Gold Standard

[MetalMeister]

IT's likely that any return to some gold standard is not practical and likely the worse thing that could happen. There are many opinions on this but this little movie does give one reason to think about several things.  (Oh, it's about two hours long so ..........)

http://www.youtube.com/watch?v=U71-KsDArFM&feature=player_embedded

[MetalMeister]

Here is a Peter Schiff interview where they banter the gold standard and if it necessarily causes deflation, etc.

http://www.hardassetsinvestor.com/features-and-interviews/1/1356.html

[MetalMeister]

Well, obviously there is a split in the two camps but both believe the fractional reserve system is not the way to go.

I do not think that money has any integrity unless it is backed by something of a hard asset value.

The most basic monetary system is bartering.  "You give me that and I give you this".  An agreement is reached and not necessarily completed but an agreement nevertheless.  Goods and services can be delivered right then and there "trading posts" or later upon agreement. If give the goods right then and there and yet you only get partial fulfillment or later fulfillment based on promise, then you are placing a certain amount of faith in that individual to make good on their word.

That video suggests money be created by the government, not the banks, and the money is not based on anything except good faith.

I find the premise flawed as it pertains to a national government.

Maybe that works in a limited environment.  I do not know and I do not want to find out.

The narrator suggests that for a project the government expands the money supply to finance the project at no interest and at the end the government is paid back in full and the money supply shrinks back to it's previous size.

It goes on to point to various periods of history where it claims there was not enough money available for instance the banks started holding money, decreased lending it out, and thus stalled the economy intentionally causing starvation and unemployment.

The problem was not the amount of money that was out there.  The problem is the worth of the money with respect to the price of goods and services.

If money is sound money, then there can be no inflation or little inflation.  Or it should be that way.

If money is sound money, then I should be able to store it at the back one year in a safety deposit box, return 5 years later, take out my money and go to the store and have the full satisfaction that it has retained it's full purchasing power.

But if there is constant inflation of the money supply then the value of the paper becomes relative.  Relative to the price of goods and services.  Relative only in the fact that x amount of paper can purchase something.

Inflation should be illegal.  Period.

And the only way I see to keep inflation in check is to have asset backed money to give it's value more of a fixed constant attribute.

Therefore, if you have over supply or under supply of any good or service then the price of those rise and fall with demand but the money stays the same or close to it because it is asset backed.

Just my off the top of my head thinking when I need to get on to other things before I get to bed.

Hoping you all will present your eager minds to the subject at hand...1

[sidewinder]

http://www.secretofoz.com/index.php?option=com_content&view=article&id=154:1939-a-program-for-monetary-reform

Seems to make sense to me.   

[MetalMeister]

One question for you.

Was the video advocating the position that Jennings had in the late 1800s, early 1900s of a gold + silver standard backed money supply or were they just reporting the desire of that political group at the time?

It was not clear to me if they were in favor of it or not.

This statement is an outright lie, ha, ha, ha!

This was gradually lowered over the years from a 20% reserve requirement to a 10% reserve requirement. After the economic collapse in 2008, we discovered that banks had been totally ignoring the reserve requirement. Some of the biggest banks had loaned out 50 times the amount of their reserves. Mortgage giants Freddie Mac and Fannie Mae had loaned out over 70 their reserves.

It was known WAY before 2008...

This is very well stated and documented.  I remember reading the accounts of the practice in earlier centuries:

"The 100% reserve system was the original system of deposit banking, but the fractional reserve system was introduced by private Venetian bankers not later than the middle of the Fourteenth century…. bankers began to lend some of this [money], though it belonged not to them but to the depositors. The same thing happened in the public banks of deposit at Venice, Amsterdam, and other cities, and the London goldsmiths of the Seventeenth century found that handsome profits would accrue from lending out other people’s money… a practice which, when first discovered by the public, was considered to be a breach of trust. But what thus began as a breach of trust has now become the accepted and lawful practice. Nevertheless, the practice is incomparably more harmful today than it was centuries ago, because, with increased banking, and the increasing pyramiding now practiced by banks, it results in violent fluctuations in the volume of the circulating medium and in economic activity in general."

This is an interesting statement:

"A by-product of the 100% reserve system would be that it would enable the Government gradually to reduce its debt, through purchases of [existing outstanding] Government bonds by the Monetary Authority as new money was needed to take care of expanding business. Under the fractional reserve system, any attempt to pay off the Government debt, whether by decreasing Government expenditures or by increasing taxation, threatens to bring about deflation and depression."

What is the government going to purchase the bonds with?  Taxes?  I'm not seeing how they say that would work.  Maybe I am blind... 

[sidewinder]

I guess the gov would purchase bonds with debt free money.   

On the reserve thing who really knows what they are doing and when.  The regulators ae bought and paid for. 


The only reason there would be a fight from politicians is something like this would tie their hands and keep them from spending and buying votes. 

Frankly I dont see any of this happening because all the politicians want is to make it to the next election.  It is just that bad. 

[sidewinder]

Weren't they called the "Silver Democrats" and advocated bimetalism which fixed the price of silver at 16:1 to gold?   

I remember reading something like that in one of Marty's missives a while back.  This fixing of the silver price in the US can not work as the price of the metals fluctuates world wide.  If gold rose in price the rest of the world would flood the US with silver and take all the gold out in arbitrage. 

The term free coinage has to do with the way coins were put into circulation.  Any person or company could bring the metal to the US mint, turn it in to be minted into coins and leave with an equivalent in the legal coinage.  But for many years the melt value of our silver coins were less that the face value.  That's why I wonder how something like this could work today with the price of the metals moving all over the place.  At some point it would prove to be sane to simply melt the coinage and sell the metal abroad or domestically as bullion. 

i think Bryan and company were advocating bi-metalism and the printing of "free" money like the greenback.  But only by Congress.  Again another battle with the Banksters.  It seems this has been going on since the birth of the nation and really worldwide since the goldsmiths first begin to hand out more script than gold they had stored for people, creating something out of nothing for their benefit.  There is no difference with the Federal Reserve Bank.  Only with the FED, the people have no idea of who are the true owners of the FED and who benefits from the interest they charge.  This interest IS the public debt and ALL money IS brought into circulation as DEBT.  Sure seems like a F/U way for a free Nation to operate as there cannot be liberty if the dollar only represents debt.  Thinking about this almost make me sick to even touch a Federal Reserve note. 

I certainly understand the historic moral factors surrounding usury and can almost "get it" when looking into how the concept has gone from unacceptable by society in general, to a condition where we find that an entire country if not entire world, have become economic slaves to a small number of banks.  It has been done in such a way that no average person can understand it.  It was allowed by people to whom the trust and faith of the public was given and really can not be viewed any other way that by calling it treason.  Of course that's at first glance and strong words I know but how else to describe it.

If you look at depressions including this one, the direct proximate cause is money.  The quantity of, and value of which can be manipulated from the source.  Since 1913 or when ever the FED was chartered that has been the source.  But something changed with the advent of the FED.  That is, instead of the Congress priinting money at no cost, now the Congress must borrow at cost to place it in circulation.  We can never pay the debt to the FED as everything originates as debt and at interest.  Montagne is right, there will come a point where it is unsustainable and if it runs far enough (which I don't thing is possible because the people will revolt) it will take every ounce of labor of the entire nation to simply pay the interest.  The public debt is now over 94% of the Gross Domestic Product.  A great part of this is caused by the government having to pay interest to the FED for borrowing its own money.  To me that's crazy as hell. 

We don't need a gold standard, nor a silver standard but simply Congress print "free money" (that which does not begin it's life as debt) based on the full faith of the American people.  The only way that can happen is to close down the FED, Return to Constitutional requirements with sound principles.  I think it really is that simple.  Of course the banks won't take this sitting down and you can't underestimate how far they would go to put this down.  In fact I think it would get real ugly real fast should this sort of thing get serious support.  But I think it will have to happen eventually.  otherwise, every 60-70 years the banking interest will just step in and steal everything everyone has worked for during two or three generations and scoop it up and the people will just have to start all over again.  Rinse, Repeat.  By the time the new crop of people are ready for harvesting, the stories and knowledge of what really happened will have been forgotten and practically erased from the history books in the further "dumbing down" of the people through Public education policies. 

I'm ranting, so I stop here.   But I don't believe that return to a gold standard will work nor will it happen.  I have maybe a hundred more reasons not worth mentioning right now.
Whatever we do, my only concern is that it promotes liberty and freedom anything else is unacceptable.  Anything that manipulates the citizens into a position without free choice can not be considered.  We are far from that now.     

[MetalMeister]

The interest on the debt is 5.79% of the annual US budget.

But it is 9.4% of the budget minus the deficit.

That national debt reflects an interest payment of 1.453%.

That tell us just how dire out predicament is.

We reach a point where the interest has to rise because of world economic conditions.  Has to.

Look at the debt vs. interest paid on the debt chart I posted the other day.  The interest paid on the debt has remained relatively flat, going up slightly since 1980s white the national debt has skyrocketed.

Interest rate on our bonds has gotten to obscenely low levels.  And that is in fairly recent years.

Let's say the interest rate goes up to historic normal levels. 3+ to 5% on shorter term debt.

Just rising to a mere 3% more than doubles the interest paid on the debt every year.  Takes it from 201 billion to 415 billion, 5% goes to 692 billion.

692 billion is 32% of all tax revenue in the fiscal year.  415 billion is 19.1% of all tax revenue.

Yes sir!  Pump more money in there from the "Ben Bernank".

This is a never ending nightmare.

Yes, they recommended a multi-metal backed currency and a fixed ratio of gold to silver as I recall.

Now that might be real interesting if the US was a closed, self sufficient country.

But when we are so import dependent are we just going to print more money to purchase foreign goods?

I do not remember hearing in that video how the US money supply would contend with the rest of the world.

So would the other countries be buying our "no interest to us" bonds in order for us to inflate our money supply?

Or is there any more incentive, at that point, with this new system, for foreign countries to invest in the US bonds in order to have a safe haven for their money?

The video said the money supply would be inflated as needed to fund new projects.  The deflated once the project was over, or something like that.  At any rate, their theory is there would always be enough money around and never a shortage of it.

I don't see how it is possible to do that.  That is because I am thinking far deeper into the mechanics of how it would work then the depth at which they presented the video.

I was at the point of "gee it sounds good, but what about this scenario..."

I'm not convinced depressions were merely a liquidity problem or merely not having enough money.

I could see the manipulations in the banks associations own writings, in the late 1800s.

But what I could not see was the if the banks withdraw X amount of the money supply does not that infer that they were making no interest on that money?  They were accumulating greenbacks and taking zero risk with them sitting in their vaults.  They were foreclosing on lands and housing for the express purpose of herding the sheeple and keeping them in their place.

But that, to me, does not simply explain everything that happened in those depressions.

I have not read enough about the depressions to know whether this video is right or only partially right, or just blowing smoke on another economic theory.

In a closed society on a metal backed standard you can increase the money supply as you need as the population grows and just increase the price of gold to reflect the volume of the money supply needed.  If more gold comes to market then the price of gold goes down, not the volume of money.

So how to deal with foreign countries?

My first thought is that would drive more countries towards achieving self sufficiency, wouldn't it.  But then that is just the way I think because I think a LOT these days about becoming self sufficient to the point is all I owe is the taxes I pay on the land.  A guy works and makes money, lives frugal and saves and knows that the money is always worth something because it is backed by gold and silver, maybe copper too.

Just a lot of thoughts out loud since this video raised a prospect I had not considered, previously.  It's not the Mathematically Perfected Economy but at least for the government it is a step in that direction.

I still can't see why a metal backed money supply does not work.

Maybe you can help a blind man to see?   

What is it I am not seeing here?

[sidewinder]

I'm the same way YC.     There is just some thing I cannot see.  Yes lots of questions. 

There will likely be no resolution in our lifetimes though,  looks like nothing happens until Bernie Sanders has to take a piss.   He's been at it for 5 hours now, maybe he will talk his self to death.   

[MetalMeister]

Maybe he has a catheter and bag and he can do his business on the spot/

 

[sidewinder]

yea if he keeps on they will need a shovel to dig him out.

Sorry I don't like socialist