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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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 Posted: Mon Oct 15, 2007 8:42 am Post subject: |
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For thousands of years, the stable currencies were either gold or backed by gold. Every currency not backed by gold failed. There are no exceptions to this rule.
The US dollar was completely backed by gold until Nixon took the US off the gold standard.
Since Nixon ended the link, the dollar has lost 90% of it's value. FDR started the trend by devaluing the dollar from $20 to $32 dollars per ounce of gold. Since FDR began the process, the dollar has lost 95% of its value.
While on the gold standard, the long term value of the dollar was stable. In a free market economy where the money is backed by gold (or possibly some other precious commodity as this is possible theoretically possible) inflation is zero and prices slowly decline as productivity improves.
(The ups and downs in the gold market are really fluctuations in the value of the currency being used to measure and are not actually fluctuations in the value of gold.)
The US still owns quite a bit of gold, which has helped confuse the people over the last 3 and 1/2 decades. Thus, many people believe the dollar IS backed by gold. They hold onto "dollars" as if they were still real dollars and help slow the fall of the dollar.
The dollar acts a substitute for gold and is used to back other world currencies. This helps to slow, but does not deter, the ineluctable decline of the dollar.
In the past every unbacked currency failed. Many countries inflated their currencies, forcing them to end their gold backing or other backing, and then the currency collapsed. This always took a significant amount time. The dollar will fall eventually to zero. It will just take longer than people had previously come to expect.
The dollar is falling, having lost 95%of its value, however special circumstances are slowing the fall of the dollar including: 1) there is no other gold backed alternative to generate an immediate run 2) hundreds of millions of people in the world are unaware that the dollar is not at least partially gold backed 3) Allan Greenspan (an Ayn Rand acolyte and libertarian, who actually agrees that the dollar needs to be backed by something) did an excellent job managing and delaying the dollar's fall 4) the dollar is acting as gold as a reserve currency, which means that when the collapse inevitably comes, ALL of the world's currencies will collapse in unison.
The dollar is falling. Eventually it will go into a hyper dive and hit zero. This will happen within 30 more years. If the right trigger comes, it could happen anytime, even tomorrow.
The idea that the dollar is backed by the "economy" or all the production of goods and services, is stupid beyond belief. It's like jumping off a cliff and wishing that you could fly. Eventually you will hit bottom. If you could find a high enough cliff, where it took 30 years to fall, you might believe that you were flying, too, even as you fell, slowly to your death. Even if you wish and believe very hard in the economy, they do not "back" the dollar. It will continue to fall to zero.
It's just that with the dollar, few people know that it was gold backed until recently, in historical terms, and that now that gold backing is completely gone. Few people notice the fall since it is reported by the government as "inflation" and blamed on others to hide the truth. Few people study economics enough to understand even what "supply and demand" really means, let alone money, which is far more complex and arcane.
Economics is a dynamic concept, just like engineering dynamics, however few people can understand either, even in the static form in a theoretical environment, and there are few PhDs who have ventured into the dynamic paradigm. |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Mon Oct 15, 2007 1:35 pm Post subject: |
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That's wonderful! I never heard that before. I know what I'll be doing tonight...re-watching the movie.  |
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Ya-ta Boy
Joined: 16 Jan 2003
Location: Established in 1994
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| Posted: Mon Oct 15, 2007 1:38 pm Post subject: |
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I'd like to hear from the Ronette experts on the board about the practical effects on everyday life of a return to the Gold Standard. What would it do to prices and wages. How would it affect the trade deficit? That kind of thing.
Take me to school, boys. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Mon Oct 15, 2007 5:33 pm Post subject: |
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| ontheway wrote: |
| For thousands of years, the stable currencies were either gold or backed by gold. Every currency not backed by gold failed. There are no exceptions to this rule. |
This is akin to saying everyone who eats pickles dies. Eventually. All currencies fail eventually, when the civilization fails. This isn't saying much. Do you have a time line? What's the yuan been backed with? The Yen? The Won? And how do you determine causation? Simply saying "see, went off the gold standard, the currency failed!" That's a bit like saying "see, you gave that guy with cancer chemo and he died!" A nation already in trouble might take itself off the gold standard. Ain't no surprise its currency fails along with its already failing economy.
So you make a claim, I'd like to see some specifics. Examples? Recent examples?
Also, what modern, western currency has failed? You can't compare modern currencies with currencies from history.
| Quote: |
| Since Nixon ended the link, the dollar has lost 90% of it's value. |
Yeah. When there are very few dollars in circulation, it has great value. But so what?
| Quote: |
| While on the gold standard, the long term value of the dollar was stable. |
So what? We like currencies today that respond to market conditions. The value of the Chinese yuan has remained remarkably stable but no economist agrees the yuan is correctly valued.
| Quote: |
| In a free market economy where the money is backed by gold (or possibly some other precious commodity as this is possible theoretically possible) inflation is zero and prices slowly decline as productivity improves. |
Inflation is not a bad thing. Prices do decline as productivity goes up but I would like to see evidence that's tied to a gold standard. Prices go down even if there is inflation. Computers are a lot cheaper today than 1979.
| Quote: |
| The US still owns quite a bit of gold, which has helped confuse the people over the last 3 and 1/2 decades. Thus, many people believe the dollar IS backed by gold. They hold onto "dollars" as if they were still real dollars and help slow the fall of the dollar. |
There is simply not enough gold in the world to put America BACK on the gold standard and keep the current number of bills in circulation. How do you propose we get China and Japan to simply burn their dollar holdings?
The dollar acts a substitute for gold and is used to back other world currencies. This helps to slow, but does not deter, the ineluctable decline of the dollar.
| Quote: |
| The idea that the dollar is backed by the "economy" or all the production of goods and services, is stupid beyond belief. It's like jumping off a cliff and wishing that you could fly. Eventually you will hit bottom. If you could find a high enough cliff, where it took 30 years to fall, you might believe that you were flying, too, even as you fell, slowly to your death. Even if you wish and believe very hard in the economy, they do not "back" the dollar. It will continue to fall to zero. |
Money is paper. Paper money arose because gold was considered a means of exchange across borders. Gold was heavy. Paper represented a right to get that gold. But it became far easier to exchange the paper. People don't really deal much in gold these days. Some industries use it. People like it for rings. People now believe money can be exchanged not for gold but goods and services. Money is valued based on not a small segment's desire for gold but by the entire world's desire for goods and services from America.
There is no difference in between a dollar backed by a diverse idea of the value of goods and services and an idea about the true value of gold. Money is backed by perceptions. That's all. |
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blaseblasphemener
Joined: 01 Jun 2006
Location: There's a voice, keeps on calling me, down the road, that's where I'll always be
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| Posted: Mon Oct 15, 2007 7:59 pm Post subject: |
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| mindmetoo wrote: |
| ontheway wrote: |
| For thousands of years, the stable currencies were either gold or backed by gold. Every currency not backed by gold failed. There are no exceptions to this rule. |
This is akin to saying everyone who eats pickles dies. Eventually. All currencies fail eventually, when the civilization fails. This isn't saying much. Do you have a time line? What's the yuan been backed with? The Yen? The Won? And how do you determine causation? Simply saying "see, went off the gold standard, the currency failed!" That's a bit like saying "see, you gave that guy with cancer chemo and he died!" A nation already in trouble might take itself off the gold standard. Ain't no surprise its currency fails along with its already failing economy.
So you make a claim, I'd like to see some specifics. Examples? Recent examples?
Also, what modern, western currency has failed? You can't compare modern currencies with currencies from history.
| Quote: |
| Since Nixon ended the link, the dollar has lost 90% of it's value. |
Yeah. When there are very few dollars in circulation, it has great value. But so what?
| Quote: |
| While on the gold standard, the long term value of the dollar was stable. |
So what? We like currencies today that respond to market conditions. The value of the Chinese yuan has remained remarkably stable but no economist agrees the yuan is correctly valued.
| Quote: |
| In a free market economy where the money is backed by gold (or possibly some other precious commodity as this is possible theoretically possible) inflation is zero and prices slowly decline as productivity improves. |
Inflation is not a bad thing. Prices do decline as productivity goes up but I would like to see evidence that's tied to a gold standard. Prices go down even if there is inflation. Computers are a lot cheaper today than 1979.
| Quote: |
| The US still owns quite a bit of gold, which has helped confuse the people over the last 3 and 1/2 decades. Thus, many people believe the dollar IS backed by gold. They hold onto "dollars" as if they were still real dollars and help slow the fall of the dollar. |
There is simply not enough gold in the world to put America BACK on the gold standard and keep the current number of bills in circulation. How do you propose we get China and Japan to simply burn their dollar holdings?
The dollar acts a substitute for gold and is used to back other world currencies. This helps to slow, but does not deter, the ineluctable decline of the dollar.
| Quote: |
| The idea that the dollar is backed by the "economy" or all the production of goods and services, is stupid beyond belief. It's like jumping off a cliff and wishing that you could fly. Eventually you will hit bottom. If you could find a high enough cliff, where it took 30 years to fall, you might believe that you were flying, too, even as you fell, slowly to your death. Even if you wish and believe very hard in the economy, they do not "back" the dollar. It will continue to fall to zero. |
Money is paper. Paper money arose because gold was considered a means of exchange across borders. Gold was heavy. Paper represented a right to get that gold. But it became far easier to exchange the paper. People don't really deal much in gold these days. Some industries use it. People like it for rings. People now believe money can be exchanged not for gold but goods and services. Money is valued based on not a small segment's desire for gold but by the entire world's desire for goods and services from America.
There is no difference in between a dollar backed by a diverse idea of the value of goods and services and an idea about the true value of gold. Money is backed by perceptions. That's all. |
What about all the paper currencies that have collapsed? I'd say those countries would not agree that paper money is safe. Something based on an idea would seem to be liable for collapse if the idea no longer is believable. For example, if people stopped believing America had the goods and services to back up the so-called value of the currency. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Mon Oct 15, 2007 8:46 pm Post subject: |
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| blaseblasphemener wrote: |
| What about all the paper currencies that have collapsed? I'd say those countries would not agree that paper money is safe. Something based on an idea would seem to be liable for collapse if the idea no longer is believable. For example, if people stopped believing America had the goods and services to back up the so-called value of the currency. |
If people believed that about America then America not being on the gold standard would be least of an American's problem.
And what paper currencies have collapsed since the end of the war? And define collapse. |
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blaseblasphemener
Joined: 01 Jun 2006
Location: There's a voice, keeps on calling me, down the road, that's where I'll always be
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| Posted: Mon Oct 15, 2007 8:51 pm Post subject: |
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| mindmetoo wrote: |
| blaseblasphemener wrote: |
| What about all the paper currencies that have collapsed? I'd say those countries would not agree that paper money is safe. Something based on an idea would seem to be liable for collapse if the idea no longer is believable. For example, if people stopped believing America had the goods and services to back up the so-called value of the currency. |
If people believed that about America then America not being on the gold standard would be least of an American's problem.
And what paper currencies have collapsed since the end of the war? And define collapse. |
through inflation. Zimbabwae, Argentina, etc. I don't know much about it, but in Zimbab case, the country just kept printing money, and it has become worthless. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Mon Oct 15, 2007 9:02 pm Post subject: |
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| blaseblasphemener wrote: |
| mindmetoo wrote: |
| blaseblasphemener wrote: |
| What about all the paper currencies that have collapsed? I'd say those countries would not agree that paper money is safe. Something based on an idea would seem to be liable for collapse if the idea no longer is believable. For example, if people stopped believing America had the goods and services to back up the so-called value of the currency. |
If people believed that about America then America not being on the gold standard would be least of an American's problem.
And what paper currencies have collapsed since the end of the war? And define collapse. |
through inflation. Zimbabwae, Argentina, etc. I don't know much about it, but in Zimbab case, the country just kept printing money, and it has become worthless. |
Argentina's currency was pegged to the US dollar. The currency didn't collapse. The economy did. This would seem to argue against the gold standard. You're pegging your currency to one standard whose value you can't control.
And Zimbabwe screwed its pooch by destroying the very things that gave its currency value: farms. Zimbabwe was the breadbasket of Africa. If Zimbabwe was on the gold standard, do you really think people would trust that those slips of paper would be freely convertible to the gold in Zimbabwe's stash? If Zimbabwe has nothing to trade, the only thing people are going to take is the gold. Directly.
As I stated earlier, any western liberal economies experience currency collapse as a result of going off the gold standard? |
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blaseblasphemener
Joined: 01 Jun 2006
Location: There's a voice, keeps on calling me, down the road, that's where I'll always be
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| Posted: Mon Oct 15, 2007 9:05 pm Post subject: |
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| mindmetoo wrote: |
| blaseblasphemener wrote: |
| mindmetoo wrote: |
| blaseblasphemener wrote: |
| What about all the paper currencies that have collapsed? I'd say those countries would not agree that paper money is safe. Something based on an idea would seem to be liable for collapse if the idea no longer is believable. For example, if people stopped believing America had the goods and services to back up the so-called value of the currency. |
If people believed that about America then America not being on the gold standard would be least of an American's problem.
And what paper currencies have collapsed since the end of the war? And define collapse. |
through inflation. Zimbabwae, Argentina, etc. I don't know much about it, but in Zimbab case, the country just kept printing money, and it has become worthless. |
Argentina's currency was pegged to the US dollar. The currency didn't collapse. The economy did. This would seem to argue against the gold standard. You're pegging your currency to one standard whose value you can't control.
And Zimbabwe screwed its pooch by destroying the very things that gave its currency value: farms. Zimbabwe was the breadbasket of Africa. If Zimbabwe was on the gold standard, do you really think people would trust that those slips of paper would be freely convertible to the gold in Zimbabwe's stash? If Zimbabwe has nothing to trade, the only thing people are going to take is the gold. Directly.
As I stated earlier, any western liberal economies experience currency collapse as a result of going off the gold standard? |
Why do they have to be Western liberal economies? that's a very narrow, recent window to be squeezing through. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Mon Oct 15, 2007 9:43 pm Post subject: |
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| blaseblasphemener wrote: |
Why do they have to be Western liberal economies? that's a very narrow, recent window to be squeezing through. |
Because America is one. It's akin to drawing conclusions about western democracies from data from totalitarian states.
A badly run centrally planned economy will results in market failure and collapse of the currency along with it. Zimbabwe for example. Why did the economy collapse? Was it that the currency wasn't on the gold standard or did bad policy run the economy into the ground? I just like to see evidence any well managed economy (which pretty much means western market oriented economies) will necessarily face problems with its currency as the poster suggests. |
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huffdaddy
Joined: 25 Nov 2005
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| Posted: Tue Oct 16, 2007 1:56 am Post subject: |
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A good article on the gold standard:
http://www.econlib.org/library/Enc/GoldStandard.html
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But because economies under the gold standard were so vulnerable to real and monetary shocks, prices were highly unstable in the short run. A measure of short-term price instability is the coefficient of variation, which is the ratio of the standard deviation of annual percentage changes in the price level to the average annual percentage change. The higher the coefficient of variation, the greater the short-term instability. For the United States between 1879 and 1913, the coefficient was 17.0, which is quite high. Between 1946 and 1990 it was only 0.8.
Moreover, because the gold standard gives government very little discretion to use monetary policy, economies on the gold standard are less able to avoid or offset either monetary or real shocks. Real output, therefore, is more variable under the gold standard. The coefficient of variation for real output was 3.5 between 1879 and 1913, and only 1.5 between 1946 and 1990. Not coincidentally, since the government could not have discretion over monetary policy, unemployment was higher during the gold standard. It averaged 6.8 percent in the United States between 1879 and 1913 versus 5.6 percent between 1946 and 1990.
Finally, any consideration of the pros and cons of the gold standard must include a very large negative: the resource cost of producing gold. Milton Friedman estimated the cost of maintaining a full gold coin standard for the United States in 1960 to be more than 2.5 percent of GNP. In 1990 this cost would have been $137 billion. |
For someone who wants to reduce government, returning to the gold standard doesn't seem like a very good idea. |
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huffdaddy
Joined: 25 Nov 2005
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| Posted: Tue Oct 16, 2007 2:30 am Post subject: |
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| ontheway wrote: |
Since Nixon ended the link, the dollar has lost 90% of it's value. |
Compared to what? The price of gold. The only way to prevent gold from increasing in value vis a vis the dollar is to prevent the private ownership and trading of gold. That sounds more like socialism than libertarianism.
Compared to other currencies, which is more significant, the dollar hasn't changed much.
Canadian $ was 1:1 back in 1971.
British pound was even stronger than it is now.
Compared to 1971, the dollar does buy a lot less. Compared to 1971, everyone gets a lot more dollars. Comparing the dollar to other currencies is a lot more useful than comparing it to gold. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Tue Oct 16, 2007 3:03 am Post subject: |
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| huffdaddy wrote: |
| The only way to prevent gold from increasing in value vis a vis the dollar is to prevent the private ownership and trading of gold. |
Weren't Americans banned from buying gold decades ago? It was one reason why South Africa and Canada managed to capture a large portion of the gold coin market. |
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huffdaddy
Joined: 25 Nov 2005
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| Posted: Tue Oct 16, 2007 3:15 am Post subject: |
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| mindmetoo wrote: |
| huffdaddy wrote: |
| The only way to prevent gold from increasing in value vis a vis the dollar is to prevent the private ownership and trading of gold. |
Weren't Americans banned from buying gold decades ago? It was one reason why South Africa and Canada managed to capture a large portion of the gold coin market. |
Rare gold coins were exempted. But otherwise, gold was nationalized. How libertarian of Roosevelt.
http://www.blanchardonline.com/beru/confiscation_exception.php
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"The private ownership of gold is a privilege, not a right. Congress revoked the privilege of private ownership in 1933 and restored it in 1974. Congress could easily revoke the privilege again. In fact, at no time during this century has the U.S. government recognized the right of private gold ownership. The Trading With The Enemy Act, which President Roosevelt invoked in 1933 to restrict private gold transactions, remains law. The government could reactivate the machinery, which The Trading With The Enemy Act established, to implement gold confiscation."
� Boston College International and Comparative Law Review 297, 320 (1982) |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Tue Oct 16, 2007 5:46 am Post subject: |
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| huffdaddy wrote: |
| But otherwise, gold was nationalized. How libertarian of Roosevelt. |
History has been very very kind to Roosevelt, probably because of WWII. But his handling of the economy during the great depression is largely myth. He ended up prolonging it. |
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