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

[samjones]

Either you own gold and it has the value of gold as long as you own it (and everything else is FIAT) or gold is just another commodity with fluxuating values depending on the market for gold.

It's neither. Soybeans are just another commodity with fluxuating value depending on the market for soybeans. Gold is a hedge against uncertainty. I have yet to hear anybody posit any suggestion that the "fluxuating value" of gold is in any way related to an increase in demand for semiconductors or ornamentation or is in any way related to a decrease in the production of gold.

People don't "need" gold. That isn't why they're paying sky high prices for it.

 

[Flopper]

Foreign purchases of US govt debt have decreased considerably since the Summer, rates of remaining low due to feds actions to buy Treasuries with printed money, the latest being operation twist to keep rates low.

While we are far less likely to get "foreclosed" on as a nation, there's other negative impacts of letting debt get up too high when compared to the size of our economy, such as economic stagnation. It would be awful to get to a point where a large percentage of our budget is allocated just to interest payments, that would have quite a choking effect.

I hope you're right about GDP growth returning to 4% soon, but I wouldn't hold my breath. We haven't had growth like that in 12 years. Even in the midst of a housing bubble we topped out at only 3.5% in 2004.

2000 was last year we had a 5% growth rate.

Currently interest payments are 5% of government spending. By contrast it is 40% in Greece. The UK is also about 5%. Japan it's 25%. We have a ways to go before interest payments become a real burden on the economy. I believe long before that happens we will bring the deficit under control probably by a combination of tax increase and some spending cuts. There is no way it will happen with just spending cuts. That type of austerity program would have to last for many years and that's not going to happen because voters will not go along with it.

That's because rates are artificially low. Those rates can skyrocket in the event we have to roll over old debt at a higher rate of interest. And it's actually nearly 10% of govt revenues, we just spend a lot more than we take in.

GDP growth in 2000 was 4%, and most of that was burn-off from 1999.

I guess we aren't getting our data from the same source. Rounded to nearest tenth adjusted for inflation, real GDP for the US for 1999 was 4.1, 2000 was 5.0, and 2001 was .3.

The 2012 president's budget request is 3,729 billion. Interest is 242 billion (6.4% of budget). Even if there is no reduction in the deficit and treasury rates doubled reaching the highest point in 20 years, I doubt the interest payments would exceed 10% of budget within 10 years.

United States - GDP - real growth rate - Historical Data Graphs per Year

2012 United States federal budget - Wikipedia, the free encyclopedia

10-Year Treasury Constant Maturity Rate (DGS10) - FRED - St. Louis Fed

 

[expat_panama]

...be a gold trader. You had to buy once, ten years ago. You could have taken the advice of a sharp financial adviser. You can sell now and lock in a 525% return.

Okay you gold bugs cannot have both ways. If GOLD is the only unit of value that is REAL? Then the " returns" one makes buying and then selling gold are illusionary. Why? Because the gold really didn't change its value while you owned it, all that changed was the exchange rate with dollars. So make up your minds. Either you own gold and it has the value of gold as long as you own it (and everything else is FIAT) or gold is just another commodity with fluxuating values depending on the market for gold. It cannot be BOTH. If gold is the unit of measure then gold cannot rise in value. If gold is just another commodity then one CAN make or lose money on its price in comparison to FIAT specie. I KNOW you gold bugs will NOT get the above. Your concept of what money really is is too clouded for you to understand why gold is just another commodity.

Huh. Wonder why I didn't think of that...

 

[Toro]

You make some errors.

Okay you gold bugs cannot have both ways.

First, I'm not a gold bug. I am currently short silver and have no position in gold.

If GOLD is the only unit of value that is REAL?

Then the " returns" one makes buying and then selling gold are illusionary.

Why?

Because the gold really didn't change its value while you owned it, all that changed was the exchange rate with dollars.

So make up your minds.

Either you own gold and it has the value of gold as long as you own it (and everything else is FIAT) or gold is just another commodity with fluxuating values depending on the market for gold.

It cannot be BOTH.

If gold is the unit of measure then gold cannot rise in value.

All value is relative. Value is never static, including the value of currencies. If you view gold as a currency relative to all other fiat currencies, then it will act just like all other currencies.

Currencies facilitate trade in goods and services, which fluctuate in relative value. The price of oil fluctuates up and down relative to the price of a car. But rather than bartering oil for automobiles, which is enormously cumbersome, we use currency. This facilitates trade. Similarly, the price of a German car fluctuates with the price of American oil, and the relative value of the currencies used in the two countries will also fluctuate relative to the supply and demand and thus the terms of trade between the two countries and their goods.

If you are thinking about buying a German made car that is priced at $30,000, and the euro is worth $1.50, if in a year the euro falls to $1.00, then that exact same car costs you $20,000, and you now have $10,000 extra that you would not have had had you bought the car a year before. Similarly, if gold is $300 an ounce and you have 100 ounces of gold, you can buy a German car now for 100 ounces of gold. But if gold rises to $1500 an ounce, you can buy a German car for 20 ounces of gold, and you have greater purchasing power because you have more gold relative to the price of cars.

All currencies are about relative exchange. If your currency appreciates, then so has your purchasing power. That's the point.

If gold is just another commodity then one CAN make or lose money on its price in comparison to FIAT specie.

I KNOW you gold bugs will NOT get the above.

Your concept of what money really is is too clouded for you to understand why gold is just another commodity.

I get the concept of money just fine, thank you.

It is not an "either or" proposition. Gold is both a currency and a commodity.

Using your argument, then the dollar is not a currency either because the price of the dollar relative to all other currencies also goes up and down, depending on the market for dollars. Currencies fluctuate all the time. The fact that the price of gold goes up or down relative to other currencies does not mean it is not a currency. And like any other currency, you can make or lose money trading it.

A currency is whatever people accept as a currency. In prisons, cigarettes and cans of mackerel are currencies. Cigarettes have been used as currency during hyperinflation. Milton Friedman noted the story of the islanders in the South Pacific who used giant sea shells at the bottom of the ocean as currency, even though no one ever saw a shell.

 

[EdwardBaiamonte]

Yeah fractional reserve lending...always one big bank run away from a collapse.

banks go under all the time. Usually the deposits are insured and the government merely transfers ownership to another bank.

The big banks are a problem though in that they may be too big to bail. This is why Huntsman wants to break them up; especially now that they are bigger and more concentrated than ever.


The real issue is that Europe in on, in effect, a Gold Standard and so is forced to correct its irresponsible liberalism while we in America can merely print liberal money. We may be doomed as a result.

 

[Paulie]

...fractional lending is virtually mandatory taxpayer bailouts to sustain the system during times of economic distress.

Yeah, just like virtually mandatory taxpayer bailouts during a massive hurricane. Or an earth quake. Or, don't you just hate it the way the taxpayers had to foot the bill for WWII when a bunch of Hawaiians got bombed in 1941? OK, I'm being facetious, but helpless whining sucks. Propose your alternative and tell us where have you ever seen money handled, stored, and created better than with the American banking industry.

I'm sorry, am I supposed to see a realistic justified parallel between tax dollars funding emergencies and war, and tax dollars funding private industry mistakes?

Because all I see is a strawman.

 

[samjones]

Currencies facilitate trade in goods and services, which fluctuate in relative value.

Not really. Not like gold which is at time highly volatile and often with no relation at all to the polices of your favorite government. A currency should be reasonably stable with respect to other currencies and Big Macs and if the fact emerges that it isn't then that should be viewed as a failure of its issuing authority. A currency should lose a little of its value every year. You certainly don't want it gaining any value.

If you are thinking about buying a German made car that is priced at $30,000, and the euro is worth $1.50, if in a year the euro falls to $1.00, then that exact same car costs you $20,000, and you now have $10,000 extra that you would not have had had you bought the car a year before.

Except for the fact that you have zero dollars because you lost your job because the strong dollar makes it impossible to export American goods..... that 20,000 Euro American car costs 30,000 Euro in Germany now.

 

[expat_panama]

...fractional lending is virtually mandatory taxpayer bailouts to sustain the system during times of economic distress.

...Propose your alternative and tell us where have you ever seen money handled, stored, and created better than with the American banking industry.

I'm sorry, am I supposed to see a realistic justified parallel between tax dollars funding emergencies and war, and tax dollars funding private industry mistakes? Because all I see is a strawman.

Switching focus from banks to me must mean you can't think of anything better than fractional reserves either. Let's be happy with what works until we come up with something better.

 

[expat_panama]

...The fact that the price of gold goes up or down relative to other currencies does not mean it is not a currency. And like any other currency, you can make or lose money trading it. A currency is whatever people accept as a currency. In prisons, cigarettes and...

Gold is not a legal currency and we found out the hard way what a bad idea it was to set the dollar's purchase with gold. We're so much better off now with gold prices crazy and having prices of what we buy stay within a couple percent year to year.

 

[Paulie]

...Propose your alternative and tell us where have you ever seen money handled, stored, and created better than with the American banking industry.

I'm sorry, am I supposed to see a realistic justified parallel between tax dollars funding emergencies and war, and tax dollars funding private industry mistakes? Because all I see is a strawman.

Switching focus from banks to me must mean you can't think of anything better than fractional reserves either. Let's be happy with what works until we come up with something better.

What "works"? The current system might have the ability to create the most wealth the fastest, but it also has the ability to take the most away the fastest.

Right now the current system is barely accountable to Congress, considering extensive audits are challenged by the establishment and most members of congress have no real understanding of monetary policy. While I don't exactly love the idea of the money supply being completely controlled by congress, that's the only way the constitution has authorized it, so until and unless an amendment is created to change that, I don't support the current system.

Congress should be regulating the value of money, not private banks. I'm saying this as one of the most strict free marketers on this board, and it's because that's what is clearly written in the constitution.

As for a proposal, for now I'd simply be satisfied with legalizing competing currencies and allowing the market to decide what works best. They don't even have to call other currencies "legal tender". They can still allow only the $ to pay public debts, and allow the market to decide whatever it would prefer to use for private transactions.

 

[expat_panama]

...Let's be happy with what works until we come up with something better.

....legalizing competing currencies and allowing the market to decide what works best...

That was tried for a big part of the 1800's and we still say things like 'let's see the color or your money' or 'good money puts the bad out of circulation'. We've come to understand that money has to be three things:

--medium of exchange (paying 3 bux for a sack of flour is easier than getting the grocer to accept poetry in exchange)
--store of value (3 bux in the bank will buy that flour next month
--unit of account (I still say my poetry is worth ten bux)​

Most people who've looked at it say open market currency did a poor job back then, especially compared to what we use now; but let me know if you manage to get anyone to go along with your idea to bring it back.


-

 

[samjones]

--medium of exchange (paying 3 bux for a sack of flour is easier than getting the grocer to accept poetry in exchange)

Surely the miller preferred your poetry, but Alexander's tax collectors did not and therefore he was compelled to ask for payment in coin.

I don't know that there's any substantial 21st Century reason to prefer one medium for the exchange of goods and services over the other.

The point is that the United States of American pays its debt in dollars and ultimately those dollars will be worth whatever we choose. We pay back what we want to. People (Chinese people, it turns out) trust that the dollars we pay back in will be worth about the same as the dollars they gave us.

*Trust me*, they wouldn't borrow if they didn't believe that.

Gold bugs don't trust the US Government so they believe that we should promise to pay our debts back in quantities of gold ($35.00 per ounce) and then future governments would not be able to destroy the currency.


It's an interesting concept but it doesn't work. It wouldn't be fair to say that the gold standard failed. It would be more accurate to say that many iterations of a gold standard over centuries failed repeatedly for the same reason.

 

[samjones]

--medium of exchange (paying 3 bux for a sack of flour is easier than getting the grocer to accept poetry in exchange)

Surely the miller preferred your poetry, but Alexander's tax collectors did not and therefore he was compelled to ask for payment in coin.

I don't know that there's any substantial 21st Century reason to prefer one medium for the exchange of goods and services over the other.

The point is that the United States of American pays its debt in dollars and ultimately those dollars will be worth whatever we choose. We pay back what we want to. People (Chinese people, it turns out) trust that the dollars we pay back in will be worth about the same as the dollars they gave us.

*Trust me*, they wouldn't borrow if they didn't believe that.

Gold bugs don't trust the US Government so they believe that we should promise to pay our debts back in quantities of gold ($35.00 per ounce) and then future governments would not be able to destroy the currency.


It's an interesting concept but it doesn't work. It wouldn't be fair to say that the gold standard failed. It would be more accurate to say that many iterations of a gold standard over centuries failed repeatedly for the same reason.

 

[EdwardBaiamonte]

It would be more accurate to say that many iterations of a gold standard over centuries failed repeatedly for the same reason.

The US was on a gold standard until Nixon really and it was the most successful country in human history?

 

[samjones]

It would be more accurate to say that many iterations of a gold standard over centuries failed repeatedly for the same reason.

The US was on a gold standard until Nixon really and it was the most successful country in human history?

The gold standard worked and the US was the most successful country in human history are about the same amount of wrong.

I rest my case.

 

[EdwardBaiamonte]

It would be more accurate to say that many iterations of a gold standard over centuries failed repeatedly for the same reason.

The US was on a gold standard until Nixon really and it was the most successful country in human history?

The gold standard worked and the US was the most successful country in human history are about the same amount of wrong.

I rest my case.

before you can rest your case you must make your case. Sorry.

 

[samjones]

The US was on a gold standard until Nixon really and it was the most successful country in human history?

The gold standard worked and the US was the most successful country in human history are about the same amount of wrong.

I rest my case.

before you can rest your case you must make your case. Sorry.

Here - let me make my case. People who want to return to the gold standard make about as much sense as people who think that the United States of America has earned the title "Most Successful Country in Human History."

There. The English is clearer now for you. Case made. Prosecution rests. I'm glad I could help you understand the error of your way.

 

[editec]

On a gold standard you cant print money either because only the amount of gold, not politicians, determines the amount of money

You really don't know jackshit about economic history, do you?

Read a book, brother.

If you do, you'll thank me later for having suggested that you educate yourself.

 

[EdwardBaiamonte]

People who want to return to the gold standard make about as much sense as.....

of course if they didn't make sense the liberal would not be so afraid to say why this is so. Surely, your fear must be telling you something obvious?

 

[samjones]

People who want to return to the gold standard make about as much sense as.....

of course if they didn't make sense the liberal would not be so afraid to say why this is so. Surely, your fear must be telling you something obvious?

That's why that commie Nixon did away with the precious gold standard. Because he was a liberal.