Gold Standard

[Smokey D]

Yes and then from that you can see why it really is just backed by the good word of the Fed as a credit lender. Also, the Fed lacks accountability and transparency, which is highly disconcerning.

The Fed is probably the most reliable financial institution in the world.

Well, maybe after the European Central Bank, but it's a close race. They don't just alter rates willy nilly. There are rigorous processes in place, and hopefully they'll be strengthened following this current credit crisis.

One of the things gold standard proponents seem to forget is that all the currencies which the US is losing out against (although if you look to current figures the dollar is resurging) are also managed by central banks with no gold standard.

This sort of inflation is really bad when it's effects are analyzed with real wages.

Well yes. That's what real wages are: wages adjusted for inflation.


It would provide much greater stability and market safegaurds against things like the aforementioned housing market crisis and things like the Great Depression, which the Fed really just made worse.

Until people speculate against the dollar and suck out all the gold.

[Det_Nosnip]

Ha! Counter history.

The Fed made the GD worse by contracting the money supply at the very moment that markets needed liquidity.
That was a part of it, yes...but wild speculation and credit buying didn't exactly help. The Fed screwed up, yes, but that is no case for reducing its size or strength. The GD was bound to happen regardless of the Fed's interference, and overall it did much more good than harm by ameliorating the GD's effects and by creating jobs.

[/quote]
Read Friedman's Free to Choose: A Personal Statement .[/QUOTE]

No thanks. Laissez faire economics was proven disfunctional about 200 years ago, and the GD pretty much nailed the coffin on it. :p

I find it hilarious that economic conservatives even bother trying to defend their policies in light of the depression. IDK maybe it's the fact that there were two incredibly conservative, "hands off" presidents leading up to the Depression and one very befuddled conservative scratching his head when the **** actually went down...or maybe the fact that they were then followed by one of the nation's greatest presidents who actually DID something to fight the depression.

[Smokey D]

The Great Depression was a combination of lots of things and can't be placed solely on lassiez faire economics.

[griftadan]

Also, the Fed lacks accountability and transparency, which is highly disconcerning.

what really lacks accountability is the international gold market, jesus our currency would be held at the whim of every global economic downturn/upturn. the biggest problem other than that is increasingly gold supplies will not be able to grow in proportion with ever faster moving economies, the result being steady yet crippling deflation.

and the great depression is a good example of bad central banking but it doesn't mean we should get rid of it all together. if i'm not mistaken one of the reasons the fed was limited in increasing liquidity was because they still had to partially make moves based on an allotment of gold they had at their disposal or something to that effect

[griftadan]

oh and more econ threads k thnks

[PunkItUp]

thread is too smart for me

:'(

[siva_chair]

The Fed is probably the most reliable financial institution in the world.

Well, maybe after the European Central Bank, but it's a close race. They don't just alter rates willy nilly. There are rigorous processes in place, and hopefully they'll be strengthened following this current credit crisis.

One of the things gold standard proponents seem to forget is that all the currencies which the US is losing out against (although if you look to current figures the dollar is resurging) are also managed by central banks with no gold standard.

Goddammit if you read I wasn't advocating the gold standard I was advocating commodity backed currency.

And sure, the Fed is the most reliable institution for the bankers that control it.

Well yes. That's what real wages are: wages adjusted for inflation.

Yeah and wages don't keep up with inflation. Real wages have dropped.

Until people speculate against the dollar and suck out all the gold.

Oh ff sake. It isn't a "Gold or nothing" issue. Gold and silver aren't the only commodities that can back money, and fiat money isn't the only alternative to gold and silver.


That was a part of it, yes...but wild speculation and credit buying didn't exactly help. The Fed screwed up, yes, but that is no case for reducing its size or strength. The GD was bound to happen regardless of the Fed's interference, and overall it did much more good than harm by ameliorating the GD's effects and by creating jobs.

Why in the hell do you think that wild speculation and credit buying occured in the first place? The Fed’s expansionary monetary policy in the 1920s allowed misallocations of capital resources and supported a massive stock price bubble.

Since the Fed's entire existence was predicated on its mission to prevent events like the Great Depression, it failed.



No thanks. Laissez faire economics was proven disfunctional about 200 years ago, and the GD pretty much nailed the coffin on it. :p

Hardly.

I find it hilarious that economic conservatives even bother trying to defend their policies in light of the depression. IDK maybe it's the fact that there were two incredibly conservative, "hands off" presidents leading up to the Depression and one very befuddled conservative scratching his head when the **** actually went down...or maybe the fact that they were then followed by one of the nation's greatest presidents who actually DID something to fight the depression.

Seriously you should read that book.

what really lacks accountability is the international gold market, jesus our currency would be held at the whim of every global economic downturn/upturn. the biggest problem other than that is increasingly gold supplies will not be able to grow in proportion with ever faster moving economies, the result being steady yet crippling deflation.

Well if you were around where this discussion started in another thread you would see that I personally wasn't backing the Gold Standard, but more commodity backed money. The issuing power of money should rest with the Government instead of private banks issuing money through fractional reserve lending, imo.

and the great depression is a good example of bad central banking but it doesn't mean we should get rid of it all together. if i'm not mistaken one of the reasons the fed was limited in increasing liquidity was because they still had to partially make moves based on an allotment of gold they had at their disposal or something to that effect

It's expansionary monetary policy allowed misallocations of capital and supported a massive price bubble. Cheap credit created the massive consumer and commercial debt.

[Smokey D]

Goddammit if you read I wasn't advocating the gold standard I was advocating commodity backed currency.


All arguments still apply.


Yeah and wages don't keep up with inflation. Real wages have dropped.

Possibly. I think trying to assess that purely in terms of the Fed won't tell you much. It has to be taken in the broader changing economic context.

Oh ff sake. It isn't a "Gold or nothing" issue. Gold and silver aren't the only commodities that can back money, and fiat money isn't the only alternative to gold and silver.

All commodities can be speculated against.

It's expansionary monetary policy allowed misallocations of capital and supported a massive price bubble. Cheap credit created the massive consumer and commercial debt.

Yah, I don't htink many people really dispute that. But it was the confluence of multiple forces, and the Fed's influence should not be taken in that context (including, as Griftdan says, the limits on the ability of the Fed to appropriately respond). Friedman and co believe that the Depression was caused by there being not enought money in the economy, and that this was partially because the Fed couldn't expand money supply because of the gold requirements.

[siva_chair]

Possibly. I think trying to assess that purely in terms of the Fed won't tell you much. It has to be taken in the broader changing economic context.

Not possibly, certainly.

And the Fed and the IMF hasn't helped any of that. They have helped broaden the gap between rich and poor and allowed a handful of banks to pretty much control the world's capital.

All commodities can be speculated against.

Ok, so can the value of currency.

Yah, I don't htink many people really dispute that. But it was the confluence of multiple forces, and the Fed's influence should not be taken in that context (including, as Griftdan says, the limits on the ability of the Fed to appropriately respond). Friedman and co believe that the Depression was caused by there being not enought money in the economy, and that this was partially because the Fed couldn't expand money supply because of the gold requirements.

The Fed created the cheap credit, though. It is true that the GD is an example of the potential failure of a central bank. The monetary policy only adds to this issue of debt.

Video dealing with the Fed.

http://video.google.com/videosearch?q=federal+reserve&hl=en&emb=0#

[Smokey D]

And the Fed and the IMF hasn't helped any of that. They have helped broaden the gap between rich and poor and allowed a handful of banks to pretty much control the world's capital.

Er. Not really related to the gold standard (gold standard here being used as a substiute for any mineral based currency).

Ok, so can the value of currency.

Yes. But it doesn't leave you with no money left when you're done with it.

The Fed created the cheap credit, though. It is true that the GD is an example of the potential failure of a central bank. The monetary policy only adds to this issue of debt.

I understand the Fed's role in the Depression, but you've taken a very simplistic attitude to it. It's not very fair to hold up the Depression as the great failure of central banking when the Fed was legally prevented from doing what it needed to do to help avert the crisis.

[Aaron]

Yeah and wages don't keep up with inflation. Real wages have dropped.
There's a direct relationship with wages and inflation. Employers adjust wages based on profit and the CPI. If they never decreased wages or never minimised that rate wages were increased then economies would have crazy currencies like Zimbabwe and it'd make trade feasibly impossible to facilitate.

[siva_chair]

Er. Not really related to the gold standard (gold standard here being used as a substiute for any mineral based currency).

Er. It has everything to do with the fractional reserve system's shittiness and it's relation to these "broader changing economic contexts"

Yes. But it doesn't leave you with no money left when you're done with it.

Because you can just print more! Oh boy!

I understand the Fed's role in the Depression, but you've taken a very simplistic attitude to it. It's not very fair to hold up the Depression as the great failure of central banking when the Fed was legally prevented from doing what it needed to do to help avert the crisis.

It's perfectly fair because the policies that the Fed enacted contributed greatly to the severity of the Depression. It is perfectly valid to place blame where blame is due and it is a perfect example of one of the several failings of centralized banking.

[Aaron]

Because you can just print more! Oh boy!
You're not serious are you?

[siva_chair]

You're not serious are you?

Depends on if you take sarcasm seriously.

[Aaron]

haha good.

[Smokey D]

Er. It has everything to do with the fractional reserve system's pooptiness and it's relation to these "broader changing economic contexts"

Not really. You'd struggle to argue political-economic power is more concentrated now than it has been historically.

Because you can just print more! Oh boy!

No. Because money continues to circulate whereas physical commodities are actually removed.

It's perfectly fair because the policies that the Fed enacted contributed greatly to the severity of the Depression. It is perfectly valid to place blame where blame is due and it is a perfect example of one of the several failings of centralized banking.

I don't deny that the Fed played a role but it is also important to recognise htat the Fed could not legally do what was necessary to alleviate the crisis, due in part to the requirement to back money supply with gold.

[siva_chair]

Not really. You'd struggle to argue political-economic power is more concentrated now than it has been historically.

Are you kidding? A handful of private banks essentially control the vast majority of capital via centralized banks.

Watch that video I posted it is very insightful on the history and practices of the Fed.

No. Because money continues to circulate whereas physical commodities are actually removed.

Removed to where?

Money continues to circulate and printing more of it through fractional reserve banking only contributes to inflation.

I don't deny that the Fed played a role but it is also important to recognise htat the Fed could not legally do what was necessary to alleviate the crisis, due in part to the requirement to back money supply with gold.

The Fed couldn't fix a problem it primarily created and compounded? Imagine that....

[Surtr]

The Fed couldn't fix a problem it primarily created and compounded? Imagine that....

It wasn't their fault though. You can't blame The Fed because they couldn't fixed a problem they had HELPED to create.

...the Fed could not legally do what was necessary to alleviate the crisis, due in part to the requirement to back money supply with gold.

[siva_chair]

It wasn't their fault though. You can't blame The Fed because they couldn't fixed a problem they had HELPED to create.

I think you are downplaying the level in which they HELPED it. The Fed is the main cause of it. Were there elements outside of the Fed's control that contributed to it? Sure, but those things wouldn't caused the Depression by themselves.

[siva_chair]

Also

http://www.cato.org/pubs/bp/bp100.pdf

Good article.

[Det_Nosnip]

Siva, you're like a freaking scientologist with these books. :p

"What, nothing I am saying makes remotely any sense? Well, read this book!"

[Iskandar]

Lol, the Cato Institute.

It's not too late, man. You can still be for small government without buying into this kind of crap. American libertarians have an unhealthy obsession with money and the Fed, which just makes them look like kooks.

[griftadan]

Well if you were around where this discussion started in another thread you would see that I personally wasn't backing the Gold Standard, but more commodity backed money. The issuing power of money should rest with the Government instead of private banks issuing money through fractional reserve lending, imo.

all commodities share the same problem that gold does, probably to a greater extent, that's why gold and other precious metals have been used for currency for so long. are there really any better alternatives?

It's expansionary monetary policy allowed misallocations of capital and supported a massive price bubble. Cheap credit created the massive consumer and commercial debt.

well the main problem is they weren't able to deliver enough liquidity in the market after a stint of deflation screwed over our high level of private debt

[pppoe]

American libertarians are too extreme, I think.

[Iskandar]

And misguided

[Aaron]

all commodities share the same problem that gold does, probably to a greater extent, that's why gold and other precious metals have been used for currency for so long. are there really any better alternatives?



well the main problem is they weren't able to deliver enough liquidity in the market after a stint of deflation screwed over our high level of private debt
^^^^^^^^^^^^

/leaves to go to microeconomics exam

[griftadan]

remember, in perfectly competitive markets production is set at the point where MR = MC

mankiew (sp?) is probably so ****ing loaded

[Aaron]

Yup. Greed is good. Got it, got it. :)

[griftadan]

especially when you have lucrative text book contracts with universities all over the world

i stopped buying econ text books my second year though, they're mostly all pointless

[Smokey D]

Are you kidding? A handful of private banks essentially control the vast majority of capital via centralized banks.

That's not exactly a new development, though.

Removed to where?

Foreign vaults.

Money continues to circulate and printing more of it through fractional reserve banking only contributes to inflation.

To a certain extent. Inflation is only really an issue when it outstrips growth, though.

The Fed couldn't fix a problem it primarily created and compounded? Imagine that....

Yeah because the only thing it could do was against hte law.

especially when you have lucrative text book contracts with universities all over the world

Yeah we use Mankiew and we're on the other side of the world.

[Aaron]

especially when you have lucrative text book contracts with universities all over the world

i stopped buying econ text books my second year though, they're mostly all pointless
My work pays for my study. I are winner.

[griftadan]

that's it i'm officially writing econ text books for a living, i'll have more awesome graphics or something

back on topic though, i have been trying to think of commodity that would be ideal for currency. gold or silver is still probably the best bet, but each are both completely inadequate.

[Aaron]

Have non-gay examples too. Why would one nation only produce calculators and another only meat-pies, and want to trade? WTF

[griftadan]

one country specializes in over confidence, the other in jaunty good looks. find the terms of trade.

[Aaron]

Balanced, average looking children

[Iskandar]

Have non-gay examples too. Why would one nation only produce calculators and another only meat-pies, and want to trade? WTFwidgets

[griftadan]

i'd always be tired while studying and think it said midgets, then my mind would start to wander

[Aaron]

:lol:

[siva_chair]

Siva, you're like a freaking scientologist with these books. :p

"What, nothing I am saying makes remotely any sense? Well, read this book!"

Hey it's not my fault you fail at grasping arguments.

Besides, Freidman is much more qualified to talk about these things than anyone on these forums. Including yourself.

Lol, the Cato Institute.

Ok what is wrong with the Cato Institute?

It's not too late, man. You can still be for small government without buying into this kind of crap. American libertarians have an unhealthy obsession with money and the Fed, which just makes them look like kooks.

Ok why don't you actually say something with substance instead of trying to dismiss libertarian thought as something silly. So far your argument amounts to "I think it's silly, so it is silly."

all commodities share the same problem that gold does, probably to a greater extent, that's why gold and other precious metals have been used for currency for so long. are there really any better alternatives?

I don't know but I was just pointing out that it isn't limited to gold and silver. Historically, gold indeed has been a pretty stable backer of currency.

well the main problem is they weren't able to deliver enough liquidity in the market after a stint of deflation screwed over our high level of private debt

The high level of private debt and the stint of deflation was primarily caused by the Fed though which was my whole point. The Fed couldn't fix the massive problem it essentially created and was designed to prevent.

That's not exactly a new development, though.

Well no **** but that doesn't mean it isn't wrong. Remember for over half of the US's existence it did just fine without a centralized bank.

Foreign vaults.

Did you read that link I posted?

Besides, I don't see how that is any different than foreign countries buying up the dollar, really.

To a certain extent. Inflation is only really an issue when it outstrips growth, though.

It's an issue when it rises faster than real wages, which it has done.

The current system is prone to large busts and booms and doesn't enjoy the steady stability that the gold standard has historically provided.

Yeah because the only thing it could do was against hte law.

Ok I'm still failing to see how that detracts from the fact that it was probably the largest cause of the problem to begin with....

Yeah we use Mankiew and we're on the other side of the world.

This explains why you seem to be heavily influenced by (New) Keynesian thought.

[Aaron]

Er, I'm going to have to disagree on the point of real-wages; wages are decided by employers based on the economic climate and their profits. Remember, people generally speaking act efficiently in economic terms naturally, but you can't asume their going to act in a timely manner.

[siva_chair]

Er, I'm going to have to disagree on the point of real-wages; wages are decided by employers based on the economic climate and their profits. Remember, people generally speaking act efficiently in economic terms naturally, but you can't asume their going to act in a timely manner.

It is a fact that real wages have gone down over the past 40 years or so.

http://www.workinglife.org/wiki/Wages+and+Benefits%3A+Real+Wages+%281964-2004%29

[Dave de Sylvia]

Besides, Freidman is much more qualified to talk about these things than anyone on these forums. Including yourself.
Where I'm from, being dead disqualifies people from talking >_>

The high level of private debt and the stint of deflation was primarily caused by the Fed though which was my whole point. The Fed couldn't fix the massive problem it essentially created and was designed to prevent.
But the problem wasn't inherent in the Fed regulating the currency. It was the fact the Fed was entrusted with currency regulation but was legally prevented from taking all necessary measures to tackle a depression.

[Aaron]

It is a fact that real wages have gone down over the past 40 years or so.

http://www.workinglife.org/wiki/Wages+and+Benefits%3A+Real+Wages+%281964-2004%29
...and how many external factors are effecting that?

[siva_chair]

Where I'm from, being dead disqualifies people from talking >_>

Where I'm from, we developed this thing called writing that allows a person's views and theories to be recorded and enjoyed for future use, but I'm from America so I don't know if your third world country has this technology Dave. <_<

But the problem wasn't inherent in the Fed regulating the currency. It was the fact the Fed was entrusted with currency regulation but was legally prevented from taking all necessary measures to tackle a depression.

It was their policy that allowed the amassing of debt and cheap credit to begin with.

[siva_chair]

...and how many external factors are effecting that?

Umm I don't see what that has to do with the fact that real wages are going down and the Fed isn't solving that problem.

[Dave de Sylvia]

Where I'm from, we developed this thing called writing that allows a person's views and theories to be recorded and enjoyed for future use, but I'm from America so I don't know if your third world country has this technology Dave. <_<
You people get all the good **** :(

It was their policy that allowed the amassing of debt and cheap credit to begin with.
Yeah but it has an inbuilt capacity to counteract that has been refined over subsequent crises ever since.

[siva_chair]

You people get all the good **** :(

It's ok man you can come live here if you want you are cool. We even have playstation and cartoons if you can believe that.

Yeah but it has an inbuilt capacity to counteract that has been refined over subsequent crises ever since.

Yes, but that hasn't stopped real wages from diminishing over the years, inflation to continue to soar, or keep large busts in the economy from happening every several years. The stability just isn't there.

[Aaron]

Umm I don't see what that has to do with the fact that real wages are going down and the Fed isn't solving that problem.
Um. Want me to write a list of the factors since 1940, pfft since 1980, that would be effecting real-wages and not within the Fed's control?

[McP3000]

You might as well

[Dave de Sylvia]

How do you factor in technological advances to real wages? I won't challenge your figures because I'm not that intimate with the subject (although you cited what looks like a labour union website!) but I think it common sense would suggest that people in general now live significantly more comfortably than 30-40 years ago.

[McP3000]

The problem with that statement is that you also have to factor in the social differences and higher levels of equality as well.

[siva_chair]

Um. Want me to write a list of the factors since 1940, pfft since 1980, that would be effecting real-wages and not within the Fed's control?

If you want I don't care what you do.

How do you factor in technological advances to real wages? I won't challenge your figures because I'm not that intimate with the subject (although you cited what looks like a labour union website!) but I think it common sense would suggest that people in general now live significantly more comfortably than 30-40 years ago.

The same way technological advances have always factored into the equation probably. I don't think one can just say it is technological advances that drives down real wages without showing causation.

Also those statistics are from U.S. Bureau of Labor Statistics.

And I don't know if that is exactly true that people in general live significantly more comfortably than 30-40 years ago either, neccessarily. In the US, 40 years ago a person could support a family with a single wage and live a relatively comfortable life and still be considered Middle Class. There are very few single income households today that can accomplish the same level of relative comfort (at least not nearly as many as there were then). Sure, technological advances have made the quality of life better for everyone all around, but that is the byproduct of technological advances, not increase in value of the dollar and it's purchasing power.

[Aaron]

There's a huge difference between want and need, Siva. Just because there's been a change in the perception as to what is essential in life, doesn't mean that it is, and if you argue that it is, then you can't use figures that cross across such a huge period.

[siva_chair]

There's a huge difference between want and need, Siva. Just because there's been a change in the perception as to what is essential in life, doesn't mean that it is, and if you argue that it is, then you can't use figures that cross across such a huge period.

This has nothing to do with what is "essential" in life and everything to do with the purchasing power of the dollar and real wages going down. This is an economic thread you know.

[Aaron]

It has to do with you making vague mentions to there are very few single income households today that can accomplish the same level of relative comfort (at least not nearly as many as there were then). Sure, technological advances have made the quality of life better for everyone all around, but that is the byproduct of technological advances, not increase in value of the dollar and it's purchasing power.

[Aaron]

This has nothing to do with what is "essential" in life and everything to do with the purchasing power of the dollar and real wages going down. This is an economic thread you know.
Oh, I'm sorry. I thought that social issues effect the economic climate. I'm sorry, Siva.

[siva_chair]

It has to do with you making vague mentions to

Vague? I think that demonstrates how the purchasing power of the dollar has went down and how it has effected the lower and middle classes. The dollar doesn't go as far as it used to that is a fact.

Oh, I'm sorry. I thought that social issues effect the economic climate. I'm sorry, Siva.

Oh I'm sorry I thought you had something of substance to say. Sorry.

How about you actually demonstrate some of the things you are saying in regards to real wages diminishing instead of just making broad and generalized statements like "oh social issues did it" and other things like that? That might be helpful to this discussion.

[Aaron]

Vague? I think that demonstrates how the purchasing power of the dollar has went down and how it has effected the lower and middle classes. The dollar doesn't go as far as it used to that is a fact.
As you're aware this being an economics thread, the more choices that are available then the more items/services won't be purchased. It's a matter of scarcity due to choices being increased, not a devaluing of the global dollar.

[siva_chair]

As you're aware this being an economics thread, the more choices that are available then the more items/services won't be purchased. It's a matter of scarcity due to choices being increased, not a devaluing of the global dollar.

The purchasing power of the dollar HAS gone down. Real Wages HAVE gone down. The dollar is not as stable and doesn't have the purchasing power that it once did.

[Aaron]

Due to what?

[siva_chair]

Due to what?

That is what I was asking you.

I have said I believe it to be because of the Fed's fractional reserve lending, the overall consequences (and lack of general stability) of fiat money, and probably rampant government spending.

[Aaron]

So you don't think social issues are impacting in a significant way?

[siva_chair]

So you don't think social issues are impacting in a significant way?

What do you mean by social issues?

That is pretty broad and generalized statement that doesn't really add much to the discussion tbh.

I think the Fed does a really good job at what it does, just not what it is SUPPOSED to do. It is really good at "making the rich, richer and the poor, poorer," but it isn't so good at what it was supposedly set up to do.

[Aaron]

Increase in technological advancements in communication making outsourcing a viable alternative.

^ one example

[siva_chair]

I don't think so. Not enough to account in the steady drop of real wages, anyhow.

I mainly say that because, as you can see, real wages were steadily going down before global communication advancements and what have you really would have effected the market in a significant way. Outsourcing was really only formally identified as a businesss strategy around the late 1980's. That isn't to say that it wasn't used in some respects before that, but it certainly wasn't as large a factor until around the 1990's (at least in terms of outsourcing core competencies). So I hardly think that factor is the primary or even a huge cause in the steady drop of real wages.

[Aaron]

What I was trying to illustrate is that, there are certain issues outside of the scope of the Fed's control, which effect the value of the dollar. It's just one example, but there are many of what I'd refer to loosly as "social issues" which need to be noted.

[siva_chair]

What I was trying to illustrate is that, there are certain issues outside of the scope of the Fed's control, which effect the value of the dollar. It's just one example, but there are many of what I'd refer to loosly as "social issues" which need to be noted.

You would have to show causation and how these things (such as technological advancements or social rights movements, ect.) effect real wages, though. I'm sorry that I can't just take your word for it. That would be like me just saying "oh the Fed did it" without explaining anything further.

I realize it is clear that I am not a big fan of Keynesian economics, btw.

[Aaron]

haha yes it is, but it's clear I am as well.

[siva_chair]

haha yes it is, but it's clear I am as well.

Clear that you are a fan or are not?

[Aaron]

That I am a fan.

[siva_chair]

http://www.comparestoreprices.co.uk/images/al/alaskan-30cm-brushed-nickel-fan.jpg

[Aaron]

:lol:

[Iskandar]

Ok what is wrong with the Cato Institute?They're a bunch of right-wing ideologues and thus useless as an objective source.
Ok why don't you actually say something with substance instead of trying to dismiss libertarian thought as something silly. So far your argument amounts to "I think it's silly, so it is silly."
Let's see:

1) The Fed didn't cause the Great Depression
2) Central banking is great
3) The gold standard is never coming back
4) Laissez-faire doesn't work and Keynesian economics is here to stay

[griftadan]

I don't know but I was just pointing out that it isn't limited to gold and silver. Historically, gold indeed has been a pretty stable backer of currency.

well my point is that gold and silver are probably inadequate currencies for a modern globalized economy and if there aren't any better commodities than those then it's not looking very good for commodity currency

The high level of private debt and the stint of deflation was primarily caused by the Fed though which was my whole point. The Fed couldn't fix the massive problem it essentially created and was designed to prevent.

i guess you could argue that maybe m2 growth spurred some sort of speculative bubble which encouraged debt but i'm not so sure that's even how it went down, i'd probably need to see some literature. either way, this doesn't really do anything to prove that any commodity could do better than central banking.

[Smokey D]

[quote]I don't know but I was just pointing out that it isn't limited to gold and silver. Historically, gold indeed has been a pretty stable backer of currency.

Sure. But we exist in an economic system unprecedented in history, so it's a little foolish to expect it to work. We have good evidence that gold doesn't work (specifically, the break down of the Bretton Woods system and the earlier breakdown of the gold standard in Britain).

The high level of private debt and the stint of deflation was primarily caused by the Fed though which was my whole point. The Fed couldn't fix the massive problem it essentially created and was designed to prevent.

Yeah. Because it was legally prevented from doing what it needed to do. I'm not saying the Fed didn't make a mistake. I'm saying that it was retarded for the legislation to allow the Fed to create the problem and prevent it from fixing it. That alone cannot be used as a reason for failed central banking. Only that the particular incarnation that existed in 1929 in the US was insufficient.

Well no **** but that doesn't mean it isn't wrong. Remember for over half of the US's existence it did just fine without a centralized bank.

Who cares how the US worked in the 19th century. That was like 100 years ago, let it go.


Besides, I don't see how that is any different than foreign countries buying up the dollar, really.

Because buying the dollar appreciates the value of the dollar in international currencies. Buying gold simultaneously increases the value of gold and removes the basis for the value of the dollar.


It's an issue when it rises faster than real wages, which it has done.

Yes.

The current system is prone to large busts and booms and doesn't enjoy the steady stability that the gold standard has historically provided.

If you look at the history of boom bust cycles, the fluctuations have decreased since the introduction of responsible central banking.



Ok I'm still failing to see how that detracts from the fact that it was probablythe largest cause of the problem to begin with....

Because if the problem could have been nipped in the bud, there would never have been any problem at all.

This explains why you seem to be heavily influenced by (New) Keynesian thought.

I don't think Mankiew is a Keynesian. Not a proper one.

[siva_chair]

They're a bunch of right-wing ideologues and thus useless as an objective source.

Oh so they are useless because you don't like them not because you can refute any of their arguments I see.

Let's see:

1) The Fed didn't cause the Great Depression
2) Central banking is great
3) The gold standard is never coming back
4) Laissez-faire doesn't work and Keynesian economics is here to stay

Wow your argument is so compelling.

well my point is that gold and silver are probably inadequate currencies for a modern globalized economy and if there aren't any better commodities than those then it's not looking very good for commodity currency

That article I posted raised that objection, and even admitted that was the strongest argument against commodity currency. Did you read it?

i guess you could argue that maybe m2 growth spurred some sort of speculative bubble which encouraged debt but i'm not so sure that's even how it went down, i'd probably need to see some literature. either way, this doesn't really do anything to prove that any commodity could do better than central banking.

The Fed set the interest rates artificially low. With artificially low interest rates, it made sense to borrow and buy assets so these "greedy speculators" were acting independently in the market and were following the false signal the Federal Reserve was sending via artificially cheap interest rates. Then, in 1929 the Fed decided to jack up interest rates and....well you see what happened.

Sure. But we exist in an economic system unprecedented in history, so it's a little foolish to expect it to work. We have good evidence that gold doesn't work (specifically, the break down of the Bretton Woods system and the earlier breakdown of the gold standard in Britain).

It broke down because the Fed had expanded the stock of dollars too much to maintain the $35 per ounce parity. If the Fed hadn't expanded the stock of dollars so much in the 60's, it wouldn't have been a problem. This is a failure of the central bank, not the gold standard.

Yeah. Because it was legally prevented from doing what it needed to do. I'm not saying the Fed didn't make a mistake. I'm saying that it was retarded for the legislation to allow the Fed to create the problem and prevent it from fixing it. That alone cannot be used as a reason for failed central banking. Only that the particular incarnation that existed in 1929 in the US was insufficient.

And the gold standard cannot be faulted because the Federal Reserve failed to follow the rules of the gold standard. It is the same as in the early 70's. One cannot attribute these economic recessions to the gold standard, but one can attribute them to mistakes made by the Federal Reserve.

Who cares how the US worked in the 19th century. That was like 100 years ago, let it go.

No, because historically the gold standard has offered greater stability than a centralized bank and fiat money.

You act like just because we currently have a central bank and a fiat money system that it makes it right or better.

Because buying the dollar appreciates the value of the dollar in international currencies. Buying gold simultaneously increases the value of gold and removes the basis for the value of the dollar.

The gold standard has historically provided far more stability within the realm of macroeconomics whereas the world has yet to see a fiat currency system that has obvious "stability" properties. This is a fact.

If you look at the history of boom bust cycles, the fluctuations have decreased since the introduction of responsible central banking.

Umm the most drastic boom/bust cycles have happened under central banking. The Great Depression, the early 70's, the recent housing bubble burst, ect.

Because if the problem could have been nipped in the bud, there would never have been any problem at all.

If the Fed never would have been created it never would have been a problem either what is your point?

I don't think Mankiew is a Keynesian. Not a proper one.

He is a New Keynesian.

[Smokey D]

It broke down because the Fed had expanded the stock of dollars too much to maintain the $35 per ounce parity. If the Fed hadn't expanded the stock of dollars so much in the 60's, it wouldn't have been a problem. This is a failure of the central bank, not the gold standard.

Well, yeah. Because there were traders in Europe sucking out the dollars and then using them to buy the gold, which required the Fed to expand money supply or face deflation. Isn't this what Griftadan was talking about?

EDIT: I've been thinking about the exact process behind this. I'd appreciate it if one of the econ majors could tell me if I've got it right.

In a gold standard type system, the Fed (or other government agency) values the dollar at a certain ratio to gold. In the Bretton Woods system, it was $35/oz. Because gold is a commodity, it is subject to the same market forces as everything else and consequently problems arise when an external force sets a price on a good. That is to say, the moment gold goes above the set price (ie $35/oz), traders can short change the government by acquiring $35, buying an ounce of gold and profiting on the difference between the market price and the set price. Thus, the moment Japan, Europe and more recently China etc gain a trade surplus with the US they acquire the dollars to make this unequal exchange. Because the international value of the dollar (and, under Bretton Woods, other currencies) is dependent on the amount of gold available to the government, the dollar depreciates. Thus, it requires less and less units of international currency to purchase the same amount of dollars and thus gold, hastening the process. At the same time, the internal value of the dollar also depends on the amount of gold, so the more gold that leaves the economy, the less each dollar left is worth. Thus, the real prices begin to fall, causing deflation. At some point, the dollar becomes worthless and the economy is extremely destabilised.

You asked earlier what is the difference between runs on the gold supply and runs on the dollar in a fiat system (although I dislike the term fiat because it's loaded and doesn't truly explain the assumptions underpinning the current financial system). I guess it's because while removing the gold in a gold standard system removes the fundamental basis for the value of money, accruing large amounts of dollars does not quite do the same thing in the current system. The fundamental basis for money is now the real economy, which (according to the classical dichotomy) cannot be undermined by nominal variables like the dollar. Although there is potential for destablisation, it is no where near as strong.

Also, I think you severely underestimate the necessity of credit in economic growth.

And the gold standard cannot be faulted because the Federal Reserve failed to follow the rules of the gold standard. It is the same as in the early 70's. One cannot attribute these economic recessions to the gold standard, but one can attribute them to mistakes made by the Federal Reserve.

I dunno, you look at the break down of hte Bretton Woods system it's pretty clear that it could not be sustained. Bretton Woods was predicated on the idea that the US was the singular global economic entity. The moment other economies started approaching parity in production (and more importantly the moment the US started importing a lot from those economies), the ratio of dollars to gold in the economy became seriously destabilised and threatened complete collapse.

But that doesn't really have much to do with blaming the Fed when it's inappropriate to do so.

No, because historically the gold standard has offered greater stability than a centralized bank and fiat money.

You act like just because we currently have a central bank and a fiat money system that it makes it right or better.


It's not just because we have one now. It's because it works. Thinking the financial system of the 1890s would work today stretches the limit of my imaginationg. Trying to compare a burgeoning frontier economy of the 18th and 19th century to a post industrial globalised one doesn't work. Not to mention US economic growth prior to the Fed was based mainly on British capital, which was managed by a central bank (albeit one with a gold standard).

The gold standard has historically provided far more stability within the realm of macroeconomics whereas the world has yet to see a fiat currency system that has obvious "stability" properties. This is a fact.

Gold probably supplied a more stable currency, but economic fluctuations have grown smaller since the 1930s, despite the vastly greater amounts of capital flowing around.

http://www.oswego.edu/~edunne/realgdpannual.gif


Umm the most drastic boom/bust cycles have happened under central banking. The Great Depression, the early 70's, the recent housing bubble burst, ect.

The early seventies had very little to do with the Fed, so that's totally unfair. But even so it was pretty small compared to the GD. We'll see how the housing bubble goes. According to economic data in New Zealand, it may have already bottomed out for us.

If the Fed never would have been created it never would have been a problem either what is your point?


That's a possibility, but I think you over state your case. Even if we can say that the Fed was the cause of the GD, which is a contested conclusion, we cannot say with confidence that the GD would have occurred with the severity that it did if the Fed was enabled to act appropriately. Indeed, if the Fed had been sufficiently empowered, it may have averted the crisis altogether and then there would be no negatives to speak of.

Interestingly, during the Depression, the earlier a country left the gold standard the faster it recovered. Of course correlation doesn't imply causation and I'm not well versed enough to attempt to explain that but it's pretty intriguing.

[siva_chair]

Will respond to this later Smokey.