CHALK ONE UP FOR RAND PAUL - GOLD STANDARD ?

[Whirlaway]

The Repubican Party platform will be suporting gold standard as part of the platform .........from Business Insider..

It will also call for an audit of the FR.

http://www.businessinsider.com/repub...d-tampa-2012-8


Is this incrementalism at work ?

[BigLouie]

The Gold Standard? That's the most discredited monetary there is. There is a good reason that NOT ONE COUNTRY IN THE WORLD uses it. What a bunch of ignorant fools.

[CuteOldGuy]

Explain that reason to us, BigLouie. I'd be interested in hearing why the gold standard would not be a good idea. Thank you in advance for you willingness to educate us.

[dilbert firestorm]

there are some countries still on the gold standard. If I'm not mistaken, china is one of them, inspite of the fact that the renbimi is linked to the dollar.

[BigLouie]

Originally Posted by dilbert firestorm

there are some countries still on the gold standard. If I'm not mistaken, china is one of them, inspite of the fact that the renbimi is linked to the dollar.

Prove it. Currently there is NO country in the world on the gold standard.

[BigLouie]

Originally Posted by CuteOldGuy

Explain that reason to us, BigLouie. I'd be interested in hearing why the gold standard would not be a good idea. Thank you in advance for you willingness to educate us.

Sure, here you go:

Disadvantages

The unequal distribution of gold as a natural resource makes the gold standard much more advantageous in terms of cost and international economic empowerment for those countries that produce gold. In 2010 the largest producers of gold, in order, are China, followed by Australia, the US, South Africa and Russia. The country with the largest reserves is Australia.

The gold standard acts as a limit on economic growth. “As an economy’s productive capacity grows, then so should its money supply. Because a gold standard requires that money be backed in the metal, then the scarcity of the metal constrains the ability of the economy to produce more capital and grow.”

Mainstream economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns. Following a gold standard would mean that the amount of money would be determined by the supply of gold, and hence monetary policy could no longer be used to stabilize the economy in times of economic recession. Such reason is often employed to partially blame the gold standard for the Great Depression, citing that the Federal Reserve couldn't expand credit enough to offset the deflationary forces at work in the market.

Although the gold standard has brought long-run price stability, it has also historically been associated with high short-run price volatility. It has been argued by, among others, Anna Schwartz, that this kind of instability in short-term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt.

The total amount of gold that has ever been mined has been estimated at around 142,000 metric tons and arguments have been made that this amount is too small to serve as a monetary base. The value of this amount of gold is over 6 trillion dollars while the monetary base of the US, with a roughly 20% share of the world economy, stands at $2.7 trillion at the end of 2011. Murray Rothbard argues that the amount of gold available is not a bar to a gold standard since the free market will determine the purchasing power of gold money based on its supply.

Deflation punishes debtors. Real debt burdens therefore rise, causing borrowers to cut spending to service their debts or to default. Lenders become wealthier, but may choose to save some of their additional wealth rather than spending it all. The overall amount of expenditure is therefore likely to fall.

Monetary policy would essentially be determined by the rate of gold production. Fluctuations in the amount of gold that is mined could cause inflation if there is an increase, or deflation if there is a decrease.

Some hold the view that this contributed to the severity and length of the Great Depression as the gold standard forced the central banks to keep monetary policy too tight, creating deflation.

James Hamilton contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak, although others contend that this very threat discourages governments' engaging in risky policy (see Moral Hazard).

For example, some believe that the United States was forced to contract the money supply and raise interest rates in September 1931 to defend the dollar after speculators forced Great Britain off the gold standard.

If a country wanted to devalue its currency, a gold standard would generally produce sharper changes than the smooth declines seen in fiat currencies, depending on the method of devaluation.

Most economists favor a low, positive rate of inflation. Partly this reflects fear of deflationary shocks, but primarily because they believe that central banks still have some role to play in dampening fluctuations in output and unemployment. Central banks can more safely play that role when a positive rate of inflation gives them room to tighten money growth without inducing price declines.

It is difficult to manipulate a gold standard to tailor to an economy’s demand for money, providing practical constraints against the measures that central banks might otherwise use to respond to economic crises.

The demand for money always equals the supply of money. Creation of new money reduces interest rates and thereby increases demand for new lower cost debt, raising the demand for money.

[CuteOldGuy]

From where did you copy and paste that?

Try this from David Stockman, back in 2011

It took 200 years to build and perfect the classic gold standard system; then it was destroyed in about seven weeks when the Guns of August 1914 thundered across Europe; and now I am allotted seven minutes to resurrect it. Fortunately, Churchill’s defense of democracy also applies to the daunting task at hand: To wit, the classic gold standard is the worst possible monetary system – except for all of the alternative inflation-generating, savings-destroying, debt-breeding, bubble-emitting and boom and bust-prone systems which have been tried in the 100 years since its demise. Hence, we offer six present day monetary vices which are curable by gold:

First, the gold standard wouldn’t have allowed the US to incur nearly 40 straight years of massive current account deficits and to live high on the hog for decades by running a $7 trillion tab against its neighbors. Indeed, before Richard Nixon and Milton Friedman instituted their floating rate fiat money contraption in August 1971, nations were compelled to live within their means. Chronic profligacy and current account deficits resulted in a drain of gold abroad, causing a domestic contraction including tighter credit, higher interest rates and deflation of prices, wages and demand – pressures which encouraged a speedy return to virtuous living and payments balance.
The gold standard tamed the demon of debt by delegating the pricing of money to the marketplace of savers and borrowers, not to an administrative board of interest rate riggers and manipulators. Consequently, a national leveraged buyout wasn’t possible under gold: the sky high interest rates needed to induce extra savings tended to harshly discourage binges of cheap money borrowing. Thus, the national leverage ratio – the sum of public and private debt divided by GDP – was 1.6 times in 1870, and was still 1.6 times a century later. Since 1971, however, the Fed has found repeated excuses to drive real interest rates toward zero or negative – a maneuver which has generated explosive debt growth the easy way; that is, not by coaxing it from savers but by manufacturing bank credit out of thin air. Consequently, America had a full-fledged LBO and now its leverage ratio is off the charts at 3.6 times GDP. This means that our $15 trillion national economy is being crushed under $52 trillion of debt – a figure $30 trillion larger than would have obtained under the golden constant.

The gold standard was an honest regulator of Wall Street greed. Under gold, we did not seek Bernanke-style faux prosperity by levitating the Russell 2000; nor did we crucify Main Street on a cross of obscurantist theory like the Taylor Rule whereby the Fed naively gifts Wall Street with limitless zero-cost funding for leveraged speculations in commodities, currencies, derivatives and equities; nor did we punish people who invest in savings accounts out of an abundance of caution while placing a central bank "put" under those who speculate with reckless abandon. Moreover, unlike the Fed’s money bubbles and crashes, which heavily punish Main Street, the so-called "panics" of the gold standard era – those of 1873, 1884, 1893 and 1907 – had the opposite aspect. They were largely sequestered on Wall Street and were rooted not in gold but in the glaring defects of the civil war era National Banking System. The latter drained nationwide banking reserves to the Wall Street call money market where it periodically fueled stock buying manias – but these episodes were quickly ended when deposits reflowed back to the country banks at harvest time, causing call money rates to soar and panic to supplant euphoria on the stock exchanges.
The gold standard made the world safe for fractional reserve banking. To be sure, banking – which is to say, scalping a profit from the interest spread between loans and deposits – is the world’s second oldest profession. While arguably doers of god’s work, banksters become positively dangerous when backed by a sugar daddy central bank – like the Fed or the People’s Printing Press of China – willing to supply all the reserves needed for the endless inflation of bank credit and the destructive asset bubbles which follow. Under the gold standard, by contrast, commercial bank deposits and currency notes were convertible into gold on demand, and central bank reserve injections into the banking system were firmly checked by requirements to cover such liabilities with gold at a 35-50 percent ratio. Indeed, the folly of the Fed’s recent manic reserve creation was even foreseen by the father of fiat money, Milton Friedman of Chicago, and by its grandfather, too – Irving Fisher of Yale. Both supported 100% reserve banking in lieu of the monetary discipline of gold. So give us gold or give us 100% reserve banking – but not fractional reserve gambling halls superintended by a Princeton math professor with a printing press.

The gold standard made the world safe for fiscal democracy because chronic budget deficits generated immediate pain. If financed from savings, deficits caused higher interest rates and squeezed-out private investment; and if financed by central bank credit, they caused a deflationary drain on gold. Nowadays, however, central banks have become monetary roach motels – places where treasury bonds go in but never come out. Consequently, sovereign debt has been drastically underpriced, causing Washington lawmakers to borrow lavishly and without fear.
Finally, the gold standard protected Main Street from the boom and bust of credit cycles. Such disturbances never issue from the people’s work, saving, investment and enterprise, but always and everywhere they originate in the banking system and the speculative precincts of Wall Street. So the central bankers’ "Great Moderation" is a myth – refuted by the compelling evidence that these gosplanners of fiat money do not tame the business cycle but intensify and exacerbate it is. Their printing presses fueled the stagflationary 1970s, the real estate bust of the late 1980s, the dot-com frenzy which followed, history’s greatest housing bubble which came next, and the "risk-on" mania of recent months. Among all the arguments against gold, the claim that it would worsen the business cycle is, on the evidence of 40 years now, surely the most specious.
May 9, 2011


Former Congressman David A. Stockman was Reagan's OMB director, which he wrote about in his best-selling book, The Triumph of Politics. He was an original partner in the Blackstone Group, and reads LRC the first thing every morning.

The gold standard takes the determination of the value of money out of the hands of the bankers and politicians, and returns it to the people and the market. Like usual, you will take the side of big banks and government rather than the people.

[BigLouie]

Wikipedia, where else. Let me point out two things.

This from what I quoted:

The gold standard acts as a limit on economic growth. “As an economy’s productive capacity grows, then so should its money supply. Because a gold standard requires that money be backed in the metal, then the scarcity of the metal constrains the ability of the economy to produce more capital and grow.”

This from your lead paragraph:

To wit, the classic gold standard is the worst possible monetary system

What Mr. Stockman does not care to tell you is that with the gold standard there would not have been a Microsoft or Apple or Amazon.

[CuteOldGuy]

Wikipedia. Ok.