Should we return to a hard money?

[ihopehefails]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

 

[Xenophon]

You can't use a gold standard because there isn't enough gold to back up currency.

 

[xsited1]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

Makes sense to me. A commodity standard (i.e., gold, silver, platinum, palladium, copper, etc.) is the way to go.

Interesting reads:

The Political and Economic Agenda for a Real Gold Standard by Ron Paul
Two Kinds of Gold Standards by Gary North
The Myth of the Gold Standard by Gary North

 

[ihopehefails]

You can't use a gold standard because there isn't enough gold to back up currency.

That is a problem but why can't we just adjust the value of the dollar to whatever gold that exist. It doesn't have to be one dollar equals one ounce of gold. It can be one dollar equals 1/100,000 an ounce of gold. It would be a cheap currency but at least it would be backed up.

 

[Toro]

You can't use a gold standard because there isn't enough gold to back up currency.

That is a problem but why can't we just adjust the value of the dollar to whatever gold that exist. It doesn't have to be one dollar equals one ounce of gold. It can be one dollar equals 1/100,000 an ounce of gold. It would be a cheap currency but at least it would be backed up.

As crappy as our fiat system is, and as much sympathy as I have for this idea, the gold standard requires too much inflexibility in the economy when dealing with recessions.

The fiat system has not yet played itself out, and perhaps in 2015 or 2020, the politicians will have wrecked our currency enough such that the problems with a fiat currency system are worse than a gold standard. However, for now, the answer is no.

In the meantime, I own a lot of gold.

 

[ihopehefails]

You can't use a gold standard because there isn't enough gold to back up currency.

That is a problem but why can't we just adjust the value of the dollar to whatever gold that exist. It doesn't have to be one dollar equals one ounce of gold. It can be one dollar equals 1/100,000 an ounce of gold. It would be a cheap currency but at least it would be backed up.

As crappy as our fiat system is, and as much sympathy as I have for this idea, the gold standard requires too much inflexibility in the economy when dealing with recessions.

The fiat system has not yet played itself out, and perhaps in 2015 or 2020, the politicians will have wrecked our currency enough such that the problems with a fiat currency system are worse than a gold standard. However, for now, the answer is no.

In the meantime, I own a lot of gold.

I really think that we should have a private currency alternative to the government's own money. We can call it the "private option" and the US dollar the "public option".

 

[veritas]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

You're sorta right. But not in the way that you think. Average borrowers and creditors are a mixed cross section and the loss rates aren't that high when things run in a linear fashion and hold stable. It's when large money holders borrow and lenders lend, when neither has any collateral to speak of, and we have system wide reductions. Then their leveraged positions collapse. This is what happened in this latest crisis. These leveraged positions are hedged and insured and gambled all at the same time and virtual trades are made using observable trends and transactions. They aren't tied to any real assets or cash, just leverage. When this gets twisty and messy this is what you get. It isn't the guy who bought a $400k house with a $20k job, it's the derivatives gambler who had $10M borrowed $40M and then parleyed it and turned around and sold CDSs. This is where it gets into the trillions. None of it is recorded. Just like it isn't recorded when you bet your buddy $50 bucks on the series. Except that it isn't $50, it's probably $50T as a low estimate, maybe $800T as a high estimate. These things are all over the place, banks, insurance, pension funds, entire countries......they made investments in this crap. Iceland went down because of it. We didn't nationalize GM, we bailed it out to keep all of these derivatives all over the world from crashing like a house of cards. If GM goes down, then most all of the major financial houses will as well........hence AIG and Merrill Lynch and Goldman Sachs etc., etc. You and your buddy made that bet on the series, but how many other people made bets on the series? No way to tell is there? And what if you bet somebody else against your pick with your buddy to hedge your bet with him? Or 10 somebodys??? What if you bet all of these people with only $50 dollars available to you? Get the picture?

 

[ayiakri]

As Toro said, the lack of flexibility that comes with having a currency explicitly tied to gold means that we're not going to be abandoning fiat currencies anytime soon.

While psychologically comforting, currencies back by gold have underpinned economies that collapsed just as badly as those using fiat currencies. One problem is that, in the middle of an economic crisis, governments like to be able to tweak the money supply to ensure that credit does keep flowing, by printing more money and lending it if need be. That can obviously lead to inflation if you keep it up for a long time, but in the short-term, it help stave off a credit-crunch-induced collapse.

Neither a "100% Gold Standards", or even a weaker version where the government hoards enough gold to back up the actual printed money (and not it's implicit financial obligations), is likely soon because (again, as Toro pointed out), there isn't enough gold in the world at anything near current prices to back up the money in circulation. I'm not sure what the price of gold would need to be, maybe $10,000 per troy ounce or something, but trying to convert to it now would cause the very collapse that proponents of the standard believe it would prevent...

I'm not saying a fiat currency is so great either - it leads to the inevitable "succumbing to temptation" by politicians to print more money to pay off debt, thus "inflating away" their obligations, weakening their currencies, and driving up interest rates.

So, I don't see any great solution in the near-term. My only comment about owning lots of gold - which has been a great investment in the past half-decade - is that if anyone is buying lots of gold as "protection" in case the U.S. Dollar collapses, well... if that does happen, you'd probably be better off, pound for pound, with guns, water, and very good deadbolts.

 

[editec]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

There were economic booms and collapses even when every nation's specie was on a gold or silver standard. (in fact they seem to have been worse than ours have been)

Spain, as just one example, suddenly found itself with enormous amounts of gold and silver (thanks to it's having looted the wealth of the New World).

Did that nation thrive as a result?

No, it didn't.

In fact, the INFLATION that that extra metal wealth it suddenly had actually left Spain the poorest and least powerful nation in Europe within a century.

Gold is NOT wealth.

STUFF that people make (possible to buy and sell using gold as the medium of exchange) is wealth.

Money is a tool, and gold used as money is NO solution to this or any other nation's economic woes.

You gold bugs simply do NOT understand the difference (and relationship) between money and real wealth.

 

[ihopehefails]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

There were economic booms and collapses even when every nation's specie was on a gold or silver standard. (in fact they seem to have been worse than ours have been)

Spain, as just one example, suddenly found itself with enormous amounts of gold and silver (thanks to it's having looted the wealth of the New World).

Did that nation thrive as a result?

No, it didn't.

In fact, the INFLATION that that extra metal wealth it suddenly had actually left Spain the poorest and least powerful nation in Europe within a century.

Gold is NOT wealth.

STUFF that people make (possible to buy and sell using gold as the medium of exchange) is wealth.

Money is a tool, and gold used as money is NO solution to this or any other nation's economic woes.

You gold bugs simply do NOT understand the difference (and relationship) between money and real wealth.

I didn't mean to imply that we wouldn't have any recessions but was theorizing why we even have a business cycle every seven years without any apparent cause to it. We assume that it just happens but nothing happens in a vacuum so there must be a cause to it somewhere.

 

[katelyns_dad]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

There were economic booms and collapses even when every nation's specie was on a gold or silver standard. (in fact they seem to have been worse than ours have been)

Spain, as just one example, suddenly found itself with enormous amounts of gold and silver (thanks to it's having looted the wealth of the New World).

Did that nation thrive as a result?

No, it didn't.

In fact, the INFLATION that that extra metal wealth it suddenly had actually left Spain the poorest and least powerful nation in Europe within a century.

Gold is NOT wealth.

STUFF that people make (possible to buy and sell using gold as the medium of exchange) is wealth.

Money is a tool, and gold used as money is NO solution to this or any other nation's economic woes.

You gold bugs simply do NOT understand the difference (and relationship) between money and real wealth.

i agree that gold is not real wealth. and i would suggest that the labor and talents which create the 'stuff' you refer to is the real wealth, not the 'stuff' itself. 'stuff' tends to rust, break down, etc. that causes a decrease in value. the point is having labor and talents (the real wealth of a nation) tied to something tangible that does not depreciate due to age and frequency of use. enter commodity based currency. much has been tried over the ages i.e. gold, siver, copper, livestock, etc. but for many reasons gold has been a lasting standard. you hit it right on the head when you said spain looted the new world. stealing gold will produce the same result as printing dollars, or shaving gold coins. the money supply is artificially increased with no increase in labor. what a gold standard or other commodity based currency standard would do it keep the system honest so to speak. recession would happen due to a decrease in labor output, but you wouldn't see the massive swings we've seen throughout history due to governments manipulating the money supplies.

 

[Polk]

Reminder from the Great Depression: the longer a nation retained the gold standard, the worse the effects of the Depression in that country.

 

[Kevin_Kennedy]

You can't use a gold standard because there isn't enough gold to back up currency.

It doesn't matter how much gold there is as the prices would adjust to meet reality.

 

[Kevin_Kennedy]

I really think that our economic cycle of boom and bust happens because all the money we have either exists in the form of actually money that exists in dollars and imaginary money that exists in credit held in lending institutions. Credit money exist because creditors that owe are capable of paying it so its existence depends on the creditors ability to return what they borrowed or make timely payments. Credit money functions as long as creditors continue to uphold their obligations but when the creditors can't that imaginary money supported by credit vanishes and the economic activity supported by the "imaginary" money ceases to exist and we have a slowing economy.

This is why I ask if we should return to an honest money that is backed by something tangible like gold or silver that way it is impossible for it to cease to exist thereby avoiding a credit collapse.

There were economic booms and collapses even when every nation's specie was on a gold or silver standard. (in fact they seem to have been worse than ours have been)

Spain, as just one example, suddenly found itself with enormous amounts of gold and silver (thanks to it's having looted the wealth of the New World).

Did that nation thrive as a result?

No, it didn't.

In fact, the INFLATION that that extra metal wealth it suddenly had actually left Spain the poorest and least powerful nation in Europe within a century.

Gold is NOT wealth.

STUFF that people make (possible to buy and sell using gold as the medium of exchange) is wealth.

Money is a tool, and gold used as money is NO solution to this or any other nation's economic woes.

You gold bugs simply do NOT understand the difference (and relationship) between money and real wealth.

Actually we do understand what wealth is, but gold has inherent value, unlike green pieces of paper, and can be put into many forms making it quite suitable as a medium of exchange. That's why the market has historically relied on gold and silver time after time, and only reverting to paper when forced to by a government. The market would never accept paper as a medium of exchange without the force of government.

 

[Paulie]

You can't use a gold standard because there isn't enough gold to back up currency.

That is a problem but why can't we just adjust the value of the dollar to whatever gold that exist. It doesn't have to be one dollar equals one ounce of gold. It can be one dollar equals 1/100,000 an ounce of gold. It would be a cheap currency but at least it would be backed up.

As crappy as our fiat system is, and as much sympathy as I have for this idea, the gold standard requires too much inflexibility in the economy when dealing with recessions.

The fiat system has not yet played itself out, and perhaps in 2015 or 2020, the politicians will have wrecked our currency enough such that the problems with a fiat currency system are worse than a gold standard. However, for now, the answer is no.

In the meantime, I own a lot of gold.

Even though it's not exactly what us Libertarians, Austrians, etc, want to hear...

This is one of the coolest things I've seen you say.

Although, going with a gold standard would mean we don't care about "flexibility" during a recession. You know we'd rather let the market correct itself.

 

[amrchaos]

That is a problem but why can't we just adjust the value of the dollar to whatever gold that exist. It doesn't have to be one dollar equals one ounce of gold. It can be one dollar equals 1/100,000 an ounce of gold. It would be a cheap currency but at least it would be backed up.

As crappy as our fiat system is, and as much sympathy as I have for this idea, the gold standard requires too much inflexibility in the economy when dealing with recessions.

The fiat system has not yet played itself out, and perhaps in 2015 or 2020, the politicians will have wrecked our currency enough such that the problems with a fiat currency system are worse than a gold standard. However, for now, the answer is no.

In the meantime, I own a lot of gold.

Even though it's not exactly what us Libertarians, Austrians, etc, want to hear...

This is one of the coolest things I've seen you say.

Although, going with a gold standard would mean we don't care about "flexibility" during a recession. You know we'd rather let the market correct itself.

You know--we could back the currency with "a mixed bag" of resources and goods.

Why is that not a good idea?

 

[ihopehefails]

As crappy as our fiat system is, and as much sympathy as I have for this idea, the gold standard requires too much inflexibility in the economy when dealing with recessions.

The fiat system has not yet played itself out, and perhaps in 2015 or 2020, the politicians will have wrecked our currency enough such that the problems with a fiat currency system are worse than a gold standard. However, for now, the answer is no.

In the meantime, I own a lot of gold.

Even though it's not exactly what us Libertarians, Austrians, etc, want to hear...

This is one of the coolest things I've seen you say.

Although, going with a gold standard would mean we don't care about "flexibility" during a recession. You know we'd rather let the market correct itself.

You know--we could back the currency with "a mixed bag" of resources and goods.

Why is that not a good idea?

I think just having an honest money where every dollar in existence is backed up by something solid like gold or silver would solve a lot of problems. The problem is that many of our dollars are backed up by nothing but the credit of others and when that credit dissolves then those dollars evaporate which causes the economy to collapse.

 

[007]

We should audit the FED, enact strict regulations on how much money they can print, pass a balanced budget amendment, and then yes, work back onto the gold standard. Then maybe our dollar would be worth what it used to be, instead of the toilet paper it is now.

 

[Paulie]

As crappy as our fiat system is, and as much sympathy as I have for this idea, the gold standard requires too much inflexibility in the economy when dealing with recessions.

The fiat system has not yet played itself out, and perhaps in 2015 or 2020, the politicians will have wrecked our currency enough such that the problems with a fiat currency system are worse than a gold standard. However, for now, the answer is no.

In the meantime, I own a lot of gold.

Even though it's not exactly what us Libertarians, Austrians, etc, want to hear...

This is one of the coolest things I've seen you say.

Although, going with a gold standard would mean we don't care about "flexibility" during a recession. You know we'd rather let the market correct itself.

You know--we could back the currency with "a mixed bag" of resources and goods.

Why is that not a good idea?

I happen to think it's a way better idea than what we currently have.

I have never thought about it in terms of a basket, though. How would the currency be weighted, measured, and valued?

I'd just prefer it be legal to have competing currencies within the market.

Let the market decide what is the best option.

 

[ihopehefails]

Even though it's not exactly what us Libertarians, Austrians, etc, want to hear...

This is one of the coolest things I've seen you say.

Although, going with a gold standard would mean we don't care about "flexibility" during a recession. You know we'd rather let the market correct itself.

You know--we could back the currency with "a mixed bag" of resources and goods.

Why is that not a good idea?

I happen to think it's a way better idea than what we currently have.

I have never thought about it in terms of a basket, though. How would the currency be weighted, measured, and valued?

I'd just prefer it be legal to have competing currencies within the market.

Let the market decide what is the best option.

This a good idea as well like one dollar is equal to some gold, silver, platinum, etc, etc, and etc. Make the basket as diverse as possible to achieve maximum stability just like a stock broker would diversify his portfolio.