patrick.net

Zak says

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.

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?

IMHO, the Uganda gold discovery is a fake story. The often quoted numbers are 30 million tons of ore, with 300k ton of refined gold expected. Those numbers make no sense: gold ore quality is measured in grams of gold / ton of ore; a very high quality gold ore can yield about 10grams / ton, or 10ppm, 0.001% (typical placer mining operates at lower concentration than 0.3ppm). The numbers from the Uganda story is 1%! That has to be someone sprinkling refined gold dust onto the ore samples, like the Bre-X fraud story in Indonesia circa 1997.

stereotomy says

"Let us not crucify the United States on a Cross of Gold."

Yep, let's use America's abundant silver!

Which is what Bryan was getting at. Or rather, bimetalism which is even better because the PTB would have to manipulate both silver and gold simultaneously.

The original 1792 US Dollar was fixed at either a given weight of gold OR (higher, obviously) silver and Founding Father approved.

It was the Crime of 73 (1873) when Congress forbade the on-demand minting of silver coins from any silver metal brought to it by any citizen, in return for a token seignorage tax to cover the cost of the minting and stamping.

Each time Congress regulated beautiful Silver after the Civil War, the country was thrown into a "Panic" as greedy banks and landlords used to their lock on the gold supply to screw over debtors, farmers, miners, prospectors, frontiersmen, and working people generally, forcing them to pay with expensive Gold instead of affordable silver, strangling commerce and consumption.

Silver is self-regulating, if the price gets too low, people stop bothering to mine or mint it.

Oh, @Patrick, another form of currency debated in the late 19th Century was the Stanford - of University fame - idea of having a currency based on rolling land values over a decade average. Very Georgist!

Tenpoundbass says

Would they? Why would they? Nobody flinched when run away spending ramped up on Carter's watch and continued through Reagan's watch.

Carter and Reagan the fix was already in. Nixon took us off the standard. He flatly said notes would not be redeemed for physical:
https://www.investopedia.com/terms/n/nixon-shock.asp

And why? Because exactly what I said above. People (specifically foreign pegged Bretton Woods currencies) began to see that the gold was not there to back the currency, and began withdrawing it.

In 1971 , an ounce of gold was ~ $40. Today we are about 50x that. Compare a dollar in the S&P 500 in 1971: today you would have about $180.

This means there is a 7.75% inflation rate eating in to the 10.5% S&P 500 return rate giving a "real return" of about 2.75% on the S&P 500 !!! Over 50 years obviously that adds up, but goes to show the real impact of inflation.

Contrast that to a dollar held under your mattress. A 1$ silver certificate from 1971 is worth... $1 .. The system is clearly designed to take from those least able to diversify from dollars (the poor).

Tenpoundbass says

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?

Well, for starters, no. People in general would keep some money at home, and keep some money at the bank. The average American today has less than $500 on hand to pay for any kind of emergency at all. So it's not crazy that an "average" person have 50 silver dimes at home @2 dollars each & 5 silver dollars @20 dollars each, and have another 200 "in the bank" for conducting transactions. "paycheck come in paycheck go out" ..

With $500 on hand for the average emergency, this is less than a single gold coin per household for HALF of America!!!

With only 50 silver dimes, a tiny tiny pile.. how do you think most people would feel giving 2 of their 50 for a coffee at starbucks? It's just different than paper in the first place.

Second. 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. Banks might deposit several of these bars into the local federal reserve bank. Suppose Bank A has net 10,000 customer transactions come in transferring money to Bank B @ $1000 each on average over the course of a month, netting $10,000,000 to be moved to Bank B. This could be payments, account closure/moves, etc. Suppose the customers are satisfied to let the banks clear the transactions rather than withdraw and deposit the currency themselves.

The way this might occur is that Bank A has 100 25# gold bars on deposit at the federal reserve, and they send a note to the federal reserve and say transfer ownership of 10 bars to Bank B. This covers 8 million of the 10 million transfer. The bank then couriers over an additional 1000 x 1oz. gold coins to cover the remaining $2M dollars. In "the meantime" during the month, as transactions are accumulating, both banks are keeping track of one bank becoming in-debt to another bank.

So the first thing to happen in a "bank run" is that Bank B gets suspicious of Bank A, and asks for earlier than month end clearing. This is allowed under terms, month end clearance is a convenience and effective "extension of credit". Today this is called overnight interbank lending, and has an interest rate set at the federal funds rate. So Bank B says "hey we think you lost the money, we're calling in our overnight loans." If Bank A is in good shape, they just pay it off as they have plenty of reserves. But if Bank A balks AT ALL... boom.. wildfire. Bank B insiders call all their buddys and say "go get out now". That's when somehow the word leaks out, and people start waiting in line for their 100 silver pennies.

That's why banks always want to keep a "bit extra" in at the federal reserve, so any 1 bank creditor can kind of see their money sitting there in liquid form, and why any individual bank would always want to pay a portion of a credit to another bank directly, and never fully deplete their reserves at the FED.

And the "big bank run" (like 1970) is when people see the fed balk at withdrawing some of those 25# bars for some reason. That is "oh no oh no oh no" territory. And that is exactly why the inflation adjusted wage has been declining for much of America since 1971, and a bigger and bigger share of GDP has been going to the top .1% . The .1% just gets printed money from FED loans and buys all the assets (blackrock). Then if they get overleveraged, they are "systemically too important" and get a bailout.

Sometimes you just got to be able to print the money.

If you have a commodity based monetary system, it leads to deflation as "money" is removed from the system by people "saving" it.

Now it really doesn't matter as people can go ahead and plan on getting paid less in 5 years than they are today, but the math is more difficult than in an era of inflation where people believe they will get paid more.

Since 1913, the price of silver has gone up about 3.3% per year vs the value of a dollar. If you put those dollars into an interest bearing account you will have mostly eliminated this advantage. Yes, this takes into account the wild free money days of Covid.

The commodity based system is inferior to a fiat based system except in times of her-inflation.

Misc says

If you have a commodity based monetary system, it leads to deflation as "money" is removed from the system by people "saving" it.

Why is deflation a bad thing?

Because you've been told over and over and over again it's a bad thing. You've been brainwashed into thinking it's a bad thing.

Do you REALLY think it's a bad thing for bread to get cheaper? That your house value goes down, but so does gasoline, electricity? That you may be asked to take a paycut because the company is selling less, but commodities are dropping in price as well, so manufacturing costs have dropped?

We had many "depressions" which before the Fed, just mean the economic contracted. Bad businesses went out of business, more efficient businesses took their place, this happened over and over and over again.

But then we got the Fed, and a Great Depression, that lasted from 1933 to 1945 when we entered WWII. We had about 405,000 people killed in that war. But at least we don't experience 1 or 2 years of deflation periodically... Now we're facing a "Great Reset", I wonder what that is about? Well, it's about time again..

House is around $400,000 dollars, how many 20 year old kids will be able to realistically own homes? Corporations are buying them up though, like Vanguard and Blackrock. The old have fucked the young because they were bought off. The new generation being born today, they're going to be slaves by the time they get to be adults.

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. It simply cannot be done without the system collapsing. Whereas, with fiat interest can be charged as the system can continue to expand instead of forced contraction.

Misc says

Like I said, we can adjust our outlook to deal with living with deflation, but the math and mindset is easier with inflation.

Look, let me explain the scam we have right now.

Somebody "borrows" $1 billion dollars from a bank at a very good interest rate, like 1% because they have incredible credit. They purchase actual goods with this money, like property or whatever, then this money enters the economy and causes some inflation. Do this with 1000 people, and that's a trillion dollars that was printed, there WILL be inflation, and then they can sell off their whatever, and they made a profit.

That's the scam, we were warned about this by Andrew Jackson, when he destroyed the central bank.

Misc says

Also, with a commodity backed monetary system the ability to charge interest is problematic.

No, it's not. The reason you're earning interest is you're taking a risk. The interest is insurance payments for that risk when you loan money. If you aren't paid back, you get your interest, and that's it. They went bankrupt, too bad.

That's your CLASSIC banking system, right there.

The bankrupt party BTW has to liquidate in order to pay back, so if they bought property, the property went down, you may not be entirely whole, but you might get 80% of your money back. Maybe there's been a crash, and you get 50% of your money back.

That's the CLASSIC system. Banks did go bankrupt back then, but they could recall their loans. They had agreements. People who stop paying back, forfeit their property to pay it back - this still happens with home foreclosures.

What sometimes happened was a corrupt banker took the money that was deposited and used their own credit to make wild speculation, speculation used to be illegal. When this banker was caught doing this, generally it ended in the banker's death, by suicide. Banking used to be a very conservative, very low risk system but there were bumps, sometimes a loan didn't pan out. If you wanted to start up a business, you didn't go to bank for it, you went to an investor, that's what STOCK was for, you gave them a portion of your company, and the payout was eternal payouts from dividends from the stock. Maybe the company REALLY grew, well dividends grew as well, maybe though you think the company is going to shrink, so you sell your stock before it does.

We live in a system where people don't even consider dividends today. EVERY stock used to pay dividends except during the startup phase. It took time to build the factory, or to develop the research and product - you might get nothing for a year or two.

We have a completely perverted system now.

Look, Europe was in STAGNATION for CENTURIES. Then the US was founded, and a revolutionary war was fought to get rid of dependence on the Bank of England, that's what the Revolution war was REALLY about. Then we developed like fucking crazy. Suddenly inventors had an incentive. They had access to credit, and they could become RICH. When the Fed showed up it went into fucking overdrive because they gave out credit everywhere, until, the system went bankrupt.

If you have a commodity based system which by nature would have to be deflationary. It would be hard for someone to comprehend taking out a 30 year loan for a house. If he did, the house payment would take up more and more of his pay over time as his pay went down. With ever decreasing prices for real estate people simply would not invest for themselves. This would lead to only the wealthy owning properties and gouging common folks in the amount of rent they would charge.

An inflationary system, whereby the house payment would decrease as a percent of income over time is preferable IMHO.

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.

PeopleUnited says

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.

No, inflation is a way out for a borrower. It harms lenders and savers, but that is mitigated by the interest charged.

Also, home ownership was rare. Most people were forced to rent.

Misc says

inflation is a way out for a borrower.

First of all, the biggest borrowers are not those taking out home loans, but the banks themselves: their action of taking deposit is borrowing.

More importantly, it's not inflation itself that helps borrowers (as lenders would charge higher interest rate when both sides expect higher inflation), but the difference between inflation rate during loan service vs. inflation expectations when the loan interest rate was set. That's where artificially manipulation of interest rates by monopolistic banksters really rip off the general population: just look at the millions of people who took out loans to buy houses at or near market peaks due to fear of run-away inflations (FOMO, "now or never"). There are always more people buying at the peaks than at the bottoms (that's how peaks and bottoms are formed). Left to a free market, the market should have peaked during the 2016-2018 time frame. The artificial manipulation during 2018-2021 to extend the bubble (pretending "inflation was only transitory") provided the opportunity for insiders to unload, while roping in the masses to overpay. The result is exacerbated booms and busts, and exacerbating wealth polarization.

Misc says

If you have a commodity based system which by nature would have to be deflationary.

Not true. More commodities are dug up every day/week/month/year. Even for gold, 2/3 of all gold mined by humanity has been mined after circa 1950. Also, the commodity based money system specified at the time of the founding of the USA was Bimetalism: either silver or gold, which ever is slightly less expensive than the 1:16 ratio. Silver being usually a biproduct of industrial mining other metals such as zinc, lead and tin, the slight laxity between Bimetalism and industrial mining biproduct give plenty room for monetary expansion at pace approximating industrial output, while not giving anyone the power to manipulate money supply at the stroke of a pen (or a push of a button) after the masses and banksters have already placed their bet on inflation expectations (remember, it's the difference between previous expectation vs. subsequent reality that is at the root of extra profit and bankruptcies/foreclosures). What we have right now is like: after you buy a stock and the dealer short it to you then the dealer appoints a committee to decide what the price of the stock should be; and vice versa after you short a stock and the dealer buys it to squeeze you. In gambling analogy would be a loaded dice instead of a fair dice.

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.

Misc says

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??

You are engaging in strawman-tactic. The money defined at the time of the founding of the USA till 1873 was Bimetalism, not gold-only standard.

Then there is the fallacy of being able to charge interest on a commodity based system.

Why can't one charge interest for loans made to the opening of a silver mine or a gold mine? Literally more monetary metal would be produced after purchasing mining equipment and chemicals then putting them to use. By extension all the suppliers of food and energy to the mine operators can advance payments and collect interest; then likewise the secondary and tertiary suppliers to them. What will end is interest-bearing on-demand bank account, because interest-bearing on-demand bank account is a fraud! Just like a Ponzi Scam is a fraud: the operator is promising the mathematically impossible!

Nope, fiat is far superior.

Superior only for the fraudsters, at the expense of everyone else.

Tenpoundbass says

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.

Strawman tactic. Gold-only standard is simply a prelude to gold-certificate standard (as you described) then fraud-stanard and fiat-money. That's why the monetary standard advocated by the Founding Fathers and responsible for the prosperity in the first nearly a century of the USA was Bimetalism, before the Civil War and "the theft of 1873" ushered in massive booms and busts, and the "American Empire" to impoverish Americans while enriching international banksters that have no loyalty to any country or community. Robbing the Helvetics and Gauls did not enrich Romans in the long run, but only brought the down fall of the Roman Republic; likewise, robbing food from Egypt at cheap prices did not enrich the Romans but bankrupted the Roman farmers and made them into dependents on the state and easily manipulated by the Emperor and his cronies (who then often killed the Emperors to become Emperors themselves).

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.

Misc says

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.

LOL! Whoever lends out a 2000-year loan deserves to lose his money, as he has completely shirked the responsibility for risk assessment. Who said interest rate has to be 3%? Those who want to make a living off lending out money should carry the risk of borrower defaulting, not shifting the risk to everyone else! Ever wonder why we have so many frauds and bubbles lately? How is a system set up to enable every fraud and fantasy by the insiders (or just bureaucrats in a government-run monopoly / public utility) any different from centrally planned economy?

There is a reason that all the Great religious books forbid charging interest.

So do you want to follow ancient wisdoms or not? Where do they say the solution is plantation scripts to rip off the slaves?

Fiat does away with this as the system can be expanded.

What Fiat does away is restraint on government power. Perhaps you think the Constitutional restrictions on the government should also be done away with.

Misc says

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 eventually leads to default in a commodity based system, on and off. There are ALWAYS bankruptcies in a commodity based system.

With a fiat system, it ALWAYS leads to inflation. In a purely fiat system, if a Bank loans out $1,000 to 1000 people, and charges 1% interest on everybody and loans it for a year, how is it possible for everybody to pay back the loan at the end of the year? Everybody will own $1010 at the end of the year. So how do you prevent a default in this system? Well, the bank creates $10 for each person, and uses that to buy goods and services from everybody. There can STILL be defaults, but it's not guaranteed.

The reason the US target inflation rate is 2%, is that is how much more gold we mine every year, about. Inflation is a direct measure of the increase in money supply. The Fed lies about it, which is why we went bankrupt in 1933 and 1971, The Federal Reserve is just a criminal organization, it's mathematically provable that's all they are.

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.

Misc says

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.

Charging interest rate in a bimetallic money system does not lead to system collapse: bad loans would default individually, hence lenders are individually held responsible for their business acumen. Whereas a fiat money system indeed not only enslaves everyone in the economy (as fiat money is essentially a Plantation Script for the society at large) but also causes frequent synchronized system crises and collapses like we have been seeing.

Edit:
Comes to think of it, if we model Collective Farming as a collective farming of crop seeds, then Fiat Central Banking is essentially collective farming of seed money and seed capital. That's why we have been having money/capital famines! Individuals have to be held responsible for what they do with the seeds if we want to have the seeds grow into bumper crop and good harvest.

Yes, charging interest, which is a mathematical construct, overwhelms physical supply in a commodity based system.

Misc says

Yes, charging interest, which is a mathematical construct, overwhelms physical supply.

What is the proper interest rate on a kernel of corn? What is the proper interest rate on a grain of rice or wheat? (those seeds yield 10x to 30x over a growing season before deducting labor cost and capital cost). What is the proper interest rate on an ounce of gold/silver as seed money to find and dig up more gold/silver? These are all dependent on the technology available at the time and the environment factors. Only through the negotiations of many lenders and many entrepreneurs can the proper interest rates be reached and changed. Some gamblers will have set backs. However, having a bunch of government bureaucrats set the yield by fiat command would only lead to corruption and inefficiency, and massive concurrent systematic collapses.

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.

RWSGFY says

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.

The legacy media has been promoting the confusion between monetary inflation (and at what rate) vs. price inflation. Price inflation (especially rapid) is what people dislike. Overall money supply can either keep up with societal real goods/service output or grow slower than it so prices deflate at relatively constant rate, so that people can save and give room to capital growth/accumulation (i.e. people giving up some consumption goods so that capital goods can be produced). Witness the rapid growth of the tech sector despite the steadily dropping price of tech goods. What is detrimental is constant rapid growth of prices, and that leads to capital destruction: can you imagine a world where router prices have been increasing constantly since 1992? People would be buying up and hoarding routers instead of buying as they need and give room to development of more advanced equipment.

2/3 of all gold that has been mined has been mined since around 1950. Silver is a byproduct of industrial mining of zinc, lead, tin, and etc.. The overall money supply would increase in a Bimetallic monetary system, more or less at pace with economic growth. What it would avoid is the systematic excerbation of monetary bubbles that the Fiat Money Central Banking system has been engaging between 1997-1999, 2005-2007, 2019-2021, grotesquely extending bubbles so that insiders could unload while roping in the masses to the slaughter. Let's also not forget the giant bubble extension of 1926-1928 thanks to the then relatively young founded FED, quickly leading to widespread global bankruptcy wave, the rise of Hitler and WWII.

RWSGFY says

People seem to be implying that there wouldn't be inflation if dollar was still linked to gold.

Rent would be $20 but you would have to suck a lot of ass to get that $20.

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.

Misc says

No, inflation is a way out for a borrower.

Is that why the national debt has grown pretty much every year since world war2 we must need more inflation then!

PeopleUnited says

we must need more inflation then!

And boy are you going to get it.

HeadSet says

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.

gah.. yup always forget troy vs standard. it's my weight math that is bad though.. the standard gold bar is 400 troy oz: https://en.wikipedia.org/wiki/Gold_bar, so still $800k

I just think it is hilarious that sheeple actually believe that inflation is good.

But then again people still think wearing a face diaper is good, so....

Misc says

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

I think I've replied to this particular line of fouled thinking before, right? https://patrick.net/comment?comment_id=1899881

Also, interest is due from a person. It's one thing to have a number on a piece of paper. It's another thing to collect it.

What happens to loans that can't be paid back? They are not paid back!

Lets try it. Send me a 1 oz gold coin, and I will accept a note to pay you back at 3% interest in 2000 years. Or lets try this instead. Send me one gold coin and one platinum coin, both at 3% interest, sum total due in 2000 years, and we will see which metal generates you the better return as the prices fluctuate in dollars!

Reality says

Price inflation (especially rapid) is what people dislike.

Lol! I think you may be a little bit under the spell of modern economics. In 1971, an ounce of gold was about $40. 52 years later, those $40 buy you about 1/50th of an ounce of gold. Hope no one is stuffing dollars under their mattress to create a fund for their grandkid! I guess a good old fashioned ounce of gold would have been ok though.. huh?

Inflation of the money supply IS inflation of prices.

PeopleUnited says

I just think it is hilarious that sheeple actually believe that inflation is good.

If you are high debt type with big mortgage and big car and credit card debt, inflation is good for you. It may turn out that the debt boys were the smart ones, if we do in fact have double digit inflation.

Misc says

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.

This is not about lose or win, it's just entirely mathematical.

Look, let's say I'm a bank, and I only have 1 customer - you, and I loan 100 credits to you at 10% interest at year, and you are required to pay it back in 1 year. It can be paid back, if I give you an extra 10 credits to landscape my lawn over that year. This works with even a commodity standard of X which X cannot be mined or created.

The banking system is parasitic, it doesn't want to kill host but if the credits can be created at will, I don't even need you to pay me back.

If I'm a central bank, do I need to worry about taxation, or even work? I'll just dump "money" out of my printing machine.

That's fiat money. They have infinite wealth.

HeadSet says

If you are high debt type with big mortgage and big car and credit card debt, inflation is good for you.

If you work for a living, debt and inflation are your slave masters. They both crack the whip on your back and force you to work while the powers that be sit on their asses and reap the benefits of your labor.

If you work for a living and are in debt, deflation would reduced your wages until you could not make payments and you would lose whatever you went into debt to obtain.

The people with the assets would sit back and collect it all.