Economics Questions

Re: Gold

JonBostwick — Tue, 05 Aug 2008 19:00:40 GMT

histhasthai:
It's not fraud if the reserve requirement is stated up front and there is enough transparency to satisfy the depositors.

It would not be fraud if the bank notes read "Payable on demand, maybe."

Re: Gold

fsk — Tue, 05 Aug 2008 18:50:08 GMT

xSFx:

the $ has the Fed, but who is the equivalent for the Euro?

The European Central bank is the European Control Board (ECB). Every country has a central bank, or has their local money pegged to another currency that uses a central bank. (Panama is pegged to the dollar. Gurensey is pegged to the British Pound.)

Re: Gold

Voievod — Tue, 05 Aug 2008 18:45:38 GMT

the $ has the Fed, but who is the equivalent for the Euro?

Re: Gold

ozzy43 — Tue, 05 Aug 2008 16:49:32 GMT

fsk:

The reason gold standards fail is that the insiders can't resist the temptation to print more gold-redeemable paper than physical gold they have. This guarantees an eventual default.

A quick comment on this: it is vastly more probable that a government will engage in this sort of fraud, and on a vaster scale, than competing private entities, since liability for the latter is far higher, as thus is accountability. So this looks to me like a stronger argument against a gold exchange standard than against a gold standard.

As far as I am concerned, the entire matter boils down quite simply: fiat currencies offer only endless financial chicanery, both from government itself and its willing agents (like the Fed and the financial industry), to the great expense of the individual who would be free. The sophisticated financial manipulations which enrich the money and power elites and impoverish the rest of us spring directly from the fact that we have been saddled with fiat currency and legal tender laws.

Always thought this quote pretty much said it all:

"It is a [disputed] question, whether the circulation of paper, rather than of specie, is a good or an evil... I believe it to be one of those cases where mercantile clamor will bear down reason, until it is corrected by ruin." --Thomas Jefferson to John W. Eppes, 1813.

Hard to shake the notion that we're in the midst of that correction, and that ruin, even as we speak.

Re: Gold

krazy kaju — Tue, 05 Aug 2008 14:48:32 GMT

banned:

To my understanding a gold standard is still fiat currency. It's still the government dictating the currency of legal exchange.

You're thinking about the gold exchange standard, when a government pegs its fiat currency to gold. A gold standard is when private banks issue reciepts for their stored gold that can then be used as money.

Re: Gold

fsk — Tue, 05 Aug 2008 14:46:41 GMT

gailtoo:

I'm pretty surprised I got this reply so quickly and thank you for it. I'll have to think about some of the comments, though.

Look around on my blog for more stuff. I've already written posts on most of the common topics.

Re: Gold

Voievod — Tue, 05 Aug 2008 14:40:04 GMT

When you say "It's the government's job to 'manage the economy'.", you're advocating for communism. Who needs a government?

Anarchist communism doesn't :D

Ontopic: Can we use non-fiat currencies for electronic transactions? Like Pay Pal and banking cards and such.

Re: Gold

gailtoo — Tue, 05 Aug 2008 14:36:04 GMT

I'm pretty surprised I got this reply so quickly and thank you for it. I'll have to think about some of the comments, though.

regards

Re: Gold

fsk — Tue, 05 Aug 2008 14:12:33 GMT

gailtoo:

1) How would this affect our currency against that of other countries? If other governments followed suit and backed their currency with gold using their own method of valuing the exchange from, say, yen to gold, would we be forever locked into a currency devalued against theirs?

2) If I understand it correctly, the reason we changed from gold standard to the current system is France (or China??) held a lot of US currency and demanded payment in gold. What would prevent this from happening again?

3) Will the amount of gold available worldwide affect the value of our gold? For instance, I understand there has been a huge amount of gold discovered in the hills of China - probably the biggest find in history. Will this devalue gold and, therefore, our gold standard currency? Would China be forever in the driver's seat?

4) I understand one argument for going back to the gold standard is that our current currency is now unconsititutional. If I remember the constitution correctly, we are actually only supposed to use coinage, which would make even paper money backed by gold unconstitutional.

5) I've seen one or more comments here that government should not be in control of our currency or that any kind of currency or metal should be allowed. I believe the constitution states that Congress is to manage, control or decide our currency. I believe the reason this was in the constitution was because each territory, before becoming a state, had their own currency and the founders wanted just one currency for the entire US.

1. If there's an international gold standard and free shipment of gold between countries, that eliminates the currency derivatives market. Exchange rates would be stable and interest rates would be equal everywhere. Currently, currency speculators are profiting off central banks' actions. For example, in the "carry trade", you borrow one currency at a low interest rate and lend another currency at a higher interest rate, making a practically riskless profit.

2. The gold standard was abandoned in 1913, when the Federal Reserve was created. In 1933, President Roosevelt defaulted on the gold redeemability of the dollar for US citizens and confiscated the gold. In 1971, President Nixon defaulted on the gold redeemability of the dollar for foreign central banks. Due to huge budget deficits for the Vietnam war, international banks started demanding to exchange their dollars for gold, and Nixon defaulted.

The reason gold standards fail is that the insiders can't resist the temptation to print more gold-redeemable paper than physical gold they have. This guarantees an eventual default.

3. Even if someone has a huge gold hoard, that doesn't break the gold standard. In a true free market, there is no requirement to use gold and people may use whatever they choose as money. In a true free market, gold coins circulate. This allows the value of the economy to be a lot greater than the supply of physical gold.

4. Who cares about the Constitution? **** the Constitution! It isn't a valid contract.

However, a government that strictly followed the Constitution would be far better than what's in place now. Pretty much every individual freedom protected by the Constitution has been substantially eroded.

5. All government is theft. When you say "It's the government's job to 'manage the economy'.", you're advocating for communism. Who needs a government?

Before the Constitution was signed, each State had its own money and competing currencies were leading to increased individual freedom. The new Federal government put a stop to the freedom that was developing at the time.

Re: Gold

gailtoo — Tue, 05 Aug 2008 13:55:26 GMT

I just came across this forum and find it interesting. I know I'm coming in late, but maybe someone will still see my post and reply to my questions.

I understand, from reading this forum, that the US would set the price of buying gold with dollars if we went back to the gold standard. That answers one question I've had for a while.

Re: Gold

scineram — Sun, 22 Jun 2008 00:38:22 GMT

"In Heaven His throne is made of gold

And the ark of His testament is stowed"

There you go.

Re: Gold

kingmonkey — Sat, 21 Jun 2008 16:42:17 GMT

Even today most checking accounts do not pay interest and every savings account I ever had paid so little interest I didn't even bother with it. I think under a 100% reserve gold standard you'd see checking accounts and other demand accounts that would not pay interest. People don't open those accounts for interest payments but instead for the security and ease in which they can make purchases. I, like most people, use my checking account because it is safer than walking around with a wad of cash in my pocket, it makes it quicker and safer to make purchases (with my check card) and I can buy things online, something I can't do with cash. There is no reason to assume that banking services under a 100% reserve gold standard would be that much different than it is today except our money would actually be there when we went to get it, people would save more instead of using credit for everything, and interest rates on our savings account would more than likely be much higher than they are today.

Re: Gold

Jon Irenicus — Sat, 21 Jun 2008 15:23:43 GMT

A bank which issued too much fiduciary media would simply lose too much of its gold reserves to 100%-reserve banks.

Could you explain how the process would function?

-Jon

Re: Gold

histhasthai — Sat, 21 Jun 2008 14:59:52 GMT

LanceH:
I assumed that the OP was referring to a "full" gold standard of 100% gold reserves, and in that context it would be true.

Fair enough. I just doubt that that would be the only, or even the dominant form in a fully free monetary system.

LanceH:
I agree with Mises that free banking under the discipline of 100% gold redemption would never permit a reserve fraction anything like as small as today.

That's almost certainly the case. Some would probably try, but I don't think they'd compete well, for, among others, the reasons you cite. It would probably take banks a very long time to establish a reputation sound enough to do any FRB, but even once they do, I doubt anything less than 50% reserve would be viable (just a hunch), if even that low. That may be enough to pay a small interest, but should at least cover storage costs.

Then there's the question of whether it is merely the reciepts that are fractionally backed (fractional reciept banking), or whether deposited reciepts can themselves count toward the reserve (full fractional reserve banking). The latter, I think, is a major source of instability and would not likely be tolerated by the market.

Re: Gold

LanceH — Sat, 21 Jun 2008 14:01:09 GMT

histhasthai:

LanceH:
Under a gold standard, no interest would be paid on any deposits which were withdrawable on demand. On the contrary, you would have to pay the bank's safe-keeping costs.

That's simply untrue, at least in an anarchic commodity money regime... It's almost guaranteed there would be interest-bearing, or at least free-of-storage-charge demand deposits, and the FRB that is required to make it anything but a loss-leader

I assumed that the OP was referring to a "full" gold standard of 100% gold reserves, and in that context it would be true.

If you are willing to accept FRB banks who redeem in gold, then I agree that their extra income from lending out some of their reserves would cover the storage costs. I doubt the reserve fraction would also be small enough to pay interest on demand deposits, and as far as I am aware historically interest was not paid.

However, I agree with Mises that free banking under the discipline of 100% gold redemption would never permit a reserve fraction anything like as small as today. A bank which issued too much fiduciary media would simply lose too much of its gold reserves to 100%-reserve banks. Even if all domestic banks colluded in credit expansion, there would be a net outflow of gold reserves overseas which would soon put a check to the practice.