Possible Price for Gold?

[Wiley]

Without a means of controlling monetary infalation you always have corrupt system, as we do now. You cannot protect private property rights, and as such lack freedom. You can argue that all day long but thats reality.

Lack of some sort of standard also creates longer and more extreme cycles. Not the other way around.

The arguement that you have to have equal amounts of gold to back whatever value your giving the dollar is simple minded imho. All you need is some form of gold standard that controls the amount of increase monetary bases.

To argue that you don’t want a gold standard because gov’t can go off the standard and print madly is like saying why have an acoholic give up drinking because some of them go back to drinking.

So barring a gold standard what is the solution?

It’s not the gold that bugs are so fanatic about gold, it’s about how well it preforms the role of a standard.

Please give me the paper where a modern economist says a gold standard creates deflation. I think most austrian economists would insist it is the excess monetary creation which create the environment for deflation.

[rseiser]

I wonder about the same questions as you guys. Maybe a gold standard is good, and we just have to live with the busts. (Maybe then we will be more cautious and the busts won’t be that bad).
Or we could not have a gold standard, and whoever wants to use gold, just uses it (like now). But then the government brainwashes everyone against it, and you have to live with the busts in gold once a while (like during the 90s).

But to the last sentence of Wiley: Credit creation is still possible (like in the 20s), and once it reverses you have the deflation, because now you can’t print money. Even here I am slightly in favor of the gold standard. Because when everyone knows that, then the credit boom might not go to such extremes. And if there is deflation afterwards, so what. Why not just live with it. It reorganizes capital, and if people don’t spend, maybe they are thinking about producing something down the road. If there is a mild deflation, I think people will still spend, since interest rates will be low, and the opportunity to invest or spend now is still worth something (opportunity cost) compared to saving all for later.

On the contrary, I am slightly against fiat money. Too many loopholes for the government to change the rules on us constantly. And where is the limit here? The government creates more and more credit (not necessarily money), but when credit shrinks everyone expects them to print the money. Then overall money supply doesn’t contract but goes sideways. Nice in theory. But since everyone knows that, now credit extends even more, and the more credit expands the more people want to take credit to jump on the increasing asset price bandwagon. And if the government doesn’t decide to stop, there are no limits. Normally, one would be restricted by either market interest rates being one step ahead (higher) to force savings, or by getting so leveraged that smaller and smaller volatility would wipe one out (say a 1% drop if one is leveraged 100:1). But the government doesn’t even have those limits, since they control interest rates AND can print infinite amounts of money to avoid every little drop. That means there are no small busts along the way, but a worthless currency in the end, with nobody having saved anything. Possibly less production too, since speculation becomes the occupation of the day.

The summary of my opinions:
Fiat money needs a prudent leader, while the gold standard needs prudent people (to avoid excess credit creation). I prefer the people taking the responsibility, since they are the ones who have to live with the outcome. But I admit it is not guaranteed if it would work better in our complex world. The contrary is not proven either though, just because it has worked for the last 30 years, which was an accelerating credit phase. And it is a small sample compared to all the other fiat experiences that didn’t work.

[Anonymous]

Per ‘Gold Wars’ by Ferdinand Lips, ‘Britain was on the gold standard for nearly two centuries, from 1717 (really, 1664) to 1914 (with the exception of 1797-1821, during the Napoleonic Wars, when Britain suspended convertibility).’

‘Contrary to popular belief today, gold money is not inherently deflationary…General price levels were flat or (slightly) declining, during periods of rapid growth…’

Amazing statistics on price stability under gold and silver standards:
— The U.S. index of wholesale prices in 1800 was 102; 113 years later, in 1913, it was 81.
— The British index of consumer prices in 1664 was 100; 250 years later, in 1914, it stood at 91.

We’ll be going back to the gold standard after our paper money system goes up in flames over the next 10 years.

[Wiley]

In a free and Capatilistic world (full disclosure I’m a big fan of) you can’t have a private company with the ability to print money from nothing. It cheats and robs the people who are required by law to use that money. Applies to Gov’t as well but we currently have the Fed. According to the Fed if you had $1,000 in 1974 and saved it until today it will only buy you 25% of what it would then. I think they’re optomistic. Who needs a depression. Thats depressing enough.

In a controlled monetary world if private business creates too much credit and receives bad consequences then it will learn from it so it can profit better in the future. That is capitilism and why it works so well. The market is always the best arbiture of things.

Excess credit creation is the result of excess money creation. It’s looking for someplace to go to work. I saw it happen in my industry in the 90’s. In 10 years the capacity was quadrupled and within 6 months the lending dried up (when the realization hit the loans weren’t going to perform). Within following two years capacity was cut down two thirds. You will witness this in housing I assure you.

[Author]

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