Why the gold standard is impossible.

[Innsmothe]

Lets see what people think about the gold standard when the present gold bubble bursts.

But isn;t the gold price regulated directly by people though?


[pray]
Wikipedia don't fail me now.
[/pray]

[OMGeverynameistaken]

Lets see what people think about the gold standard when the present gold bubble bursts.

But isn;t the gold price regulated directly by people though?


[pray]
Wikipedia don't fail me now.
[/pray]

The price of gold has pretty much quadrupled in the last few years. Ever wondered why there's so many 'BUY GOLD NOW' commercials on TV and so few of those 'SEND US YOUR GOLD' places left?
Well, I mean besides the fact that they were pretty much scams.

[Nobel Hobos]

Now I'm really confused. If you must use a cheese analogy, why not choose a variety which is at least gold coloured?

You can get caramel flavoured condoms? My fav

Gold enough?

So, World War II Germany was like squishy French cheese, which increases economic liquidity because it goes off so quickly. So you could only buy condoms if you had dollars. Germany caused inflation of the caramel flavoured condom by buying them all up through the holes in Swiss cheese, using Jews' teeth.

Have I get that straight? And do I WANT to?

[Innsmothe]

You can get caramel flavoured condoms? My fav

Gold enough?

So, World War II Germany was like squishy French cheese, which increases economic liquidity because it goes off so quickly. So you could only buy condoms if you had dollars. Germany caused inflation of the caramel flavoured condom by buying them all up through the holes in Swiss cheese, using Jews' teeth.

Have I get that straight? And do I WANT to?

I have no Idea, but I like the analogy.
*hugs*

[Coccygia]

A major problem is that the economy can grow considerably faster than the supply of gold. That's one of the main reasons the gold standard was abandoned in the first place. The economy in the early 20th century began to outstrip the rate of gold production. This didn't matter during all the centuries that the economy grew only slowly.

And if you like the idea of deflation because prices would go down, remember that wages would do the same. And borrowing money would become a bad proposition because you would pay off the loan with money that was worth more than what you borrowed.

[Maurepas]

Silly Humies, wit' dere puny teef, so dey'z always arguin' over shiny bits and know wots fer dey moneys, and they'z all the same size too, so they'z always arguing 'bout who's in charge, 'cos dere's no way of telling 'cept fer badges an' ooniforms and fings. When one of dem wants to lord it over the uvvers, 'e says "I'm very speshul so'z you gotta worship me", or "I know summink wot you lot don't know, so yer better lissen good", or "I'z got me more shiney yella bits 'an you lot, so you'z gotta want 'em". Da funny fing is, arf of 'em believe it and da over arf don't, so 'e 'as to hit 'em all anyway or run fer it. Wot alotta mukkin' about if yer asks me. An while they'z all arguin' wiv each other over who's da boss, an' what's fer money, da Orks can clobber da lot!

Clearly, we need to use Teeth, the wisdom's right there,

[Big Jim P]

Then add silver to the equation. See what you get.

They did all this in the 18th and 19th century.

[Rolling squid]

Then add silver to the equation. See what you get.

They did all this in the 18th and 19th century.

Hush. Now get back to work. That railroad won't build itself.

[Xsyne]

No, not really. There isn't any reason for it to be.

Gold has, historically, been quite stable as an investment.

Granted I haven't kept up on the latest details of it's price fluctuations, but I can imagine that it hasn't been much.

Thankfully someone in the thread has.



Oh by the way its price has not been stable historically.

[Brandenburg-Altmark]

Gold has, historically, been quite stable as an investment.

Granted I haven't kept up on the latest details of it's price fluctuations, but I can imagine that it hasn't been much.

Thankfully someone in the thread has.



Oh by the way its price has not been stable historically.

Any charts on the value of the USD during this same period? It would be interesting to see.

[Maurepas]

Thankfully someone in the thread has.



Oh by the way its price has not been stable historically.

Any charts on the value of the USD during this same period? It would be interesting to see.

It's a little large to post as an image, but, here is one from 1800-2008 :
http://www.zerohedge.com/sites/default/ ... rLarge.jpg

[Greed and Death]

Gold has, historically, been quite stable as an investment.

Granted I haven't kept up on the latest details of it's price fluctuations, but I can imagine that it hasn't been much.

Thankfully someone in the thread has.



Oh by the way its price has not been stable historically.

All that chart proves is that either gold or dollars are unstable. compare it to commodities.

You get a much more stable ratio. Early 70's price hike is from the Nixon gold shock.
There is some instability afterward but the trend has to become more stable at the 1.5 gold to CRB ratio.
Which is impressive given the currency funny business that tends to drive investors to gold to hide from inflation.

[Mad hatters in jeans]

Silly Humies, wit' dere puny teef, so dey'z always arguin' over shiny bits and know wots fer dey moneys, and they'z all the same size too, so they'z always arguing 'bout who's in charge, 'cos dere's no way of telling 'cept fer badges an' ooniforms and fings. When one of dem wants to lord it over the uvvers, 'e says "I'm very speshul so'z you gotta worship me", or "I know summink wot you lot don't know, so yer better lissen good", or "I'z got me more shiney yella bits 'an you lot, so you'z gotta want 'em". Da funny fing is, arf of 'em believe it and da over arf don't, so 'e 'as to hit 'em all anyway or run fer it. Wot alotta mukkin' about if yer asks me. An while they'z all arguin' wiv each other over who's da boss, an' what's fer money, da Orks can clobber da lot!

Clearly, we need to use Teeth, the wisdom's right there,

i wish to subscribe to your news channel.

[NotnotgnimmiJymmiJ]

http://www.zerohedge.com/sites/default/files/images/SeanMaloneRiseFallDollarLarge.jpg

And if wages remained constant from 1900 to 2009, we would have a good reason to be seriously pissed.

[Risottia]

The problem with a gold standard is that it's just as bad as a fiat currency. Gold is only worth what we say it is because we agree it's worth what we say it's worth. Just like fiat currency.

Everything is like that, but don't you think that gold might be just a little more stable than paper?

No.
Both gold and paper have a purely conventional value.

[The Floridian Coast]

*Disclaimer* I'm no economist so please correct me if this is wrong

But under my understanding of it, since gold has uses and is thus valued not just because it's rare and wanted for jewelry. To me it also makes sense because the government can just print off new money like crazy if it wants, while it's not nearly as easy to mine gold from the ground. So shouldn't that give a gold backed dollar a stability that the system we have now can't match?

And hopefully I haven't said anything too terribly stupid...

Gold has some extraordinary uses, like as a key component of many computers, however, due to its cost, technological alternatives involving cheaper metals have been made in almost every situation.

[Charlotte Ryberg]

I think that is the problem with fiat currency with no gold backing. It's like a bubble that grows and grows, only to find out that when there is little to support the value of a currency, it bursts.

[Coccygia]

The point of the Gold standard is because it is a fucking limited resource and hence resistant to inflation in the first place.

Because it's limited, it can't grow as fast as the economy can. Unfortunately it's not just resistant to inflation, it's resistant to economic growth.

And why should the amount of gold a country has dictate the value of its money? (Until its use in electronics for electrical contacts in the 20th century, gold wasn't really that useful; it's too soft. All you could do was make jewelry out of it. Or coins.) Gold is used as money because everybody agrees on its value; in that respect it's no different than paper, wampum, cowrie shells, or enormous stone wheels.
Money represents wealth. Gold, used as money, is a representation of wealth, not actual wealth. A good example is what happened to Spain from all the gold they got from the New World. They minted coins from it, which did not represent a commensurate amount of new wealth, and the result was...inflation.

You gold bugs are suffering from nostalgia for the Hoover administration, I think.

[Greed and Death]

The point of the Gold standard is because it is a fucking limited resource and hence resistant to inflation in the first place.

Because it's limited, it can't grow as fast as the economy can. Unfortunately it's not just resistant to inflation, it's resistant to economic growth.

And why should the amount of gold a country has dictate the value of its money? (Until its use in electronics for electrical contacts in the 20th century, gold wasn't really that useful; it's too soft. All you could do was make jewelry out of it. Or coins.) Gold is used as money because everybody agrees on its value; in that respect it's no different than paper, wampum, cowrie shells, or enormous stone wheels.
Money represents wealth. Gold, used as money, is a representation of wealth, not actual wealth. A good example is what happened to Spain from all the gold they got from the New World. They minted coins from it, which did not represent a commensurate amount of new wealth, and the result was...inflation.

You gold bugs are suffering from nostalgia for the Hoover administration, I think.

Except while we had the gold standard from about 1836 to 1913 (WWI is an interrupt) The US averaged a 4.2% peak to peak GDP growth. IF as you say gold resists growth shouldn't the era of the gold standard be marked by less growth not more as compared to the 3.3% growth 1950's to 1984ish average growth rate?* And that was being nice and skipping throwing in the great depression data.



*Christina Romer Spurious Volatility in historical unemployment data 1985

[NotnotgnimmiJymmiJ]

Because it's limited, it can't grow as fast as the economy can. Unfortunately it's not just resistant to inflation, it's resistant to economic growth.

And why should the amount of gold a country has dictate the value of its money? (Until its use in electronics for electrical contacts in the 20th century, gold wasn't really that useful; it's too soft. All you could do was make jewelry out of it. Or coins.) Gold is used as money because everybody agrees on its value; in that respect it's no different than paper, wampum, cowrie shells, or enormous stone wheels.
Money represents wealth. Gold, used as money, is a representation of wealth, not actual wealth. A good example is what happened to Spain from all the gold they got from the New World. They minted coins from it, which did not represent a commensurate amount of new wealth, and the result was...inflation.

You gold bugs are suffering from nostalgia for the Hoover administration, I think.

Except while we had the gold standard from about 1836 to 1913 (WWI is an interrupt) The US averaged a 4.2% peak to peak GDP growth. IF as you say gold resists growth shouldn't the era of the gold standard be marked by less growth not more as compared to the 3.3% growth 1950's to 1984ish average growth rate?* And that was being nice and skipping throwing in the great depression data.



*Christina Romer Spurious Volatility in historical unemployment data 1985

Yesterday I ate a banana and didn't get run over by a truck.
Today I didn't eat a banana and did get run over by a truck.
The banana prevented me from being run over by a truck yesterday.

[Vetalia]

If we didn't grow the money supply at a rate faster than the rate at which average economic growth needs it to sustain itself, we wouldn't have much of a problem with using fiat currency. The problem is there's no real restraint on it, which makes it far too easy to abuse and drive inflation.

[Vetalia]

Except while we had the gold standard from about 1836 to 1913 (WWI is an interrupt) The US averaged a 4.2% peak to peak GDP growth. IF as you say gold resists growth shouldn't the era of the gold standard be marked by less growth not more as compared to the 3.3% growth 1950's to 1984ish average growth rate?* And that was being nice and skipping throwing in the great depression data.

You also have to remember population was growing much, much faster and there was a lot of room for extensive growth. Not the same case today.

[Meridiani Planum]

This is why we need a porn based monetary system. This will easily expand as needed.

[New Chalcedon]

Because it's limited, it can't grow as fast as the economy can. Unfortunately it's not just resistant to inflation, it's resistant to economic growth.

And why should the amount of gold a country has dictate the value of its money? (Until its use in electronics for electrical contacts in the 20th century, gold wasn't really that useful; it's too soft. All you could do was make jewelry out of it. Or coins.) Gold is used as money because everybody agrees on its value; in that respect it's no different than paper, wampum, cowrie shells, or enormous stone wheels.
Money represents wealth. Gold, used as money, is a representation of wealth, not actual wealth. A good example is what happened to Spain from all the gold they got from the New World. They minted coins from it, which did not represent a commensurate amount of new wealth, and the result was...inflation.

You gold bugs are suffering from nostalgia for the Hoover administration, I think.

Except while we had the gold standard from about 1836 to 1913 (WWI is an interrupt) The US averaged a 4.2% peak to peak GDP growth. IF as you say gold resists growth shouldn't the era of the gold standard be marked by less growth not more as compared to the 3.3% growth 1950's to 1984ish average growth rate?* And that was being nice and skipping throwing in the great depression data.



*Christina Romer Spurious Volatility in historical unemployment data 1985

1: Correlation =/= causation. The rise of the US economy under the gold standard was related to many things, none of which was the Gold Standard. I would postulate, for instance, that the rapid development of the western half of the constinental US, as well as the effects of the CA Gold Rush (1848) would have something to say about being the causes. Additionally, recall that every major recession/depression is invariably marked by either a sharp reduction in inflation (see, for example, the early 80s recession, in which Volcker broke the back of rampant inflation by means of a contractionary monetary policy, which reduced inflation from 13.5% to 6.2% over two years) or a period of deflation (see, for instance, the Great Depression, the 1890s recession etc. etc.).

2: The use of gold as a measure of value, like any other measure of value, is a social convention. Recall that prior to the circuit card, gold had no practical use: too soft for weapons or armour, too malleable for structural needs, too low a melting-point for cookery. The only reason people wanted it was that it represented wealth, not for any value it had in and of itself. I recommend that you read Maria Augusta von Trapp's memoir for an examination of the practical value of gold: when she was organising relief efforts for psot-WWII Austria, gold was rejected out of hand. Coffee, tea, consumables, clothing - all accepted, all had value. The convention that gold had value was, at that point in time and space, not accepted, and thus not true.

[L3 Communications]

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