Central banks continue to purchase gold - Gold Standard Restoration Act
- Thread starter Goldbrix
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What currency can be trusted? Not including confiscation for being on the wrong side of politics, the western currencies are illusions. China is bad too.
Holding pre-1933 gold, sovereigns, gold francs and pre-65 silver in your hand is what honest money feels like. At least you knew where you stood.
Holding pre-1933 gold, sovereigns, gold francs and pre-65 silver in your hand is what honest money feels like. At least you knew where you stood.
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I pointed out this to my long-suffering bride last night, and she had an apostrophe (AKA: epiphany):
If you took inventory of every ounce of gold held anywhere by the US Gummint, and divided it into the amount of US Gummint dollars the US Gummint has put out there (the M2 money supply per the US Gummint accounting)... that would be:
27,711,000,000,000 dollars existing now divided by the 261,498,926,241 ounces the US Gummint has to back it...
...you get the actual US dollar value in gold: $83,025.20 per ounce!!
This gave her a new perspective for sure about how hollow the USD has become. Then I added:
"The entire world is soon going to be on the gold standard, and BRICs -- plus others -- are leading the way right now."
She laid a cold, hard eye on me (which feels just as disgusting as it sounds) and said, "Are you trying to sell a fantasy to me that we are going to be fabulously wealthy?"
She has the mind of a child (keeps it in a jar under the bed), so I answered slowly andcautiously clearly:
"Nope, not at all. It is just all those who have gazillions of simoleans in banks and mattresses are going to have the equivalent of Bolivars or NotGeld Notes."
She looked at me with big eyes, having gotten the concept. She made the leap in an instant:
"So we won't be stinking rich and able to buy a cabin cruiser boat, but we will be able to buy one off of a hungry ex-rich guy for a couple of meals or one of those tiny Krugerrands we have."
I looked at her and said "There It Is".
If you took inventory of every ounce of gold held anywhere by the US Gummint, and divided it into the amount of US Gummint dollars the US Gummint has put out there (the M2 money supply per the US Gummint accounting)... that would be:
27,711,000,000,000 dollars existing now divided by the 261,498,926,241 ounces the US Gummint has to back it...
...you get the actual US dollar value in gold: $83,025.20 per ounce!!
This gave her a new perspective for sure about how hollow the USD has become. Then I added:
"The entire world is soon going to be on the gold standard, and BRICs -- plus others -- are leading the way right now."
She laid a cold, hard eye on me (which feels just as disgusting as it sounds) and said, "Are you trying to sell a fantasy to me that we are going to be fabulously wealthy?"
She has the mind of a child (keeps it in a jar under the bed), so I answered slowly and
"Nope, not at all. It is just all those who have gazillions of simoleans in banks and mattresses are going to have the equivalent of Bolivars or NotGeld Notes."
She looked at me with big eyes, having gotten the concept. She made the leap in an instant:
"So we won't be stinking rich and able to buy a cabin cruiser boat, but we will be able to buy one off of a hungry ex-rich guy for a couple of meals or one of those tiny Krugerrands we have."
I looked at her and said "There It Is".
I like the the way she thinks.
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There you have it. My illusions of getting rich on gold faded very quickly over a decade ago. If it somehow protects us with what's coming then its done its job.
Pegging the dollar to gold has it's own problems. I think Ron Paul had the right idea with his Competing Currencies bill.
We may get pushed if Chuck Schumer successfully gets all our troops removed from Saudi Arabia and economic sanctions placed on them. Won't happen now, but when the US loses the petrodollar it's over here for 10 years.
A worthless barbaric relic [/bernanke]
I'd say that clock is already ticking and closer than 10 yrs.
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That may not be up to them. The whole fargin world may tell Congress what's what and who's your uncle.
They will be told to print as many Bolivars as they want, forever and ever, Amen.
Zed
Retired Sailor
Yes. Making credit work with a currency that tends to be deflationary combined with a future need to moderate growth (finite world!) makes gold backed a bit hard to manage. The fact is we have never had an ideal currency, they all have flaws.
That said gold could be used to regain stability after a major break down of a fiat regime. It serves that roll informally, the only question is will it be made formal for a period of time.
Digital currencies do offer the ability to algorithmically control issuance, if there was a way of taking it out of the hands of government and linking it to real growth we could have the best currency we have ever had. The issue is making it tamper proof and reliably connected to real growth, NO SMALL TASK!
I suspect we might lean on gold for a period but then break the link again as we recover and economic growth exceeds the ability to expand the gold supply. Resetting gold to a really high value would buy some decent time but I can't see it lasting forever.
That's actually a bit of a myth regarding the old gold standard.
There were boom and bust cycles with the gold standard. When Spanish treasure fleets got wrecked by hurricanes it was hard on their economy and lead to the eventual collapse of the empire.
They did not print anything and only relied on mining in the Americas. Spainalso used less silver in their coins than advertised which some ministers paid for with their heads.
Black Hills in South Dakota had enough gold to warrant the extetmination of the indigineous people. It helped to expand the US economy.
They did not print anything and only relied on mining in the Americas. Spainalso used less silver in their coins than advertised which some ministers paid for with their heads.
Black Hills in South Dakota had enough gold to warrant the extetmination of the indigineous people. It helped to expand the US economy.
Zed
Retired Sailor
I'm sorry what is actually a myth?
Zed
Retired Sailor
Oh that's not myth, that's the dynamics of our credit system as we run it. It's very hard to run a credit system when interest on the money loaned outstrips the money available to pay it back. At a certain point money simply becomes too tight, it's the underlying driver of the business cycle.
Take it to the extreme and imagine borrowing in bitcoin to buy a house when Bitcoin was $2. Now imagine owing the same amount of Bitcoin at $20,000. While it's an extreme expample the deflationary nature of Bitcoin would crucify you as a lender.
This is why Central Banks aim for the magic 2% inflation rate. Deflation kills them, mild inflation is a safeish zone and full blown inflation all the other issues we are familiar with.
Zed
Retired Sailor
To illustrate my point above assume you have a fixed $1000 money supply in a fractional reserve system and that is lent out on a 10% reserve basis, perfectly redeposited in the system all @ 5% interest rate. You get this...
Yes I know, it's idealized, and I stopped & $10, but it paints the picture.
So one year out we have a banking system with towards ~10x the money base in deposits and ~9x the money base in loans and ~1/2 the money base in interest owed.
Now the $ don't all have to be in one place at one time but they do have to be circulating at a decent enough rate to keep this plane flying (velocity of money!) AND if you do draw a line in the sand there is way more money owed with interest than actually exists. This whole thing tends to get to a point @ which the economy at large cannot make enough profit to pay the interest.
This can work if...
1. The lending all goes into ventures that are productive capacity expanding.
2. The base money supply expands with the productive capacity.
However in the real world things fail, which isn't so bad, (Remember the old days when there was a thing called default?!) and the money supply grows at an imperfect rate. Gold was all over the place, we had inflation in the big gold rushes, deflation after lending booms (1929!) but as time has gone on golds relative scarcity has grown so its almost certainly deflationary in a modern context. We simply can't mine it fast enough! Gold had it's issues, which is why they moved off it... but FIAT relied on trust in government to do the right thing and get it right... which has it's issues!
Face it, we have never have had a perfect currency or credit system yet our whole system works because we can transfer saved wealth from savers to people with the energy and ideas to invest in new productive capacity.
Everything we have tried is a mathematical certainty to bust over time... and it all has at some point!
Digital currencies, if done right, offer the possiblity to get as close to perfect as we is possible.... but will we? Nah... I doubt it! LOL.
Bank Deposits | Loans | 1st Year interest $ |
$1,000 | $900 | $45 |
$900 | $810 | $41 |
$810 | $729 | $36 |
$729 | $656 | $33 |
$656 | $590 | $30 |
$590 | $531 | $27 |
$531 | $478 | $24 |
$478 | $430 | $22 |
$430 | $387 | $19 |
$387 | $349 | $17 |
$349 | $314 | $16 |
$314 | $282 | $14 |
$282 | $254 | $13 |
$254 | $229 | $11 |
$229 | $206 | $10 |
$206 | $185 | $9 |
$185 | $167 | $8 |
$167 | $150 | $8 |
$150 | $135 | $7 |
$135 | $122 | $6 |
$122 | $109 | $5 |
$109 | $98 | $5 |
$98 | $89 | $4 |
$89 | $80 | $4 |
$80 | $72 | $4 |
$72 | $65 | $3 |
$65 | $58 | $3 |
$58 | $52 | $3 |
$52 | $47 | $2 |
$47 | $42 | $2 |
$42 | $38 | $2 |
$38 | $34 | $2 |
$34 | $31 | $2 |
$31 | $28 | $1 |
$28 | $25 | $1 |
$25 | $23 | $1 |
$23 | $20 | $1 |
$20 | $18 | $1 |
$18 | $16 | $1 |
$16 | $15 | $1 |
$15 | $13 | $1 |
$13 | $12 | $1 |
$12 | $11 | $1 |
$11 | $10 | $.48 |
$10 | $9 | $.44 |
| | |
$9,913 | $8,921 | $446 |
Yes I know, it's idealized, and I stopped & $10, but it paints the picture.
So one year out we have a banking system with towards ~10x the money base in deposits and ~9x the money base in loans and ~1/2 the money base in interest owed.
Now the $ don't all have to be in one place at one time but they do have to be circulating at a decent enough rate to keep this plane flying (velocity of money!) AND if you do draw a line in the sand there is way more money owed with interest than actually exists. This whole thing tends to get to a point @ which the economy at large cannot make enough profit to pay the interest.
This can work if...
1. The lending all goes into ventures that are productive capacity expanding.
2. The base money supply expands with the productive capacity.
However in the real world things fail, which isn't so bad, (Remember the old days when there was a thing called default?!) and the money supply grows at an imperfect rate. Gold was all over the place, we had inflation in the big gold rushes, deflation after lending booms (1929!) but as time has gone on golds relative scarcity has grown so its almost certainly deflationary in a modern context. We simply can't mine it fast enough! Gold had it's issues, which is why they moved off it... but FIAT relied on trust in government to do the right thing and get it right... which has it's issues!
Face it, we have never have had a perfect currency or credit system yet our whole system works because we can transfer saved wealth from savers to people with the energy and ideas to invest in new productive capacity.
Everything we have tried is a mathematical certainty to bust over time... and it all has at some point!
Digital currencies, if done right, offer the possiblity to get as close to perfect as we is possible.... but will we? Nah... I doubt it! LOL.
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Viking
Ground Beetle
Tom Woods has covered this extensively, can’t remember the podcast I had heard not too long ago, but it is here somewhere:
tomwoods.com
Gold standard | Tom Woods
tomwoods.com
Zed
Retired Sailor
This?
Zed
Retired Sailor
Whatever the money the issue is how the credit cycle is managed. We use WAY more credit than we did as a society during the periods discussed as being under a gold standard or quasi gold standard. Gold did lack flexibility in that our ability to expand the money supply was basically limited to the luck and skill of the miners. It would come in fits and starts and wasn't that in line with actual productivity grwoth. On the other hand FIAT lacks any restraint whatsoever and allows us to expand credit until we get a total train wreck unlike gold where expansion wasn't always there when we needed it.
I haven't heard of a monetary system that allows for credit and that has no issues over the long run. IMO history pretty well bears that out, they all have had significant failures. Hey look we could make a gold standard work again but it would most probably end up overly limiting credit. In a recovery phase that that might be quite OK, we might be able to stay with gold for 10-20 years or so before it get too restrictive. The question would be then what? Not FIAT again, so how do you keep a constant value across an economy such that people who borrow and return rent on capital have an environment that gives them an even break. As in the BTC example borrowing in a deflationary environment and paying for the privilege is a really tough gig, if not impossible if the currency is deflating too fast.
It seems to me that currency is more suitably tied to our abilty to produce energy, energy is productivity in so many ways. The USD has had a quasi tie to oil with the petrodollar... kinda. Is energy backed such a mad idea? I dunno... how to do it is an interesting question?!
I haven't heard of a monetary system that allows for credit and that has no issues over the long run. IMO history pretty well bears that out, they all have had significant failures. Hey look we could make a gold standard work again but it would most probably end up overly limiting credit. In a recovery phase that that might be quite OK, we might be able to stay with gold for 10-20 years or so before it get too restrictive. The question would be then what? Not FIAT again, so how do you keep a constant value across an economy such that people who borrow and return rent on capital have an environment that gives them an even break. As in the BTC example borrowing in a deflationary environment and paying for the privilege is a really tough gig, if not impossible if the currency is deflating too fast.
It seems to me that currency is more suitably tied to our abilty to produce energy, energy is productivity in so many ways. The USD has had a quasi tie to oil with the petrodollar... kinda. Is energy backed such a mad idea? I dunno... how to do it is an interesting question?!
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Zed
Retired Sailor
A part of the issue is what the credit is issued for. Credit for consumption and credit for capital investment are two different things. If you just look at the head line GDP numbers they both deliver productivity growth... one more sustainably than the other. So the question is how do you measure good growth or real growth over the act of dragging future production and consumption forward via credit?
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That article seems to say the opposite. My Cliff Notes on the following quote would be:
"Gold is stable, fiat is not, period." Lookit:
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The economic historian Hugh Rockoff, in an examination of the output of gold, concluded that “it is fair to describe the fluctuations in the supply of gold under the classical standard as small and welltimed.” He found that supply of fiat money in the postwar United States (1949–79), by contrast to the behavior of gold under the classical gold standard, had both higher annual rates of growth and a higher standard deviation of annual growth rates around decade averages.
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Both gold ON and gold OFF concepts are valid -- each to a point, shown by previous posters. But I have a small plus for gold.
It matches Bitcoin in that they both have essentially a finite limit in new additions to their totals.
Except -- that above paragraph only works for today. Using today's technology. Today's exploding technology. Rotary phones are in museums. You can talk face-to-face with someone halfway around the planet on your phone. Unheard of 50 years ago.
New source: Earth's mantle. Like ocean thermoclines, there may well be layers of gold.
Or the Moon.
Where will our technology be in just 50 more years? Lightspeed travel? Mining the Sun?
That is where gold will always be available as the basic core of value.
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Zed
Retired Sailor
Gold is a great asset for when FIAT looses it's chit!
I quoted the relevant section. There are two types of deflation and one isn't harmful.
@Zed - did you explore Ron Paul's idea of competing currencies? Essentially to remove legal tender law barriers on gold and silver and let central banks carry on with fiat. Letting gold and silver compete would force a market constraint on fiat malfeasance.
Zed
Retired Sailor
Credit crunches do the most visible damage as the part of the money supply that is credit contracts quickly. The problem with thinking in terms of benign and harmful inflation is that credit crunches are the inevitable result of credit out growing the monetary bases ability to support it. That is to say that 'benign deflation' will lead to 'harmful deflation' if a fractional reserve credit system is in play.
We need to keep in mind that the periods often quoted had very different credit conditions. People simply didn't loan money the way they do these days.
The quoted 1880 to 1900 period was following a period of major investment in railroad infrastructure and a lot of the 'price depression' as it was called had to do with over capacity after the rail boom started to wind down. I also believe that the 1880 to 1900 period was a period of expanding use of mortgages as the USA urbanized, credit was starting to get a wider toe hold with mom and pop USA. I believe that this fed into a period of mild recessions toward the end of the 1800's into the 1900's. 1899-1900, 1902-1904, 1907 (credit crunch!) , 1910-11 were all soft patches. I guess if the Fed was alive and well we'd have not had them and rolled it all forward into a much more impressive crash!
Anyway... credit is the major stumbling block for going back to gold, it simply can't work like it does today. That might be a good thing, it also might not be an issue during a recovery period, assuming that this global credit bubble does actually wash out this time. Whichever way we go we have to solve the growth (real vs consumption driven) vs money issuance problem. We really do need a credit system that has better safe guards in it... I really don't know how you deal with that issue!
I have heard of it but not really looked closely. On the surface of it I can see some problems but maybe you can fill in the detail if I go wrong here.
1. Gresham's Law would tend to apply, bad money would drive good money out of circulation. People would save gold and spend USD.
2. The measure? A gold dollar would be a deflating currency over time (value rising) so a paper dollar and a gold dollar would be different values. I dunno how that is supposed to work @ retail & consumer level.
3. The existing futures market and it's undue leverage on the traded USD value of gold.
I tend to think that you have to choose one or the other and go with it, I think that Gresham's Law would do in the idea of freely trading in two currencies across one economic zone. It would probably be a better idea if say Texas issued it's own 'gold backs' and outlawed the USD for the state. Good luck with that idea by the way... but as a thought exercise.
Have I missed Ron's point?
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On my phone now, so not convenient to give a long form reply. Ron's idea didn't peg dollar to gold. They float freely. Yes, Gresham's law would embarrass the Fed if they devalued the dollar. Free market constraint. See here for details:
Thread 'Ron Paul and HR 1098: Free Competition in Currencies' https://www.pmbug.com/threads/ron-paul-and-hr-1098-free-competition-in-currencies.156/
Thread 'Ron Paul and HR 1098: Free Competition in Currencies' https://www.pmbug.com/threads/ron-paul-and-hr-1098-free-competition-in-currencies.156/
Zed
Retired Sailor
I wasn't thinking of a peg, more what denomination applies. Calling them both dollars would have issues, you'd need different measures to keep it simple for the public. Maybe not but... have you seen the public these days? Don't confuse them would be my advice!
Bottom Feeder
Big Eyed Bug
Damned good advice, zed
Gresham's law shouldn't work with goldbacks. There are plenty of shitty currencies in the world and no one uses them instead of dollars to buy stuff in the US. Most of the problems with alternate currencies come from valuing them in dollars. If dollars were replaced by something else, why would you value the new money in dollars? Just to know how bad you've been shafted?
As far as I can see we're gonna get shafted no matter what the currency is that we use.
BF
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Zed
Retired Sailor
OK, then I think it will just become a saving vehicle for everyone. Ron knows enough to know that while the USD is circulating people will transact in that and save in gold. Denomination is irrelevant, maybe you'd see people settling houses in oz's gold but not buying carrots with it.
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Zed
Retired Sailor
Yeah, but they are not legal tender in the US. Go to Zimbabwe, Z$ are legal tender but people like to get USD, they dump the Z$ as soon as they can and if they can get USD they hang onto it until they are ready to swap it for something of major value. The Z$ will fly around the system much faster than the USD, USD are far more sticky... as will gold be inside the USA if it were legal tender.
Basically it's what most here are doing, spending USD and saving gold.... golds velocity is way lower than USD inside the USA.
Zed
Retired Sailor
It really looks like printing is the path of least resistance, taxing is toward it's limit IMO. At least with printing you can defend your ground... but this is when government tends to go after $ competition in some form or fashion.
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Same whenever they discovered new silver deposits. The economy fluctuates - that's 'normal', but they (banks) demonized PM's because they have more control using fiat.
What we need is fewer bankers leaching off the public trust in money.
As for 'lending booms (1929!) aka the Roaring Twenties! Again, the banks controlled the complete demolition of the economy. Same thing Nicholas Biddle did when Andrew Jackson was POTUS. That's a 'control' I'd rather see removed from the hand of men.
It's been said that after AJ killed the bank the US experienced a 'Golden Age' where money was plentiful and people were prosperous.
How that is accomplished is still up for debate. Bitcoin? PM's? Anything but fake fiat credit creation that enriches those that control the levers of finance.
As I look around at all the homeless camps where thousands of people are stranded... I think... the money system is crap and THAT's why these folks exist as they do. Same thing Ben Franklin saw when he went to England way back when and remarked about their beggars in the streets.
...Looking for that famous newspaper article from England back then wherein the bankers said they had to get control over the American script system lest all the wealth and intelligence of the world end up there and leave them without control... words to that....
Zed
Retired Sailor
The issue with a deflationary currency is that folk are rewarded for doing nothing with savings, that isn't good on a societal scale. If it is possible to make a currency a constant store of value you have the ideal world. Savers are good to save but they get no more than parity when they spend and people who want to invest have incentive to seek return.
BTC, Gold, Silver will all be deflationary in the end... FIAT could be OK if a government had discipline, so scratch that idea! Digital at least offers the possibility of designing a system that is free of interfere and onerous controls. Digital also offers freakish levels of control... so I guess they will try that first until we have a full blown revolution with guillotines etc!
BTC, Gold, Silver will all be deflationary in the end... FIAT could be OK if a government had discipline, so scratch that idea! Digital at least offers the possibility of designing a system that is free of interfere and onerous controls. Digital also offers freakish levels of control... so I guess they will try that first until we have a full blown revolution with guillotines etc!