Why not move back to a backed currency?

[AmericanSpartan]

Why not?

Wouldn't the value of Gold sky rocket exponentially to in relational to the value of the dollar taking off?

 

[Deuce]

Why not?

Wouldn't the value of Gold sky rocket exponentially to in relational to the value of the dollar taking off?

Nope.

 

[AmericanSpartan]

Nope.

O.K why?

 

[NonConformer]

The Federal Reserve Notes issued by the US government are nothing more than pieces of paper, not backed by anything of real value. If you or I did that we'd be prosecuted for counterfeiting, but for some reason, it's perfectly Ok for the government to do it.

 

[Deuce]

O.K why?

How about you explain why you think the value of gold would increase?

The Federal Reserve Notes issued by the US government are nothing more than pieces of paper, not backed by anything of real value. If you or I did that we'd be prosecuted for counterfeiting, but for some reason, it's perfectly Ok for the government to do it.

Why would you want a currency system where anyone can print their own currency? On what planet would that make sense?

 

[AmericanSpartan]

How about you explain why you think the value of gold would increase?

It would have vastly more value.

Why would you want a currency system where anyone can print their own currency? On what planet would that make sense?

Really? So its better the Federal Reserve a private bank to have such power?

 

[NonConformer]

Why would you want a currency system where anyone can print their own currency?

In a true free market there would be COMPETING currencies. People could trade or conduct business in British Pound Sterling, French Francs, German Marks, Japanese Yen, Mexican Pesos, gold bullion coins, US Federal Reserve notes, IOUs, or whatever they choose. Let the best, most solid, most stable currency win! Inflation would become something found only in history books.

Actually, when you write a check on your bank account, in a way that is a form of currency. Whether or not it has value is largely driven by your personal credentials. Ditto for cashier checks from banks - how trustworthy is the bank?

The only thing holding back competing currencies is - once again - the government, who has "legal tender" laws on the books which say that it's a crime to conduct business in anything but US Federal Reserve notes. When you have a monopoly, there's not much incentive to produce a solid, stable product.

 

[Deuce]

It would have vastly more value.

But why?

Really? So its better the Federal Reserve a private bank to have such power?

The Fed doesn't really "print money," although they are certainly have a central role in our economy. But that's irrelevant, because whatever criticism of the Fed you may have, that doesn't make "anyone can print money" a good idea. If anyone can print a dollar, a dollar isn't actually worth anything.

 

[AmericanSpartan]

But why?



The Fed doesn't really "print money," although they are certainly have a central role in our economy. But that's irrelevant, because whatever criticism of the Fed you may have, that doesn't make "anyone can print money" a good idea. If anyone can print a dollar, a dollar isn't actually worth anything.

No, its not irrelevant we have private bank in control of the money supply and policy of the United States...

 

[Deuce]

In a true free market there would be COMPETING currencies. People could trade or conduct business in British Pound Sterling, French Francs, German Marks, Japanese Yen, Mexican Pesos, gold bullion coins, US Federal Reserve notes, IOUs, or whatever they choose. Let the best, most solid, most stable currency win! Inflation would become something found only in history books.

Small amounts of inflation are good: it encourages investment rather than stashing money in a mattress. It incentivizes people to try and grow their savings so as to not "lose money" to inflation. And it's not like inflation rates lately have been anything terrifying.

Actually, when you write a check on your bank account, in a way that is a form of currency. Whether or not it has value is largely driven by your personal credentials. Ditto for cashier checks from banks - how trustworthy is the bank?

Yes. And?

The only thing holding back competing currencies is - once again - the government, who has "legal tender" laws on the books which say that it's a crime to conduct business in anything but US Federal Reserve notes. When you have a monopoly, there's not much incentive to produce a solid, stable product.

The US dollar is the single most solid, stable piece of currency in the history of the planet.

The trouble with blindly throwing around Econ 101 thinking is that the real world is way more complicated than that.

 

[Deuce]

No, its not irrelevant we have private bank in control of the money supply and policy of the United States...

It is irrelevant. If everyone can print money, then a dollar is literally just colored paper. Nobody would trade you bread for paper they can just as easily print themselves. Criticize the Fed all you like. There's plenty of valid criticism. But "anyone can print money" isn't a viable alternative.

 

[AmericanSpartan]

It is irrelevant. If everyone can print money, then a dollar is literally just colored paper. Nobody would trade you bread for paper they can just as easily print themselves. Criticize the Fed all you like. There's plenty of valid criticism. But "anyone can print money" isn't a viable alternative.

How about just the U.S Treasury...You know like it say in the Constitution?

 

[Jetboogieman]

In a true free market there would be COMPETING currencies. People could trade or conduct business in British Pound Sterling, French Francs, German Marks, Japanese Yen, Mexican Pesos, gold bullion coins, US Federal Reserve notes, IOUs, or whatever they choose. Let the best, most solid, most stable currency win! Inflation would become something found only in history books.

Actually, when you write a check on your bank account, in a way that is a form of currency. Whether or not it has value is largely driven by your personal credentials. Ditto for cashier checks from banks - how trustworthy is the bank?

The only thing holding back competing currencies is - once again - the government, who has "legal tender" laws on the books which say that it's a crime to conduct business in anything but US Federal Reserve notes. When you have a monopoly, there's not much incentive to produce a solid, stable product.

And this is why libertarianism is a bad economic joke.

 

[donsutherland1]

Really? So its better the Federal Reserve a private bank to have such power?

The Federal Reserve is an independent central bank. It is not a privately-owned bank.

FRB: Who owns the Federal Reserve?

 

[OrphanSlug]

Why not?

Wouldn't the value of Gold sky rocket exponentially to in relational to the value of the dollar taking off?

Several reasons...

One, Debt and Currency in Circulation.

We have gone so far down the road of using a Fiat Money system that trying to back our currency now would reveal a real system shortfall. Namely to our Total Debt position, and how that debt is handled in relation to "full faith of the government" vs. precious metal backing. We know beyond a shadow of a doubt that we have so much Total Debt today that trying to introduce a Gold Standard would show we do not have near enough.

Over estimate and assume we have 10,000 tonnes of Gold somewhere (best estimates suggest the US has roughly 8,133 tonnes.) So, you are talking about one ton being 2000 pounds, and 16 ounces per pound. That takes the overestimate at 320,000,000 ounces of gold held by the US government. Gold closed yesterday at $1,218.20, or Government valuation at $389,824,000,000 as of yesterdays prices. Factor in that we have roughly (as of April 2015) $1.36 trillion in circulation in some form. Just to cover what we have in circulation alone, gold would have to be valued at roughly $4,250 per ounce very damn quick. Or, we would need roughly 34,800 tonnes of Gold at present prices. Neither seems even plausible, and do not forget we have not even talked about covering the $18.2 Trillion in debt we have currently racked up (which is above 100% of our GDP.)

Two, massive growth headwind.

Because of our current economic model trying to introduce a Gold Standard now would mean part of the GDP math quarter to quarter would come down to the money supply. Our model has become very adapt (accustomed to) the money supply being dynamic and constantly growing. When it is backed by a Standard you either dilute the standard to stay dynamic or obtain more of that standard which inflates the price. Look at it this way, post WW2 we look at healthy growth being in that 2% to 3% window when accounting for all the points of the economic cycle (I'm talking about the growth tend line from Economics 101.) The gold supply has not risen at that same pace but valuation has been all over the place given the factors that it sells under. We are never going to find enough gold, ongoing, to support that rate. So valuation ends up being the thing that harms us in the long run. As it did historically when this nation faced deep economic problems, and the money supply was a constraint to the solution.

Three, competition among money systems.

If we attempted a return, ignoring all of the above, it would pressure the world exchanges in handling currency valuations based on ever changing economic conditions.

Odds are given that dynamic, including all the ways the US Dollar handles transactions of oil or even used as reserves against other currency, then it would take an unrealistic and unwieldy agreement to get all nations to a Gold Standard just to avoid the global implications of such an economic bomb on the marketplace.

This is just not a practical solution today given how far we and other nations have used Fiat Money systems.

 

[AmericanSpartan]

The Federal Reserve is an independent central bank. It is not a privately-owned bank.

FRB: Who owns the Federal Reserve?

Once again, why should it have its level of power.

 

[AmericanSpartan]

Several reasons...

One, Debt and Currency in Circulation.

We have gone so far down the road of using a Fiat Money system that trying to back our currency now would reveal a real system shortfall. Namely to our Total Debt position, and how that debt is handled in relation to "full faith of the government" vs. precious metal backing. We know beyond a shadow of a doubt that we have so much Total Debt today that trying to introduce a Gold Standard would show we do not have near enough.

Over estimate and assume we have 10,000 tonnes of Gold somewhere (best estimates suggest the US has roughly 8,133 tonnes.) So, you are talking about one ton being 2000 pounds, and 16 ounces per pound. That takes the overestimate at 320,000,000 ounces of gold held by the US government. Gold closed yesterday at $1,218.20, or Government valuation at $389,824,000,000 as of yesterdays prices. Factor in that we have roughly (as of April 2015) $1.36 trillion in circulation in some form. Just to cover what we have in circulation alone, gold would have to be valued at roughly $4,250 per ounce very damn quick. Or, we would need roughly 34,800 tonnes of Gold at present prices. Neither seems even plausible, and do not forget we have not even talked about covering the $18.2 Trillion in debt we have currently racked up (which is above 100% of our GDP.)

Two, massive growth headwind.

Because of our current economic model trying to introduce a Gold Standard now would mean part of the GDP math quarter to quarter would come down to the money supply. Our model has become very adapt (accustomed to) the money supply being dynamic and constantly growing. When it is backed by a Standard you either dilute the standard to stay dynamic or obtain more of that standard which inflates the price. Look at it this way, post WW2 we look at healthy growth being in that 2% to 3% window when accounting for all the points of the economic cycle (I'm talking about the growth tend line from Economics 101.) The gold supply has not risen at that same pace but valuation has been all over the place given the factors that it sells under. We are never going to find enough gold, ongoing, to support that rate. So valuation ends up being the thing that harms us in the long run. As it did historically when this nation faced deep economic problems, and the money supply was a constraint to the solution.

Three, competition among money systems.

If we attempted a return, ignoring all of the above, it would pressure the world exchanges in handling currency valuations based on ever changing economic conditions.

Odds are given that dynamic, including all the ways the US Dollar handles transactions of oil or even used as reserves against other currency, then it would take an unrealistic and unwieldy agreement to get all nations to a Gold Standard just to avoid the global implications of such an economic bomb on the marketplace.

This is just not a practical solution today given how far we and other nations have used Fiat Money systems.

So we just wait and let things fall apart?

 

[donsutherland1]

The Federal Reserve Notes issued by the US government are nothing more than pieces of paper, not backed by anything of real value. If you or I did that we'd be prosecuted for counterfeiting, but for some reason, it's perfectly Ok for the government to do it.

First, they're legal tender, which makes them acceptable for all transactions.

Second, a fiat currency is, in general, superior to a commodity-backed one, because such a currency allows a central bank much greater flexibility to conduct monetary policy to deal with changing economic conditions. A commodity-backed currency would limit a central bank's flexibility, as there would be fixed limit on the money supply (unless a government changed the convertibility ratio, a measure that would undermine the credibility of a commodity-based standard). Not surprisingly, no modern economy uses a commodity-backed currency. There are some limited and temporary cases where a commodity-backed currency would have merit such as when confidence in a country's currency has been lost e.g., on account of chronic excessive inflation/hyperinflation. In such cases, temporarily linking a currency to a commodity or a more stable international currency can help restore confidence.

The St. Louis Fed has a primer on fiat and commodity-backed currencies that can be found at: http://research.stlouisfed.org/page...ewsletter/2015/Class_Room/PageOneCE201501.pdf

 

[AmericanSpartan]

And this is why libertarianism is a bad economic joke.

Really? Coming from Inflation Inc you have less then no room to talk.

 

[Deuce]

So we just wait and let things fall apart?

Listen, going back to a gold-backed currency is a terrible idea. If you think "terrible idea" and "do nothing" are the only two options, I don't know what to tell you.

 

[OrphanSlug]

So we just wait and let things fall apart?

No, that is ideal either nor am I advocating it. But, I am saying with good economic reason that adopting a Gold Standard today is wildly problematic and would result in global problems.

 

[AmericanSpartan]

No, that is ideal either nor am I advocating it. But, I am saying with good economic reason that adopting a Gold Standard today is wildly problematic and would result in global problems.

Do you see that being the end result after the collapse of fiat currency?

 

[donsutherland1]

Once again, why should it have its level of power.

The conduct of monetary policy requires broad authority. Independence is also needed to avoid political interference, which could be quite tempting around the election cycle. Needless to say, the Federal Reserve's authority is not unlimited and it can be modified through the legislative process.

 

[NonConformer]

The trouble with blindly throwing around Econ 101 thinking is that the real world is way more complicated than that.

More than one leftist-liberal on this forum has alluded that Econ 101 is bunk. I've oft wondered about that. The basic principles of Economics - supply & demand, behavior of consumers & producers - has been around for, like, hundreds of years. If it all truly is a farce and a sham, then I'd be curious to know what "scholarly" work is supposed to replace it.

Is the real world more complicated? Yes but the very GOAL of Economics, as you will find in the 1st chapter of any Econ textbook, is to take this complex, tangled, garbled, intricate, diverse, voluminous conflagration of buying, selling, trading, producing, consuming, etc, etc, etc, and condense it down to a handful of simple models we can all grasp.

So again I say, and Econ 101 backs me up here: competition is better than monopoly. And no, the US Dollar is not absolutely 100% solid and stable. For centuries, the best tried-and-true medium of exchange are the precious metals like gold and silver.

 

[Deuce]

Do you see that being the end result after the collapse of fiat currency?

Why do you want to definitely cause a currency collapse in order to avoid a possible currency collapse?