How Does Fixing the Gold Price Create Inflation

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stuper1
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How Does Fixing the Gold Price Create Inflation

Post by stuper1 » Sat Apr 18, 2020 11:47 am

I was just listening to the Triggernometry podcast. It's a good show with good guests and thoughtful discussions.

They had Jim Rickards on. He was saying that the US government will probably want to create inflation in order to fritter away its huge debt. He said that money printing alone can't create inflation. He said they could do it in 15 minutes just by pegging the price of gold at say $5,000 an ounce. People could freely sell gold to, or buy gold from, the government at that pegged price.

That is way over my head. Can somebody explain it to me like a 5 year old, which is truly my level of understanding on this stuff, how pegging the price of gold at a high level would create inflation?
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Re: How Does Fixing the Gold Price Create Inflation

Post by vnatale » Sat Apr 18, 2020 11:59 am

stuper1 wrote:
Sat Apr 18, 2020 11:47 am
I was just listening to the Triggernometry podcast. It's a good show with good guests and thoughtful discussions.

They had Jim Rickards on. He was saying that the US government will probably want to create inflation in order to fritter away its huge debt. He said that money printing alone can't create inflation. He said they could do it in 15 minutes just by pegging the price of gold at say $5,000 an ounce. People could freely sell gold to, or buy gold from, the government at that pegged price.

I assume that this is what you were listening to?


https://www.youtube.com/watch?v=xu4gd_r1tsY

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Re: How Does Fixing the Gold Price Create Inflation

Post by Mark Leavy » Sat Apr 18, 2020 12:19 pm

stuper1 wrote:
Sat Apr 18, 2020 11:47 am
Can somebody explain it to me like a 5 year old, which is truly my level of understanding on this stuff, how pegging the price of gold at a high level would create inflation?
If you think of gold as an international currency, the current exchange rate is about 1700 US dollars to 1 troy ounce of gold money.

If you change the exchange rate to 5000 US dollars to 1 gold, then the dollar is devalued. It doesn't change the value of the gold (much). Thus, inflation.

You could get the same result by pegging the dollar to some other (fairly stable) currency. If the US were to declare that every euro is now worth 3 dollars - forever and ever, it would devalue the dollar and raise the value of the euro. Inflation for us, deflation for europe.

[edit] I had the euro/dollar ratio inverted.
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Re: How Does Fixing the Gold Price Create Inflation

Post by stuper1 » Sat Apr 18, 2020 3:59 pm

That sort of makes sense to me in a very high-level, conceptual way, but not in any real-world, practical way.

Just because the government is willing to pay $5,000 per ounce to anyone who wants to sell them their gold, how does that change what I pay for a loaf of bread at the grocery store? After all, the baker and the grocer don't price the bread in grams of gold equivalent, do they?

Rickards explicitly said that just giving out more stimulus money isn't necessarily going to cause inflation. The way I see it, if they price gold at $5,000, the effect of that is going to be that some people who own gold are going to sell some of their gold to the government at that high price, effectively putting more greenbacks into the economy. So, why does that cause inflation, but just giving out stimulus checks doesn't cause inflation?

I'm not arguing that what he says isn't true. I'm guessing he knows a lot more about it than I do. I'm just trying to figure out why and how it is true.
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Re: How Does Fixing the Gold Price Create Inflation

Post by pmward » Sat Apr 18, 2020 4:15 pm

stuper1 wrote:
Sat Apr 18, 2020 3:59 pm
That sort of makes sense to me in a very high-level, conceptual way, but not in any real-world, practical way.

Just because the government is willing to pay $5,000 per ounce to anyone who wants to sell them their gold, how does that change what I pay for a loaf of bread at the grocery store? After all, the baker and the grocer don't price the bread in grams of gold equivalent, do they?

Rickards explicitly said that just giving out more stimulus money isn't necessarily going to cause inflation. The way I see it, if they price gold at $5,000, the effect of that is going to be that some people who own gold are going to sell some of their gold to the government at that high price, effectively putting more greenbacks into the economy. So, why does that cause inflation, but just giving out stimulus checks doesn't cause inflation?

I'm not arguing that what he says isn't true. I'm guessing he knows a lot more about it than I do. I'm just trying to figure out why and how it is true.
The value of the dollar is always relative. At any given day and time it's going up vs something and down vs something else. What is gold? Gold these days is primarily used as a collateral instrument. This is why in the post gold standard times gold is more correlated with negative real yields than inflation, as during times of negative real yields it's better to hold gold as collateral vs losing money holding treasuries. So what happens if the government tomorrow says gold is $5000/ounce? How does the value of the dollar change vs other currencies? How does that effect trade, when the dollar's collateral value has been cut in half? How does that effect the demand for dollars? How does that effect the demand for U.S. goods? How does that effect the demand for foreign goods? Who winds up winning? Who winds up paying the difference? What are the knock on effects?
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Re: How Does Fixing the Gold Price Create Inflation

Post by Mark Leavy » Sat Apr 18, 2020 4:42 pm

stuper1 wrote:
Sat Apr 18, 2020 3:59 pm
That sort of makes sense to me in a very high-level, conceptual way, but not in any real-world, practical way.

Just because the government is willing to pay $5,000 per ounce to anyone who wants to sell them their gold, how does that change what I pay for a loaf of bread at the grocery store? After all, the baker and the grocer don't price the bread in grams of gold equivalent, do they?

Rickards explicitly said that just giving out more stimulus money isn't necessarily going to cause inflation. The way I see it, if they price gold at $5,000, the effect of that is going to be that some people who own gold are going to sell some of their gold to the government at that high price, effectively putting more greenbacks into the economy. So, why does that cause inflation, but just giving out stimulus checks doesn't cause inflation?

I'm not arguing that what he says isn't true. I'm guessing he knows a lot more about it than I do. I'm just trying to figure out why and how it is true.
Let's say that today you can buy a loaf of high quality bread from the baker for $5.00. That same baker (a Harry Browne protegé) would likewise sell you that same loaf for 0.1 grams of gold.

Then the feds peg the dollar at $5000 per ounce. The baker will still sell you the bread for a 1/10th of a gram of gold (no price change), but do you think he will give you the bread for $5? No, he'll want $15 or $20 for the loaf because dollars just aren't worth as much anymore in relation to physical commodities like wheat and gold. The feds have directly told you that you need more dollars to buy gold. It follows that you're also going to need more dollars to buy wheat. And more dollars to buy things that you make from wheat. And... on and on.
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Re: How Does Fixing the Gold Price Create Inflation

Post by Mark Leavy » Sat Apr 18, 2020 4:55 pm

And one more example from our Baker (who is secretly a financial genius).

Let's say that when the Feds peg the dollar at 5,000 to an ounce, they also pass a law that no-one is allowed to raise prices. Bread is legally required to be sold at $5 a loaf.

So... Our intrepid baker sells his bread to the europeans instead of the americans and gets 5 euros for it - just like before. He saves his euros and buys an ounce of gold for 1700 euros. Then he smuggles the gold back to the US and sells his ounce to the feds for $5,000. Beats the heck out of selling bread for dollars.

So how long before the price of bread in the US creeps up to $15 or $20 dollars? Or how long before the exchange rate between the euro and the dollar is 3 to 1?
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sat Apr 18, 2020 8:49 pm

This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
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Re: How Does Fixing the Gold Price Create Inflation

Post by stuper1 » Sat Apr 18, 2020 9:13 pm

I'm just trying to understand Rickards' position. What is it about pegging the gold price at a high dollar amount that would cause inflation, at least in his mind? I still don't get it. I must be dumb. I don't think bakers value their materials and labor in grams of gold. Maybe I have to buy one of Rickards' books.
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sat Apr 18, 2020 11:39 pm

stuper1 wrote:
Sat Apr 18, 2020 9:13 pm
I'm just trying to understand Rickards' position. What is it about pegging the gold price at a high dollar amount that would cause inflation, at least in his mind? I still don't get it. I must be dumb. I don't think bakers value their materials and labor in grams of gold. Maybe I have to buy one of Rickards' books.
You're not dumb. It makes no sense.
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Re: How Does Fixing the Gold Price Create Inflation

Post by Hal » Sun Apr 19, 2020 2:06 am

oops! double post
Last edited by Hal on Sun Apr 19, 2020 2:18 am, edited 1 time in total.
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Re: How Does Fixing the Gold Price Create Inflation

Post by Hal » Sun Apr 19, 2020 2:15 am

Hal wrote:
Sun Apr 19, 2020 2:06 am
Libertarian666 wrote:
Sat Apr 18, 2020 11:39 pm
stuper1 wrote:
Sat Apr 18, 2020 9:13 pm
I'm just trying to understand Rickards' position. What is it about pegging the gold price at a high dollar amount that would cause inflation, at least in his mind? I still don't get it. I must be dumb. I don't think bakers value their materials and labor in grams of gold. Maybe I have to buy one of Rickards' books.
You're not dumb. It makes no sense.
Think his reasoning is along the lines of

1. Current USD loses value as people lose faith in "The trust and credit" of the USA

2. New 40% gold backed USD issued

3. Relative to the new Gold USD, the Fed USD will continue to inflate (less purchasing power) until its converted to the new USD.

At least that's my take on it :o
ps: Vaguely remember something similar happened in 1871 when the US changed to backing of the dollar from silver to gold.
If you were holding silver dollars you experienced price rises as it progressively purchased less than gold.
http://pricedingold.com/silver/
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sun Apr 19, 2020 7:31 am

Hal wrote:
Sun Apr 19, 2020 2:15 am
Hal wrote:
Sun Apr 19, 2020 2:06 am
Libertarian666 wrote:
Sat Apr 18, 2020 11:39 pm
stuper1 wrote:
Sat Apr 18, 2020 9:13 pm
I'm just trying to understand Rickards' position. What is it about pegging the gold price at a high dollar amount that would cause inflation, at least in his mind? I still don't get it. I must be dumb. I don't think bakers value their materials and labor in grams of gold. Maybe I have to buy one of Rickards' books.
You're not dumb. It makes no sense.
Think his reasoning is along the lines of

1. Current USD loses value as people lose faith in "The trust and credit" of the USA

2. New 40% gold backed USD issued

3. Relative to the new Gold USD, the Fed USD will continue to inflate (less purchasing power) until its converted to the new USD.

At least that's my take on it :o
ps: Vaguely remember something similar happened in 1871 when the US changed to backing of the dollar from silver to gold.
If you were holding silver dollars you experienced price rises as it progressively purchased less than gold.
http://pricedingold.com/silver/
There won't be two different USDs at the same time. If they actually do issue a new one with gold backing, they will cancel all the old ones.

BTW, the new one would have to be 100% backed and the backing validated by a third party for anyone to believe it.

As for the "crime of '73" (https://www.usmint.gov/news/inside-the- ... me-of-1873), that was because silver was legally overvalued relative to a gold dollar: see "Gresham's Law". Obviously that wouldn't happen if there is only one actual money in circulation.
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Re: How Does Fixing the Gold Price Create Inflation

Post by Hal » Sun Apr 19, 2020 8:37 am

Libertarian666 wrote:
Sun Apr 19, 2020 7:31 am

There won't be two different USDs at the same time. If they actually do issue a new one with gold backing, they will cancel all the old ones.

BTW, the new one would have to be 100% backed and the backing validated by a third party for anyone to believe it.

As for the "crime of '73" (https://www.usmint.gov/news/inside-the- ... me-of-1873), that was because silver was legally overvalued relative to a gold dollar: see "Gresham's Law". Obviously that wouldn't happen if there is only one actual money in circulation.
Thanks Tech,

I'm guessing the greenbacks issued during the civil war were exchanged with some other gold or silver backed note ?
My US monetary history comes from watching old westerns and civil war movies. ;)

The only in-depth read I had of the US system was from "Coins Financial School".

https://archive.org/details/coinsfinanc ... rch/weight

ps: I believe in the early days for us "Subjects of the Crown" the Pound Sterling was actually a pound of silver.
pps: For some reason Rickards thinks 40% backing will work - don't know why
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Re: How Does Fixing the Gold Price Create Inflation

Post by shekels » Sun Apr 19, 2020 9:43 am

stuper1 wrote:
Sat Apr 18, 2020 9:13 pm
I'm just trying to understand Rickards' position. What is it about pegging the gold price at a high dollar amount that would cause inflation, at least in his mind? I still don't get it. I must be dumb. I don't think bakers value their materials and labor in grams of gold. Maybe I have to buy one of Rickards' books.
I think he way trying to convey that if Gold"s value was Higher it would take more Dollars hence Inflation for the Dollar.
Now we could discuss "value" but let's not.
Before Gold Peg.. Apple = $1.00
After Gold Peg.. Apple = $5.00

$1.00 Dollar does not buy as many apples so Inflation in Dollar.

If you want a Gold Standard there is a way it's just not as easily convertible.
¯\_(ツ)_/¯
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sun Apr 19, 2020 11:06 am

Hal wrote:
Sun Apr 19, 2020 8:37 am
Libertarian666 wrote:
Sun Apr 19, 2020 7:31 am

There won't be two different USDs at the same time. If they actually do issue a new one with gold backing, they will cancel all the old ones.

BTW, the new one would have to be 100% backed and the backing validated by a third party for anyone to believe it.

As for the "crime of '73" (https://www.usmint.gov/news/inside-the- ... me-of-1873), that was because silver was legally overvalued relative to a gold dollar: see "Gresham's Law". Obviously that wouldn't happen if there is only one actual money in circulation.
Thanks Tech,

I'm guessing the greenbacks issued during the civil war were exchanged with some other gold or silver backed note ?
My US monetary history comes from watching old westerns and civil war movies. ;)

The only in-depth read I had of the US system was from "Coins Financial School".

https://archive.org/details/coinsfinanc ... rch/weight

ps: I believe in the early days for us "Subjects of the Crown" the Pound Sterling was actually a pound of silver.
pps: For some reason Rickards thinks 40% backing will work - don't know why
Yes, the greenbacks were eventually made convertible after the end of the war.
The Pound Sterling was originally a pound of "sterlings", which were small silver coins.
The 40% figure probably comes from the original Federal Reserve requirement that Federal Reserve Notes be backed by a minimum 40% in gold.
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Re: How Does Fixing the Gold Price Create Inflation

Post by pmward » Sun Apr 19, 2020 2:22 pm

Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sun Apr 19, 2020 4:02 pm

pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
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Re: How Does Fixing the Gold Price Create Inflation

Post by pmward » Sun Apr 19, 2020 4:16 pm

Libertarian666 wrote:
Sun Apr 19, 2020 4:02 pm
pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
And you can read Ray Dalio's Navigating Big Debt crisis here via free PDF: https://www.principles.com/big-debt-crises/

He does a very in depth study of the Great Depression, and all of the charts and figures in the book show the economic data from the time started to turn up and recover on the very day that they devalued the dollar.
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sun Apr 19, 2020 6:33 pm

pmward wrote:
Sun Apr 19, 2020 4:16 pm
Libertarian666 wrote:
Sun Apr 19, 2020 4:02 pm
pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
And you can read Ray Dalio's Navigating Big Debt crisis here via free PDF: https://www.principles.com/big-debt-crises/

He does a very in depth study of the Great Depression, and all of the charts and figures in the book show the economic data from the time started to turn up and recover on the very day that they devalued the dollar.
Even assuming that is correct, it's impossible to devalue the dollar against gold today, because there is no link between the two.
So even if it worked then, it can't work now.
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Re: How Does Fixing the Gold Price Create Inflation

Post by pmward » Sun Apr 19, 2020 7:04 pm

Libertarian666 wrote:
Sun Apr 19, 2020 6:33 pm
pmward wrote:
Sun Apr 19, 2020 4:16 pm
Libertarian666 wrote:
Sun Apr 19, 2020 4:02 pm
pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
And you can read Ray Dalio's Navigating Big Debt crisis here via free PDF: https://www.principles.com/big-debt-crises/

He does a very in depth study of the Great Depression, and all of the charts and figures in the book show the economic data from the time started to turn up and recover on the very day that they devalued the dollar.
Even assuming that is correct, it's impossible to devalue the dollar against gold today, because there is no link between the two.
So even if it worked then, it can't work now.
You are correct in one way, that there is no reason currently to do so. Back in the Great Depression that was the only way they could add liquidity to the financial system. There was a dollar crunch, and the Fed couldn't do QE like it does today when there was a gold peg. We have had quite a few dollar crunches in the last 10 years, but the Fed is able to print. But that doesn't mean there aren't scenarios where they would look to use gold as a tool to devalue the currency. If the government devalues vs gold by saying they will buy any and all gold for twice the current price, it reduces the value of the dollar as a collateral instrument, and in turn makes our debt more manageable (and provides relief to foreign countries that have large amounts of dollar denominated debt).
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Sun Apr 19, 2020 7:20 pm

pmward wrote:
Sun Apr 19, 2020 7:04 pm
Libertarian666 wrote:
Sun Apr 19, 2020 6:33 pm
pmward wrote:
Sun Apr 19, 2020 4:16 pm
Libertarian666 wrote:
Sun Apr 19, 2020 4:02 pm
pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
And you can read Ray Dalio's Navigating Big Debt crisis here via free PDF: https://www.principles.com/big-debt-crises/

He does a very in depth study of the Great Depression, and all of the charts and figures in the book show the economic data from the time started to turn up and recover on the very day that they devalued the dollar.
Even assuming that is correct, it's impossible to devalue the dollar against gold today, because there is no link between the two.
So even if it worked then, it can't work now.
You are correct in one way, that there is no reason currently to do so. Back in the Great Depression that was the only way they could add liquidity to the financial system. There was a dollar crunch, and the Fed couldn't do QE like it does today when there was a gold peg. We have had quite a few dollar crunches in the last 10 years, but the Fed is able to print. But that doesn't mean there aren't scenarios where they would look to use gold as a tool to devalue the currency. If the government devalues vs gold by saying they will buy any and all gold for twice the current price, it reduces the value of the dollar as a collateral instrument, and in turn makes our debt more manageable (and provides relief to foreign countries that have large amounts of dollar denominated debt).
It's fine with me if they do that.
However, my prediction is that they will do no such thing but will keep printing wildly until they are forced back onto an actual gold standard by hyperinflation.
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Re: How Does Fixing the Gold Price Create Inflation

Post by pmward » Sun Apr 19, 2020 7:46 pm

Libertarian666 wrote:
Sun Apr 19, 2020 7:20 pm
pmward wrote:
Sun Apr 19, 2020 7:04 pm
Libertarian666 wrote:
Sun Apr 19, 2020 6:33 pm
pmward wrote:
Sun Apr 19, 2020 4:16 pm
Libertarian666 wrote:
Sun Apr 19, 2020 4:02 pm
pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
And you can read Ray Dalio's Navigating Big Debt crisis here via free PDF: https://www.principles.com/big-debt-crises/

He does a very in depth study of the Great Depression, and all of the charts and figures in the book show the economic data from the time started to turn up and recover on the very day that they devalued the dollar.
Even assuming that is correct, it's impossible to devalue the dollar against gold today, because there is no link between the two.
So even if it worked then, it can't work now.
You are correct in one way, that there is no reason currently to do so. Back in the Great Depression that was the only way they could add liquidity to the financial system. There was a dollar crunch, and the Fed couldn't do QE like it does today when there was a gold peg. We have had quite a few dollar crunches in the last 10 years, but the Fed is able to print. But that doesn't mean there aren't scenarios where they would look to use gold as a tool to devalue the currency. If the government devalues vs gold by saying they will buy any and all gold for twice the current price, it reduces the value of the dollar as a collateral instrument, and in turn makes our debt more manageable (and provides relief to foreign countries that have large amounts of dollar denominated debt).
It's fine with me if they do that.
However, my prediction is that they will do no such thing but will keep printing wildly until they are forced back onto an actual gold standard by hyperinflation.
Hyperinflation is impossible in a country with all of it's debts denominated in it's own currency. ESPECIALLY impossible for a country that is the global reserve and trade currency. We will never see hyperinflation. But, we may see high inflation, and that can be painful enough on its own. I do agree that if we got to a point of high inflation, going back on a gold standard, even temporarily until things settle, might be a bit easier to stomach than the Volcker way of jacking interest rates and intentionally sending the country into recession. Especially since our governments debt load is much larger in both absolute and relative terms than it was in Volcker's day. So yes, there is possibility they could do this some day.
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vnatale
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Re: How Does Fixing the Gold Price Create Inflation

Post by vnatale » Sun Apr 19, 2020 7:49 pm

pmward wrote:
Sun Apr 19, 2020 7:46 pm


Hyperinflation is impossible in a country with all of it's debts denominated in it's own currency. ESPECIALLY impossible for a country that is the global reserve and trade currency. We will never see hyperinflation. But, we may see high inflation, and that can be painful enough on its own. I do agree that if we got to a point of high inflation, going back on a gold standard, even temporarily until things settle, might be a bit easier to stomach than the Volcker way of jacking interest rates and intentionally sending the country into recession. Especially since our governments debt load is much larger in both absolute and relative terms than it was in Volcker's day. So yes, there is possibility they could do this some day.
What do you consider to be "high inflation"? And, you can answer in a range, e.g., 10% to 15%, and for a period of time, e.g., at least five years.

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: How Does Fixing the Gold Price Create Inflation

Post by Libertarian666 » Mon Apr 20, 2020 9:42 am

pmward wrote:
Sun Apr 19, 2020 7:46 pm
Libertarian666 wrote:
Sun Apr 19, 2020 7:20 pm
pmward wrote:
Sun Apr 19, 2020 7:04 pm
Libertarian666 wrote:
Sun Apr 19, 2020 6:33 pm
pmward wrote:
Sun Apr 19, 2020 4:16 pm
Libertarian666 wrote:
Sun Apr 19, 2020 4:02 pm
pmward wrote:
Sun Apr 19, 2020 2:22 pm
Libertarian666 wrote:
Sat Apr 18, 2020 8:49 pm
This has actually been tried before, by FDR.
It didn't work.
It won't work now either.
Define the term "work". The very day they changed the gold peg was the day that the data shows that the economic recovery from the Great Depression began. I'm sure it's not ironic that those dates line up. It might not have created "inflation" but it sure did counter the deflation (which in a relative manner is generating inflation).
If you want to know the truth, read Rothbard's book about the Great Depression. It's free at https://cdn.mises.org/Americas%20Great% ... sion_3.pdf
And you can read Ray Dalio's Navigating Big Debt crisis here via free PDF: https://www.principles.com/big-debt-crises/

He does a very in depth study of the Great Depression, and all of the charts and figures in the book show the economic data from the time started to turn up and recover on the very day that they devalued the dollar.
Even assuming that is correct, it's impossible to devalue the dollar against gold today, because there is no link between the two.
So even if it worked then, it can't work now.
You are correct in one way, that there is no reason currently to do so. Back in the Great Depression that was the only way they could add liquidity to the financial system. There was a dollar crunch, and the Fed couldn't do QE like it does today when there was a gold peg. We have had quite a few dollar crunches in the last 10 years, but the Fed is able to print. But that doesn't mean there aren't scenarios where they would look to use gold as a tool to devalue the currency. If the government devalues vs gold by saying they will buy any and all gold for twice the current price, it reduces the value of the dollar as a collateral instrument, and in turn makes our debt more manageable (and provides relief to foreign countries that have large amounts of dollar denominated debt).
It's fine with me if they do that.
However, my prediction is that they will do no such thing but will keep printing wildly until they are forced back onto an actual gold standard by hyperinflation.
Hyperinflation is impossible in a country with all of it's debts denominated in it's own currency. ESPECIALLY impossible for a country that is the global reserve and trade currency. We will never see hyperinflation. But, we may see high inflation, and that can be painful enough on its own. I do agree that if we got to a point of high inflation, going back on a gold standard, even temporarily until things settle, might be a bit easier to stomach than the Volcker way of jacking interest rates and intentionally sending the country into recession. Especially since our governments debt load is much larger in both absolute and relative terms than it was in Volcker's day. So yes, there is possibility they could do this some day.
So if the Federal Reserve printed $1 million for each American resident and gave it to them, that wouldn't cause hyperinflation? How interesting.
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