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we don't use gold as currency anymore...the gold standard was abolished back in the 1930's
your money isn't worth any gold today

the only people who need to worry about gold prices are jewelers,banks & traders

At 1/10/08 12:31 AM, PirateAnneBonny wrote:

Drowning the world in an ocean of credit, just creates a misallocation of resources. Think: Enron and McMansions built on cliffs in California that have a tendency to fall into the ocean.

Of course it does, but how exactly does going back to gold change any of this, and more importantly, why do we have to go back to the gold standard to prevent this? Raising interest rates and tightening regulations on sub-prime lenders would have prevent a good chunk of the current economic fiasco.

In fact, the gold standard didn't really do much to restrain credit markets in the past. The Great Depression was in fact caused in large part by unrestrained credit that could be used to borrow stocks, causing stocks to be overvalued and causing the collapse. The gold standard did nothing to prevent this.

The thing about the Horror of Inflation to keep in mind , and why it's a thing to fear, is that rising wages can never keep pace with rising prices. When you find that your dollar doesn't go so far at the store and at the gas pump these days, how often can you tell your boss you need a raise? Or, if you're self-employed, how quickly can you raise your prices (and, therefore, your wage + overhead) before your customers leave you and go to someone else?

I don't see how on Earth going back to gold would solve this problem at all. A lot of what is currently driving inflation is the increasing cost of oil. Part of this is due to the falling value of the dollar, but a large part of this is simply caused by the fact that we are increasing consumption of oil, the very same oil that is used to transfer food and goods, driving up there prices. Kicking the oil habit will do a lot to bring prices back down.

Price increases due to natural shortages are self-correcting. If there is a shortage of oil, then, your're right, transportation costs increase, and then the cost of everything else increases. But, then prices drop as people use less transportation for their own travel and less goods are bought at the store as prices rise. People save a bundle of money by switching to buying groceries and instead of eating at restaurants, for example. Then there's no oil shortabe anymore because demand has dropped.

You say people save money by buying less goods and traveling less, WRONG. People aren't saving any money. They are instead spending the same amount on less goods. This in turn means that companies earn less, and in turn have less to pay their employees.

The biggest problem with your argument is that we are so dependent on oil is that we can only cut our consumption currently by so much, and this is not enough to reverse the price hike. As a result, there is simply less money to go around, period. The end result is economic slowdown. The only way to effectively reduce the price of oil involves increasing fuel efficiency or switching off of oil completely. There cannot be enough change in behavior to compensate without it damaging the economy.

That's not the case if inflation is created by a record-breaking increase in the amount of credit and money out there chasing after limited goods and natural resources. Then we have "Aaaah!! Help! We're freaking doomed! Run Away. Inflation is here!!!" Ergo, that wouldn't happen if the amount of money was equally as limited as the amount of goods and resources -- the joys of a hard currency.

And herein lies the problem with your entire thesis. Credit isn't the only or primary cause of our current economic situation. The real problem is that we are increasing the amount of resources we are using in a manner that isn't sustainable no matter what we base our currency on.

Since the 1950's, the population of this planet has more than doubled. In recent years, countries that were once nothing more than a source of resources for the western world, such as China and India, have seen an economic boom, resulting in countries such as these also consuming resources that were previously reserved for Western powers. We have also increased the amount of resources each person consumes with the explosion of consumer products such as electronics. At this same time, the world production on certain resources, such as oil but also other necessities such as medical care, have not been able to keep pace. Thus, basic supply and demand kicks in and kicks up the price for these resources. It doesn't matter whether our currency is backed by gold, silver, the economy, or fairy dust. Inflation will still occur because the price of these resources, resources that either drive the economy or are vital to the maintenance of life itself, will continue to rise. Limiting credit only gave us a reprieve from the consequences of this situation, but it didn't cause it.

Boy this is thrilling.! I really didn't think a discussion on economics would generate such interest.

First of all, VigilanteNighthawk, the stock market bubble and bust of the Great Depression happened AFTER the Federal Reserve Act in 1913 allowed the dollar to start becoming a floating currency, eventhough it wasn't conpletely de-linked to gold until much later. As you pointed out, it was loose credit that caused the problems, so you can't blame the gold standard, blame the Fed. Even Al Greenspan, in one of his more truthful moments, admitted that the Fed created the Depression and Pres. Hoover and Roosevelt just made it worse and made it last much longer then it should have. The markets were far more restrianed when they were limited by a pure gold standard.

As for the global lack of resources being a problem, the world has faced that problem before many times. The Japanes are mining their landfills to reclaim the aluminum and copper right now. I expect that to happen in America and we will find new ways to use the trash of the past if that seems to be a cheaper alternative than mining new resources. Probably, the biggest problem the world faces and has faced many times in the past is the question of should land be used for timber or crops? Whichever you choose, there has always been disasterous consequences. You were right to point out the problem of population growth. The Middle East was once covered by forests, believe it or not. Read the epics and you'll see that Greece was once forested, it's all baren now. Europe once had extensive forests too and was suffering from a serious wood shortage until the discovery of America. One thing all the explorers said was "Look at all these trees!! A whole continent of trees!!!"

Resource shortages ceased to be a problem when America was discovered. We're now facing the end of that era of easy pickin's. There were nuggets of copper just lying around on the ground in the Dakotas, kaolin (the mineral necessary for procelain and, before that, only found in China) was discovered in all the rivers in Tennessee, a vast reserve of helium was found in Texas that we're depleting, extensive deposits of aluminum in Washington that gave rise to the airplane industry.....it goes on. Actually, we're facing the problem of "peak" everything. It's getting harder and harder to find silver, because it's a byproduct of digging for other metals and you wouldn't believe all the new patents that are out there for new uses of silver!

So, to make a short story long, the world is facing resource shortages everywhere we look and the one thing we're not lacking is monopoly money.

Poxpower, you misunderstood. I don't want to end credit -- I just said that we shouldn't give credit to Uncle Sam. Credit cards are simly a way to delay payment for purchases which is kinda like running up a tab at a bar. If the bartender (credit card company) thinks you're trustworthy, then all is swell. However, Congress (except Ron Paul) is most definately NOT trustworthy and should be chained at the ankle to prevent them from spending taxpayer money that they don't have!

Now, you keep asking the questio of what would a gold standard solve? If we got on the gold standard today buy simply linking the dollar to gold once again by forcing the dollar to move when gold moves like a waltz, then a lot would suddenly happen. We would finally be allowed to do an accurate inventory of what is being kept at Fort Knox, the Federal Budget would have to be figured by General Accepted Accounting Principles, and then when all the dirty laundry is aired, we would be able to accurately assess the state of the dollar and we would be able to, at that moment, peg it to gold. Then, any Wall Street speculative bubbles will be small and short-lived and people would not face the specter of a Second Great Depression or pre-WWII Germany type hyper-inflation which is what, I fear, is looming in the distance.

Probably the best reason for going on a gold standard now, is because if we don't right now, the Arabs will! If the Arabs decide to stop pegging the price of oil to floating currencies, and all the world's currencies are just varying degrees of softness, and peg it to gold, the world will see a gold-back dirham, even if the government owns no gold at all. The important thing is not to stockpile bullion, but to properly adjust the supply of dirhams to meet demand, the exact same process now used by the existing currency board. The UAE would have, in effect, a currency board linked to gold.

The world would finally have a hard currency again, as the dollar was before 1971. The dirham would immediately become an international currency, because everyone would need it to buy Middle East oil. The UAE would get into the currency business, which can be very lucrative. The Federal Reserve makes a profit of about $40 billion a year on its roughly $800 billion of U.S. Treasury bond holdings.

Eventually, if people wanted access to Middle East capital, they could issue bonds denominated in dirhams. No more dollar bonds. This would be very attractive, because the interest rate on dirham bonds would sink to very low levels. When the British pound was pegged to gold from 1823 to 1914, a ninety-one year stretch, the average interest rate on Consols - government bonds of infinite maturity - was 3.14%. It never rose above 4.0%. In the past century, no central bank has ever managed such a record of success. After four decades of experimentation with floating currencies, nothing has ever come close to the performance of a gold standard in action.

If/when that happens and if America and China and the EU and all the other countries haven't linked their currencies to gold before that, then the oil-exporters will be the lone superpower of the world.

I higly recommend you watch the movie "Rollover" and you'll see what I mean.

On second thought, the best benefit of a gold standard is it would immediately put controls over politicians. Instead of being able to make promises today that later generations would be expected to pay, they would have to get the money first, by either selling assets, selling T-bonds, or raising taxes. It's the difference between saying that I'll make the sacrifices necessary to raise the money to buy you a car as opposed to promising that my unborn grandchildren will sacrifice to buy you a car.

Now we're facing the problem of how are we going to pay on the promises that our parents and grandparents made to themselves? The first Boomers have started receiving Social Security and then Medicare and Medicaid. Coupled with the Republican's Perscription Drug Benefit Plan, an incredibly irresponsible thing to do, we're in for a huge bill! The money will have to come from somewhere, as I said before. David M. Walker, the Comptroller General of the United States, has been on a crusade trying to alert people to this huge problem.

At 1/9/08 12:30 AM, Musician wrote:

At 1/9/08 12:25 AM, PirateAnneBonny wrote: I don't trust them, which is why I like gold.

Paper? Gold? Silver?

They're all equally worthless really. What does it matter what our currency is made out of?

Well you have to buy food. When paper money is found to be worthless then people will go back to the gold/silver standard.

At 1/10/08 02:04 PM, PirateAnneBonny wrote:

As fAmerica. One thing all the explorers said was "Look at all these trees!! A whole continent of trees!!!"

But what the hell does this have to do with gold??

Poxpower, you misunderstood. I don't want to end credit -- I just said that we shouldn't give credit to Uncle Sam.

Yeah it's too late for that, unless you want to stop the governement from spending for the next 20 years, completely shutting down the country.
Still no idea how bad management is linked to gold or how you can revert back to backing money with gold. There was credit back when there was gold, they are completely unrelated.

Then, any Wall Street speculative bubbles will be small and short-lived and people would not face the specter of a Second Great Depression or pre-WWII Germany type hyper-inflation which is what, I fear, is looming in the distance.

The value of a stock has nothing to do with the value of the dollar. And if I hear you correctly, you're suggesting that we count up all the gold, then divide the currency so it's worth that much?
You would have to completely rework the entire tax system and re-price every last good in the country, as well as cut down everyone's salary.
It would be an economic holocaust and in the end wouldn't solve anything because there would still be economic growth far surpassing the amount of new gold that is stockpiled instead of used in jewelry, circuitry or whatever else.

The world would finally have a hard currency again, as the dollar was before 1971. The dirham would immediately become an international currency, because everyone would need it to buy Middle East oil.

That is getting crazier by the minute. I rarely hear anything so unrealistic, you're almost suggesting something on the scale of communism.
Yeah, great theory, except it's impossible to convert to this and maintain it and doesn't even make economic sense :O
There's tons of other countries who produce MASSIVE amounts of oil.

I higly recommend you watch the movie "Rollover" and you'll see what I mean.

I'm not an economist, and I'll admit I don't know that much about what's going on in the world, but this idea sounds completely crazy and utopian and disconnected from our reality.

I doubt I can convince you of anything, so I guess we'll have to see. PM me when the Arabs peg their money to some virtual gold bank.

At 1/10/08 07:37 PM, AngelaStar wrote: Well you have to buy food. When paper money is found to be worthless then people will go back to the gold/silver standard.

which conveniently so happens to be in the hands of the government
paper money is already worthless, but...
the day paper stops being credible exchange the common man is fucked because your money isn't worth gold, it's worth nothing...& do you really think the government is gonna hand its gold over to you?? the whole reason for abolishing the gold standard was to stop the government from losing gold.

anyway i don't think we'll ever go back to gold, all world governments are scared to go back to it, because then they would actually have to balance their fucking spendings

the day paper stops being credible exchange the common man is fucked because your money isn't worth gold, it's worth nothing...& do you really think the government is gonna hand its gold over to you?? the whole reason for abolishing the gold standard was to stop the government from losing gold.

anyway i don't think we'll ever go back to gold, all world governments are scared to go back to it, because then they would actually have to balance their fucking spendings

True! Which is why the government destroyed the gold standard....Which is why taxpayers should insist it be restored post-haste!

Everything in the world right now is Alice in Wonderland-type strange. We live in a credit/debt world where you're only as good as your credit rating and people believe the most absurd things, like "debt = wealth". Don't own a house or a single asset or a bit of money? Doesn't matter. What's your credit rating? It's the same with countries as it is with individuals.

It's scary thinking about all those $$$'s out there, but what is even FAR scarier is thinking of the tsunami of all those $$$'s returning home. As the Middle East countries' bond ratings are going up, America's will be going down! When that happens........we're all freaking doomed!

The deficit is expected to rise sharply starting in 2011 when the first wave of Boomers hit 65. By 2026, the Congressional Budget Office projected recently, the federal debt could equal the nation's annual economic growth, if nothing is done. At that point the interest on the debt would begin to explode, so that it becomes stifling to pay off.

David Wyss, chief economist at Standard & Poor's, said U.S. government bonds would achieve junk-bond status by 2026 if changes are not made. And, he said, if no major deficit-cutting action is taken within the next 8 years, the U.S. government could lose its AAA bond rating - a development that would have major domestic and international implications.

Here's what keeps me up at night. If the world decides it's tired of buying U.S. bonds of all types adn even starts dumping them, then the U.S. (government and banks too) will be scrambling to make good on it's obligations so that it doesn't default and, since it won't be able to sell more bonds to cover the shortfall, then they will have to resort to the only option they have left for getting funds -- TAXES!!!

With fractional reserve banking, money is increased exponentially. For every $1 that is deposited, it can be loaned out again and again so that nine new dollars are created. However, the opposite can happen which is wherein lies the danger. Ten people have claim to that $1, so what happens when all ten people show up to withdraw "their" $1? Only one person can walk away with that $1 leaving nine angry people outside throwing rocks at the bank windows, and so it creates an economic loss of 90% if things turn bad, just as it had created a gain of 90% earlier.

As the nightmare continues and bonds and dollar assets are dumped, the dollar will plumet ... tax riots in D.C. , retirement savings wiped out, major banks defaulting, stock market crash, grocery stores looted, shooting in the streets, presidential declaration of emergency, martial law in the cities, bank holiday.............. Resulting in a total shut down of the entire economic system with no funds going in or out and then all Hell really will break loose! Anarchy will have it's day and the only thing left standing amid the rubble will be gold and the very few who were prudent enough to buy it.

So am I paranoid or just pessimistic? We'll see what happens, but the danger is real and there's frightenly little anyone can do about it. Currency is like water, it flows where it wants to flow and when a major shift in it's course is underway, all you can do is try to get to safety.

the US could use a good revolt
we need to whip the government back into shape

The bottom line is that we're in unchartered waters right now. I know it doesn't make sense. I've been reading economic reports and commentary so long, all I can say is that no one seems to understand anything anymore.

Everything I've described above has happened before. The big question no one seems to know is will be be destroyed by Inflation or Deflation? Bernanke askes this question all the time and right now and, with these rate cuts, he's turned his guns on fighting deflation while the forces of inflation increase behind his back. So will we be destroyed by hyper-inflation or super-deflation? With all the world's currencies floating and with electronic money and the internet and everhtying connected, all I know is that things could get out of hand and spread across the globe with lightning speed and the only sensible response might just be to slam the breaks on the whole thing.

Things could get bad and stay bad for a long while. We could even see the Fed hyper-inflate us into a Greater Depression and then try to hyper-inflate us back out again, causing a Greatest Depression, and with taxes rising at every turn and no one to turn to for help and to buy our stocks and bonds, since all the other countries hate us anyways.

Where inflation would be the worst possible scenario (groceries and gas) is where inflation will increase and where deflation would be the worst situation (assets), deflation there will worsen.

So, protect your ASSets with gold and get out of Dodge while the gettin's good!

At 1/11/08 02:35 PM, xXDathDalerXx wrote: the US could use a good revolt
we need to whip the government back into shape

A revolution would be nice. Problem is that Americans have gotten so soft, the citizens wouldn't survive. I fear, the parasite government would kill the host if the host ever finally got serious and made an effort to remove the parasite.

At 1/11/08 02:47 PM, PirateAnneBonny wrote: A revolution would be nice. Problem is that Americans have gotten so soft, the citizens wouldn't survive. I fear, the parasite government would kill the host if the host ever finally got serious and made an effort to remove the parasite.

oh, most of the people involved in the last civil war were farmers...don't count the common man out jst yet ;)
a lot of people are angry & distrustful of government & politics. the US is a powder keg that just needs the right spark to go kaboom...a depression just might be it
bu the government is likely to employ counter measures...it'll be a lot easier to curb since gold isn't traded between companies anymore.
it would take something very drastic to slump the nation, this won't happen by conventional means

Now: hopefully, a look at the BIG PICTURE and to sum it all together....

When the dollar became a floating currency, it put us at the mercy of the destructive Boom/Bust Cycle. It's a world where money is sometimes easy to get and then that money is misallocated into inflating bubbles and government spending and future obligations, and then sometihng happens and money is not so easy to get anymore, and the bubbles burst and deflate and bills come due, thereby leaving people holding those assets with nothing to show for it except a pile of debt and taxes that must be paid somehow.

The good news is that it doesn't have to be this way. A person who owns tangible assets, namely gold and a mortgage-free house, can control his own destiny and, likewise, a country with a hard currency can control it's future no matter what happens to the rest of the world.

the US is a powder keg that just needs the right spark to go kaboom...a depression just might be it
bu the government is likely to employ counter measures...it'll be a lot easier to curb since gold isn't traded between companies anymore.
it would take something very drastic to slump the nation, this won't happen by conventional means

Good God, you're right! America is a nation of gun owners. There's enough registered guns in this nation for everyone to be armed and that's just the guns they know about!!!