Posted on 12/10/2004 11:33:58 PM PST by nanak
My father was left a modest dollar denominated monthly annuity by his father. After a long life, the monthly amount, adjusted for inflation, was 5% of what it was in the beginning.
If you look at a long term chart of the dollar, it is down, down, down.
I think the competitive modern electronic capital markets have made the gold standard obsolete. New inflationary policies are met with instantaneous worldwide Treasury bond selling. Anyone can easily convert his dollars to gold (or another financial asset) whenever he likes. The discipline of gold is there, in a more evolved form.
Still, an annuity denominated in gold in 1920 would today be worth many mutltiples of a dollar denominated one. Why? The government stealthily stole from savers through inflation.
I don't think that will happen again due to today's liquid money markets, but I still would be very wary of any really long-term contract (social security comes immediately to mind) that would leave me at the mercy of politicians.
You're trying to have it both ways. An annuity denominated in gold in 1920 in an environment where the dollar was pegged to gold would be worth no more than it was in 1920.
Yours is a variation on the old "an ounce of gold would buy a suit of clothes in Roman times; the same ounce of gold will still buy a suit of clothes today" trick. The part they leave out is that if instead you had put the money in even a bank savings account and collected interest for 2,000 years, today you would have more money than Bill Gates.
That assumes the banks and the money endured (like gold has endured) for 2,000 years, which they did not. You may find some of that old money in museums, but not much.
cerated s/b created. spell check only works sometimes, when words are truly spelled wrong.
Actually what I had assumed was a creature who had somehow lived for 2,000 years, which is the setup for the "Roman suit" scenario. Obviously, anyone living through all those periods would be sensible about placing the wealth store, and move it around as necessary. There are several family fortunes that are hundreds of years old now; it's obviously possible.
You touch, though, on the main difference of opinion on these issues. There are those who are so risk averse that to them, the major purpose of 'money' is to be a risk-free store of wealth, i.e. to "conserve wealth" through thick and thin. To the extent there are few such people, and they do it to themselves and leave everyone else alone, I suppose there is no harm in it. As policy for everyone, however, it would create a society with zero economic growth and zero economic mobility, such as we saw throughout the middle ages. All owners of wealth would be hoarding it in unproducive lumps of metal, instead of using it to produce new wealth by investing in roads or factories or something useful.
When we have a continuum of such people, from the fanatically risk averse to the wildest risk takers, economic growth is maximized toward the risk-taking end, not at the hoarding end. So as social policy for everyone, hoarding sucks.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.Alan Greenspan, August 2011:
""The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said GreenspanWhat happened to you Greenspan??? Who'd you sell out to?
BUMP !!
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