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

[EdwardBaiamonte]

This "money working its way through the system" argument is a fundamental misunderstanding of monetary transmission mechanisms.

so then why so afraid to explain??

 

[EdwardBaiamonte]

and that's because it's never satisfied anyone who's tried it. .

it satisfied America perfectly until the Fed panicked in 1929 and abandoned it causing the Great Depression.

So, the Gold standard satisfied everyone, while getting off it satisfied no one unless they liked the Great Depression.

The Gold Standard and the Great Depression, Eichengreen

blah blah we could trade links all day. It proves nothing.

 

[DSGE]

actually, according to Milton Friedman (famous economist of 20th Century) and Ben Bernanke (current Chairman of Federal Reserve system and Princeton economist) , you are perfectly exactly 100% wrong. They say that printing to few dollars (33% less) is exactly what caused the Great Depression. And now even you know it too.

It was broad money that fell 30%. .

as long as you agree that you were 100% wrong about there never being a situation when they didn't print enough money.

Why not learn about the gold standard before you write arrogantly about it?? Do you like looking silly all the time?

... Do you actually understand what a gold standard is? More to the point, do you understand the difference between base money and broad money? It's the broader monetary aggregates that fell. The gold standard is where you're only allowed to increase M0 (the monetary base) if you have gold to back it. Now if the velocity of money falls, then broader monetary aggregates, M1 and M2, will fall even though M0 hasn't changed. The total amount of (broad) money in the economy will drop even though the Fed hasn't taken out any currency.

 

[DSGE]

This "money working its way through the system" argument is a fundamental misunderstanding of monetary transmission mechanisms.

so then why so afraid to explain??

You made the claim that inflation causes bubbles. Why are you so afraid to explain?

 

[DSGE]

it satisfied America perfectly until the Fed panicked in 1929 and abandoned it causing the Great Depression.

So, the Gold standard satisfied everyone, while getting off it satisfied no one unless they liked the Great Depression.

The Gold Standard and the Great Depression, Eichengreen

blah blah we could trade links all day. It proves nothing.

Oh so you were happy (incorrectly) citing the work of Milton Friedman as evidence, but Barry Eichengreen isn't good enough for you?

 

[EdwardBaiamonte]

It was broad money that fell 30%. .

as long as you agree that you were 100% wrong about there never being a situation when they didn't print enough money.

Why not learn about the gold standard before you write arrogantly about it?? Do you like looking silly all the time?

... Do you actually understand what a gold standard is? More to the point, do you understand the difference between base money and broad money? It's the broader monetary aggregates that fell. The gold standard is where you're only allowed to increase M0 (the monetary base) if you have gold to back it. Now if the velocity of money falls, then broader monetary aggregates, M1 and M2, will fall even though M0 hasn't changed. The total amount of (broad) money in the economy will drop even though the Fed hasn't taken out any currency.

the fact is of 33% of the money and 33% of the banks disappeared in short order while the Fed did nothing.

Do you think that was a good thing or bad thing? Do you think if 33% of the banks went under today that would be good or bad for the economy? Do you think if you lost 33% of your arm it would be good for your body or bad?

 

[EdwardBaiamonte]

Oh so you were happy (incorrectly) citing the work of Milton Friedman as evidence,

If I did that I'll pay you $10,000. Bet?????????????

 

[DSGE]

Oh so you were happy (incorrectly) citing the work of Milton Friedman as evidence,

If I did that I'll pay you $10,000. Bet?????????????

This addresses your post above also:

Sure, I'll accept that bet.

Don't see a 33% drop in the monetary base causing the depression. Guess you owe me $10,000.

 

[EdwardBaiamonte]

Oh so you were happy (incorrectly) citing the work of Milton Friedman as evidence,

If I did that I'll pay you $10,000. Bet?????????????

This addresses your post above also:

Sure, I'll accept that bet.

Don't see a 33% drop in the monetary base causing the depression. Guess you owe me $10,000.

For Friedman and Schwartz, the causal mechanism was the
resulting changes in the money stock and therefore in the equilibrium price level. The
panics brought about a collapse of the broader measures of the money stock over
the four years from 1929 to 1933: a one-third fall in M2 and a one-fourth fall in M1.
This collapse induced

 

[expat_panama]

The fed's unofficial target is 1-2% inflation because that's what most business people want. The reason they want it is because they want inflation as low as possible without going into deflation --something no sane person DON'T wants. Something else is that a slight gradual inflation tends encourage spending over the long run, but that's secondary.

How does it matter to most business people?...

What, you think deflation or volatile/10%+ inflation doesn't wreck profits?

 

[expat_panama]

...unless you are worried about inflation, deflation, Depressions recessions, bubbles, debts, deficits and trade imbalances. The gold standard ends all those problems with its self correcting mechanisms...

Huh, all nations have had these problems in one form or another throughout history. Please tell us if you've been imagining some other kind of gold standard that's never been used in the US, or by any other nation for that matter.

...a true gold standard has been very rare in history...

--and that's because it's never satisfied anyone who's tried it. Say what you want about how those of us in the overwhelming majority chose to trade our goods and services, but it's our choice and we'll stick with it until someone can sell us on something better.

it satisfied America perfectly until the Fed panicked in 1929 and abandoned it causing the Great Depression.

Wait a second, before 1929 had plenty of "inflation, deflation, Depressions recessions, bubbles, debts, deficits and trade imbalances." So whats pre-1929, true gold standard or not?

 

[DSGE]

The fed's unofficial target is 1-2% inflation because that's what most business people want. The reason they want it is because they want inflation as low as possible without going into deflation --something no sane person DON'T wants. Something else is that a slight gradual inflation tends encourage spending over the long run, but that's secondary.

How does it matter to most business people?...

What, you think deflation or volatile/10%+ inflation doesn't wreck profits?

Deflation doesn't wreck profits, no. High inflation doesn't either. Money is superneutral. Volatile inflation does have real effects because wage and price setting requires forming an expectation of the future price level.

 

[DSGE]

If I did that I'll pay you $10,000. Bet?????????????

This addresses your post above also:

Sure, I'll accept that bet.

Don't see a 33% drop in the monetary base causing the depression. Guess you owe me $10,000.

For Friedman and Schwartz, the causal mechanism was the
resulting changes in the money stock and therefore in the equilibrium price level. The
panics brought about a collapse of the broader measures of the money stock over
the four years from 1929 to 1933: a one-third fall in M2 and a one-fourth fall in M1.
This collapse induced

Exactly. Exactly what I said. The broad monetary aggregates, M1 and M2, fell. But the monetary base didn't. That tells you that the velocity of money fell.

So the monetary base (currency held by the public plus bank reserves) is... a base. And what happens is that money gets spend over and over again and deposited at banks over and over again so that there's actually much more stuff we can do transactions with than there is physical currency. So if the rate at which money circulates falls, the amount of stuff we can do transactions with falls even though there's isn't any less physical currency.

So M1 and M2 can fall 30% even though MB is increasing! So what we'd normally do is offset this drop in velocity by increasing MB a lot more. The problem on a gold standard is that you're only allowed to issue more MB if you get more gold. You're not allowed to issue more high powered money to prevent M1 and M2 from falling. So on a gold standard the depression would not have been avoided.

 

[EdwardBaiamonte]

Exactly. Exactly what I said.

you said I misrepresented Friedman and then you stupidly bet me $10,000. Please quote the misrepresentation or prepare to pay me $10,000

 

[DSGE]

Exactly. Exactly what I said.

you said I misrepresented Friedman and then you stupidly bet me $10,000. Please quote the misrepresentation or prepare to pay me $10,000

Right here:

http://www.usmessageboard.com/econo...effect-on-a-gold-standard-14.html#post4640088

well, according to Milton Friedman( famous economist and Ben Bernanke( head of Federal Reserve system) we were not on a true gold standard in 1929, but what do they know?

According to them, and what do they know, there were tremendous bank runs back in the day such that about 1/3 of the money supply and 1/3 of the banks disappeared. On a true gold standard, they say, the Fed would have issued new money again to maintain a supply equal to the gold supply which had not disappeared, thus avoiding the liberal Great Depression.

As already discussed, it was the broad money supply that fell by 1/3. On a binding gold standard, the Fed would not be allowed to increase the monetary base to offset the fall in velocity. The Great Depression would not have been avoided had there been a binding gold standard.

 

[expat_panama]

...Deflation doesn't wreck profits, no...

The hell you say. Business find themselves fighting to pay back last years borrowed capital with this years deflated sales means zero profits, mass layoffs, and starvation on an enormous scale.

... High inflation doesn't either. Money is superneutral. Volatile inflation does have real effects because wage and price setting requires forming an expectation of the future price level.

Before we get into how 'neutal' hyperinflation is, how about we agree that our pre-1929 gold standard came with plenty "inflation, deflation, Depressions recessions, bubbles, debts, deficits and trade imbalances" and that you miss spoke in your post #183.

 

[editec]

There's money in circulation and then there's the PERCEIVED WEALTH that is not actually money.

Which is real?

Both are real.

Part of what is happening to our economy now is the PERCIEVED wealth that Americans had (their unrealized wealth in the form of the value of our homes) evaporated as the price of RE dropped.

Note how that didn't change the money supply?

But STILL Americans think they're poorer, ergo they spend less.

Gold standard solve exactly ZERO problems, folks.

The Gold standard would actually makes the problem worse.

IN periods with high productivity increases, a GOLD STANDARD depresses the economy.

Why?

Because the aggregate amount of gold drives DOWN prices in that circumstance.

And when prices are falling those who borrowed to create end up going broke.

And that is EXACTLY what happened leading up to the GREAT DEPRESSION.

Agricultural productivity increased many times, thus driving down farm profits, and thus causing massive layoffs of farm workers.

But as farmer typically have to borrow as a normal routine to put the crops in, when their prices fell they could not repay their loans at interest.

Agriculture was in serious trouble long before the great Crash of 29.

Remember we were ON A GOLD STANDARD when the GREAT DEPRESSION happened, kiddies.

So the delusional idea that a gold standard is somehow going to prevent the economy to vasilate is not at all supported by history.

 

[samjones]

Remember we were ON A GOLD STANDARD when the GREAT DEPRESSION happened, kiddies.

I think that the point that EB is making is that we were not on a gold specie standard what was conducted free of government interference. In other words,

Bring an ounce of gold to the Treasury. Receive $35.00. Simple as that. No printing notes for gold that isn't in the Treasury and no holding gold in the Treasury without printing notes.

I find the conversation interesting, regardless of whether it did/would/could work in real life or not. I object to EB's contention that anything other than his definiton of a pure gold standard equates to a liberal plot to rob creditors with fiat money, but I'm not unwilling to have the conversation.

*IN FACT* I have to agree that any market that ever sold gold for a price significantly above standard could only exist because of unfair and devious manipulation of the currency by the Fed.

Why would a pawn shop pay $45.00 for an ounce of gold when the govenment will give it to you for $35.00? That's gotta be someone's fault - I guess I'd have to point the finger at oil rich Arabs.

 

[expat_panama]

...we were not on a gold specie standard what was conducted free of government interference...

LOL!!! If the government establishes a gold standard then the government is participating. All money --including gold money-- is fiat money.

 

[EdwardBaiamonte]

Exactly. Exactly what I said.

you said I misrepresented Friedman and then you stupidly bet me $10,000. Please quote the misrepresentation or prepare to pay me $10,000

Right here:

http://www.usmessageboard.com/econo...effect-on-a-gold-standard-14.html#post4640088

well, according to Milton Friedman( famous economist and Ben Bernanke( head of Federal Reserve system) we were not on a true gold standard in 1929, but what do they know?

According to them, and what do they know, there were tremendous bank runs back in the day such that about 1/3 of the money supply and 1/3 of the banks disappeared. On a true gold standard, they say, the Fed would have issued new money again to maintain a supply equal to the gold supply which had not disappeared, thus avoiding the liberal Great Depression.

As already discussed, it was the broad money supply that fell by 1/3. On a binding gold standard, the Fed would not be allowed to increase the monetary base to offset the fall in velocity. The Great Depression would not have been avoided had there been a binding gold standard.

You bet $10,000 that I misrepresented Friedman and twice you have been afraid to quote exactly where I misrepresented Friedman?
What does your fear tell you?