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Gold Standard Money


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we will have to have one in a few years.

it will take people a while to realise that paper is just paper and gold keeps its value

i believe in countries with very high inflation paper falls out of use as an exchange, so gold comes back whether officially or unofficially.

the alternative is the government could always just steal it from us as done in the US in 1933

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What would the benefits or problems with it be?

Would any country ever be likely to go back to having a gold backed currency?

Would it make the world economy more stable?

  1. Inflation / deflation and credit creation are still issues within a convertability standard.

  2. The modern world would not come to exist in its present form, credit is the basis of any large infrastructure investment, that is the pooling of assets and lending of money into investments of a greater scale than one individual can invest themselves. The act of lending creates a credit and a debit which is the core act in the inflationary process. And defaulting upon credit is the deflationary process.

  3. The key to the gold standard is that it controls the creation of core high-powered money, by virtue you need the underlying material to write the bank bill, so it hamstrings the central banks somewhat.

I don't have an answer as it is a highly complex system, and there are prevailing theories on whether this is good or bad, but there were deflations and depressions upon the gold standard and the gold standard would have not necessarily averted the current credit crisis - it's a point worth making as people misunderstand the credit creation cycle and seem to think that gold is a panacea.

There are forms of low level inflation and inflation tax which are present outside the gold standard which are rather noxious as individuals, though economists and theorists whom examine these things at the level of consequentialism (the best for the many) argue that it may be a reasonably fair form of implicit taxation.

As individuals we don't want to be taxed at all however.

Edited by missedtheboat
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I don't have an answer as it is a highly complex system, and there are prevailing theories on whether this is good or bad, but there were deflations and depressions upon the gold standard and the gold standard would have not necessarily averted the current credit crisis - it's a point worth making as people misunderstand the credit creation cycle and seem to think that gold is a panacea.

i dont think people misunderstood the credit creation cycle.

the problem IS the credit creation cycle.

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  1. The modern world would not come to exist in its present form, credit is the basis of any large infrastructure investment, that is the pooling of assets and lending of money into investments of a greater scale than one individual can invest themselves. The act of lending creates a credit and a debit which is the core act in the inflationary process. And defaulting upon credit is the deflationary process.

Hmmm, so no large infrastructure projects existed in the USA until 1975 then?

Edited by redalert
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A gold standard would stop governments the world over from fiddling with the money supply in order to achieve politial objectives.

It's never going to happen.

It would take a complete loss of faith in the existing fiat system and hyperinflation (definition: more than 50% per month or more) for this to perhaps happen.

Even then.

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I just got back from a meeting with a HSBC bigwig trying to poach us from Barclays - he showed me a chart with various sized blue circles with smaller green circles inside them - depicting the shrinkage of each banks 'worth' - citibank being the worse.

"Thats what happens when banks create money out of debt" I said :lol::lol:

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What would the benefits or problems with it be?

Haven't many governments (particularly in the West) sold off a lot of their gold? Wouldn't they have to "re-acquire" (ahem) that gold before a gold standard could be implemented?

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Credit creation can happen whether on a gold standard or not. In fact it was the Goldsmiths who started it when they decided to make more money by loaning out paper tickets representing other peoples gold!

But there is a difference that becomes apparent in a time of crisis, typically bought on by the build up of too much debt and a subsequent loss of confidence. With a gold standard if you have a run on a bank then not all depositors can be repaid and some will lose their money. This happened in the 30's. Govmnt/CB's cannot stop this because, if people demand payment in gold, they may not have enough gold to cover the losses.

However, on a fiat system govmnt/CB's can protect all deposits and effectively pre-empt a bank run by either borrowing more paper money, from future tax-receipts, or printing more money if no-one is prepared to lend. Debt default does not lead to destruction of the money created at the same time because that money is protected in this way. The ultimate consequence of complete depositor protection is of course inflation. The bigger the debt/credit bubble the higher the likely eventual resulting inflation once money velocity returns to normal. We've just had the mother of all credit bubbles so expect some pretty big inflation numbers down the line. That's what gold is signalling.

Hyperinflation? Who knows but I wouldn't rule it out if the situation gets desperate enough and the CB has to start printing money just to cover current debt obligations, esp if UK debt is downgraded and servicing charges climb. We know the consequences of too much debt when on a gold standard (the great depression being the extreme example). We may soon find out the consequence when on fiat.

Uncharted waters and all that....

UM

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How much gold would you need to back the money supply?

Even when the UK still maintained the gold standard, it did not possess gold enough to back the total money supply.

The economy and the money supply needed to service it are both too large to go back to the gold standard.

I'm not an economist but isnt the total money supply proportional to GDP... the larger the GDP the larger the central bank can make the money supply and retain stability of prices and money value!?

doesnt the Quantity theory of money state that....

money supply x velocity of money = price factor x real GDP

So if GDP is increasing you can increase money supply without creating inflation and price increase, assuming all others factors remain constant. :blink:

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No need for a gold backed currency.

Just have all fiat money issued by the State in a fully transparent and publicly scrutinised manner.

For example we could have a large display outside the MIA (money issuing authority) showing at all times exactly how many pounds were in existence, rather as is done now for the US debt.

Money should be issued by the State as a utility - a universal means of exchange etc. for productive enterprise and trade.

Its issue should not be a profit-motivated "industry" in itself.

Just common sense really.

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it will take people a while to realise that paper is just paper and gold keeps its value

Why does gold keep its value? There are more useful metals than gold in this day and age, why not use one of those? Gold is a faith based system too. What makes gold worth $1000 an ounce (or whatever it is now)? Switching back to gold sounds like a step back in time, like getting rid of the car to stop the carbon emissions. There are people who what to go back to a gold based system. I suspect they are the people who have been buying gold and are keen to put the price up. There is an awful lot of hype about gold these days – it kind of reminds me of something – houses. Maybe I should register goldpricecrash.co.uk –ah, too late.

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Why does gold keep its value? There are more useful metals than gold in this day and age, why not use one of those? Gold is a faith based system too. What makes gold worth $1000 an ounce (or whatever it is now)? Switching back to gold sounds like a step back in time, like getting rid of the car to stop the carbon emissions. There are people who what to go back to a gold based system. I suspect they are the people who have been buying gold and are keen to put the price up. There is an awful lot of hype about gold these days – it kind of reminds me of something – houses. Maybe I should register goldpricecrash.co.uk –ah, too late.

Gold represents human effort.

For every ounce of gold produced there is a certain cost attached to the prospecting, surveying, mining, refining and minting of gold. The human effort involved in its production has been recognised throughout the ages. That is why gold was money in the past, still is today and will be tomorrow. What does a fiat note represent? It is a PROMISE to pay the bearer on demand the sum of X pounds and this PROMISE is signed (often) by one Mervyn King, Governor of the Bank of England. How did he create this note with some ink, paper and a printing press or more likely created out of nothing at the press of a button on a computer? That doesn't sound like hard physical effort to me.

For example if you lived in Ancient Rome and you had a 1 ounce gold coin at that time, you could have purchased a handcrafted belt, a very fine toga and a pair of sandals – that was the price: 1 ounce of gold. Today, thousands of years later, if you’ve got a 1 ounce gold coin with no numismatic value, just a plain old bullion coin, 1 ounce of gold, you can exchange that for sterling notes and then immediately go into a men’s store and buy a nice suit, a handcrafted belt and a pair of shoes. The value of that gold has not changed in terms of money for thousands of years because it takes the same amount of human effort to produce a nice suit, a handcrafted belt and a pair of shoes – approximately the same– as it does to produce a one ounce gold coin. The miners’ efforts and the refiners’ efforts and so forth, all added together, the human effort on both sides of that equation remain approximately the same. And that is why monetary systems that are backed by something that can’t be created out of nothing – something of intrinsic value – that always is a very stable monetary system over a long period of time. That is the power of gold and why you should be more concerned about the VALUE of that piece of paper in your pocket. Ask any Icelander which asset they would prefer to have in their pocket right now.

This not meant to be a gold ramping post but more of a warning that if you dismiss gold then do not complain when it costs you a £5 paper note to buy a loaf of bread.

Get yourself a copy of “The Creature from Jekyll Island” by G.Edward Griffin it will open your mind to what you think money really is.

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