Fiat Money and its Social Significance

[Kimura]

Oh, please. Statists had been clamoring for a central banking autority for decades (and at times were successful). They dont need a real reason besides the ends justify the means.

The panic of 1907 was again, the result of an inflation stimulated by Secretary of the Treasury Leslie Shaw in the previous two years. Shaw, after his predecessor (Gage) had failed to create a central bank, Shaw was using the treasury to act as one. This greatly expanded credit (int he form of commercial bank deposits) that outpaced gold stock (significantly thinning reserves and outpacing even industrial production). in turn, the government allowed banks to suspend its obligations to redeem notes and deposits in gold. In particular, Shaw made open-market purchases in recessions and violated the Independent Treasury statutes confining Treasury funds to its own vaults, by depositing Treasury funds in favored large national banks. In his last annual report of 1906, Secretary Shaw urged that he be given total power to regulate all the nation's banks.




yet another instance of Statists attempting to overstep their bounds and in turn, and perhaps in hopes, of consolidating authority.

Well….JP Morgan and Rockefeller literally acted as private lenders of last resort during the Panic of 1907, that’s how the story goes, but it’s not entirely accurate. If I’m not mistaken, Congress was left with a 25 million dollar tab. The Panic of 1907 was precipitated by a credit crunch. The market at the time nosedived by like 49% in a two year period.

You seem to continually ignore that the frequency of panics in the early days of the FED was way lower than in the post-Civil War years all the way up to the Great Depression, and it wasn’t the result of rampant speculation in the banking system, but rather the stock market. It was leveraged to the hilt. This affected the banking system due to mortgages at the time being five year bombs, and there were a ton of failed banks, which meant there were less banks to roll over these loans. The end result was that homeowners ended up unemployed, with their savings wiped out, and no banks left standing were willing to lend to them.

Also, we had a fifty year period from 1933 all the way up to the S&L debacle which was free of bank panics.

It’s been over eighty years since the Great Depression. It would take Peter Schiff or Ron Paul level retarded policies to make us deteriorate into a depression, though ignorant and misguided polices (fiscal) have prolonged our current employment and output dilemma, but I digress.

The lesson we should take away from banking history is that the liability side of the ledger isn’t the place for market discipline in the least. Even though banks are funded by FDIC deposits and loans from the FED, market discipline is entirely on the asset side on the ledger. Some changes are in order, that’s for sure.

 

[TakeAStepBack]

You seem to continually ignore that the frequency of panics in the early days of the FED was way lower than in the post-Civil War years all the way up to the Great Depression

And you continue to completely ignore the fact that the panics associated with the gold standard era were entirely the by-product of interference of government. Such is the case in 1907. Such was the case in every other single instance you put forth. None have any correlation to the gold standard. None.

It’s been over eighty years since the Great Depression. It would take Peter Schiff or Ron Paul level retarded policies to make us deteriorate into a depression, though ignorant and misguided polices (fiscal) have prolonged our current employment and output dilemma, but I digress.

More hyperbole and nonsense from the kiing of economic nonsense at USMB.

Not one single panic that you speak of during the gold standard era (or before) were the results of the standard itself. None.

you're welcome.

As Voltaire said, "paper money eventually returns to its original intrinsic value- zero."

 

[expat_panama]

...panics associated with the gold standard era were entirely the by-product of interference of government... ...Not one single panic that you speak of during the gold standard era (or before) were the results of the standard itself...

All that may be difficult to prove, but what's easy to show is that the American economy spent more time in contraction with the gold standard (even if was really only the fault of the terrible old time gov't) than since (even if it's only because our gov't is wonderful now).

 

[TakeAStepBack]

It's not difficult to prove at all. You wanna go through them? We've already covered 1907. Choose one and I'll fill you in. And it is absolutely crucial in identifying them as they truly were. Blaming the gold standard for government/Statist attempts to push the US into a central banking authority is dishonest. It makes a huge difference when you start to understand why "contraction" was seen more often under the gold standard.

 

[Kimura]

And you continue to completely ignore the fact that the panics associated with the gold standard era were entirely the by-product of interference of government. Such is the case in 1907. Such was the case in every other single instance you put forth. None have any correlation to the gold standard. None.

Oh really. So the Free Banking Era in the United States wasn’t a total disaster? Alrighty then!

Not one single panic that you speak of during the gold standard era (or before) were the results of the standard itself. None.

You keep telling yourself that, but economic history says otherwise. The gold standard was a disaster by any metric, except the Austrian one, but then again, these are people that write papers about voluntary slavery and other such nonsense.

Austrians and glibertarians seem to refer to everyone as ‘statists’, but they support a return to the gold standard, a massive government subsidy.

As Voltaire said, "paper money eventually returns to its original intrinsic value- zero.

So now French philosophers during the Enlightenment are experts on macroeconomics? Okie dokie.

Btw, gold has ZERO intrinsic value – its not a productive asset. If I own stocks, for example, I own a piece of a business which produces real goods and services for consumers and generates profits. When you purchase gold, lock it up, it just sites there, while Apple or Google earn massive amounts of $$$$ from selling their real goods and services.

Gold, contrary to the gold bug religious fervor, is a commodity subject to speculation. It has no productive growth and will return to value baseline after a certain amount of time, because it creates/produces nothing. All you have to do is take a quick look at inflation-adjusted returns over the past two centuries.

 

[TakeAStepBack]

Oh really. So the era of Free Banking in the United States wasn’t a total disaster? Alrighty then!

You mean the era that took place before the gold standard and ended with the destruction of the Second Bank of the US? You're so dishonest it runs through you more freely than plasma.

You keep telling yourself that, but economic history says otherwise. The gold standard was a disaster by any metric, except the Austrian one, but then again, these are people that write papers about voluntary slavery and other such nonsense.
Austrians and glibertarians seem to refer to everyone as ‘statists’, but they support a return to the gold standard, a massive government subsidy.

Well, i already proved you a liar on the panic of 1907. You want to try again on anther instance?
Go for it. I'll do this all day and continue to make you look completely ignorant to historical record.

Btw, gold has ZERO intrinsic value – its not a productive assets.

Oh, is that so? You wanna retract that, or shall I, once again, prove you wrong?

 

[Kimura]

You mean the era that took place before the gold standard and ended with the destruction of the Second Bank of the US? You're so dishonest it runs through you more freely than plasma.

The Free Banking Era from 1837 to roughly 1862-63. These banks were able to issue notes against specie, such silver and gold. The 2nd Bank of he United States ended in 1836.

Well, i already proved you a liar on the panic of 1907. You want to try again on anther instance?
Go for it. I'll do this all day and continue to make you look completely ignorant to historical record.

Um, not really, I gave you an overview about the Panic of 1907, the Bankers Panic, you went off on a tangent. How much of an explanation do you need?

Oh, is that so? You wanna retract that, or shall I, once again, prove you wrong?

Let's start at 1800. If you look at gold vs stocks, you'd be way better off with equities. Historically, over the past two hundred years, stocks and bonds have fared better than gold.

 

[expat_panama]

...Blaming the gold standard for government/Statist attempts to push the US into a central banking authority is dishonest...

Whatever.

We're still stuck with the fact that during the gold standard era the economy suffered longer contractions --even if they were all caused by government/Statist bankers, and not having a gold standard has some how forced all the government/Statist bankers to bring about short contractions and prolonged expansions.

That's good!

 

[TakeAStepBack]

You mean the era that took place before the gold standard and ended with the destruction of the Second Bank of the US? You're so dishonest it runs through you more freely than plasma.

The Free Banking Era from 1837 to roughly 1862-63. These banks were able to issue notes against specie, such silver and gold. The 2nd Bank of he United States ended in 1836.

Well, i already proved you a liar on the panic of 1907. You want to try again on anther instance?
Go for it. I'll do this all day and continue to make you look completely ignorant to historical record.

Um, not really, I gave you an overview about the Panic of 1907, the Bankers Panic, you went off on a tangent. How much of an explanation do you need?

Oh, is that so? You wanna retract that, or shall I, once again, prove you wrong?

Let's start at 1800. If you look at gold vs stocks, you'd be way better off with equities. Historically, over the past two hundred years, stocks and bonds have fared better than gold.

There was nothing free banking about the free banking era. Which came about upon the destruction of the second central bank attempt. It's a misnomer to call the era free banking. Anyway, it took place before the gold standard era.

No, I told you in very specific terms that the panic of 1907 was the result of the treasury treating it as a central bank by expanding credit. Leslie later resigned from the position. His central banking plans were the cause of the 1907 panic.

You're moving the goal posts.

 

[TakeAStepBack]

...Blaming the gold standard for government/Statist attempts to push the US into a central banking authority is dishonest...

Whatever.

We're still stuck with the fact that during the gold standard era the economy suffered longer contractions --even if they were all caused by government/Statist bankers, and not having a gold standard has some how forced all the government/Statist bankers to bring about short contractions and prolonged expansions.

That's good!

Oh, it's been great, bud.

 

[Rshermr]

...Blaming the gold standard for government/Statist attempts to push the US into a central banking authority is dishonest...

Whatever.

We're still stuck with the fact that during the gold standard era the economy suffered longer contractions --even if they were all caused by government/Statist bankers, and not having a gold standard has some how forced all the government/Statist bankers to bring about short contractions and prolonged expansions.

That's good!

Oh, it's been great, bud.

Yup.
So all those countries out there with the gold standard must be better off than we are, right??
Oh yeah, there are none. Must be that only you are correct, and they are all wrong.

 

[TakeAStepBack]

It must be you enjoy employing false premise. It must be.

 

[Kimura]

There was nothing free banking about the free banking era. Which came about upon the destruction of the second central bank attempt. It's a misnomer to call the era free banking. Anyway, it took place before the gold standard era.

No, I told you in very specific terms that the panic of 1907 was the result of the treasury treating it as a central bank by expanding credit. Leslie later resigned from the position. His central banking plans were the cause of the 1907 panic.

You're moving the goal posts.

The Michigan Act was a close as we came to "free banking" if we go by what Hayek and Seglin have proposed.

Click Here

About half of these banks failed, a third couldn't even redeem their notes.

By the way, if you go back in the thread, I was referring to the Panic/Depression of 1920, not 1907 initially, so wires got crossed along the way.

 

[Kimura]

Whatever.

We're still stuck with the fact that during the gold standard era the economy suffered longer contractions --even if they were all caused by government/Statist bankers, and not having a gold standard has some how forced all the government/Statist bankers to bring about short contractions and prolonged expansions.

That's good!

Oh, it's been great, bud.

Yup.
So all those countries out there with the gold standard must be better off than we are, right??
Oh yeah, there are none. Must be that only you are correct, and they are all wrong.

The Austrians insist the gold standard is some metaphysical for economic malaise. If these guys would open a history book, when the UK was on a gold a standard, they had CONSTANT inflation from 1897-1912. The was a consequence of gold imports due to new discoveries of the barbaric metal. It does open a country up to serious external factors, such as gold discoveries and current account balances.

My beef with the gold standard is that would make the supply of money inflexible. Austrians claims the value of $$$$ would magically reach equilibrium with market activity through deflation and inflation. Nine times out ten, there isn't deflation, and we're left with high unemployment, decreased output and a severe recession if we're lucky. The overall aggregate level of economic activity will adjust to $$$$, not the other way around.

Lastly, debts are nominal, so when wages and prices decrease in a deflationary event, it becomes impossible to service and pay off debt. On the other hand, if you slightly inflate, debts can be paid in a more efficient and humane manner.

 

[oldfart]

There is a difference between currency and money in today's system. Issuing paper money is fine when it has the full backing of an actual store of value.

Many people, mostly gold bugs, seem unnerved that modern money isn't back anything, such as gold, for instance. They tend to think that this makes modern money a less reliable "store of value". Sure, it's completely logical to assume that a mismanaged monetary system, or a scenario like an oil-price shock, can cause inflation. But the VAST majority of these people don't understand the other side of the spectrum. Under the gold standard, and as a direct of the gold standard, the world went through 8 different deflationary periods severe enough to be called depressions. Once we abolished the gold standard, we can haven't had of these any of these deflationary scenarios, which isn't coincidence.

Nonsense coupled with hyperbole.

Good Versus Bad Deflation: Lessons from the Gold Standard Era

The researchers identify separate "supply shocks," "money supply shocks," and "non-monetary demand shocks" on output and prices. Their analysis is grounded in a model of money supply under the international gold standard. Their results indicate that deflation in the three leading industrial nations in the late 19th century reflected both positive aggregate supply shocks and negative money supply shocks. Yet the latter had only a minor effect on output. The evidence thus suggests that deflation in the 19th century was primarily good, or at the very least neutral.

Moreover, the value of FRN since 1913 in the USA has decreased to almost zero of its initial value. Inflation is not better than small, corrective downturns. We've been in and out of recessions and depressions every 7 years since the complete abandonment of a currency anchor.

That too, is no coincidence.

Perhaps it is just a coincidence to cherry pick your quote to give an analysis exactly the opposite of the author's. The previous paragraph:

Bordo, Landon Lane, and Redish focus on the price level and growth experience of the United States, Britain, and Germany during the late 1800s. This period, not unlike the present era, was notable for low inflation or even deflation, for rapid expansion resulting largely from technological innovation, and for a credible and internationally accepted gold standard. The researchers work from the premise that deflation might be good, bad, or even neutral. Good deflation, they maintain, occurs when aggregate supply of goods (say from technological advances, improved productivity, and the like) increases faster than aggregate demand, resulting in falling prices. Bad deflation in turn occurs when aggregate demand falls faster than any growth in aggregate supply. Negative money shocks, for example, that are non-neutral over a significant period - such as occurred later during the Great Depression -- would generate "bad" deflation. Indeed, the authors say, such might be the case in Japan today. A neutral impact o f deflation, meanwhile, might occur where monetary neutrality holds despite negative money shocks.

Emphasis mine.

You sir, are the worst kind of a lying piece of shit.

 

[Rshermr]

Many people, mostly gold bugs, seem unnerved that modern money isn't back anything, such as gold, for instance. They tend to think that this makes modern money a less reliable "store of value". Sure, it's completely logical to assume that a mismanaged monetary system, or a scenario like an oil-price shock, can cause inflation. But the VAST majority of these people don't understand the other side of the spectrum. Under the gold standard, and as a direct of the gold standard, the world went through 8 different deflationary periods severe enough to be called depressions. Once we abolished the gold standard, we can haven't had of these any of these deflationary scenarios, which isn't coincidence.

Nonsense coupled with hyperbole.

Good Versus Bad Deflation: Lessons from the Gold Standard Era




Moreover, the value of FRN since 1913 in the USA has decreased to almost zero of its initial value. Inflation is not better than small, corrective downturns. We've been in and out of recessions and depressions every 7 years since the complete abandonment of a currency anchor.

That too, is no coincidence.

Perhaps it is just a coincidence to cherry pick your quote to give an analysis exactly the opposite of the author's. The previous paragraph:

Bordo, Landon Lane, and Redish focus on the price level and growth experience of the United States, Britain, and Germany during the late 1800s. This period, not unlike the present era, was notable for low inflation or even deflation, for rapid expansion resulting largely from technological innovation, and for a credible and internationally accepted gold standard. The researchers work from the premise that deflation might be good, bad, or even neutral. Good deflation, they maintain, occurs when aggregate supply of goods (say from technological advances, improved productivity, and the like) increases faster than aggregate demand, resulting in falling prices. Bad deflation in turn occurs when aggregate demand falls faster than any growth in aggregate supply. Negative money shocks, for example, that are non-neutral over a significant period - such as occurred later during the Great Depression -- would generate "bad" deflation. Indeed, the authors say, such might be the case in Japan today. A neutral impact o f deflation, meanwhile, might occur where monetary neutrality holds despite negative money shocks.

Emphasis mine.

You sir, are the worst kind of a lying piece of shit.

Yes, well, that is of course true. But the thing is, he is at least a CONSISTENT lying piece of shit. Which makes the boy irrelevant.

 

[jasonnfree]

Nonsense coupled with hyperbole.

Good Versus Bad Deflation: Lessons from the Gold Standard Era




Moreover, the value of FRN since 1913 in the USA has decreased to almost zero of its initial value. Inflation is not better than small, corrective downturns. We've been in and out of recessions and depressions every 7 years since the complete abandonment of a currency anchor.

That too, is no coincidence.

Perhaps it is just a coincidence to cherry pick your quote to give an analysis exactly the opposite of the author's. The previous paragraph:

Bordo, Landon Lane, and Redish focus on the price level and growth experience of the United States, Britain, and Germany during the late 1800s. This period, not unlike the present era, was notable for low inflation or even deflation, for rapid expansion resulting largely from technological innovation, and for a credible and internationally accepted gold standard. The researchers work from the premise that deflation might be good, bad, or even neutral. Good deflation, they maintain, occurs when aggregate supply of goods (say from technological advances, improved productivity, and the like) increases faster than aggregate demand, resulting in falling prices. Bad deflation in turn occurs when aggregate demand falls faster than any growth in aggregate supply. Negative money shocks, for example, that are non-neutral over a significant period - such as occurred later during the Great Depression -- would generate "bad" deflation. Indeed, the authors say, such might be the case in Japan today. A neutral impact o f deflation, meanwhile, might occur where monetary neutrality holds despite negative money shocks.

Emphasis mine.

You sir, are the worst kind of a lying piece of shit.

Yes, well, that is of course true. But the thing is, he is at least a CONSISTENT lying piece of shit. Which makes the boy irrelevant.

But no other countries use the gold standard either so what's the point?

 

[TakeAStepBack]

Many people, mostly gold bugs, seem unnerved that modern money isn't back anything, such as gold, for instance. They tend to think that this makes modern money a less reliable "store of value". Sure, it's completely logical to assume that a mismanaged monetary system, or a scenario like an oil-price shock, can cause inflation. But the VAST majority of these people don't understand the other side of the spectrum. Under the gold standard, and as a direct of the gold standard, the world went through 8 different deflationary periods severe enough to be called depressions. Once we abolished the gold standard, we can haven't had of these any of these deflationary scenarios, which isn't coincidence.

Nonsense coupled with hyperbole.

Good Versus Bad Deflation: Lessons from the Gold Standard Era




Moreover, the value of FRN since 1913 in the USA has decreased to almost zero of its initial value. Inflation is not better than small, corrective downturns. We've been in and out of recessions and depressions every 7 years since the complete abandonment of a currency anchor.

That too, is no coincidence.

Perhaps it is just a coincidence to cherry pick your quote to give an analysis exactly the opposite of the author's. The previous paragraph:

Bordo, Landon Lane, and Redish focus on the price level and growth experience of the United States, Britain, and Germany during the late 1800s. This period, not unlike the present era, was notable for low inflation or even deflation, for rapid expansion resulting largely from technological innovation, and for a credible and internationally accepted gold standard. The researchers work from the premise that deflation might be good, bad, or even neutral. Good deflation, they maintain, occurs when aggregate supply of goods (say from technological advances, improved productivity, and the like) increases faster than aggregate demand, resulting in falling prices. Bad deflation in turn occurs when aggregate demand falls faster than any growth in aggregate supply. Negative money shocks, for example, that are non-neutral over a significant period - such as occurred later during the Great Depression -- would generate "bad" deflation. Indeed, the authors say, such might be the case in Japan today. A neutral impact o f deflation, meanwhile, might occur where monetary neutrality holds despite negative money shocks.

Emphasis mine.

You sir, are the worst kind of a lying piece of shit.

And as it turns out, dick slap, the authors who wrote the piece found that the deflation that occurred during the gold standard was positive or at the very least, neutral.

But, dont let the facts of the paper get in the way. Pull out that ideal portion that makes the case of deflation as the devil and run with it.

The evidence thus suggests that deflation in the 19th century was primarily good, or at the very least neutral.

 

[TakeAStepBack]

But no other countries use the gold standard either so what's the point?

Right. Suddenly everyone decided to allow their currency to float.

 

[editec]

There is a difference between currency and money in today's system. Issuing paper money is fine when it has the full backing of an actual store of value.

Many people, mostly gold bugs, seem unnerved that modern money isn't back anything, such as gold, for instance. They tend to think that this makes modern money a less reliable "store of value". Sure, it's completely logical to assume that a mismanaged monetary system, or a scenario like an oil-price shock, can cause inflation. But the VAST majority of these people don't understand the other side of the spectrum. Under the gold standard, and as a direct of the gold standard, the world went through 8 different deflationary periods severe enough to be called depressions. Once we abolished the gold standard, we can haven't had of these any of these deflationary scenarios, which isn't coincidence.

Also the GOLD STANDARD does not necessarily prevent inflation either, since under different variations (pre Bretton Woods) the value of a pound or dollar or franc was SET by the government and could be INFLATED OR DEFLATED as needed.


Study the period post WWI through the Bretton Woods convention to see how GOLD backed species in and of themselves itself does NOT prevent governments from screwing up their economies.

In fact the sooner the European nations got off thier own gold standards, the sooner their economies began to recover>

There is NO magic to metal based currencies.

It is ALL about whether or not the government and society itself is productive and SANE.

You know...like America's has slowly stopped being?