Fiat Money and its Social Significance

[TakeAStepBack]

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.

Yet you brought up 1907 as being so bad of a recession under the gold standard, that a central bank needed to be formed. Unfortunately, the panic had nothing to do with the gold standard and everything to do with the treasury acting as a central bank and inflating credit.

In his 1920 speech accepting the Republican presidential nomination, Harding declared,

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.
Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

By August of 1921, the recovery was well under way from the downturn. Without the federal reserves monetary inflation policy. The budgets were slashed and deflation employed instead.

Why did the downturn occur in 1920?

Once again, the reserves were slice by half from the FRA of 1913, once again, credit was expanded by over 90% through the banking system. In 1918, the fed tightened up the faucet and a credit crunch began. Or more normally today known as the business cycle. Businesses saw the reality. Production was based on easy credit, a distortion to markets and a re-arrangement began.

Add in WW1

After this correction set on by credit expansion, the US enjoyed the roaring 20s.

 

[editec]

Theoretically if the world were on a gold standard?

Then everything on earth combine would be worth exactly as much as all the gold on earth.

Now stop and think about the inplications of such a system.


Ask yourself if possible the creation of WEALTH in the world is going to outstrip the FINDING of gold.

And if that is the reality, what does that do to the value of gold by comparison to all other things of wealth?

Please somebody who thinks they understand the Austrian school of Econ?

Tell us now what happens in your perfect gold standard world.

Tell us about lending money, or borrowing it or paying it back.

How does your society deal with the constant deflation of the things of value compared to the gold standard?

Can you do it?

Can you show how this kind of economy (one that never existed incidently) actually works?

I invite you to try to explain it.

 

[TakeAStepBack]

Then everything on earth combine would be worth exactly as much as all the gold on earth.

Now stop and think about the inplications of such a system.

Clearly, this topic isn't for you. Quantity isn't relevant. The entier world economy could conceivably be run off 1 ounce of gold.

Ask yourself if possible the creation of WEALTH in the world is going to outstrip the FINDING of gold.

And if that is the reality, what does that do to the value of gold by comparison to all other things of wealth?

Please somebody who thinks they understand the Austrian school of Econ?

Wealth is not finite or hampered to the quantity of gold. it's a ridiculous assertion. Well, it isn't reality, but what would happen is the value of gold would rise. Leaving silver, and other precious metals to be used as exchange units in gold's stead. You can see the results of not allowing divisibles of gold from the results of the fourth coinage act of 1873, also known as the crime of 73.

 

[Kimura]

Yet you brought up 1907 as being so bad of a recession under the gold standard, that a central bank needed to be formed. Unfortunately, the panic had nothing to do with the gold standard and everything to do with the treasury acting as a central bank and inflating credit.

In his 1920 speech accepting the Republican presidential nomination, Harding declared,

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.
Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

By August of 1921, the recovery was well under way from the downturn. Without the federal reserves monetary inflation policy. The budgets were slashed and deflation employed instead.

Why did the downturn occur in 1920?

Once again, the reserves were slice by half from the FRA of 1913, once again, credit was expanded by over 90% through the banking system. In 1918, the fed tightened up the faucet and a credit crunch began. Or more normally today known as the business cycle. Businesses saw the reality. Production was based on easy credit, a distortion to markets and a re-arrangement began.

Add in WW1

After this correction set on by credit expansion, the US enjoyed the roaring 20s.

You're all over the place from a historical perspective. The Panic of 1907 was caused by the failure of two brokerage firms due to rampant speculation. The initial domino was the San Francisco earthquake of 1906, which prompted panic in the world financial centers. It culminated in a six week bank run in NYC and across the country, which created a liquidity crunch in 1907.

These events due to the Panic of 1907 led to the creation of National Monetary Commission in 1908. This is what helped to create the Federal Reserve Act of 1913 which has been much more effective than the alternative.

The Depression of 1920 is a different animal altogether which I'd be glad to discuss. By thy way, Teddy Roosevelt was POTUS during the Panic of 1907, not Warren Harding.

Unfortunately, the US was on a gold standard until 1933. The FED was constrained from its inception, so it couldn't stimulate in an effective manner.

Let's look at some numbers:

1) GDP expanded by 717% from 1866-1933
2) GDP expanded by 1757% from 1933-2008 in REAL TERMS.

The proof is in the pudding. The period where we came off the constraint of the gold standard blows away the time period we were under a gold standard. The first period was roughly 99 years, the second period is 75 years.

 

[Kimura]

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.

The deflation fetishists also seem to forget that debts are nominally priced.

 

[Kimura]

-

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?

You're right. The UK was on the gold standard from 1897-1912 and suffered from persistent inflation.

Our leaders aren't sane, many of them are still thinking in terms of convertible currency/gold standard. This is where the all deficit hysteria and calls for austerity come from. There's a gross misunderstanding about our monetary system out there. These people are simply out of paradigm.

 

[TakeAStepBack]

Well, I'm bored. YOu can go right on ahead and cheerlead central planning. It's working out just wonderful.

 

[TakeAStepBack]

Biography[edit]Born in Morristown, Vermont, he became a lawyer and banker, and in 1898 became the 17th Governor of Iowa, serving until 1902. He then became United States Secretary of the Treasury under President Theodore Roosevelt in 1902, serving until 1907. Like his predecessor Secretary Lyman Gage, Shaw firmly believed that the Treasury should serve the money market in times of difficulty through the introduction of Treasury funds.

To this end, Shaw bought back government bonds from the commercial banks that owned them, increased the number of government depository banks, and, in 1902, told the banks that they no longer needed to keep cash reserves against their holdings of public funds. The intended effect of these actions was to provide a more elastic currency, which would then respond to the needs of the market. Government intervention in the money market reached its height with Shaw. He resigned in 1907 to become a banker in New York.


The cause of the 1907 panic was due to Shaw and his predecessor pushing the boundaries of the treasury because they believed currency should be mor eelastic under treasury terms. THAT is where the credit expansion and subsequent burst came in. You Keyenesians can never manage to view the root of the issue, only the symptoms. Then react by putting a cast on internal bleeding.

 

[Rshermr]

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.

Yet you brought up 1907 as being so bad of a recession under the gold standard, that a central bank needed to be formed. Unfortunately, the panic had nothing to do with the gold standard and everything to do with the treasury acting as a central bank and inflating credit.

In his 1920 speech accepting the Republican presidential nomination, Harding declared,

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens but because it will be an example to stimulate thrift and economy in private life.
Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.

By August of 1921, the recovery was well under way from the downturn. Without the federal reserves monetary inflation policy. The budgets were slashed and deflation employed instead.

Why did the downturn occur in 1920?

Once again, the reserves were slice by half from the FRA of 1913, once again, credit was expanded by over 90% through the banking system. In 1918, the fed tightened up the faucet and a credit crunch began. Or more normally today known as the business cycle. Businesses saw the reality. Production was based on easy credit, a distortion to markets and a re-arrangement began.

Add in WW1

After this correction set on by credit expansion, the US enjoyed the roaring 20s.

Poor guy still thinks the recession of 1920 had something to do with ANYTHING other than the end of wwI. As a con tool, he tries to make things up that make no sense to a rationale person. Because, of course, he is a con tool. And only in bat shit crazy con web sites do you see discussions supporting the gold standard, and discussions that suggest the recession of 1920 had to do with it. The recession of 1929 was very short lived, was mostly a response to the troops coming home without enough jobs initially to provide them work, during a time of rapid inventions allowing for growth in the economy.
But, to conservative tools, to whom truth is of no value, the recession of 1920 through 1921 is the prototype for all recessions. Because, of course, that is what they want to believe.
And yes, of course, there was the roaring 20's, which tools like step suggest were boom days for all. Which is totally untrue. For most, it was a period of hard times. Only for the rich was it a great time, roaring as the tools would like us all to believe it did----for all.
And again, tools like step would like everyone to believe that depressions and recessions happen in the blink of an eye. They do not, of course. As thinking people know, the economy builds toward a recession. As the economy did in this country. Yup, the policies of the repubs that held the political offices during that decade before the economy fully tubed were of that good old republican belief that you should do nothing to help the economy. Worked SOOOOOOO well, as unemployment dropped from about 3% to over 25% while they watched and did NOTHING. The great repub dream. Let the economy recover on it's own after it has turned into a cesspool under their watch.
Same clowns who think the gold standard is the answer. Perhaps the answer for them is a clear crystal navel so that they can see.

 

[Rshermr]

Well, I'm bored. YOu can go right on ahead and cheerlead central planning. It's working out just wonderful.

Look up Central Planning from an economic standpoint. So you can carry on an actual conversation, should you want to at some point.

 

[TakeAStepBack]

Poor guy still thinks the recession of 1920 had something to do with ANYTHING other than the end of wwI.

Monetary inflation was needed as part of the war effort. SO, yes, it does have a lot to do beyond the war. We wouldn't even been involved if not for additional credit created through the FRA of 1913.

Moron. Agaon, you turds can not view the forest for the trees. Typical of the establishment indoctrination vs. critical thinking and historical knowledge.

 

[TakeAStepBack]

Well, I'm bored. YOu can go right on ahead and cheerlead central planning. It's working out just wonderful.

Look up Central Planning from an economic standpoint. So you can carry on an actual conversation, should you want to at some point.

Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market and mixed economies in order to increase economic performance. When utilizing indicative planning, the state employs "influence, subsidies, grants, and taxes [to affect the economy], but does not compel."[1] Indicative planning is contrasted with directive or mandatory planning, where a state (or other economic unit) sets quotas and mandatory output requirements.

A portion under the header of central planning.

You're welcome, Dullard.

 

[Kimura]

Biography[edit]Born in Morristown, Vermont, he became a lawyer and banker, and in 1898 became the 17th Governor of Iowa, serving until 1902. He then became United States Secretary of the Treasury under President Theodore Roosevelt in 1902, serving until 1907. Like his predecessor Secretary Lyman Gage, Shaw firmly believed that the Treasury should serve the money market in times of difficulty through the introduction of Treasury funds.

To this end, Shaw bought back government bonds from the commercial banks that owned them, increased the number of government depository banks, and, in 1902, told the banks that they no longer needed to keep cash reserves against their holdings of public funds. The intended effect of these actions was to provide a more elastic currency, which would then respond to the needs of the market. Government intervention in the money market reached its height with Shaw. He resigned in 1907 to become a banker in New York.


The cause of the 1907 panic was due to Shaw and his predecessor pushing the boundaries of the treasury because they believed currency should be mor eelastic under treasury terms. THAT is where the credit expansion and subsequent burst came in. You Keyenesians can never manage to view the root of the issue, only the symptoms. Then react by putting a cast on internal bleeding.

The actions of Shaw were done to subsidize gold imports to the US. These gold outflows from the UK worsened an already very bad gold drain from the UK to the US. During the Panic of 1907, if you look at the data, total net financial flows to NYC, as well interest rates, significantly shifted from normal seasonal patters.

By the way, it amazes me how you guys connect everything to Keynes. It's fucking fascinating.

 

[Rshermr]

Well, I'm bored. YOu can go right on ahead and cheerlead central planning. It's working out just wonderful.

Look up Central Planning from an economic standpoint. So you can carry on an actual conversation, should you want to at some point.

Indicative planning is a form of economic planning implemented by a state in an effort to solve the problem of imperfect information in market and mixed economies in order to increase economic performance. When utilizing indicative planning, the state employs "influence, subsidies, grants, and taxes [to affect the economy], but does not compel."[1] Indicative planning is contrasted with directive or mandatory planning, where a state (or other economic unit) sets quotas and mandatory output requirements.

A portion under the header of central planning.

You're welcome, Dullard.

Sorry, me boy. I know you want things to mean what you want them to mean. Here, see if you can understand:

Term central planning Definition: A system of extensive central government control of an economy, including organizing production and making allocation decisions. This was the popular method of allocating resources and answering the three basic questions of allocation under the communism/socialism economic systems of the Soviet Union, China, and others during the 1950s, 1960s, and 1970s. Applying the communist/socialist philosophy that private property and market allocation were "bad," central planning relied on extremely detailed plans made by government.
Definition of central planning, definition at Economic Glossary

Now, I know that anything other than laissez fair capitalism is a central planning system to you, because you are a con tool. But to the thinking population, central planning systems mean much more than a system where the gov tries to influence business cycles.
Your welcome. Dipshit. Though I know you are incapable of critical thought, so it is a waste of time trying to help you.

By the way, rather than quote something from somewhere I actually provided a link. Really quite normal for rational thinking people. Which may explain why you typically do not use them. Dullard.

 

[Toro]

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."

Even if your presumption about the 1800s is correct - and I don't believe it is at all - the simple fact is that we have had much, much more government intervention since 1900 and economic and financial market volatility has been significantly lower than prior to 1900.

 

[expat_panama]

...the simple fact is that we have had much, much more government intervention since 1900 and economic and financial market volatility has been significantly lower than prior to 1900...

--and the big reason we've had more American federal government intervention in American activities since 1900 because we've had much more America since 1900. There's no question that Americans need their government; the only debate is which intervention is smart intervention.

We now know that pegging the dollar to precious metals was problematic and that prices became much more stable when U.S. money got pegged by the Fed to the CPI goods'n'services basket.

 

[TakeAStepBack]

Even if your presumption about the 1800s is correct - and I don't believe it is at all - the simple fact is that we have had much, much more government intervention since 1900 and economic and financial market volatility has been significantly lower than prior to 1900.

It is correct. There isn't a single downturn during the gold standard era that was a result of market forces based on anchoring currency to gold. Every single solitary instance is the result of economic do-good meddlers that tried their hand at monetary planning.

And that whole stability thing only rings true when you use dastardly stasticis from the State, such as CPI, that completely neglect (intentionally) certain goods. it certainly gives the illusion of stability, though. As the State and cetnral monetary authority slowly destroy the wealth and currency that was forced onto the people.

You guys can love intervention all day if it makes you feel good, but to act as though fiat money is the golden goose is absolutely ridiculous. I guess because this is what we have we shoould simply cheer for it. Not this guy.

And I plan to laugh at the cheerleaders when this scheme is up too. Because it WILL end, and end badly. As it always does.

 

[TakeAStepBack]

Lastly on this topic.

If fiat currency is sucha wonderful idea, why do central banks hold GOLD in reserve? For what purpose? It is, after all, a non-productive commodity, right? It's just another metal out there like any other. So, why don't they simply sell it off?

I'll tell you why. Because GOLD is a real, not illusory, store of wealth. Paper fiat money is not. it's junk under the inability of the State to maintian its confidence, or to control the population. It's worthless and the only reason it maintains its "value" is through the use of FORCE by the state.

Why you people hate freedom and liberty, both civil and economic, is beyond me. That's your right. to prefer coercion and force to peaceful exchange. But make absolutely no mistake.

GOLD IS MONEY.

 

[Indeependent]

The Treasury, under the direction of JP Morgan, initially printed $3.00 for every $1.00 worth of gold; the system of Bank Notes was corrupt from day 1.

 

[Rshermr]

Lastly on this topic.

If fiat currency is sucha wonderful idea, why do central banks hold GOLD in reserve? For what purpose? It is, after all, a non-productive commodity, right? It's just another metal out there like any other. So, why don't they simply sell it off?

I'll tell you why. Because GOLD is a real, not illusory, store of wealth. Paper fiat money is not. it's junk under the inability of the State to maintian its confidence, or to control the population. It's worthless and the only reason it maintains its "value" is through the use of FORCE by the state.

Why you people hate freedom and liberty, both civil and economic, is beyond me. That's your right. to prefer coercion and force to peaceful exchange. But make absolutely no mistake.

GOLD IS MONEY.

Thanks for so authoritatively telling us, dipshit. Problem is, you are a dipshit. So, your opinion is of NO value. Just you being a con. Your arguments are always always always in perfect alignment with the bat shit crazy con web site drivel. Perfect alignment. Which makes you, me boy, irrelevant.
Relative to you thinking that you had the final word on the subject, that simply proves that you are delusional. AGAIN..