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The Real Debate On Gold And Money

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Submitted by Jeff Snider, President and CIO of Atlantic Capital Management

The Real Debate On Gold And Money

Monetary adjustments, heavy as they have been in these past four years, will remain a permanent part of our economic landscape so long as central banks remain committed to their current course.  Now that the annual excitation of economists and their dreams of recovery are waning, and the “unexpected” decline in the economy has returned right on schedule, the discussion needs to turn toward those monetary interventions.  I have had many discussions with clients and members of the general public on the topic of the gold standard over the past few years, especially in the past several weeks as Chairman Bernanke deliberately broadcasts his specific problems with it from the perspective of a central banker tasked with “saving” the economy.  Even getting past the glaze of apparent anachronism, largely that something so archaic seems utterly incompatible with our modern electronic society, the persistent, and otherwise extremely healthy, mistrust of banks prevents a further discussion of how the gold standard really works.  For those that actually know the US paper dollar was primarily issued by banks prior to 1913 in the form of deposit claims on “reserve” assets, it is simply asserted that the principle of “universal currency” issued by the government, with its full faith and credit backing it, is a better fit, a more complete system befitting our digital age.  This simple line of thinking confuses the needs for clearing money imbalances with money itself, more than anything, but it also misses the central transformation of the 20th century.

If the greatest trick the devil ever pulled was convincing the world he didn’t exist, the greatest trick our central bank ever pulled was convincing the world we couldn’t live without it.  For most of that past twenty years, that PR campaign has been centered on the Great “Moderation”, so called because it apparently represented the full embodiment of economic management – a period of unparalleled prosperity, a Golden Age of soft economic central planning.  Give the central bank enough “flexibility” and it will produce unmatched economic and financial satisfaction. 

In 2012, as the illusion and luster of the Great Moderation fades into the realization of the unthinkably high cost by which it was all purchased, soft central planning is no longer unchallenged by general apathy.  Into that breach the topic of “flexibility” flows, a battle that has profound implications for the future, especially the longer term.  Chairman Bernanke wants at least to maintain his flexibility, preferring to expand it as much as possible.  But as we face continued and mysterious economic headwinds that are fully unexpected by the sophisticated and elegant math of economic practitioners, engaged observers who otherwise were content with that central bank apathy awake to the possibility that flexibility for the Federal Reserve comes at the price of individual flexibility.  More power for Chairman Bernanke necessarily means less power for you and me.

If the topic of the Great Moderation is open for re-examination as nothing more than asset inflation disguising recklessness and poorly conceived and constructed theory (often shockingly simplistic, it is hard to believe sometimes that the mathematical models that rule the economic world encompass so many simple assumptions and just ignore any other parameters that cannot be statistically fit into them), the idea of central bank/universal currency should also be addressed.  The Great Moderation itself (the asset bubbles, credit production and, above all, interest rate targeting) would never have been possible without central bankers controlling not only the supply of money, but also its very definition.

A gold standard in whatever form represents a decentralized paradigm of monetary control, the true expression of the free-est marketplace.  You may argue that such a paradigm is ultimately economic suicide, a pro-cyclical monetary drag on economic affairs during dislocations, but you cannot argue that the ultimate decision for that drag lies with individual persons, not central bankers.  A true gold standard, one where banks may only issue “dollars” that are convertible into some specified physical quantity of gold, means that control of the money supply rests entirely within the willingness of individual economic actors to exchange real money (gold) for paper dollars (currency).  That is the ultimate monetary power.

An individual bank operating under this paradigm would actually care about public perceptions of its risk profile and ability to successfully carry out its role as an intermediary of credit.  Since the stock of money is exogenously controlled by the general public, individual banks would actually compete with each other to maintain some real standard (as opposed to an ephemeral accounting notion) of sanity and reserve, so much so that the very idea of intentional complexity and opacity would be harmful to its own prospects.  Profits are driven by the careful elucidation of true intermediation since the scarcity of reserves reinforces the public’s general skepticism of the potential for banking mischief.  As is often the case with banks as businesses, the alignment of a bank’s ultimate goal (profits) with depositors’ collective desires for safekeeping rarely coincide.  A bank seeks to grow its profits through some degree of informed speculation (the very definition of intermediation), taking on some degree of financial risk that without a doubt exceeds the level of risk a depositor would deem appropriate.  So the dance within the financial system of deposits of real money is one where the bank will always try to push the boundary of “appropriate”, and depositors will restrain that boundary through marginal withdrawals of real money.

If the bank expands its boundary too far, the amount of deposits that flee exceeds the ability of the bank to replace them, meaning bankruptcy.  In the true gold standard system, there are no alternatives to this course – it is the brutal realization of market discipline.  Market discipline, for its part, systemically keeps other banks in check as a reminder to remain aware of the exogenous level of appropriate credit creation.  Scarcity enforces a true standard of credit creation, ultimately set by the (admittedly imperfect) perceptions of individuals as they carry out actions in the real economy.

The great trick, then, was the transformation of the banking system, first away from real reserves, and then the displacement of the marginal authority of depositors altogether.  As early as 1865 in the United States, in Jay Cooke’s pamphlet, elite opinion first sought to equalize precious metals and government bonds as bank reserves, which was eventually realized.  Then came physical Federal Reserve Notes, backed by tax collection powers rather than scarce real money.  Then came ledger money and the rise of accounting – the beginnings of a cashless society.  The slow transformation of the monetary system, and central bank realization of a level of flexibility on par with economic control was finished with the adoption of equity capital rules (Basel) and the supremacy of interbank wholesale money markets.  Depositors were shoved out of the monetary equation, and with them, the primary considerations for and ties to the real economy.

In our current central bank standard, particularly as central banks adhere to both interest rate targeting and monetary elasticity, the level of deposits of “money” (whatever that means today) has little bearing on a bank’s survivability, at least anything approaching a systemic counterbalance.  Sure, IndyMac failed because $1 billion in deposits of digital dollars were adjusted off its accounting ledger (especially after Senator Schumer’s letter), but IndyMac’s real restraint was financial collateral.  That has many implications (as we have observed the growing shortage of collateral for funding operations), but it also means that the ultimate source and arbiter of bank funding is not deposits.

As long as a bank can pledge some kind of financial collateral with a central bank, that bank will remain in business, regardless of how its depositors (the public) feel about its recklessness.  Indeed, most of the credit production accomplished during the past thirty years (encompassing the whole of the Great Moderation) was done by banks that have no depositors whatsoever.  The Great Moderation would be more appropriately called the Great Financialization, where securities overtook the role of “reserves”, and central banks committed to unlimited funding of those reserves (to achieve a specified interest rate target, meaning a zero or near-zero interest rate target can lead to the possibility of unlimited reserve creation, but, again, the effective restraint being the supply of “quality” collateral, as defined by central banks themselves). 

Under these terms, it is easy to see why Chairman Bernanke decries the role of a gold standard.  The current interest rate targeting/quality collateral reserve standard is almost completely at his whim.  In practical application, the only restraint on his control of the money supply is the political willingness of governments to issue debt.  Yet, far from being the opposite of the rigid gold standard, we see instead rigidity reappear in other places.

The unending string of bailouts of systemically “important” institutions is the prime example of this new rigidity.  The fact that there even exists the notion of systemically important institutions belies the fact that the “flexible” system has improved at all upon the gold standard.  The myth has been propagated that it was the gold standard in the early 1930’s that transmitted the monetary collapse throughout the world, a conduit for the collapse in money to transmit into the global real economy.  Even if we accept that explanation and interpretation, how is the current state of affairs any different?  In 2008, the systemically important banks transmitted the same kind of monetary contagion far and wide through the rigidity and weaknesses of the same interbank money markets that were supposed to be such a marked improvement.  Even in the nearly four years since that time, central bankers are still wrestling with bypassing their own interbank creations due to persistent dysfunction, with the system rigidly locked in a perpetual state of crisis.  This more than suggests that not only does rigidity remain in the system, it continues to grow worse, hardly an improvement on the gold standard (and the gold standard in the 1920’s was nothing like the classical gold standard, it was a gold exchange standard that permitted central bank sterilization, the first widespread uses of central bank flexibility).

Part of this new strain of rigidity stems from a stark perversion of the meaning of intermediation.  During the Great Financialization, the banking system itself transformed from its traditional method of increasing the productivity of money and the general pool of savings into a system of transmitting monetary policies regardless of market conditions.  Instead of reactive to marketplaces, the banking system would subsume and set markets on orders from central planners.  Owing to the growing acceptance of the rational expectations theory, central banks began to view credit and credit producers as tools of psychological manipulation.  It was the simultaneous application of both increasing the stock of money and enticing monetary actors to increase its circulation that led to the supposed golden age of central banks.  Debt-fueled consumption and the “wealth” effect were the realized supremacy of all the economic theories that worship at the altar of aggregate demand.

Unfortunately, as a tool of central banks, with the promise of liquidity and uninterrupted profit expansion, banks began to lose and discard the idea of intermediation altogether.  The whole of financial innovation during this period was not directed toward real economy productivity nor even monetary productivity, it was directed toward maximizing the new rigid rules of the monetary regime.  Banks, instead of worrying about various obligors’ ability to repay loans, instead set themselves to creating profits regardless of any ability to repay.  Accounting rules were invented (gain-on-sale being the most notorious), as were new methods of attracting these new bank reserves for the sake of attracting new bank reserves.  Quality collateral could be synthesized out of nothing; the real economy was not even needed (see synthetic CDO’s and interest rate swaps). 

Essentially, central bank flexibility has bastardized intermediation, as liquidity and scale became the sole determinants of financial profitability.  Traditional depository banks could no longer compete, as was designed.  So long as aggregate demand was meeting some mathematical target, central bank planners cared little about this growing process of de-intermediation.  Banks, for their part, only cared about buying and holding whatever obligation got them funding, even if that obligation would be deemed unworthy under regular means of intermediation.  This de-intermediation of banks applies not only to the current circumstance of hundreds of billions of PIIGS debt issued in the past few years, it equally applied to subprime mortgages that were packaged and securitized, forming the initial basis of the financial-collateral-as-bank-reserves monetary pyramid.  The repo market and interbank wholesale markets reached their apex in the 2000’s, but made their first marginal impacts as early as the 1970’s.  Even by the mid-1980’s, repos were causing problems, as bad repo trades led to the first few failures of what would become the S&L crisis.

The question of the gold standard is a question of what kind of banking system do we desire.  Do we accept a bank-first approach to the economy, where we also accept the central bank dogma that the banking system and the real economy are one and inseparable?  If we view the banking system through the lens of true capitalism, the bank-first approach reverses the accepted notion that intermediation exists as a tool for increasing productivity and production in the real economy.  That scarcely describes the system we have right now, or have had for forty-five years (particularly the last twenty-five), where banks exist to serve themselves, where financial firms scarcely pay lip service to aligning their goals with their liability-holders (or clients).  Nor is it compatible with the basic, simple idea of productivity:  those with bad ideas are eliminated.  Instead, intermediation now means those with every bad idea possible are given funding because profits have little to do with real economic success.  The financial economy really has become a game that simply seeks to transfer “money” from one perception to another.  How it goes about that transference, nobody really cares anymore as long as some type, any type, of economic activity appears at the margins.

Given the dramatic rise of derivative contracts, especially synthetic bond creation through interest rate swaps, the banking system at the top really doesn’t even need the real economy to function on any scale.  In fact, in this system of unlimited reserves and central bank flexibility, the real economy has become a hindrance to the banking system’s all-consuming quest for profit and growth.  Intermediation in the real economy is far less attractive, on a profitability basis, than pure financial speculation with the blank check of digital dollars conferred by the definition of modern bank money:  financial collateral.  Italy can guarantee the debt of banks that it itself depends on for “money”, all so those same banks can access the ECB and serve as a means to transfer that “money” back to Italy.  This is not intermediation, and it has, right now, subsumed the whole of the bloated financial economy.

Until QE 2.0, 99.999% of the public (including 99.999% of economists) would never have guessed it was collateral and accounting notions of balance sheet equity, both of which are eminently fudge-able at will, that actually governed the global banking system.  That kind of flexibility, which brought about the overgrown financial economy and this pitiful diminishment of intermediation, is an anathema to a free economy and polity.  The decentralized opinions of markets, the collective will of individual acts of free expression and movement, have been sacrificed unto the deity of the philosopher kings of elite opinion.  Our intellectual betters can scarcely be expected to allow the uneducated common man to chart the collective economic course, let alone define the rules of the game.  Markets no longer serve as a roadmap to the effective and efficient use of scarce real resources, they are tools of psychological manipulation to fulfill the religion of aggregate demand, soft central planning’s answer to the five-year plan.  It all started the moment the gold standard was softened, conferring the ability of central banks to redefine money unto themselves.  What was the ultimate monetary authority in the hands of the people was redefined into the hands of elite opinion.  Flexibility can only visit one side of that equation.

The collective will of the people is certainly far from perfect.  There is no question that the public succumbs to irrational fear and prejudice, and that power that rests in the hands of the temporarily unwise leads to real problems, but in a nominal system of freemen we would certainly be far wiser to maintain decentralized control and instead exerting our considerable collective efforts to mitigating the inevitable fits of irrationality.  But even those fits of irrationality perform a vital function, a process intentionally disabled by central bank flexibility.  Fear and prejudice that leads to financial distress, and even economic distress, is a self-correction mechanism of the real economy to clear out bad ideas and bad growth (any and all economic activity is not preferable, the real economy absolutely needs the right mix of economic activity to prosper in the long run).  Creative destruction is just as much a part of free market capitalism as decentralized authority, and creative destruction has been circumvented and disabled numerous times by the illusion of prosperity that is this bank-first, credit-first monetary system.

With that in mind, the question of exogenous money and central bank flexibility comes down to a simple question:  would you rather have had 2008 in 1990 or 2008?  Or, even better, 1971?  At what point would it have been best to reinstate exogenous money creation and let creative destruction carry out its vital function?  Politicians would have protested and Fed Chairmen would have vociferously decried their lack of flexibility, but we would have been better off maintaining our own flexibility by exercising the ultimate measure of monetary control.  We were in far better shape long ago to weather this storm of imbalance before the economy was distorted away from its productive foundation (described by real money) into a consumptive economy (run on figments of political flexibility and expedience).  The transformation and distortion in the real economy that took hold in the late 1970’s, “perfected” in the 1990’s, was based entirely within the philosophy of money.

That is the final judgment of monetary standards.  Chairman Bernanke decries the gold standard, but his institution’s record is far worse.  Not only in terms of alternate standards (the current system is just as rigid and susceptible to global contagion, if not more so) but the utter corruption that the financial economy system has undergone strongly disfavors central bank supremacy.  Some of that damage will likely be permanent; at the very least it will damage the real economy for generations as we attempt to unwind financial incentives that placed unproductive speculation at the forefront, far above incentives for productive work.  Investors’ expectations, for example, even after twelve years of a bear market, remain elevated by an asset price system devoid of true price discovery.  Far too many people still seek the easy lure of asset inflation, and that destruction of patience and care in the investment class will be a drag on the whole system for a long time.  More than a generation’s (possibly as many as three) worth of knowledge and competence has been displaced by easy money.  I fail to see how any of this is better than a gold standard.  Gold is, again, far from perfect, but, in the end analysis, it may be the least objectionable.

The definition of money is really a political consideration.  The slow relegation of monetary power to the Federal Reserve is a concentration of economic authority that is wholly incompatible with a free market, free society.  To paraphrase Abraham Lincoln, our economic system cannot remain both free and centrally planned, a market economy divided against itself cannot stand - we must become all one thing or all the other.  There are no perfect answers; there are only hard choices to make.  Perhaps that is the most loathsome and destructive aspect of the current standard of central bank flexibility, an aspect that I believe renders full judgment in favor of restoring decentralized power.  Central banks and their economic dogma essentially try to convince the public that there are no hard choices.  The entire welfare society system that this central bank regime was created to serve is built on that notion, that wealth is easily conjured and transferred, if only money could prove as flexible as the diktats of imposed political will.  Nothing so far in human history has been so thoroughly and unambiguously repudiated by the empirical evidence of human history itself.  By exposing that lie we can put to rest the notion that the real economy cannot function without the financial economy.  This bank-first approach to monetary policy is just a mislabeled effort to maintain and expand the current strain of central planning; there is no mistake about which direction central banks want to take if we are, indeed, fated to become all one thing.

The discussion of the gold standard is nothing more than politics of eliminating the PhD class’ flexibility.  In that respect, I care little about the mechanics of whatever means is used to impart central bank confinement.  It could be nothing more than a narrowly defined, transparently monitored and completely predictable restriction on the growth of bank reserves.  It could be a gold price rule.  Whatever means might effectively remove “discretion” from the vocabulary of central bankers should be included in all discussions.  Given an extremely limited role, central banks can actually be useful, particularly if they are reduced to nothing more than rigid clearinghouses of fiscal and financial imbalances (no, the ECB is not performing this job particularly well at the moment since it is busy trying to keep the monetarist side of the economic house from ruin and discredit). 

Gold, itself has a definable tradition, a tradition that is readily accepted in many parts of the world, so it may yet be ahead of the game in that regard – certainly not what Chairman Bernanke had in mind when he derided precious metals’ “tradition” in front of Congress last year.  In the ultimate fit of irony, perhaps it would be most fitting that owing solely to that tradition gold restores the proper balance of flexibility in the monetary system and the financial economy.  Less flexibility for Bernanke will mean more for you and me.  This restraint will finally define the devilish allure of the seemingly easy answers and illusory prosperity of central banks and conventional economics as nothing more than anesthesia.  However, once you turn over ultimate monetary authority to the central bank and give them the flexibility to define money, as we are finding out, it is far more difficult to recover it.  To paraphrase Rahm Emanuel, we should not waste the re-occurrence of crisis to take it all back.

 


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Thu, 05/03/2012 - 16:52 | Link to Comment easypoints
easypoints's picture

Gold is for kings, silver is for gentlemen, debt is for slaves.

Thu, 05/03/2012 - 17:04 | Link to Comment matt_chart
matt_chart's picture

barter is the money of peasants,

 

Got Silver?

Thu, 05/03/2012 - 17:11 | Link to Comment Vince Clortho
Vince Clortho's picture

I'm in

Thu, 05/03/2012 - 17:37 | Link to Comment Pladizow
Pladizow's picture

To: Easypoints

Cite your quotes - Norm Franz

Thu, 05/03/2012 - 18:28 | Link to Comment easypoints
easypoints's picture

sry, rushed it.

Thu, 05/03/2012 - 20:33 | Link to Comment economics9698
economics9698's picture

The best banking system is 100% reserve requirements with banks issuing their own currency.  In the electronic age this would be routine and simple.

Second best would be “free banking” where banks usually lend out 50% to 83% (19th century numbers) of their reserves.  A “conservative” bank would be around 50% and a “risky” bank around 80%.  This is money inflation but much better than today’s 10% reserve requirement and money expansion by the Fed.

I would not trust the US government to issue a currency.  This allows manipulation like the 1907 Knickerbocker financial crisis that was the justification to the public for the Fed.

Thu, 05/03/2012 - 21:43 | Link to Comment economics9698
economics9698's picture

The gold standard helps the average consumer by keeping inflation at zero and prices declining. 

If there is $200 in the economy and company A builds a better mouse trap, lowering its price from $15 to $10 and increasing sales from 2 units to 4 units the total revenue for the company increased from $30 to $40. 

This is extremely important to understand and why the elite capital owners DO NOT want a gold standard.

When company A has good times not there is $10 less in the money supply and other companies, call them B and C, MUST lower prices to maintain market share or lose market share.

Understand what that means.  This was referred to as “messy competition” in the 19th century.  Industrialist hated having to constantly lowering prices and finding ways to save money whenever a competitor improved their productivity.

Competitor C must lower prices from $2 to $1.9 losing revenue (on sales of 20 units) from $40 to $38.

Competitor B must lower prices from $5 to $4.5 on sales of 10 units lowering total revenue from $50 to $40.

Is the picture becoming clear why capital elites do not like the gold standard?

Savings was $80 before the better mouse trap was invented but now there is a increased demand for money as consumers scramble to buy the better mouse trap.  Savings drop from $80 to $77 and more money is spent.

Under a gold standard with fewer savings available demand for loadable funds would drive up interest rates, attracting more savings, and so forth, the cycle repeating.

The key to the gold standard is it forces manufacturers to constantly strive to be competitive or they will price themselves out of the market by other, maybe unrelated industries.  Think of the implications in today’s world and the significance this would have on oil markets.

The gold standard removes the power of central governments, forced balanced budgets and trade, in the long run.

The main appeal is that in the 1880s to 1890s prices DECLINED 25% and wages ROSE 3% for the masses.  Compare that to today’s wealth concentration going to the top 20% and the bottom 30% stagnated for decades.

Simply put fiat allows governments to live unrestrained and wealth to be transferred from the bottom 80% to the top 20%.  This is the real reason central governments and elites want a central bank.  They simply hope the masses are too stupid to catch on to the con game.

Fri, 05/04/2012 - 03:43 | Link to Comment StychoKiller
StychoKiller's picture

But, but...ya cain't eat gold!  There ain't enough gold in the World!

And my favorite:  No one's gonna want to trade food for gold coins.

Beam me up Scotty, there ain't enough intelligent life on this rock to fill a washtub!

Thu, 05/03/2012 - 22:05 | Link to Comment valkyrie99
valkyrie99's picture

I could agree with the advantages of a 100% reserve banking commodity backed system.  I am not with you, or this author, on the recently emerging "free" banking pro-fractional reserve theory.  This just takes the power of printing money away from gov't and gives it to private bankers.  They are not a better choice to trust.

The author states:

"An individual bank operating under this paradigm would actually care about public perceptions of its risk profile and ability to successfully carry out its role as an intermediary of credit.  Since the stock of money is exogenously controlled by the general public, individual banks would actually compete with each other to maintain some real standard (as opposed to an ephemeral accounting notion) of sanity and reserve, so much so that the very idea of intentional complexity and opacity would be harmful to its own prospects. "

So we should trust banks to not take short term profits because they'll fear reputational risk inpeding their future competitive viablilty.  When have banks ever acted in this manner? 

Certainly not in our modern financial system, but not ever either. "Free" banking is like what we had in the US from appx. 1785 - 1836(?) (when states started passing laws regulating banks). We were claimned to be on a gold standard, but bank notes backed by gold reserves that didn't exist issued much of the circulating currency.

Your theory was espoused by those who wanted private banks at the time, but this isn't what happened. Instead we had 'wildcat' banks throuout the union who fruequntly colluded to increase the money supply by issuing more loans (debt-based currency), then calling in loans and refusing to issue more to contract the money supply, causing general deflation and forcing defaults as borrowers couldn't pay back the loans in rarer bank notes, allowing banks to buy up assets at depressed prices (with notes issued on  gold they didn't really have). Many banks failed and took with them the wealth of note holders and depositors. In addition to causing sufering, this system allowed an opening for the first attampts at central banking - the 1st and then 2nd national bank - who were claimed to be able to stabilize the system.

In Oct. 1815 Jefferson wrote Gallatan in protest of the 1st national bank and state-charted private banks: “The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment…These jugglers were at the feet of government. For it was not, any confidence in their frothy bubbles, but the lack of all other money, which induced…people to take their paper…We are now without any common measure of value of property, and private fortunes are up or down at the will of the worst of our citizens…

 

It is worth noting that permitting fractional reserve banking on a gold standard does not prevent government involvement in monetary matters.  States and the Federal government granted charters to open banks to cronies.  Those banks provided funding for the gov't like the Fed does by buying its' bonds, and made loans where their benefactor encouraged.  The gov't accepted payments of taxes and fees in banknotes, ensuring they would have demand.  This was the same formula that had ensured notes from the Bank of England had become accepted as circulating currency by the public.

 

When the Fed was pushed through in 1913, it was the fractional reserve bankers pushing, and this was accomplished by highlighting many panics the bankers had caused to show need for a stabilizing mechanism. It cemented and backstpped the bankers' ability to create money. If bankers aren't prevented from creating money, they will always be able to by the gov't. 

Thu, 05/03/2012 - 23:08 | Link to Comment economics9698
economics9698's picture

"So we should trust banks to not take short term profits because they'll fear reputational risk inpeding their future competitive viablilty.  When have banks ever acted in this manner?"

In the 19th century banks were very concerned about their public image because any whiff of overextending funds would cause a run and they would be gone.

I agree that 100% is best but free banking works well with clearing houses, which would be very fast and efficient today, to keep them honest.  In the northeast the clearing houses did a great job in the 1830s to 60s to clear notes and keep the banking system honest.  I would imagine today with instant communication the job would be done very efficiently.

Fri, 05/04/2012 - 10:10 | Link to Comment valkyrie99
valkyrie99's picture

So you offer for fractional reserve banking with transparancy  - ie more the system we had after the 1836(?) state banking laws instead of before. Certainly better then how it's usually done (or what many proponents of this advocate in my reading), but I would put out that bankers are very good at divising financial products for the point of avoiding oversight. Once one does, they would have a competitive advantage over those who didn't, so dishonesty would tend to spread. Since the initial results of lending additional new money into circulation is the giddy bubble part of inflation, there is a good chance they might not be discovered and stopped until they caused pain and at this pint revoking there privaliages would cause additional deflation in an ecomy already suffering from it. Also, that fractioonal reserve banking only really worked for bankers because the public trusts they were not lending out there deposits so there sole mission would be to find a way to make this hapen and with theability to create money they would eventually be able to buy the blind eye of officials overseeing their compliance with transparancy. 

I would point out how the ways around real reserves found through NY brokerages played part in the paninc of 1837, the new way around presented by insuring through OH Life and Trust turned into the panic of 1857, and new ways of using leverage to avoid reserve in instrimants to speculate on railroads had a role in the panic of 1873...they didn't do that great a job. If one bank was more risky then others they might risk reputational risk doing them in, but if they colluded then it was more likely the gov't would revoke redemption instead of letting them all fail. 

It's worth examining what a full reserve system has realy meant in history.  Banks would have to maintain full reserves on money people needed readily aviabale (like checking accounts), and wouls ususally charge a small fee for storage. However banks could still offer other products (time deposits where you didn't  have legal right to the same money until a certain date, sale of stock), that allowed people to get interest on stores of wealth - with the money they chose to take risk on that was lessened through the banks acting as financial intermdiaries. It just meant that banks couldn't put a depositors money at risk without there knowledge and consent. 

It's also my observation that those recently adding the pro-fractional resrve talk to the monetary reform conversation are often the bankers, who are starting to come around on other issues - I think it's important to keep demanding private banks do not get to create our money. 

Thu, 05/03/2012 - 22:09 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

A better article would be "Money vs Currency".

Money is something that stands on its own two feet so to speak.  It has it's own known value without being related to something else.

Paper currency has no value of itself.  It represents the value of something else.  In that sense currency is a derivative, and a derivative is subject to fraud.

A simple example is gold certificates issued by banks way back when.  People would deposit their physical gold and get a paper receipt for it, like a deposit receipt today.  But the paper receipt was not easily usable in trade. It was for the actual amount of gold deposited, usually an odd amount.   Then banks started issuing standardized certificates for gold deposited.  Deposit 10 ounces of gold, get 10 certificates each representing 1 ounce.

These paper certificates were partly for convenience. Carrying 200 1-ounce certificates was much easier than carrying 200 ounces of physical gold.  People who trusted the issuing bank would accept these certificates in trade just like physical gold.

These paper certificates would fit the definition of  derivative in today's financial lingo.  The represent the value some underlying commodity. 

But derivatives are open to fraud by their nature, and banks eventually started committing fraud, issuing more certificates than gold they had on deposit.

They got away with it until there was a run on the bank.  Everybody wanting to redeem their certificates for physical gold.  The bank didn't have enough gold to redeem all the certificates, and the fraud was exposed.  People lost faith in the bank and unredeemed certificates instantly became worthless.

Today's US dollar is not money.  Originally it was a derivative on the underlying commodity gold, just like those gold certificates banks issued long ago.  Gold was the money.

In '71 the underlying commodity was removed.  Now dollars were derivatives on nothing, no underlying commodity. 

That's when US dollars should have become worthless, just like those bank-issued gold certificates became worthless when there was a run on the bank and people realized there was no gold behind their gold certificates.

To preserved the dollar's value, America's GDP was made the new "underlying commodity" dollars were based on. 

But like any derivative, the value of the underlying commodity can be misrepresented.  Ameica's GDP is worthless as it relates to the dollar. You can't redeem dollars for a slice of America's GDP. 

So paper currency is now just a con(fidence) game, with no value of itself, and nothing underlying of any value. 

It operates solely on confidence now.  As long as the government can keep people believing dollars have value, the con goes on.

Thu, 05/03/2012 - 22:32 | Link to Comment valkyrie99
valkyrie99's picture

You seem to define Money as "a store of weath" and currency as "widely circulating accepted medium of exchange".  You rightly point out how when means of exchange that lose trust and widespread acceptance they quickly decline and societies revert to their stores of wealth as their predominat medium of exchage (i.e. your concepts of money/currency become one). Unfortunatly the other phenominon that's observed, Gresham's law, shows how 'stores of wealth' or your 'money' are crowded out and eventually replaces by 'currency' or widely accepted means of exchage that are backed by less real commodity value. So we have a multi generational process of expansion and contractions of fiat cycles. 

I'm not sure that I have the solution or anything, just your comment was interesting.  This process does make me question whether currency/money basket that is overall somewhat more widely available then gold might be more lasting then a signle-commodoty currency/money.

Thu, 05/03/2012 - 17:13 | Link to Comment lemonobrien
lemonobrien's picture

fucks silver, give me golds, and as King, I'll have "Droit du seigneur"

Thu, 05/03/2012 - 17:40 | Link to Comment GOSPLAN HERO
GOSPLAN HERO's picture

The silver is mine, and the gold is mine, saith the Lord of hosts.

-- Haggai 2:8

Thu, 05/03/2012 - 19:44 | Link to Comment donsluck
donsluck's picture

Meaningless.

Thu, 05/03/2012 - 20:01 | Link to Comment Likstane
Likstane's picture

Yeah, for those who don't get it.

Thu, 05/03/2012 - 17:55 | Link to Comment IndicaTive
IndicaTive's picture

Not enough. Yet.

Thu, 05/03/2012 - 17:05 | Link to Comment SHEEPFUKKER
SHEEPFUKKER's picture

The con is for slaves to keep taking on more and more debt while the kings/gentlemen/women keep stacking more and more metal. 

Thu, 05/03/2012 - 17:22 | Link to Comment Beam Me Up Scotty
Beam Me Up Scotty's picture

The con is also the sheeple thinking they dont even need cash.  Just a rectangular peice of plastic with a magnetic stripe and a Visa logo on it.  Just how fast do you think someone can cut you off from your lifes savings when you rely solely on electronic dollars to live?  TPTB want to eliminate gold and cash both.  Total control, BITCHEZ!!

Thu, 05/03/2012 - 17:27 | Link to Comment Sean7k
Sean7k's picture

Also known as the three percent tax. 

Thu, 05/03/2012 - 17:47 | Link to Comment rocker
rocker's picture

You are right "Beam me up Scotty".    They do not want you to see cash in any form. 

My Bank was taken over by Well Fargo. It is so sad.  I told the Bank manager that they are my #2 pick of BAD banks. GS gets 1 and JPM gets 3.

They could not cash a check for $10,000 with that much in account already. I was told it would take a week for them to get the cash.

Then they pulled me in for a talk and gave me two debit cards. Told me that they are needed to get cash.

I took my pocket knife out and cut it in half right there.  To his astonishment and disbelief.

He then said I will have to provide a ID if I want to cash checks or do transactions. I said, drivers license? He said yes. That is how we work now.

They also told me the mininum to keep free checking is $1,500 and or a 15 dollar charge per month.

Been with the bank since 1969 and now look to close account because of who I have to deal with.

Wells Fargo has a large trading desk operation.  Who's money do you thing they are trading with ???  This will not end well again.

Thu, 05/03/2012 - 17:59 | Link to Comment NotApplicable
NotApplicable's picture

You're lucky they didn't put you under Gitmo for brandishing that terrorist weapon in a financial institution.

Thu, 05/03/2012 - 18:23 | Link to Comment gmrpeabody
gmrpeabody's picture

No kidding...

He could have yelled for security and had a good laugh. Rather surprised that he didn't (being the same ilk as those airport pukes, and all).

Thu, 05/03/2012 - 19:49 | Link to Comment donsluck
donsluck's picture

The last time I had a similar altercation at B of A, the manager asked me to step out of the line so we could talk (I was trying to cash, CASH, a B of A check without an account). I said no, because I would then loose my leverage. I said he would have to have security escort me out. Get this, the manager said "we have no security"

I walked anyways.

Fri, 05/04/2012 - 07:09 | Link to Comment Bahamas
Bahamas's picture

"

You're lucky they didn't put you under Gitmo for brandishing that terrorist weapon in a financial institution."

Those bank scum could also withstand a beating just as long as you don't close the account!

Thu, 05/03/2012 - 17:08 | Link to Comment wisefool
wisefool's picture

There is no gold on the Sun, but people who understand the Sun can tax the crap out of everybody, payable in Fiat or PMs.

So Sayeth ALGORE/Bernanke.

EDIT: Junked you!

Thu, 05/03/2012 - 18:31 | Link to Comment easypoints
easypoints's picture

Come again?

Thu, 05/03/2012 - 20:05 | Link to Comment Likstane
Likstane's picture

breastakingly brilliant!

I can't believe someone junked you!

Thu, 05/03/2012 - 17:16 | Link to Comment LULZBank
LULZBank's picture

But... but... what about AAPL?

FACT: iPhone is the best hedge against Kidney failure.

Thu, 05/03/2012 - 17:28 | Link to Comment lasvegaspersona
lasvegaspersona's picture

Gold is exclusively a wealth asset. Silver is very nice but price fluctuations prohibit its use as a reserve. That's why no central bank hold silver but most find room for gold. If one must choose, choose wisely.

Thu, 05/03/2012 - 17:36 | Link to Comment toothpicker
toothpicker's picture

"fluctuations" newspeak for "blatant bankster manipulation and government intervention" 

Thu, 05/03/2012 - 17:40 | Link to Comment Pladizow
Pladizow's picture

Central banks not holding silver is a function of price and volume.

Thu, 05/03/2012 - 17:59 | Link to Comment Debt-Is-Not-Money
Debt-Is-Not-Money's picture

When talking to an asian friend several years ago he asked "what causes the stock market to move around so much?"

I answered "fluctuations"

He replied "fluc you amelicans too!"

Thu, 05/03/2012 - 20:38 | Link to Comment francis_sawyer
francis_sawyer's picture

That's the stupidest fucking thing I've ever read... OK so let's see...

1. We'd love to DO AWAY WITH central banking

2. Now... The Central Banks are interested in accumulating gold

3. So we should have GOLD so we can be a part of whatever their NEW gold based system is...

What the fuck kind of logic is that?... In essence, it makes fiat & gold inseperable... If you don't want to deal with central banks, don't use whatever they put forth as currency...

Thu, 05/03/2012 - 17:45 | Link to Comment jus_lite_reading
jus_lite_reading's picture

I don't know if any of you gold bugs out there saw this but...

If you are buying gold, you are probably a terrorist according to the Obumbo gubmint and the NSA is definitely spying on you...

http://www.infiltratednation.com/2012/05/ex-nsa-agents-speak-out-about-spying.html

Make this go viral!! 

GAME OVER!!!

 

Thu, 05/03/2012 - 19:19 | Link to Comment jomama
jomama's picture

i'd rather do just about anything than endure watching glenn beck.

*edit: go away glenn.  you're washed up.

Thu, 05/03/2012 - 20:53 | Link to Comment jomama
jomama's picture

talk about turning on the light and finding cockroaches!

Fri, 05/04/2012 - 03:30 | Link to Comment francis_sawyer
francis_sawyer's picture

I think you miss the point...

Bring up the name of being 'anti' one of these right wing pundits automatically paints you as a liberal fucktard (same as being anti one of the left wing pundits paints you as being a neo-con fucktard)...

A better choice would be to either be an equal opportunity fucktard, or just just leave it alone altogether... These MSM hacks are all 'soda drinkers' anyway, WTF cares if they like Coke or Pepsi?

Thu, 05/03/2012 - 19:58 | Link to Comment Sequitur
Sequitur's picture

Can someone post a link to the gold video where it starts out with a gold coin and a dollar bill in a vault and asks what would you want in the future? Then it goes through the history of gold and the dollar. Then shows how you can still buy a lot of bread and suits with a gold coin, but not with dollars, then has China buying gold, then the video ends with the safe closing and the gold coin in the safe.

Fri, 05/04/2012 - 03:54 | Link to Comment StychoKiller
StychoKiller's picture

Check with www.goldcore.com

 

Thu, 05/03/2012 - 16:53 | Link to Comment Dixie Rect
Dixie Rect's picture

Goldd. With two d's for a double dose of pimpin'

Thu, 05/03/2012 - 16:58 | Link to Comment VonManstein
VonManstein's picture

great interview with rick rule the legend!

http://www.caseyresearch.com/cdd/rick-rule-contrarian-speculation

Thu, 05/03/2012 - 17:00 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

We don't need a Gold Standard.  We just need gold (each of us).

 

Google "Precious Foreva"

Thu, 05/03/2012 - 17:03 | Link to Comment skepticCarl
skepticCarl's picture

Correctomundo, DoChen.  Investors will do better to own gold individually, and outperform "cash", which is what Gold would be with a gold standard.

Thu, 05/03/2012 - 17:16 | Link to Comment Sudden Debt
Sudden Debt's picture

AMEN BROTHER!

Thu, 05/03/2012 - 18:13 | Link to Comment seek
seek's picture

AKA competing currencies. That's all we need. Call gold a currency, no cap gains, etc on currency appreciation/depreciation, and let nature take its course.

I dream of the day that VISA cards debit accounts in micrograms of AU, or dollars, or whatever you select. (And I'll still regularly lose 90% of my holdings on boat trips.)

Thu, 05/03/2012 - 18:17 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

PLEASE be careful while ice-fishing too.

Thu, 05/03/2012 - 18:38 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

You'll be dreaming of that the day you die, too, regardless of when that is.

How can it make sense.  The population increases.  There has to be more money in the economy because it is bigger.  

You would limit money to mining production rather than population.  How can that work if mining stops producing it?  People keep getting born.  You would freeze human freedom and hold it hostage to mining companies.

Thu, 05/03/2012 - 18:55 | Link to Comment Sean7k
Sean7k's picture

Guess you never read up on Malthus and how wrong he was. You are not limiting money to mining production, perhaps the number of ounces, but not the value of each ounce.

Fri, 05/04/2012 - 02:22 | Link to Comment AustriAnnie
AustriAnnie's picture

And since gold represents a STORE OF LABOR, when there isn't enough in circulation, the price rises, creating an incentive for more to be mined.

Although, its not necessarily a bad thing is someone who retires finds that his gold coins he put away actually buy more today than they used to.  Appreciation of the value of one's gold is quite welcome around here on ZH.  Thats why we like it.  The supply increases when the price justifies the real work necessary to produce it.

 

 

Thu, 05/03/2012 - 19:56 | Link to Comment donsluck
donsluck's picture

Productivity rises faster than population. The "problem" with gold is it democratically spreads productivity increases throughout the economy through DEFLATION. Banksters wanted to keep that productivity increase for themselves.

Fri, 05/04/2012 - 02:25 | Link to Comment AustriAnnie
AustriAnnie's picture

Heaven forbid people should store their labor hours in a medium that maintains or even appreciates in real value!

 

Fri, 05/04/2012 - 11:08 | Link to Comment trembo slice
trembo slice's picture

Time to do some more reading.

Fri, 05/04/2012 - 03:34 | Link to Comment francis_sawyer
francis_sawyer's picture

@Tyler(s)

 vis a vis: "(And I'll still regularly lose 90% of my holdings on boat trips.)"

~~~

I think it's time to change the "SLOGAN" for Zero Hedge to:

"On a (not too) long timescale, the survival rate for the precious cargo of Zero Hedgers on boating trips drops to zero"

Whadda ya think?

Thu, 05/03/2012 - 17:04 | Link to Comment junkyardjack
junkyardjack's picture

But even with the "gold standard" there was tons of flexibility as to how much money could be printed around it, its the same system we have now.  The system doesn't make sense anyway because it assumes that no value in a society can ever be created anyway.  There is only a fixed amount of gold so you can't create value in a society, I'm pretty sure that life now is much better than it was 1,000 years ago.  

Thu, 05/03/2012 - 17:20 | Link to Comment skepticCarl
skepticCarl's picture

Good points, jy jack.  Imagine a group of castaways on a deserted island; one with natural recources and even tools, but no gold.  Naturally, a barter system would develop for everyday transactions.  But if the Gilligan island crew wanted to dig a well, plant crops, or build a bridge, how could they finance it without gold?  Simple.  They would invent some sort of fiat system, with taxes, to collect a contribution of labor and "capital", and build an infrastructure.

One such island did this, without gold:  Japan.

Thu, 05/03/2012 - 19:57 | Link to Comment tired1
tired1's picture

Can you provide sources for this? Thanks if you can.

 

Thu, 05/03/2012 - 22:58 | Link to Comment GuyJeans
GuyJeans's picture

Doesnt seem correct.  Looks like Japan had commodity/gold/silver based currencies up to 1941 or so

http://en.wikipedia.org/wiki/Japanese_currency

Thu, 05/03/2012 - 21:16 | Link to Comment bshirley1968
bshirley1968's picture

That is a real simplification of a people who are born into a class, vocation, way of life, and believe that their emperor was a deity to be worshiped.  Slave labor, collectivism, feudalism is more like it.  They didn't need money.  People were their currency.

Fri, 05/04/2012 - 03:40 | Link to Comment francis_sawyer
francis_sawyer's picture

  "But if the Gilligan island crew wanted to dig a well, plant crops, or build a bridge, how could they finance it without gold?"

~~~

Easy ~ You do it the way it's been done for thousands of years... You become a Pharaoh & enslave a whole entire race of population... Oh wait! That's what the central bankers are doing anyway (without the whips & chains ~ though those are probably coming pretty soon as we move along the timeline)...

 

Thu, 05/03/2012 - 17:55 | Link to Comment Sean7k
Sean7k's picture

Only because governments step in and suspend the requirement that banks redeem in specie. This is not the fault of gold. 

Your assumption that value is fixed is pretty silly. When you have a fixed amount of an asset, the value of the asset rises if there is competition for it. Value is created by producing goods that consumers want. It has nothing to do with the amount of gold available. Gold is merely an accepted means for exchange.

This is the benefit of eliminating legal tender laws. Then money is determined by the consumers and producers. It is not dependent on a single source point.

Thu, 05/03/2012 - 17:58 | Link to Comment Quisat_Sadarak
Quisat_Sadarak's picture

Not really. Anything you print against gold ultimately has to reconcile when you have a "run on the bank" situation. Honest banks who issue 1-to-1 notes-to-gold have no problem when depositors come knocking to collect. Fraudulent Bankers who issue n+1-to-1 notes-to-gold will get busted when the depositors come knocking. Oversimplified for clarity.

Anyone just holding physical is immune to the run, but has the risk theft. Which is where the whole money wherehousing idea and note issuance started from. The temptation of Sneaky bankers to issue more notes than is held in the vault has historically been all too tempting to resist.

Thu, 05/03/2012 - 18:13 | Link to Comment Debt-Is-Not-Money
Debt-Is-Not-Money's picture

" The temptation of Sneaky bankers to issue more notes than is held in the vault has historically been all too tempting to resist."

Reply

And it's this type of FRAUD that our government is supposed to protect us from.

They sure are doing a wonderful job, no?  /sarc

Thu, 05/03/2012 - 17:09 | Link to Comment BandGap
BandGap's picture

Before any realignment to a precious metal standard there will be yet another "war to end all wars".

Debt is angst, and countries deal with angst in a very particular way.

Thu, 05/03/2012 - 17:11 | Link to Comment SemperFord
SemperFord's picture

Unfortunately I don't see them changing anything soon, more can kicking to continue as nobody wants to be blamed for it...sucks.

Thu, 05/03/2012 - 17:17 | Link to Comment Vince Clortho
Vince Clortho's picture

true, they will attempt to kick the can as long as possible. The sociopathic mindset is to milk the cow dry and then throw the corpse in the ditch.   The consequences of this insanity are accumulating.  Events beyond the central planners control are looming.

They are already looking for hideouts in the Southern Hemisphere.

Thu, 05/03/2012 - 17:12 | Link to Comment skepticCarl
skepticCarl's picture

If gold were to be reactivated as a standard for currency, the same PTB we have today would do  whatever it takes to put themselves in charge.  Greed, fraud and corruption have existed under gold regimes, of course. It will take more than a gold standard to change our culture's something for nothing attitude.

Thu, 05/03/2012 - 17:13 | Link to Comment BandGap
BandGap's picture

Uh, a war perhaps? They work wonders for national mood changes.

 

Thu, 05/03/2012 - 17:18 | Link to Comment Vince Clortho
Vince Clortho's picture

That is exactly right.  Perhaps if America grew some balls and confronted these parasites ....

Thu, 05/03/2012 - 17:25 | Link to Comment Anton LaVey
Anton LaVey's picture

Exactly - the only advantage of a Gold Standard would be to limit money printing by the powers that be.

The real problem, in much of the Western world, is that politics has been captured by filthy rich, partisan, white males. And before you accuse me of being a leftist, take a long hard look at the CEOs of the TBTF and the top 20 hedge funds and tell me how many are (a) female or (b) of a minority ethnicity.

Thu, 05/03/2012 - 17:43 | Link to Comment Pladizow
Pladizow's picture

How dare you racially profile.

Next you will accuse muslims of being terrorists, and not search 90 year old blond hair, blue eyed grandmothers!

Thu, 05/03/2012 - 17:47 | Link to Comment prole
prole's picture

(a) shemale: small percent with Kirchner and Merkel heading up big funds

(b) ethnic minority: Probably about 90% of them. That's just my guess what is the actual %?

Thu, 05/03/2012 - 23:32 | Link to Comment FeralSerf
FeralSerf's picture

I didn't realize that eastern European Kazars were an ethic minority.  They appear to be a tribe.

Thu, 05/03/2012 - 18:19 | Link to Comment Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"(b) of a minority ethnicity."

You wouldn't mean "The Tribe" would you????????????????

Thu, 05/03/2012 - 17:15 | Link to Comment thursday0451
thursday0451's picture

WARNING WARNING WARNING
(this is off topic but important!)

Russia threatens to strike NATO missile defense sites
http://www.washingtontimes.com/news/2012/may/3/russia-threatens-strike-nato-missile-defense-sites/

Russia’s most senior military officer said Thursday that Moscow would pre-emptively strike and destroy U.S.-led NATO missile defense sites in Eastern Europe if talks with Washington about the developing system continue to stall.

“A decision to use destructive force pre-emptively will be taken if the situation worsens,” Russian Chief of General Staff Nikolai Makarov said at an international missile defense conference in Moscow attended by senior U.S. and NATO officials.

Russia warns on missile defence deal with Nato and US
http://www.bbc.co.uk/news/world-europe-17937795

Russia says it is prepared to use "destructive force pre-emptively" if the US goes ahead with controversial plans for a missile defence system based in Central Europe.

Thu, 05/03/2012 - 17:20 | Link to Comment Sean7k
Sean7k's picture

You must have missed the cold war. This is referred to as "saber rattling" and is meaningless.

No major power has the balls to start a war(except by proxy) with any other major power. The costs are too high. 

However, it is useful for getting more funds for your particular department.

Thu, 05/03/2012 - 17:55 | Link to Comment prole
prole's picture

Works the same for both sides eh Comrade?

Thu, 05/03/2012 - 18:01 | Link to Comment magpie
magpie's picture

Long submarines and suitcase nukes, short ICBMs ?

Fri, 05/04/2012 - 06:15 | Link to Comment New World Chaos
New World Chaos's picture
German submarine missing with four loose nukes aboard.  British and Israeli involvement suspected.  Conspiracy theories flying.  I can think of three sub-accessible cities where they may soon want to vaporize "gold", evidence, and uppity peasants.  One nuke left over to decomission the USS Enterprise off the coast of Iran. http://www.veteranstoday.com/2012/04/30/raw-reports-nuclear-threat-from-germany/
Thu, 05/03/2012 - 17:16 | Link to Comment Sean7k
Sean7k's picture

Great explanation of the problems associated with central banking. Unfortunate synopsis that relies on a "standard" of any kind. Standards are the problem. Like rules, regulations and laws, they are the starting point for mischief.

Eliminate legal tender laws. This depends on no standard or rules. The economy is always free to define money in its' own terms.

Thu, 05/03/2012 - 17:29 | Link to Comment skepticCarl
skepticCarl's picture

No system devised by humans, for humans, is crook-proof.  There's a million ways any system can be corrupted to place power and recources in the hands of the few, and undeserving.

Thu, 05/03/2012 - 18:18 | Link to Comment CH1
CH1's picture

any system can be corrupted to place power and recources in the hands of the few

Indeed! That's why systems are setup in the first place - to give the operators a respected way to milk the suckers.

No system = Scattered and small crime.

System = One large set of giant, respectable crimes.

Fri, 05/04/2012 - 02:36 | Link to Comment AustriAnnie
AustriAnnie's picture

And nor should a system be.  The idea that we can just "create a system" and then set it on autopilot is ridiculous.  People have to actively make choices every day and defend their rights every day.  But people don't want that kind of responsibility.  They want an "enlightened ruler" who will take care of them from cradle to grave, and all they have to do is put this person in power in the right "system" and then they will be free from the responsibiity of their own lives.

Thu, 05/03/2012 - 17:59 | Link to Comment Think for yourself
Think for yourself's picture

Indeed. Free money with a floating value, as defined by a true market - gold, silver, copper, oil, wheat - whatever floats your boat. Unfortunately, gold and silver sank mine.

Thu, 05/03/2012 - 17:16 | Link to Comment prole
prole's picture

I maintain that we are on a gold standard and we have never left the gold standard.

Guessing here: There are probably people in India, in Dubai, especially Vietnam, Malasia and Iran who would agree with my statement, taking it as obvious.

Anyone in Belarus who held any of his wealth in the local Belarubles, just learned the truth of my dictum, by having his net worth cut by (40 ~ or 60% can't remember) in a national currency devaluation. Paper money is a scheme by criminals to plunder people of their gold

Thu, 05/03/2012 - 17:17 | Link to Comment Random_Robert
Random_Robert's picture

So in a nutshell, this commentary basically answers the question:

"Why is Gold the supreme backer of all money"

with a very long winded version of:

"Because it is not subject to human politics (or policy)"

An asset that is concurrently no one else's liability... the truest form of money.

Thu, 05/03/2012 - 17:35 | Link to Comment skepticCarl
skepticCarl's picture

"Because [gold] is not subject to human politics (or policy)"

Maybe that's true on some other planet, but here on earth, the history of the Mayans and Incas indicate otherwise.

Thu, 05/03/2012 - 17:45 | Link to Comment Temporalist
Temporalist's picture

An atrocity is not "politics."

Fri, 05/04/2012 - 03:58 | Link to Comment francis_sawyer
francis_sawyer's picture

Let's all play a game of Monopoly, OK?

The only difference is, in THIS game I'm proposing, instead of everyone starting out with a small amount of cash & a token, I'll start by being the banker (but with no personal 'cash')... Everytime someone lands on a property, I can create the money out of thin air, charge each of the players interest for it... As each person passes "GO" they still collect their paycheck (but their intertest payment TO ME, THE BANK, becomes due)... I accumulate cash on the side along the way...

I have to go into debt as well to buy all the things I want but I can always magically print up the money when I want to for those transactions... Instead, at any given time, if anyone who borrowed money from me to buy something isn't on schedule in repayment, I can sieze those assets for myself... Whenever I feel like it, if it appears to me like a single player is becoming too dominant, I can refuse to finance any purchase he might want to make (such as landing on the third property to achieve a monopoly)...

Sound fair?

Edit: & oh, by the way... Whenever the pace of the game seems too boring or slow for me, I can arbitrarily order out for pizza & beer (starting wars ~ social welfare)... It matters not if any of the individual players don't eat pizza or drink beer... Essentially when I do, the TAB for this gets added to a collective kitty, requiring an exise tax on top of what everyone owes me as they pass GO...

Thu, 05/03/2012 - 17:17 | Link to Comment disabledvet
disabledvet's picture

Who doesn't believe in Satan?

Thu, 05/03/2012 - 17:22 | Link to Comment Sean7k
Sean7k's picture

As described in religious texts, me.

Thu, 05/03/2012 - 17:26 | Link to Comment Anton LaVey
Anton LaVey's picture

I certainly don't believe in Satan...

(AH! I am so funny I kill myself!!)

Thu, 05/03/2012 - 22:41 | Link to Comment Amish Hacker
Amish Hacker's picture

Oh, I thought you said, "Santa."

Thu, 05/03/2012 - 17:20 | Link to Comment LULZBank
LULZBank's picture

What would buy Oil, would be "money" as long as there is oil. Gold will only enter the scene once oil is gone and there isint any other form of controllable energy source discovered or created, in our present paradigm.

Thu, 05/03/2012 - 17:30 | Link to Comment Bam_Man
Bam_Man's picture

This guy has been reading Doug Noland.

Thu, 05/03/2012 - 17:30 | Link to Comment Eanach1
Eanach1's picture

Ok so I'm going to ask. What advantage would holding gold give me? I still don't see it.

Thu, 05/03/2012 - 17:36 | Link to Comment Born-Again Bankster
Born-Again Bankster's picture

That's because you put the bag on your head on backwards.  Turn it around and look through the holes.  The advantages are obvious.  Ahhh, there ya go.

Thu, 05/03/2012 - 18:17 | Link to Comment CH1
CH1's picture

That's because you put the bag on your head on backwards....

If I could click the up arrow a hundred times I would. You really brightened my day. Thanks.

Thu, 05/03/2012 - 17:39 | Link to Comment toothpicker
toothpicker's picture

You can eat it for breakfast

Thu, 05/03/2012 - 17:42 | Link to Comment LULZBank
LULZBank's picture

Holding gold dont give you much, its not a woman. You can use it to trade for iPhone. One ounce currently buys about 3.25 iPhones.

Thu, 05/03/2012 - 17:46 | Link to Comment Temporalist
Temporalist's picture

I'll trade anyone an iPhone for an once of gold.

Thu, 05/03/2012 - 17:53 | Link to Comment LULZBank
LULZBank's picture

Your spread is tight, open up. I said 3.25 iPhones for an ounce. Deal or no deal?

 

P.S. Who is junking me and why?!! Just because Im in love with Blythe Masters, is no reason to junk me you racist moron!

Thu, 05/03/2012 - 18:21 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 for balance!

Thu, 05/03/2012 - 17:47 | Link to Comment eddiebe
eddiebe's picture

Jeff, can't you come up with a shorter version?

Thu, 05/03/2012 - 17:48 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

The only paper I own is the stuff I wipe my ass with. Market paper is worthless, because I cannot do a good job of wiping my ass with it. Gold was worth $28.00 an ounce when I was a kid. Silver was worth whatever was printed on the coin you spent. Any one think those days are coming back? All of the lying bum fucking aristocracy of the Age Of Paper Power can burn in their paper suits soonest. I won't even bother pissing on them to put out the flames. I collect gold, silver, lead, copper, real dry powder, food, tools, diesel fuel, and other useful commodities. There is a community of folks all doing the same, so skill sets and extra eyes and hands can guard each others sixes. Time to pull a Jim Morrison, and "break on through to the other side, break on through to the other side, YEAH "

Thu, 05/03/2012 - 17:50 | Link to Comment LULZBank
LULZBank's picture

If your community needs a qualified, educated PhD holding Banker, let me know. I promise the wealth will trickle down and hope to get the direction right.

Thu, 05/03/2012 - 18:06 | Link to Comment skepticCarl
skepticCarl's picture

Silvergeddon, your world sounds delightful: so much better than the paper-loving world of the aristocrats living in Monaco, Tahiti, or Paris.

Thu, 05/03/2012 - 21:20 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

Yeah, they are all set up there - until the Euro makes the dollar look good as it gets flushed down the toilet of entire countries indebtedness. Once Spain, Portugal, Holland, Belgium, Ireland, and a host of other countries in hock to the banks go under, they are going to haul the entire mess along with pensions, credit default swaps, and derivatives into a 300 quadrillion dollar paper hell firestorm.

Those fuckers in Monaco, et al, are all singing right now " We are fucked and we know it, but we're not gonna show it , we are fucked and we know it, and we're just all gonna clap our hands " What happens to them and their paper when just plain folks start looking for accountability, honesty, integrity, and just plain survival ?

Well, then, the tune changes. " Bye Bye, international bankster pie, drove my barb b q to your house, and your wife wouldn't lie, told us where your heavy little ass was hiding, and it's time to do some rough riding. So say, bye bye, 'cause this will be the day that you're a pie, yeah, this will be the day that you're a pie. " Bon appitite, fellow Euro bitchez !

Thu, 05/03/2012 - 17:59 | Link to Comment skepticCarl
skepticCarl's picture

Not covered in Mr. Snider's article is the fact that about 80 million ounces of gold is mined each year, with the largest producers being in China, Australia, the U.S., Russia, and South Africa.  Does anybody see any opportunity for the plutocrats and oligarchs to keep control over economies even under a gold standard?

Thu, 05/03/2012 - 18:14 | Link to Comment Sean7k
Sean7k's picture

Mr Snider never implies that a gold standard would change the role of fascism in governments. This article focuses on the levels of intervention that would be available within the banking system under a gold standard. He further states that a gold standard would allow market corrections to happen naturally. This would probably happen as well.

Regardless of the standard for exchange, people that seek power and influence will always attempt to control and use it for their own benefit. Your argument is with the necessity of government and the police power of the state. Another discussion- an important discussion. 

 

Thu, 05/03/2012 - 18:17 | Link to Comment jimmyjames
jimmyjames's picture

Not covered in Mr. Snider's article is the fact that about 80 million ounces of gold is mined each year

Does anybody see any opportunity for the plutocrats and oligarchs to keep control over economies even under a gold standard?

******************

80 million ounces is 2500 tons-there is currently 165,000 ton in existence so-hardly a big surge of money flooding the market and keep in mind-under gold standard-people save/hoard as the buying value is maintained in inflation and increases significantly in deflation-

The control of economies is maintained by trade balance ie: inflation and deflation and with a gold standard the transition from inflation to deflation is smooth and the fact that prices always have to adjust to a fixed supply of money-deflation is a welcome phenomena to savers-

Thu, 05/03/2012 - 18:05 | Link to Comment sof_hannibal
sof_hannibal's picture

what a good analogy... the world at least those control, feel that without central banks-- we are lost... hahaha, a good trick in deed... austrity and more bailouts for the banks or ELSE!!!! BE WARNED... what a fucking joke

Mephistopheles (central bankers) admits that they have not seen each other for a long time and that his appearance has changed: “The world is now a cultured place, / where the devil has evolved accordingly.” He has shed his “Nordic” form of horns and tails and crooked fingers for a more refined look (fiat bills and debt), though he has kept his hoof foot. The witch dances, crying, “My Squire Satan has come back again!” but Mephistopheles tells her not to use that name because “It’s now a name for fairy tales and fables... / the Evil One is gone, the evil ones remain.” -- Goethe

“I often laugh at Satan (central planners), and there is nothing that makes him (them) so angry as when I attack him to his face, and tell him that through God I am more than a match for him” --Martin Luther

“It is wonderful how much time good people spend fighting the devil. If they would only expend the same amount of energy loving their fellow men, the devil would die in his own tracks of ennui.”

“Every man for himself, his own ends, the devil for all.”-- Robert Burton i.e. get rich, print money, or die trying...

“The Devil himself, which is the author of confusion and lies.”

Thu, 05/03/2012 - 18:15 | Link to Comment _underscore
_underscore's picture

I'm struck by how good a fit a gold standard would would be to a post growth (or ex-growth or tiny growth) world. Assuming we do at some point in time accept that a finite world can't continuously deliver enough (even if mainly nominal in fiat terms) growth to justify the requirement of debt money to generate the interest (and by implication never ending growth), then a gold standard neatly side-steps the uninhibited creation of fiat currency (currently via fractional reserve magick) by relying on real savings that are loaned only on the most diligent & scrupulous terms, because the result would be true bankruptcy for mal-investment.

 

 

Thu, 05/03/2012 - 18:20 | Link to Comment bill1102inf
bill1102inf's picture

Y'all losers still in here cheerleading a losing team??? Pfft.  Gold is for suckers who can't make money trading the real market. Im up more in the last 9 months than you would have been if you bought gold 10 years ago (and you didnt).  

Thu, 05/03/2012 - 18:41 | Link to Comment prole
prole's picture

Percentage of people brilliant/savvy enough to trade and MAKE money = 0.5%?

Percentage chance that you are one of them.......  0.000001%?

Percentage chance you are some bitter loser/poorly paid troll.....70%

Percentage chance that I am clinking pre64 quarters while I type this ... you tell me Mr. "Y'all"

 

Thu, 05/03/2012 - 18:57 | Link to Comment jimmyjames
jimmyjames's picture

Percentage chance you are some bitter loser

**********

I suspect you're right-it does sound like bullshit-it's always the ones who missed the boat that holler the loudest and carry an easy to read bitter resentment of those who have been in a winning trade for-yes-10 years-

If they had ever done any research 10 years ago-they would be in and if-before they spoke today actually "looked"- they would discover that nothing has beat this low risk gem in 10 years-

http://www.acting-man.com/blog/media/2010/05/Gold-vs.-Oher-Assets.png

Thu, 05/03/2012 - 18:53 | Link to Comment _underscore
_underscore's picture

Well done Bill!  I'm only surprised, in that case, that you'd even bother to try to educate all the misguided souls here in your valuable spare time. I'd have thought you'd want to enjoy your good fortune, maybe spend the time with family & friends, buy that sports car/bespoke suit/smeg double-door walk-in fridge etc. etc.

But since you do have  a vocation to help & advise those less blessed  with investment acumen, perhaps your seed would find more fertile ground for germination in other, let's say, more mianstream investment forums? Just a suggestion of course, but it seems such a waste otherwise as the demographic here do seem rather committed & set in their ways - don't ya think?

Thu, 05/03/2012 - 19:20 | Link to Comment Central Bankster
Central Bankster's picture

LOL and if you made several hundred percent in 9 months you will lose 95% just as fast, its simply a matter of time and probability catching up with you.

Thu, 05/03/2012 - 21:27 | Link to Comment SILVERGEDDON
SILVERGEDDON's picture

Hey there Bill - if you all go and gather up all that paper bullshit you all are swimming around in, staple it to your head, pour gasoline on it, and light it on fire, at least you can be more entertaining doing your dog imitation. Good only once, but the WOOF ! as the combustion process is initiated will be very convincing, you all. I fart in your general direction, lit upon release, of course.

Thu, 05/03/2012 - 19:39 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

'Money is money and paper is paper" - German farmer circa 1786

http://mises.org/daily/2942

 

Thu, 05/03/2012 - 21:00 | Link to Comment Bansters-in-my-...
Bansters-in-my- feces's picture

END the FED.

It is NOT federal nothing.

And it has no reserves.

It is a fucking PONZI.

Just like Bernie and the Boys.

Thu, 05/03/2012 - 21:54 | Link to Comment valkyrie99
valkyrie99's picture

Great critique of problems with the current system, but unfortunatly dead wrong on allowing fractional reserve banking based on a gold standard.  Your statements on why this would work are based on pure theory:

 

"An individual bank operating under this paradigm would actually care about public perceptions of its risk profile and ability to successfully carry out its role as an intermediary of credit.  Since the stock of money is exogenously controlled by the general public, individual banks would actually compete with each other to maintain some real standard (as opposed to an ephemeral accounting notion) of sanity and reserve, so much so that the very idea of intentional complexity and opacity would be harmful to its own prospects. "

So you're saying we should trust banks to not take short term profits because they'll fear reputational risk inpeding their future competitive viablilty.  When have banks ever acted in this manner? 

Certainly not in our modern financial system, but not ever either.  What you descibe is like what we had in the US from appx. 1785 - 1836(?) when states started passing laws regulating banks. We were claimned to be on a gold standard, but bank notes backed by gold reserves that didn't exist issued much of the circulating currency.

Your theory was espoused by those who wanted private banks at the time, but this isn't what happened. Instead we had 'wildcat' banks throuout the union who fruequntly colluded to increase the money supply by issuing more loans (debt-based currency), then calling in loans and refusing to issue more to contract the money supply, causing general deflation and forcing defaults as borrowers couldn't pay back the loans in rarer bank notes, allowing banks to buy up assets at depressed prices (with notes issued on  gold they didn't really have). Many banks failed and took with them the wealth of note holders and depositors. In addition to causing sufering, this system allowed an opening for the first attampts at central banking - the 1st and then 2nd national bank - who were claimed to be able to stabilize the system.

In Oct. 1815 Jefferson wrote Gallatan in protest of the 1st national bank and state-charted private banks: “The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment…These jugglers were at the feet of government. For it was not, any confidence in their frothy bubbles, but the lack of all other money, which induced…people to take their paper…We are now without any common measure of value of property, and private fortunes are up or down at the will of the worst of our citizens…

 

It is worth noting that permitting fractional reserve banking on a gold standard does not prevent government involvement in monetary matters.  States and the Federal government granted charters to open banks to cronies.  Those banks provided funding for the gov't like the Fed does by buying its' bonds, and made loans where their benefactor encouraged.  The gov't accepted payments of taxes and fees in banknotes.  This was the same formula that had ensured notes from the Bank of England had become accepted as circulating currency by the public.

 

When the Fed was pushed through in 1913, it was the fractional reserve bankers pushing, and this was accomplished by highlighting many panics the bankers had caused to show need for a stabilizing mechanism. It cemented and backstpped the bankers' ability to create money. If bankers aren't prevented from creating money, they will always be able to by the gov't.

Fri, 05/04/2012 - 00:16 | Link to Comment indio007
indio007's picture

Ok what's with the eliminate legal tender laws crap? There is no law that prohibits other legal tender. The law is a recognition. There is no prohibition of other legal tender whatsoever. 

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