This. In either case I don't see how the gold standard is empowering to the people of the United States. Unless they mean the RICH people.
Maybe I wasn't making my point clear enough. I'm not saying inflation doesn't devalue the purchasing power of the dollar. I'm saying that inflation isn't an insidious hidden government tax/theft. Ron Paul contends that inflation is a by-product of the Fed's ability to control the size of the money supply and control credit via the interest rate. In reality, the Fed only controls the level of reserves, which in turn targets the desired interest rate. The banks themselves determine the credit-worthiness of the customer. They don't just lend freely just because they suddenly have more reserves, and they're still capital constrained in their lending. The years 2000 and 2010 are examples of how inflation can actually run counter to expansionary/contractional policies.
Except that the value of gold isn't inherent in it. It is based only on what people decide to place into it. In that sense it isn't that much different than a fiat currency except that it is dependent on availability.
the value of anything is determined by what 'people decide to place into it' (if you are saying what I think you are saying). It's the definition of the word 'value'. If someone will give you $500 bucks for a baseball card (not intrinsic) or a barrel of oil (intrinsic) then the value is at least $500 for each. Who cares if the value is intrinsic or not? Maybe I don't understand what you are saying.
How bout we peg the dollar to Natty gas. US has a ton of it! I get the gold argument by Ron Paul and I get the counter argument presented by so many here in way of anti-gold. It's funny how much faith people have in the Federal Reserve (some people's grade depends on this force-fed notion so they can't think differently), a privately held banking institution, to control the world's money supply. The gold standard argument is not really about gold, it is a movement to check the unchecked powers of the federal reserve or the monetary policies of the top .01%. The Fed allows wallstreet to be wallstreet. It is the same ideal that causes people to march on Wallstreet to protest greed and to go to tea parties that is, checking the unchecked powers. I'm surprised people will support the Wallstreet movement but balk at Ron Paul's suggestion-it is a solution to the problem after all. "It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford "We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it." -- Congressman Louis T. McFadden in 1932 (Rep. Pa) "Some [Most] people think the Federal Reserve Banks are the United States government's institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers." -- Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932 This one is for NorthsideStorm: "The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." -- Rothschild Brothers of London, 1863 Learn your masters.
Every possible rational solution to the crisis involves even more privately held control of the money supply...Ron Paul is actually proposing allowing private banks to print their own currency a la 1850s, AFAIK. Also, removal of discretion in monetary policy and removal of regulations just allows the private holders of money to control the money supply even more expansively...by getting rid of one of their regulators, you are allowing Wall Street more power. I think we should re-frame your quote. Those who understand the system, understand it. Those that don't, don't. If you're up there and you're thinking the Federal Reserve are a bunch of neer-do-wells who are "private" holders, then you clearly don't understand the system at all.
Classic, you seem to suffer from classic Paulite paranoia and aspirations of dramatic solutions. Tell me, who should control the money supply? The "people"? Or the Wall Street banks the power defaults to if the Fed were abolished? Or hell, nature or gold speculators?
Paulite paranoia? Sure bud. You and I just happen to live in different worlds with different perspectives. But since you asked, I liked JFK's idea. Give people a choice. Nothing wrong with the Fed's fiat dollars competing against silver or gold dollars to keep them more honest. Seemed to work just fine for the country as long as they were circulated. There are other underlying issues that have put us in the position we're in that lies more with personal responsibility and education than the plutocracy who controls the money supply. I just choose not to be nieve about all the sources of the problems and scapegoat a guy for trying to create a conversation about solutions.
Uh, the problem is it didn't work for the country. http://en.wikipedia.org/wiki/Wildcat_banking Anyways, you seem like you have your heart set on "defying the powers that be", so don't stop me from noting that abolishing one of their regulators gives Wall Street more power, allowing them to print private currency notes gives them way more power, and we all know how THAT ends. I am a Post-Keynesian who believes in regulating the financial sector in order to prevent excess speculation. You, sadly, seem to be about as ambivalent about Wall Street as I am, but you are supporting a set of policies that will entrench their power, and multiply their ability to wreak havoc on the economy, instead of limiting the damage through tight and judicious use of regulation (for example, FDIC standards for retail banking applied across the board, financial clearing-houses to replace the flawed issuer pays system, the outright ban of naked credit-default swaps and other dangerous exotic derivatives, increasing capital requirements, and perhaps Tobin taxes to curtail excessive speculation with hot-money financial transactions).
I am not talking about wildcat banking. I'm talking about circulating silver & gold certificates as a part of our paper currency. We were circulating silver certificates into the late 60's. I do believe in tight and judicious regulation and view the repeal of glass-steagle with Gramm-Leach-Bliley like you as gate way to our lost decade but there were things before even that. There has been a steadying decay of our liberties and I believe it all started with JFK's death as private corps & interest began writing our laws. The current power needs to be checked. http://en.wikipedia.org/wiki/Silver_Certificate Guy is kind of a douche but there is a point. http://youtu.be/OXsvTSJ_aV4
I don't understand what the point of having silver-backed currency or gold-backed currency is when you can freely exchange fiat money for gold or silver. I mean, I get the appeal, but for me this is just another layer of complexity that allows central banks to be attacked based on their silver or gold holdings by speculators. I'd say straight off the bat that based on the experience of "pegs" of currency to other sources of fiat currency (which essentially the central bank has the same amount of control with as with gold and silver) have always ended up being pretty ugly (think of Black Wednesday and Soros). Your position is much more defensible than a pure gold or silver standard, but it does share much of the same problems of the two. With that said, I certainly sympathize with your notion that the current financial system is controlled by the elite, I just don't think we see eye-to-eye on how to counter this influence. If the elite police the elite, are we headed anywhere? It's a good question. I'd recommend you read 13 Bankers by Johnson and Kwok if you want a good read on how politics and finance have become connected to the hip, and perhaps what kind of a solution is required. I recognize the flaws of the system we have, but for now, it's the best of a lot of imperfect solutions. Unfortunately.
What I am saying is that if you are advocating gold over a fiat currency keep in mind that both are really just about what the value that people put into them. Gold isn't any different than a fiat currency in that respect. There is no particular reason to put value into gold other than that it is relatively scarce, shiny and makes pretty jewelry.
Gold does have some use in wiring but that's kind of irrelevant. The point is to have currency backed by something tangible thus putting a restraint on how much a government can print. How/why the item backing the currency has value is irrelevant in this regard.
If the ECB did not have the small sliver of discretion it had in implementing LTRO, Europe probably would have already cratered.
So commodities linked to money were historically selected on a specific basis: the commodity which would lose the least amount of value over the longest time. This decision was made pre-gold standard to ensure that people would not be given, for example, silver only to see silver crash and burn, and you have nothing left for your labor. This is why currency kept developing from cheaper commodities towards commodities which were more likely to keep their value over time. When people advocate the gold standard, IMO this is precisely what they're advocating. Gold has no intrincis value and it's not difficult to imagine a future where gold has significantly changed value - after all, we've allowed those pescy global speculators the ability to trade unlimited quantities of gold. In a civilized, educated world there is no reason to link money to the unrelated value of gold, especially since we are capable of linking currency to less biased and more diversified indeces. I wanted to start another thread because I thought a great discussion would be: what should money be linked to? An index of some sort? Another commodity? A basket of commodities and/or currencies? I would love to hear opinions from the more experienced or talented economists. Recently I've been thinking about this question and reading some material about it, so I have come to a theory (which hopefully you guys would disect). It seems to me that the gold standard did stop working and is no longer suitable, but this was used as an excuse to abolish any sort of standard. Why? I think if we look at Europe in 2012 it's a great example of why. We are seeing the devastating effects of monetary union without political union. A mistake that could not be foreseen since the Euro-project is fairly unique and therefore so are its consequences. It was a good idea which needs a revision IMO. How would an independent fully-fledged independent Euro Central Bank interact with the government of a sovereign country? Seems to me that European middle class are not all too happy about the pressure placed on their politics to conform to a Euro monetary policy, which is effectively a reduction in their control over their own chosen monetary policy. What does this have to do with gold standard? IMO the gold standard was abolished because the absence of any kind of standard places power firmly in the hands of the creator of currency. This was particularly important in the early 1900's, when the powers were establishing colonies and were eager to anihilate local currency in favor of the colonial currency. There are tons of examples of this happening, such as India being pegged directly to the pound sterling. This practice continues in many places today. Why even establish a peg rather than replace the currency completely? Because such a move would be clearly seen as a violation of sovereignty, and the ensuing riots would have been uncontrollable. By calling it a peg you ensure that the dynamics of this decision are not discoverable by many non-economists, and the operational details can be hidden with the "don't want people to panic, must stay secret" excuse. The central banks in question have always revealed distressing information with every shred of transparency ripped out of their hands. What's the result? The result is a central bank which controls money outside its borders as well as inside its borders, and the people outside have no say in how things go. This is kept operational by using currency links and pegs as strategic partnerships, and also by fighting transparency. How ironic that transparency is rejected on the basis of sovereign security, while it is possibly being used a tool to influence other sovereigns. Orwell rolls again. We can't allow this to keep happening. Ensuring that money loses the least possible value over time is essential to keeping the fruits of our labor. What point is there working so hard when the dollar is strong and receiving your pension when the dollar is weak? Why should you lose anything? From the perspective of a reader, I can't see that everything is being done to preserve currency value - rather, I see central banks continuously insisting that the current system works with minor pending tweaks, while we face generations of excuses for failure culminating in what we call systemic financial failure. It's like a car who's engine fails every year, but we slap a band aid on, keep lubing it up and filling it with gas hoping for different results. The situation is so dire that we have been brought to our figurative knees. We are happy to endure medium-speed loss of value in money (and try to earn cash even faster) when considering there is a crisis every decade or so. We need a revamp IMO. As long as we can't value our labor over our own lifetime, we are far too uncertain to sit back and enjoy what we earned, and will always be in search of the most stable and standard income for as long as possible. This funnels us towards corporate slavery, where our income insecurity can be influenced in batches rather than individually. These days some people are begging to get their pension money, and others are begging to extend the retirement age so they can earn enough to live on. Seem like a totally catastrophic situation. You earn what you earn, and things like your pension shouldn't be exposed to the (hate this word) girations of the Western economy, where you have zero control. Pensions are meant to guarantee a standard of living, but instead it has become a betting game between massive financial institutions (who are the engineers of pensions) and regular people, with more intermediaries in between. There are some people who are making bank with all this: - People who print money. - People who know monetary policy before 99% of the population. - People who have average certainty of the market can maintain the value of their income using the skills they acquired through their education/occupation. - Not me and probably not you.
To be fair, it's not THAT hard to gauge central bank response to certain macroeconomic events. I mean, it's an extreme example, but Bernanke's academic research was focused on the fact that the Federal Reserve was too hawkish in the 1930s. Not exactly hard to see what side he would swing to if s*** hit the fan.
My thoughts here. 1. Money in essence is simply the middleman for bartering. Basically, you provide a service or good and get money, which is used to buy goods and service from others. It translates all the goods and services done by people into a single unit. For example, $1 can be worth a hamburger or it can be worth 10 minutes of work done by Joe if he makes $6/hour. Hence Joe can trade 10 minutes of his work for a hamburger. So if everything people do and buy is pegged to money, why have the money be pegged to something else? It doesn't really make sense because it's unnecessary and pointless. 2. If you want monetary stability, then the best way is to have a communist government where everything is controlled. Have people make a certain amount, and they could buy a certain amount. But in such a system, there can't really be innovation because there would be no incentive to do so, as money is limited artificially. Eventually you reach a point where all money is spent/saved somewhere, and nothing more can be bought or sold. So yes, it's possible to create a situation where your $100/month to retirement fund will have similar purchasing power 30 years later when you retire. But in that situation, you will probably be using the same cellphone model 30 years from now that you are using now. Maybe this is a good thing, maybe not. Depends on one's view. However, the bigger problem may be that if the US opts for fiscal conservation, other countries may choose progress, develop better technology and economic growth at the cost of things you mentioned. Take ancient China for example. It was a huge country, rich in wealth, manpower, advanced technology, basically everything you'd expect from a superpower. But then it basically stagnated in its growth, keeping to itself in its own constant state. As a result, China eventually started getting pushed around by countries tiny fractions of its size. To the point where it got destroyed by an island country in WW2 without barely being able to fight back. I'm not sure that's the path the US will want to take.
This seems like an argument against communism. That's fine if true, but communism is not the only way, even if it was the best illustration of monetary stability at some point in a very limited history of attempted communism. There are also hundreds of shades between this system and communism. I was hoping for discussion on new ways to achieve that monetary stability. This level of monetary instability is unacceptable IMO. Please correct me, but my understanding of what you're describing is: We must have free market so we can't have a cap on the riskiness of companies, and some companies are too big to fail in this case, even though there is a regulator which allegedly monitors provisions/reserves/liquidity.. and Someone has to save those people, right or wrong, since everyone goes down with them in case of failure... this means taxpayers by force take on the potential circumstances (aka risk) of massive institutional failure. and this is all more important than the ability of ~300 million individuals + populations of quasi-colonies to be able to have a decent idea of how their assets will be valued starting tomorrow until forever. and money is only a promisary note in the year 2012 and this may be an acceptable trade off because monetary stability is inversely and inseperably linked to technological development?
Sorry it sounded like it's about Communism. It's not. This type of scenario is achievable under really any form of government. And it had been the case for much of human history back when we lived in an agrarian culture. From the history of mankind's standpoint, it's only very recently when we started having a boom in advancement and all the warts that came with it. Honestly, I feel like the problems you mention have nothing to do with whether or not we use a Gold System or not. A country can have the problems you mention with some sort of fixed standard. And a country can easily have no problems despite using a free floating monetary system like the dollar currently has. So changing the monetary system is not going to fix anything you mention.
