In this article, I draw attention to the similarities between the current economic situation and that of 1929, and the threat to today's unbacked currencies.Ahem, the world was on a gold standard in 1929. Been there, done that.
- There is the coincidence of trade protectionism with the top of the credit cycle, and there are the inflationary events that preceded it.
- The principal difference today is in modern macroeconomic delusions, which hold that regulating inflation of money and credit is the solution to all ills.
- I conclude that economic salvation can only come from ditching today's macroeconomic theories and by returning to monetary stability through credible gold exchange standards...
Currencies Threatened By A Credit Crisis
Goldmoney
14 comments:
Unintended consequence/blowback of wacky MMT rollout/presentation could create alot of support for gold standard or other discipline for loss of trust in fiscal authority. Politics aren't predictable.
When someone speaks of a need for a “gold standard,” you can be sure that one of two things apply…
[1] They don’t understand what money is and how it works, and they don’t want to understand
[2] They are hucksters who want to sell “shares” in a “gold exchange” in which no gold is exchanged. You can cash out your investment, but you will never receive it in gold, since no gold is involved. The so-called “exchange” might as well be in pet rocks, or Tootsie Rolls, or Cabbage Patch Dolls.®
Since a “gold exchange” is ostensibly “backed by” gold, it is called more “real” than US dollars.
The above article falls into Category #2.
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The use of the term "gold standard" for 1929 is totally misleading. Banks were granted special privileges which allowed them to lend "money" in excess of the money they actually held in and were part of the central banking system.
As I have often explained in previous comments, the "gold standard" was a gimmick used by politicians whenever they wanted to claim that there was "no money" for this or that social program. Politicians dropped the "gold standard" whenever they wanted to create money for wars.
Been there, done that. Tom Hickey
Except we still have the Gold Standard banking model - as if fiat were still too expensive for the entire economy to use, but only, except for mere coins and bills, depository institutions, aka "the banks".
So there's still work to be done as far as abolishing the Gold Standard for good - mainly by allowing everyone to use fiat in account form and by abolishing all other privileges for private bank deposits.
As I have often explained in previous comments, the "gold standard" was a gimmick used by politicians whenever they wanted to claim that there was "no money" for this or that social program. Politicians dropped the "gold standard" whenever they wanted to create money for wars.
Precisely. Which means that what they came up with to fund the wars WAS NOT THE GOLD STANDARD. Therefore, it is academic and journalistic fraud to assert that the phony funny money substitute they employed to fund the wars was the gold standard. Naturally, that line of B.S. is fundamental to Keynesianism and MMT.
Further, 1929 was the inevitable outcome of the central bank shenanigans used to fund WWI coming to a head.
The "not gold standard" funded WWI. This is exactly the type of behavior "Konrad" rightly appears to abhor.
Keynesian Daniel Kuehn demonstrates that it was the Fed's funding of WWI that caused an artificial boom and inflation. The problem was not caused by any failure of "the free market".
2. The austerity depression of 1920–21
During World War I federal expenditures ballooned and although the new income tax was able to partially finance the war effort, most of the financing was done through federal borrowing and by the highly accommodating monetary policy of the Federal Reserve. The role of the Federal Reserve at this time was expressed unambiguously by the New York Federal Reserve Bank Governor Benjamin Strong, who told a Congressional committee in 1921 that ‘I feel that I, or the bank at least, was their [the Treasury’s] agent and servant in those matters’ and further added that the wartime inflation caused by the low interest rates maintained by the bank were ‘inevitable, unescapable, and necessary’ for prosecuting the war (Strong, 1930).
https://bobroddis.blogspot.com/2012/08/daniel-kuehn-provides-factual-basis-for.html
Sectoral balances alone rule out the gold standard as a good idea.
Piggy backing on Konrad, those precious metal hucksters always amuse me. I hear their commercials on the radio saying gold or silver is poised to skyrocket in value, so hurry buy some from us now.
But, if those companies really believed that, why would they sell the gold or silver now instead of saving it until after the price went up? I guess if you need the revenue now, but still, it's just marketing bs.
Sectoral balances alone rule out the gold standard as a good idea.
The entire concept of "sectoral balances" is nonsense. BTW, why don't you prove for us what the impact of "sectoral balances" allegedly is on precious metals? Seriously. Show your work.
Of course, the value of gold just NEVER GOES UP historically, right?
http://www.marketshadows.com/wp-content/uploads/2012/12/Gold_Historical_Chart_July_2012-12.png
Actually, prices stated in terms of using gold as money would constantly decrease over time, to the great benefit of the poor and middle class.
"The entire concept of "sectoral balances" is nonsense"
Apparently Mr. Roddis doesn't believe in addition and subtraction. Subtraction is difficult after all, so I can see someone just throwing the whole thing out.
I guess the dollars Mr. Roddis earns just magically appear in his account and didn't come from someone else's account. That's one hell of a trick to pull off.
I've seen crack-pottery before, but not to that level, even Worstall knows about the sectoral balances, christ, it's even part of standard macro... I know, I know, I shouldn't feed the trolls.
Actually, prices stated in terms of using gold as money would constantly decrease over time, to the great benefit of the poor and middle class. Bob Roddis
A fixed or slowly growing money supply wrt to population increases or potential economic growth encourages lazy, risk-free money hoarding as a means to obtain real gains by free-riding on the enterprise and risk-taking of others. But real progress requires enterprise and risk-taking so an inadequately growing money supply is anti-progress.
Moreover, if the money supply growth does not keep up with population growth then falling wages are to be expected, especially when one considers that productivity gains require investment, not the lazy, risk-free money hoarding that an inadequately growing money supply encourages. So what good are falling prices if they are the result of falling wages?
Joe:
I appreciate you not being able to prove for us what the impact of "sectoral balances" allegedly is on precious metals as I had asked. I knew you would not be able to prove your assertion and you cannot.
As always with MMTers, in lieu of engagement and refutation of criticism, they fling insults and call names.
The value of gold just NEVER GOES DOWN, right?
Your income is someone else's expense, one account goes up, the other goes down, ie the sectoral balances. Applies anywhere and everywhere, since the beginning of time (your pig "account" goes down but your goat account went up, the other guy's did the opposite).
If the amount of currency is limited due to some arbitrary tie to some close-to-useless metal, we have some issues. As population and economic activity increase, how would that work without an increasing money supply? People try for the smallest pay decrease rather than the largest pay increase? (it's a bit of permanent deflationary bias, sounds to me like driving with the brake on)... Do we solely rely on private banks to pump out the credit? What happens when people try to net save to pay back their loans (see below). And if banks can increase the money supply with credit, well then are we truly on a gold standard?
Or do we just have to dig up gold at the same rate as population increase? Once we dug up the finite supply of gold, what then? Do we just have to stop building stuff? "Sorry son, but you have to stay homeless, we can't build anymore houses because there's no more useless metal in the ground." Sure sounds like progress to me.
Or how about if the people wish to net save, like in 2008-09? The sectoral balances shows us that it's not possible for people, as a whole, to net save. One person saving requires another to dissave. Haven't you learned anything from the eurozone?
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