Gold Standard - Politics Forum.org | PoFo

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By Dr House
#1554340
I already know that the gold or another non-inflationary standard is unequivocally better than the greenback. My question, however, is whether at this point in time, when at current prices the entire World's total gold is valued at half of America's money aggregate, it's possible to implement. And how?

-Dr House :smokin:
By Zyx
#1554373
The U.S. would be smart to pay off its debts before it changes its currency. 75% of the U.S.' debt is not owned by foreign governments and most of it owned by foreign governments are the governments of U.S.' allies; not governments that we want to spit on.

After the U.S. pays back its debt, the Gold Standard would be a useless discussion. The U.S. economists should be more worried about not having the dollar be replaced by the Euro. In other words, we should remain having the black gold (oil) standard so long as oil is still being used.
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By Dave
#1554471
The dollar was originally a standard of weight. If you wished to implement a gold standard again all that would be necessary would be to define the dollar as being a certain weight of gold. This would be easiest accomplished simply by dividing the number of dollars in circulation by the ounces of gold owned by the US government and the Federal Reserve System.
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By Dr House
#1554481
I see. So what would the implications be if the price of gold jumps from $900 an ounce to $28,800 an ounce?

-Dr House :smokin:
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By ThereBeDragons
#1554483
First, buy all the gold at market prices.

Then distribute gold certificates.
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By Dave
#1554486
ThereBeYe wrote:I see. So what would the implications be if the price of gold jumps from $900 an ounce to $28,800 an ounce?

Bad news for jewelers and the electronics industry.
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By Dr House
#1554487
Thanks, Dave! :)

So what think you of the gold standard?
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By TropicalK
#1554564
I think the gold standard is crap. The purpose of a currency is to be as stable as possible, so that contracts dealing with dollars will not be skewed with inflation over time. Henceforth, I would like to see a currency backed by reserves of any kind. This could include a combination of wheat futures, gold, megawatt hours, oil, stocks, etc. It also should be callable in say $10,000,000 increments, where it would be free to return the money and receive the commodities. Arbitrage would make it easy to keep the correct value.
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By Dr House
#1554572
Interesting. Personally, I see no problem with a commodity standard that gets negative price inflation, and indeed prefer it as it transfers wealth from profits to stickier incomes such as salaries.

-Dr house :smokin:
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By Dave
#1554615
I'm in favor of any standard which results in a fixed money supply. The gold standard has a good historical record on this front, but it isn't the only option. Theoretically I would prefer a fiat standard with a fixed money supply, but obviously that's highly vulnerable to political abuse.
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By Nets
#1554622
I can't support a gold standard, which basically translates into a fixed money supply (finite gold reserves on earth).

The money supply must be allowed to grow (at a minimum) with the growth rate of gross output, otherwise, things get tricky.

Secondly, I don't think economies are money-neutral, and believe that injections of cash into the economy will boost output in the short run. This is a useful tool that would have to be abandoned in a gold-standard/fixed monetary base world.
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By Dr House
#1554631
The problem, Nets, is that cash injections over-boost the economy and tend to cause speculative booms that result in bad downturns.

-Dr House :smokin:
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By Dave
#1554650
How would things get tricky? As productivity increases an individual value of currency will simply have more purchasing power.
By SeriousCat
#1555212
Someone has yet to discuss the greatest issue surrounding the gold standard: how could it provide adequate capital for a developed economy such as the U.S.? The tertiary and quaternary sectors are large, agile, and powerful in developed economies. The tertiary sector [services sector] is high on the add-value chain, and the quaternary sector [banking, finance, and investment sector] provides the capital to fuel such development. How could the gold standard support the quaternary sector by providing enough capital? The Great Depression was caused by the Federal Reserve withholding credit from the economy. Instead of creating additional liquidity given the financial crisis on-hand (which is part of their job: to regulate and supervise the financial sector), they did not create the liquidity needed and thus funds for the quaternary sector dried up. With the entire economy geared on credit for its growth and development the lack of available credit could only lead to economic collapse - the economy imploded. With a switch to the gold standard from a fiat monetary system, how could the U.S. economy sustain itself?
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By Dave
#1555234
You forget that prior to withholding credit the Fed was expanding the money supply at 7.7% per annum through the whole of the 1920s, which naturally resulted in an inflationay asset boom. When the Fed finally stop adding this credit, the economy crashed. This is no different than withholding heroin from a heroin addict. The addict will indeed crash.

I am consistently baffled at to how people can't visualize why a gold economy would work. To take one example, in the 19th century the purchasing power of the British pound increased by 50%.

A hard money would, however, cause much of the financial sector to collapse, which is just fine in my opinion. 25% of all economic activity in this country coming from finance is absurd, and is only made possible by continual inflation.

Services, by the way, add value, they do not create value. No manufacturing, no services.
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By hannu
#1555257
Services, by the way, add value, they do not create value. No manufacturing, no services.

Doesn't manufacturing create a net loss on the item made?

You make a car & someone buys it for $30,000. Six months later they sell the car for $22,000...........If they hadn't bought the car they'd be $8000 dollars better off?

Where did that money go to?
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By Dave
#1555269
That's true of all consumption on the individual level. If you spend $15 on a haircut you're $15 poorer.
By SeriousCat
#1555277
You forget that prior to withholding credit the Fed was expanding the money supply at 7.7% per annum through the whole of the 1920s, which naturally resulted in an inflationay asset boom. When the Fed finally stop adding this credit, the economy crashed. This is no different than withholding heroin from a heroin addict. The addict will indeed crash.

You could use a more relevant example.

Dave wrote:I am consistently baffled at to how people can't visualize why a gold economy would work. To take one example, in the 19th century the purchasing power of the British pound increased by 50%. A hard money would, however, cause much of the financial sector to collapse, which is just fine in my opinion. 25% of all economic activity in this country coming from finance is absurd, and is only made possible by continual inflation.


What is wrong with price fluctuations? The gold standard cannot, as of current, create enough credit to sustain the U.S. economy, which is geared towards the vast credit offered under a fiat monetary system. If you indeed wish for a switch to the gold standard, the ensuing credit would create another depression, unless there is a substantial transition period. Even after the transition period, deprived of such vast quantities of credit the quaternary sector would rapidly diminish and economic prosperity would move in the same direction. Economic growth would likely stagnate, if not it could even contract. How is it economically possible to re-instate the gold standard and maintain prosperity?

Dave wrote:Services, by the way, add value, they do not create value. No manufacturing, no services.


This is quite ridiculous. Of course services add value, as can be proven by the fact that people pay for them. I pay my ISP provider to give me broadband internet access, and I pay the "dairies", or convenience stores, prices higher than supermarket prices because of the convenience. Services is what adds value to production. Producing a good is useless if you cannot transport it to the customer. Operations, logistics, and supply chain management is a great deal more complicated than people think.

Dave wrote:That's true of all consumption on the individual level. If you spend $15 on a haircut you're $15 poorer.


A classic misunderstanding of economics and commerce in general. If you trade that $15 for a haircut, you must value that haircut at greater than $15, otherwise you wouldn't have gone through the trouble of getting one. At the very least you are getting $15 worth of haircut in return of your $15 cash spent.
Last edited by SeriousCat on 10 Jun 2008 21:13, edited 1 time in total.
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By hannu
#1555284
Dave wrote:That's true of all consumption on the individual level. If you spend $15 on a haircut you're $15 poorer.

A haircut is a service.

A car is a re-saleable manufactured item. I pay $30.000, drive out of the showroom & I've dropped $5,000 without anything to show for it.

Where has that $5,000 dollars gone? The dealer hasn't got it he probably paid $29,000 for the vehicle.

Manufactured goods create a net loss on the item made to the end user.
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By yanovsky
#1555285
The problem, Nets, is that cash injections over-boost the economy and tend to cause speculative booms that result in bad downturns.

For my part the problem lies not within the loose monetary policy implemented to wreathe the business cycle but in ill regulated capital markets. Indeed more transparency coupled with a more efficient competition in certain segments could improve the long run economic welfare.

I rather agree with nets; to restore the gold standard will surely hamper growth; the quantity of gold is fixed it is not the same with human ingenuity.
Plus gold is not easy to convey compared to scriptural money and risk to slow the circulation of money thus aggravating a hypothetical lack of money supply with a gold standard.

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