It appears you have not yet registered with our community. To register please click here.

Origin XT RPG Network Home

The Gold Standard


Feb 11 2011, 10:40 PM (Post #1)
Well why can't we do the shuffle?!
* * * * * *
Posts: 1,679
Cash: 183,455 / 0
Group: Nobility
Joined: 7/12/03 08:49 PM
I'm not sure if we've had a topic about this or not. Basically, "The Gold Standard" means moving back to the days where our currency was backed by gold, and more of it could not be printed off unless it had the proper amount of gold to back it. Do you feel that we should return to those days? Or do you feel that we should keep the current system?
Post Options

2 Pages  1 2 > 
Feb 11 2011, 10:57 PM (Post #2)
Here for the cute boys ;)
* * * * * * * * *
Posts: 16,853
Cash: 9,337,572 / 95,912
Group: Nobility
Joined: 5/08/05 04:11 AM
QUOTE (Dancing Fool @ Feb 11 2011, 03:40 PM)
I'm not sure if we've had a topic about this or not.  Basically, "The Gold Standard" means moving back to the days where our currency was backed by gold, and more of it could not be printed off unless it had the proper amount of gold to back it.  Do you feel that we should return to those days?  Or do you feel that we should keep the current system?
*


I'm no economics buff, but yes. I think we need to move back to a system where there is the actual existence of something to back up all the money currently in the system. When you have no REAL guarantee that gold actually exists to confirm the value, you just have paper. And that just seems kind of uneasy...
Post Options

Feb 12 2011, 02:42 AM (Post #3)
Not Odd anymore
* * * * * * * * * *
Posts: 45,875
Cash: 1,915,578 / 1,817,041,051
Group: Administrator
Joined: 7/10/02 09:48 PM
The gold standard was the cause of the inflexibility of the Fed that led to the collapse during the Great Depression. There are some great research by Barry Eichengreen (here at Berkeley!) and Ben Bernanke about that.

I think that unless we resort to analysis of data, we'll just be throwing around opinions and biases instead of grounding our arguments in facts and data.

A solid understanding of econometrics gives you an appreciation for good research ssmile.gif
Post Options

Feb 12 2011, 05:06 AM (Post #4)
General
* * * * * * *
Posts: 4,937
Cash: 29,817,448 / 68,857,771
Group: Representative
Joined: 11/26/02 02:31 AM
QUOTE (Jinghao @ Feb 11 2011, 09:42 PM)
The gold standard was the cause of the inflexibility of the Fed that led to the collapse during the Great Depression. There are some great research by Barry Eichengreen (here at Berkeley!) and Ben Bernanke about that.

I think that unless we resort to analysis of data, we'll just be throwing around opinions and biases instead of grounding our arguments in facts and data.

A solid understanding of econometrics gives you an appreciation for good research ssmile.gif
*




I'm not sure about Barry Eichengreen, but I am fairly certain Bernanke did not call the gold standard entirely responsible for the Great Depression. Bernanke says the original banking collapses of the 30's was the result of "the dominance of small banks in the United States," a general fear toward large banking establishments, and the relaxed nature of the clearinghouses after the establishment of the Federal Reserve. I think he has stated somewhere that the gold standard aggravated the situation, not caused it.

While this seems a moot non sequitur, might we be better off to affix blame on the Federal Reserve for tampering with the gold standard, or at least with enacting policies that would have prevented such a crisis, as the Monetarists would argue?

Anyway -- a number of years ago I could see myself jumping the gold rush. I think that should we revert to a backed system, it must be gradual, perhaps with a dual-currency system or whatnot, if it's even necessary. I'd like to believe that, in lieu of jumping into some time warped notion that the past was better, we could not jump the bandwagon, and actually look at the upcoming crisis.

(source: Bernanke, Ben "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression")
Post Options

Feb 12 2011, 05:21 AM (Post #5)
Lieutenant
* * * * *
Posts: 894
Cash: -4,376 / 3,952
Group: Citizen
Joined: 12/18/07 07:25 AM
JP Morgan Chase a few days ago announced they would now begin to accept gold as collateral. This being in a world that's treated gold like a problem or as a novelty for the better part of the last century. It's serious, because it maintains value (compare inflation 1787-1913, and inflation 1913-present, or if you prefer, even Nixon-present—Nixon's presidency being the one that finally killed the last remnants of the gold standard).

I think Brian has it nailed—and this is the argument of many of the gold bugs even (including Ron Paul!)--that a gradual phase-in of gold, or a dual-currency system ("competing currency") is the most desirable, and in fact the only practical way to introduce gold to the currency.

Otherwise, the dollar is rapidly losing its own value (as are many central bank currencies globally) and legitimacy in the world. I trust the big private banks, and they trust gold.
Post Options

Feb 12 2011, 06:54 AM (Post #6)
Not Odd anymore
* * * * * * * * * *
Posts: 45,875
Cash: 1,915,578 / 1,817,041,051
Group: Administrator
Joined: 7/10/02 09:48 PM
QUOTE (Simply Fabulous @ Feb 11 2011, 09:06 PM)
I'm not sure about Barry Eichengreen, but I am fairly certain Bernanke did not call the gold standard entirely responsible for the Great Depression. Bernanke says the original banking collapses of the 30's was the result of "the dominance of small banks in the United States," a general fear toward large banking establishments, and the relaxed nature of the clearinghouses after the establishment of the Federal Reserve. I think he has stated somewhere that the gold standard aggravated the situation, not caused it.

While this seems a moot non sequitur, might we be better off to affix blame on the Federal Reserve for tampering with the gold standard, or at least with enacting policies that would have prevented such a crisis, as the Monetarists would argue?

Anyway -- a number of years ago I could see myself jumping the gold rush. I think that should we revert to a backed system, it must be gradual, perhaps with a dual-currency system or whatnot, if it's even necessary. I'd like to believe that, in lieu of jumping into some time warped notion that the past was better, we could not jump the bandwagon, and actually look at the upcoming crisis.

(source: Bernanke, Ben "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression")
*


In no complex situation is there a "single cause" for everything. However, the inflexibility due to the gold standard did "aggravate" the problems in the Great Depression. In particular, the sharp contraction in money supply was what caused the GD to be worse than it otherwise would've been.

I'm not sure what you mean. What policies are you referring to? Certainly the fed under Greenspan failed to see and address the housing bubble when it was happening, instead keeping rates historically low, but seeing bubbles is hard, even for the chairman.

The problem with going to the gold standard is that we lose all monetary control over the economy. With no monetary tools, there are no adequate ways to quickly address inflation (overheating) or deflation (recession). Instead, we'll be at the mercy of independent variables like the supply of gold.
Post Options

Feb 13 2011, 05:27 AM (Post #7)
Lieutenant
* * * * *
Posts: 894
Cash: -4,376 / 3,952
Group: Citizen
Joined: 12/18/07 07:25 AM
QUOTE (Jinghao @ Feb 12 2011, 01:54 AM)
...but seeing bubbles is hard
*



The conspiracy theorist 'kooks' who have no use for the Fed saw the housing bubble (and the tech bubble, etc.) coming a mile away.
Post Options

Feb 13 2011, 06:09 AM (Post #8)
Not Odd anymore
* * * * * * * * * *
Posts: 45,875
Cash: 1,915,578 / 1,817,041,051
Group: Administrator
Joined: 7/10/02 09:48 PM
QUOTE (Jodi Gajadar @ Feb 12 2011, 09:27 PM)
The conspiracy theorist 'kooks' who have no use for the Fed saw the housing bubble (and the tech bubble, etc.) coming a mile away.
*


All of them? Obviously some of them will have pointed out the bubble before others, due to idiosyncratic factors, but that's not particular to the "kooks".

The only one who I can confidently say predicted the bubble collapse a mile away is John Paulson.
Post Options

Feb 13 2011, 08:29 AM (Post #9)
Here for the cute boys ;)
* * * * * * * * *
Posts: 16,853
Cash: 9,337,572 / 95,912
Group: Nobility
Joined: 5/08/05 04:11 AM
QUOTE (Jinghao @ Feb 11 2011, 07:42 PM)
The gold standard was the cause of the inflexibility of the Fed that led to the collapse during the Great Depression. There are some great research by Barry Eichengreen (here at Berkeley!) and Ben Bernanke about that.

I think that unless we resort to analysis of data, we'll just be throwing around opinions and biases instead of grounding our arguments in facts and data.

A solid understanding of econometrics gives you an appreciation for good research ssmile.gif
*


Hence this discussion will be me deferring to your expertise. You obviously know more since you've taken the courses. So I'll be asking you questions!
Post Options

Feb 13 2011, 08:30 AM (Post #10)
Here for the cute boys ;)
* * * * * * * * *
Posts: 16,853
Cash: 9,337,572 / 95,912
Group: Nobility
Joined: 5/08/05 04:11 AM
QUOTE (Jinghao @ Feb 11 2011, 11:54 PM)
In no complex situation is there a "single cause" for everything. However, the inflexibility due to the gold standard did "aggravate" the problems in the Great Depression. In particular, the sharp contraction in money supply was what caused the GD to be worse than it otherwise would've been.

I'm not sure what you mean. What policies are you referring to? Certainly the fed under Greenspan failed to see and address the housing bubble when it was happening, instead keeping rates historically low, but seeing bubbles is hard, even for the chairman.

The problem with going to the gold standard is that we lose all monetary control over the economy. With no monetary tools, there are no adequate ways to quickly address inflation (overheating) or deflation (recession). Instead, we'll be at the mercy of independent variables like the supply of gold.
*


Question: Wouldn't depending on the supply of something that physically exists be better because we are actually accountable for all that exists out there? I'm thinking along the lines of gold preventing us from writing ourselves a blank check and saying, "LET THERE BE MONEY!"

What do you see as the pros and cons of both sides and why? ssmile.gif
Post Options

Feb 13 2011, 06:03 PM (Post #11)
Not Odd anymore
* * * * * * * * * *
Posts: 45,875
Cash: 1,915,578 / 1,817,041,051
Group: Administrator
Joined: 7/10/02 09:48 PM
QUOTE (HAHAHA @ Feb 13 2011, 12:30 AM)
Question: Wouldn't depending on the supply of something that physically exists be better because we are actually accountable for all that exists out there? I'm thinking along the lines of gold preventing us from writing ourselves a blank check and saying, "LET THERE BE MONEY!"

What do you see as the pros and cons of both sides and why? ssmile.gif
*


Well, obviously it depends on how responsible the fed is, and how independently it is run.

The pros of gold standard are apparent when you have an irresponsible central bank, or one that is just the puppet of the legislative body. In that case you get what happened in Latin America—ridiculous amounts of inflation because the central government effectively printed money even when the economy didn't need the boost (by selling debt directly to the central bank, which always bought).

In the US though, the central bank is much more independent and responsible. It contracts money supply when the economy's overheating/to stem inflation, and expands money supply (even beyond the point of 0 nominal bound) when the economy's contracting. The other disadvantage of the gold standard is that it basically creates a universal currency and ties every single country adhering to the standard to the price of gold. That means exchange rates cannot adjust for global imbalances and they just get worse with time.

So in the context of developed economies with experienced central banks, I think the inflexibility imposed by the gold standard would have negative consequences (severe ones at that). In countries with less experience and discipline, that's more debatable.
Post Options

Feb 13 2011, 07:10 PM (Post #12)
Lieutenant
* * * * *
Posts: 894
Cash: -4,376 / 3,952
Group: Citizen
Joined: 12/18/07 07:25 AM
QUOTE (Jinghao @ Feb 13 2011, 01:03 PM)
So in the context of developed economies with experienced central banks, I think the inflexibility imposed by the gold standard would have negative consequences (severe ones at that). In countries with less experience and discipline, that's more debatable.
*



Interesting argument—but the inflexibility is the point.

And "experience" does not mean "good" "honest" or "working for 100% of peoples' best interests" whereas the inflexibility of the gold standard gives a level playing field in that sense: no manipulation of currency means nobody gets a particular edge on the currency—because the currency would return to its original definition: an unalterable signifier of a plain amount of value.
Post Options

Feb 13 2011, 07:18 PM (Post #13)
Not Odd anymore
* * * * * * * * * *
Posts: 45,875
Cash: 1,915,578 / 1,817,041,051
Group: Administrator
Joined: 7/10/02 09:48 PM
QUOTE (Jodi Gajadar @ Feb 13 2011, 11:10 AM)
Interesting argument—but the inflexibility is the point.

And "experience" does not mean "good" "honest" or "working for 100% of peoples' best interests" whereas the inflexibility of the gold standard gives a level playing field in that sense: no manipulation of currency means nobody gets a particular edge on the currency—because the currency would return to its original definition: an unalterable signifier of a plain amount of value.
*


OK, in addition to "experienced" I meant (hopefully implicitly) that the central bank is also accountable to the welfare of the nation, i.e. if they are terribly screwy they'll get kicked out. I trust that Bernanke is doing his best and using every tool available to stem the decline. That's what I meant by "experienced". Perhaps "experienced and demonstrated" would've been better.

As for the other point: the money supply is constantly changing because we have a banking system. The actual amount of money (M2) depends heavily on the lending climate. For example, during the GD money supply sharply contracted, not because the government burnt dollars, but because banks stopped lending. That's not good. The central bank couldn't react reasonably until the GS was abandoned.

I guess the question is whether private banks should control the money supply or a central bank. From my studies and experience, it's clear to me that, at least from an utilitarian and pragmatic standpoint, the latter is better: wild fluctuations in money supply is not good for the country.
Post Options

Feb 13 2011, 07:31 PM (Post #14)
Here for the cute boys ;)
* * * * * * * * *
Posts: 16,853
Cash: 9,337,572 / 95,912
Group: Nobility
Joined: 5/08/05 04:11 AM
QUOTE (Jinghao @ Feb 13 2011, 11:03 AM)
Well, obviously it depends on how responsible the fed is, and how independently it is run.

The pros of gold standard are apparent when you have an irresponsible central bank, or one that is just the puppet of the legislative body. In that case you get what happened in Latin America—ridiculous amounts of inflation because the central government effectively printed money even when the economy didn't need the boost (by selling debt directly to the central bank, which always bought).

In the US though, the central bank is much more independent and responsible. It contracts money supply when the economy's overheating/to stem inflation, and expands money supply (even beyond the point of 0 nominal bound) when the economy's contracting. The other disadvantage of the gold standard is that it basically creates a universal currency and ties every single country adhering to the standard to the price of gold. That means exchange rates cannot adjust for global imbalances and they just get worse with time.

So in the context of developed economies with experienced central banks, I think the inflexibility imposed by the gold standard would have negative consequences (severe ones at that). In countries with less experience and discipline, that's more debatable.
*


Do you believe our central bank, the Federal Reserve, is an independent and responsible institution?
Post Options

Feb 13 2011, 07:38 PM (Post #15)
Here for the cute boys ;)
* * * * * * * * *
Posts: 16,853
Cash: 9,337,572 / 95,912
Group: Nobility
Joined: 5/08/05 04:11 AM
QUOTE (Jinghao @ Feb 13 2011, 12:18 PM)
OK, in addition to "experienced" I meant (hopefully implicitly) that the central bank is also accountable to the welfare of the nation, i.e. if they are terribly screwy they'll get kicked out. I trust that Bernanke is doing his best and using every tool available to stem the decline. That's what I meant by "experienced". Perhaps "experienced and demonstrated" would've been better.

As for the other point: the money supply is constantly changing because we have a banking system. The actual amount of money (M2) depends heavily on the lending climate. For example, during the GD money supply sharply contracted, not because the government burnt dollars, but because banks stopped lending. That's not good. The central bank couldn't react reasonably until the GS was abandoned.

I guess the question is whether private banks should control the money supply or a central bank. From my studies and experience, it's clear to me that, at least from an utilitarian and pragmatic standpoint, the latter is better: wild fluctuations in money supply is not good for the country.
*


What confuses me here seems like an almost counter-intuitive way to look at things. When I think of the GS, I think of a set of rules - kind of like a programming language. For example, when you code in HTML, there are a set of rules you must follow in order to create an HTML document - if you don't follow these rules, then the document will simply not function like you ask it to.

Similarly, when I think of the GS in relation to money, I'm thinking that the GS exists so that we can create ourselves a set of rules on how much money ought to be created. Yes, we are limited by our definition of the GS to create money in this given situation and this could be bad in times like the GD, but it would serve for us the best because we are following within the rules and not breaking the rules for our own supposed benefit, whatever that may be.

Off the GS, it also appears that we have more of an ability to lend to others. Ok, great - this is good because we have the opportunity for people to buy homes, go to school, purchase cars that require credit. But without the rules as mentioned above, governed by the GS, it almost seems like we're not following something that truly exists - and if we abuse those rules enough, how can one ensure that money does not end up being worthless? We're looking at governments and global institutions now who question the value of a dollar - is that the breaking point?

So how do we ensure proper oversight of the Fed? How do we know the Fed is not overstepping their boundaries (This is not an "Its the SEC, you b*tch" answer, is it? lol)? It almost seems subjective and dependent on the economic climate for this question to be answered.
Post Options

2 Pages  1 2 >