Posted on 04/29/2002 5:14:43 PM PDT by shrinkermd
- How could our nation aquire enough gold or other precious metals to back the necessary amount of currency for an economy the size of ours? We sure don't have such reserves now.
- What real benifits will a gold standard bring us? History shows that a gold standard in no way prevents currency manipuation or economic disasters. So where's the benifit?
- Does anyone seriously believe that if there is a 'run' on the currency, i.e. everyone tries to redeem their notes for gold (as they did during the Great Depression), that any government would actually redeem all their notes and allow their gold reserves to be wiped out?
- Does anyone seriously believe that a government can be trusted to issue only the number of currency notes that they can fully back with gold?
- What happens to the currency if a technological advance creates a cheap method for extracting gold? Or if there is a huge gold strike? When gold is devalued, won't the currency's value collapse with it, precipitating a massive economic crisis? After all, gold is a commodity like any other, and we all know that the free market will always eventually triumph over any attempt of any government to fix the price of a commodity, right?
- In the final analysis, even with a gold standard, doesn't the value of the currency still depend on the peoples' faith in the issuing government, just as it is now?
Who woulda thunk it? LOL!
I note especially his concession that All paper money has ended up worthless!!!
More tomorrow. LOL!
Really, this three-card monte dealer is no slicker than the others-- just more long-winded.
You have to look at the current above ground stockpile of gold. Current production never seems to increse the stockpile more than about a percent per year. Gold would have to be mined at an incredible rate just to cause a noticeable inflation, let alone a massive devaluation.
If gold were the monetary standard, it would simply be more dear. That would preclude its industrial and commerical uses because it would become too expensive to obtain in large quantities. But it is certainly theoretically possible.
Only that the people have to trust the government to maintain the price of gold. Inflations and deflations have happened under the gold standard only when governments have inflated the currency by allowing the price of gold to rise-the value of the currency to fall. Every time a government has gone off the gold standard it has been to inflate the currency in order to cheat its creditors out of a large portion of their money by making the unit of account-the dollar (franc, marc, etc) worth less so that the government is paying back the agreed upon number of dollars but that amount of dollars is worth less than the dollars originally borrowed.
Alas, I do not have time to answer this article point by point. I have written to each of these points in individual responses to many different posts over the last couple of years, however.
In short, Keynes and his disciples are /were not economists. They are socialists whose have built a system of fallacies designed to convince politicians and bureaucrats that the government can improve the economy by controlling it, by assuming power over it and thereby over every facet of peoples lives.
That's not due to the gold (or any other) base -- that's due to fractional reserve banking. Where short term savings accounts back long term loans outstanding at some multiplier. It does make more efficient use of the money, but it is enormously risky -- bank runs and the like.
Gold is primarily meant to prevent governments from inflating. It doesn't prevent every shinanigan.
Think of gold as beans used to count shares of the big pie -- the wealth of the world. Now go back and look at your problem -- is there a way to renormalize the outcome so the bean distribution reflects the net world gain of wealth and the players exchange of beans (gold.)
j:
"You have to look at the current above ground stockpile of gold. Current production never seems to increse the stockpile more than about a percent per year. Gold would have to be mined at an incredible rate just to cause a noticeable inflation, let alone a massive devaluation."
False. Such statements are based on the figure of all the gold ever mined. A lot of that gold has been lost to industrial uses. More is locked up in historical artifacts and family heirlooms that will likely never be a part of the bullion market. The total amount of gold in world markets, which includes bullion (and 'monetary jewelry' used in some cultures) in both private and government hands is a little over 70,000 metric tons. There are enormous amounts of gold in the Earth's crust, and a heck of a lot more in the solar system. Asteroid mining is a few decades away, but no one knows what we'll find. It is by no means unimaginable that technology or a massive gold strike could result in a vast increase in the world gold supply, or any other precious metal.
But the main point is that gold is a commodity, and a small increase in supply can easily crash a commodity market. It happens all the time with oil. Even the [i]fear[/i] of a restriction or increase in supply causes huge price variations. And this is supposed to be the 'solid basis' for a currency? History shows that is pure fantasy.
This article on gold reminds me of all the mindless tripe once written by Marx, Keynesians, and last years stock analysists on how they have circumvented, controlled or ended the market. They are on the ash heap of history and many more will join them. One man’s or many men’s opinion of the market or of a real monetary unit does not make them right. Gold is real, it is desired. It needs no ones approval or backing. You can’t control its supply and that is the rub. Governments seek control. That which can not be controlled is always dangerous. Forgive me for being repetitive, but you need it rammed into your heads.
Yours in Freedom
TAPONLINE
j:
"If gold were the monetary standard, it would simply be more dear. That would preclude its industrial and commerical uses because it would become too expensive to obtain in large quantities. But it is certainly theoretically possible."
If we declared a gold standard tomorrow, the price of gold would rise and the value of our existing curency would drop. As we tried to aquire more gold, that situation would only get worse, with the price of gold skyrocketing and our FRNs becoming more worthless, as they are a floating currency. We would have to, at some point, exchange FRNs for currency bearer notes like the old silver certificates. With the value of FRNs crashed, what would the exchange rate be? Would not current wealth in savings and stocks be wiped out? Would there not be a resulting economic crash of monumental proportions? I don't see how that could possibly work. Your blythe, unfounded assertion that it could be done is nothing more than that.
How about a realistic plan on achieving the changeover?
The Gold (un)Standard "... the disastrous inefficiency which the international gold standard has worked since its restoration five years ago (fulfilling the worst fears and gloomiest prognostications of its opponents) and the economic losses, second only to those of a great war, which it has brought upon the world..."--J. M. Keynes(7)
Sure they are. For starters he's quoting John Maynard Keynes. The worst economist of the 20th century who freely admitted that his theories would work better in Nazi Germany.
How can that be any worse than trusting them, as we do now, to issue money without even pretending to back it up with anything?
We have never had a true specie money system for any meaningful period of time. Periods in which we were nominally "on the gold standard" or "gold reserve money system" were really variations of the current fiat money system for the reason that the government could, and did, fix the price at which gold would be used as a basis for exchange; and the reserve ratios held against the circulating paper.
Why not use silver or some other metal--because there is more of it, which increases the risk of commodity price movements that would adversely affect its utility as money.
Well we don't have enough gold to use gold as our only money? Of course we do, this is just another fiction introduced by the bankers who have something to gain from the fiat or fractional or reserve system. And since this is one of the principal arguments, I am going to address it here.
One reason gold is so cheap at the moment is because it is not in regular use as money--one reason the price is increasing is because it is being appropriated for monetary purposes by the market. No one can know what the real market value of gold is in a specie money market system. Demand for gold to use as money will result in a significant increase in the value of gold--it will be used for a much wider range of purposes than locked in a box as a store of value. But say hypothetically, the number is 10,000 (current US fiat dollars) an ounce. So your basic currency unit is 1/10000 of an ounce of gold.
Gold commodity price fluctuations would be a problem? Really. Gold goes from 10000 to 10100 (a huge move)--your currency unit changed 1%--we don't even notice a 3-3.6% fluctuation resulting from price level fluctuations (inflation) in the fiat currency. And in the gold system, flucuations would be increases in the value of your money rather than decreases.
At this point, it is difficult and costly to extract the stuff from the ground. And for the same reason the economy demands more money from the fiat system, there will be increasing demand from the gold money system also--as the economy expands, additional volume of money will be required and the intrinsic value of the gold will go up. There is enough of it above ground that an addition from a new discovery is not going to materially alter the total supply.
" - How could our nation aquire enough gold or other precious metals to back the necessary amount of currency for an economy the size of ours? We sure don't have such reserves now." This is answered above. But you would not use the gold to "back" the currency--the gold is the currency. If you don't want to carry the stuff around in your jeans, you give it to the local bank and get a receipt against which you write checks or whatever.
" - What real benifits will a gold standard bring us? History shows that a gold standard in no way prevents currency manipuation or economic disasters. So where's the benifit?
- Does anyone seriously believe that if there is a 'run' on the currency, i.e. everyone tries to redeem their notes for gold (as they did during the Great Depression), that any government would actually redeem all their notes and allow their gold reserves to be wiped out?
- Does anyone seriously believe that a government can be trusted to issue only the number of currency notes that they can fully back with gold?
- What happens to the currency if a technological advance creates a cheap method for extracting gold? Or if there is a huge gold strike? When gold is devalued, won't the currency's value collapse with it, precipitating a massive economic crisis? After all, gold is a commodity like any other, and we all know that the free market will always eventually triumph over any attempt of any government to fix the price of a commodity, right?"
All this remaining nonesense assumes the government and some government reserve arrangement has a role in the monetary system. It doesn't. Government's participation is the problem. A gold money system should leave government out. You need to have some legal arrangment to be sure that the coin that says it contains 1/10000 of an ounce or 1 ounce or some fraction or multiple really contains what it says it contains but that is the end of the Government's role.
Can't do it because the Government won't like it? At the moment. But we have a democracy. And pretty soon we are going to get a real lesson on how bad the fiat system is at which point when the democracy replaces it, we should have a clear view on what we are going to replace it with.
Because the real issue is wrapped up in your question about why we do this. You, this nonsense author, and the other defenders of the fiat system are about to get a lesson from the marketplace about why this is so important.
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