Federal Reserve Admits: We Have no Gold!

[DJ Logic]

http://www.youtube.com/watch?v=0OkITedQrek

I have a few very strong opinions about this, but am curious what you guys think of this latest development.

I will say this much. I am not a huge fan of Ron Paul but I admire his courage taking on such powerful and dangerous people. They should just start calling him Ron Balls

 

[squirrels]

"Latest Development"? HAHAHAHAAHAHAH!!! :crackup: :crackup: :crackup:

The reason you didn't know it's been that way for DECADES now is because, like most armchair financial gurus, you don't understand the way the economy or money supply works.



Gold is just a shiny rock. It's worth something for the same reason a Bernanke Reserve Note is worth something...because people agree it is.

If the economy collapses, you can't eat gold. You can't wear it. You can't build a house from it. The only way it would have value is if everyone else agrees that it does. Gold was worth something back in the day because people saw it was "shiny" and thought it was divine or signified power. We're a slightly more modern people now. Gold has value as a metal, as do all metals, but if people are so destitute that they're looking for food, you're not going to be able to barter with shiny rocks.

The reason "gold" is propped up as having de-facto value is because, quite frankly, people are still stupid and there are plenty of people who would sit in a hole starving, clutching a gold ring and thinking that it made them "better" than the next person. Silly, really.

That being said, "gold" could never support a modern economy like the one we live in today. There just isn't enough of it. We could run an economy on gold, sure, but we wouldn't have NEARLY the standard of living on it, since as the supply of wealth dried up and was thinned out...well, it'd be like not having enough water to go around.

The idea behind "fiat currency" is that it's used as a means of exchange in place of precious metals, which we don't have enough of. It's valuable so long as people are willing to accept it in exchange for goods and services.

A fiat currency like the dollar is accepted widely because people believe there are enough goods/services in the American economy to back it up.

That is slowly eroding away, however, because the banks keep printing and lending more money than they have, basically "fabricating" value with these financial instruments like loans and bonds that are treated like money, and lending 11 dollars worth of "paper" on every 10 dollars of "real currency" they have in the bank.

You create financial instruments worth more than the value they were originally based on, as those instruments become disconnected from the value of what they were based on, as there becomes more and more of it without a corresponding increase in underlying value, the instruments become worth less.

The same thing is happening with the dollar. American debt/paper is issued based on the idea that, over time, the goods and services produced by that country will back the value of those dollars. The reserve notes, the US treasury bonds, all of it is backed by the country's GDP.

What's happening now, though, is that the banks, including the Federal Reserve, have way too much paper on the market, more than can be backed by the GDP. So knowing that there isn't value enough in America to go around, the money is slowly becoming worth less and less.

Worse yet, the government tries to inflate the value of GDP with creative accounting practices, making things that have no REAL value seem like they do. As people see through this, the dolllar becomes worth EVEN LESS.

Unfortunately, a "gold standard" is not the answer.

While the current fiat currency is outgrowing the domestic product of the United States, the amount of GOLD in the country has not KEPT UP with that production. You simply would not be able to tie the currency back to gold and implement a "gold standard" at the current exchange rate.

If you did, currency would be yanked out of the market. There wouldn't be enough circulating to exchange for the amount of goods and services being produced.

Compare the economy to an engine and money to oil. Money "greases" the moving parts of the economic system.

Too MUCH of it, and you have nothing but a mess of slop...most of it is burned off and lost (money losing value). If there's too much, the engine blows out under the pressure to get rid of it, hydraulically locking. The oil (money) actually makes the economy WORSE, providing negative value. Too LITTLE of it and the parts seize and don't move at all.

You need just the right amount. That amount needs to be tied to the product of the country.

Back in the "old days", when gold reserves were plentiful, there was always enough gold in the Federal Reserve to provide just the right amount of "lube" to the economy for it to function optimally.

Now, gold is becoming rarer and rarer. The present-day economy would not be able to run with gold at its current supply-mandated exchange rate. Enough gold "notes" could not be issued to back all of the financial transactions being done in a modern economy with a 6 billion global population and a 600 million national (US) population. There just isn't enough, UNLESS you either:

1) decide you're OK with the collapse of most modern businesses and with going back to the standard of living in 1906, from the loss of all modern convenience to a MASSIVE decline in human population, or

2) fix the dollar at a VERY SMALL fraction of the gold it used to be fixed to, which would allow for the dollar to be tied to the small amount of gold we have, but would lead to instant super-deflation.

Why is that bad? After all, increasing the value of the dollar astronomically means that everyone is suddenly RICH, right??

Say every dollar you owned was worth a thousand dollars tomorrow, and overnight most of the US became millionaires.

How many Ferraris do you think there are to go around??

What you have is a situation now where the amount of money vastly OVERREPRESENTS the wealth in the system, the amount of goods and services available.

Wait, isn't that the problem we had in the first place?? Too much money, not enough stuff? EXACTLY.

What happens then, if you have a crap-ton of money and nothing to buy with it? Well, the money can't become worth less because it's tied to the value of gold. So what happens? The value of gold PLUMMETS. And now instead of a worthless fiat currency, you have a worthless currency backed by worthless gold. You're sitting on a pile of gold that no one wants, and you're starving.

What, did you think the value of gold was fixed? Or weren't you paying attention when all the layman-investors were talking your ear off about the "value of gold going up and up and up"?

I'm going to say this only once, and I hope some of you dumb-arses can understand this:

The value of gold is NOT going up. The value of gold is going up relative to the dollar. It's the value of the DOLLAR going DOWN.

The people who talk about how the value of gold keeps going up don't understand basic financial relativity. It's the same as saying the sun revolves around the Earth. The value of gold isn't going up...your dollars just aren't buying as much of it.

WAKE UP. Gold is just shiny rocks. It does not fix the problems with the economy.

The currency needs to be managed with respect to the national GDP and kept proportional to it. As more value is created, more currency needs to be created, or that additional value can't be sustained and the value is lost.

The "return to the gold standard" is an idea created by politicians who like to pretend their understanding of history makes them experts in finance and economics.

You want to live in 1906? Go ahead, vote for Ron Paul.

I'll stay here in the 21st century and wait for a politician who supports the Constitution WITHOUT wanting to destroy the economy.

(guess I'll be waiting for a while, huh? )

 

[squirrels]

Wow, I'm starting to sound like PRL/LMS with my rants.

Let me address some of the points you made above, to clarify what I'm saying.

This "arm-char financial guru" had no idea that paper had any of those qualities either.

That is EXACTLY what I'm saying.

Why does gold have value? Say I work for you for a week and you say you're going to pay me in gold dust. Why would I accept that?

I can't feed gold to my family. I can't wear gold to stay warm. I can't build a golden roof over my head.

I accept that as payment because it's GENERALLY accepted that I will be able to pass that gold to someone else in exchange for their services.

Currency works in the same way. I can't eat paper. I cna't live in a paper house. But I can pass that paper to someone else in exchange for something I DO value.

Currency is based on the AGREEMENT of people that it is worth something.

The difference being that a law was never needed to establish that gold had value. Where-as a law is needed to establish that paper has value.

No, a law was not needed. All that was needed is our ancestors to say, "Oooh shiny!" and nod in agreement to each other that gold was worth value. Whether by law or by arbitrary aesthetic agreement, however, the worth of anything is established by an AGREEMENT that it has worth. Otherwise, it's not worth d!ck. Gold might be worth something to a jewelry-store owner, or an electronics company (conductivity and anti-corrosion), but it's worth nothing to me unless I can EXCHANGE it for goods and services I DO need.

This is where the understanding breaks down. I'm sorry if the term sounds derogatory, but "armchair financiers" want to talk about how paper is worth something to EVERYONE only because of agreement, but gold is worth something "just because it is". They never examine WHY gold has value.

The reason gold retains value, quite frankly, is because there is nothing better. Food goes bad, paper gets printed. What else is there?

Paper gets recycled. The US mint's main job is to take in old currency, destroy it, and use it to create new currency. There's a reason you don't see many dollar bills from 1974 any more. Because of its renewability, paper actually has MORE longevity than most precious metals.

To say gold has value just because of its longevity is silly. Why don't other rocks have that kind of value? Granite, for example, lasts very long. That's just silly...you're dodging around the real reason that gold has value...because it's accepted as a de-facto CURRENCY. It has value because most peoples agree it has value, and thus they can use it as an exchange medium.

The reason the value of gold increases now is not because gold is worth more, it's because it's worth more than dollars. The collapse of the fiat currency, as you point out, is due to more "paper" being printed than there is wealth to represent it. More gold isn't being printed. It's of-value because it's RARE.

But that same rarity is what makes gold unusable for an economy of this size. You say:

Total erroneous argument. Give an example on how the limited supply of gold would drop the standard of living. Gold/Silver/Copper is all you need to run an economy, with of course paper as a letter of credit representing it. It's simply foolish to say there is not enough. By what logic?

How much gold do you think there IS in the world??

Discovery Channel recently ran a special on gold. They said that the TOTAL amount of gold mined by the people of earth, EVER, would fill about 1/3 of the Washington Monument in DC.

That's not a lot!

The size of the global economy has grown WAY beyond the combined value of gold in this world. The value of goods and services in this global economy exceeds the amount of gold that any country has in reserve. The reason that the dollar was un-pegged from gold is that there was a currency shortage.

Again, you're looking at money as a "good" unto itself, rather than as a "currency". As you are looking at GOLD as a "good" unto itself, rather than as a "currency". Goods have value because they have value, but only to certain people, those with a need for the actual good. Currency has value to everyone because everyone accepts it as a means of exchange. Don't mistake the mineral value of gold for its value as currency...there is a distinction.

Tying the dollar to gold means that gold BECOMES the currency, and the dollar is just a representative of it.

You would not need to have gold keep up with production of goods and services. You would just have a slow steady deflation, in other words, increased buying power over time.

You think deflation is a good thing, obviously. The problem is that even though the currency is worth more, you're tied to a "fixed" value, remember? That means there's less OF it, relative to the size of the growing economy. Unless, as I mentioned, you don't WANT the economy to grow. In which case a gold standard works just fine.

If the amount of currency is unable to grow, then we can't create NEW value in an economy, because there will be no currency to represent it.

That's why I refer to "going back to 1906".

Let's put it this way, if you anchor the fiat currency to gold at the current exchange rate, unless more gold is discovered, you are essentially FIXING the AMOUNT of currency in circulation. As the economy tries to grow, more money is required for this new growth to be able to exchange. With the currency supply fixed, these companies can't get enough of it to exchange. The currency that's there is rarefied by the peg to gold...because there's less of it, it's worth more, but currency is relative to goods and services. If the currency is worth MORE, the goods and services are worth LESS. Thus, the growth cannot be sustained and an economy stagnates.

So how do you get more currency if you're pegged to gold? Either you change the exchange rate, essentially inflating the currency and making it worth less in comparison to gold (in essence, no better than a fiat currency) or you find a lot more gold.

In the "old days", like back in the times of ancient Rome...that's exactly what they did...found more gold. But they didn't SIT on it, or just dump it into the economy, because gold would lose value if it's plentiful. Instead they invested in huge public works projects that would create value equal to that of the gold, to keep the value of their currency balanced with the goods and services it represented.

But as I said, gold is rare now. Much rarer than you'd think walking past a jewelry store. There's just not as much of it around as you'd think there was in cartoons. Mining operations no longer look for gold veins...they scrape out thousands of tons of soil and leech out microscopic particles of gold. People talk about "peak oil"...but we reached "peak gold" a long time ago.

THIS, however, is spot-on:

Fiat is not in any way comparable to precious metals because it is CREDIT. Metals have value simply by existing. You do not have to borrow metal for it to exist. Fiat does not exist until it is borrowed into existence which creates the mathematical impossibility of ever paying that debt back. Lend 10 for 11 when only 10 exist and you guarantee bankruptcy.

The US dollar is accepted for many reasons, however it is also being rejected for the monetization that is going on right now (money printing). It matters not what goods and services your economy can produce when the medium of exchange is devalued through a printing press.

The best thing is, it can't be printed up by a corrupt Government trying to use a stealth inflation tax to steal your money.

That IS indeed the reason that the dollar is decreasing in value...because money (and not just dollar bills, but "paper", loans, bonds and such) are being created faster than it can be backed by real value in the US economy.

By increasing the money supply at a rate faster than the economy is producing goods and services that can be exchanged for that money, banks are ruining the value of the dollar. They do it because there's a delay between the creation of the money (lending) and the inflation that results. They make paper, sell it, then use it to make more paper before the paper gets devalued, essentially fabricating money.

That's why although I am dead-set against government regulation of corporations, I am very much in favor of government regulation of BANKS. Reason being that the government is Constitutionally responsible for the currency and allowing banks to fabricate it ad-nauseum is a dangerous policy that will lead, as you said, to bankruptcy.

In that regard, you do make a valid point that "banks can't print gold".

What you fail to see is that that's a double-edged sword. Some money NEEDS to be printed to allow the economy to naturally grow. The problem isn't that we print it, the problem is that we print too much.

Of course, you would have to eliminate lending at interest to do it properly. But that's not too hard.

Yes it is. Again, unless you want to go back decades in terms of standard-of-living. Actually worse if you consider that the population of the planet continues to rise...there will be even LESS currency to go around, and the corporations that allow this world to do "more with less" will not be able to survive without currency to sustain them.

The very reason this planet CAN support large populations is economies of scale...huge food and housing corporations that because of their size can do more with less. But they need currency...it would take a company DECADES to grow to a size that can sustain this many people if it had to back all of its activities by "hard currency". Even LONGER if the currency supply was limited and it had to take currency AWAY from other people and corporations to support its size.

Now if you're arguing that we need a population decrease...well then we may just be in agreement.

 

[Alle_Gory]

No ****. They haven't had gold for decades.

 

[kentgraham10]

Gold has had value for thousands and thousands of years. I am a history major so my view my be biased but I feel safer with a proven thing (currency backed by gold). Didn't realize there was NO gold though... :/

Ron Paul 2012 hope its not too late.

 

[squirrels]

Close oversight (including public accountability) of usury and accounting legerdemain is an excellent idea, long since overdue. No more of this, "too big to fail" stuff...if you screw around with the currency, the .gov should have the right to bring you down...after all, the currency is the government's Constitutional responsibility.

(not to be confused with meddling in "business"...just "finance"...they are two separate animals)

Tying currency to gold...not so much. That'd be like the classic example of "solving the middle east conflict by turning it to glass". You'd in essence be dropping a nuke on the economic system as we know it.

A lot of people say, "good...nuke it and let God sort it out". If that's your attitude, by all means, vote Ron Paul. If it weren't for his dangerous reactionary attitude toward economics, I'd vote for him. At least he'll follow the goddam Constitution for a change.

Just remember, you get what you ask for.

 

[JustLurk]

"Latest Development"? HAHAHAHAAHAHAH!!! :crackup: :crackup: :crackup:

The reason you didn't know it's been that way for DECADES now is because, like most armchair financial gurus, you don't understand the way the economy or money supply works.



Gold is just a shiny rock. It's worth something for the same reason a Bernanke Reserve Note is worth something...because people agree it is.

If the economy collapses, you can't eat gold. You can't wear it. You can't build a house from it. The only way it would have value is if everyone else agrees that it does. Gold was worth something back in the day because people saw it was "shiny" and thought it was divine or signified power. We're a slightly more modern people now. Gold has value as a metal, as do all metals, but if people are so destitute that they're looking for food, you're not going to be able to barter with shiny rocks.

The reason "gold" is propped up as having de-facto value is because, quite frankly, people are still stupid and there are plenty of people who would sit in a hole starving, clutching a gold ring and thinking that it made them "better" than the next person. Silly, really.

That being said, "gold" could never support a modern economy like the one we live in today. There just isn't enough of it. We could run an economy on gold, sure, but we wouldn't have NEARLY the standard of living on it, since as the supply of wealth dried up and was thinned out...well, it'd be like not having enough water to go around.

The idea behind "fiat currency" is that it's used as a means of exchange in place of precious metals, which we don't have enough of. It's valuable so long as people are willing to accept it in exchange for goods and services.

A fiat currency like the dollar is accepted widely because people believe there are enough goods/services in the American economy to back it up.

That is slowly eroding away, however, because the banks keep printing and lending more money than they have, basically "fabricating" value with these financial instruments like loans and bonds that are treated like money, and lending 11 dollars worth of "paper" on every 10 dollars of "real currency" they have in the bank.

You create financial instruments worth more than the value they were originally based on, as those instruments become disconnected from the value of what they were based on, as there becomes more and more of it without a corresponding increase in underlying value, the instruments become worth less.

The same thing is happening with the dollar. American debt/paper is issued based on the idea that, over time, the goods and services produced by that country will back the value of those dollars. The reserve notes, the US treasury bonds, all of it is backed by the country's GDP.

What's happening now, though, is that the banks, including the Federal Reserve, have way too much paper on the market, more than can be backed by the GDP. So knowing that there isn't value enough in America to go around, the money is slowly becoming worth less and less.

Worse yet, the government tries to inflate the value of GDP with creative accounting practices, making things that have no REAL value seem like they do. As people see through this, the dolllar becomes worth EVEN LESS.

Unfortunately, a "gold standard" is not the answer.

While the current fiat currency is outgrowing the domestic product of the United States, the amount of GOLD in the country has not KEPT UP with that production. You simply would not be able to tie the currency back to gold and implement a "gold standard" at the current exchange rate.

If you did, currency would be yanked out of the market. There wouldn't be enough circulating to exchange for the amount of goods and services being produced.

Compare the economy to an engine and money to oil. Money "greases" the moving parts of the economic system.

Too MUCH of it, and you have nothing but a mess of slop...most of it is burned off and lost (money losing value). If there's too much, the engine blows out under the pressure to get rid of it, hydraulically locking. The oil (money) actually makes the economy WORSE, providing negative value. Too LITTLE of it and the parts seize and don't move at all.

You need just the right amount. That amount needs to be tied to the product of the country.

Back in the "old days", when gold reserves were plentiful, there was always enough gold in the Federal Reserve to provide just the right amount of "lube" to the economy for it to function optimally.

Now, gold is becoming rarer and rarer. The present-day economy would not be able to run with gold at its current supply-mandated exchange rate. Enough gold "notes" could not be issued to back all of the financial transactions being done in a modern economy with a 6 billion global population and a 600 million national (US) population. There just isn't enough, UNLESS you either:

1) decide you're OK with the collapse of most modern businesses and with going back to the standard of living in 1906, from the loss of all modern convenience to a MASSIVE decline in human population, or

2) fix the dollar at a VERY SMALL fraction of the gold it used to be fixed to, which would allow for the dollar to be tied to the small amount of gold we have, but would lead to instant super-deflation.

Why is that bad? After all, increasing the value of the dollar astronomically means that everyone is suddenly RICH, right??

Say every dollar you owned was worth a thousand dollars tomorrow, and overnight most of the US became millionaires.

How many Ferraris do you think there are to go around??

What you have is a situation now where the amount of money vastly OVERREPRESENTS the wealth in the system, the amount of goods and services available.

Wait, isn't that the problem we had in the first place?? Too much money, not enough stuff? EXACTLY.

What happens then, if you have a crap-ton of money and nothing to buy with it? Well, the money can't become worth less because it's tied to the value of gold. So what happens? The value of gold PLUMMETS. And now instead of a worthless fiat currency, you have a worthless currency backed by worthless gold. You're sitting on a pile of gold that no one wants, and you're starving.

What, did you think the value of gold was fixed? Or weren't you paying attention when all the layman-investors were talking your ear off about the "value of gold going up and up and up"?

I'm going to say this only once, and I hope some of you dumb-arses can understand this:

The value of gold is NOT going up. The value of gold is going up relative to the dollar. It's the value of the DOLLAR going DOWN.

The people who talk about how the value of gold keeps going up don't understand basic financial relativity. It's the same as saying the sun revolves around the Earth. The value of gold isn't going up...your dollars just aren't buying as much of it.

WAKE UP. Gold is just shiny rocks. It does not fix the problems with the economy.

The currency needs to be managed with respect to the national GDP and kept proportional to it. As more value is created, more currency needs to be created, or that additional value can't be sustained and the value is lost.

The "return to the gold standard" is an idea created by politicians who like to pretend their understanding of history makes them experts in finance and economics.

You want to live in 1906? Go ahead, vote for Ron Paul.

I'll stay here in the 21st century and wait for a politician who supports the Constitution WITHOUT wanting to destroy the economy.

(guess I'll be waiting for a while, huh? )

1) The collaspe of the US government will not ruin the worth of gold.
2) Gold has some controls that prevent it from being mathematically manipulated, mainly the existence of it as a physical object. Money, on the other hand.. The US dollar is not a perfect-number entity. There are billions missing, some because people stuck their hand in the cookie jar but mostly because banks and other monetary entities used to round the transactions of large sums of money (We're talking rounding off the last couple hundredths of a cent here.) and until some VP noticed in some famous cool story/urban myth situation, that rounded money (Millions. Per bank. Per year.) was simply rounded off into nothingland. Per all intenets and purposes that money did not enter the bank account and wealth of any money-holding entity. Ever. I don't know if the Reserve noticed this and freed up those fake monies for use but it's irrevalent. (I wouldn't be surprised if they DIDN'T notice, though. Haha.) This partly explains the "hole" in US money supply. Of course we ****-generated them anyway so the hole is relatively insignificant. Something to think about as this hole contains much more money than any one individual has ever held.
Nearing the collaspe of the gold standard and even recently, however, there has been some problems with people going around the physical limitation gold has. Examples are selling gold certs without actual gold in the bank and other There's-No-Actual-Gold problems.

EDIT: Don't take this as saying we should back the dollar with gold. There's no way, there is none in the first place |Where the **** did it go? You'll never know ... | and it's just not doable anymore with this scale.
"That is slowly eroding away, however, because the banks keep printing and lending more money than they have, basically "fabricating" value with these financial instruments like loans and bonds that are treated like money, and lending 11 dollars worth of "paper" on every 10 dollars of "real currency" they have in the bank." More like 10 bucks for every 1, imao. Suicide.

And as for the bailout and taxes..
http://images.cheezburger.com/completestore/2009/11/7/129021008687645509.jpg

 

[Bible_Belt]

When housing crashed, the banks that went under were typically leveraged 30:1 in mortgage backed securities. After all the bail-outs and prop-ups, the Fed is now leveraged 50:1...largely in mortgage-backed securities.

 

[Mr.Positive]

Squirrels, Gold is money. Your paper dollars are not money, they are currency...fiat currency.

For money to be accepted, it must 1) be a medium of exchange. 2) It must be honest and non-corrupted.

Gold fits both..and has for thousands of years. 1) It's easily divisible, recognizable and can NOT be destroyed. 2) It's honest because we can't make it. It can't be made, or printed. What's the difference between your $1 bill in your wallet and your $100 bill. Nothing actually, both a piece of paper actually. Roll them together and you can wipe your ass with them.

Gold is money. It is the definition of money.

Mankind needs a common form of exchange. You support dollars, euros, etc..fine. You stick $1500 in a coffee can and stuff it in the ground. I will stuff once ounce of gold in the ground. Let's do it! In ten years from now, let's see how many cans of beans we can buy.

Gold is not an asset. It is not an investment. It is money, and will always be because it is the definition of money to begin with.

 

[squirrels]

Squirrels,


Somehow you have come to the conclusion that the goods/services in a country are equatable to the amount of currency in the country. This is a most absurd way of thinking. The two have nothing to do with one another. You certainly cannot base money supply on the size of the GDP.

Let's get one thing straight. Money is just a unit of measure. That is ALL it is.

Let me boil your argument down into different terms.

Random Poster in SS.com: How many inches are in a mile?
Danger: 63,360 inches are in one mile.
Squirrels: Miles have 5,280 feet, you cannot measure it in inches.
Danger: Of course you can measure it in inches.
Squirrels: No you cannot, there are not enough inches to measure a mile.
Danger:

WHAT??

So you're suggesting saying something is "worth x gold", even if there isn't enough gold in existence to back that amount of currency?

What's the POINT then?? All you're doing is changing the name of the unit of measure. The money is still worthless because even though you SAY it's worth "x gold", there isn't "x gold" in existence.

That'd be like me printing, "This piece of paper is worth x amount of gold" and handing it to you as payment, knowing damned well that I don't HAVE that amount of gold. It's STILL a fiat currency because it's worth "x gold" only because I say it is, and the gold I'm representing doesn't exist.

The whole POINT behind the "gold standard" is to limit the supply of currency. Not to take a bunch of worthless paper and suddenly "decree" that it's worth so much gold that doesn't exist. It's to say, "we have THIS gold in Fort Knox, and this certificate is REPRESENTATIVE of REAL GOLD".

So instead of fabricating worthless paper, you'd be fabricating imaginary gold! Brilliant! Printing gold!! You think it's going to hold its value if you start doing that??

Wow...I'm starting to wonder if you understand the concept you're arguing.

Let me ask you one question.

If we cut the money supply (and the debt, prices and costs that go with it) right now to 1/10 of it's current size, would the economy shrink and why?

Fixing the dollar to gold has nothing to do with prices and costs.

Of course if you cut EVERYTHING by 1/10, both the value of the money and the costs of goods, then it won't make a damn bit of difference. But the money will still be worthless relative to what it purchases!

This isn't an argument over whether we should use one word to refer to currency vs. another. It's an argument over the value of currency RELATIVE to what it can purchase.

When people talk about the "value of the dollar", they're not talking about the ABSOLUTE value of the dollar, they're talking about its purchasing power.

Now I am CERTAIN you don't understand the concepts we're discussing. You think that the "gold standard" is supposed to rescue our currency just because someone said, "Hey this is worth x gold right now!", even though there are a billion dollars in circulation and only a million dollars worth of gold in existence?? (numbers made up to prove a point)

Just because you say "gold" isn't going to instantly make your dollars worth more if there's NO REAL GOLD behind it.

I mean...really guys??

This is what I mean by "armchair financial guru"...you read this stuff on the Internet and you don't understand how it works, but you learn enough catch phrases like "gold standard" and "fiat currency" to throw together something that SOUNDS like it makes sense to someone who doesn't know better.

Then you sell that argument to 2 other people who "don't get it", and they sell it to 2 OTHER people who "don't get it", and sooner or later, there are enough people to elect a president like Ron Paul. (I guess that's how Obama got elected, so whatever).

 

[squirrels]

Your argument that there is not enough has been countered by my statement that reducing the money supply to 1/10 of what it is now would have NO effect on growth. NONE.


Dude, take an economics class.

So you're saying that money supply has no effect on the economy? And you're telling ME to take an economics class?

Or didn't you notice that your IS/LM graph has two axes? Price and QUANTITY? Remember? The money is worth more, but the economy can't AFFORD it any more. Money becomes too expensive to obtain because there's not enough of it to go around. Businesses NEED money to finance their activities, be that real assets or financing.

With money supply reduced and the money being 10x more expensive, businesses would need 10x as much of itEDIT: businesses would need to produce 10x more goods and services to get enough money to buy the same quantities of supplies and services that they normally do. They won't be able to afford it and businesses will fold until there is no longer as much demand for the money (there's enough to go around). In other words, you shift the LM-curve, you move further up the IS-curve.

Not to mention that's looking at strictly a LOCAL economy. With the dollar going up 10x in value, it means foreign entities no longer have any purchasing power in America, so no one buys our stuff.

Take an economics class, he says. :crackup: Chances are very good that I've taken more economics classes than you, and I'm convinced you don't know what you're talking about.

In fact, just in case I had forgotten too much from those classes, I asked a buddy of mine who majored in business/finance (and who relishes any opportunity possible to ridicule me) to look over this thread...and HE also thinks you don't know what you're talking about.

I'm at the point in the argument where I really want you to see what I'm saying, but I'm starting to realize that you don't have enough grasp of the underlying concepts for me to explain it to you in a way that's going to satisfy you. So it really doesn't benefit me to argue any more.

I can see the merits in a "gold standard", for sure, but the negative consequences outweigh the positive. We're in too deep for it to be a practical solution at this point in time, unless you want to reduce the size of the population and of the economy. That's why everyone is so scared of how things are "running away" with finance and debt/paper, because they know going back is gonna hurt more people than it helps, the way things stand. You think unemployment is bad NOW.

The one thing we DO agree on is that irresponsible debt/paper management needs to end. But "gold standard" is the other extreme...it leaves no flexibility for growth. The answer is somewhere in between...RESPONSIBLE and ACCOUNTABLE finance.

And with that...I'm out. Have fun.

 

[squirrels]

Houston, we found the problem.

The bold part above tells me all I need to know about you and your friends knowledge regarding economics. Kindly take a supply/demand chart for money and slide the supply line left. What happens? The value of money goes UP!


If the money supply drops, PRICES OF GOODS RELATIVE TO THAT MONEY DROP. Prices are a function of money supply. THAT is what you are missing in the whole thing.

If you really think the bold part above in your statement is true, then You AND your buddy NEED to take an economics class. My degree is in economics, I know wtf I am talking about. Your IS/LM graph is not a valid argument because we are not talking about interest rates. It does not apply. You are confusing yourself by adding in all sorts of unrelated items.

Money is just like any other good.

If you drop the supply of oil, the value goes up.

If you drop the supply of dollars, the value goes up. If you increase the suppply of money, the value of that money goes down, and THEN you need more money to buy goods. Have you ever heared of Weimar Germany? Zimbabwe? 1970's Chile?

I am going to quote you again....



If money supply drops, businesses would NOT need more money to buy the same amount of goods and services, they would need LESS!!! Holy hell dude. Seriously, get a fvkin education.

Money supply drops, value of money goes up, goods and services cost LESS!

While you are out, go do some reading on supply and demand. It may help.

You're right, I misspoke. They won't need 10x as much of it, they will need to sell 10x as much stuff to make the same amount of it. That's my fault, I am speaking too fast. Frustration is getting the best of me.

I appreciate you pointing that out...of course you probably think it means "you win". But since I misspoke, I'll explain myself one more time.

Businesses aren't just consumers, they are producers. So yes, the value of money has gone UP. And the relative value of goods and services has gone DOWN.

So while you can exchange a dollar for ten times as much "stuff" as you did before, the company selling you that stuff has to sell ten times as MUCH of it to make an equivalent value of money.

Find me a business that is capable of growing 10x almost overnight, or even in time to prevent itself from being closed down.

To even HOPE to do this, they'd need to make SUBSTANTIAL investments in growth.

But what do you need to make investments? A lumber company can't give a tool company 2x4s in exchange for saw blades. They need a medium of exchange that's accepted. They need MONEY.

OH SH*T...some jackass said there's only as much money as there is gold! All the money is in circulation...where am I going to get it from??

Do you think modern companies would even be POSSIBLE if they had to rely on SAVINGS to invest in growth? Tell me how much time it takes you to SAVE enough money to open a business and grow it to the size of the global conglomerates that give us mass-produced food, housing, and other goods and services enough to sustain the population of the planet.

Go ahead, start saving now and let me know when that works out for you.

The bold part above tells me all I need to know about you and your friends knowledge regarding economics. Kindly take a supply/demand chart for money and slide the supply line left. What happens? The value of money goes UP!

And the QUANTITY of it goes DOWN. You are ignoring a whole DIMENSION to the economic picture, on a national and global scale!!

You are thinking about this like a typical consumer...you think that "your dollar being able to buy more" is the end-all be-all of the equation. But what good is your 10x more valuable dollar if there aren't enough GOODS to go around??

Bill Gates can walk into a supermarket before a blizzard and not be able to buy toilet paper...it's NOT because he can't afford it.

Will things eventually stabilize? Sure, after millions of people have died of hunger and starvation and thousands of companies have closed their doors from the currency supply shock. Sure, once all the "fat is trimmed", we will be able to operate just fine on a gold standard. But this DOESN'T HAPPEN OVERNIGHT. You will be creating global economic CHAOS for YEARS before the system finally adjusts to a lesser supply of currency and starts to SLOWLY crawl its way back to a 2011 standard of living...assuming we CAN do "more with less".

While you seem to have something against usury, you seem to have no problem thinking about "money" as just some number in someone's book. When you talk about the money SUPPLY, money is an exchangeable GOOD, not just some abstract number. There is a limited supply of it that limits the rate at which businesses can do business. With "fiat currency", that supply is limited by the governments and banks printing it. With gold, it's limited by the supply of gold.

Money SUPPLY does not set the value of money alone. Money SUPPLY relative to money DEMAND sets the value, based on the RARITY of that currency. Money becomes worth more when there's less of it because it's HARDER TO GET.

Your view of this is very one-sided. I understand this seems like a GOOD idea when you look at it from the consumer-side. So do things like welfare...more money for you, right?

You need to look at where the goods that you buy are COMING from. They don't fall out of the sky. There's a whole process going on here that the average person who is ticked off that his nickel can't buy a loaf of bread any more just doesn't seem to understand. You accuse me of over-complicating, but I accuse you of over-simplifying. There's more to it than just "how much a dollar can buy".

You use oil as an example:

If you drop the supply of oil, the value goes up.

Then why don't the oil companies sell 1/10 the oil? Because they WON'T MAKE AS MUCH. Even though people NEED oil, there won't be ENOUGH of it. (assuming no alternative good) The price is driven up because there isn't enough to go around, so the people that need it the MOST will get it at substantially inflated prices, but not enough of it will be SOLD. The economy will come to a screeching halt. Companies that depended on being able to afford fuel will fold and people who can't reach their jobs will starve until demand drops down to meet what's being supplied. Meaning until people and companies figure out how to get by WITHOUT oil. Which could take YEARS or even DECADES.

The oil companies, in turn, will shrivel up, since they are WASTING resources on producing oil they can't sell. In turn, they make less, and can no longer justify a large size and great expansion projects. Shareholders lose out, people get laid off, and Exxon-Mobil is a shell of its former self. Everyone loses.

Money works the same way but in reverse...while the banks control the absolute supply, ultimately the consumers decide how much is made available to the producers by purchasing goods and services.

If it's worth more, but there isn't as much of it, a few companies will get what they need by producing 10x more stuff...the ones that CAN'T will fold up.

The people who worked for those companies will be unemployed and won't be providing money to the producers. The economy shrinks until the population/demand drops to a level that the 1/10 supply can meet.

So yes, the economy collapses and lots of people are in a world of hurt until money demand shrinks enough to meet money supply. You're essentially a doctor trying to fix a broken economy by amputating. It's a valid practice, but it's painful and barbaric.

I believe a "gold standard" approach WILL WORK. But I'm against it because of the cost to the next couple of generations. If you want to throw them under the bus and hope that the global economy recovers from the shock, then your approach makes perfect sense.

You have to understand that supply and demand have a reciprocal relationship with production and consumption. It's all inter-related...you can't just fire off a change like that and expect it to have no repercussions. You can't just say, "less money, worth more" and expect it to end there, completely ignoring the ripples it sends through the system as a whole.

Otherwise it would've been done a long time ago.

 

[squirrels]

Squirrels,

You are still making the mistake of assuming that the value of money has not changed. it will have changed once you reduce the supply.

Price is a function of money supply. Reducing the money supply does not reduce capital, it changes the value of that capital. Money supply is a unit of measure.

1 Foot = 12 inches. They are still the same length, they are just different units of measure. Reducing all measurements of inches into feet does not change anything.

Nor does reducing the money supply. The reason I keep referencing usury (interest) and fiat (credit, not money) is because those are two reasons why in our current monetary system that we cannot reduce the money supply. It would cause massive bankruptcies. However that is another discussion altogether.

I consider this discussion to be theoretical on whether a gold standard economy would work or not.

I don't think we disagree that it would "work"...eventually. I just don't think you're properly weighing the cost to the global economy/society over the next several decades while it adjusts to a reduced money supply, not to mention the restriction on growth it creates in the long-term.

If you are OK with the world's economy collapsing to a more manageable size and maintaining that size indefinitely, instead of an economy and population that is constantly growing and evolving, then yes, a gold standard will work just fine. I just don't think that you've fully considered whether that's something you WANT. There are a lot of consequences to that decision that people will have to live with (or die with) for a long time.

Again, it's not just the PRICE of the money that matters, it's the QUANTITY of it. There's another dimension to the system that you are choosing to ignore for what you call "simplicity". I call the decision to ignore it "recklessness".

Just because a system WORKS doesn't mean it's the right way to do things.

I'm probably coming up on the daily post limit.

 

[squirrels]

I too am approaching my post limit.

I think we agree that a gold standard can work, but what I think you are referring to above is the difficulties in returning to a gold standard from our current state (a fiat standard)?

I actually think we are making progress now. Before we get into a discussion of converting from a fiat to a gold standard, tell me why you think an economy that started as a gold standard would never be able to grow unless it removed those "shackles"?

Because a limited supply of gold means a limited amount of money that can be printed...and a limited amount of exchange that can take place.

In the same way the maximum human population is limited by the amount of water on the planet, the economy is limited by the amount of money in circulation.

Some businesses could grow...provided other businesses shrink or close up. If new businesses grow and existing businesses also grow or remain at similar scale, there won't be enough money to facilitate exchange of ALL of those goods and services.

That's why I keep making references to "last century". Things were a lot simpler then. We have all KINDS of different goods and services in a modern economy...stuff that people from the days of the gold-standard can't begin to fathom.

If you want to give all that up and go back to a "simpler system", you can work on a gold standard. But I don't think most people are willing to give up the modern standard of living. To say nothing of the chaos of trying to transition back to that...which I again assert would lead to a decrease in population, a decrease in quality-of-life for most people, and a collapse of the economy as we know it.

I would argue that a fiat currency is not a bad thing, necessarily, as long as banks are responsible enough to maintain the currency at a rate that is appropriate to the amount needed to be exchanged for goods and services. (Or if the government can regulate the banks to insure as much)

The banks NOW have the politicians in their back pockets and have repealed laws such as Glass-Steagall (preventing banks from engaging in speculative investments/issuing securities). They answer to no one...even when they got caught in the huge mortgage scam, they were deemed "too big to fail".

They create currency (in the form of "paper"...loans, bonds, etc) at a MUCH faster rate than the economy can sustain, then trade it for other securities or assets before the economy has a chance to correct...when it does, the value of the dollar goes down relative to goods and services, but the banks have already MADE their money. That's the "crooked stuff" the banks are doing to cause inflation and slowly leech wealth from the system.

However, the creation of that "paper" at a rate appropriate to the economy allows for steady growth without extensive devaluation of the currency.

The good thing about gold is that you can't create more of it. The bad thing about gold is...well...that you can't create more of it.

 

[JustLurk]

The banks NOW have the politicians in their back pockets [..]They answer to no one...[...]They create currency (in the form of "paper"...loans, bonds, etc) at a MUCH faster rate than the economy can sustain, [..], but the banks have already MADE their money.

However, the creation of that "paper" at a rate appropriate to the economy allows for steady growth without extensive devaluation of the currency.

:yes: I think the problem is visible here. The current system is not really a monetary system so much as a scam.

 

[Alle_Gory]

Gold is a finite supply. As the economy grows and population levels increase you can't simply print gold. It's very hard to extract from the earth and we've picked all the easy deposits.

As a currency it's not very useful. When an economy grows, the money supply would stay the same. Sure the value of gold would increase but then you would have to keep melting it down and diluting it to spread it around. And then you would have problems with people who like to hoard it and bet that the value would increase. They would basically be living off the work of others while hoarding their supply of shiny rock.

With something like a piece of paper, sure it's not valuable but it ensures that people work and contribute otherwise their stockpiled money becomes worthless if it just sits in a vault.

 

[Mr.Positive]

As a currency it's not very useful. When an economy grows, the money supply would stay the same..

The problem we're having now,is that our economy is not growing...yet our money supply is skyrocketing.

The problem with currencies, is that they are useful but open to corruption and therefor not honest. Gold keeps folks honest. Internationally, it's recognized for that.

We bash and laugh at gold in America, call people who buy it eccentric or "hoarders". In other cultures however, it is in high regard. That, we can not change. Internationally, gold is the only true measure of value. Gold may go up in dollars, yet remain flat in other currencies, or even go down. Gold is the baseline for fiat, how it's measured.

 

[Julius_Seizeher]

Academics have effectively slandered the gold standard for years, portraying gold as an "outdated" mattress for simple folk to stuff their money into.

When will you wake up and see that it is only in the insulated cocoon of academia that ridiculous monstrosities like fiat money and socialism can grow like a virus before being unleashed in the real world? In the real world, we see these things for what they truly are: evasions from reality.

For instance, there is nothing "outdated" about truth. The gold standard is true because it is based on something that is REAL, not the arbitrary whim of a government banker (an insolent contradiction in terms).

The academics have removed that which is real, gold, and given you a pile of counterfeit paper instead.

Oh, and if we want more gold, all we have to do is destroy the worthless EPA (Economic Privation Agency) and get these mining projects rolling. Are you beginning to see where our problems come from? As long as men want to work and produce, we will thrive. As long as our own government ties our hands and keeps us from producing, stagnation and backwardation is the only outcome.

 

[DJ Logic]

Okay for starters when I say "recent development" I mean that they are just now admitting they have no gold. I believe it has been this way for quite some time. The fact that they are finally confirming suspicions is huge.

As for the argument for/against gold I feel its a moot one. Take England for example. Through much of its history the people grew wealthy using wooden sticks as currency. Yes you read that right. Wooden. Sticks.

The medium of money is irrelevant, it's just a means of establishing value between two parties. What causes the system to collapse is greed. People start lending with interest (an act that should be illegal really) and banks start up with their fraction reserve lending, then you have folks hedging bets on the sidelines with derivatives and *KABOOM*, everything falls apart.

We like to think our situation is unique but in fact economies have totally collapsed in the past and always for the same reasons. Sadly we never seem to learn from history:

http://www.safehaven.com/article/2073/the-disastrous-history-of-money-english-wooden-sticks

 

[Mr.Positive]

As for the argument for/against gold I feel its a moot one. Take England for example. Through much of its history the people grew wealthy using wooden sticks as currency. Yes you read that right. Wooden. Sticks.

We think about that and laugh, yet that's the same thing we are doing now!

Sticks come from trees....paper comes from trees. We use funny paper with numbers on it. In fact, our system now is even more funny when you think about it..

BTW, the stick system collapsed. Why should our funny system not?

You are very right though, it is a moot point. The medium of exchange really is irrelevant, it's the corruption and greed that cause the problem. In an ideal world, the dollars I earn today, should buy the same amount of goods and services they would in 10 years from now.

That's not too much to ask, imo. Grow the money supply at the same rate as the population and the economy. Simple, in theory.

The only time in history that has happened, is when gold and silver were that medium of exchange. I just look at history here...all other mediums of exchange have failed miserably.