patrick.net

"I agree that this way makes it more “real” to the citizens and they might be more watchful of government spending but you’re naive if you think a gold standard will stop the govt from deficit spending."

Gold standards effectively did squash deficit spending because governments weren't able to politically justify their tax increases without getting ousted from office. Through inflation and an unofficial abandonment of the gold standard (printing money), they were able to run deficits without increasing taxes. The only problem is, whenever they attempted this, they kept the price of gold fixed to the currency (basically price fixing) and the public (or marketplace) makes a huge run on gold because you can buy it with devalued currency. It already happened twice last century. In 1971, the US stopped playing the price fixing game and simply ended the convertibility between the dollar and its gold reserves.

By and large, the gold standard is history's greatest and most effective example of a restriction on government spending. On the other side of the coin, fiat money has always been histories greatest and most disastrous example of putting no limit on government spending. No civilization has discovered a better way to keep governments in check than gold and silver. Our experiment with Ben Bernanke is going to end very very badly.

In 1944 at Bretton Woods, the U.S. Dollar was declared to be the world's reserve currency for the rest of the civilized world. Unlike the other currencies, the U.S. Dollar was backed by GOLD, which in effect also kept the world's currencies on the gold standard. Any foreign country that held gold was able to exchange (at any Federal Reserve branch, or, at the U.S. Treasury) the stated amount of gold for U.S. Dollars. Nixon closed the gold window in 1971 which basically took the world's currencies, and of course the U.S. Dollar off of what remained of the gold standard. We now have purely a fiat paper money currency backed by a promise to pay a promise based on a promise. Sound confusing? It's meant to be. Without the gold standard, governments are allowed to inflate (print) the currency in order to provide for what appears to be free services to the people and hence increase their popularity and power with the people. Unfortunately, indiscriminate printng of money always leads to the same end; the destruction of the currency. This is exactly what Adolph Hitler did when he practiced inflationary economics, i.e., spending money he didn't have, to create jobs via massive public works programs such as the building of the Autobahn. Study this period of German history and you'll see this is exactly what our government has been doing since FDR. If that doesn't frighten you, nothing will.

RayAmerica says

If that doesn’t frighten you, nothing will.

It doesn't frighten me. Because you don't understand how the world markets work.

tatupu I guess I need to "understand" that printing an endless supply of paper money is the road to lasting prosperity. Now I understand how the world markets work. LOL

RayAmerica says

tatupu I guess I need to “understand” that printing an endless supply of paper money is the road to lasting prosperity. Now I understand how the world markets work. LOL

Huh, I don't remember saying that "printing an endless supply of paper money is the road to lasting prosperity". Because it's obviously not. Adding liquidity to an economy undergoing a credit crunch, however, does seem to be prudent.

Please save the scare tactics for somewhere else...

tatupu "Adding liquidity to an economy undergoing a credit crunch, however, does seem to be prudent.

Please save the scare tactics for somewhere else…"

What you don't realize is that we are in the mess we're in because of EXCESS credit (easy money policies) which undermined the entire economic system. Adding credit into a credit bubble is not the answer. By the way, I'm not using "scare tactics" as you claim, but simply stating my opinions seasoned with facts. Save your accusations of scare tactics for someone else.

RayAmerica says

What you don’t realize is that we are in the mess we’re in because of EXCESS credit (easy money policies) which undermined the entire economic system. Adding credit into a credit bubble is not the answer. By the way, I’m not using “scare tactics” as you claim, but simply stating my opinions seasoned with facts. Save your accusations of scare tactics for someone else.

Actually, I do realize it (although I think the cause was more due to poor understanding of risk/reduced lending standards rather than excess credit). But, regardless of why we got into the situation we were/are in, the fact remains that it was/is a credit crunch. In order to combat it, more liquidity was needed. Businesses couldn't get working capital to meet payroll, for gods sake... You would rather they go under and more people lose their jobs?
You don't consider this line to be a scare tactic? "If that doesn’t frighten you, nothing will."

tatupu Excess easy credit created the housing bubble. Adding more air to the bubble accomplishes exactly what ?? Please be specific to the housing bubble segment of the economy when answering. The first time homebuyer tax credit is nothing other than an artificial pump into the bubble. What happens when that air, i.e. tax credit disappears??

Ray--

I thought I was pretty clear in my previous post. Liquidity allows companies to make payroll, have capital budgets, hire new people. Corporate America depends on the availability of short term credit for their operations.

Who cares about the first time homebuyer credit? That's a drop in the ocean. I have no idea what will happen when it expires--maybe home prices will drop, maybe the economy will have picked up and enough demand will have returned to keep prices steady. Hard to say. But, your previous post that I responded to had nothing to do with the housing credit--where did that come from?

tatupu70 says

maybe the economy will have picked up and enough demand will have returned to keep prices steady.

are you serious? do you actually believe that home prices will stay steady when all this stimulus goes away. where are the jobs? home prices will be steady when unemployment is not over or near 10%... and we're looking at years down the road. printing money out of thin air will not solve our problems, it'll just eventually make our dollar useless.

@crash--

Wow, nice editing job there. If you would have included the first half of my statement it included this line

tatupu70 says

I have no idea what will happen when it expires–maybe home prices will drop,

Does that help?

With all the advertising and mainstream gold coverage I've seen lately, it seems like a pretty safe bet to run like hell and and wait for the correction.

Governments throughout history borrowed money to fight wars when money was gold, silver, copper, and bronze tokens and bars. They also went into massive debt. The Kings and Queens of Europe were very good at running up debt when money was gold, silver, copper, and bronze tokens and bars.

No matter what tokens we use, governments can borrow as much as the world is willing to lend them. And the world can decide it wants its payments immediately for governments that the world deems are carrying too much debt. Countries went bankrupt back when money was gold, silver, copper, and bronze tokens just as they do today with fiat paper currency.

Today, the situation would be the same if government were forced to use gold, silver, copper, and bronze as token money. Paper money and fiat currency makes economies and the global economy much more efficient than using gold, silver, copper, and bronze tokens for currency. Our entire global economic system would collapse if we were forced to use gold, silver, copper, and bronze tokens as money because there are now too many people in the world to spread around whatever gold, silver, copper, and bronze is left to make a global economic system efficient enough to move goods and sell services. We wouldn't be able to produce enough gold, silver, copper, and bronze tokens to allow 6+ billion to carry out basic transactions on a micro-economic level. On a global scale commerce would be stagnated and grind to a halt as nothing could ship from buyer to seller without the physical transfer of gold, silver, copper, and bronze tokens. So transactions on a macro-economic level wouldn't work efficiently either.

Those who insist on returning to a gold standard to limit government spending are arguing for returning to a gold standard without understanding basic macro-economics.

simchaland says

Our entire global economic system would collapse if we were forced to use gold, silver, copper, and bronze tokens as money because there are now too many people in the world to spread around whatever gold, silver, copper, and bronze is left to make a global economic system efficient enough to move goods and sell services.

In this day and age, you could let gold and silver act as currencies which can instantaneously be redeemed via debit card. As for there not being enough metal....there's no problem the right price won't solve. That is all...

Simchaland, OMG...everything would adjust, like water seeking its own level. It's people manipulating a worthless currency, increasing the supply, is the problem. Sound money is never THE problem.

In Utah they're talking about letting people pay their taxes with gold.

Nobody's suggesting that paper dollars are useless as a means for transacting -- I think the suggestion is that it's a tenuous place to park your savings. If the currency is debased through QE and other volatile fiscal measures, the buying power of the dollar will diminish accordingly. So, while you can still pay your bills with paper dollars, it will require more dollars to afford the same (or less) of that good/service, thereby making the dollar less attractive/useful as a store of wealth.

As for the broader implications of fiat currencies over the long term, David Stockman makes some excellent points starting at about 14:00 on this video. No matter how you feel about this subject, it's good food for thought:

http://www.youtube.com/watch?annotation_id=annotation_478159&v=Lq9NwyQSzhk&feature=iv

Except for a modest reserve, all my money goes in to various free-market investment vehicles: stocks, bonds, and real estate.

Unfortunately, 'free-market' in the present-day context is something of a misnomer. Thanks to things like bubblenomics, regulatory capture, the increasing confluence of corporate/banking interests and policymakers and other more abstruse trickle-up apparatus, the playing field more resembles a minefield where all the goal posts move in favor of the big players. Think Wonderland croquet.

Gold: highly unimaginative.

Gold and silver critics, listen up.

Clearly demonstrate to us where the money is going to come from to bailout the states that are bankrupt. Show us where the jobs are going to come from to create economic growth. Show us where the tax revenue is going to come from, when housing prices keep dropping and foreclosures keep climbing. Show us how the US taxpayer is going to pay for the coming $40+ trillion dollar shortfall over the next 40 years for social services. Show us how high taxes stimulates the US dollar.

Show us how the central banks of China, Russia and India that are now buying gold and silver are wrong. Russia and China also recently agreed to price trade deals in their sovereign currencies, not dollars.

We want facts and not smarmy insultive critiques. You have lost your credibility because all you do here is attack (and skew and twist and distort and distract) fact-supported opinions, rather than support your own in any tangible fashion.

Lay down your facts now, or stop posting mindless critiques that waste our time here.

another gold commercial I bet.
With the high unemployment and dropping house price, I really don't see the hyper-inflation.

If smart and rich people see high inflation, they will buy land/house and hire people like crazy.
After all, these workers/sellers are stupid enough to accept worthless US dollars as a compensation.

xenogear3 says

another gold commercial I bet.
With the high unemployment and dropping house price, I really don’t see the hyper-inflation.
If smart and rich people see high inflation, they will buy land/house and hire people like crazy.
After all, these workers/sellers are stupid enough to accept worthless US dollars as a compensation.

And I wish the exact opposite and it will happen because I wish it were true.

Do you have ANY supporting data? Anything? Care to tell us where the money is going to come from, as I asked about in my post above?

Easier to critique the other side than it is to support your opposing view, isn't it?

For the record, gold and silver are, historically, good hedges in BOTH inflationary AND deflationary scenarios.

Again, please stop the smarmy comments.

Billy Jack says

Gold and silver critics, listen up.
Clearly demonstrate to us where the money is going to come from to bailout the states that are bankrupt. Show us where the jobs are going to come from to create economic growth. Show us where the tax revenue is going to come from, when housing prices keep dropping and foreclosures keep climbing. Show us how the US taxpayer is going to pay for the coming $40+ trillion dollar shortfall over the next 40 years for social services. Show us how high taxes stimulates the US dollar.
Show us how the central banks of China, Russia and India that are now buying gold and silver are wrong. Russia and China also recently agreed to price trade deals in their sovereign currencies, not dollars.
We want facts and not smarmy insultive critiques. You have lost your credibility because all you do here is attack (and skew and twist and distort and distract) fact-supported opinions, rather than support your own in any tangible fashion.
Lay down your facts now, or stop posting mindless critiques that waste our time here.

I'm not sure who you are having an imaginary argument with--I'll try to keep the smarminess down though.

My questions is--how does any of what you describe above translate into a reason to buy gold? Other than that's always how it's worked in the past...

tatupu70 says

Billy Jack says

Gold and silver critics, listen up.

Clearly demonstrate to us where the money is going to come from to bailout the states that are bankrupt. Show us where the jobs are going to come from to create economic growth. Show us where the tax revenue is going to come from, when housing prices keep dropping and foreclosures keep climbing. Show us how the US taxpayer is going to pay for the coming $40+ trillion dollar shortfall over the next 40 years for social services. Show us how high taxes stimulates the US dollar.

Show us how the central banks of China, Russia and India that are now buying gold and silver are wrong. Russia and China also recently agreed to price trade deals in their sovereign currencies, not dollars.

We want facts and not smarmy insultive critiques. You have lost your credibility because all you do here is attack (and skew and twist and distort and distract) fact-supported opinions, rather than support your own in any tangible fashion.

Lay down your facts now, or stop posting mindless critiques that waste our time here.

I’m not sure who you are having an imaginary argument with–I’ll try to keep the smarminess down though.
My questions is–how does any of what you describe above translate into a reason to buy gold? Other than that’s always how it’s worked in the past…

I'm in agreement with taputu. I'm just not seeing anyone show up at VONS/Ralphs and pay for their groceries with gold.

I'm not saying that arguments for gold are invalid. Some are reasonable, but I just don't see it being a new currency. Although who knows anything anymore, I live in an upscale neighborhood in LA County and people are buying up guns here for whatever the reason. Gold doesn't seem like such a far-fetched idea anymore.

This explains why the unemployment is so high.

These 10+% people don't want US dollars as compensation !!!!