Question on the gold standard

[Brant Gaede]

Hear is the Real Question.

Can the economy expand and grow if the money supply does not?

Straightforward answers would be most appreciated.

Your question has been answered: "Lower prices." AKA: deflation.

--Brant

means lower priced labor too

[Brant Gaede]

Hey peoples,

I haven't read any of Ms Rand's non-fiction (I'm a noobie) but I did read The Fountainhead and Atlas Shrugged. It appeared that she favored the gold standard.

I listened to a four hour presentation by Ron Paul on the gold standard and it makes sense to me in a lot of ways

1. the costs of products and services cannot be inflated inflated and inflated because there is a limited amount of currency in the system and businesses cannot charge what the market cannot bear.

2. gold itself is a wonderful currency because of all its properties of divisibility, rarity and non volatility.

But what I dont understand, and I was hoping you could enlighten me, is what would keep the top 5-10% of individuals or businesses from pulling large amounts of currency out of circulation. Gold is only being added in at a certain rate but certain individuals will be making much more then they spend so they would save. What if some decide to save, not for retirement or a rainy day fund, not for capital improvements or investments but simply because as they take money out, the money itself becomes more valuable. You take money out and hold it for 20 years and the value of your holdings increases multiple fold through supply and demand. Now I realize that prices will stay low because as the population has less to utilize, prices will fall in conjunction will less purchasing power, but..... Im at a loss. Its so complicated. The wealth gap can grow to the largest it has ever been and then what happens once no more gold comes out of the ground but certain individuals hold (literally) 80-90% of the workable currency?

If this happened currencies would be created to replace that gold which would have gone up do far in value as to destroy its monetary utility. Not that that your hypothetical would happen. Gold certificates could be replaced by silver which could be replaced by copper which could be replaced by a basket of commodities, etc. All these certificates could be replaced by pure paper claims on nothing or "fiat" currencies. That's our world today.

--Brant

I used to know an awful lot about Objectivism, but when I woke up screaming I decided to get a brain transplant so I could, more or less, function normally

[BaalChatzaf]

Hear is the Real Question.

Can the economy expand and grow if the money supply does not?

Straightforward answers would be most appreciated.

Your question has been answered: "Lower prices." AKA: deflation.

--Brant

means lower priced labor too

Then what about assets which have been bought for their future reserve value?

Would a deflation of prices across the board help or hinder future investment.

"Falling Prices" is at most an incomplete response. What is the Down Side of falling prices if any, when the economy is view over an extended time interval? Can you demonstrate that "falling prices:" is always a Good Thing?

Ba'al Chatzaf

[moralist]

Hear is the Real Question.

Can the economy expand and grow if the money supply does not?

Straightforward answers would be most appreciated.

NO for the debt economy.

Yes for the capital economy.

So it all depends on WHICH economy,

because there are actually TWO economies.

The Capitalist economy is based on capital,

while the Creditist economy is based on debt.

The US operates primarily on the same Creditist debt based economy that the insolvent deficit spending government does, because people created the government in their own image. So naturally it operates on the same shared values that the people live by.

The Creditist economy operates on the faulty premise of believing that debt is capital. So you get constantly repeating boom/bust cycles that swing from wild binges of ~credit is capital~ fantasy only to inexorably return crashing back to the reality that only ~capital is capital~.

I believe that the latest cyclical debt based economic collapse of 2008 and its aftermath will come to be regarded as a Depression when looking back on it. It's already been five years with more to come. But no one dares to use the D word now because they still need to try to keep the fantasy going.

It's beyond me how people can keep screwing themselves over again and again without changing how they live...

...they just do.

Greg

[Brant Gaede]

That's pretty damn good, Greg. We do have a slo-mo depression that's going to get a lot worse. It's not so obvious because government is buffering what's going on with that debt (and handouts) you refer to. This buffering didn't exist in the 1930s. When this amelioration stops or even slows down the slightest bit, asset values will collapse as hoi polloi hunts for the suddenly scarce dollar to buy food and pay off debt. We could be well into general recovery by now if it had gone ~splat~ in 2008. The economy is Willie Coyote suspended over the abyss, not looking down, by the hot air balloon of debt, going nowhere--not up, not down, hardly even sideways--and look! It's leaking.

--Brant

[Frediano]

Hey peoples,

I haven't read any of Ms Rand's non-fiction (I'm a noobie) but I did read The Fountainhead and Atlas Shrugged. It appeared that she favored the gold standard.

I listened to a four hour presentation by Ron Paul on the gold standard and it makes sense to me in a lot of ways

1. the costs of products and services cannot be inflated inflated and inflated because there is a limited amount of currency in the system and businesses cannot charge what the market cannot bear.

2. gold itself is a wonderful currency because of all its properties of divisibility, rarity and non volatility.

But what I dont understand, and I was hoping you could enlighten me, is what would keep the top 5-10% of individuals or businesses from pulling large amounts of currency out of circulation. Gold is only being added in at a certain rate but certain individuals will be making much more then they spend so they would save. What if some decide to save, not for retirement or a rainy day fund, not for capital improvements or investments but simply because as they take money out, the money itself becomes more valuable. You take money out and hold it for 20 years and the value of your holdings increases multiple fold through supply and demand. Now I realize that prices will stay low because as the population has less to utilize, prices will fall in conjunction will less purchasing power, but..... Im at a loss. Its so complicated. The wealth gap can grow to the largest it has ever been and then what happens once no more gold comes out of the ground but certain individuals hold (literally) 80-90% of the workable currency?

Your analysis comes late to the process. Here is your same lament, in other words:

In a world with a sound money supply, someone accumulates wealth by deferring consumption of created/offered value; they end up holding IOUs for value offered to the economies. These IOUs themselves have a nominal value-- the value you are talking about above. But what is missing in your analysis is, the value representred by the IOUs they end up holding-- IOUs that have been paid by the economies in exchange for value offered/released to the economies.

So, what you are saying is also this: what happens when somebody with excess deferred present consumption holds their IOUs and takes them out out of the marketplace. (That isn't what happens when someone places them into savings/investments; you are talking 'bury under the mattress.')

If we stare only at the value of the value-proxies(which in this world, have a nominal value in and of themselves)we reach your lament. But if we look at the value in the economies, we see deflation (fewer dollars chasing actual value.) To the extent their actions inflate the value of the value proxies, they also deflate the value proxies chasing value.

So the answer to your question is, what happens is not much. ANd in any case, this actor can't act on his attempted manipulations except by ending the manipulation.

But moot, in large, complex economies. Nobody's got that big a lever to fatfinger the economies...except government itself, and it has.

How savings/investment actually works in healthy economies;

1] We have limited credit. There is a maximum amount of debt we can take on.

2] Credit is current spending in exchange for a claim on future creation of value-- value that doesn't exist yet.

3] The cost of debt is reduced available credit, plus interest over time.

4] Credit is future pulls on the pump handle.

5] Savings is deferred current spending. It is the offering of defeered current value, in exchange for future demand value, plus interest.

6] Savings/investment is past pulls on the pump handle.

Most value deteriorates over time. (Food, shelter, clothing, cars...) Becomes less valuable over time. That is not a nefarious plot, that is the Unverse, as it is.

How does deferred present value get projected into the future-- saved-- to be redeemed as an actual value in the future? That value in the future doesn't exist yet, and it doesn't 'keep' over time.

Watch carefully. This is how it is done.

7] When we are young, we avail ourselves to credit, and consume present value in exchange for future pulls of the pump handle. We consume our available credit by cashing in our ability to create value in the future. We pay our debt back to restore available credit. We do that by pulling on a pump handle over time. We work, we create value in the future.

8] When we are middle aged, we defer present spending by saving for our future. We lend present value to those seeking credit.

9] When we are old, we live off the earnings of our savings. The value we deferred -- when we were middle aged-- no longer exists. The value we consume when we are old is being created newly by the young, in the current economies.

The balance between the above is the alchemies that convert persihable present value into actual future value, without perverting the economies. As long as credit is balanced by savings/investment, the economies are not perverted and it is win-win all around. We are all, each of us, in those roles at various times in our lives.

THis scheme should not be mani[pulated to be a massive transfer of wealth form one generation to the next-- which is what would happen if the above was permitted to proceed out of all balance.

Enter the government and the spectacle of boundless public debt. Take the big gulp as you realize that the above only works without perverting the economies if the total of credit is balances by the total of savings/investment, and then ask yourselves...if there is public debt, when is there ever public savings(...of taxes aimed at the private sector!) Government spends all it taxes AND THEN SOME NOT A LITTLE. (Exception: local school district capital equipent funds...rarely, locally, there is government 'savings' of tax reciepts. Not worth mentioning except to point out how rare it is.)

WHen a private entity takes on debt, incentive is created in the future to payoff that debt, reduce interest payments, restore available credit. When public debt is taken on, not a single human being anywhere on earth wakes up the next day with any incentive to do anything at all.

Is the sum of all (private+public)debt balanced by the sum of all private savings/investment? The public debt is 'unlimited.' And so, the systemic perverison of our economies, a hidden tax on all of us, young, middle aged, old, rich, poor.

Public debt is seen to be a pure -deinvestment- in future economies; all that is projected into the future is debt obligation, not incentives. Those de-invested in futures eventually arrive(and are here today.) There is no similar 'alchemy' except as follows: the incalculable benefit, for example, of having won WWII and defeated(for a moment)totalitarianism in the world. This was not a benefit provided -by- government, it was a benefit administered by government. It was the people of America who paid the bills with blood and treasure, not politico aparatchiks cruising Georgetown Bistros currently taking all the credit as their excuse to implelemt a new Totalitarianism once fought against by this nation.

Value-proxies are not value, and even nominally so in Gold based economies. But fiat money is subject to far more gaming(which gave birth not only to the 'financial industry' but to schemes in government itself. For example, when the Fed turns over 'profits' as interest to the Treasury to spend, that is pure running of the printing presses; a non-leaking central bank would simply return that interest to its own current account balance, so that the next time it bought a bond of last resort and had to manufacture current accounts from 'nothing', it would need to do less of that. Returning the 'from nothing' generated interest to treasury to spend in the private economies is systemic leakage in the functioning of a central bank (83B last year) which is identical in all respects to simply running the printing presses.

I'd be more concerned about what is actually occurring than hypotheticals about individuals trying to corner marketplaces by offering value to the economies and then hording IOUs.

regards,

Frediano

[Frediano]

Actually, let me amend that a little; if the IOU horder puts the IOUs under a mattress, and does not convert them to savings/investment(where they will be returned to circulation in the economies), then the horder creates a little current deflation(by removing IOU demand from the current value-surplus economies) ...balanced in the future by a little inflation(by adding IOU demand to the future value-deficit economies.)

If the horder was the only actor, the net-net would be zero except for the tipping of the scales that the universe provides: all value deteriorates over time. Standing still equates to loss of value; we need to pull on pump handles just to stay even.

And so, because he did not avail himself of the savings/investment mechanism, the net-net is not zero, but on the whole, a loss of actual value, guaranteed by the universe and its entropic boundary condition.

Note that isn't what happens -- either to someone smart enough to create significant excess wealth or the economies at large-- when someone converts their deferred present consumption to savings/investment. At least-- in healthy, circulating economies.

Equities are a kind of self-modulatable exposure to risk/reward. We can expose ourselves to equities at any level we want -- 0 to 100% of discretionary spending. But equities are a transfer of current accounts from an equity buyer to an equity seller; the current accounts are still in the economies. What is 'compressible' is the current value of the equity. The current accounts are nearly 'incompressible' except for the manipulations of the money supply by the government.

So look at QE1 and QE2. $2T 'injected' into the economies. How? A secreatry at treasury prints 12 zeros on a piece of paper. Resulting bond -- a promise to overtax the private economies in the future--is walked over to the Fed window, who agrees to purchase the bond, expecting payback of principal plus interest in the future. (You understand, as a central bank, the Fed literally creates the $2T from nothing; presses a button and creates new current accounts. But it is holding a Bond...that it can only sellback. It can't itself participate in the economies-- spend money it creates from nothing. It is like a boiler feedwater valve, adding/subtracting water to a circulating system based on intelligently managed debt and circulation fo value via value-proxies. It makes sure there are enough value-proxies in the pipes...but can't spend water at the value turbines. It adds the water by holding debt.) Treasure now has $2T in new spendable current accounts , which it shows up with in the private economies, selectively, via crony based chutes and ladders-- Solyndras, GM bailouts, etc.-- to 'stimulate' economies flat on thweir back. Unemployment is high, which suppresses wage inflation, which suppresses, somewhat, price inflation. But the $2T in injected money must compete for the new net value in the economies-- which is, the value of a secretary printing twelve zeros on a piece of paper. Not finding any new value, and unable to adequately fuel inflation, the funny money has no place to go, and so... erupts as inflated stock prices on Wall Street. Main Street, staring at all the unemployment and dusty "For Lease" signs looking kind of ragged after five years of waiting for "jobs, jobs, jobs" is confused by this. How can Wall Street be 'booming' if the economies are largely flat on their back?

Because those inflated prices on Wall Street are scored in funny money that found no actual new value in the economies. They do not represent increased value in those companies, but rediced valuation of the current accouints being thrown at constant or decreasing value companies on Wall Street. And the government cheerleaders point to these 'record highs' as if they were good news!

With irony, those with the most savings(geting hosed by what inflation is occurring)are also the same people with the most equities(getting the benefit of artificially inflated stock prices in their portfolio.)

The very government aparatchiks who foisted this scheme today lament 'the rich are getting richer and the poor are getting poorer' and propose as their solution to endlessly double down on the insanity.

So why didn't the increased valuation on Wall Street show up as increased business expansion and new jobs and increased circulation, which was the plan of the QE stimulus(and the only way to claw back the $2T as new taxes when the piper shows up to be paid.) Because private sector risk takers have -seen- what this out of all control government did to the GM bondholders, what it did with the SOlyndras and Curt Schilling Studio 38s(state of RI getting into the act)on ad infinium. No risk taker in his right mind, in this left wing over-run environment, is going to willingly pre-pay his own ransom.

The left's theory is that the greedy rich can't help themselves and will invest anyway, seeking profits. Well...how is that theory working out so far?

Five years not enough to figue this out? Will it take ten years? Twenty years? Because in the meantime, who is it that is sweating the lousy results and taking it up the butt?

That is the surprising face of 'social justice' these days, not at all like it looked in the brochures going in.

regards,

Frediano

[BaalChatzaf]

Fredianno writes: 2] Credit is current spending in exchange for a claim on future creation of value-- value that doesn't exist yet.

Credit is Future Money. We are playing a limited time machine game by (in a manner of speaking) taking money from the future (which really does not yet exist) and investing or spending it in the present. At some point Future Money has to be replaced by Here and Now Money. Otherwise there is a hole in the flow and a Disturbance in the Force.

[Michael Stuart Kelly]

Bob,

Try thinking in actual numbers and not according to the loss aversion bias. (A distorted loss aversion the essence of your question.)

When the market changes the monetary standard, all other money-related numbers are pegged to that.

In your question about assets, you keep implying that the current monetary standard (which is a kind of generally agreed upon hash floated in the culture) has to remain solid, then add gold onto it and make that work. That will never work. You can't have two fundamental standards.

If the gold standard ever replaces the virtual hash standard once again, the numbers will add up. They will look different than they do now, but they will add up. Anyone can manipulate hash. Gold, having its own intrinsic value, has to be owned by individuals for the standard to work.

Another way of putting this is that people continue owning stuff under a gold standard. The gold doesn't replace the stuff. It is merely a standard of measurement for trading stuff (and services).

As a metaphor, think changing over the standard of physical measurements from the foot of a living king (like in olden times), which changed all the time, to the metric system, which does not change.

Michael

[moralist]

That's pretty damn good, Greg. We do have a slo-mo depression that's going to get a lot worse. It's not so obvious because government is buffering what's going on with that debt (and handouts) you refer to. This buffering didn't exist in the 1930s. When this amelioration stops or even slows down the slightest bit, asset values will collapse as hoi polloi hunts for the suddenly scarce dollar to buy food and pay off debt. We could be well into general recovery by now if it had gone ~splat~ in 2008. The economy is Willie Coyote suspended over the abyss, not looking down, by the hot air balloon of debt, going nowhere--not up, not down, hardly even sideways--and look! It's leaking.

--Brant

That's a great cartoon image for what's going on. I simply steer clear of ALL the stupid nonsense by choosing to operate solely within the Capitalist economy, and avoiding the Creditist economy like it's the plague so as to not become financially poisoned by its toxin. No booms... no busts... just slow consistent dependable wealth creation through useful production over decades... regardless of the wild bi polar swings of the debt based economy. Here's an example of how much I've been devastated by this Depression:

I bought a new car for cash last year.

I bought a new truck for cash this year.

When you live according to economic principles of objective reality where only Capital is Capital, there is no boom or bust, so there's nowhere to go except forward.

[BaalChatzaf]

That's pretty damn good, Greg. We do have a slo-mo depression that's going to get a lot worse. It's not so obvious because government is buffering what's going on with that debt (and handouts) you refer to. This buffering didn't exist in the 1930s. When this amelioration stops or even slows down the slightest bit, asset values will collapse as hoi polloi hunts for the suddenly scarce dollar to buy food and pay off debt. We could be well into general recovery by now if it had gone ~splat~ in 2008. The economy is Willie Coyote suspended over the abyss, not looking down, by the hot air balloon of debt, going nowhere--not up, not down, hardly even sideways--and look! It's leaking.

--Brant

That's a great cartoon image for what's going on. I simply steer clear of ALL the stupid nonsense by choosing to operate solely within the Capitalist economy, and avoiding the Creditist economy like it's the plague so as to not become financially poisoned by its toxin. No booms... no busts... just slow consistent dependable wealth creation through useful production over decades... regardless of the wild bi polar swings of the debt based economy. Here's an example of how much I've been devastated by this Depression:

I bought a new car for cash last year.

I bought a new truck for cash this year.

When you live according to economic principles of objective reality where only Capital is Capital, there is no boom or bust, so there's nowhere to go except forward.

The cash you used was Federal confetti, fiat money.

Ba'al Chatzaf

[Derek McGowan]

Man, I step away for two days and you guys have jumped all over my question. Thats a good thing, I just wish I could have made it through everything that Frediano was saying because I'm sure it was good : )

BUt at one point he said that if an individual decided to follow my plot then the net effect would be zero... I don't think I understand that. I could understand that if the savings accumulated over decades (deflation of prices, increased value of my gold) then entered into the market all at once (inflation of prices, decrease in value of my gold) but thats not what Im thinking they would do. I thought they would introduce it back in slowly and just reap the benefits of a hyper valued pile of cash that would last for centuries. Anyway, some are still discussing credit systems and I just.... I happen to think that credit is the (physical) reason why capitalism is not stable in the long run. I was hoping that the gold standard could take us away from credit, that was/is my primary reason for backing the standard. If credit is involved then it doesn't matter what the currency is, the real currency, as someone said above, will become the debt. That's not good in the long run. Please tell me that we are not stuck with credit systems

[Brant Gaede]

Money creation is debt creation if done through a central banking system. I use to think we had a socialist system of money; now I think it's fascist. The gross destabilizations that can occur in the economy are thus not the fault of capitalism or a free economy because of the heavy and pervasive influence of the currency de jure.

--Brant

[moralist]

The cash you used was Federal confetti

Who cares when the vehicles are real?

Confetti works just fine for transient financial transactions. For it's not an end in itself, but simply a useful tool for transacting value for value exchanges.

fiat money.

Don't care much for Fiats.

I'm more of a Toyota man. ;)

[moralist]

Man, I step away for two days and you guys have jumped all over my question.

You provided a fine catalyst, Derek.

Please tell me that we are not stuck with credit systems

No one can get stuck by credit systems who doesn't use them. ; )

Greg

[Brant Gaede]

You're your own bank.

--Brant

[BaalChatzaf]

The cash you used was Federal confetti

Who cares when the vehicles are real?

Confetti works just fine for transient financial transactions. For it's not an end in itself, but simply a useful tool for transacting value for value exchanges.

fiat money.

Don't care much for Fiats.

I'm more of a Toyota man. ;)

FIAT is an acronym. It means: Fix it again, Tony.

[moralist]

You're your own bank.

--Brant

Exactly! : )

When I want to buy something I go to the Bank of Greg. And if I can convince the Bank that the purpose is practical and reasonable, the Bank gives me a no points no fees zero percent interest loan. Then I work to earn the money to pay back the Bank. It's an elegantly simple Capitalist system.

Greg

[Brant Gaede]

You're your own bank.

--Brant

Exactly! : )

When I want to buy something I go to the Bank of Greg. And if I can convince the Bank that the purpose is practical and reasonable, the Bank gives me a no points no fees zero percent interest loan. Then I work to earn the money to pay back the Bank. It's an elegantly simple Capitalist system.

Greg

If you consider that when you purchased your truck and car that these were loans from yourself to yourself you can make payments to rebuild your capital--but it's your choice. That's one of many forms of made up discipline you could use. Obviously you already have that. When FDR was told government borrowing didn't matter because "we owe it to ourselves" he was delighted though it was a fallacy because it was not a loan out of government capital stock--that is, it was true borrowing against future tax receipts (or inflation). Our central bank is now on steroids, but it can only put money into the banking system, it can't make the banks make loans. That helps mute, somewhat for now, price inflation.

--Brant

personal discipline is the key, as in all things of endeavor

[moralist]

You're your own bank.

--Brant

Exactly! : )

When I want to buy something I go to the Bank of Greg. And if I can convince the Bank that the purpose is practical and reasonable, the Bank gives me a no points no fees zero percent interest loan. Then I work to earn the money to pay back the Bank. It's an elegantly simple Capitalist system.

Greg

If you consider that when you purchased your truck and car that these were loans from yourself to yourself you can make payments to rebuild your capital--but it's your choice. That's one of many forms of made up discipline you could use. Obviously you already have that. When FDR was told government borrowing didn't matter because "we owe it to ourselves" he was delighted though it was a fallacy because it was not a loan out of government capital stock--that is, it was true borrowing against future tax receipts (or inflation). Our central bank is now on steroids, but it can only put money into the banking system, it can't make the banks make loans. That helps mute, somewhat for now, price inflation.

--Brant

personal discipline is the key, as in all things of endeavor

I do make payments, and they amount to everything that's left over after expenses because I want the Bank to be financially healthy so that it will be able to loan me money. I paid off the car last year, so the Bank was able to loan me money on the truck this year. It took five months to pay off the truck, so now the Bank is in good shape for any other future purchases.

They aren't fancy vehicles. I always buy the cheapest simple white base models with no options for the lowest cash price because I'm a cheapskate. ; ) And I always sell the old vehicles myself so as to get way more money than trading them in.

[caroljane]

Somehow I already felt you were a cheapskate, Moralist, and all props to you for making a lot of money and saving most of it so you can impress us with your new wheels.

Carol

proud bus rider

[moralist]

Somehow I already felt you were a cheapskate, Moralist, and all props to you for making a lot of money and saving most of it so you can impress us with your new wheels.

Carol

proud bus rider

Those two vehicles together cost what most people pay for one vehicle. And I actually make very little money compared to the average American. I just manage money in a completely different manner than other people do, so as to be able to enjoy living debt free:

No mortgage, no life insurance, no home insurance, no health insurance, no student loans, zero credit card balance, no retirement, no benefits, no disability, no restaurants, no movies, no cable TV, no Starbucks, no liquor, no fancy clothes, no ipods, no ipads, no cellphones.

[caroljane]

Not needing or wanting those things is good, I guess.

You did not say no beer!

[caroljane]

No Starbucks.. are you a Mormon?

[moralist]

Not needing or wanting those things is good, I guess.

That's an individual choice everyone makes for themselves

and we each get the consequences of what we choose.

You did not say no beer!

Beer, no.

Root beer, yes. ; )

Greg