Sound Money?

[kevsta]

Well one presumes a gold standard = 100%? Otherwise it’s not really a standard is it?

You really can't see it? We might still be doing our banking electronically (or with paper money) and storing our gold in repositories but not a single unbacked dollar could be introduced into the economy without it showing up in the government's books somewhere. There is no adding fiat money to the mix by "stealth".

It is a lot harder for a government to introduce the first fiat dollar into the economy than the 5,000,000,000,000th fiat dollar. Once the principle is accepted that we can mix gold and fiat currencies then we don't have a gold standard.

historically, this was not the case, the US was on 40% backing, and the UK was on 20%. hence the shadow standard at 17% is already fairly close.

evidence i think one day, you will remember where you first heard this.

 

[Almo]

When I saw the thread title, I thought of this:

http://www.electronichouse.com/images/uploads/speaker_money_small_thumb120.jpg

 

[stilicho]

You really can't see it? We might still be doing our banking electronically (or with paper money) and storing our gold in repositories but not a single unbacked dollar could be introduced into the economy without it showing up in the government's books somewhere. There is no adding fiat money to the mix by "stealth".

It is a lot harder for a government to introduce the first fiat dollar into the economy than the 5,000,000,000,000th fiat dollar. Once the principle is accepted that we can mix gold and fiat currencies then we don't have a gold standard.

Why not just privatise the money supply and let the market decide?

 

[psionl0]

Why not just privatise the money supply and let the market decide?

Interestingly enough, kevsta's link (evidence) gives the most realistic answer:

"The power elites hate [the gold standard] because it takes away their ability to print money; when you print money you rig the game, you control the game."​

 

[daenku32]

Interestingly enough, kevsta's link (evidence) gives the most realistic answer:

"The power elites hate [the gold standard] because it takes away their ability to print money; when you print money you rig the game, you control the game."​

Well duh. Monetary policy is very important when it comes to managing an economy. If you can't change the value of your currency you can't deal with trade balance deficits, you can't unfreeze a frozen money market.

The big reason why the Euro is in its death-kneels is because it has acted too much like a Gold-backed currency. Countries like Spain and Greece have suffered tremendously for their dependence on the Euro, simply because they cannot control it.

 

[psionl0]

Well duh. Monetary policy is very important when it comes to managing an economy.

Most "sound money" advocates believe that it is not a good idea to have politicians "managing an economy".

If you can't change the value of your currency you can't deal with trade balance deficits, you can't unfreeze a frozen money market.

Sure, debasement has often been used as a quick fix for problems such as those (as it is today) but it does nothing to fix the underlying problems. In fact, it allows such problems to grow until they are much harder to deal with.

The big reason why the Euro is in its death-kneels is because it has acted too much like a Gold-backed currency.

I'd say it was because the EU has been carrying too many dead-weight countries.

Countries like Spain and Greece have suffered tremendously for their dependence on the Euro, simply because they cannot control it.

They have suffered because their governments consistently lived beyond their means and put their deficits on the national credit card (just like the US is doing).

 

[kevsta]

Well duh. Monetary policy is very important when it comes to managing an economy. If you can't change the value of your currency you can't deal with trade balance deficits, you can't unfreeze a frozen money market.

The big reason why the Euro is in its death-kneels is because it has acted too much like a Gold-backed currency. Countries like Spain and Greece have suffered tremendously for their dependence on the Euro, simply because they cannot control it.

yes because history is littered with examples of countries and civilizations that grew survived and thrived on a policy of consistent currency debasement and the short term ILLUSION of growth that it produces, isnt it.

well, actually, no, it's not is it? Both the US and Germany had sound money and built their powerful economic engines based on that.

The US only ever achieved reserve currency status and all the fundamental advantages that brings in the first place, exactly because the Dollar was "as good as gold"

remove that, add in the standard spendthrift warmongering, give it a few years, and look at the laughable state you're in now.

 

[stilicho]

....

I'd say it was because the EU has been carrying too many dead-weight countries.

....

Reports of the €'s death are somewhat exaggerated.

When California, Minnesota, or various US municipalities were close to defaulting on their bond obligations, did the US Congress and the Federal Reserve conspire to kick them out of the union? How stable do you think the Republic of California Schwarzenthaler would be?

We have this issue all the time in Canada. Various provinces (I'm lookin' at you, Manitoba) habitually elect socialist governments and their bonds go for a premium as a result. The ethereal "threat" of separation from Quebec (actually an elaborate extortion scheme) means their provincial and hydro bonds are always higher yield than the rest of Canada's and Canada's bonds--as a consequence--are always higher yield than similar US issues.

The problem with the € is that of a central bank held hostage to its constituents. If anything, the ECB is the strongest living argument against what Ron Paul and others propose for the Federal Reserve. Putting the Fed at the mercy of the whims of the US Congress would be a monumental mistake and speculators would easily sniff out the "losers" and force their yields to prohibitive rates.

If Greece gets kicked out, by the way, the speculators simply move on to the next "loser" and pick it off too. This keeps on going until the European politicians get their mitts off the ECB.

 

[stilicho]

....

The US only ever achieved reserve currency status and all the fundamental advantages that brings in the first place, exactly because the Dollar was "as good as gold"

....

Wrong. So wrong it's not even wrong.

"Sound money" had nothing to do with the brief post-War booms in the US. (They had one after the Great War, too, and scarcely had to retool their economy for that one).

It was purely a huge trade surplus that did this and those surpluses are by definition unsustainable.

Your own definition "good as gold" explains exactly what's wrong with your pseudo-science because, at some point, your trading partners and foreign investors are going to just take the gold instead if they're each equivalent. What are you going to do then? You've just told everyone you'll pay in either gold or "good as gold" so either you better have a Rumpelstiltskin in your cabinet or you're going to inevitably default on your promise.

I won't even get into the obvious issue of US trading partners nationalising their industries and that policy impact on American "sound money" but you probably know all about it already.

Incidentally, your "endless warmongering" omits the fact that US defence expenditure has been at around five per cent for almost a century. The only times in that interval it has been lower than the present day (as GDP%) was in the 1990s, the late 1970s, and the 1930s. The % was much higher during the second post-War boom than it is today. During the 1930s, it was historically low (around one per cent) and historians agree this was why the US was so woefully unprepared to face the most powerful enemies it ever faced.

 

[kevsta]

Reports of the €'s death are somewhat exaggerated.

When California, Minnesota, or various US municipalities were close to defaulting on their bond obligations, did the US Congress and the Federal Reserve conspire to kick them out of the union? How stable do you think the Republic of California Schwarzenthaler would be?

We have this issue all the time in Canada. Various provinces (I'm lookin' at you, Manitoba) habitually elect socialist governments and their bonds go for a premium as a result. The ethereal "threat" of separation from Quebec (actually an elaborate extortion scheme) means their provincial and hydro bonds are always higher yield than the rest of Canada's and Canada's bonds--as a consequence--are always higher yield than similar US issues.

The problem with the € is that of a central bank held hostage to its constituents. If anything, the ECB is the strongest living argument against what Ron Paul and others propose for the Federal Reserve. Putting the Fed at the mercy of the whims of the US Congress would be a monumental mistake and speculators would easily sniff out the "losers" and force their yields to prohibitive rates.

If Greece gets kicked out, by the way, the speculators simply move on to the next "loser" and pick it off too. This keeps on going until the European politicians get their mitts off the ECB.

multiple schools of thought here, but we are way past just Greece being the problem, there is a full blown pan European bank run underway and wholesale dumping of Euro sovereign debt across the board.

considering the epic collapse in bond prices of Italian, French, Austrian, Hungarian, Spanish and Belgian bonds which all hit record wide yields and spreads in the past week, and furthermore following last week's "Sold To You": European Banks Quietly Dumping €300 Billion In Italian Debt" which predicted precisely this outcome, the news is not much of a surprise. However, learning that everyone (with two exceptions) has given up on Europe's financial system should send a shudder through the back of everyone who still is capable of independent thought - because said otherwise, the world's largest economic block is becoming unglued, and its entire financial system is on the edge of a complete meltdown

We have the EIB (European Investment bank) blowing up

Wholesale panic dumping of Italian bonds

the problem is that as one country falls, the contagion spreads to the next and the next, and the idea that Germany will basically backstop the rest of Europe is wrong, they are not going to.

The EFSF is now a dead-in-the-water duck, and events are moving too fast for politicians to keep up with.

I think any day now the ECB are going to panic and go against their charter and start massive debt monetization, and that once this occurs Germany will most likely pull out themselves.

It seems fairly clear now that the Euro and Eurozone will not survive in their current form.

 

[kevsta]

Wrong. So wrong it's not even wrong.

"Sound money" had nothing to do with the brief post-War booms in the US. (They had one after the Great War, too, and scarcely had to retool their economy for that one).

It was purely a huge trade surplus that did this and those surpluses are by definition unsustainable.

I love the way everyone has the definitive truth around here. I have strong beliefs, but I do not present them as absolute definitive fact.

Your own definition "good as gold" explains exactly what's wrong with your pseudo-science because, at some point, your trading partners and foreign investors are going to just take the gold instead if they're each equivalent.

What are you going to do then? You've just told everyone you'll pay in either gold or "good as gold" so either you better have a Rumpelstiltskin in your cabinet or you're going to inevitably default on your promise.

No. Only, if you are:

a) trying to maintain an unrealistic price below real market value
b) debasing the money, causing (a)

if it actually is as good as gold on a long term basis, and people can actually and realistically swap any time they want to, why would people want gold instead of cash they can spend?

If however you are attempting to hold gold down to some artificial peg below real market value, whilst deficit spending on wars, inflating so that your money is actually NOT as good as gold any more, then yes, of course trade partners will see through you and demand Gold as per France / USA.

I won't even get into the obvious issue of US trading partners nationalising their industries and that policy impact on American "sound money" but you probably know all about it already.

actually no, please elaborate?

Incidentally, your "endless warmongering" omits the fact that US defence expenditure has been at around five per cent for almost a century.

The only times in that interval it has been lower than the present day (as GDP%) was in the 1990s, the late 1970s, and the 1930s. The % was much higher during the second post-War boom than it is today. During the 1930s, it was historically low (around one per cent) and historians agree this was why the US was so woefully unprepared to face the most powerful enemies it ever faced.

5% is not strictly accurate is it? there is substantial supplemental spending that isnt included in the base figure which takes it up to more than that, but even if we go with that figure, do you thinks this looks reasonable?

http://cdn1.globalissues.org/i/military/11/country-distribution-2010.png