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2) If people/banks/institutions suspected the fed was issuing credit without associated gold reserves, they would rapidly begin withdrawing their reserves in a form of "bank run".
3) This would lead to banks depositing far smaller amounts of gold with the federal reserve in the first place, to lower their risk of a "bank run" at the fed. The fed would revert to a function of transaction clearing between large institutions. Basically, maintaining a ledger of which gold belongs to who, and in which regional vaults.
"Let us not crucify the United States on a Cross of Gold."
Would they? Why would they? Nobody flinched when run away spending ramped up on Carter's watch and continued through Reagan's watch.
What would that kind of bank run look like? Are you suggesting there would be a long line at the Wels Fargo bank at the entrance door, and people exiting the exit with their black bag of gold dust and arm full of bullion?
If you have a commodity based monetary system, it leads to deflation as "money" is removed from the system by people "saving" it.
Like I said, we can adjust our outlook to deal with living with deflation, but the math and mindset is easier with inflation.
Also, with a commodity backed monetary system the ability to charge interest is problematic.
When we had sound money, before inflation took hold by removing the gold standard, the average person could pay off a home mortgage on one income in 5-10 years. Inflation insures that most people will remain faithful slaves of the banksters.
inflation is a way out for a borrower.
If you have a commodity based system which by nature would have to be deflationary.
The amount of gold mined would not come close to the amount that would need to be "saved"..
Could you imagine what the deflationary effect would be if there was a modest 5% savings rate? Then factor in population growth??
Then there is the fallacy of being able to charge interest on a commodity based system.
Nope, fiat is far superior.
Misc is right, nobody thinks about the logistical math involved with a Gold based economy.
You would be paid in company script like I have said. And only the business owners and producers would actually be paid in Gold.
Charging interest on a commodity based system doesn't work. I will let you do the math for a single ounce of gold compounded at a 3% interest rate for say 2000 years.
There is a reason that all the Great religious books forbid charging interest.
Fiat does away with this as the system can be expanded.
Charging interest on a commodity based system doesn't work. I will let you do the math for a single ounce of gold compounded at a 3% interest rate for say 2000 years.
It's not that they lose their money. It's that they enslave everyone else.
Since there is no way for you to refute that charging interest on a commodity based system leads to anything but the systems collapse, I will consider this a win.
Yes, charging interest, which is a mathematical construct, overwhelms physical supply.
People seem to be implying that there wouldn't be inflation if dollar was still linked to gold. I don't think history supports this notion.
People seem to be implying that there wouldn't be inflation if dollar was still linked to gold.
,
The kind of run I'm talking about is where 25lb bars (400 oz) are sitting in a vault, and the depositor comes calling. A 25# bar of gold is 400oz x $2000/oz = $800,000.
No, inflation is a way out for a borrower.
Zak says
,
The kind of run I'm talking about is where 25lb bars (400 oz) are sitting in a vault, and the depositor comes calling. A 25# bar of gold is 400oz x $2000/oz = $800,000.
Your point is valid, but I have a picky detail. Gold is measured in troy weight, and a troy pound is 12 troy ounces, with a troy ounce being 1.097 standard ounces. That common 25lb troy gold bar would actually be 300 ounces, not 400, so only worth $600,000.
Charging interest on a commodity based system doesn't work. I will let you do the math for a single ounce of gold compounded at a 3% interest rate for say 2000 years
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