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A possible unintended consequence of moving back to the gold standard
Submitted by yonemoto on Tue, 11/18/2008 - 15:29
Is that it will encourage the world to move back to the dollar as a world reserve standard (much like Bretton-Woods I regime) and therefore artificially increase the purchasing power of the dollar and encourage overspending and malinvestment. » |
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Too Many Dollars
There are too many dollars and not enough gold to reform the dollar right now by backing it with gold. We have already gone too far toward hell, and gold has been on the sidelines too long.
But the lines will cross on a graph of dollar and gold values sooner than Keynesian economists believe possible. (By that I mean that the total actual value of held dollars will drop below the total actual value of held gold.)
The Fed and the federal government are already madly sucking the value out of the US dollar. Soon we will see surprising price inflation.
Ultimately, the dollar will be in such disrepute, people won't want it even if the President swears on a stack of bibles that he will now redeem in gold. He will not be believed and justifiably so.
There will be bitter jokes all around the world: "I'll pay you a dollar for it! Ha, ha."
It will be safer for market participants everywhere to adopt standard weights of gold and silver as money.
The dollar will fade into history and we will all climb back to a recovery with gold grams and silver troy ounces. Then, no more fractional reserve banking, no more fiat money, no more malinvestment, no more bubbles and crashes. No more price inflation.
We will have a sustainable worldwide economy.
ac
liberty yields harmony; tyrany yields chaos
liberty yields harmony; tyrany yields chaos
Don't confuse the massive
Don't confuse the massive amount of inflated fiat dollars and the inflated economy with actual numbers, remember that dollar in your pocket only has the effective purchase power of about 3 cents or less. On top of that, gold is a very different type of money than we are accustom to, it performs very differently and unlike fiat money, the supply of gold is not nearly as crucial as that of an ever-expanding fiat monetary system. Read David Hume...his extensive studies in gold money give proofs about the elasticity of a gold monetary system.
http://www.1776solution.blogspot.com
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
Why not just
either a) revalue the dollar
or b) let the dollar just be worth a really small fraction of the gold.
The only thing that is necessary is to freeze the money supply first, before going back to gold convertibility. If that means having dollar bills which literally expire, then that's what it means.
Also, fractional reserve banking is not bad, so long as the depositor understands that an interest-yielding account is an investment (not a safe deposit) and so long as the depositors and the banks assume the risk of default and bank collapse. That way all the money is, ultimately, accounted for.
Don't worry, that will
Don't worry, that will happen soon enough...its called INFLATION, leading to HYPER-INFLATION when they revalue it every couple of weeks.
http://www.1776solution.blogspot.com
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
yep maybe even daily if it
yep maybe even daily if it gets as bad as I think!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
I think Iran just recently
I think Iran just recently moved to some sort of (pseudo-?) gold standard to try to avoid more financial problems.
A 'real', full
A 'real', full convertibility, gold standard, not the aberrations that exist when a central bank (supposedly) aims to keep the price of gold constant by mucking around with interest rates, means holding dollars as reserve is the exact same as holding gold. A dollar is just a more convenient way of carrying around a 1/1000th ounce piece of gold (or something). This will not in any way I'm aware of lead to malinvestment. Rather, it will make things sooooo much more predictable and less murky.
you might be right about
you might be right about malinvestment, but it will encourage overspending, especially on stuff from abroad.
I strongly suggest you read
I strongly suggest you read the works of David Hume, he studied gold money for decades and its effects on various areas of the economy, not only of his country but also of others in relationship with the balance of trade. He also showed some interesting things about spending habits of people under a gold monetary system...I think you will find more then enough answers in his very extensive writings.
http://www.1776solution.blogspot.com
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
David hume did not live in a
David hume did not live in a system where every other nation had fiat monetary system.
Anyway, I withdraw my statement about malinvestment, except for the fact that some opportunists may overinvest in importation on the grounds of the exportation of currency. Hopefully the fact that the economy will be net deflationary will discourage this.
You assume a Central Bank.
Rather than competing currencies as a transition.
A hybred Monetary System is what is needed. The Monopoly on Money must end and allow commodity based private money, such as the Liberty $ and even local and State Gold Based Money and transition over time.
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Good Thoughts, Good Words , Good Deeds.
That is the Ron Paul rEVOLution Creed.
One Louv. ;-)..
It would encourage savings,
It would encourage savings, capital investments and if a freemarket was in place, any malinvestment would be dealt with through the market rebutting those bad decisions, causing the companies to either file for bankruptcy reorganization, liquidation or they would simply go out of business as they should. The increase of the purchasing power of the dollar would be a boon to the economy, the prosperity of the people, the time value of investments and business decisions. Under a gold monetary system, the market would determine the rates and therefore the balance of trade would be far more equalized instead of what we have now. The Fiduciary Responsibility of the Banks to their customers would be in their own best interest because without it such banks would soon either erode their reputation and therefore their business, or they would quickly go bust from people getting wind of their misrepresentation, bad-decision making or fraud.
Malinvestments tend to come more with a fiat monetary system with easy credit extended with artificially low interest rates. Excessive spending occurs when your have a "printing press" that never runs out of ink!
http://www.1776solution.blogspot.com
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
lmao... study the gold
lmao... study the gold standard a little more.. the gold standard would do the exact opposite of what you say except for the dollar strengthening.. it would not encourage overspending and malinvestment! the reason why is because dollars could not be made out of thin air!
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
Wrong.
If people abroad are using dollars as a reserve currency because their home currencies suck, then they will be willing to trade goods just to hold on the dollar. This means that products from overseas will be artificially cheap as the we ride the wave of the dollar; and trade imbalances will abound.
Part of the reason why we have a trade imbalance now is because the dollar is the de facto world reserve currency. Establishing the gold standard *might* only worsen that situation. On the other hand, if the rest of the world keeps drinking the cool-aid they might think that going on a gold standard will put us at risk for a great depression and drop it faster.
Shut up SIERRAHPBT
Don't you know this is 1984!!!
Ignorance is strength.. War is Peace..
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lol "When governments fear
lol
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
you only have overspending
you only have overspending and malinvestment on the aggregate from an expansionary monetary policy. You cannot expand the dollar if it is backed 100% by gold. If we did go back on a gold standard, the dollar would likely be banned from circulation in other countries but continue to be used underground in third world nations as long as they have fiat currencies in place.
Ventura 2012
Of course the dollar can't
The hypothetical gold-based dollar *can* be expanded and contracted by international trade.
But remember, supply and demand... So, as the demand (abroad, versus fiat currencies) goes up the value goes up, which means that Americans will ride the tide of increasing dollar value.
Right, but the problem of
Right, but the problem of malinvestment is caused by an influx of unexpected inflationary currency. New money distorts factors of production, creating a boom and ending in a bust. Expected inflation or deflation due to supply and demand does not cause business cycles.
When you talk about a dollar traded on open markets with no unexpected inflation in sight and a nominal value more or less = to the real value, you cannot have the kinds of distortions in production you get from printed paper. Neoclassicals attack the Austrian Business Cycle Theory because they say that if inflation is expected - and after a while you'd think it would be - then businesses would control for it and not mailinvest. They are right in theory, but in practice this never seems to occur. However, when money changes its real value through printing, the time it takes to return to the nominal value shown in the currency indexes according to the Purchasing Power Parity theory is the time in which the distortions occur.
If foreign governments were unable to stop their citizens from holding dollars as savings(assuming that they were inflating their own currencies and all of a sudden gold is magically a better investment for them than it was before the dollar was backed by it), then they would likely be pressured into adopting a gold standard as well or at least tightening their monetary policy.
Ventura 2012
I agree now
that malinvestment will probably not occur, but overspending probably will.
I mean who are you talking
I mean who are you talking about when you express your concerns about overspending and what exactly would you consider overspending to be?
Government would automatically be restrained from overspending, since it could not inflate it would have to depend on taxation, and that is extremely restrictive. As far as overspending by corporations, under a gold monetary system there would be far more responsibility in terms of budgeting since credit would be governed by the market rates. People likewise, would find that the same restraint would apply to them in terms of maintaining a budget without the wild easy credit world to live well beyond their means.
http://www.1776solution.blogspot.com
I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue. Barry Goldwater
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
for a time, but markets
for a time, but markets always move towards equilibrium and the new dollar demand (assuming it even exists, because the dollar will be gold backed so people can just own gold) will balance itself in the long run.
Ventura 2012