The History of Money

Kitco ^ | November 18, 2005 | Paul van Eeden

[hubbubhubbub]

“Printing” fiat money helps creates wealth when the price of capital is too restrictive on investment, development and production.


By your logic the Fed is screwing up by raising rates 9 straight times. Interest rates should always be zero.
There should be no cost of borrowing. That's incoherent but if that's how you think there's no sense debating with you.

[hubbubhubbub]

"WRONG! It increases 2% per year. But it is an asset not debt. Now we have to increase our debt 8% per year to get 4% GDP growth."
You’re confusing borrowing dollars with owning gold. $500 in your pocket is as much an asset as an ounce of gold in your pocket. Borrowing an ounce of gold is as much a liability as borrowing $500 dollars.


Let me try simple English with you to see if you can comprehend. They quantity (number of tonnes) of gold increases an average of 2% per year. It's the growth of supply of gold. Do you comprehend??
The quantity of fiat (M3) has been increasing at over 8% per year for a number of years.

[hubbubhubbub]

You need to quit spouting and start reading. Bernanke did say that. It's been quoted in numerous sources. Why do you think congress is so in love with him. They'll be able to spend and spend and spend with Bernanke running the presses.

[elfman2]

" That's incoherent but if that's how you think there's no sense debating with you."

Lose the attitude if you want to talk with me. You made a assumption for no reason. I said “too restrictive” and you assumed “too” meant “anything above zero”. It’s the fed’s job to optimize the money supply in order to promote investment and wealth creation but not so much that it leads to inflation.

Fiat money is not a banking conspiracy that only you and an internet fringe are smart enough to figure out. Don’t bother debating me. I don’t have time to bring someone with your understanding and your attitude up to speed.

And don’t tell me you’re educated in this. Spending your evening reading kook monetary conspiracy sites no more educates you in economics than watching Fahrenheit 911 educates you in war.

"Let me try simple English with you to see if you can comprehend. "

If the gold supply grows at 2% and the need for capital grows faster, the gold standard hinders the creation of wealth.

If fact, don’t talk to me about this. I don't need attitude from someone who knows so little. (I won't read what you write.)

[hubbubhubbub]

Whatever. You can believe what the government tells you, I choose not to.

I retired four years ago at 49 by studying the larger economic picture, realizing what the goverment is doing to our money and investing appropriately.

I can only laugh when I read your stuff.

[Pelham]

You seem not to recognize the role of credit in a gold standard regime. You might want to look at von Mises' Theory of Money and Credit. 'Credit money' or 'bank money' existed under the gold standard and expanded with the economy.

The majority of money used during the gold standard era was not specie, which is inconvenient, but currency and bank entries. The gold standard was intended to inhibit the overexpansion of credit and the resulting debasement of the currency. People will tend to hold currency and bank balances as long as they feel they are 'good as gold'. A loss of confidence and they will demand specie and reject currency and bank deposits.

[Appalled but Not Surprised]

Is not credit fiat money of a slightly different sort? Except that it is controlled entirely by the bankers and not by the central government.

It seems that we have a spectrum: either safety and restriction with gold, or danger and flexibility with "fiat currency". You can't have absolute safetywith flexibility, nor absolute flexibility with safety. It's a spectrum.

Our current system works well enough--even if it is vulnerable to general social collapse. But if general social collapse comes, you can be damned sure that our primary worry will be something other than the state of the dollar. Besides, with the one true tyranny of the current system lifted (the lift on the ban of private holding of gold, which came in 1974 or so), there's nothing preventing anyone of you all gold bugs from setting up your private little gold standard. If you don't trust the dollar, go ahead and buy gold and stick it in a safety deposit box and pray for depression. The rest of us will buy blue chip stocks and laugh at you as you stay poor.


"Men's mighty mine machines
Digging in the ground
Stealing rare minerals
Where they can be found
Concrete caves with iron doors
Bury it again
While a starving frightened world
Fills the seas with graves...."

-- The Moody Blues, 1972


(Remember also the parable of the three servants with the talents of gold. Yes, Christ was being morally metaphorical, but it's also good investing advice. Smart guy, that Jesus.)

[Pelham]

It's not that I don't trust the dollar, it's what happens to its value when it is decoupled from any restraint on its oversupply. I notice that you didn't say that you would keep your money in a savings account- you chose blue chip stocks. So perhaps your faith in the dollar retaining its purchasing power isn't as strong as you pretend.

A dollar saved anytime during the 100 or so years of the gold era retained its purchasing power- you can find some relevant graphs in Friedman and Schwartz's A Monetary History of the United States. Now compare the purchasing power of the dollar, say from 1967 or 1974 to the present- how has the dollar fared in the post Bretton Woods regime? How would you have fared holding your savings in dollar balances over that span of time?

[ml/nj]

" Normally, money is injected into the economy through asset purchases by the Federal Reserve"

Can anyone explain what that statement means?

Two government agencies exchange pieces of paper and money happens. (For the most part the pieces of paper do not exist, and the money isn't really money. It's currency. By law dollars are still a specific amount of silver. FRN's aren't dollars. They are denominated in dollars. They aren't even "notes," but that's another issue.) The assets that the Federal Reserve Banks are purchasing are a bunch of I-owe-me's created by the Treasury.

ML/NJ