Posted on 08/21/2007 11:34:38 AM PDT by BGHater
Dr. Paul thinks we should have never gone away from backing our currency with gold. He suggests that we should back our currency with a material that's main source of value is that people think it is pretty. Does that really have a more real value than our current currency? Does backing a currency with gold really make it less susceptible to fluctuation and manipulation?
If countries of private organizations find new sources of gold and mine them aggressively, the value of our currency would drop. If a country with large gold holdings decided to sell off a large quantity the value of our currency would drop.
The value of our currency wasn't stable when it was backed with gold in the past, why would we expect that to change now?
Our currency is a commodity. It is traded, and it is worth whatever investors believe it to be worth. We can change the monetary supply to some extent to try and control it's value to some extent, just as OPEC tries to control oil production to exert control over the value of oil.
Returning to a gold backed currency is for all practical purposes impossible, and it is also pointless.
The main advantage is that it removes interference direct interference by our government attempting to manipulate the the economy and control inflation.
However, the proponents of such ideas never manage to explain how we are going to be protected against currency manipulation by others if our government doesn't get involved.
I have heard many valid arguments about how the Fed manages the money supply, but I've yet to hear anything resembling a realistic suggestion of how to get rid of the Fed completely.
Thanks for your good questions and interesting comments.
So do I owe interest to someone for the $20 bill in my wallet? Or does someone owe interest to me?
No sir. Fiat currency is not a commodity, and the market they are exchanged on are called CURRENCY Markets, not commodity markets.
Link here...
http://en.wikipedia.org/wiki/Commodity_markets
where it explicitly states that government currency and debt instruments are not commodities. You argue that you can USE those things to PURCHASE commodities, but our point is “at what rate?” It is a lot easier to put 10 times amount of fiat dollars in circulation as it is to put 10 times the amount of say, copper now in circulation. You can increase the dollar supply based on political whim, but the copper supply is based on economic realities. Because of that, currencies that are commodities based- say a dollar is worth 1/5th an ounce of silver or a pound of copper, is a lot more stable and less subject to political manipulation than fiat currency.
1 : an economic good: as a : a product of agriculture or mining b : an article of commerce especially when delivered for shipment c : a mass-produced unspecialized product
2 a : something useful or valued ; also : THING, ENTITY b : CONVENIENCE, ADVANTAGE
3 obsolete : QUANTITY, LOT
4 : a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price
5 : one that is subject to ready exchange or exploitation within a market
I think a few of those definitions fit.
Fiat currency is not a commodity, and the market they are exchanged on are called CURRENCY Markets, not commodity markets.
Don't tell the Chicago Mercantile Exchange, they trade currency products.
where it explicitly states that government currency and debt instruments are not commodities.
Wikipedia? It covers physical product (food, metals, electricity) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. I think that makes my point more than yours. LOL!
You argue that you can USE those things to PURCHASE commodities, but our point is “at what rate?”
At the market rate.
Because of that, currencies that are commodities based- say a dollar is worth 1/5th an ounce of silver or a pound of copper, is a lot more stable
A lot more stable? Not perfectly stable? What about inflation and deflation? Can those occur with a commodity based currency?
and less subject to political manipulation than fiat currency.
Until the politicians change the amount of commodity behind each dollar.
So do I owe interest to someone for the $20 bill in my wallet? Or does someone owe interest to me?
The answer is yes, indirectly, insofar as your taxes are now higher to pay the interest on the national debt, which is much larger than it would be with Constitutional money. You/we are paying the interest to the Federal Reserve, a privately-held corporation that holds much of the debt (along with the Chinese, pension funds, and all the other investors collecting interest).
Do you work for the Government or something? Your attitude toward the gold standard brings to mind the old Upton Sinclair quote:
“It is very difficult to get a man to understand something when his salary depends on not understanding it.”
It's true that the national debt would probably be smaller. Of course, with the deflationary impact a gold standard would have, our economy would be much smaller too.
You/we are paying the interest to the Federal Reserve, a privately-held corporation that holds much of the debt
What's your definition of "much"? How about a percentage range?
Do you work for the Government or something?
No, do you?
Please add me to this ping list, thanks.
If “regulate the value thereof” does allow Congress to shrink the amount of gold/silver in a dollar, even under a Constitutional gold/silver standard, there need be no deflation or limitation on the growth of an economy occasioned by a gold standard. Indeed, if gold supplies advance at a higher percentage rate than the population and productivity growth, there would be no deflation even at a fixed amount of gold/dollar.
The economy would be smaller, but most of what would be gone would be finance jobs pushing derivatives and exchange rate trading, etc. We’d probably have bases on the Moon and Mars by now and have cured cancer, because the best and the brightest would be doing something useful other than pushing paper.
“Much” was wrong; it is probably a small minority of the debt outstanding, large only in an absolute sense (almost a trillion, if memory serves.
No, I usually work against the Government.
Welcome. I find it interesting how many people are attracted by the RP message on debt, money, the Fed, and other financial issues. It’s especially interesting to see how many young people and even Democrats are attracted to this message. I reminds me of how Rush described the results among high school students of the first ever NAEP national test on knowledge of economics. The students passed with flying colors. Younger voters are far more knowledgeable on economics than any previous generation. And they are disproportionately attracted to Dr. Paul’s economic message.
So a "non-gold" gold standard wouldn't ruin the economy? LOL!
The economy would be smaller, but most of what would be gone would be finance jobs pushing derivatives and exchange rate trading, etc.
Because there are no derivatives on stocks or bonds?
We’d probably have bases on the Moon and Mars by now and have cured cancer, because the best and the brightest would be doing something useful other than pushing paper.
That's funny.
No, I usually work against the Government.
Me too. And against goldbugs. And other financial illiterates.
If by “that’s funny” you mean “that’s quite mad,” I agree with you.
At least the others weren’t talking to themselves. :)
I was at a gun show Susnday where a RP support was handing out all kinds of literature. I liked what I heard, as did my friend and others.
It is funny how difficult it is for those who ostensibly seek a Free Republic to imagine how different life would be if we lived in one, and had lived in one for the last fifty years. While the gold standard may have lead to booms and busts arising from mining strikes, prices remained stable or drifting lower for more than a century, and America expanded at a rapid clip. Just because most goldbugs are financial illiterates does not mean that a gold/silver standard is stupid.
Numerous economists have written of the inefficiencies that arise from floating exchange rates, now the largest markets in the world, largely created by abandonment of the gold standard. And without unbridled credit creation (bank reserves are now far below one percent), markets such as ever-more-exotic derivatives probably would not exist.
I went to Harvard and Yale, and saw my brightest classmates go to Wall Street, even the mathematicians (I was a physics major), many becoming part of an ever-growing parasitic enterprise fueled by abandonment of all nearly all Constitutional constraints on government.
I am confident the trajectory of scientific and engineering development, indeed all human development, would be quite different if not guided by bureaucrats. Here in the Northwest, billions of dollars have been incinerated based on government “science”, and the Region’s economic growth crippled to protect owls doomed by competing species and salmon doomed by overfishing. Armies of highly-paid, intelligent human beings with high level degrees spend their entire professional lives essentially accomplishing nothing other than pushing paper. What if they were creating things in the real world? It would be a very different place.
There remain remnants of non-government scientists and engineers who point out the way things could be. See, e.g., http://www.oism.org/oism/s32p1820.htm (revolutionary changes in human health possible by abandonment of government-dictated monopolies). There was a time when government had positive accomplishments in the real world (from Louisiana Purchase on down to the Interstate Highway system), but it is now almost exclusively in the hands of the looters. Attacking goldbugs does nothing to fight that decay.
Wow! What a powerfully true description!! And the biggest of these is GovernMental EnvironMental GANG-GREEN Goons with huge taxpayer funded salaries, benefits and expensive defined benefit pensions!!!
I’m a supporter of a pure fiat based money system. And yes it like fractional reserve banking does take a responsible government to contain inflation.. making decisions based on the long run. Which I’m not sure democracies can ever really do. It may be that democracy is just not a sustainable political ideology.
We don’t need to create money as debt. But that is what we have today. If we were to reduce debt ever, the money supply would dramatically shrink, and deflation would take over. If we got rid of all debt, we’d actually go into negative money as we had to pay the interest payments too.. Which are not created when the debt is created.
So the only way is exponentially increasing debt. Which is what we have now.. and if our productivity continues to grow and thus our economic output, our children will be exponentially further in debt then we are. Its a system that eventually peaks out.
A pure fiat system however, that is how Julius Cesaer built the great works of Rome, some still standing to this day! Those could never be justified in a debt backed system where things must start showing return quickly to cover the interest.
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