The Gold Standard Explained By A Contemporary

[strategy 4]

http://features.blogs.fortune.cnn.com/2011...t-fortune-1931/incredibly well-written.

[FCP Bob 1,312]

Thanks strat, that was interesting.The level of writing in the past was so much higher than it is today. Back then they assumed their readers were literate and could understand big words.

[CindyLou 11]

The level of writing in the past was so much higher than it is today. Back then they assumed their readers were literate and could understand big words.

Now they know better.

[AmScray 355]

The level of writing in the past was so much higher than it is today. Back then they assumed their readers were literate and could understand big words.

It's kind of chilling- to read old newspapers, old letters, old books- and realize just how fucking 'dumb' we've become. Even old TV shows and movies or old documentary films. We've definitely devolved, in terms of intellect and our ability to communicate. I'm guessing a lot of this can be traced back to the 'equality' ideal cancerously taking root in our systems of primary education; where the bar was drastically lowered to benefit the 'feelings' of the under-performers. Add racial integration into a public education system that holds to a prevailing standard of 'equality' like a blood oath, it's a recipe for disaster.The right model is high standards for everyone from the outset, then off to the bell tower with the retards for their 'special education'.Our current model is low standards for everyone, then 'special education' for the high performers. This has the net effect of making everyone dumber, so the genuinely dumb don't have to confront themselves in the mirror.

[Balloon guy 158]

Our current model is low standards for everyone, then 'special education' for the high performers. This has the net effect of making everyone dumber, so the genuinely dumb don't have to confront themselves in the mirror.

This is the only way the democrat party can get votes though...

[Pot Odds RAC 23]

Thanks strat, that was interesting.The level of writing in the past was so much higher than it is today. Back then they assumed their readers were literate and could understand big words.

The target audience of people reading an article like that in 1931 was a very small well educated audience. In 1930 they were selling the magazine for $1 compared to 5 cents for the New York Times. They were setting an expectation of quality content. I wonder if an article from the New York Times in 1931 would be as well written.

[hblask 1]

I've been running around for a couple days and haven't had a chance to read it until now. Excellent article, full of clues to the complexity of all this. I wanted to see the article keep going and discuss a couple other key issues.So what do you think are the top 3 or 4 or 5 points to take from the article?

[strategy 4]

So what do you think are the top 3 or 4 or 5 points to take from the article?

will answer this eventually, but I just generally liked the person's grasp of economics. it was quite shocking to hear it coming from 1931.reposing this here so no one misses it:how is chavez going to move his gold?

[iZuma 764]

is posting that on here your way of recruiting a band of rough yet wisecracking pirates that you'll organize to make a wacky attempt at stealing chavez's gold during transit? if so, I don't think nic cage posts here.

[CindyLou 11]

is posting that on here your way of recruiting a band of rough yet wisecracking pirates that you'll organize to make a wacky attempt at stealing chavez's gold during transit? if so, I don't think nic cage posts here.

Maybe he'll settle for Marky Mark and a bunch of Mini Coopers.

[FCP Bob 1,312]

A Critique of Pure GoldReally good article. I feel smarter for reading it.

[hblask 1]

A Critique of Pure GoldReally good article. I feel smarter for reading it.

Well, it doesn't take much to make you smarter :)FTA:

Surely a believer in the free market would argue that if there is an increase in the demand for gold, whatever the reason, then the price should be allowed to rise, giving the gold-mining industry an incentive to produce more, eventually bringing that price back down. Thus, the notion that the U.S. government should peg the price, as in gold standards past, is curious at the least.

They have this backward. The point isn't to make the government set the price of gold to the dollar, it's to make the government set the currency to be equivalent to a real world commodity. I'm not sure if the author doesn't understand that or is trying to intentionally mislead.As I discussed in the gold threat in OT, I think the gold standard is the second-worst system, only behind pure fiat currency. Any standard tied to real world properties would be better, whether it is gold or a floating commodity exchange.

[hblask 1]

Society, in its wisdom, has concluded that inflicting intense pain upon innocent bystanders through a long period of high unemployment is not the best way of discouraging irrational exuberance in financial markets. Nor is precipitating a depression the most expeditious way of cleansing bank and corporate balance sheets. Better is to stabilize the level of economic activity and encourage the strong expansion of the economy.

And the two cases where the govt most aggressively pursued this policy just happen to be, by random, totally unrelated coincidence, the two worst downturns in 100 years.Totally coincidental.

[hblask 1]

Sorry, I'm commenting as I read it....

In fact, the reason that monetary and fiscal stimuli did not bring unemployment down more quickly and unleash a more robust recovery is not that they were incapable of doing so but that they were undersized.

Ah yes, the famous government maxim: "If it fails, do more of it". I wonder how many businesses that are more than 20 years old have that motto?

[hblask 1]

Resumption, as this decision was known, pegged the price of gold at levels lower than during wartime, leading to an extended period of deflation. If we could do it then, the implication follows, we can do it now.Then again, there are some things you don’t want to try at home.

This (and the surrounding discussion, pg 5) is a fair point. Transitioning from terrible policies to better ones always has a difficult transition cost, and this is an issue that would need to be addressed carefully.

[hblask 1]

And even if we are lucky enough to get it right at the outset, consider what happens subsequently. As the economy grows, the price level will have to fall. The same amount of gold-backed currency has to support a growing volume of transactions, something it can do only if the prices are lower, unless the supply of new gold by the mining industry magically rises at the same rate as the output of other goods and services. If not, prices go down, and real interest rates become higher. Investment becomes more expensive, rendering job creation more difficult all over again.

This is the point of the gold standard -- that the government is under greater pressure to match currency to the level of economic activity. With pure fiat currency, they can just inflate away their debt. With a gold standard, they have a check on their ability to do that because gold reserves will begin to be depleted, and they can't just create more gold with a printing press. If the money supply keeps pace with the economy, gold prices remain stable (or again, more precisely, dollar value remains stable against commodities).

[hblask 1]

Under a true gold standard, moreover, the Fed would have little ability to act as a lender of last resort to the banking and financial system. The kind of liquidity injections it made to prevent the financial system from collapsing in the autumn of 2008 would become impossible because it could provide additional credit only if it somehow came into possession of additional gold. Given the fragility of banks and financial markets, this would seem a recipe for disaster.

That market fragility is due to a loss of the link between real world production and 'pieces of paper representing value'. When the money supply is tied more closely to production, things can't get so far out of control before they correct.

[hblask 1]

About this last assertion, history suggests otherwise. Bank lending was strongly procyclical in the late nineteenth and early twentieth centuries, gold convertibility or not. There were repeated booms and busts, not infrequently culminating in financial crises. Indeed, such crises were especially prevalent in the United States, which was not only on the gold standard but didn’t yet have a central bank to organize bailouts.The problem, then as now, was the intrinsic instability of fractional-reserve banking. Banks are financial intermediaries.

This last sentence is probably the key. For this particular problem, it is more important to make sure the banks manage their portfolios carefully than whether we are on the gold standard or not. I think this problem is somewhat independent of the gold standard, but less of a problem with it

[hblask 1]

Overall a good article....it's clear they have their agenda, but they did at least present different sides of the story, which is better than most articles.

[hblask 1]

This article got me thinking. Its discussion of the instability of fractional reserve banking is interesting. One of the key issues is always 'what percent should the bank be required to hold?', and I've never seen a good answer to that, I think because nobody knows.I'm wondering if some of you smart guys could discuss this solution: what if the amount of the required reserve was on a sliding scale tied to the size of the bank. One of the big issues with the current crisis is the "too big to fail" issue. If bigger banks present such systemic risks, why not make them lower their risk by holding more reserves, basically keep more cash on hand. That would free capital among smaller banks that don't provide such a large risk while limiting the harm from the possibility of a big bank failing. It seems like bank competition would find that balance between economic liquidity and systemic risk.Would this work? What are the problems with it? (I just thought it up from reading the article and past articles on banking, so if it is totally crazy, let me know why).

[LimbaughGod 0]

It's kind of chilling- to read old newspapers, old letters, old books- and realize just how fucking 'dumb' we've become. Even old TV shows and movies or old documentary films. We've definitely devolved, in terms of intellect and our ability to communicate. I'm guessing a lot of this can be traced back to the 'equality' ideal cancerously taking root in our systems of primary education; where the bar was drastically lowered to benefit the 'feelings' of the under-performers. Add racial integration into a public education system that holds to a prevailing standard of 'equality' like a blood oath, it's a recipe for disaster.The right model is high standards for everyone from the outset, then off to the bell tower with the retards for their 'special education'.Our current model is low standards for everyone, then 'special education' for the high performers. This has the net effect of making everyone dumber, so the genuinely dumb don't have to confront themselves in the mirror.

Stupid. All of this.The main reasons we are dumber are:First) Back then, books were it. All you had. The bible, and books. Radio to a lessor extent. If you wanted to communicate to someone across the country or even across the territory, you had to write. If you wanted to address a large number of people it was in writing. If you wanted a fantasy, to escape - it was a book. Now we have gaming systems, cars, cell phones with the accompanying lol txt msgs lolomg, snowboarding, traveling, TELEVISION, CD's, uhmmm, a whole host of things that there probably isn't space in this post to list.So kids are doing all of these other things rather than reading. Also, "reading" is for "nerds". Being lettered is "geeky". All of these distractions and especially the popular culture that has come with movies, TV and Rap/rock has made being well read highly unlikely, and worse uncool. This is so painfully obvious I'm embarrassed that you've tried to make it about race. Yes blacks and jews and women aren't as smart as straight white males, duh..... but you can't blame this on them. That's just stupid.Two) We are moving further and further away from God and the bible in the culture. Going to be kind of hard to create writers of the caliber of Lewis and Augustine when you remove Godly inspiration. DUH!

[ahosang 0]

Well, it doesn't take much to make you smarter :)FTA:They have this backward. The point isn't to make the government set the price of gold to the dollar, it's to make the government set the currency to be equivalent to a real world commodity. I'm not sure if the author doesn't understand that or is trying to intentionally mislead.As I discussed in the gold threat in OT, I think the gold standard is the second-worst system, only behind pure fiat currency. Any standard tied to real world properties would be better, whether it is gold or a floating commodity exchange.

What's wrong with free market exchange of gold to the currency? And then marking your reserves to that market price? Serious question.That way the market determines the value of the currency in a neutral measure. I thought you were a free market person. Surprising to see you defend the gold standard...It's almost amusing watching various articles and political commenters dance around the various previously tried gold standards, and criticizing fiat as well. Yet not many have actually hit on the obvious solution staring them in the face, one that is undertaken by the euro. The US as holder of the largest gold reserves of any state, would not be shaken by such a mechanism either. I've put this out there about 3 times on the gold thread, and had no response. I don't think people here are able to really think outside of the box, especially when the box is one of their 'own' making. Another possibility is that people are afraid to challenge the status quo(hence this repeated delusional mention of failed mechanisms such as gold standard), despite their protestations to the contrary...

[strategy 4]

Stupid. All of this.

I can't wrap my head around all the trolling and counter-trolling that would occur in a conversation between you two.

[hblask 1]

What's wrong with free market exchange of gold to the currency? And then marking your reserves to that market price? Serious question.

I'm not sure what you are asking here. The point of a gold standard is to tie those easily-produced pieces of paper to some underlying value. I'm not sure if it makes a difference, except philosophically, whether you say you are changing the price of gold to match the number of dollars or changing the number of dollars to match the price of gold. The point is that pieces of paper has a tie to the real world. What it is tied to could be any relatively stable real world feature, it just so happens that gold has many properties that work for that. If you (the govt) can randomly set the exchange rate between gold and paper at any time, then the tie to the real world is broken again. I think the ideal system is competing currencies that can be exchanged at will for real world commodities of the money-creator's choice, whether it is gold or wheat or Audi's or hot tubs or some combination of those. The value of that currency would then be based on how closely it can match real world properties, i.e., economic growth. Companies would be competing to see who can make the best profit while offering the people who use that currency the most value for their pieces of paper.

[ahosang 0]

I'm not sure what you are asking here. The point of a gold standard is to tie those easily-produced pieces of paper to some underlying value. I'm not sure if it makes a difference, except philosophically, whether you say you are changing the price of gold to match the number of dollars or changing the number of dollars to match the price of gold. The point is that pieces of paper has a tie to the real world. What it is tied to could be any relatively stable real world feature, it just so happens that gold has many properties that work for that. If you (the govt) can randomly set the exchange rate between gold and paper at any time, then the tie to the real world is broken again. I think the ideal system is competing currencies that can be exchanged at will for real world commodities of the money-creator's choice, whether it is gold or wheat or Audi's or hot tubs or some combination of those. The value of that currency would then be based on how closely it can match real world properties, i.e., economic growth. Companies would be competing to see who can make the best profit while offering the people who use that currency the most value for their pieces of paper.

We're not on the same page here. This is getting frustrating. I don't mind if people disagree; it would be nice if we could get a conversation though? I am saying that if the currency is exchangeable for gold at the market-determined rate. And the gold reserves of the central banks get marked to that say, monthly. So the CB has to offer up gold and can obviously participate in the free market. Redemption in gold would be open to citizens, and maybe domestic companies. So the government doesn't fix the price,but accepts the market's valuation.My question is why not allow the currency to be valued by this free-market principle?? Isn't that what money should be? Valued by the users(public)? You seem unable to break away from the concept of the issuer of money stating what its value is!! I put it to you that this is the result of being born into fiat, and no matter how anti-government and libertarian you claim to be, you actually still have the mental need for the issuer to tell you the value of the currency, rather than the market determine that!!