Back to the gold standard?

Asia Times ^ | May 16, 2006 | Peter Morici

[Dazedcat]

Gold is selling for more than US$700 an ounce, up from $258 in 2001.......

[Stepan12]

What about silver? Is that a good investment? I'm new in the investing world but I'm thinking of investing in silver rather than gold. Any advice?

Actually, silver is doing pretty good and it costs a lot less than gold does, but I don't want to give advice since I'm not a financial expert.

Yes, I have gold myself and it's doing okay now, but when I bought gold at the beginning of the Clinton years I certainly didn't have any appreciation of fiat currency.

[Moonman62]

Definition from Websters.

1 : something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a : officially coined or stamped metal currency b : MONEY OF ACCOUNT c : PAPER MONEY

[Moonman62]

Seriously , an examination of how money is created would be useful. If a bank recieves a deposit of $100 and loans out $80 of that then the money supply has just gone up by $80.

That's known as the multiplier effect. The thing about loans is they have to be paid back. Thus, they tend to be self limiting as far as being inflationary.

[gondramB]

>>That's known as the multiplier effect. The thing about loans is they have to be paid back. Thus, they tend to be self limiting as far as being inflationary.<<

Actually the normal definition of the multiplier effect has to do with spending, not loans.

In the even of autonomous spending of $100, that hundred dollars goes to someone else who can spend it and so on.

If the system were a perfect consumption society then that $100 dollars would generate economic growth forever.

But there are leaks - the money can be saved or it can be spent overseas. The total of all leaks is called the Marginal Leakage Rate' (mlr).

The multiplier = 1/mlr

Money creation is a separate issue. Whether loans are inflationary depends on whether they are used for consumption spending or something productive.

[Moonman62]

If the system were a perfect consumption society then that $100 dollars would generate economic growth forever.

Without loans, the velocity of money would have to be incredible.