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Kiosake is probably a bozo, but if you try to keep your money in US dollars, he will laugh last.
It all sounds like alchemy to me.
It’s as though everything that seems to make sense is wrong. No wonder that we schmucks
are lead around by nogoodnicks.
#17 bobbo,
“working on Saturday? Its good to be busy.”
I’m a technician, I do a bit of freelance work on the weekend when I can pull myself away from my books and computer.
“Thanks for parsing my post. I like that. Sadly, I don’t get much from your response though. You only skim the surface, barely touching the subject matter.”
Most people don’t bother reading when I parse out a post like that…they see a wall of text and scroll down. So I don’t normally do that, but it’s hard not to with this particular topic. Reading and studying about banking theory and history has almost become an obsession of mine. I’ve been reading about it for roughly 3 years. A lot of reading.
I find the theory most interesting and that generally deals more with the big picture. I guess it makes sense that it’s the specifics and details that would be most convincing for most people.
“What I conclude ((so far)) is that history does show that as a few civilizations went into the dust bin, they also had switched to fiat currency. Course, all the other civilizations that did not do this also went into the dust bin. This is seen by gold standard adherents as overwhelming proof that fiat currency should be avoided.”
True this is one of the most common points, and it’s a fairly good one. I don’t think it’s the most convincing for free market banking. There are several other ways banking has been setup throughout history. Most of them were actual failures and those failures at least in the last centuries have led to governments “fixing” the supposed problems. The banking system we have today is the result of countless government interventions, it’s a dizzying task to try and point all of them out. Oddly enough nearly every time a major reform is presented it’s often said to be the final solution to the banking system…yet it never is…
Granted no banking system or market is going to be perfect…nothing is. The trick is to recognize when it’s the banks own damn fault it failed and then from their to decide whether a government solution is necessary. By rewarding poor banking practices we only ensure that we’ll get more bad banks. Thats been the common trend since Jackson killed the bank. Banks run into trouble, they ask politicians to save them “for the good of the common man”.
“My link shows that Gheghis Khan created his empire by moving to fiat currency. Then he lost it according to Marco Polo by keeping on the fiat currency. Who knows?”
Most of the history I’ve read is from 1700’s to present day, so I don’t know much about Mr. Khan. One thing all “great” empires have in common with economic bubbles is that they both end, usually abruptly.
“I think people who want the gold standard are like those chickens that hypnotized by the center line of a highway. Bright pretty color. Homer drinking Beer. The brain switches off.”
[useless fact] You can also hypnotize a chicken by holding it on it’s side against the ground and then drawing a line in the sand with a small pointy object from the tip of it’s beak outward several times. When you let go of the chicken it won’t move…sometimes for over a minute and other times for just a couple seconds. [/useless fact]
Sure, there are some people who advocate the gold standard, many of which don’t understand what that means or implies. The same can be said for almost everything anyone says.
I used to advocate a money supply strictly controlled by government that would never be allowed to be needlessly inflated away that was a long while ago after watching “money masters”. I no longer believe any single group can ever be trusted with such power. Money is half of every transaction, the control of money is truly an awesome power to be had.
Power corrupts, absolute power corrupts absolutely, I think there’s a lot of truth to that statement.
“Life ain’t that simple.”
Absolutely correct, the market is a complex thing. However, thats exactly why I DONT think we should have central banking or fiat money. Life ain’t that simple. These things are too complex, no central authority can possibly know what the interest rate should be produce maximum prosperity for the greatest number of people.
You claimed that I only skimmed the surface, and you’re absolutely correct. I don’t want to continue that trend so here’s some detail and specifics from history.
During the gold standard era, we had one of the “freest” banking markets in the history of the US. Granted it wasn’t perfect, and it wasn’t completely void of government intervention, indeed, the banking industry had been semi-cartelized by the national banking acts of 1863–1864 at this point in history. I wont go into detail on this, but the banking panics that happened from when these laws were introduced until the introduction of the federal reserve act in 1913 are a direct consequence of these laws.
This gold standard era I speak of took place after the Lincolns inflationary greenback between 1873 and 1913. During this time many economists and historians have claimed there was a “long depression” between 1873 and 1889 because their was extremely high price deflation by todays standards. That isn’t the whole story though, during this period we had phenomenal increases in GDP, GNP, Labor productivity and also a 23% increase in real wages.
So, for the average Joe, the price of the stuff he bought fell and at the same time his wages increased.
I’ve taken much of this info from “The History of Money” by Murray N. Rothbard. But also from sources like wikipedia and other books…but I cant remember which ones…
The history of money can be read for free online at:
http://mises.org/books/historyofmoney.pdf
page 159 to 167 contains the relevant info and more.
#24, Chris,
“The point of money is to make it unnecessary to barter with people. If we all used gold we would have to use little bitty pieces because there isn’t enough gold to be used in such a practical way.”
You’re seriously misguided if you think that a gold standard would having us running around exchanging tiny bits of gold for things. A gold-standard wouldn’t look much different than what we have today. You’d still have debit cards, checks, etc.
Then only difference is that your money would increase in value, completely negating the need to speculate in the stock market to save for your retirement. You could merely put your paycheck in the bank and watch it appreciate.
You would rarely ever deal directly with gold. Gold is only a store of value.
Your point is the equivalent of saying “if we went back to the gold standard everyone would have to ride around on horseback and beat their slaves”
Their are several other points I’d like to address, especially the absurd ideas in this topic about golds intrinsic value and the ridiculous idea that the “currency system steals from the rich”.
I’m looking at you #20, 21, 24, 26, 27, 28
Also, I don’t like Robert Kiosake, he’s good at selling books, and that’s about it. He makes some decent points, but many of his ideas are so muddled and confused. That and he suckered so many people into the housing bubble craze.
You should see the other “advice” he gives to his victims.
http://www.johntreed.com/Kiyosaki.html
#33–DA==”Reading and studying about banking theory and history has almost become an obsession of mine.” /// Ouch!!! The Dismal Science? I hear a quick six-pack will lessen your pain? THIS is actually one of the best DU threads I have seen. Nice to see the different input. Lets see what else you say:
……..well, you seem to take a flight of fancy. Private Autopilot. I guess most directly the thread subject is should we save money or hedge with commodities? Or maybe more relevantly it has grown to real world commodity pegged “money” vs fiat currency? I thought the comment by Chris at #24 was the game changer for me: “The reality is that the combination of money and credit became completely detached from the underlying stuff that it was supposed to buy.” And “stuff” is where it is at. Growing, digging, making. NOT SERVICES.
I threw in a red herring that you haven’t dismissed: all economies eventually fail. But there is value in understanding the role of commodity based money vs fiat currency in that fall. You don’t address that. Lost in your own reveries I assume. I think it goes to the question I did ask: If USA had stuck with gold standard in 1971, would anything differently take place? If not, I think the devotions to gold standard are really an academic exercise.
OFF TOPIC: My other open window is YouTubing “Vanessa Mae.” Much better than dirty old dollar bills. Just for instance: http://youtube.com/watch?v=qn6vnwzpLAI&feature=related
Hope you catch her. “Old in the UK, new to me.”
Regarding Banking===confront something. Disagree. Redirect the issue. Argue. Raise the level. Give us the synthesis of your studies.
DA==hah, hah==while I was posting, you did exactly what I asked. You attacked Chris who I thought was right on the “money.” Lets see, I’m actually getting a bit full of beer and violins right now, but I have a sliver of consciousness, and thats usually enough.
Little info? You must be assuming all kinds of stuff if we “are on a gold standard” with credit cards and all the rest. I can “imagine” how that might work, but I can’t imagine how that avoid all the errors of fiat currency.
What control are you assuming that Chris assumes not, and that I can’t imagine?
One of many BAD pilllars of debate, the ad hominem: “You do realize that this is a pillar of Marxist thought, right?” //// SOOOOOOO scatalogically bad, I’m surprised you didn’t catch it on seeing what your detached fingers put forth. Really? In your scotchguard sky colored world “anything Marxist” is bad/wrong/irrelevant? Is that how silly you are?
Good debate? Hah. hah. For myself, I can say the statement is a bit overmade, but not any where near your assumptions.
Gooddebate?===No. In context, I see the reference to “labor” being quite more broad. Broader than gooddebate can handle. Simply, no good about it, and no debate either when it comes down to it, just an fusillade of bumper stickers? Shame.
iF i had earthquake proof rubber speaker stands.. i could drown this guy out
39 the oxymoron (look closely, surprised you missed it). Are you so infantile as to actually take up everyone’s time by tearing apart someones moniker? It’s a moniker. Well, I can’t wait to see your come back to this. You act as if no one can wait to hear what you have to say. Ooo, he didn’t answer a question; neither do you.
Exactly what do you call your debate technique in this example: “One of many BAD pilllars of debate, the ad hominem: “You do realize that this is a pillar of Marxist thought, right?” //// SOOOOOOO scatalogically bad, I’m surprised you didn’t catch it on seeing what your detached fingers put forth. Really? In your scotchguard sky colored world “anything Marxist” is bad/wrong/irrelevant? Is that how silly you are?”
What is your point? Is it an attempt at humor? Is it an attempt to make fun of me? Are you trying to simply make an idea that you don’t agree with look as bad as you can?
What’s interesting (or not) is that it has nothing to do what what I said or the idea that I am challenging. I think that the idea that our economy is based on labor is wrong. I heavily implied that it’s Marxist thought as a way to further denigrate the idea. If you don’t agree you could say that.
#41–gooddebate===hah, hah. So you think monikers are random events? No? Why did you choose “gooddebate?” Pretty obvious. The lady doth protest too much.
Ad hominem is exactly and only what you did. And rather silly too given that Karl Marx has a lot of validity–labor vs capital and all that? Most of what most people object too is how Karl got misused by the commies, not what “he” actually said. Silly boy.
Oxymoron? I looked again. Missed it.
“Are you so infantile as to actually take up everyone’s time by tearing apart someones moniker?” /// I spent six words addressing your moniker. Less than you complaining about it.
“You act as if no one can wait to hear what you have to say” /// Complete projection. Silly. Not gooddebate. Sidebar. Ad hominem. Strawman. Diddling.
“What is your point? Is it an attempt at humor?” /// Of course, coupled with substance. Good debate by example.
“Is it an attempt to make fun of me?” /// No, it is an occurrence of same.
“Are you trying to simply make an idea that you don’t agree with look as bad as you can?” //// I didn’t spend THAT much time. To be really scathing, I’d have to go google something which I don’t recall doing. No, your faults are pretty much self evident as posted.
“I think that the idea that our economy is based on labor is wrong.” /// Thats obvious, and obviously whats wrong with our society. Thinking it is “based” on the 1% capital rather than the 95% labor. Kinda a misplacing of priorities when you pull your head out of your ass.
“If you don’t agree you could say that.” //// Me and Karl don’t agree.
Gee, Gooddebate–unusually hostile tonight. Get a good nights rest. Its just a blog.
Normally, I don’t correct the many mistakes I make resting on anyone who cares to correct me in context. But since you are upset Gooddebate, I see I failed to read the last paragraph of my post #39 which indeed is all a rip on your name. But without your oxymoronic name, I would have said the same thing without the irony.
50/50? Learn, adapt, overcome, excel.
This guy is making money off of poor people who believe reading his book is the key to making them millionaires.
He’s published 20+ books…
Just like those dweebs on TV selling real estate programs…
Put your tinfoil hats on: doomsday 2012 aka the collapse of the fiat currency. Could it happen? .. tune in dec 31st 2011 and let us find out!
I’ve been a saver all my life. I’ve never been in debt and have over $250,000 in cash I can use at any time if I need it.
DA, I was speaking in simplest terms of using gold as a physical medium of exchange.
Let’s go a step closer to your proposed solution. There is an interface at the central bank where anybody can go and trade in their notes for some physical gold. Most of the time there isn’t much activity. Then one day a friendly Chinese gentleman comes in and asks to trade in $2 trillion notes into gold.
People see a long line of trucks being filled with gold. They start to worry that maybe the government doesn’t have enough gold to give everybody if the world were to suddenly end. They all line up and decide to trade in their notes as well.
Now, suddenly, the money supply has been vastly decreased. The government would like to buy more gold, but what is it going to use? Currency is needed for daily transactions so people don’t have to carry around little bits of gold. Many people that have mortgages find themselves unable to pay because their debts are set but the boss cut their nominal pay to reflect the higher value of currency.
Everything grinds to a halt and suddenly the government hits on an idea: change the rate at which currency is exchanged for gold. Now, after all that bother, the nation has essentially the same system we do today. 🙂
If you want to talk about underlying problems let’s start with empire. I’ll call it the “Unnecessary Weapon System Fallacy,” a member of Congress allocates money to build an expensive new weapon. Campaign contributions increase, unemployment decreases, defense stocks go up, and the representative’s testosterone goes through the roof. Has anything actually happened? No. Productive capacity has not increased. The system isn’t used until a conflict breaks out and then it is often found to be irrelevant by the military.
Empires always do end, and usually in a messy fashion. An empire ending tends to have greater impact on its currency’s reserve status than whether that currency is fiat or gold backed.
If our currency was based on CRAP..
Could be grade it by Quantity and QUALITY..
THe largest amounts I see are in our capitals, and is very Poor quality, even tho they think its gold.
REMEMBER, these folks WANT the job. but GENERALLY have little experience in ANYTHING except OPENING MOUTH-INSERT FOOT.
They are not known for being book-keepers, econmists, BUSINESS MEN, or any OTHER knowledge that COULD HELP a state or government. They are elected by TV and YOU. Its more popularity contest then LOGIC.(he’s cute I should vote for him. IT DONT WORK THAT WAY)..
The problem is that WITH little knowledge, they tend to listen to the FIRST IDIOT that tells then whats happening or GOING to happen.
Lets do alittle math..
300 idiots running the State and Fed..Each listening to ANOTHER 100-300 idiots that Explain things to them.. PEOPLE PAID by corps with ??? experience ALSO..
Example..
Gov listens to Scientists (paid by Tobacco) about health coverage and so forth, Scientists that are TOLD what the tobacco company ONLY wants heard. the Gov, cant fight FACTS with FACTS, as Doctors are showing cause and affect, but NO ONE can prove WHO is lying..UNTIL someone POPS UP and shows the tobacco industry ALREADY KNOWS the problems..and brings the paper work WITH THEM..
Back to the SUBJECT..
1. OUR Representatives are idiots..
NOT scientists, doctors, Businessmen, or anything ELSE..they were raised AS POLITICIANS..
2. the OLD way was to GRAB a good person that KNEW SOMETHING..PAY him minimal wages(a stipend for travel and lodging ONLY) then SEND him back to his REAL JOB..
3. a bunch of idiots LISTENING to PAID IDIOTS/corps, about HOW to fix the nation….DUH!!
4. what is the OLD BUSINESS ideal/teaching..PROFIT is whats left after EVERYONE ELSE is paid..THAT is what the owners/CEO/Board of directors/CFO/other TOP wage earners get. NOT WAGES. If business goes DOWN, top wages go DOWN. Rising prices, WILL NOT HELP MAKE MORE SALES..
WHAT makes MORE sales?? MONEY ON THE BOTTOM. MAKE the lower pay areas, EASIER.
Economist long ago said..
3% increase in the economy is GREAT.
HE DIDNT SAY..
Raising prices 3% EVERY YEAR was great. Esp when the cost of GOODS, was the same.
What happened over the last 10-15 years?? PRICE INCREASES, not wage increase. PRICES DOUBLED, RENT DOUBLED, FOOD DOUBLED, UTILITIES DOUBLED…WAGES didnt MOVE.
NOW the FAT ones on top..They WANT the same wages, NO MATTER WHAT IS HAPPENING..
recently, wages went up..PRICES SHOT TO THE SKY?? because?? those on TOP, are paid WAGES and dont want TOP WAGES CUT.. it did not matter that Stock market Evaluations of these corps SHOW’D that they were making PROFIT 2-3 times as 10-15-20 years ago..
Solution..
CUT THE TOP.
MAKE A FAIR PRICE ON GOODS.(that iphone worth $100 in electronics WONT BE $700, it SHOULD BE $200-300)
KILL ALL PERSON(A/E)L BUSINESS CONTRACTS.
ALL BUSINESS is transparent…hiding things JUST ISNT RIGHT.
#36 bobbo,
“Ouch!!! The Dismal Science? I hear a quick six-pack will lessen your pain?”
Makes me wonder how many Keynesian economists are also alcoholics. That would explain a lot of things.
For me, the question isn’t whether we should hedge with commodities, or save our fiat currencies. The question is commodity money vs. fiat currency. The question is more complex than that, since the gold standard we have had for the last century has been inherently unstable, under the legitimized fractional reserve banking, lender of last resort system and especially under Breton woods.
“If USA had stuck with gold standard in 1971, would anything differently take place?”
It would have been disastrous.
Yes that is a serious reply, although I don’t think it’s the one you expected. Bretton woods was a convoluted mess of agreements between nations that I’d rather not get into.
For me, the question isn’t whether we should hedge with commodities, or save our fiat currencies. The question is commodity money vs. fiat currency. Although, the question is more complex than that, since the gold standard we have had for the last century has been inherently unstable, especially under Breton woods, and the legitimized fractional reserve banking, lender of last resort system before that.
The other big question would be, “savings AND loan?” OR “savings OR loan?”. More specifically I’m referring to the legitimized practice of lending out peoples savings and still allowing them to withdraw 100% of their money. Savings is not separate from loans in our current banking system, rather it’s conglomerated. Banks loan out warehoused money, that money is then spent and deposited elsewhere. When that money is deposited it’s loaned out again. Banks literally create money from nothing, this combined with the central bank setting artificially low interest rates is what fuels the massive and disastrous bubbles we see in our economy today.
Chris was right that there was a disconnect between the currency and the goods it’s purchasing. This is what caused that disconnect. It’s also why savings is penalized severely, and going in debt is rewarded. This is why we’ve incorrectly bailed out a system that is inherently unstable and also why we have an FDIC which is a government operation that only protects the nominal value of deposits. You will always be able to get your money from the bank, but I can’t guarantee it will be worth anything.
“Give us the synthesis of your studies.”
To rephrase: How would things be different from today under a non-conglomerated gold standard without government protection of banks?
Thats a daunting question, because it requires lots of imagination and good sound theory. The only sound theory in economics is based on axioms. Supply and demand is axiomatic, one of the central laws of economics. It’s also difficult to exactly describe, because I don’t believe a banking system should be forced on anyone, people would accept whatever system is most capable of meeting their needs as a consumer or investor, or a saver etc. It’s likely that what I describe is not exactly what the market would choose, entrepreneurs would come up with ideas and implement then the consumer would vote with their money for the best ideas. If the business succeeds it’s doing a good job of meeting consumer needs, if it fails then it shouldn’t be propped up by government.
Throughout history the market has chosen gold because it best meets all the requirements for a stable money.
So all deposits at banks would be backed by gold, and redeemable at any point. The banks would likely make money by charging a small fee although other means could be used to turn a profit.
Transactions in the market would be made with checks or debit cards or maybe even credit cards and loans for large transactions.
Consumption would be largely based on savings and capital accumulation. Speculating in the stock market would be a thing of the past for the average Joe. He could retire wealthy by working hard and stacking up his gold. Consumer debt would be much less common if not entirely non-existent. People wouldn’t be the slaves to debt anymore. I suspect this would have tremendous social benefits. Debt causes a lot of stress and ruins countless marriages.
When a crisis hits people will have savings in the bank to weather the storm. During a crisis the need for savings would rise, as savings increased so would the value of the money. Higher value of money would decrease the cost of goods, this would be an ongoing process that would reward good investments and punish bad ones. As the cost of goods dropped people would feel comfortable again and would reduce their savings and either consume or invest into a business to increase their capital. Leisure would be something you earn, not something you deserve. The more productive society becomes from this process the more leisure time and the higher the standard of living gets for everyone.
Banks would have buy deposit insurance and have security to protect their customers wealth. The amount the bank is charged for their insurance depends on how secure the insurance deems the money to be. Private companies and consumer advocate groups would take the place of the SEC. Any bank that claims it has 100% reserves and were secretly defrauding their customers would no longer be given get out of jail free cards. Moral hazard would be eliminated because of this. The moral hazard in our banking system is a product of numerous government guarantees.
In short, allowing competition is the surest way to increase individual wealth across the board. I believe competition would ultimately choose commodity based money, gold and silver would be the commodities of choice.
“I threw in a red herring that you haven’t dismissed: all economies eventually fail.”
I didn’t dismissed it, I just didn’t say anything. 😛
Here’s what I thought…economies can’t fail, governments fail. Wait, I think I did say that. Economies are nothing more than an organization of people. The prosperity and success of each economy is very subjective and entirely dependent on the views of each individual. I measure an economies success by it’s ability to produce the highest standard of living for the poorest person in that society. To that extent, the free market is the greatest equalizer of wealth, of course, thats an entirely different debate.
“OFF TOPIC: My other open window is YouTubing “Vanessa Mae.” Much better than dirty old dollar bills. Just for instance: http://youtube.com/watch?v=qn6vnwzpLAI&feature=related””
Wow, love that music. It’s different, and thats refreshing. I’m always listening to music when I’m doing anything.
“THIS is actually one of the best DU threads I have seen. Nice to see the different input.”
I tend to agree, it’s been mostly civil. There hasn’t been any partisan bullshit and best of all, no mention of Glenn Beck.
#36 bobbo,
“Ouch!!! The Dismal Science? I hear a quick six-pack will lessen your pain?”
Makes me wonder how many Keynesian economists are also alcoholics. That would explain a lot of things.
For me, the question isn’t whether we should hedge with commodities, or save our fiat currencies. The question is commodity money vs. fiat currency. The question is more complex than that, since the gold standard we have had for the last century has been inherently unstable, under the legitimized fractional reserve banking, lender of last resort system and especially under Breton woods.
“If USA had stuck with gold standard in 1971, would anything differently take place?”
It would have been disastrous.
Yes that is a serious reply, although I don’t think it’s the one you expected. Bretton woods was a convoluted mess of agreements between nations that I’d rather not get into.
For me, the question isn’t whether we should hedge with commodities, or save our fiat currencies. The question is commodity money vs. fiat currency. Although, the question is more complex than that, since the gold standard we have had for the last century has been inherently unstable, especially under Breton woods, and the legitimized fractional reserve banking, lender of last resort system before that.
The other big question would be, “savings AND loan?” OR “savings OR loan?”. More specifically I’m referring to the legitimized practice of lending out peoples savings and still allowing them to withdraw 100% of their money. Savings is not separate from loans in our current banking system, rather it’s conglomerated. Banks loan out warehoused money, that money is then spent and deposited elsewhere. When that money is deposited it’s loaned out again. Banks literally create money from nothing, this combined with the central bank setting artificially low interest rates is what fuels the massive and disastrous bubbles we see in our economy today.
Chris was right that there was a disconnect between the currency and the goods it’s purchasing. This is what caused that disconnect. It’s also why savings is penalized severely, and going in debt is rewarded. This is why we’ve incorrectly bailed out a system that is inherently unstable and also why we have an FDIC which is a government operation that only protects the nominal value of deposits. You will always be able to get your money from the bank, but I can’t guarantee it will be worth anything.
…Continued…
“Give us the synthesis of your studies.”
To rephrase: How would things be different from today under a non-conglomerated gold standard without government protection of banks?
Thats a daunting question, because it requires lots of imagination and good sound theory. The only sound theory in economics is based on axioms. Supply and demand is axiomatic, one of the central laws of economics. It’s also difficult to exactly describe, because I don’t believe a banking system should be forced on anyone, people would accept whatever system is most capable of meeting their needs as a consumer or investor, or a saver etc. It’s likely that what I describe is not exactly what the market would choose, entrepreneurs would come up with ideas and implement then the consumer would vote with their money for the best ideas. If the business succeeds it’s doing a good job of meeting consumer needs, if it fails then it shouldn’t be propped up by government.
Throughout history the market has chosen gold because it best meets all the requirements for a stable money.
So all deposits at banks would be backed by gold, and redeemable at any point. The banks would likely make money by charging a small fee although other means could be used to turn a profit.
Transactions in the market would be made with checks or debit cards or maybe even credit cards and loans for large transactions.
Consumption would be largely based on savings and capital accumulation. Speculating in the stock market would be a thing of the past for the average Joe. He could retire wealthy by working hard and stacking up his gold. Consumer debt would be much less common if not entirely non-existent. People wouldn’t be the slaves to debt anymore. I suspect this would have tremendous social benefits. Debt causes a lot of stress and ruins countless marriages.
When a crisis hits people will have savings in the bank to weather the storm. During a crisis the need for savings would rise, as savings increased so would the value of the money. Higher value of money would decrease the cost of goods, this would be an ongoing process that would reward good investments and punish bad ones. As the cost of goods dropped people would feel comfortable again and would reduce their savings and either consume or invest into a business to increase their capital. Leisure would be something you earn, not something you deserve. The more productive society becomes from this process the more leisure time and the higher the standard of living gets for everyone.
Banks would have buy deposit insurance and have security to protect their customers wealth. The amount the bank is charged for their insurance depends on how secure the insurance deems the money to be. Private companies and consumer advocate groups would take the place of the SEC. Any bank that claims it has 100% reserves and were secretly defrauding their customers would no longer be given get out of jail free cards. Moral hazard would be eliminated because of this. The moral hazard in our banking system is a product of numerous government guarantees.
In short, allowing competition is the surest way to increase individual wealth across the board. I believe competition would ultimately choose commodity based money, gold and silver would be the commodities of choice.
“I threw in a red herring that you haven’t dismissed: all economies eventually fail.”
I didn’t dismissed it, I just didn’t say anything. 😛
Here’s what I thought…economies can’t fail, governments fail. Wait, I think I did say that. Economies are nothing more than an organization of people. The prosperity and success of each economy is very subjective and entirely dependent on the views of each individual. I measure an economies success by it’s ability to produce the highest standard of living for the poorest person in that society. To that extent, the free market is the greatest equalizer of wealth, of course, thats an entirely different debate.
“OFF TOPIC: My other open window is YouTubing “Vanessa Mae.” Much better than dirty old dollar bills. Just for instance: http://youtube.com/watch?v=qn6vnwzpLAI&feature=related””
Wow, love that music. It’s different, and thats refreshing. I’m always listening to music when I’m doing anything.
“THIS is actually one of the best DU threads I have seen. Nice to see the different input.”
I tend to agree, it’s been mostly civil. There hasn’t been any partisan bullshit and best of all, no mention of Glenn Beck.
I think I’m being blocked by the spam filter…wont post my full post.
…
:\
ok…umm.
Yipes?
yea, #50, 51, 52, and 53 can be deleted.
>____>
#48 Chris,
“DA, I was speaking in simplest terms of using gold as a physical medium of exchange.”
Yes, I gathered that you were speaking in the simplest of terms about gold, what I didn’t gather is if you actually believed that’s what it would look like. As I pointed out, it was a gross misrepresentation of how a commodity money would operate.
“Let’s go a step closer to your proposed solution. There is an interface at the central bank where anybody can go and trade in their notes for some physical gold. Most of the time there isn’t much activity.”
I don’t advocate a central bank, but lets pretend I do, what you suggest is in fact merely one step closer to what I do advocate.
“Then one day a friendly Chinese gentleman comes in and asks to trade in $2 trillion notes into gold.”
Sounds like the friendly Chinese gentleman has some big plans.
“People see a long line of trucks being filled with gold. They start to worry that maybe the government doesn’t have enough gold to give everybody if the world were to suddenly end. They all line up and decide to trade in their notes as well.”
Why wouldn’t the government have enough gold? Are you suggesting that the government might be involved in the fraudulent practice of making more gold notes than it has gold in the vault?
“Now, suddenly, the money supply has been vastly decreased. The government would like to buy more gold, but what is it going to use?”
Why is the government trying to buy gold? The government earns it’s money through taxation, all it has to do is tax people to get money. Government doesn’t produce things, it redistributes things.
“Currency is needed for daily transactions so people don’t have to carry around little bits of gold.”
true, a sophisticated modern society wouldn’t use gold in direct exchange, it would use checks, wire transfers, debit cards, and paper notes that represent gold.
“Many people that have mortgages find themselves unable to pay because their debts are set but the boss cut their nominal pay to reflect the higher value of currency.”
This isn’t what happens under a central banking gold standard, the value of the money wouldn’t have necessarily increased in your example either. More is involved in the valuation of money than the amount being held at the central bank. What you’ve described is linear model of the value of money. So I’ll assume your conclusions since it would be possible for them to happen, but not necessarily the way you described. I’ll even ignore the fact that credit would be used less in consumer purchases under a gold standard.
So Timmy the tree logger got a loan and bought a house for himself. He would therefore be taking a risk, if having the house now would be worth the higher price he might potentially have to pay then he would buy, if it wasn’t worth the risk he wouldn’t buy. Furthermore, a bank would be looking for the investment that would give them the greatest return on their money, if they determined Timmy would give them the greatest return on their money then they would approve his loan.
The same thing happens with fiat money except in a different way, people get strapped with debt. People pay to twice the original value of a house or more when they buy it up front with little money down. Thats the risk they take. The difference being that they are left with the choice of, let money sit in the bank and depreciate or buy now and hope I can pay later or invest my money into things I know nothing about and hope that my money maintains or increases it’s value, then buy a house later.
“Everything grinds to a halt and suddenly the government hits on an idea: change the rate at which currency is exchanged for gold. Now, after all that bother, the nation has essentially the same system we do today.”
A system in which people who have saved money get thrown under the bus because others weren’t as responsible. Yeah, great system. Your accusation that everything would grind to a halt is unfounded, I fail to see how the increase of money would grind to a halt if the money increases in value.
You appear to be drawing conclusions from our current muddled and confused monetary system and applying them to a fixed gold standard. It appears that you also subscribe to the idea that consumption drives an economy forward to prosperity, I can’t say for sure but it does appear that way.
“If you want to talk about underlying problems let’s start with empire. I’ll call it the “Unnecessary Weapon System Fallacy,” a member of Congress allocates money to build an expensive new weapon. Campaign contributions increase, unemployment decreases, defense stocks go up, and the representative’s testosterone goes through the roof. Has anything actually happened? No. Productive capacity has not increased. The system isn’t used until a conflict breaks out and then it is often found to be irrelevant by the military.
Empires always do end, and usually in a messy fashion. An empire ending tends to have greater impact on its currency’s reserve status than whether that currency is fiat or gold backed.”
You completely lost me on this point…are you suggesting a gold standard would somehow drive an empire better than the governments ability to borrow and print endlessly? Or?
Additional note: I can’t read real good evidently. Post #54 should have said, Post #51, 52, 53, 54 can be deleted or ignored.
#55, It appears that you also subscribe to the idea that consumption drives an economy forward to prosperity.
Not consumption, but production. If you assume that credit represents consumption, we have consumed way more than we’ve produced — house, two cars, boat, 30 sets of clothes, etc.
If the value of the commodity-based money was strongly based on production, inflation would be held to a minimum as the value would only increase as production increased.
People would get paid by what the produce. If you want a raise, produce more. These days it’s common to get cost of living raises. The reason the cost of living is going up is because inflation is eating the value of their dollar away.
The value of money has to represent something other than trust.
DA–“Throughout history the market has chosen gold because it best meets all the requirements for a stable money.” /// Not to quibble–you are speaking of western/eastern cultures. Isolated cultures without gold have chosen sea shells, totem heads==all sorts of symbolic easy to carry/barter items.
Then one can ask: “Is stable money the highest goal of a banking/monetary system?” I understand that the availability of credit is very important to growth.
Another version: Maintaining a sound banking/monetary system is not the goal of a society, its really almost irrelevant. Chris has the deeper issue–whatever the money is, it has to represent the value of “stuff” it is based on. Gold is close only because it is relatively stable NOT because it somehow intrinsically relates to that value.
If staying on the gold standard in 1971 would have been no difference or worse, then other issues are much more important/controlling and THOSE are the ones we should be talking about.
I don’t want a discussion that is “too big to fail” but in relevant context is actually “so long it does fail.”
#56–Liberty==exactly right.
#57, bobbo,
You’ve either lost me or lost yourself.
I agree 100% with Liberty’s post. I wasn’t advocating the idea that “consumption drives an economy forward to prosperity.” I think thats an absurd idea, I was questioning whether Chris believed it. I thought that was clear…
The idea that consumption drives economic growth is a very mainstream idea, it’s said all the time on the news and by politicians. “if only people would spend then we would be prosperous.”
“Isolated cultures without gold have chosen sea shells, totem heads==all sorts of symbolic easy to carry/barter items.”
There are certain requirements to determine what is a good commodity money. Sure, more primitive cultures have used primitive items and this served them well. You’d have a very hard time finding anyone who seriously consider sticks, seashells and beads a good unit of exchange.
The requirements are as follows:
The good is widely marketable.
The good transports easily.
The good is relatively scarce.
The good is relatively imperishable.
The good is easy to store.
The good is easily divisible.
Each unit of the good is very similar to every other unit.
Gold easily meets all of those requirements much better than any other good that I can think of…that said if the rest of the economy voluntarily adopted a seashell standard then I might decide to use that. That is of course, absurd and very unlikely.
“Then one can ask: “Is stable money the highest goal of a banking/monetary system?” I understand that the availability of credit is very important to growth.”
That depends I don’t think any single person can decide that for an entire society. There could be some idiot out there that wants to get paid with something that constantly devalues. I don’t know. I would prefer to get paid by something that I know will remain valuable or increase in value. Certainly bankers might view their goal is to screw as many people out of their prosperity as possible
Credit is important to growth yes, so is savings. Credit is based on savings, creating artificial credit causes artificial growth. Boom and bust cycles.
Capital accumulation or savings is what’s important to growth.
“Maintaining a sound banking/monetary system is not the goal of a society, its really almost irrelevant.”
Yes, the goal of a society is very subjective and is completely irrelevant to the discussion.
It’s not for any one group of people to decide what societies goal should be. You say sound banking is irrelevant and I say it’s THE MOST relevant. Who’s correct? Neither of us.
“If staying on the gold standard in 1971 would have been no difference or worse, then other issues are much more important/controlling and THOSE are the ones we should be talking about.”
I thought I made it clear that the pre-1971 gold standard was a foolish idea…Bretton woods was a VERY faulty gold standard. Just like fractional reserve banking…they are inherently unstable. These ideas would have been even worse with a different commodity or no commodity. Gold wasn’t the problem, it was the way the system was set up. If we had a gold standard in 1971 WITHOUT bretton woods, fractional reserve banking, and government protection of banks; then I believe we would have undoubtedly been better off keeping that system than moving to fiat currency.
Almost every single one of your questions is either completely irrelevant, entirely silly, or both.
Should government protect banks from “failing”?
Should government continue to legitimize Fractional reserve banking?
Should government continue to mandate that we can ONLY use the devalued FRN in transactions?
Is free market banking more conducive to prosperity than a government controlled fiat monetary system?
THESE are some of the most important key issues as far as I’m concerned.
#58–DA==gold becomes devalued with every grain that is dug up out of the ground. Its value is that it is just “relatively stable.”
Please educate me: If USA is on a Gold standard in year 1 with gold = 100/ounce with a manufacturing output of x. Now, its 20 years later. Everything else is “the same” except mfg output is now 2x. What is the value of the gold ounce?==or what is the value of the mfg? Is it the same question? Tell me what the better question is that I missed?
I cant figure out what you’re trying to figure out.
You’ve lost me bobbo.
Social benefit to increase in money supply?
Social benefit to increase in value of money supply?
What is a “stable” money supply?
Seriously spell it out for me.
So say total output for a factory is 2 toilets, 20 years later that factory makes 4 toilets. if there is still only demand for 2 toilets, then they wasted their time. They shouldn’t have made 2 extra toilets.
Unless you’re saying something different when you say “the same”.
#59 bobbo
One point to make by your questions is that the weight and the value of gold are two different things. The weight of gold would be fixed but not the value. For instance, from 1879 to 1933 the weight of a dollar was expressed as 23.22 grains of fine gold. So, an ounce of gold which has 480 grains had a mint price of $20.67 dollars. This is like saying that a foot is 12 inches and that an inch is one twelfth of a foot.
Because the mint price is fixed then the production of new gold is self regulating. This is because no one can control the value of gold. So, if gold becomes less valuable (demonstrated by a rise in commodity prices), less gold is produced because you’d be getting the same fixed price but your cost to produce goes up. However, if the value of gold increases (demonstrated by a falling commodity prices) more gold is produced because as commodity prices fall producers price to produce gold would also fall.
Producing less gold during a period of rising value would have the effect of making gold less valuable and producing more gold during a period of lowering value would have the effect of making gold more valuable.
So, lets say you own a mining company and your company made a find that would double the amount of gold. What would happen is that as your company began to produce and make a profit prices would begin to rise until you’d be losing money as you produced more gold. What would be more likely is that it would be reasonably known how much gold to produce without affecting value and you’d keep production at that level.
DA,
did you know that the USA has a law out for corps and retirement funds?? that they are SUPPOSED to pay ??% interest as a default.
DID you know that MOST of them dont pay it?