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Old 11-04-2012, 01:36 AM   #21
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While you're discussing the gold standard and the dollar, China, Russia and other countries are quietly moving away from it as a world trading currency, and are using petro-dollars and other currency. Whatever currency model we end up adopting, if it doesn't represent real value then we're all in a world of poop.

Last edited by cordycord; 11-05-2012 at 01:50 AM.
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Old 11-05-2012, 03:43 PM   #22
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All I'm hearing are the same couple of ideas which have already failed, repeated over and over again.

Gold standard...

First off, a gold standard inherently limits economic growth. As actual productivity increases, the money supply must be able to increase as well.
False. This assumes that money can't appreciate relative to the price of goods and services and even wages. This is one of the key assumptions of many Keynesian economists, and it is wrong.

You really need to understand this before you can think outside the Keynesian box.

Keynesians will scream that "if prices of goods will fall, nobody will buy anything while waiting prices to fall and the economy will come to a halt, and businesses can't plan for falling prices". This is patently stupid as we buy memory and TVs and BBK's even though we know next year the prices will be lower. And I work in an industry where customers expect us to drop the price 4% a year - ish... by contract.

It's already happened in history, during a time of great economic growth and progress.

In the time period between the Civil War and the Roaring 20s, currency (gold at the time), appreciated. The prices of goods fell, and real wages rose. Productivity was increasing. People generally were better off year after year. When people saved money, even if it didn't earn interest in a bank, it rose in value.

Wouldn't it be nice if money appreciated at 3% per year, instead of losing value year after year? Then we wouldn't need to play stockbroker or investor in order to beat central bank inflation.
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Old 11-05-2012, 04:34 PM   #23
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Deflation is bad, mmkay?
Not if it's slow, steady, and predictable. But yes there is such a thing as bad deflation. Sudden contraction of the money supply.

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Deflation significantly discourages borrowing, because it means that loans must be paid back in the future with money that is worth more than it is today.
No, it just means that real interest rates will be greater than the numeric interest rate.

Interest rates today for the most part, is greater than the inflation rate. So you end up paying more. The exception (for consumers) is for housing loans, but the reason for that is precisely due to the distortion by central banking - the central bank plus the banking system creates money out of nothing whenever a loan is made so they can profit even if the interest rate is lower than the inflation rate.

However, and this is an important point - such market intervention like this always produces unintended consequences. In this case, it distorts the cost of borrowing money and causes asset bubbles where the money flows (see housing bubble), and causes instability (another topic).

Distortion of the market causes asset mis-allocation (look at all the houses built in 2005 during the bubble, which are empty now). If interest rates weren't manipulated down by the Fed Res, there would have been no bubble.

Whether you have slow inflation or slow deflation, borrowing can and will occur because both parties (lender and borrower) want to enter into a loan agreement. Despite slow deflation, I would still want to borrow money to start a business or buy a house.

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During the Great Depression, deflation averaged around 10% per year, meaning that even a loan with 0% interest had an effective 10% interest rate from the point of view of the debtor.
This is a case of bad deflation, it was the natural correction of the market due to the previous inflation which created a bubble, called the Roaring 20's. Had there not been the bubble, there would have not been a crash and Depression. Also, the Fed Res did nothing to slow this bad deflation.

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So borrowing pretty much stops. And that's not just homes and cars, it's also borrowing to fund the starting of new businesses,
Doesn't follow, see above.

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Of course, even if there's no deflation, nobody really wants to lend money anyway.
Not true. Why wouldn't I lend money at 2% interest if deflation is at 2%?

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. You can speculate about ways in which long-term fluctuations in the price of gold can be damped, but it has always experienced short-term spikes and dips. Always.
See other alternatives I mentioned, of continuing with the USD but without inflation and without a monopoly central bank.

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No reason for private investment either. Who wants to make long-term investments with an expectation of reduced future earnings due to decreased prices?
?? Look at manufacturers of USB memory sticks, HDDs, flat screen TVs. They do just fine.

And look at the period I described from ~1870 to 1910 or so. Money was appreciating but business boomed, productivity and real wages rose.

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And about that hypothetical 0% interest rate? Yeah, that's not good either.
I never said anything about 0% interest rate.

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You know all that talk you hear about the Fed hand-wringing over whether to adjust the short-term interest rate?
The knowledge problem here is that a bunch of bureaucrats can't make decisions for the economy that wouldn't be better than just leaving it to the millions who make up the economy. The "Fatal Conceit" is that wise bureaucrats can.

Even Greenspan in an interview kinda said that central bank policy "should emulate" the Gold standard, and then he was a bit dumbstruck when Jon Stewart said "why then have a central bank at all?"

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Adherence to the gold standard, in fact, significantly prolonged the Great Depression and increased its severity.
False, and another topic. Let's flesh out the above ones first.

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There are a number of very valid reasons why most of the world's industrialized nations departed from the gold standard
The #1 reason was that central bankers did not want their hands tied by the gold standard.

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One of my favorite quotes on the subject comes fro your good friend Mr. Bernanke, who knows a thing or two about money. Adopting the gold standard, he said, “means swearing that no matter how bad unemployment gets you are not going to do anything about it.”
And read what Greenspan wrote, before he sold his soul to the devil:

321gold: Gold and Economic Freedom by Alan Greenspan 1966

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An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
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But wait! What about a fractional-reserve gold system?
The 2 are orthogonal. You can have fractional-reserve lending even if currency is exchangeable to gold on demand.

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So what's the first thing that happens when faith in a certain bank wavers? People start to demand their gold. Except that the bank doesn't have enough gold to cover all the notes, so it folds.
And this is why competing central banks have to figure out how to set their reserve ratios properly, to balance risk and profit.

This too is orthogonal to having a gold standard, except that in an un-backed money system the central bank can just print more money.

It is possible to have competing currencies where some are commodity backed, and others are not.

But bear in mind that there were almost zero failures in Canada while thousands failed in the USA during the Depression, because of unit-banking and no-branch-banking regulations in the USA, not because of the gold standard.

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And because there's no unified federal reserve note, all of the paper that the bank left behind- all those notes that are actually in in people's wallets and cash drawers- is suddenly worthless.
Perhaps with competing currencies most people would opt to use notes which are 100% gold backed. Or silver, whatever.
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Old 11-06-2012, 02:23 PM   #24
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Joe kinda said:

"Money supply growth must match (0 inflation) or exceed (some inflation) economic growth else we get deflation which is bad and economy would grind to a halt, contract, and implode."


Even if you believe that "must" clause above, it would be self-limiting because if the economy contracted, due to a constant money supply and shrinking productivity, the prices of goods would then begin to rise. Ergo with a fixed money supply, the economy would stop growing and prices would remain constant.

But again, there is nothing wrong with slow predictable price deflation when it is a result of productivity increasing faster than the money supply. It has happened from about 1870-1913. IIRC it actually happened in one year in the late 90s despite the constant central bank monetary inflation.
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Old 11-11-2012, 06:03 PM   #25
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Local currencies on the rise, the type that Lietaer said, has historically reduced the brunt of recessions:
The local currency rush: 'In the U.S. we don't trust' - Jan. 18, 2012
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Old 11-12-2012, 12:12 PM   #26
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Assuming they have no taxable income (or minimal taxable income), those local currencies should work for them.

However, they will find it hard to pay their Federal income taxes in anything other than US dollars. Having a local currency pegged to the value of the dollar also removes that currency's sovereignty.
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Old 11-12-2012, 06:49 PM   #27
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And then there's Bitcoin, the Friendster of crypto-currencies, which isn't pegged:
Bitcoin Charts / Charts

The Facebook of crypto currencies may come at some point.
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Old 11-12-2012, 07:01 PM   #28
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Bitcoin, e-Gold, Digicash, eCash... There are so many different decentralized currencies already in existence that if there was actual consumer demand for them, somebody other than identity thieves and child-**** sites would be using them.

To date, the closest thing to a "virtualized currency system" that I've ever seen in actual use in the "real world" is a little icon on the card-readers at Home Depot informing me that they accept PayPal. Which is tied directly to the US dollar. (Or the Canadian dollar, if you happen to be purchasing small quantities of lumber in Canadia.) And which, judging by the reaction of the employees at the checkout when I inquire about it, has been used, on average, precisely zero times.
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Old 11-12-2012, 07:10 PM   #29
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Originally Posted by JasonC SBB View Post
And then there's Bitcoin, the Friendster of crypto-currencies, which isn't pegged:
Bitcoin Charts / Charts

The Facebook of crypto currencies may come at some point.
Quote:
Originally Posted by Scrappy Jack View Post
Assuming they have no taxable income (or minimal taxable income), those local electronic currencies should work for them.

However, they will find it hard to pay their Federal income taxes in anything other than US dollars.
Adjusted my previous statement in case the relevance was not immediately obvious.
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Old 11-13-2012, 12:18 PM   #30
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Bitcoin, e-Gold, Digicash, eCash... There are so many different decentralized currencies already in existence that if there was actual consumer demand for them, somebody other than identity thieves and child-**** sites would be using them.

To date, the closest thing to a "virtualized currency system" that I've ever seen in actual use in the "real world" is a little icon on the card-readers at Home Depot informing me that they accept PayPal. Which is tied directly to the US dollar. (Or the Canadian dollar, if you happen to be purchasing small quantities of lumber in Canadia.) And which, judging by the reaction of the employees at the checkout when I inquire about it, has been used, on average, precisely zero times.
If you consider Paypal as a virtual currency then so are all the credit cards. In a way they are but they are pegged to the USD. The point is that currencies don't have to be managed by committees of gray-haired men with PhD's.

So, no comments on the major points I covered in my recent posts?
Or the points brought up by Steve Horwitz in his lecture "Do We Really Need a Central Bank" aka "How to Argue Against Central Banking Without Invoking Jews/Rothschilds"?
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Old 11-13-2012, 01:43 PM   #31
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If you consider Paypal as a virtual currency then so are all the credit cards.
I'm sorry if I was unclear or ambiguous.


By "the closest thing to a virtualized currency system that I've ever seen in actual use in the real world", my intent was to distinguish PayPal as being different from virtual currency systems, and bearing only a superficial resemblance to them. The purpose of this distinction was to make clear that, of the many virtualized currencies which already exist, none have found themselves in sufficient demand to come into common use.

Within the videogame Team Fortress 2, for instance, Crates are a valuable form of currency. They are routinely used as payment for hats, weapons, and various decorative items such as inflatable unicorns and goat skulls. There is even a generally agreed-upon marketplace, vis-a-vis the Steam Forum, wherein rates of exchange between various items are published and updated routinely based upon conventional rules of supply/demand (eg: a newly-released crate will exchange for several crates of older vintage, hats which are unusual or unique in some way will demand more crates than common hats, etc.)


Despite this, my landlord still refuses to accept my virtual crates as payment for the rent.



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The point is that currencies don't have to be managed by committees of gray-haired men with PhD's.
Oh, absolutely. They can be managed by committees of blond-haired men with PhDs, diverse groups consisting of women and minorities with PhDs, etc. In fact, I would not be at all surprised if they even allowed the occasional MBA or MSF into the gang, provided that they brought their own paddle.

And if you look back at history, prior to the era in which international commerce was expected to be able to be conducted instantaneously at the push of a button (rather than by sending men in tall ships on long voyages across perilous seas), commodity-based trade made currency itself altogether unnecessary. A ship containing a certain amount of tea might be worth its weight in slaves or cotton, albeit with the annoying prerequisite that the tea, slaves and cotton all be physically present at the exchange (hardly the most efficient means of commerce.)


But in the modern era? Well, the data speaks for itself. We have nearly 15 years of independent, electronic currency on record at this point, some of it backed by physical gold, some of it backed only by powerful crypto.

So if it's such a great idea that everyone is clamoring for, why are the only people using it geeks and crooks?





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So, no comments on the major points I covered in my recent posts?
Or the points brought up by Steve Horwitz in his lecture "Do We Really Need a Central Bank" aka "How to Argue Against Central Banking Without Invoking Jews/Rothschilds"?
No, the energy would be wasted.
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Old 11-13-2012, 09:30 PM   #32
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So you dismiss a bunch of arguments without understanding them. OK.
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Old 11-13-2012, 09:59 PM   #33
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"Dismiss" is too polite a term. It implies that I paid them the dignity of my time.
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Old 11-15-2012, 01:40 AM   #34
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LOL, after you spent time typing paragraphs and paragraphs.
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