The Poojer Posted August 31, 2012 Share Posted August 31, 2012 does anyone understand this issue and could you dumb it down for me as to whether it's really a good idea and how easy/hard would it be to implement? i get the basic premise of it but I cannot see it being easy to implement. Would appreciate any input. Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted August 31, 2012 Share Posted August 31, 2012 (edited) it can be very problematic and make the business cycle incredibly extreme. 1- if there is a bank run, there simply is not enough gold or other tangible assests to back currency( ie debt). 2- during a economic boom, more credit is given out, and usually in a free market this will come down because there simply is not enough money in the money supply to cover the debt.( e.g. housing crisis)... this still happens now but to a lesser degree because central banks can manipulate currency and soften the blow of a return to real market value. 3- given extreme nature of the business cycle with a gold standard, a political system might not be sustainable, riots, food shortage, etc.. 4- we dont have a global standard, so why would a countries financial institutions put themselves at risk in a global unchecked market? austrian economists would argue a gold standard would incentivize banks to not lend out so much credit, knowing inflation would cause a huge sink hole in the economy, but i dont think this is reasonable. during a boom cycle for whatever reason, a bank and its shareholders must maximize profit, during the boom, why would they neglect this? it seems giving out credit to enhance profits would be inevitable regardless of a currency standard. if not, they will go under during the boom... im not sure all of this is correct, but this is just a surface idea of why i think a gold standard would not work... im sure there are economists on here that know way more than i do about austrian economics... yes, we might have less value of our dollar, and constant inflation, but a gold standard would make it really hard to keep an economic system stable (the volatility of banks failing is too problematic)... the fed may devalue the dollar, but at least there is no riots in the street... it could be a false dichotomy, im sure there are alternatives... im not sure how this is even possible( having only a gold standard) this is why with any political system, whether de facto or in reality, a central bank/nationalized bank is inevitable... jmo you dont even need a gold standard, what the issue really comes down to is a central bank or no central bank... Edited August 31, 2012 by MARCELL DAREUS POWER Link to comment Share on other sites More sharing options...
WorldTraveller Posted August 31, 2012 Share Posted August 31, 2012 No, it's not practical for a wide variety of reasons. But think about this for a second, the value of paper money if linked to gold, would be partially determined on the supply and availability of gold. Does that make any sense to you? Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted August 31, 2012 Share Posted August 31, 2012 btw, this is why people hate bankers... giving out promissory notes on other peoples gold got you killed in the old days. since credit dried up, states then wanted a central bank to cover loss and implement regulatory action to create a more sustainable risk taking economy... so now, if they cant cover the cost, many times the fed will just bail them out... its pretty much a free loading profession. the banker can collect tons of interest on value that is not even there, and when market discipline hits, the fed bails him out... this is why many people think the fed should be nationalized along with other big banks. since the taxpayer is always bailing them out, seems like some of these great profits should go to better public use. like i said, from my understanding, either you want your atm to work everyday, and have the ability to get milk on saturday, or you want to stick it to the bankers... or you say !@#$ it, im a communist, nationalize the banks/credit institutions... lol Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted August 31, 2012 Share Posted August 31, 2012 money is also created from debt, the money loaned out does not come from deposits or interest, rather debt... ie inflation... Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted September 1, 2012 Share Posted September 1, 2012 (edited) A return to a government controled gold standard wouldn't make a bit of difference to the economy in and of itself, simply because the value of the dollar relative to the value of a troy ounce of gold would still fluctuate based on the amount of dollars in circulation; just as it does today. I am also sympathetic to the argument that a single anchoring scarce commodity could have detrimental effects in the long term; which is why I don't advocate such a system. Edited September 1, 2012 by TakeYouToTasker Link to comment Share on other sites More sharing options...
BiggieScooby Posted September 1, 2012 Share Posted September 1, 2012 (edited) Gold standards aren't feasible due to their limited quantity. There has to be a certificate between the buyer and his or her gold. Money is fundamentally a promise. The extension of credit needed to be "commoditized" in some form - gold has long been the commodity of choice that helped establish a credit based currency system. The basic tenet of any credit based monetary system is that the extension of credit should be used to finance productivity. Where credit based systems self-destruct is when credit extension is used to speculate on rising asset prices. When the rate of credit expansion slows you get a financial crisis as asset prices begin to plateau or decline as investors retreat from the market. MDP is right in that money is loaned into existence thanks to fractional reserve banking. Edited September 1, 2012 by BiggieScooby Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted September 1, 2012 Share Posted September 1, 2012 I would love to see one of you defend both fractional reserve banking and the FDIC in an interlinked argument. Your end game results in run-away inflation, unservicable debt, and the surrendering of all the national wealth to the global elites. Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted September 1, 2012 Share Posted September 1, 2012 (edited) A return to a government controled gold standard wouldn't make a bit of difference to the economy in and of itself, simply because the value of the dollar relative to the value of a troy ounce of gold would still fluctuate based on the amount of dollars in circulation; just as it does today. I am also sympathetic to the argument that a single anchoring scarce commodity could have detrimental effects in the long term; which is why I don't advocate such a system. if im not mistaken, in austrian economics, currency would be set, it wouldnt change, like 10-1.... the bank could not loan out past this reserve ratio of dollars to gold, creating a ceiling on debt/inflation. but im not sure... Gold standards aren't feasible due to their limited quantity. There has to be a certificate between the buyer and his or her gold. Money is fundamentally a promise. The extension of credit needed to be "commoditized" in some form - gold has long been the commodity of choice that helped establish a credit based currency system. The basic tenet of any credit based monetary system is that the extension of credit should be used to finance productivity. Where credit based systems self-destruct is when credit extension is used to speculate on rising asset prices. When the rate of credit expansion slows you get a financial crisis as asset prices begin to plateau or decline as investors retreat from the market. MDP is right in that money is loaned into existence thanks to fractional reserve banking. like he said... i also think inflation does rise, but value is still value... the market would adjust, but it does get out of whack like in 08 and the crash of 29 but because we have a fed with no gold reserve standard, we soften the blow when the market adjusts Edited September 1, 2012 by MARCELL DAREUS POWER Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted September 1, 2012 Share Posted September 1, 2012 There is nothing to stop legislators from changing those metrics as they see fit. This is any area where I disagree with most Austrian scholars. Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted September 1, 2012 Share Posted September 1, 2012 although, if a private bank has the power to loan out free money, at will, well.... thats pretty much a free loader. if i could print money at will and loan it out, id be rich too...lol Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted September 2, 2012 Share Posted September 2, 2012 like he said... i also think inflation does rise, but value is still value... the market would adjust, but it does get out of whack like in 08 and the crash of 29 but because we have a fed with no gold reserve standard, we soften the blow when the market adjusts ... Market corrections are directly caused by what you're proposing to be the solution to market corrections. Link to comment Share on other sites More sharing options...
WilliamCody Posted September 2, 2012 Share Posted September 2, 2012 If you want all economies to contract heavily and everyone on earth to endure extreme hardship for a generation, sure. Link to comment Share on other sites More sharing options...
TakeYouToTasker Posted September 2, 2012 Share Posted September 2, 2012 (edited) If you want all economies to contract heavily and everyone on earth to endure extreme hardship for a generation, sure. Oh, we're well past the point of no return on this point as it stands. We've been pretending that wealth is infinite despite real resources being scarce for a century, in part, and for 40 years in a complete sense. Mark my words, the economy will sharply contract in our lifetimes, and the suffering will be very real. Edited September 2, 2012 by TakeYouToTasker Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted September 2, 2012 Share Posted September 2, 2012 (edited) ... Market corrections are directly caused by what you're proposing to be the solution to market corrections. i know, because credit is stretched out too far... i agree. but with a gold standard, correct me if im wrong, credit would only be available to a certain point, severely limiting the economy and its " potential".. the assumption being, bank runs are rare... isnt that the whole point of credit and allowing inflation to a certain degree? Edited September 2, 2012 by MARCELL DAREUS POWER Link to comment Share on other sites More sharing options...
MARCELL DAREUS POWER Posted September 2, 2012 Share Posted September 2, 2012 Oh, we're well past the point of no return on this point as it stands. We've been pretending that wealth is infinite despite real resources being scarce for a century, in part, and for 40 years in a complete sense. Mark my words, the economy will sharply contract in our lifetimes, and the suffering will be very real. i agree here. we have no economic planning around our resources or environment, we just assume it goes on forever... peak oil is ignored as if its some made up movie... i think from a societal point, we are entering a young adult period... when you are an adolescent, you party, you dont plan anything, you dont save, you think you are immortal, and then when you get older you realize you are vulnerable and mortal... i think we are at that point, people just get angry when you tell them their lifestyle and ideology is not sustainable... jmo Link to comment Share on other sites More sharing options...
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