d:
"'deflationary economic death spiral' is hyperbolic, imprecise, inaccurate mumbo-jumbo....
Really ?!? How would you describe the cessation of most business activity in the nation, and even the entire world, and all the effects that go with it? We've been fortunate enough to not personally experience a depression. We cry like babies when we experience a mild recession, like the one we appear to be coming out of now. We don't know what real economic disaster is. My description is quite apt, and your cavalier dismissal means nothing, other to indicate you need to do a closer reading of the history of such economic events and the impacts they had on regular peoples' lives.
Regardless of that side debate, you beg the point here. I believe I have pretty clearly defined the relationship between tying a currency to a commodity, and that currency being vunerable to extreme deflation pressures. I've drawn a clear correlation with the historical timeline. Do you disagree with this point, and if so, what evidence to you offer to refute it?
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d:
".... not to mention inconsistent with your prior observation that our currency has NEVER been tied to a commodity."
Perhaps you should try actually reading my posts before responding to them. I have consistently maintained two points in all my posts; that the 'gold standard' was phoney because the currency wasn't really backed by gold; and that the value of the pre-1932 currency was tied to the value of gold (a commodity), which made it vunerable to deflationary pressures.
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V1:
"The floating currency has been stronger since it was floated."
d:
"relative to what? The Mexican peso?"
You are being disingenuous here, as you know full well that I meant in relation to the pre-1932 currency. You can't deny this historical fact, which is evidence by the fact that you're attempting not-so-clever evasions, instead of actually addressing my point.
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V1:
"Strength of the currency is measured by the confidence that people have in it."
d:
"And how is that measured?"
Several ways. If people dump dollars and rush to put their liquid funds into other currencies or physical assets out of fear, that is a vote of 'no confidence' in the dollar. If people started to refuse to accept it as a medium of exchange, that would be the harbinger of a total currency collapse. This is what happened early in the Great Depression, people fearing that the 'gold-backed' currency would become worthless. Many people were smart enough to know that in extreme circumstances, promises of currency redemption for specie by the fedgov couldn't be trusted, so they wisely cashed theirs out before redemption was suspended.
Since the Great Depression, the confidence in the dollar has remained high. While we have currency speculators jumping their funds back and forth to take advantage of small natural market variations in the relative value of currencies, there has never been a real run on the dollar since the Great Depression, with everyone desperate to dump their dollars. It remains the most desirable currency in the world today. By contrast, the Euro was released at a relative value of $1.20 US, and it steadily dropped to $0.80 US, losing a full third of its value. Now it's regained some ground and is back up to $0.91 US, but that's not a great showing for the 'newest superpower', the EU.
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V1:
"Even if we wanted to return to a gold standard, no one has proposed a feasible way to do it without crashing the existing currency and the economy in the process."
d:
"Unsupported hyperbole."
There's a very simple proof here. Provide a detailed plan by which the change to a gold standard could be accomplished today without crashing the economy. If you can't, my statement stands unrefuted, and your characterization of it is proven to be utter BS. I would be interested to hear such a plan, as in decades of debates on this subject, I haven't heard one yet.
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d:
"You and others here are hawking a bogus economic theory that all major money supply inflation will lead to economic disaster, and all economic disasters are caused by money supply inflation."
d:
"This is not an accurate statement of my pov."
Perhaps I misunderstood this statment of yours, from post # 168:
d:
"Furthermore, the cause of every single money panic of the 19th century was the unbridled creation of money for speculative purposes."
Okay, then please correct me on your view of the relationship between money supply inflation and economic disasters, such as depressions, panics and recessions.
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V1:
"We've had the exact same money supply inflation before and after 1932."
d:
"This is not even close to accurate."
You said that previous money panics were caused by major money supply inflation. You also said modern inflation and recession is caused by major money supply inflation. I agree that we had the same money supply inflation in both cases, the government printing money at will, yet now you disagree when I say this. You appear to contradict yourself here. If I'm mistaken, then please explain to me the specific differences between the money supply inflation of the pre- and post-1932 periods.
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V1:
".... depression and panics have disappered since we floated the currency."
d:
"We’ve replaced them with inflation, bailouts, and phony accounting."
But you said we had money supply inflation (which is the sole definition of inflation in your terminology) previous to 1932, and that it allowed excessive speculation and caused money panics. Now you seem to suggest inflation is something new that has replaced depressions and panics. Am I misunderstanding you again here? Please clarify.
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V1:
"You claim that scarcity integrity is vital to a solid currency, yet you have made no meaningful case to support this contention. You seem to expect me to take this as a given; I do not."
d:
"I don’t know what you mean by “solid.” I’d express it as “scarcity integrity is vital to an honest, reliable, free enterprise monetary standard.” Giving central planners and/or specially privileged banks the right to expand the money supply by whim is guaranteed to end in disaster."
Since the Federal Reserve printed money at will, without adding bullion to the reserves to back it before 1932, do you then agree that the pre-1932 currency had no more scarcity integrity than our modern currency does? If you say that our pre-1932 currency did have scarcity integrity, then how do reconcile that with your claim that money supply inflation caused the panics in the 19th Century? Bottom line, was unbacked money being printed at will before 1932, or not?
And BTW, inquest made the point that a fixed money supply may cause problems of its own. I don't see it causing a deflationary spiral, but since we've never had a fixed currency supply in this country that I'm aware of, this would be entering uncharted territory. What are you thoughts on the possible dangers of such a situation? Do you see any at all? I wonder if an economy could expand quickly with a fixed currency supply, or if it would be forced to stagnate? Where does new capital for investment come from with a fixed money supply? Or does that force deflation, with prices dropping so the same fixed amount of currency can represent the larger pool of good and services in the expanded economy?
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And just to reiterate and expand a little on a point made earlier on this thread; if we go to a gold standard for the dollar, the gold-producing nations would suddenly become like the oil shiekdoms, immensely wealth at our expense. That would be Russia and South Africa. Do we want to be tranferring our wealth to these countries to aquire gold, and continue to do so in the long run?
I would also point out that while many have tried to dismiss it, no one has addressed the problem of a technological breakthrough in gold mining and/or production, and the resulting collapse of a gold standard currency. With technology advancing at the speed it is, this isn't a question of 'if', but only a question of 'when'. Remember, before the late 1800s, steel was a semi-precious metal and aluminum was equally as valuable as silver (by weight, no less).
As a clever ploy by the monetary elite to rescue them from their irrational exuberance of the 20s, to blame it all on gold, and to convince the least imaginative, most gullible and/or least attentive amongst us that gold was to blame for the whole thing.
OOH, you have said that our currency HAS NEVER been tied to a commodity; OTOH, you have said it was disastrous when it was. I am still unable to ferret out your actual view. I do not even understand your point, let alone recall any “clear correlation” demonstrating it. Please state clearly what evidence are you challenging me to find. That a gold standard is not deflationary; that a gold standard is not disastrous; that a gold standard will not cause untold misery for everybody; something else?
I do. I also marvel at the fact that you consider it stronger despite all indications to the contrary: rate of inflation; vs. commodities; vs other currencies
More accurately, people properly feared that the banks would renege on their promise to redeem money in gold. They were right. YOUR “solution” merely institutionalizes what the people feared.
The banks NOT THE FEDGOV reneged. The fedgov's gold confiscation guaranteed the bond rally banks needed to rescue them from their insolvency.
how about a summary of a currency with scarcity integrity before I go into detail.
1. pay off the national debt with a newly issued non-interest bearing Treasury Certificates (to replace FRNs) as it becomes due.
2. simultaneously raise the reserve ratio, so as to keep the money supply unchanged in this process.
At the end of this process, we will save several hundred billion in interest charges per year and have established a currency with scarcity integrity.
money supply inflation is the disease; money panics are the free market cure; depressions and recessions are caused by the manipulators of the currency---not so much in the amount distributed but in the manner distributed. Ludwig von Mises put it well:
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
In the pre 1932 period there was some integrity in the system; since then there is not even a pretense of integrity.
Apparently. When the money supply is expanded by the banking system it generates a “boom-like” condition that is cured by money panics and ignored my monetary inflation, forgiven by bailouts, etc. Money panics are the free market cure, not the disease.
I will pick up on the rest of your post later or tomorrow.
No, I believe it had more but not nearly enough.
I wonder if an economy could expand quickly with a fixed currency supply, or if it would be forced to stagnate? Where does new capital for investment come from with a fixed money supply? Or does that force deflation, with prices dropping so the same fixed amount of currency can represent the larger pool of good and services in the expanded economy?
A growing money supply is not needed for growth. New capital created for growth steals from all existing holders of currency. Investment should only occurs when a person with excess capital willingly lends it or makes an equity investment. The resulting effect is a long term decline in prices (I do not characterize this as deflation).