| 0 |
Subject: All things Gold including the gold standard
Posted by: nerveclinic
- [105222] Thu, Jan 24, 2008, 13:37
Weykool brought the topic up again so I thought I would move the topic here so we don't hijak the stock market thread again.
The market deserves it's own thread at this point.
Here is Weykool's post.
Need a little help here:
I work in an office with someone who is a Ron Paul fanatic.
As a conservative I like his stance on the constitution but have problems with some of his other positions.
One such position is the Gold standard.
I need some basic arguments against the gold standard that a child could understand.
His line of arguments are erratic:
It might go from:
Him:Our money isnt worth anything.
Me:It is worth what people believe it is worth.
Him: It isnt backed by anything..
Me: It is backed by the assets of the country and the ability of the US government to collect taxes.
Him: But we have a debt economy, if it was backed by gold it would be worth something.
Me: But gold is only worth what people believe it is worth.
Him: But gold is a precious metal.
Me: If the dollars you own aren't worth anything then give them to me.
Him: Halliburton.
Jump in everyone...
|
| 1 | nerveclinic
ID: 105222
Thu, Jan 24, 2008, 13:39
|
I will make a few points later but it's the weekend here and I am heading out.
Building 7 can give you the gold standard perspective Weykool.
By the way if you do a search of "gold" in the stock market thread there was a rather extensive debate.
|
| 2 | Building 7
ID: 471052128
Thu, Jan 24, 2008, 13:51
|
Here's another thread that may be of interest. link
|
| 3 | boikin
ID: 59831214
Thu, Jan 24, 2008, 14:38
|
I like weyKool have had similar questions about the gold standard. i understand how it limits the money supply but here is the real problem that i have is that gold is limited and as of right now population is not limited. here is question i asked someone else and never got a response too. lets say for simplicity all the gold in the world had been found and there are 5 billion ounces out there and there is 5 billion people in the world so on average everyone could be worth 1 ounce of gold now 20 years later the world population is 10 billion now on average every person is worth 1/2 ounce of gold. so has the world faced extreme deflation so that 1/2 gold ounce can buy what one ounce could 20 years ago or is the world half as rich?
|
| 4 | sarge33rd
ID: 99331714
Thu, Jan 24, 2008, 14:46
|
The gold standard, doesnt back the individual. It backs the currency. And therein lies the rub. Using your example of an increasing population, it only follows then that additional money would have to printed. This would dilute the value of that currency, Yes/No?
|
| 5 | Kyle
Donor
ID: 052753312
Thu, Jan 24, 2008, 14:56
|
I don't know much but I think I can do math. I also have some cursory knowledge of the standards (I think, if someone can back my statements up that'd be great).
If, in that example, there are 5 billion ounces of gold and 1 ounce is $1, then $5 billion can be printed. The 5 billion people would have to fight it out to see who gets the money. If the population grew to 10 billion, money would be 2 times as scarce, unless they changed the price of gold to 50 cents an ounce. Then the currency would be diluted and the average person would have the same shot at money as they did back when there were 5 billion people.
I think....
|
| 6 | boikin
ID: 59831214
Thu, Jan 24, 2008, 15:07
|
yeah basically what kyle said is what i was thinking and i guess to add to that you could also just say standard is now .5 ounces to the dollar which leads me to ask what does a gold standard mean if you can change it.
|
| 7 | biliruben
ID: 5610442715
Thu, Jan 24, 2008, 15:38
|
What my experience with people who pine for a return to the gold-standard is that they don't really understand it (and I don't claim to either), but really are just very conservative, don't want to take risks with their money, and so therefore hate that inflation devalues all the greenbacks stuffed into their mattresses.
It is an unsettling thought - working so hard for this money only to watch it essentially leak out from between your fingers and evaporate onto the ground.
My recommendation is to find other things besides money to value in life, and it won't bother you so much.
Also, take some healthy risks with good potential returns, invest in things you believe in, and your money will stay well ahead of inflation over the long-run.
Inflation actually forces on us a pretty good principal that money is meant to be spent, not hoarded. Invest it in yourself. Invest it in good ideas. Invest it in things that will help our society grow and prosper. Don't sit on your hoard with a shotgun.
|
| 8 | biliruben
ID: 5610442715
Thu, Jan 24, 2008, 15:40
|
My step-mother spends her free time going back and reading period books on politics, economics and finance from the early part of this century. She's read a fair amount of the original arguments for and against the gold-standard. Fascinating (Snore)!
If any of you want to really learn (and be bored out of your socks), I've give you her email.
|
| 9 | Boxman
ID: 337352111
Thu, Jan 24, 2008, 16:09
|
Sarge: And therein lies the rub. Using your example of an increasing population, it only follows then that additional money would have to printed. This would dilute the value of that currency, Yes/No?
This is my understanding. Off the gold standard, so long as money is printed in accordance with economic growth (not population growth) then the dollar should be level. In theory.
On the gold standard, more gold would have to be put into the coffers if more money were to be printed.
One thing about the value of the dollar. Don't think of a dollar anymore as something you use to buy bubblegum or pay your electric bill with. It's a commodity, no different than oil and precious metals. It is now a share of USA stock if you'll allow the analogy.
Brazil is a more recent example of this. Currency speculators got a hold of a significant amount of Brazilian Real (ree-all), this drove up the Real, the specs dumped out and the currency crashed.
I had heard from a learned friend (PhD in econ)that in the 70s, 75% of all transactions involving foreign currency exchange was done for the exchange of goods or services with 25% being done as speculation. Now the reverse is true.
|
| 10 | Perm Dude
ID: 11032247
Thu, Jan 24, 2008, 16:24
|
One big reason we should not go on the gold standard is that it shackles the government from using economic policies to soften the economic stresses. Brad DeLong (as just one example) demonstrates that the Great Depression was so long and so hard because our dependence upon the gold standard prevented the government from the monetary policy changes which might have lifted us out earlier.
|
| 11 | sarge33rd
ID: 99331714
Thu, Jan 24, 2008, 16:26
|
In theory Box yes, more gold would have to be held, in order to print more money. Now, what happens as the population expands, and the physical money supply does not? The nr of $1, $5, $10 etc etc stays constant? Can we say "hoarding"? I dont mean saving...I meanliterally hoarding, as in...keeping your money in a jar in your house. Afterall, with fewer pieces of money to go around amongst a growing population, you'll find less and less of that money finding its way into the economy. How can that possibly be a "good thing"?
|
| 12 | Building 7
ID: 471052128
Thu, Jan 24, 2008, 16:37
|
World population increases about 1-2 % per year and the supply of above ground gold increases about 1-2% per year. it's as if God created it that way IMO.
There has never been a huge discovery that increased the world gold supply by much more than 2% per year. Out of a ton of rock, miners will be wetting their pants if they find like one gram of gold. Or ounce maybe; it's not very much. It's not like they find a big vein of it and mine it. It's scattered about, but some areas have more than others (South Africa).
I read the most used word in the Bible is God. the second most is gold. I don't think they're counting words like the and a. Make what you want of that. Although, the last 100 years has been a lot of paper money; it has not always been that way. All paper currencies have eventually gone to zero. Gold has not.
|
| 13 | sarge33rd
ID: 99331714
Thu, Jan 24, 2008, 16:43
|
sure, with the total demise of the govt behind it. That happens, and a person would have other things to worry about besides how much gold they have stashed in a jar in the basement.
|
| 14 | Perm Dude
ID: 11032247
Thu, Jan 24, 2008, 16:46
|
I agree that a gold standard would make currency a commodity. But is that really a good thing? So instead of currency depending upon the trust that the market places in a country (which would be based upon things like government stability, imports/exports, etc) we would base the money supply on Russia, South Africa, Congo, Mali, and Kenya.
I, for one, would have better faith in the market than the petty rulers of African countries. We think the world is ficked up right now, with oil being controlled by the Middle East. Think it'll get any better when we hand over our money supply to the West Africans (for instance)?
|
| 15 | Boxman
ID: 337352111
Thu, Jan 24, 2008, 17:08
|
Sarge: In theory Box yes, more gold would have to be held, in order to print more money. Now, what happens as the population expands, and the physical money supply does not? The nr of $1, $5, $10 etc etc stays constant? Can we say "hoarding"? I dont mean saving...I meanliterally hoarding, as in...keeping your money in a jar in your house. Afterall, with fewer pieces of money to go around amongst a growing population, you'll find less and less of that money finding its way into the economy. How can that possibly be a "good thing"?
B7 and Nerve may need to assist me here, but I'll give this a go. There has never been a true 1 for 1 match in terms of physical dollars available versus dollars in existence at least in recent memory. With the banks ability to multiply money exponentially (thru their limited reserve requirements and then loaning capacity) the amount of money in the economy should far exceed that in print or in existence.
The sheer amount of money that the banks simply create out of thin air overshadows any fear of hording and the actual physical supply of money.
|
| 16 | weykool
ID: 2842717
Thu, Jan 24, 2008, 17:10
|
Bili:
You make a good point.
Money has no value until it is spent.
I tried to use the relative value argument.
Meaning that any time you compare two items one gains in value and the other loses value.
When I was a young lad my mother would ask me to pick up some milk and I would ride my bike to the store and I remember the price of milk was $1.04 for two half gallons.
At about the same time the first job I worked for the min wage of $1.25.
So it took me about an hour of mowing lawns in order to have enough money for a gallon of milk.
Shortly therafter I recall that the regulations on gasoline were lifted and the price of gas went from $.69 to $1.19.
At that time the price of milk and gas were about the same and the min wage was up to $2.90.
So for each hour worked you could get 2 gallons of either milk or gas.
Fast forward to today.
We complain about the price of gas and talk about the world oil crises when it is about $3 a gallon but what about the milk crisis when milk costs $4 per gallon?
Someone who works minimum wage today can still get 2 gallons of milk and a little more than 2 gallons of gas.
The 3 constants here are a gallon of milk/gas and time worked.
So yes the value of a dollar has declined compared to other things but is it bad if wages have gone up as well?
I we woke up tomorrow and the price of everything was double but the money you earned was doubled as well(assuming your taxes only doubled)would any of us care?
If our investements were in the form of money in the bank then yes but other than that it doesnt make a difference.
My point in all this is that when you compare the price of gold over time it has remained constant as compared to the dollar.
The logic seems to me if the value of the dollar is only 25% of what it used to be then hasnt gold declined by the same value?
If the US has increased the number of dollars by 4 times what it used to be I can usnderstand each dollar having 25% of relative value.(my guess is it has been increased by far more than 4X)
But why the same decline for gold?
Has the world gold supply increased by 4 times the amount?
I do know those who are wanting us to get back on the gold standard claim that the number of dollars out there have increased far more than the amount of gold.
The benefit that I see by not being on the gold standard is that the government has the flexibility to add money at different rates to the economy to keep things rather constant.
Economies will always have periods of expansion followed by decline/recession.
Not being on the gold standard has given the governemt the ability to avoid the extremes and round off the ups and the downs.
|
| 17 | Building 7
ID: 48033121
Thu, Jan 24, 2008, 19:14
|
From Wikipedia re: money supply
The most common measures are named M0 (narrowest), M1, M2, and M3. In the United States they are defined by the Federal Reserve as follows:
* M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
* M1: M0 + those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts).
* M2: M1 + most savings accounts, money market accounts, and small denomination time deposits (certificates of deposit of under $100,000).
* M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements.
The Federal Reserve ceased publishing M3 statistics in March 2006, explaining that it costs a lot to collect the data but doesn't provide significantly useful information.[1] The other three money supply measures continue to be provided in detail.
From me: The reason they quit publishing M3 stats is because they knew it was fixin' to go out of control. They could have farmed it out to a college like that Univ of Michigan stat. Every industrial country still reports theirs.
Here is a graph of the money supply over the last 50 years. Hope that answers some of your questions Mr. Boxman.
Re: #16 So yes the value of a dollar has declined compared to other things but is it bad if wages have gone up as well?
I we woke up tomorrow and the price of everything was double but the money you earned was doubled as well(assuming your taxes only doubled)would any of us care?
This is pretty much true unless you have no income . Retirees and the poor, and the unemployed get hammered.
|
| 18 | nerveclinic
ID: 105222
Fri, Jan 25, 2008, 03:29
|
If the US has increased the number of dollars by 4 times what it used to be I can usnderstand each dollar having 25% of relative value.
As I mentioned in the other thread they don't "just print the money" in theory the increase the supply of physical dollars is in correlation to the GDP increase of the United States so it is tied to the growth of our countries wealth.
Of course when the GDP goes down (Recession) I don't suppose they burn any of the dollars they've printed... 8-)
We complain about the price of gas and talk about the world oil crises when it is about $3 a gallon but what about the milk crisis when milk costs $4 per gallon?
You've actually picked 2 of the items that have abnormally inflated the last year or two. Yes the devaluation of the dollar is some of the cause, but a bigger cause is the growth of the emerging markets and their increased demand for oil and food.
Milk has a double whammy because it comes from cows that eat grain, and the price of grain is rising as more farm land is being planted with corn for ethanol, another casualty of the demand for oil.
Not only is there a bigger demand for oil, with the two most populated countries in the world growing gdp at a 10%+ clip...the oil is getting harder to find, harder to drill as we have to drill in places like oceans to find it.
None of the factors above are caused by monetary policy, they are caused by huge world growth. The only additional negative for the USA is that with the loss of value of the dollar the cost is even more exasperated.
My point in all this is that when you compare the price of gold over time it has remained constant as compared to the dollar.
It has not and does not stay relative. In the 80's B7 will tell you the dollar cleaned golds clock. It's only in the last few years, with the early 2001 rate cuts and the recent financial crisis that gold has gotten back to it's early 80's highs.
I said it before and I will repeat it, hats off to B7 for seeing the trend and cashing in on it. I was too scared to invest in a commodity that went from 800 to almost 200 in a couple years and then just stayed there for decades...that is the very definition of a depression.
The benefit that I see by not being on the gold standard is that the government has the flexibility to add money at different rates to the economy to keep things rather constant.
As PD mentioned, the whole reason they got off the gold standard is because it was very confining and restrictive during times of crisis...a world war for example. There was no way to raise additional money quickly.
I'm certainly no expert, I am just picking up things here and there. I haven't studied it nor do I feel inclined to.
|
| 19 | Perm Dude
ID: 201027169
Sat, Dec 08, 2012, 10:23
|
This is an older piece (from 2007) for an older thread (from 2008), but still rings pretty true to me.
|
| 20 | Perm Dude
ID: 201027169
Sun, Dec 09, 2012, 13:28
|
Forgot to note that the above piece is by Megan McArdle, who is hardly a left winger.
|
If you believe a recent post violates the policy on Civility and Respect,
you may report the abuse via email to moderators@rotoguru1.com |
|
|
|
Post a reply to this message: All things Gold including the gold standard
|