Korean Job Discussion Forums

[ontheway]

"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth," Greenspan stated in The Objectivist some 30 years ago, noting: "Gold stands in the way of this insidious process."


Alan Greenspan supports the Gold Standard, limited government, the free market and libertarian principles.

[ontheway]

Zimbabwe:

To answer a poster above:

If you took a solid gold coin, say a Krugerrand or US or Canadian coin, and carried it in your pocket, would it lose its value by crossing the border? No, of course not. You might be in greater danger of being robbed, but gold is gold regardless of borders. In fact, that is one of the reasons that having a gold backed currency is so vital to a healthy economy.


So, what if the corrupt Government of Zimbabwe did actually keep its hands off a gold backed currency? Well then, since you could convert your paper money freely into gold at any time (remember, they are keeping their hands off), then the currency would always remain rock solid. That is because, at any time, you could just convert your money to gold and take it out of the country. It would have the same value inside and outside Zimbabwe. One ounce of gold is one ounce of gold.

[huffdaddy]

[ernie]

^ true, but only if the US dollar or the Euro was backed by something

[huffdaddy]

[mindmetoo]

[ernie]

here is an interesting article about having a PARALLEL bullion/fiat money market... interesting:
http://www.safehaven.com/article-1648.htm

"The beauty is that all of this would be supported by the very concept under which the euro fiat system was developed: a bifurcated system under which the fiat-price of gold is allowed to run free, with the goal in mind that gold will crystallize to become the primary savings-medium, while fiat will be the primary spending-medium."

[ontheway]

You all keep missing the point of what a "gold backed" currency is.

A gold backed currency is gold.

You either have a gold coin or gold bullion in hand or you have a piece of paper that represents that much gold.

The US gold currency pre FDR was gold. You had $20 gold coins. They were pure gold (99 point something % pure). The paper money could be exchanged for gold. The paper money could only be issued if there was a gold coin to exchange for it. A twenty dollar bill represented one ounce of gold that was being held in a depository. Whenever you wanted you could get the gold. The paper was more convenient, but it was a ticket representing your gold. Your gold was on deposit.


Therefore, it is not possible for the dollar to float or change value against the gold. When the dollar is backed by gold the dollar IS gold.

One ounce of gold ALWAYS has the value of one ounce of gold. The value of twenty dollars was the same as one ounce of gold, because 20 dollars was actually one ounce of gold.



Now, what happened at various times was that the government would decide to cheat. They would issue more paper money than the gold on hand. This works well for the government for so long as nobody notices and nobody decides to redeem their paper money for the gold being held on deposit.

Unfortunately for the government's scheme, it never took long to notice. The bad news for the people was that a recession would follow in order to "correct" the malinvestment created by the government. The good news for the people was that a gold backed currency brings discipline; it's another system of checks and balances that controls government and prevents them from proceeding too far with an evil scheme such as currency debasement without being caught by the market.

The problem was that this was "inflation." The correct meaning of the word inflation - the government issues more money and devalues the currency in circulation. This causes a general rise in prices. The rise in prices is not the inflation. Debasement of the currency is inflation.

So, at those times when the government debased the currency and inflated the supply of the currency to exceed the amount of gold on deposit, the government would first spend the money. They were able to consume goods and services for free. They were issuing counterfit currency and robbing the people.

With a greater supply of paper money circulating, and the quantity of goods and services available to buy reduced by the amount already consumed by the government, the general price level had to rise as a result.

Insiders, of course, were aware of what was happening, and the word would leak out to the financially sophisticated and politically connected classes. Others who were just generally astute would just notice the effects and make a surmise as to the causes.

These astute and connected individuals would then take actions to protect themselves. Converting dollars to gold and selling off assets that had climbed to nominal values that were not warranted if the currency had not been debased.

This would have the effect of bursting the bubble. The government would have to take actions to call in the excess dollars or risk a run on the gold and total collapse of the currency. So, the government had to take in more dollars than it was spending. This would be a reversal of the false signals they had been sending to the economy. The government could suddenly raise taxes and cause a recession, suddenly contract its spending, which would reduce aggregate demand and have a similar effect, but generally tried to do both to take in more paper dollars than they were spending and reverse the previous government created bubble.

This general scenerio has been the cause of every recession in the history of the US.

The only other options available were those taken by the two worst, most evil men ever to sit in the oval office:

1. Devalue the currency as FDR did. Instead of reversing the government policies, taking the medicine necessary to correct the bad government policies of the twenties, he made the effects permanent, and took steps to prevent the correction and turned a typical government recession into the Great Depression.

2. After a slow creeping debasement of the currency in the 50's, a flood of debasement began under JFK and accelerated under Johnson. Nixon took the option of delinking the currency from gold. He created fiat dollars. Had the US dollar been any other currency in the world, it would have fallen to zero within a few months, or at most a few years. But, as the world reserve currency, having been counted on as safe by the other nations of the world, it had institutional arrangements that meant the Nixon had decoupled all the currencies of the world simultaneously. The people of the world had nowhere to run.

[ontheway]

Some Q&A:

Zimbabwe: Yes, as I said, IF the government would keep its hands off the currency and IF it had such a reputation that the people believed this government was honest in regards to its currency, then a gold backed currency could maintain its value despite the other problems engendered by that government.

Of course this doesn't happen. The many naives on Dave's demonstrate that a government can debase a currency continuously or in cycles and fool some people forever. So, currency debasement is one of the first tools that dictators and kleptocrats use to enrich themselves and their favored cronies and supporters. No government as evil as the one in Zimbabwe would ever fail to loot the wealth of the people through inflation.

The government inflates the currency, spends the money, reaps the benefits, puts the blame on others, and creates scapegoats to help maintain their power.

Nice little system.

[ontheway]

Q&A:

Why the US would take gold instead of paper pounds from England during WWII should be obvious:

If the US accepted paper currency, the temptation for the Brits to just print more paper money would be irresistable. So, the US would, of course, insist on getting gold instead of worthless paper pounds.

And, after all, being thieves themselves in the FDR administration, they would know very well the lack of integrity of their fellow evil rulers. They would know well what inflation and real money are. They would know well not to trust the government.

[ontheway]

Q&A

What about "backing" the currency with the goods and services available to be purchased in the economy?

This is one of the ways people are fooled by the fiat money issued by the government. Fiat money is not backed by anything. It is just paper. It's only real value is that of the paper.

Fiat money is not backed by anything.


What does that mean?

A gold backed currency means that some standard definition has been created. For the US: $20 was a unit of account that represented one ounce of pure gold minted into the form of a coin.

$20 would always be one ounce of pure gold.


Now, if you back a currency with something else, that is, if you ACTUALLY BACK UP the currency by some other commodity by defining the currency in terms of that commodity, that could be a workable form of real money.
It could be silver, diamonds, platinum, something that is small, durable, and has been seen to maintain its value aver the course of centuries or millenia.


The problem is, that is not what the naives mean. They have been deluded by the concept that a currency is backed by all the goods and services in the economy and by the good will and confidence of the government etc. That, however, means the money is backed by nothing. There is not one single thing that is guaranteed in exchange for your $20 bill. Nothing.

Sure, you can spend the money, but one day gold costs $20, then $32, then $100, $200, $400, $800, $1600.

Likewise, I remember well buying a hamburger or a coke for 5 cents at a local burger stand. All the price increments since are merely milestones that record the debasement of the currency. One hamburger always equals one hamburger. One coke always equals one coke. But both sell for around a dollar these days, not a nickel, at a similar stand. The dollar has lost 95% of its value.

The money has no real value. It gradually falls. There are no checks to prevent continued inflation of the supply, but it will fall anyway because its real value is zero.

The dollar and all the other currencies are in free fall. They were all "thrown out of the airplane" to refer back to my earlier analogy. They are all falling together. They are linked, and falling, and a global disaster will come when they all crash together. This is inevitable unless we reform the system now, before the crash.

[ontheway]

Q&A:

What about the maintaining the peg of gold to the dollar?

This question is a restatement of the same confusion and misunderstanding of what real money is under a gold standard.

Under a gold standard the money is gold. There is no "peg" to maintain. To use the original standard: $20 is one ounce of gold. It is NOT pegged to gold, it IS gold. Your $20 is a claim ticket on a one ounce gold coin held in a depository.

Other currencies can "float" up and down all they want against other gold coins or the dollar, but as long as the officials issuing the paper money maintain the exact one to one ratio, then there is no problem.


Now, what if in London they somehow have two different prices. Let's say that they are trading 10 pounds for twenty dollars and 15 pounds for an ounce of gold. That is, they think that gold is worth more than its defined amount in dollars.

According to the "defined" dollar/gold ratio of $20 to one ounce, a price of 15 pounds to an ounce of gold should also result in a price of 15 pounds to 20 dollars. So, they are predicting a decline in the dollar.

Now this could happen if the US government was cheating and inflating as it has in the past. They would be the astute observers or insiders acting to take advantage of the dishonesty of the government.

But, under an honest, defined gold standard with no debasement, it would probably never happen. But, to answer your question: What if it did happen?

Then they would be fools.

I could take $15,000, for example and exchange for 750 ounces of gold in the US, take the gold to London and trade the 750 ounces of gold for 11,250 pounds. I could then trade the 11,250 pounds for $22,500 and make a 50% profit. I could then return to the US and trade again for more gold ...


This kind of discrepency does occur in various markets from time to time and arbitrageurs rush in to profit and close the gaps. The gaps are always minor and often close withing minutes in the modern high-tech, rapid communication, computer driven marketplace.

In short, there is no such "peg" so there is no pegging problem.

[mindmetoo]

[mindmetoo]

[ernie]

mindmetoo: you don't understand the point here: the value of gold is 'real' because someone can't just print a whole bunch of gold, like you can with dollar bills... look at pictures of WWII germany after hyperinflation: people had to use a wheelbarrow full of money to buy a loaf of bread... i'd be seriously PI$$ED OFF if my years of savings became worthless overnight!

the ability for people to choose to take gold instead of the gold-backed currency is the PRIME advantage of a gold-backed currency... if the people believe that the government is dishonest, i.e. that they are going to print extra paper money and devalue the currency, then they can redeem their bills for gold! the government can't easily hide their inflationary practices because the people have the means to send a clear message to their government...

ontheway: i'm interested in your ideas about a gold standard, but there's one important question that i have... since it seems clear to me that the world currency needs to be backed by gold, how would a gold standard be re-implemented? would it have to be a legal thing or could it be a de facto standard? there are many gold-backed banks around the world: if enough people started putting their money there instead of in regular banks, would governments eventually concede and revert to the gold standard? how can we be sure that these online gold banks are honest?