Any Economists in the House?

Commodity money like gold and silver which are mined into existence.
Debt money which is loaned into existence.
Printed money which is spent into existence.

We have money system where the bulk of new money is loaned into existence. You want a new car. You need to borrow to buy it. You go to your bank and sign a note payable to them and in return they create a checking account for you out of thin air for you to pay for the car. This expands the money supply (checking accounts are part of the money supply); this enriches the bank because you pay them interest; the banks just settle up among themselves as checks are written so the newly created checking account never needs to be paid by the banking system although it may get transferred from bank to bank as people and businesses write checks with the new money.

All our money except for coins is debt on the books of some bank. The currency consist of bills of credit carried on the books of the Federal Reserve Bank. Checking and savings accounts are debts on the books of local banks.

One of the reasons this system is bad is that it is a privilege granted to banks to create new money and benefit from it by earning interest at your expense. This is a huge transfer of wealth from the pockets of working people into the hands of the bankers. Essentially this is fraud by counterfeiting.

Another reason this system is bad is that the newly created money is used to bid up the price of things which causes all sorts of problems. People living on fixed incomes suffer. Asset bubbles like the stock market bubble and the housing bubble result which are great for holders of these assets as the prices go up, but not so great for people who want to find a house they can afford.

Another reason this system is bad is that it has a fundamental flaw that eventually causes it to collapse. This flaw is that only an amount of new money is created in a loan transaction to eventually pay back the loan, but not enough to also pay back the interest also. Borrowing from banks expands the money supply; paying back the loan contracts the money supply; paying the interest contracts the money supply. In order to keep the total money supply from contracting enough new loans must be made each year to replace the loans being repaid and the interest being paid. If the money supply contracts or even does not keep expanding sufficiently then the economy slows down or contracts and we suffer unemployment and poorer business conditions. There would be natural swings in economic activity, but his debt money system greatly magnifies these swings.

Ultimately the shell game even brings down the banking system. It did in the 1930's and it looks like it is about to happen again today. In spite of the illusion created by Federal Deposit Insurance people today can lose huge amounts. The banks now have all these notes on their books (subprime loans in the news) which are secured by assets (real estate) falling in value. As the banks and other financial institutions write off these notes as worthless it brings into question their solvency, and since your checking and savings accounts are their liabilities to you, it also bring into question the value of those to you. Look at the banks and brokerage firms in the news that have needed to bring in new investors to keep solvent, and this problem is just at the early stage.

Even when we used gold and silver as money the banking system failed in the 1930's and this was a separate problem of fractional reserve banking where banks did not have enough gold to back all the checking account money they created; they only had a fraction of what they needed. They thought they solved this problem for themselves in the 1930's when they got the government to outlaw gold as money by confiscating it from the public and giving them unbacked money instead.; all they did was make it possible to expand the money supply faster because instead of the bank liabilities being partially backed by gold they were "backed" by debts, principally government debt.

Gold and silver as money coupled with the requirement that banks have 100% of their checking and savings backed by gold and silver in their vaults results in a stable money supply, and a more stable economy, plus people are not swindled out of their wealth by paying interest to banks on counterfeit money. And with a stable money supply, government would be forced to live on tax revenues instead of having access to newly created money which they borrow and can never repay.

As it is now we likely face a financial debacle and a failure of the federal government as well. See you in the soup lines.

Would you trade a tennis ball for a loaf of bread? Maybe. You might even trade for a coupon with no expiration date for a loaf of bread. There might be all kinds of things you'd trade for coupons for bread.

The coupon is the dollar and the bread is the gold. Bakers can make more bread and issue more coupons, but they are limited by how much grain and overhead costs they can afford. They don't dare issue many more coupons than they have bread or they're out of business. In fact, they are going to want something in return. They won't issue the coupons unless they think you're going to buy donoughts, bagels and cake, too.

Or maybe the baker wants to buy your car, and trades for it in coupons for bread. You might go for that if you love your carbs.

The dollar we have now is a coupon that has no value except faith that you'll be able to trade it for something real before people realize the bakery closed and has no bread.

They keep issuing the coupons anyway, and pretty soon nobody really wants to have more coupons for bread, they'd rather have gold or silver or maybe a Euro.

IMissLiberty

Money's value is derived from what it can be traded for. This is subject to market forces. NO MATTER WHAT you use as "money" you take on a risk that this intermediary object may lose its value (or gain) compared to what you want to trade it for. To eliminate that risk, you should barter. But that's obviously inefficient.

The gold standard is meant to minimize that risk by relying on something that historically has been constant and valuable. But EVEN then, that doesn't mean that the supply or demand for gold won't change as new supplies are found and new uses for gold are discovered.

All money tells us is the relative exchange value between goods. If a Car costs $20,000 and an apple costs $1, all that says is that a car is worth 20000 apples.

Any change in the quantity money messes with those exchange values - which leads to a slew of undesirable outcomes (some tangible, some moral). Therefore most valuable characteristic of a currency is for it to exist in a fixed amount (or at least one that people can forecast accurately. Try forecasting how many federal reserve notes get printed in 2008).

Therefore, Fiat currency CAN be a good money if by law it remains fixed. And gold CAN be a bad money if massive amounts were found or taken in and out of the system to shock the system. BUT, since no system is perfect, we have to pick one that's the best given the circumstances.

What's more likely to be stable? An element of nature that requires extensive cost to mine and produce? Or a piece of paper that can be printed at the whim of a spendthrift politician. Keep in mind, that gold certificates can also be overprinted to represent gold that doesn't exist, but that's fraud and a justice system should hold people accountable for that. When our federal reserve notes are printed against the "credit of the US," to what can you point to show fraud has been committed?

Changes in the amount of money send wrong signals to the market. It contributes to wealth inequality through the inflation tax. It leads to boom and bust cycles due to malinvestment.

(Man, I love how everyone on this board is an Austrian....)

VERY EASY! when a currancy is backed by gold it means that the federal government cannot "print" paper dollars without putting more ounces of gold in their vault.. It keeps the governemnt in check and keeps their spending in check and the government cannot make promises to give out welfare/corporate welfare etc! with no gold backing the currancy it allows government to spend into debt thus FU4$#ING UP THE ECONOMY.. this is why we are at the point we are at now.. 9 TRILLION IN DEBT WITH THE GOVERNMENT ( which I think is a lie its higher) and 50 trillion in debt as a nation (personal/corporate/and all government state local and fed!) this is why you have a gold standard to keep the bastards in washington honest.. at that point they can not promise people in their districs their hand outs to get reelected because they cannot get into debt!

We haven't seen any discussion in this thread of the petrodollar concept.

its real simple you cant inflate gold its impossible but you can inflate paper or most other item. the reaon gold is simple. it has a 6000 year history, its rare and requires productive labor. its divisible. it can be shaped into something portable. it doesnt deteriorate since all the gold ever mined is still here on this earth. its trusted by people of all nations. i can go on and on. if its not gold than anything that can restrain a government from growing its money supply beyond the rate of growth in the economy.

so far i havent seen it. with paper money government officials will raid the treasury and so will the people who demand a welfare state. so the politicos and the people work together. the politicos get the votes and the peeple get their welfare until the treasury is bone dry and that day my ron paul fans has arrived the only problem is the electorate hasnt figured it out.

Ron Paul has written two books on it, you can read them for free at mises.org

Here ya go:

http://mises.org/studyguide.aspx?action=author&Id=392

Also, check out this article by Rothbard: http://www.mises.org/story/1829 for a start.

Before He became FED Chairman..

He said the gold standard was the best..

Even Huckabee said in a debate..."the american dollar should be good as gold." He meant it as a metaphor but the metaphor is true. It should be good as Gold..

The Federal Reserve stole from the American people. They kept all the gold and told everyone that we couldn't redeem our bills for it anymore. It's our gold and they took it.

This is kind of education/discussion needed here.

Educate the masses to issues and RP positions.

1) anti-war and 2) economy with remedies along w/ education on same.

and rip it in fourths. Write "1 Doubter/Legal Tender for All Transactions". Give him one and tell that this is his currency and he can spend it on anything he wants -- if people take it. Explain that people will only accept it if they think it has value. You are telling him that it has value, does he believe it?

In front of him rip another paper. Write on it: "1 Gold Doubter/Exchangable at any time for 1/1000th of an oz of gold." Tell him that he can spend this on anything he wants. Notice that it's not stated as "legal tender", but that it actually has something behind it.

Which Doubter would he prefer? Which one is he more sure will retain some value? Which is simply paper with some fancy words on it and nothing behind it.

re[love]ution,
Dennis

Women and seniors, some of us have been screaming it for months.

If they knew their children and grandchildren were quite literally going to live in a bankrupt country in 2030, Dr. Paul would be vaulted to the top tier.

My team has been ready to begin production on an ad that was conceived, written and story-boarded by us in Dec. It has a special message that differentiates the Doc as the only fiscally responsible candidate in either party.

We retained studio time for this ad, a professional voice-over woman, and a graphics designer. But until we confirm that HQ or grassroots can/will buy airtime for good ads, we are holding off production, because another YouTube piece will not help Dr. Paul.

If you can bring something to our team, read more here, sooner the better:

http://www.dailypaul.com/node/15955

-JP

in the first place is the fractional reserve system. If banks were only allowed to loan from non-demand deposit accounts and only what they had on hand then gold would never have gone out of favor. The gold standard collapsed because there was more money out than was backed so when foreign countries demanded gold for their dollars our gold supplies was being depleted. This would eventual have led to no gold in the repository but many dollars still demaning it. Get rid of fractional reserve banking and it doesn't matter who redeems dollars for gold.

In the end the governments basically believed it was their gold. In reality the gold is owned by the owner of each dollar with the government just holding it. But crooks will be crooks.

Here is the way I try to explain it:

You use money to exchange for goods and services. All goods and services have an exchange value expressed in terms of dollars. For example, a gallon of gasoline has an exchange value of three dollars. We typically call the exchange value of goods or services expressed in dollars the "price". But this exchange can be expressed the other way around. The amount of goods or services that a dollar will buy is the exchange value of the dollar. For example, you exchange three dollars for a gallon of gasoline. So the exchange value of the dollar is a third of a gallon of gasoline or one subway ride or half a paperback book, etc.

The dollar exchange value, or price, of goods and services is determined by the supply of, and demand for, the good or service in question. When the supply of a good goes up and demand stays the same, the exchange value of the good (the price) goes down. When demand goes up and supply stays the same, the exchange value goes up. This is the well-known law of supply and demand.

The exchange value of the dollar ALSO goes up or down in response to supply and demand. The supply of money includes actual printed dollars and fractional reserve bank credit. For purposes of your question we can ignore credit and focus on the currency. When the Federal Reserve prints paper money, it expands the supply of money. Expand the supply of money and the exchange value goes down. This is inflation. Inflation is experienced most painfully as higher prices for goods and services.

Government likes to be able to print money because it allows politicians to pay off special interests without raising taxes. However, because expanding the money supply reduces the exchange value of money already in circulation - and in your savings account - it is a secret tax that erodes people's purchasing power. Inflation has a number of very pernicious effects on the economy. It punishes saving and thereby erodes capital formation and it causes malinvestment. The housing bubble burst we are feeling now is the result of a correction of inflation-induced malinvestment.

Requiring that money be tied directly to gold limits the government's ability to create money to the relatively low and steady production of new gold supplies. Since government can only coin a limited amount of new money, it cannot inflate the money supply directly. So essentially the gold standard prevents the extremely harmful effects of the most pernicious kind of inflation. It forces government to raise revenue through direct taxation rather than the secret tax of an eroded currency and lost purchasing power.