library so you don't sound like the half-wit you are.

When HR1207 gets passed at law this will all come out much more than people could imagine.
 
Are you still running your ignorant foul mouth on this forum? If you can show that Goldman made all that money, do so. If you can show that Paulson benefitted personally from it, do so.
Otherwise shut the fuck up and go back to the library so you don't sound like the half-wit you are.

When HR1207 gets passed at law this will all come out much more than people could imagine.

That will happen about the time the US goes back on the gold standard.
 
Are you still running your ignorant foul mouth on this forum? If you can show that Goldman made all that money, do so. If you can show that Paulson benefitted personally from it, do so.
Otherwise shut the fuck up and go back to the library so you don't sound like the half-wit you are.

How about Paulson benefitting just from him being treasury secretary.. His $500 million in goldman stock profits being tax free (Just like good ole NJ Governor Jon Corzine) from him being in public office...

I'm admittedly confused on this. Paulson must divest all financial interest before holding the secretary position, no?

This is where the Steven Freidman conflict comes into play. Paulson WAIVED that rule, and allowed Friedman to not only keep his shares, but purchase MORE.

Why else purchase even MORE of a company that's going down the drain in a financial collapse, if you didn't know that some big money was coming in right around the corner?

But let's not forget here ...we're dealing with the guy here who didn't know Fed shareholder structure, and doesn't think Keynesianism has reliance on centralized monetary policy, specifically Keynes' position that lower interest rates create demand for investment.
 
LOl, and he also didn't even know that the Dems were practically SCREAMING "conflict of interest" over the AIG/Goldman debacle.

Well, SOME did regarding lawmakers; Alan Grayson being a huge one. Mostly though, it was coming from the left media.

The very few Dem law makers were the ones who obviously don't rely on Goldman for campaign funding.

Rabbi here apparently doesn't think both sides of the aisle are funded by the same sources of big money. :lol:

Poor guy.
 
Well, Paulie, if ever I need inside info on who is in bed with whom in Washington and the monied Metropolitan East Coast I will come to you for information.

About all I know is that politicians can be bought and that most of them are.

There was a time as a child when I thought that our leaders were men of great character and honor. I was disillusioned as time went by and by the time Zero Agnew resigned in shame and then Nix on Nixon resigned, I was absolutely convinced that most politicians would prostitute themselves for campaign funds and other baubles.
 
Well, Paulie, if ever I need inside info on who is in bed with whom in Washington and the monied Metropolitan East Coast I will come to you for information.

About all I know is that politicians can be bought and that most of them are.

There was a time as a child when I thought that our leaders were men of great character and honor. I was disillusioned as time went by and by the time Zero Agnew resigned in shame and then Nix on Nixon resigned, I was absolutely convinced that most politicians would prostitute themselves for campaign funds and other baubles.

You'll pretty easily notice that it progressively got worse and worse after the advent of the television.

The fucking invention, while being cool in many ways, has completely altered our natural critical thinking abilities. It has come to literally shape an entire perception of reality for people that more often than not is nothing even CLOSE to real.

Nothing beats getting the fuck up off your couch, and just going outside and talking to people. Taking road trips, reading books, and studying the most unbiased accounts of history you can find.

If you can't spot bias while you're reading, btw, than you're already too stupid and most likely beyond any and all hope.
 
Well, Paulie, if ever I need inside info on who is in bed with whom in Washington and the monied Metropolitan East Coast I will come to you for information.

About all I know is that politicians can be bought and that most of them are.

There was a time as a child when I thought that our leaders were men of great character and honor. I was disillusioned as time went by and by the time Zero Agnew resigned in shame and then Nix on Nixon resigned, I was absolutely convinced that most politicians would prostitute themselves for campaign funds and other baubles.

I guess you and i agree on many issues
To abandon the gold standard is a big mistake
who is going to lend the US trillions of dollars in the future ?
if they print money how can you control inflation ?
 
The Great Depression was a breeding ground for protectionism. Output fell, prices declined, and unemployment rose, pressuring governments to do something to revive their economies, even if that meant limiting imports. But contrary to popular perception, some countries went much further down this protectionist road than others, according to The Slide to Protectionism in the Great Depression: Who Succumbed and Why? (NBER Working Paper No. 15142). Co-authors Barry Eichengreen and Douglas Irwin conclude that a key factor behind this variation in trade policies was nations' adherence to the gold standard. Those countries that clung to the gold standard were more likely to restrict trade than those that abandoned it.

Previous research has shown that countries that remained on the gold standard tended to endure sharper and longer downturns than those that allowed their currencies to depreciate. Eichengreen and Irwin offer an important trade-policy corollary: without the flexibility to depreciate their currencies, many gold-standard nations turned to trade restrictions in hopes that these would boost their domestic industries and curb unemployment. Thus, the 1930s' rush to protectionism was not so much a triumph of special-interest politics as it was a result of second-best macroeconomic policies, the authors write. Their study "suggests that had more countries been willing to abandon the gold standard and use monetary policy to counter the slump, fewer would have been driven to impose trade restrictions."

http://www.nber.org/digest/oct09/w15142.html
 
Are you still running your ignorant foul mouth on this forum? If you can show that Goldman made all that money, do so. If you can show that Paulson benefitted personally from it, do so.
Otherwise shut the fuck up and go back to the library so you don't sound like the half-wit you are.

When HR1207 gets passed at law this will all come out much more than people could imagine.

That will happen about the time the US goes back on the gold standard.

I love to be proven right. Yet again.
http://www.usmessageboard.com/congress/93289-federal-reserve-policy-audit-legislation-gutted.html
 
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Before moving on, let's be clear on why Krugman thinks the above chart is so damning to the goldbugs. By 1937, if you rank the nations' industrial output relative to 1929 levels, the order is Japan, Britain, Germany, the United States, and finally France. Now if you ask, In what order did countries abandon the gold standard? Why, the answer (Krugman tells us, after making the correction to his original post) is the same! So, this is apparently decisive evidence that abandoning gold was the way to get out of the Great Depression.

Quibbles With Dating

The first problem with Krugman's demonstration is that he's got his dates wrong. For example, Krugman himself reproduces the following correction from economic historian Peter Temin:

Germany went off gold before the UK in 1931, in July and August, that is, before late September when the UK devalued. The story however is a bit complex because Germany went off gold by eliminating the free flow of gold. They kept the value of the mark steady all through the Nazi period (see Adam Tooze's good book), but they controlled the flow of foreign exchange. The reason that this does not show up on your graph is that the German chancellor in 1931 (Bruening) followed the dictates of the gold standard in 1931, keeping interest rates high and deflating the economy. This is what I called the gold-standard mentality in Lessons from the Great Depression (1989).

So we already see nuances in the official story. Really, it's not tying a currency to gold per se that was the problem; the real problem was refusing to devalue a currency (which the gold standard made difficult).

But then we have another problem. In the chart, Japan is the best example. They apparently go off gold first, they have an almost immediate recovery, and they end up with the highest 1937 production. So here's my problem: Why do all these various sites (e.g. here and here) from Google tell me that Japan abandoned the gold standard in December 1931 — several months after Great Britain (in September 1931)?

Now, Japan had only gone back on gold the prior year, in January 1930, so maybe that's what Krugman's dateline is based on. In other words, whoever is telling Krugman that Japan went off gold first, might be dismissing the January 1930–December 1931 period as insignificant.

Be that as it may, all five of the countries under discussion were on a gold (exchange) standard as of January 1931. Then, if you ask in what order did they sever their currencies' ties to gold, the actual ranking is: Germany, Britain, Japan, the United States, and France.

Notice that the "perfect" correlation cited by Krugman has broken down significantly. Yes, the 4th and 5th countries go off gold end up ranked 4th and 5th, respectively, in terms of industrial output in 1937. But the other three countries are now ranked as if the correlation is precisely the reverse of Krugman's original claim. That is, the 3rd country to go off gold (Japan) is ranked 1st in output, the 2nd country to go off gold (Britain) is ranked 2nd in output, and the 1st country to go off gold (Germany) is ranked 3rd in output. If we just looked at those three countries, we would conclude that "history shows" abandoning the gold standard was the way to cripple your economic recovery.

Krugman can cite other policies if he wants. That's the tack Brad DeLong takes, when he titles his version of the chart to indicate that a country needs to go off gold and start its "New Deal" for the medicine to work. I'm simply pointing out here that it seems Krugman's history concerning dates of abandoning gold is just wrong. When the "pattern" really only works for three out of five countries, it's time to drop the particular argument and find a different one to make your point.

Does Industrial Output Really Respond to Devaluation?

Let's move beyond the quibbles over particular dates. If it turned out that Krugman's original ordering of historical devaluations were correct, would that give fans of the gold standard something to worry about?

Not really. Remember, the appeal of the above chart is that it seems to show that from 1929–1937, industrial output is proportional to the speed with which a country abandoned its currency's peg to gold. But what is so magical about 1929–1937? I think the only thing objective about it is that 1937 is the first year all of these countries had abandoned their peg.

If we lengthened the time frames, what would happen? After all, the Great Depression certainly wasn't over in 1937, so it's not clear that we're seeing the full story with Eichengreen's chart. I don't have convenient access to the raw figures, but it wouldn't surprise me if the ranking bounced around if you took a snapshot in 1938 or 1939. Naturally, the military situation in Europe would be relevant here — but then again, it was relevant in 1937 as well.

Even if we look at the data in the selected time frame, though, it's not obvious that abandoning gold should be credited with rescuing various countries' industrial output. Rather than simply comparing 1929 output to 1937 output, and then comparing the countries' ranking in this respect to the order in which they abandoned gold, we can use the above chart to see the allegedly beneficial effects of devaluation play out over time.

For example, Germany and the United States both experienced a significant rebound in (the annual average of) industrial output from 1932 to 1933. Krugman wants to credit the abandonment of gold with this feat. Yet France also experienced just as significant a recovery from 1932 to 1933, even though it stayed tied to gold until 1936.

So, although the chart plausibly shows the benefits to Japan and Britain for going off gold in 1931, it certainly doesn't show the benefits to the United States and Germany. Of course, Krugman could say that it was the United States and German recovery that lifted France as well — but that causality doesn't jump out from the chart itself. And Krugman was citing the chart as independent evidence of the stupidity of the gold standard.

Finally, let's look a little more carefully at the case of the United States. A critic of the gold standard looks at the chart above and concludes, "Sticking with gold drove the economy into the toilet, but once FDR freed the dollar from the peg in March 1933, it was smooth sailing."

But no, that's not what the chart above shows. Before I can make the point, though, we need to clarify something: The United States abandoned the historical gold peg at $20.67 per ounce in March 1933 when FDR seized Americans' gold at gunpoint. Then, he literally set the gold price based on superstitions like "lucky numbers." (I explain these apparently crazy claims in my book.) But in 1934, the dollar was re-pegged to gold at $35 an ounce, where it stayed until that (allegedly) conservative free marketeer Nixon truly abandoned the gold standard in 1971. See for yourself:

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So, with that historical information in hand, look again at Eichengreen's allegedly damning chart. Yes, the United States enjoyed a sharp recovery in 1933 relative to 1932 output. But it also enjoyed significant growth in 1935 and 1936, well after the dollar had been tied again to gold (at a lower parity). It's not obvious at all that it was the gold standard driving the movements of US industrial output during 1929–1937.
Why Going Off Gold Could Have Boosted Output

Remember that "abandoning gold" isn't akin to shaving one's mustache. When a country dropped a peg, it effectively ripped off every investor who had been holding assets denominated in it. Thus it's not surprising that some countries could experience apparent prosperity — especially if we just look at the short run — by abandoning gold.

For an analogy, someone who just bought an expensive house with no down payment, and who doesn't plan to apply for more loans anytime soon, could definitely gain a windfall by "abandoning his mortgage" (assuming the bank couldn't seize the property). That doesn't mean it's a shot in the arm for the economy. (Though of course, all analogies break down in our current crisis. The pundits really do think "abandoning mortgages" would be a good idea right now!)

Part of what happened in the 1930s was that the countries who stayed on gold were harmed when other governments reneged on their contractual obligations. For example, one of the smoking guns in the antigold case is that the Federal Reserve had to raise interest rates (after bringing them to unprecedented lows) in 1931, in response to Great Britain's abandonment of gold. What happened was that investors around the world feared the United States would follow Britain's example, and so they began redeeming their dollars for gold, thus draining US reserves. Hence, the Fed had to hike US interest rates to stem the outflow of gold.
Inflation Can Help If the Government Is Propping Up Wages

Another major factor is that governments in the 1930s were interfering with wages and prices more so than at any prior point in (peacetime) history. For example, after the 1929 stock-market crash, President Herbert Hoover began a series of conferences with big business and labor leaders, telling them that cutting wage rates (the standard response in previous depressions) would be disastrous, because then the workers wouldn't make enough to buy the products.

This meant that nominal paychecks fell much more slowly during the early years of the Great Depression than the general price level. Consequently, if you kept your job, you experienced a higher increase in real (inflation-adjusted) wages during the early 1930s, than during the Roaring 1920s! So, it's no wonder that unemployment reached record highs during Hoover's first and only term. If a president wants to get a huge glut on the labor market during his administration, textbook economics says to prop up wages above their market-clearing level.

Now in this context, when FDR reneged on the US government's promise to redeem dollars for gold, it allowed the Federal Reserve to flood the economy with new dollars. The falling price level turned around on a dime, as this chart indicates:

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Generally speaking, printing up green pieces of paper doesn't make an economy more productive; it merely redistributes the existing property while making it harder to plan for the future. But, if the government is also preventing wage rates from falling to their new, market-clearing level, then inflating the currency has the benefit of reducing unemployment.

Of course, this observation is no justification for what FDR did. Had prices and wages been left to the market, the recovery would have been swift, just as it was in the 1920–1921 depression. Even so, fans of the gold standard need to understand why the economy apparently recovered so quickly after FDR devalued the dollar.

Conclusion

Intuitively, it makes no sense to say that the major dislocations of the world's economies in the 1930s could have been solved simply by printing up pieces of paper. When we closely examine the graphical evidence that apparently proves this strange claim, we see it falls apart. Krugman and Friends need to convince us, first, that their history is accurate, and second, that their charts really prove what they claim.

The Gold Standard and the Great Depression - Robert P. Murphy - Mises Institute
 
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