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Mr_Sminty

Gold Backed Monetary System

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Fools Gold

Not sure if this will alter anyones enthusiasm for the "shiny" stuff, might open up debate around the real value of gold and ideas about money perhaps.

Still yet to be persauded about gold, really find the fundamentals argued everywhere(apart from industrial uses and jewlery) rather irrational, still market trends and sentiment says otherwise.

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the answer really lies in the article.

money is whatever it is PERCEIVED to be....at present where people are happy trading bits of paper where the head of state promises the bearer X...whatever that is,that's fine....but international trade will be much simplified if regional and global benchmarks are established....i.e the euro,US$ and probably an asian regional to surface in the not too distant future.

gold is PERCEIVED to be a store of wealth in times of uncertainty,whether that be war,inflation,deflation,famine....etc etc.

gold is pretty much a GLOBAL currency.....you could try yak's feet in some remote part of mongolia but I doubt it will have the same clout with uncle sam!

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Fools Gold

Not sure if this will alter anyones enthusiasm for the "shiny" stuff, might open up debate around the real value of gold and ideas about money perhaps.

Still yet to be persauded about gold, really find the fundamentals argued everywhere(apart from industrial uses and jewlery) rather irrational, still market trends and sentiment says otherwise.

There is a strong - but rarely heard - argument for why a gold standard causes harm. It is best expressed in the video sequences here:

http://www.propagandamatrix.com/multimedia...1_Part1_all.wmv

and here:

http://www.propagandamatrix.com/multimedia...pe2_128KBps.wmv

(I appreciate the presentation is somewhat "American" but the analysis of the problems of gold standards is sound.)

By no means am I suggesting that people should not invest in gold. Quite the opposite: I think gold (and possibly silver) should be great ways to preserve savings.

To put that claim into perspective, there are two practices that each create their own set of problems - and it is these problems (the problems created by the two practices) that gold standards attempt to fix. One practice is debt-based economics. The other is fractional reserve banking (and its more common, modern variant: fractional reserve credit lending).

Supporters of gold standards generally argue that the standard will fix the problems caused by the two practices.

Those problems include: asset price inflation, consumer price inflation (both of which are forms of currency debasement), occasional collapses in prices of assets, and - more esoterically - problems of assessing value in commercial transactions leading to entrepreneurial misjudgement of risk. There's also an argument that both practices encourage the growth of financial industries at the expense of "real" industries and that the effects of the occasional collapse in prices is magnified in these financial economies. But that view is not generally discussed in Anglo-American societies.

Returning to our main theme, gold standards are said to prevent these problems from getting out of hand.

This is probably true. But.... while they address these problems, gold standards create their own economic problems. Primarily that gold is not equally available to all economies and that it is unwieldy in many situations. There are many other problems but they are well discussed in the literature and on the Web.

The "new" problem with gold standards that I want to highlight is that they don't fix the real problems. They fix the symptoms. They fix the problems that are symptoms of the two practices mentioned earlier: pervasive debt and fractional reserve banking/credit creation.

Logic suggests if the problems that gold standards "fix" are created by these two practises, then you could also fix these problems by not indulging in either practice.

In which case, gold standards would not be necessary and would not therefore bring the problems that are associated with gold standards.

That would seem to be a better scenario.

To say the same by simple analogy: gold standards are like headache tablets. They treat the headache but it would be better if you didn't have the headache in the first place. If the headache were created by say, excessive drinking or by riding a motorbike without a crash helmet, it would be better to simply stop drinking excessively and to stop riding bikes without helmets. Having fantastic headache tablets may solve the symptoms caused by the real (underlying) problems but they do not solve the real problems.

If debt were rare and fractional reserve banking/credit creation were non-existent, gold standards would probably not be necessary. (I need to think it through more before I'm prepared to commit to removing that "probably").

I probably need to explain in more detail why fractional reserve banking/credit creation is so problematic. But it will take time so I'm not going to do it here.

Instead, let's consider what might happen if we gave up the two practises.

In a society that valued "savings" and yield-producing entrepreneurialism, as opposed to yield-producing "investments", gold and silver might simply be commodities to be bought as a reflection of trade needs or the desire to isolate savings from fluctuations in the exchange value of different real goods and services (fluctuations caused not by monetary inflation and monetary deflation but by changes caused by a poor harvest or a great harvest, by expanding or shrinking populations or by, say, by the need to acquire large amounts of cement to build infrastructure to respond to say, flooding or a shortage of drinking water.

Built into what I am saying above is the belief that prices of goods and services should change as a result of supply and demand, rather than as a result of the availability of debt or fractional reserve-created money or fractional reserve-created "credit" (a euphemism for "debt"). In such a scenario, if you are using money as a token of exchange, then prices should vary all the time.

This "varying prices" might seem like a bad thing, but if humans returned to saving money and goods they would be able to buffer out many of these changes. So they might hold off buying when prices were high and be more willing to buy when prices were low. The "economy" (in the sense of a dynamic, price-adjusting mechanism with a varying money-volume) would expand and contract - allowing demand-supply principles to work properly. Given that even the squirrels that live in my garden are able to save for bad times and benefit in good, I find it disconcerting that humans find the concept of saving so... challenging.

As well, humans would need to be more self-sufficient and individually innovative. In my opinion, this would be good for our physical, mental and familial health. It might help us live in better-functioning communities than we do today.

There are some cultural changes that might also go with the abandonment of pervasive debt and fractional reserve banking/credit creation:

More humility in expectations of prosperity

More individual entrepreneurship

More individual production (and much less cash-bought consumption)

On the downside, there would likely be less wow-factor technological innovation and more individual, small-scale innovation. Which is a good thing or a bad thing, depending on your mindset.

Oh dear, I've been onanising again! :D

Edited by longjohn

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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