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Guest Post: Why A Gold Standard, Alone, Is Not Enough
Submitted by Martin Sibileau of 'A View From The Trenches',
...The Argentine case and the Dutch Golden Age suggest that the elimination of the credit multiplier (i.e. extinction of shadow banking) is more important than the asset backing a currency...
As we pointed in our last letter, we have lately noticed that there is an ongoing debate on whether (or not) the world can again embrace the gold standard. We join the debate today, with an historical as well as technical perspective. Today’s letter will deal with the historic part of the discussion. In the process, you will see that we side with some popular ideas, while we challenge others.
The gold standard will be the last option: If adopted, it will be out of necessity and in desperation
We are not historians. In our limited knowledge, we note however that historically, the experiment of adopting a gold standard –or a currency board system- was usually preceded by extremely trying moments, including the loss by a government of its legal tender amidst hyperinflation.
The change to a commodity standard has often been then out of necessity. We witnessed one of these episodes first-hand, in Argentina, back in 1991. The local currency was decreed convertible into US dollars (i.e. a currency board) at a rate of 10,000 to 1, and assigned a new name: peso argentino. The method with which this was carried out challenges the current speculation regarding gold, according to which gold bullion would be confiscated, in order to provide reserves to a central bank daring to return to the gold standard. In Argentina, US dollars were not confiscated to back the peso. There was no need do that. On the same grounds, we don’t think gold would need to be confiscated, although one must never, ever underestimate stupidity.
How did Argentina implement its convertible system? The central bank adopted two relevant measures: The first was to change its charter to prohibit holding government debt. The second measure was to commit to sell unlimited dollars at the established peg of 10,000 to 1. Of course, the first measure was later violated. But that’s a discussion for another day. What it matters is that they committed to sell the asset backing their liability (i.e. the peso), but not to buy it. From then on, nobody dared to challenge the central bank until 1994-5, when the Mexican peso was devalued. And even then, the system passed the test.
The 10,000:1 peg was based simply on the fact that that was back then, the amount of local currency per each US dollar in reserves. It is very conceivable that, under an inflationary spiral, the US government may proceed similarly. If at that time there are x thousand US dollars per ounce of gold at the US Treasury, a peg may be established to reflect that ratio. And just like it occurred in Argentina, we would not expect the Fed to be challenged.
From those years, we also remember this: When the peg was set at 10,000:1, there were many who thought that the US dollar was still underpriced. However, think about this: Why would the market have paid for your US dollars more than 10,000 (Australes), when the market knew that, in the absence of a bid, all you could get from the central bank was going to be 10,000? We can very much foresee a similar situation where, the market price of gold collapses from its peak to the established peg, leaving painful losses.
A gold standard with reserve requirements below 100% will not work
There were many flaws with the currency board rehearsed by Argentina. But remember: It was established out of necessity, without time to plan. Just like the European Union is handling its problems today and just like the US will handle theirs tomorrow...
The most important flaw, in our opinion, was that it left the central bank in its role as lender of last resort, while at the same time it allowed banks to have reserve requirements below 100% (about 30%). Therefore, the credit multiplier was after all still very much in place. The fact that the central bank would later invest some of its US dollars in USD denominated (Argentine) government debt was not critical. Nor was it relevant that banks were coerced to buy government bonds with deposits (like they are in the Euro zone today). The crux of the matter was that as both of these things happened, the central bank was….well, the central bank! The lender of last resort! Had the central bank been only a note bank for legal tender, without any other responsibilities, the Argentine default of 2001 would have not triggered a systemic crisis. But it was not a note bank, it was the lender of last resort and the crisis became systemic….just like we fear will happen, if the US implements a gold standard in a rush. Why do we fear this? Because if all plays out that way, the world will lose faith in the gold standard for the wrong reasons.
The Bank of Amsterdam and the Industrial Revolution of the XIX century
Popular wisdom has the birth of the industrial revolution in XIX century England. Some, with a technological emphasis, are willing to concede that already by the time of the French Revolution, the years of the Enlightenment, the seeds had been planted for the technical developments that would come later. The Napoleonic Wars are thus regarded by these people as an interruption, a hurdle, in the race by the West to conquer the world. Only a few point out and even admit that, as a coincidence, during that industrial revolution and particularly at the end of the XIX century, gold was money. But this is treated as a mere coincidence. There are others too, who are convinced that if gold had not been money, if Great Britain had not adopted the gold standard, the speed of the industrial revolution would have been even more impressive.
None of this, in our opinion, could be farther from the truth. We are not historians and we expect many to challenge our comments today, but we offer this view: The industrial revolution did not begin in England, but in what was then known as the Low countries, and was enabled in a decisive way by a gold standard with 100% reserve requirement established by the city of Amsterdam. There are two parts in this conjecture: The first one is that the industrialization began in the Low Countries. We side here with Henri Pirenne and suggest that this birth was brewed by the system of Hansastädte, and in particular, in Brugge, where very early, for instance, the Medici opened a branch.
If our view is correct, the counterfactual argument therefore lies in proving that the development from that stage into the XIX century would have been possible, had the city of Amsterdam not established the Bank of Amsterdam (Amsterdamsche Wisselbank). We leave to our readers to do their own research on this speculation.
The Bank of Amsterdam took upon itself to accept bullion in deposit, issue notes in exchange for circulation and charge (yes, you read well, charge!) depositors for their bullion as well as a “liquidity” fee for making such deposits liquid, thanks to the issuance of their (i.e. the bank’s) notes.
In his book, “The Ascent of Money”, Neil Ferguson makes a few interesting observations about this period:
Inflation (don’t ask us how Mr. Ferguson measured it, but this is what we read) fell from 2% p.a. between 1550 and 1608 to 90bps pa between 1609 and 1658 and 10bps p.a. between 1659 to 1779! This represents no less than 229 years of price stability! With the low life expectancy of those years, this period would have easily encompassed 9 generations. Can you even begin to picture that? In today’s terms, this would mean that the currency held by an American living back at the time George Washington was president would have kept its purchasing power to this day, had a similar financial stability taken place!
In 1602, the Vereenigde Nederlansche Geoctroyeerde Oostindische Compagnie (East India Co.) had its IPO. Between 1602 and 1733 its share price rose from par (100) to 786, in spite of the fact that between 1652 and 1688 they had to face, with violence, the attacks of Britain at their trading posts. By 1650, with the dividend payments the company made, buy-and-hold IPO holders would have earned an annual compounded rate of return of 27%. Given how popular this IPO was, this context of financial stability brought about perhaps the most widespread capitalization ever witnessed by a nation.
This stability was based on a 100% reserve requirement. With it, when the East India Co. began to fall, its decadence was gradual: It took 60 years and by 1794, it was still worth 120 or 20% above par, in terms of a currency that had preserved its value all along! In other words, it was still 20% up in real terms. In real terms also, by 1690, the company was bringing back to the harbours of the Netherlands about 156 ships per year, all loaded up with consumption goods for the enjoyment of the Dutch people. In other words, on average, one ship every two days was being loaded up in a trading post in Asia. There were no cranes, no trains, no telecommunications.
In summary, the Argentine case and the Dutch Golden Age suggest that the elimination of the credit multiplier (i.e. extinction of shadow banking) is more important than the asset backing a currency. The Argentine case shows what can go wrong, when a currency is asset backed, but reserve requirements are allowed below 100%. The Dutch case shows what can go well, when a currency is commodity-backed and reserve requirements are held at 100%. Bear in mind that the notes of the Bank of Amsterdam were not enforced upon the people, they were not legal tender.
Unlike today’s policy makers, the Dutch of the XVII century had the luxury of planning their system, based on the collective wisdom of their merchant class. Does anybody think that the Dutch Golden Age would have taken place had the Bank of Amsterdam not existed? Does anybody think that England would have been able to accumulate capital from its natural resources (wool, meat), without the demand of the early industries of Brugge, Liege,Amsterdam or Antwerp? We don’t!
Therefore, the question that lies before us is: How can we replicate the success of the Bank of Amsterdam, in today’s context? How can we not fall prey to necessity, just like Argentina fell back in 1991? That remains the subject for our next article.
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But there's not enough gold.....kills me everytime.
It is the argument that flushes out the incompetent. Anyone who uses it can be ignored.
If a gold standard is not enough...
...then you may want a gold rifle.
Hey that looks nice. Do they do a Steyr Aug in gold?
That is Colt's Austrian version of the M4.
Here is the Keynesian version...
the elimination of the credit multiplier (i.e. extinction of shadow banking) is more important than the asset backing a currency
-what a bunch of b.s. If you have claims of gold at the bottom of your exters pyramid, then you dont get so skyscrapper high and tottery as when the asset backing the currency is a corrupt banker/politician scheme pushing the print button.
there's not enough gold
There is plenty of gold! You just have to pay the price. Get some now while it's cheap, it will be much higher later on.
Fractional reserve system has to be banned to create a true gold standard.
It is the discipline that is important.
Not the commodity(gold).
Indeed... but how do you enforce the discipline?
And if you think gold is a commodity... I suggest you ask yourslef what is the one single thing that differentiates gold from all 'other' commodities?
Just eliminate debt monetization. When the creation of debt produces a monetary product that can be leveraged, instead of a resultant reduction in available credit, you've got problems with money supply. The more money the US Treasury borrows, the more Treasurys it produces, which in the hands of banks backs even more money printing. But then, ending the monetization of federal debt ends the Fed, doesn't it?
Really? Are you serious? It's simple math. If a central bank has a 100% reserve in gold but the banks it backs have below 100% reserve requirements, when the system suffers a run against the banks, the central bank will be useless and the amount of currency looking for conversion into the commodity backing the currency will be multiples of that commodity.
@ h_h
The Colt version looks superior. Peace through superior firepower!
Keynesian ammo is all shell with no powder backing. ;-)
And it's likely that both of those AR's are jammed already which is typical of that platform. Good target rifles if you really want semi-auto "target rifle" but that's what M1A's are for. Not only that, but ammo is hard to find in both 308 and 223 and when you do it is expensive. If I had to choose one rifle to go into battle with it would clearly be the AK platform. Simple, inexpensive and deadly. Are you going to shoot a sub-MOA group at 300 yeards with one? Probably not, but I can hit a bowling pin at 100 yards consistently and a lot of fat assed Americants are a lot larger than a bowling pin these days. And as far the AR fans are concerned I only ask you this; when your jam-o-matic fails you in a firefight, are you really going to care about sub-MOA groups? The good news is that I have a few spare Mosins on hand and a shitpile of ammo for them that you can borrow while your expensive ass piece of shit AR(AAPL) is in the shop for yet another repair.
Your AR comments are just silly.
AR machining tolerances. Sand. Jam. I own all of this stuff so junk me all you want. More fucking jags posting shit they don't know about, have never used, and think owning an AR rifle will save the day somehow. Armchair Rambos. That's pathetic.
Not that I own one, but I suppose the answer for this is going with piston-action vs. direct impingement. Problem is piston ARs are freakin' expensive, and for the same money you can own a PTR-91 or M1A, or perhaps one of the FN-FAL clones out there if you're lucky and catch one on sale. Much more powerful round, without the fouling/jamming/cleaning problems of the direct-impingement AR systems.
Then of course, there is always the great Mack Daddy, the M1 Garand. Once you run out of ammo, and if anything is still moving, it makes a hell of a zombie-crushing club.
For the record, I am not a fan of the AR, but it beats nothing.
I own two of them. The US armed forces own about 10 million. We both think they perform just fine you blowhard.
Yes because every patrol car in America is stocked with 7.62x39 and 7.62x54. Stupid AR fanboys.
Long Silver bullets.
That's a mighty fine lookin AR there Horseman.
I loved that symbolism, because one of my pet phrases is that THE MONEY SYSTEM DEPENDS ON THE MURDER SYSTEM. Therefore, a gold rifle is a great, but old-fashioned, symbol for that. Of course, the current reality is global electronic fiat money frauds, backed by atomic bombs, which makes a golden rifle become quite irrelevant. ... I wonder what kind of image could ever symbolize electronic frauds, backed by atomic bombs? ... I suppose only an image that a sentient computer could appreciate?
We suffer more from a lack of brains than a lack of Gold
The question before us is how do we prevent the natural corruption indemic in a monopoly money system
the answer is simple and has fuck all to do with Gold backing (which has failed everytime)
A Free Competitive Market in Money
be nice to try it just once in 3,000 years without some crook (bwanker, politico) trying to monopolise it
+100000
That's what +1 looks like when adjusted for inflation.
...
There is the answer. And if there were ever a moment in history when such a system would work it is now. Instant access to information would allow for informed consumers to move in and out of different forms of money. There would be fraud, for sure, but the collapse of one currency wouldn't take down the entire system. Free market for money, free market for any group that wishes to establish itself as an auditing organization and buyer beware. No more false sense of security and real exchange for our labor.
the three D's : diversification, decentralization, disintermediation
solid. Must remember.
The more I think about this, the more I think the gold standard is being floated out there as a distraction. Let the pendulum swing back and forth between a gold standard and pure fiat, along with other "basket" kinds of solutions, as long as central planners and central banks remain in control.
agreed with your analysis. it's all about control. tradewithdave is doing a bang-up job exposing the upcoming headfake.
How about a fourth? Central bank Disestablishmentarianism?
Disassemble
don't overlook Commodity Certificates
whereas historically most people held 20-30 percent of their wealth in commodity certificates, today the average is no more than 1 or 2 percent.
this is extremely bullish for commodity certificates.
plus, there is little risk they will be confiscated from your safe deposit box.
and they are backed by the full faith and credit of the CCC.
note: this not investment advice, and is for information only.
A certificate????
~~~
http://www.youtube.com/watch?v=e1ZQDznHOHU
Agree with a free competitive Market.
The problem is that an unrestricted free market capitalistic system carries the seeds of its own destruction within.
No restrictions guarantees the most very ruthless, power-mongering bastards will eventually end up on top of the pyramid. Then the free market is transformed into a monopoly, and the masses are reduced to debt slavery.
I believe this is the reason Jefferson said you need a new revolution every 20 years. I am inclined to agree with Jefferson.
The free market made its transformation into the corporatocracy under the guidance of the state.
I'm inclined to view it the other way around. I think industry guided government to foster and then protect the corporatocracy. Though they didn't need to twist arms too hard, both benifited from the arrangement.
I dig your argument and Joshua's below.
The thing is, it is the power of the state that made it all possible. If politicos didn't have the power to make monopolies possible, maybe the corporatocracy could never have been formed?
Yes. But, I'd clarify the point to "the power of the "centralized" state." The more centralized the state, the more power, the more corrupt and finally, the more destructive. My only point is that this problem isn't a "state" problem or a "market" problem, it's a "people" problem. I mean, what does the free market and the state have in common? People. What does the entire history of the rise and fall of empires have in common? People.
People are funamentally flawed, but most people want to ignore that fact that we are flawed and this tendency leads to the development "free market" principles, or "socialist" principles. We, people, like to think that we aren't the problem. But, we obviously see problems. So, we have to come up with rational explanations of the problems. So, we blame "systems." Some people like to blame "socialism." Some people like to blame "capitalism." Some people like to blame the "state." Some people like to blame the "moochers."
I, however, am well aware that we, people, are the fundamental problem, or rather, cause. People are the cause, People build the market. People build the state. People produce. People steal. And since we are the cause, any fundamental solution has to deal with people. Any solution has to limit/mitigate the tendency toward corruption. That's why I favor decentralization of the state, and the market, and money, and banking, and production. We will never eliminate corruption, but we can try to decentralize corruption and limit its impact.
It's crucial. We have to recognize our faults as humans and understand that every single institution of power we create can and will eventually be used as a weapon against the people.
Yes. I agree with that. It's an interesting thought experiment. What happens absent government? Pro-government apologists like to paint some sort of dystopia where a Microsoft or a Shell creates mercenary armies to expand and defend... you know, the work currently being done by the US Military. They suggest we would have competing private corporate armies and wars would be fought between interests controlled by Tata vs. Apple (or some such something or another).
Here's an interesting thought... in many ways, the government carved out it's ability to aid in the creation of and protection of the corporatocracy by claiming to do exactly the opposite (defend us against big business). The breakup of standard oil was a huge scam. Standard Oil was loosing market share and their margins were decreasing due to competition at the exact moment that the government was winning its case to break it up. Monopolies will typically die of natural causes when allowed to do so. Scale works, until it doesn't, then it gets defeated by leaner, more nimble organizations.
When you give gov't the ability to regulate against a monopoly, it will turn that power into legislation to favor the monopoly just as easily (and much more frequently).
Microsoft comes to my mind. I'm not sure why the gov dropped the case, but there was never a need to meddle with the matter in the first place. The market had them sorted out in a jiffy. People were just too impatient to let the real solutions surface.
True, but the point to always remember is that all "people" are fundamentally corrupt. Some people are more corrupt than others and some people happen to be in the right place at the right time to turn their corruption into power. The argument against the State is simply an argument as to how best to limit the monopolization of force by certain corrupt people. It's always people that screw things up, not the "market" not the "state", always "people."
I'm all in favor of free markets, decentralization and diversification. I do think that when a common guy like me says "gold standard" what I and a lot of people mean is "free market money." It just seems to be the case that in the past, the free market has usually narrowed the market options down to gold, silver and a few other commodities.
Vince - "The problem is that an unrestricted free market capitalistic system carries the seeds of its own destruction within"
In part that's true, over time that's complete bollocks
Any life-form, any corporation, any money system has a life-cycle. It's going to grow, establish and mature, decline and die one day.
So the free market is like a forest, individual trees grow and die but the forest just keeps on living as others spring up. Same as a free market.
The seeds of destruction are laid in a monopolised market, one tree. When it dies the whole house comes crashing down (systemic risk writ in 200ft neon flashing signs for you)
Inflated or deranged ego, stupidity, greed, waste etc gets weeded out in a free market, by sharper competition. In a monopoly all that shit just sits there year after year getting ever worse... that's why all monopolies are garbage
no competition, no change, no progress, no safety net (options)
No. While monopolies are of course very problematic, your ideologically polarized alternative, the "free market", is no better. The free market will not "keep on living" because our economies CONSUME resources, unsustainably, and we're quickly running out. The free market leaves fewer and fewer, and more concnetrated, participants holding ownership of those remaining resources in order to maximize their power and wealth. Th free market can't birng more oil into existence that doesn't exist.
One, the free market referred to is in currency. This involves the elimination of legal tender laws.
As for free markets, you couldn't be more wrong, though you are parroting what every person lacking an education in economics, thinks.
The seeds of destruction are carried in the concept of a benign state that expresses the will of the people. This is an oxymoron. The concentration of power results in an easy takeover by powerful and wealthy interests. They then use it to maintain an economic. political and social elite.
Government as a service, minus the police power and decentralized, leaving the greatest and most important powers at the local level is the only possible means of having a state that will not intervene on the behalf of those that would buy it.
You don't need a revolution every twenty years. It was Jefferson that was so quick to sell out his principles once he became president and fell prey to abuse of power. You need a social contract that protects us from banker shenanigans and corporate cronyism.
Sean - but local small Govt displays all the exact same abuse, corruption, stupidity as Big Govt... they're all going dumb-arsed bankrupt at the same time
that'll be because small govt is the same system as Big Govt: a monoply (of power) in a monopoly institution
Freedom works, see nature.. those birds, bees and fish all get up in the morning with zero rules to guide them but they all cohabit together, they compete freely every day with no Govt, no rules, laws, legislation or Constitutional arrangements.
Give man enough credit he can at least govern himself as much as any animal does every day
Man is designed like any animal, insect, fish to be self-sufficient (self governing) like a pigeon, salmon, ladybird. We were designed by nature to behave as nature does everyday outside your door, with total freedom and the ability to look after ourselves (no Law or Govt or social contract required thanks).
Society is self-governing and self regulating. Like nature nothing else is required, no expensive buearacracy, no courts, no contracts, no zippo. Freedom, a blank canvass every day, as nature does
give freedom a chance ..the alternatives all stink
Oh please... so you're pulling out the Darwinian birds and bees ecological argument in support of free markets? You do realize that nature achieves a punctuated "balance" through every individual in that ecosystem using all the methods it has available to maximize how much wealth it can concentrate for itself (at the expense of some other organism)? The problem with blindly applying this to human societies is that we collectively have the ability, through our intelligence and technology, to COMPLETELY appropriate for ourselves the entire planet, leaving nothing behind. In a free market, this is what WILL happen. There is no way the planet could support 7 billion people living like westerners, but that is what we'll try to do of course, to externalize all the environmental and social impacts inherent in an INefficient free market, to pass the problems on to the future in order to maximize profit over the 5 year immediate return on investment horizon.
"You do realize that nature achieves a punctuated "balance" through every individual in that ecosystem using all the methods it has available to maximize how much wealth it can concentrate for itself (at the expense of some other organism)?"
that is a very incomplete, dare i say, ignorant vision of nature.
you really need to go outside and smell the flowers more.
or sit in the forest by yourself for an afternoon just listening.
then comtemplate this word : symbiosis
Sure, man can govern himself, but history tells a different story. There will always be stongmen that attempt to establish control through violence. You need some kind of social contract to create protection.
The problem is power will accumulate if it isn't properly dispersed and maintained in that fashion.
Local government can be corrupt, but you can move or even change it.
Regardless, you have to make a deal with the devil if you want the benefits of a society. The trick is to keep the devil subdued eternally.
One, the free market referred to is in currency. This involves the elimination of legal tender laws.
Interesting point. It makes me ask what happens when someone borrows $500 FRN's from me, but wants to pay me back in, say, florins? Even assuming I accepted whatever the current FRN/florin rate was, what if I believed FRN's were a more stable currency than florins? ((Stop laughing, all of you!)) Would I then have the right to reject your florin payment, and demand payment in FRN's?
I always thought that legal tender laws were a way to speed up market efficiency, as there'd be no haggling of the type described above. But perhaps I'm missing something. Would you care to expand?
You would have established that before the fact. If you don't want florins, you ask for FRN's WHEN you lend. This is a simple contract. Legal tender laws have always been a way to force the population to use a single currency. This allows the King or CB to debase said currency and you can do nothing about it. However, if you have a choice, you create discipline, otherwise the currency would lose all its' value.
"the answer is simple and has fuck all to do with Gold backing (which has failed everytime)
A Free Competitive Market in Money
be nice to try it just once in 3,000 years without some crook (bwanker, politico) trying to monopolise it"
So how do you prevent your wonderful "free market" from being monopolized by a crook? Because a "free" market implies no regulation. Ripe for the picking!
You all are living in a fantasy. There is sno such thing as a free market, it exists only in your minds, like a one handed clap or dry waterfall.
Give it up. Fight corruption, don't fight to institute imaginary things that will never work.
Can you cite some examples to support your concern over the formation of monopolies. The government has broken up a number of "monopolies" over the years and have prevented some mergers from taking place... what would you consider the top 10... or even top 5 biggest victories for humanity vs. the free market?
"what would you consider the top 10... or even top 5 biggest victories for humanity vs. the free market?"
Off the top of my head, any of the environmental regulations that have been put in place over the last century, especially examples like those banning CFC's, PCB's, and the latest one banning BPA, although I'm not sure if the US does that.
Name a single monopoly in history that has existed without State support.
The Federal Reserve. It OWNS the state.
How did the fed come to be? Come on... rise up past your indoctrination.
It’s my understanding that the Fed was created by the bankers gaining enough control of bought-off politicians to unite the private banking interests of the country and then take over the role of money issuance from the government. But I may be wrong, since history is of course only what the writer of history wants it to be.
It’s interesting how one sees the full gamut of the political spectrum coming out in criticism of the Fed and the Federal Government. You have the lefties who point out how the Fed is a private, essentially unregulated corporation that owns a monopoly on money issuance, and has enslaved our government and institutions via debt, by preventing the government from printing its own debt-free, interest-free currency. On the other hand, the Libertarian free marketeers are equally critical, lumping it all together into this thing called “the state”, and advocate us all carving New Hampshire license plates into throwing stars to keep the state at bay (since they don’t like regulations).
It’s all quite a counterproductive debate, because if the government and corporate world are now one, then which side of the political spectrum does that represent? Is it the private sector that got too large and swallowed the people’s government, or is it the government that has achieved full control over the markets? The answer to that is pretty much moot, because it’s not about left versus right, it’s about wealth and power concentration in a world that cannot create additional wealth for the little people, to offset that theft of wealth, because we have reached Peak Resources and the economy can no longer grow anymore. And this concentration of wealth will occur in both the absence of effective regulation (the “free market” ideology), and also in a heavily centrally planned organization of society (“socialism”) because they ultimately lead to the same thing.
and besides it's hard to run carrying gold
Dude you're always posting first!
First one there Gets zee gold...
I prefer to think that the early bird gets the worm but the second mouse gets the cheese.
Currency competition and market choice is better than any standard adopted or enforced by the state.
150% correct
there is nothing more insecure, systemically stupid, no bigger threat to society than putting your eggs in one basket (a monopoly)
be it money, corporate or institution
Monopolies without exception deliver total garbage
You only need to watch the utterly corrupt Ben Bernanke to smell the greedy stink of corruption, or the utterly clueless Mervyn King to see how monopolies deliver ignorance and stupidity
without competition you do not weed out 3rd rate crap, garbage and human sewage
there is no other mechanism known to man that works better, faster and more productively than a free (competitive) market. Period.
Next time you write about this, make it clear that there is no panacea. That's the straw man that people who are unwittingly carrying water for the oligarchs use...how can you stop fraud? Won't some currencies collapse or be manipulated? Of course they miss the simpe truth right in front of their face about the collapse of all fiat currencies, but baby steps.
Obviously not all currencies will survive, but we limit systematic risk by increasing the total number of currencies available.
absolutely agree
we increase everything (productive for society) by allowing a free market in money
by accident, rather than design, we already have a whole range of competing national (monopoly) currencies. Consumers already have an array of choices in the monopolised money markets, so should the Euro collapse there are others available
but throughout the past 3,000 years we've missed out on a massive amount of creativity and progress in money by nature of money being monopolised nationally via the monopolists favourite ratchet, Govt, not to mention huge amounts of unneccessary pain being chained to these corrupt systems when they explode/implode
so for now choose your poison (favourite foreign currencies) to avoid the blow-up in your currency when it happens and when the dust clears, let's insure the monopolists can stick their One World Currency up their arses and we get a free money market
Another reason: the US gov't doesn't actually have any.
The only sane currency system is a non debt based one where the unit of trade is tied to a basket of real world goods and services not just a metal. The new $ could be exchanged for a set quantity of oil, wheat, corn, gold, a unit of labor etc By having it tied to multiple real world goods and services you would eliminate the inherent problems of a single commodity (gold)
Sorry, but tying the value of money to consumables is not a sound strategy.
Let's take oil. It is a finite consumable. Currently it's price should tend to rise as supply falls all else being equal.
Under a pegged to oil monetary system the value of money would tend to rise as oil supply drops making oil no less in demand. It short circuits the normal price transmission effect of dampening demand as supply shrinks and might actually accelerate as the value of money rises as oil supplies drop.
There is a reason gold ends up as the asset baking money. It really doesn't have other uses, it isn't consumed, it just sits there and doesn't rust, rot or degrade.
I don't know wht anyone wants to fight the obvious. The perfect physical money is gold. People figured this out thousands of years ago.
I wouldn't say it doesn't have any other uses. Haven't you seen any rappers on TV? It is more valuble as money than for most other uses however.
A currency backed by a basket of commodities is not feasable because commodities are never a constant, their availablity ebbs and flows. Gold is a constant, there is only so much of it and it's annual growth through mining is only about 1%. Tying currency to gold is the best means not only to maintain buying power, but also to limit government's spending habits.
Its feasible, but difficult to the point of being impractical with today's proliferation of iRetards. There is a whole shadow quasi-banking system related to the monetization of commodities. It has existed for centuries in various forms, long before standardized futures and options were passed back and forth, and rehypothecated on digital exchanges.
Your confusing speculation with leverage. Speculation has been around forever, leverage is a consequence of shadow banking. Speculation is immaterial in a system that has zero leverage.
Actually I'm intentionally misusing shadow banking, to the extent one generally limits the discussion of shadow banking to the monetization and the creation of credit to the muppet minimum of fiat transaction types, as opposed to all existing transaction types which meet the common criteria. The leverage aspect is newer, but the leverage aspect to "pure-play paper" banking/shadow banking/central banking is also newer.
Bi-metalism is impractical when the medium of exchange is the backing asset. However, bi-metalism is comparatively easy, when both metals are simply an asset backing a more convenient medium of exchange. My point is that extending beyond two underlying assets is also a known process.
pegging your money to anything -- anything at all -- allows my fiatGenerator to clean you out.
if your monetaryAuthority promises to redeem an ounce of gold for 18k FRNs (a 10 percent fractional rate), any ordinary person would prefer to buy from the open market at 1.8k.
but as long as I can issue a zillion zimdollars and exchange them while they're still fresh for FRNs, I can then redeem them for your gold.
I've totally debased my currency. but you've been separated from your gold.
if other central banks join in with me, your FRN supply drops and your gold supply drops as we exchange for FRNs and redeem them.
the end game is a system with no gold held by your monetoryAuthority, but still lots of FRNs in circulation.
your monetaryAuthority can't promise to redeem the currency for anything of real value. pure fiat always wins.
How many banker arguments are you going to trot out? The reason you have a free market in currency is so that money ISN'T pegged. The value of gold must float. If there is one hundred percent backing, your money can ALWAYS be redeemed. You are eliminating leverage.
Go back to banker troll school. You aren't ready for ZH.
I'll settle for a Gold and Silver standard. We can work out the details as we recover from the Fed.
I agree CD. A PMs backed currency is better than a system where the fed can devalue at will. To have a currency lose 50% of it's buying power in one generation is ridiculous.
Absolutely. Recovery will require new approaches and new thinking. The most important feature of recovery is not to do the same things over and over and expect different results, which is the type of thinking that necessitated a recovery in the first place.
I hate these "gold backed currency" arguments as all they serve to do is divide the opinion of otherwise rational individuals. Here is why; there is no way to ever actually know how much gold is backing a given piece of scrip. If I were a central bankster, I would hit the CTRL-P button on a gold backed currency just as often as a non-gold backed currency and that has already happened in the past. What the fuck is the difference?
CogDis is on the right track with a physical silver component here. We had that up until around the time Kennedy took a head shot. I have long been a proponent of owning quanitities of silver dimes and for good reason.
You are obviously ignoranmt of what Bank Runs are? That is how people know the difference. More important, your Treasury could only issue currency according to its' gold supply. There would be no central banksters in this system, as it requires no bank of last resort.
"You are obviously ignoranmt of what Bank Runs are? That is how people know the difference."
Yes, I am ignoranmt[sic] and likely have other issues as well. I need to get my calculator out just to total up the ways in which I can skewer you on your ridiculous assertions. Let us just leave it at this; you are assuming a great many things about "your Treasury" and it's "gold supply". I sometimes appreciate your sentiments and comments Sean7k but you need to think this one through a little more. Fair enough?
I hope you don't mean a fixed exchange rate between gold and silver. But gold and silver each floating in value and competing in a currency market, sure.
Is there anything else fungible, portable, divisible, homogenous, and scarce; and which has been used as a unit of account, means of exchange, and store of wealth for thousands of years?
Other than silver and platinum, of course.
weed
hooch
Not portable.
Not scarce.
Not easily stored. A leak in the cap could change the quality considerably. You could also drop the bottle.
Hooch can be fabricated. Gold can not be fabricated and is elemental i.e. can not be compounded chemically or by process, unlike diamonds.
Still like hooch in trade!
If times really get bad... The ones with a supply of 'hooch' are going to be a lot happier than those sitting on gold bricks...
Correction: Gold cannot yet be fabricated. I anticipate witnessing this change within my lifetime.
Rai stones
http://en.wikipedia.org/wiki/Rai_stones
specified amounts of grain in the largest scale, everything from cowry shells to stones worked for thousands of years in smaller societies. Credit, as in individuals recognizing and honering the concept of 'I owe you one', has also functioned as the closest thing to money in widespread cultures with no physical form of money and very limited or no barter economies (confounding traditional theorists explainations of origins of money)
The gold standard is required for successful international trade. You can't have this devaluation clusterfuk and have successful global trade between nations. That is why there is a reserve currency in the first place. The world needs an unmovable global benchmark of trust. The dollar spent the reputation it had. It is not trustworthy. Only real money works if you want a real economy and real global trade. The reason gold works best is that no country can actually devalue it.
This article covers some good points on what has to be done to go back to gold. Obviously this idiot leverage and bank welfare has to stop. Nothing works with the system of non-fairness and corruption.
you make it like Gold is "stable" for international trade but hasn't Gold gone from $240 to $1,900 in 10 years?
Gold is a precious metal but trades like any other resource/commodity so anything based on it will go up and down like a yo-yo too
Suffolk Bank.
We need a currency that can also be used online to match our modern economy. The problem with the gold standard comes from virtual debasement. When your gold is stored in a vault and the unit of account is represented on paper or now electronically, there can always be a temptation and the opportunity present for the custodian of your gold to counterfeit additional units. Thus, if you don't hold the gold, you can't prove you really own it - but how to use gold for making purchases online? Perhaps gold in conjunction with other emerging standards such as Bitcoin is the way forward... the market should decide:
http://www.libertariannews.org/2011/12/01/why-do-people-want-a-gold-stan...
You are describing a crime that has nothing to do with the gold standard, but is much more easily committed with paper money. It is the crime that is happening now.
I agree that any form of debasement is a crime. So what is your proposal for preventing debasement via a gold standard while still keeping the flexibility of online purchasing that the market has come to expect today?
Enforce existing laws. There will always be people stealing from you. Bankers will always lose all their money, and yours in the end. Putting money in a bank used to be an investment that carried risk and paid a return. People forget about that and make assumptions that the banks are safe. They have never been safe. Banks are now just useless appendages that only serve the purpose of online billpay.
To answer your question directly, there is no good answer to a country being infested with a class of criminals except prosecution. Crime happens.
If we enforced existing laws people like Corzine would be in jail for a very long time. We have to get to the point where we break the back of the belief that some people are above the law because they enjoy the patronage of presidents, bankers, and the MSM. To do that, we have to break the back of that three-pronged center of power. The time will come when the country will be more than happy to do some back-breaking. Losing everything does that to people.
Amen. Nothing more needs to be said.
Here here!
While I favor competing currencies over a gold standard... convertibility of your gold back money to gold does, in a way, prevent debasement. Discourage is a better word... because through debasement you encourage conversion and ratchet up the speed of collapse. Warren Buffet's father actually wrote a 7 or 8 page paper in favor of the gold standard where he made this point quite nicely. The gold standard should, in theory, prevent debasement. Of course this never works, so why support it?
Gold should be just one form of money. And it could be one form of money in a couple of different ways... both as something that backs a paper currency as well as money itself. People can decide for themselves how they want to value each... the amount of trust they place in each, and their willingness to accept either as fair trade for their labor.
http://www.kilowattcards.com/template/index.cfm
Kilowatts, like gold have a transportation premium.
How is Argentina pegging to the dollar considered "asset backed"?
It's like throwing your anchor on to another boat's deck. Well guess what? The entire flotilla is now lashed together with anchors and that's why we keep moving to deeper water.
Assclown irony is saying "there's not enough gold". The problem correctly stated is, once you start scripting, get ready to pen in more zeroes. You will float away in a sea of zeroes.
A gold standard would be like $100,000/oz if it were to be 100% asset backed. The whole system needs to come down and start from scratch.
Otherwise, every boozo who owns GLD can "cash out" with useless $$$ if they were to revalue current greenbacks. (I am not saying that GLD or SLV actually has what they say they have segregated, but TPTB would have to honor those shares at par if they don't want to tear down the whole current system)
Maybe our next currency will be blue. It is a calming color, rumor has it that is why MSFT has a "blue screen of death" instead of a red or green one.
So moral hazard is the real issue. A monetary system that insures real consequences for bad behavior AT ALL LEVELS of society.
Who would have guessed? Bloddy sheep.
Argentina is going to do "it" again....re-configure...they are falling apart again..
democratic Govt works its miracles (again) in Argentina ...such a fab system this, one wonders how any sane person can question the democratic system or call for its burial
The Americans (and debt addicts in general) need to get their balance of trade issues resolved before the reserve currency status is resolved for them, else any transition to an asset backed medium of exchange quickly strips the profligate of what little wealth they once thought they had.
A properly planned solution usually beats one one developed at gunpoint.
Being the reserve currency requires a balance of trade deficit. No country can be the reserve currency for perpetuity because running a trade deficit eventually causes a loss in faith.
You don't have to beleive in gold. It just is.
where's my bancooooor version ios 7 ????
Hence the difference between a Dilema and a Paradox
But the fate of USD is a known path, regardless of whether the next reserve currency to is debt or asset backed, national or multilateral, it will be a fundamental shift for those who orient their lives and trade around the USD currently.
We have a Situation. There is no Solution to the current mountain of Debt and Derivatives.
Debt is one issue (which requires long term solutions)
Derivatives are another issue (which in the case of the US- could be resolved by actually nationalizing five institutions and then actually netting their notionals out of existence- make TBTF something that an institution dreads instead of an aspiration)
A gold standard NOW is like telling the cancer patient on his deathbed that he really should start exercising.
No, it's like telling someone with advanced stage 4 cancer in the lymph nodes and nervous system that he should stop partying every night and go to the hospital to get the appropriate treatment.
...and then you tell him the "appropriate treatment" is exercise, yoga, fresh air, sex with a beautiful and trusting companion, and a stack of gold in the basement.
An ounce of prevention is a pound of gold.
Perhaps the better analogy is telling the heroin addict to go cold turkey or else you will violently intervene. Good luck with that.
or, we could just euthanize him/her with a fiat placebo... and create a gold vaccine for future generations...
The planned solution does involve gun point. If anybody thinks any differently ,or that there is a way out of this they are delusional.
If anybody thinks that there is a successful way out of this using the existing gun point plan they are delusional.
(not quite an annagram, but close enough for being on a day off)
Exactly, Doc. That was guaranteed with the Patriot Act and the NDAA.
We're now at the point that an adult working for the state can stick their hands down a young child's pants in the name of safety and the /outrage is minimal because clearly that child might have been carrying a terrorist's bomb in her panties.
Slowly but surely, we are accepting more and more erosion of basic right versus wrong in the name of state power. Guns were always figured into the solution.
Certainly, end shadow banking and restore consequences for failure (no bailouts).
However, without a tangible immutable backing the currency, what is to prevent "printing" in both digital and paper currency by a central bank from debasing the currency?
Didn't we already go through two (2) collapses on a "gold standard"?
No one has ever collpased under a gold standard. Collapse comes AFTER the currency hasbeen debased. I suggest a history book or eight to cure what ails ya.
It's not the gold standard. It's the honesty standard.
Everyone thinks the gold standard will prevent inflation and official fraud. It won't. There are plenty of tricks they can play on the gold standard.
What we have is an economy based on the slick trick, the quick fix and the gimmick. What we need is a genuine economy based on the production of goods and services.
A government that is smart enough, honest enough, and far seeing enough can manage the money and the economy for long term prosperity. As pointed out above, the Dutch managed it and so did the English.
I suspect this was inadvertent. I suspect they weren't out to create a stable, inflation free currency. Everything I know of history at that time suggests there were just as many charlatans and grafters as there are today.
What made the difference was this. Both countries depended for their wealth and prosperity on world wide trade empires. They found out pretty quickly that if they chiselled on the money, the foreigners caught wise and wouldn't deal with them. The fact that their gold and silver coins were always the same weight and fineness, and their paper was always good for the gold and silver, was the basis for their world wide trade. Without that their trade would have been crippled or reduced to barter.
The effects of chiselling on the money which we are feeling now, are the result of a chain of swindles going back 100 years. In the old days they never would have gotten away with it that long. Without a sound currency their business and prosperity would have gone down hill fast and they knew it.
http://www.zerohedge.com/sites/default/files/images/user51698/imageroot/2012/02/3-10-12_InflationUSE.jpg
Why would anyone assume there would be honesty on the gold standard. Ever heard of gold leasing and re-leasing and re-leasing to infinity. If everyone exchanged their markers for physical me thinks there would be a lot of disappointed people.
Only a fool would trust the published gold reserves of any central bank. In today's E world anything can be counterfeited.
It's not the gold standard. It's the honesty standard.
I totally agree that what we need is more of a truth standard in our money, rather than a gold standard, or any other commodity based money, that is ONLY an indirect truth standard, because it is indirectly based on the conservation of matter, as a natural law, which human beings cannot violate.
However, there is a sublime, intractable paradox within attempts at a honesty standard in idealized money! That is that money is based on murder. All private property ONLY exists inside of some system of public violence. All voluntary contracts are inside of involuntary contracts. The real debt controls are based on the real death controls, and so on ...
Thus, the money system depends on the murder system, which the money system pays for, in order to be supported in turn by the murder system. Thus, the financial system is always inside of MILITARISM. However, success in war depends on situations where those who are the best at deceits triumph, and where spies are the most important soldiers. Thus, any attempt towards approaching a better truth standard in our monetary system runs into the infinitely difficult paradoxes of triumphant militarism, that backs up the money, fundamentally being based on dishonesty!!!
This problem is an expression of the FACT that there is an infinite tunnel of deceits, which goes through and through the more general philosophical problems of self-reference, that occur in situations where the map is inside the territory being mapped, or the monitor's camera is pointed at itself, and so on and so forth. Basically, energy directs its OWN transformations. Therefore, energy laws and general systems theory generate the profound paradoxes, manifested in the real context of human civilizations, that the people who are the best at being dishonest, and backing that up with violence, ACTUALLY end up controlling that civilization.
Thus the history that made War King morphed to make Fraud King. The international banksters are the Fraud Kings, because they were able to run a shadow government, that could and did use all of the methods of organized crime to take control of the public governments, which then passed laws to give away the People's power to make money out of nothing to private banks.
Unfortunately, the GOLD STANDARD, or anything else like that, is merely nostalgic. Similarly, the even better concept of a truth standard for money can not escape from the paradoxical nature of the militarism that operates the real murder system, that backs up the money, and thus, is the only thing that makes that symbolic money have real meaning.
The only truth standard for money that is possible is a murder standard. However, the most successful murder standards were inherently based on deceits. Thus, our problems are profoundly more difficult than we can imagine, and the best we can do is continue to muddle through the madness of being controlled by huge lies, backed up with violence, spiralling out of control. Of course, I WISH we could have a better arms race between the vast majority of people who were brainwashed to believe the biggest bullies' bullshit about the money system, so that those bullies would have to tell better lies. However, at present, it is way too easy for the biggest bullies to fool enough of the people, enough of the time, and therefore, those bullies barely have to break a sweat to keep their systems of organized lies operating organized robberies going ...
This guy's an imbecile, FOFOA already explained why gold standard won't ever happen. Yet to see anyone make better arguments for or against.
I don't get....just because someone else might have written on the subject (we're not even saying that it was or not similar in perspective)....he's an imbecile??? Really?
I don't see FOFOA mentioned as much anymore. Is his brand of mysticism falling out of favor?
"whether (or not) the world can again embrace the gold standard"
Um, I think The Constitution states money shall be gold & silver, so the question is:
"whether (or not) the U.S. can again embrace the Constitution"
and now they hit the price again...when they are selling treasuries...they cannot have gold going up....they can´t have gold return more than the 3 years they are selling today...
No. There is and can be no sane fiat currency.
And only 'paper' currencies issued not by the state, but by private individuals or private institutions, as real promises to pay in some tangible asset or assets specified by the note, would hold the issuers of currency and those who accept it as such directly, and financially, responsible for their actions. Never mind that it would make the concept of 'inflation' meaningless.
Sound money and full reserve banking brings about price stability and a vibrant economy. Fiat currency and fractional reserve banking enrich the 0.001% and bring misery to the masses.
http://en.wikipedia.org/wiki/Suffolk_Bank
As I've said before, a “gold standard” is actually a rigged standard; it's not the 100% reserve system that we dream of. What we need is the freedom to choose to trade in whatever medium we want.
http://www.comparegoldandsilverprices.com/much-ado-about-gold-standards/
Before we go to a Gold Standard, it would be a good idea to develop a test that could determine if you are holding a gold bar or a Gold Clad Tungsten Bar.
Something that the average person could use when they are in a coin shop would be nice.
The GS wont be adopted because then our pillaging masters couldn't pillage
If can stop the unsecured emission of credit, we won't have bubbles. If we don't have bubbles, we don't have any need for a FED. Without a FED, interest rates will fluctuate like they should, cutting off demand when they raise and vice versa. Since the Treasury actually prints the currency, we shouldn't have inflation unless they run the presses non stop.
Jim Rogers says a gold standard won't work, has never worked. Simply put, politicians can just "go off" it when its convenient. We need black letter law to prevent the unsecured emission of credit.
Gold standard doesn't work, because governments don't want it. They want to be Santa Clause and drop money from the sky from the flying-reindeer pulled sleigh. If you really want honest money, get government out of money period. As far as banking, I don't believe that fractional reserve banking is legitimate practice. It's a fraudalent contract. Paper money is additional tax that governments can use without directly taxing.
Why would the market have paid for your US dollars more than 10,000 (Australes), when the market knew that, in the absence of a bid, all you could get from the central bank was going to be 10,000? We can very much foresee a similar situation where, the market price of gold collapses from its peak to the established peg, leaving painful losses.
In a free, unmanipulated market, the price will flow to any level it wants. That is what killed the gold standard in the US the last time, France was cashing US dollars for gold. You arguement would hold true if it was a worldwide currency peg, but you are referencing only the US here.
Cash for Gold existed long before deadbeats started twirling signs on street corners.
Not sure what you mean.. If say, tomorrow the Fed says they will pay $100,000/oz for all the gold people want to sell to them, the big players are not going to pay you more for the $100,000/oz, because they know that all you can get is that. Remember that at that point, the argument that gold is a hedge against armaggedon will no longer be true. Armageddon will have already taken place and a lot of people will need to cash their gold, to fund their ordinary expenses.
People from other countries may be willing to pay more in other currencies. Not everyone wants USD, and probably less would in the scenario painted above.