patrick.net

indigenous says

spydah_hh says

Which gold standard we talking about the 1933 one or the 1971 one?

1971

I agree with your assessment but I think it started in 1933, then really went through the roof in 1971.

But we need to go back to the 1933 Gold Standard which is the real gold standard, not the 1971 one.

spydah_hh says

thunderlips11 says

The last time we had a gold standard, banks and the top 1% owned the physical and everybody else had to deal with paper allegedly backed by it.

And these papers were often "Discounted" - meaning you paid more with gold-backed paper than you would with actual gold.

What? Where did you this information from?

I thought this was common knowledge. Whether London, NY, or Paris, bank notes - especially from distant banks - were discounted to various degrees.

Here's a paper modeling how banknotes were discounted.
http://www.minneapolisfed.org/research/wp/wp641.pdf
http://www.minneapolisfed.org/research/wp/wp629.pdf

Table 5, Page 13:
http://www.frbatlanta.org/filelegacydocs/ACFCE.pdf

These were all gold-backed banknotes - by law they had to redeem banknotes in specie.

Thanks to Fiat Money, a dollar is a dollar no matter where you use it.

A Table of Bank Note discounts from a time-period Newspaper:

thunderlips11 says

I thought this was common knowledge. Whether London, NY, or Paris, bank notes - especially from distant banks - were discounted to various degrees.

Well for one this isn't really a gold standard. Since paper is being used in circulation. A real gold standard is when gold is in circulation. Thanks to today's' technology we could actually use both, have gold paper, although the costs or premiums are high but eventually we'll get to the point where the premium costs are low.

thunderlips11 says

Thanks to Fiat Money, a dollar is a dollar no matter where you use it.

Not true, a dollar today isn't the same as a dollar tomorrow. The value and purchasing power of the dollar overall has declined over 90% in the last 100 years. I rather pay a discount fee with paper backed by gold than from nothing at least the value of that paper would still be worth something more than it would be today.

spydah_hh says

Well for one this isn't really a gold standard.

It isn't? The law was that the banknotes must be redeemable for specie on demand. That's a gold standard.

The only difference is that private banks issued banknotes instead of the Central Bank - a minarchists' dream and almost but not quite anarcho-capitalism.

spydah_hh says

The value and purchasing power of the dollar overall has declined over 90% in the last 100 years.

The value of an ounce of gold has gone down ~20% in the past 2 years. Imagine if the dollar lost ~20% of it's value in two years!

If we had a gold standard, the $10,000 worth of gold in a non-interest bearing account would have been worth $8000 dollars.

Strategist says

Going on the gold standard is too restrictive for monetary policy.

Yes and no.

I think that any sort of standard is too fragile, you just need to open the market up to competing currencies, whether that's gold, silver, seashells, or bitcoins. Let people settle contracts however they want to.

If we were still in a commodity backed economy, increasing production efficiency would see prices falling over time, and the economy would be more based on saving money for big purchases rather than borrowing money against the future (this is what it was like in the past). The market finds a balance between savings and credit. Bubbles pre-1971 weren't as deep or as all-encompassing as afterward.

To go back to a commodity backed money would require unwinding the credit multiplication of fractional reserve banking, which would be massively deflationary. Creditors would get screwed by being unable to withdraw from banks, debtors would get screwed by having the real value of their debt to go up. The transition period from fiat money to commodity backed money would be truly chaotic.

I would love to see the end of fiat money, but getting there will require a collapse of the dollar or a revolution.

thunderlips11 says

It isn't? The law was that the banknotes must be redeemable for specie on demand. That's a gold standard.

The only difference is that private banks issued banknotes instead of the Central Bank - a minarchists' dream and almost but not quite anarcho-capitalism.

The problem is there was more paper money issued and created then there was gold. That's why it's not a real gold standard, you may have a redeemable note but wasn't redeemable because the gold was gone.

A true gold standard is when gold is in circulation and being used, not backed by some note.

thunderlips11 says

The value of an ounce of gold has gone down ~20% in the past 2 years. Imagine if the dollar lost ~20% of it's value in two years!

If we had a gold standard, the $10,000 worth of gold in a non-interest bearing account would have been worth $8000 dollars.

Well gold prices are being suppressed, but even then the value of gold back when it was $30 back in 1933? Is now over $1200 today. So don't give me short term bullshyt to validate your invalid argument.

lower taxes on middle class
raise them on the wealthy
impose tarriffs on offshoring or evasion partnerships, while provide tax write offs for hiring within US.

FortWayne says

lower taxes on middle class

raise them on the wealthy

impose tarriffs on offshoring or evasion partnerships, while provide tax write offs for hiring within US.

these are all policies that will create long recessions or depressions.

spydah_hh says

these are all policies that will create long recessions or depressions.

lol--lowering taxes on the middle class causes recessions? Really?

tatupu70 says

spydah_hh says

these are all policies that will create long recessions or depressions.

lol--lowering taxes on the middle class causes recessions? Really?

Except for that one and US hiring of course. The other two I don't necessarily agree with.

myob says

To go back to a commodity backed money would require unwinding the credit multiplication of fractional reserve banking, which would be massively deflationary. Creditors would get screwed by being unable to withdraw from banks, debtors would get screwed by having the real value of their debt to go up. The transition period from fiat money to commodity backed money would be truly chaotic.

If they at least would get rid of the Friedman contraption, it would help a lot.

Strategist says

The $4trillion increase in MS worked in 2008 to prevent a depression.

Sorry to but in Spydah_hh, but this is right over the center of the plate.

That is the horse shit that Bernanke kept repeating, I don't know if he believed it or not but it is pure shite.

The catalyst was set in the 1920s which burst in 1929 though the early 30s. The excess money came from inflation created in WWl, along with the US practicing mercantilism at the same time. None the less this would have been over with in a short period of time.

But the thing that really caused the depression was incessant meddling in the economy by FDR.

Friedman and Bernanke looked at the banks going under in 1933 as a liquidity problem caused by the FED not increasing the money supply. But it weren't true.

indigenous says

Strategist says

The $4trillion increase in MS worked in 2008 to prevent a depression.

Sorry to but in Spydah_hh, but this is right over the center of the plate.

That is the horse shit that Bernanke kept repeating, I don't know if he believed it or not but it is pure shite.

The catalyst was set in the 1920s which burst in 1929 though the early 30s. The excess money came from inflation created in WWl, along with the US practicing mercantilism at the same time. None the less this would have been over with in a short period of time.

But the thing that really caused the depression was incessant meddling in the economy by FDR.

Friedman and Bernanke looked at the banks going under in 1933 as a liquidity problem caused by the FED not increasing the money supply. But it weren't true.

Well said, I need not to say anymore!

indigenous says

But the thing that really caused the depression was incessant meddling in the economy by FDR.

Friedman and Bernanke looked at the banks going under in 1933 as a liquidity problem caused by the FED not increasing the money supply. But it weren't true.

If you suppress the money supply, rates go up putting an extra burden on businesses when they can least afford it. If they were lucky to get the loans anyway.
In 2008 the huge increase in MS allowed rates to go to near zero, which made borrowing by businesses more economical, and buying homes cheaper then renting, which triggered massive purchases of homes by hedge funds. That prevented a disastrous depression.

Strategist says

One lesson we learnt from the 1929 crash was....money supply should be increased, not curtailed. The $4trillion increase in MS worked in 2008 to prevent a depression.

No, this is false. What the $4,000,000,000,000 did was hide the losses of financial institutions which were leveraged massively into assets, and the little bit of a deflationary hiccough we had was enough to make them all insolvent.

Here's the crux of the matter. Wealth, and thereby quality of life, is dependent on the productivity of society, not on the amount of money in circulation. There may be a delay, but the money eventually finds a value relative to productivity.

What happens when the Fed creates money is that rather than starting businesses, building factories, or providing services to make a buck, people follow the easy money, and the easy money lies closest to where the Fed outputs its newly created credit. In the latest iteration of the cycle, this went into the housing market through lax lending standards and low interest rates, and the trillions the banks are sitting on went into the markets (with leverage, naturally). Some bloggers, like Denninger, are calling this "financialization", which I think is apt.

This is also known as "misallocation of capital", where rather than being put to productive, wealth increasing endeavors, the capital chases the easiest yield. This is why the monetary stimulus disproportionately benefits the wealthy, because they are the largest asset holders, and the wage slaves are punished by stagnant wages and increasing costs.

We need a massive deleveraging. This will drive the bad players into insolvency. They can't be bailed out, they must be allowed to fail, and their assets need to go to productive endeavors. It will be painful, and maybe it may even lead to another depression. The alternative is inflationary collapse of the dollar. Both outcomes really suck, but we can't go back to 1913 and undo the Fed's malfeasance.

This whole debate makes me laugh.
Yes a fiat money may have avoided a depression. Yes, in that sense, it was probably better for a lot of people.

Now, we live in a world flooded with green paper that continues to fall from the sky.
This leads to massive leverage and ultra financialization.
This leads to massive speculation, where poor people usually get screwed. (see the housing bubble)
This leads to ultra expensive life necessities: housing, education, healthcare.
This leads to poor people stuck in debt.
This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

Which part of this is good for people? I don't know.
It's a situation obviously massively biased in favor of the top 1%.

Democrats who argue in favor of this are just crazy as far as I can tell.

Ben Bernanke walks into a pizza parlor and orders a pizza.

The waitress asks him, "Would you like that cut into quarters or eighths?"

Bernanke says, "Oh, eighths please. I'm REALLY hungry today."

indigenous says

Bernanke says, "Oh, eighths please. I'm REALLY hungry today."

Don't you see how more money means more pizza IS created?

Heraclitusstudent says

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

You got that backwards

indigenous says

Heraclitusstudent says

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

You got that backwards

I did? How?

Heraclitusstudent says

That's how the economy works.

Nope it just means things cost more...

Heraclitusstudent says

indigenous says

Heraclitusstudent says

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

You got that backwards

I did? How?

The trade deficit creates the other, it is how monetarism works.

indigenous says

Nope it just means things cost more...

What would cost more?
- If there are unemployed people, you can hire them without paying more.
- If you can plant more wheat it doesn't cost more. It's just more labor, see above. Commodities are not a bottleneck by definition.

Unless there is a bottleneck, things don't cost more, in spite of more money.

indigenous says

The trade deficit creates the other, it is how monetarism works.

What I said is the result of a simple equation:
Sum ( accounts in US) = US account deficit = trade account + capital accounts.

You save less, ceteris paribus, the trade deficit increases.

Heraclitusstudent says

This is the heart of the problem: if more customers come and offer to pay $20 for a pizza, then what happens?

You said it yourself, ironically "Don't you see how more money means more pizza IS created?"

Heraclitusstudent says

You save less, ceteris paribus, the trade deficit increases.

The point is they are not equal, though monetarism, the Chinese are able to exploit the situation.

Heraclitusstudent says

Don't you see how more money means more pizza IS created?

More money does not mean more pizzas are being created.

spydah_hh says

More money does not mean more pizzas are being created.

If I enter in a pizza restaurant and order a pizza, they won't make one for me?

What a bizarre world you live in!

Heraclitusstudent says

spydah_hh says

More money does not mean more pizzas are being created.

If I enter in a pizza restaurant and order a pizza, they won't make one for me?

What a bizarre world you live in!

Who said they wouldn't?

Your argument is that creating more money gets people to supply more pizzas. No it doesn't work that way. When demand exceeds supply then the prices rise. Therefore, if more money is created, thus people go out and shop more (driving up demand) then prices will rise do to inflation (money creation). This actually drives down the people's purchasing power. Is that what you want?

If so, then what a bizarre world do you live in!

spydah_hh says

Your argument is that creating more money gets people to supply more pizzas

It could go down like this too:
The pizza restaurant is operating at a restaurant industry average profit margin of 1.8%, that is the yield on their hard work and investment. The money printing isn't magic, it's not like everyone has a lot more money all of a sudden. Money is spent into existence, and currently, this is via credit creation.

The owner of the restaurant can continue to toil for 1.8% profit on his investment, or he can get a cheap loan and buy rental houses instead, which yield more, especially as prices are being bid up. It pays a hell of a lot better than tossing pizzas, and everyone is doing it. He sells his restaurant and becomes a real estate investor. His employees are now out of work.

Times are good, his houses are going up in value, rents are covering loans. After a while, he starts seeing a lot of tenant churn, and the materials and labor for keeping his houses in good shape are costing more, the house investments are starting to lose money, it's time to sell. Uh oh, prices have dropped, he's underwater on the loans. He walks away.

End result:
Pizza place is closed.
Pizza place employees are unemployed
Pizza place owner has ruined his credit, and no longer has a pizza joint.

Welcome to the world of monetary stimulus based bubbles.

As for a trade deficit, who the hell cares. If the Chinese are silly enough to give us goods in exchange for paper dollars, that's their problem. We're exporting dollars and importing physical goods, which is great for us!

myob says

If the Chinese are silly enough to give us goods in exchange for paper dollars, that's their problem.

Yup and that is what happened to the US in the 30s. It is also what is happening to the PIGS to the benefit of Germany.

The problem is with Friedman's contraption that automatically induces inflation into the US over a period of 40 years.

This could be changed to induce austerity in government spending.

Heraclitusstudent says

This whole debate makes me laugh.

Yes a fiat money may have avoided a depression. Yes, in that sense, it was probably better for a lot of people.

Now, we live in a world flooded with green paper that continues to fall from the sky.

This leads to massive leverage and ultra financialization.

This leads to massive speculation, where poor people usually get screwed. (see the housing bubble)

This leads to ultra expensive life necessities: housing, education, healthcare.

This leads to poor people stuck in debt.

This leads to a large and persistent trade deficit as people are actively dissuaded from saving.

Which part of this is good for people? I don't know.

It's a situation obviously massively biased in favor of the top 1%.

Democrats who argue in favor of this are just crazy as far as I can tell.

Agree with most of the points in your post, except for the first one. Fiat money does not avoid depression, but causes it to begin with, then exacerbates it. Causes it via massive credit bubble enabled by fiat money. Exacerbates it by preventing the market from clearing: fiat money from government spending into the economy does not speed up the necessary adjustments for clearing but forcing further detours in economic development causing further misallocation of capital.

Heraclitusstudent says

indigenous says

Nope it just means things cost more...

What would cost more?

- If there are unemployed people, you can hire them without paying more.

- If you can plant more wheat it doesn't cost more. It's just more labor, see above. Commodities are not a bottleneck by definition.

Unless there is a bottleneck, things don't cost more, in spite of more money.

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production. There are always bottlenecks at any given time. We live in a world of limits; otherwise there wouldn't be a need for economics.

Heraclitusstudent says

spydah_hh says

More money does not mean more pizzas are being created.

If I enter in a pizza restaurant and order a pizza, they won't make one for me?

What a bizarre world you live in!

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza. In fact, the pizza shop may well go out of business altogether when that happens, especially if the government then gets into the business of price control. Please read up on the Nixon era price control driving NJ chicken farms out of business when FED money printing drove up chicken feed cost while the feds slapped price control on chicken price.

Reality says

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production.

Almost correct. More money(in the right hands) = more demand. More demand = more production.

Reality says

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza.

Also they wouldn't if aliens landed in their parking lot and started attacking the waitresses.

Why do you have to resort to what ifs to make a point? Speculation can occur under any monetary conditions.

tatupu70 says

Reality says

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production.

Almost correct. More money(in the right hands) = more demand. More demand = more production.

And more demand (driven by easy cheap money) drives up prices and erodes purchasing power.

tatupu70 says

Reality says

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza.

Also they wouldn't if aliens landed in their parking lot and started attacking the waitresses.

Why do you have to resort to what ifs to make a point? Speculation can occur under any monetary conditions.

No speculations don't occur when interest rates are determined by the market. Because then interest rates don't stay low forever. Speculation occurs when interest rates remain low and stay low for years and decades.

The purpose of interest rates is to encourage saving or borrowing in the markets. If banks are low on cash reserves they increase interest rates to encourage people to save more, therefore, people shift their focus to long term investments. When interest rates are low that's when businesses (mostly) or people borrow.

In a market where banks are responsible for their deposits meaning no FDIC, they're not so reckless on issuing debt. They won't give loans to bad business deals, they won't give loans to people who can't afford it. They'll issue loans to those who can afford and have good business proposals. It's why the average american from 1865-1913 were well better off in terms of monetary value back then than we are today, because they were using sound money and focused on production capacity and not consumption.

Yes, they had a lower standard of living namely because that was over a 100 years ago, so it's not like the internet, fast cars, commercial airlines, cell phones, and computers were available. But you can see the better standard of living because of the less hours worked needed to purchase their needs, yes they still worked 8 hours but they brought home much more money (in terms of value) in those 8 hours.. Today we need to work more hours and have dual or more incomes to get the same goods, all because of cheap easy money driving our purchasing power down.

tatupu70 says

Reality says

They would not if people speculating on flour, tomato, cheese and fuel make more money by driving those prices higher faster than working stiffs can afford to pay for pizza.

Also they wouldn't if aliens landed in their parking lot and started attacking the waitresses.

Why do you have to resort to what ifs to make a point? Speculation can occur under any monetary conditions.

Do you think aliens landed in the 1970's and drove up the price of chicken feed? Do you think aliens have been landing in the past decade and half driving up four prices, tomato prices, cheese prices and fuel prices? The "if's" in my earlier post were not counter-factual hypotheticals, but real observations. FED printers can not control where the money go. The pizza shop owner would only make more pizza if the margin for his business goes up. In a market place where speculators are protected by the FED whereas workers see wage stagnate while commodity prices go up, the pizza shop's margin go down not up! especially in real terms . . . therefore, less pizza is made not more.