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The Gold Standard


Feb 11 2011, 10:40 PM (Post #1)
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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?
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Feb 13 2011, 08:50 PM (Post #16)
Not Odd anymore
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QUOTE (HAHAHA @ Feb 13 2011, 11:31 AM)
Do you believe our central bank, the Federal Reserve, is an independent and responsible institution?
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Yes. Ben Bernanke's one of the most qualified economists to be holding that role right now. Of course.
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Feb 13 2011, 08:53 PM (Post #17)
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QUOTE (HAHAHA @ Feb 13 2011, 11:38 AM)
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.
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I don't understand what you're asking. The only laws that are not "rules of thumb" or "guidelines" are laws of physics—you can't break those. Otherwise, why should you make a rule for the sake of making a rule?

Even if we were on the GS, there's no guarantee that we'll remain on it forever, so the uncertainty is still there.

Plus, if you really liked gold, you can just go buy some gold right now...
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Feb 13 2011, 10:00 PM (Post #18)
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QUOTE (Jinghao @ Feb 13 2011, 01:53 PM)
I don't understand what you're asking. The only laws that are not "rules of thumb" or "guidelines" are laws of physics—you can't break those. Otherwise, why should you make a rule for the sake of making a rule?

Even if we were on the GS, there's no guarantee that we'll remain on it forever, so the uncertainty is still there.

Plus, if you really liked gold, you can just go buy some gold right now...
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I was just equating the GS to that of a rule, like physics, you can't break it and if you do, the financial system won't work.

So no matter what, its going to be uncertain, period? Seems a wee bit unstable to me, but what do I know, I'm just asking questions. riiight.gif
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Feb 13 2011, 10:55 PM (Post #19)
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Alright, it seems as if I've started a rather hot topic. I will give my analysis of this now:

The Gold Standard can only survive in a Socialist type of government, or any similar government where the government has complete control of the private sector - as in, the government says how much will be produced, and how much each person can buy.

Now, before Ron Paul comes on here, reads that comment, and comes to rip the still-beating heart out of my chest, let me explain how I have come to this conclusion.

When you're on the Gold Standard, the amount of money your country has is set to a fixed amount - at least 99% of the time. Contrary to the arguments of many people who favor the GS, the money supply and the value of your money CAN fluctuate on the GS. Firstly, you could find more gold. Conversely to that point, someone could come in and loot your gold. Secondly, and I will touch on this more as I go along, is that supply and demand can also cause fluctuations. Finally, there is the issue of confidence in the currency, which I will also touch upon a bit more.

The Law of Supply and demand states this - If the demand consistently remains higher than the supply, the consequence will be inflation. However, if the supply consistently remains higher than the demand, the consequence will be unemployment. Now that we have all of these points clarified, I can begin my argument.

I will use a simple example here, to explain my point. Say you're on an island with 99 other people, and you all decide to get together and make a currency based off of your gold supply. On the island, you have 100 oz. of gold with which to back your currency. For simplicities sake, we will call the currency the "Dollar". Collectively, you decide that, for every dollar you have, it will be backed by 1 oz. of gold. So, together, you are able to create $100 - which is out there for anyone to earn or borrow, just like today.

Now, let's say that you come across a hot new commodity - coffee beans. No one has ever seen or heard of coffee beans before - but you've figured out how to make coffee with them. You give people on the island a taste of your coffee, and everyone loves it and wants to buy your coffee beans. Because of this, the demand is very high (I can't say that the demand curve shifts right here because one hadn't existed prior to this example, but a new one is created that is quite high). The demand is high, so you set an amount you're willing to supply at a given price in order to meet equilibrium. Eventually, though, because the money supply is limited, people run out of money to spend on your beans. The demand doesn't change or anything, but you can't sell based on the pure and simple fact that no one has any money left to spend. Now, this situation is presented with four options. The first option is for the country to go out and attempt to find more gold so more money can be made. The second option is for you to lower your prices, consequently supplying less of the good, in hopes that some people that have a little money left will be able to buy more of your beans. The third option is for you to pack up your beans and leave the island, hoping to find a wealthier country in which to sell your product. The fourth, and final option, is for the country to get together and decide to devalue the currency - as in, make each dollar worth less gold than it was before which will enable the country to print more money.

So, what does this have to do with Socialism? Well, the government would study these supply and demand graphs and know how much money could be in circulation. Based upon these facts, the government would have to tell each business what to produce and how much of it to produce, and tell each person what to buy and how much of it to buy in order to avoid the problem of not having enough money in circulation to meet an uncapped demand for goods and services. Even in this system, the GS isn't perfect because of increases in population. Eventually, the government would have to tell business to supply more goods that it can't afford to produce, or tell people to buy less, or go out and get more gold, or devalue their currency. None of these solutions are good, and all of them are just temporary fixes. If the country doesn't get a very large surplus of gold soon, the country will become impoverished. This, my friends, is what the GS leads to.

This is just one half of the GS argument. The other half seems to be an ethical argument, particularly against our Central Banking System. Should they be able to print off as much money as they want, whenever they want? No, they need to be held to some degree of responsibility. I believe that the Federal Reserve is held to a degree of responsibility - as highlighted in recent times by several members of Congress speaking out against them and demanding that they show some responsibility for their actions. Trust me, the Federal Reserve does not like to be under fire from both Congress and the media.

To go on with the argument, Gold Standardists argue that, if we were on the GS, the Central Bank couldn't print off money on a whim - money that isn't backed by anything. That is true - but let's look at it from a different perspective. Gold Standardists argue that the GS is a good thing because it makes sure that our money is backed by something of REAL value. I feel that the definition of "REAL", in this sense, is in the eye of the beholder. If our Dollar isn't backed by anything of "REAL" value, then what holds it up? Confidence, people. Confidence. Confidence is what makes the dollar worth anything - confidence from the people in that it has a value and that obtaining more of it will give you more purchasing power. In this sense, what makes our current system different from the GS? It's no different, if you think about it from a psychological perspective. What on earth makes gold so valuable, anyway? Confidence. It's people's confidence in the fact that gold is worth something and that obtaining more of it will give you more purchasing power. It's no different at all. Also, since gold is a commodity, it too is subject to fluctuations in market value via the laws of supply and demand - which can be effected by a number of factors including confidence. Finally, lest we all forget, currency is corruptible even on the GS. Look it up in the history books - the kings of old were known to mix other metals into their coins without letting people know about it, so they could make more coins with less gold.

So, in short:

1. The GS can only operate in a Socialist country - and even then it has significant problems.

2. Changing to the GS won't make the Dollar "worth something" because the worth of the dollar and the worth of gold is purely based on people's confidence in the fact that it is worth something.

3. Gold is a commodity in and of itself and, therefore, is subject to fluctuations in value via the laws of supply and demand. Therefore, even on the GS, the value of your currency isn't always "rock solid".

4. Currency is still corruptible on the GS because other metals can be mixed in with the gold in the supply, allowing more money to be printed off with a fake value.
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