Time to Return to the Gold Standard?

Discussion of the Gold portion of the Permanent Portfolio

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mrbk2fi
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Time to Return to the Gold Standard?

Post by mrbk2fi » Fri Apr 26, 2019 8:09 pm

An interesting article entitled, "The Case for Monetary Regime Change", was published in the Wall Street Journal on Monday: https://www.wsj.com/articles/the-case-f ... j&ru=yahoo The writer suggests that a return to a time when currency was linked to gold would result in improved economic growth that "reflects higher productive output" and "falling income inequality". All I could think about was what a return to the gold standard would do to the PP. Another author estimated that the price of gold would be more than $5,000 per oz if the dollar were linked to gold once again - https://seekingalpha.com/article/404321 ... d-standard.
Last edited by mrbk2fi on Fri Apr 26, 2019 9:34 pm, edited 1 time in total.
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Re: Time to Return to the Gold Standard?

Post by pmward » Fri Apr 26, 2019 8:34 pm

Steve Forbes made a recent PBS documentary called "In Money We Trust" that made a similar argument. It's definitely worth watching, and can be viewed for free online.
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Re: Time to Return to the Gold Standard?

Post by mrbk2fi » Fri Apr 26, 2019 8:38 pm

Thanks for the tip. That sounds really interesting! I'll have to check it out.

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Re: Time to Return to the Gold Standard?

Post by Kbg » Sat Apr 27, 2019 9:40 am

No, it’s a really, really bad idea.

Seriously folks break away from the media and go do your own independent reading on why EVERY COUNTRY on the face of the planet left the gold standard. There is a very specific thing that happens with fixed monetary systems when severe economic contractions occur. Even the Romans understood it (the effect occurring, though at the time they didn’t understand the why which we do now.)

I’m not saying our central banks are doing awesome stuff now, but I am saying doing stupid stuff we already know is a bad idea through experience is not a good option.
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Re: Time to Return to the Gold Standard?

Post by pmward » Sat Apr 27, 2019 12:36 pm

Kbg wrote:
Sat Apr 27, 2019 9:40 am
No, it’s a really, really bad idea.

Seriously folks break away from the media and go do your own independent reading on why EVERY COUNTRY on the face of the planet left the gold standard. There is a very specific thing that happens with fixed monetary systems when severe economic contractions occur. Even the Romans understood it (the effect occurring, though at the time they didn’t understand the why which we do now.)

I’m not saying our central banks are doing awesome stuff now, but I am saying doing stupid stuff we already know is a bad idea through experience is not a good option.
I generally agree. Though in times of prosperity an argument could be made to return to a stable value dollar, and break the peg when a crisis/contraction hits that warrants breaking the peg.There is indeed a time that the economy needs to be reflated. The early days of the Great Depression when the government was pursuing austerity showed how badly that can turn out. As soon as they gave in and broke the peg to gold the economy started to reflate. In 2008, the Fed actually did a good job and responded quickly and in a large enough degree to make the crisis rather short lived. It could have went much worse. But, in a time of prosperity a stable value dollar does tend to keep the Fed and government honest, and some of the greatest expansions we've had in this country have come during times of the gold standard. There are merits to both systems and both could be used together.
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Re: Time to Return to the Gold Standard?

Post by I Shrugged » Sat Apr 27, 2019 6:28 pm

I cannot see it ever happening except after the economic singularity when all currencies have gone to zero, maybe more than once, and we are in a spot where only real things are trusted for value and exchange. It would take a very long tail event to get there. :)
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Re: Time to Return to the Gold Standard?

Post by Kbg » Sun Apr 28, 2019 3:55 pm

Don’t forget, we have money so people don’t have to exchange real stuff. As much as we all like to complain about it, it is truly one of mankind’s great inventions. The digital version that for all intents and purposes is the latest iteration of a centuries old concept is amazing. Every time I step back from it I find it marvelous. I go to work for 40 hours and I get some digits in my bank account. Then I go online to Amazon and click on a button, some digits leave my bank account, and some actual real stuff shows up at my door two days later.

Seriously! It is amazing.
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Re: Time to Return to the Gold Standard?

Post by ochotona » Sun Apr 28, 2019 6:48 pm

Kbg wrote:
Sun Apr 28, 2019 3:55 pm
Don’t forget, we have money so people don’t have to exchange real stuff. As much as we all like to complain about it, it is truly one of mankind’s great inventions. The digital version that for all intents and purposes is the latest iteration of a centuries old concept is amazing. Every time I step back from it I find it marvelous. I go to work for 40 hours and I get some digits in my bank account. Then I go online to Amazon and click on a button, some digits leave my bank account, and some actual real stuff shows up at my door two days later.

Seriously! It is amazing.
That's why it's so destructive in a modern specialized economy for the people to lose faith in the currency and resort to barter. Transactions become impossible. Dr. Lacy Hunt talked about this a few days ago on Macrovoices.com podcast, that would be the end result of MMT in his opinion.
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Re: Time to Return to the Gold Standard?

Post by I Shrugged » Sun Apr 28, 2019 8:40 pm

Yeah, I cannot image what the world would look like if our monetary system implodes. Before the digital age, it might have been survivable. Now, it would be about like Venezuela, I think.
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Re: Time to Return to the Gold Standard?

Post by boglerdude » Mon Apr 29, 2019 2:34 am

All of human history has been a growing population so our culture and contracts are geared for inflation. (wages, prices and mortgages do not adjust down in nominal value to make deflation easier. Imagine running for office promising to lower the minimum wage because its necessary)

The great depression and 2008 were panics where there was no credit available to credit-worthy borrowers. The Fed acting as emergency lender of last resort is not the same as pumping out new money for a decade (to help the party in power?)

A gold standard is not just gold as money, its gold combined with legal tender laws that force you to use gold as the only money. So the more gold you bury in your yard, the more its worth as the supply shrinks and other money is illegal. And how to collect taxes when its easily hidden?

So now people hoard land, which at least is easy to tax in theory. They say CA has a housing crisis but I see undeveloped lots all over DTLA. They say a land value tax is the answer.
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Re: Time to Return to the Gold Standard?

Post by sophie » Mon Apr 29, 2019 7:11 am

I saw the argument about prosperity being greater under the gold standard in the 50s/60s that afterward, but I seriously question the logic. You can't assume that the economy of that era would be reproduced by re-enacting just one of the probably many factors involved. if we went back to the gold standard there would probably be a shock that would take several years to work out, for starters.

But, the fact that anyone is even talking about it makes me very happy to own some gold! If seeking alpha is right, the value of gold would shoot up. After which...not sure it would make any sense to own it, except to guard against going back off the gold standard.
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Re: Time to Return to the Gold Standard?

Post by pmward » Mon Apr 29, 2019 9:23 am

boglerdude wrote:
Mon Apr 29, 2019 2:34 am
A gold standard is not just gold as money, its gold combined with legal tender laws that force you to use gold as the only money. So the more gold you bury in your yard, the more its worth as the supply shrinks and other money is illegal. And how to collect taxes when its easily hidden?
A gold standard just means that an ounce of gold is worth exactly a set amount of dollars, and can be exchanged as such. I'm not sure there is anything "hidden" about that, or anything that changes for the average American, other than they can just swap gold and dollars anytime they choose (which the overwhelming majority of people still wouldn't do). American dollars would not be made "illegal", and moreover the exact supply of dollars would still be above the gold supplies in the federal reserve. Just like a bank keeps just enough cash around to cover liquidity, the government keeps around just enough gold to cover liquidity. They still printed above and beyond that, though there is a point where they risk a run if they print too much. So it at least places some constraint on them. They also would likely go the route they were after the Great Depression, where they don't honor gold exchange for Americans, only for foreign trade. So nothing would change in regards to taxes.
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Re: Time to Return to the Gold Standard?

Post by pmward » Mon Apr 29, 2019 9:29 am

sophie wrote:
Mon Apr 29, 2019 7:11 am
But, the fact that anyone is even talking about it makes me very happy to own some gold! If seeking alpha is right, the value of gold would shoot up. After which...not sure it would make any sense to own it, except to guard against going back off the gold standard.
If we ever went back on a gold standard I don't think it would be the same as before. I think it would be a hybrid system in some way. Either that would be maybe a yearly revalue of gold to dollars, or they just allow the Fed to break the peg anytime they needed to inject liquidity in a crisis. Or, maybe they even let gold and the dollar both continue to float as a free market and honor the price at the current market value. Either way, I think if (and a very, very slim *if*) politicians ever decided to go back on a gold standard it would look different than before, and would still be likely worth holding gold. I don't think we would ever truly consider going back on a gold standard bar an inflationary crisis of some kind. At the moment, the dollar still holds public faith (probably too much so), and until that faith is broken and people become mass sellers of dollars, there is just no reason they would ever consider it. The government is reactionary not proactive.
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Re: Time to Return to the Gold Standard?

Post by Kbg » Mon Apr 29, 2019 2:48 pm

MangoMan wrote:
Mon Apr 29, 2019 10:51 am
ochotona wrote:
Sun Apr 28, 2019 6:48 pm
Kbg wrote:
Sun Apr 28, 2019 3:55 pm
Don’t forget, we have money so people don’t have to exchange real stuff. As much as we all like to complain about it, it is truly one of mankind’s great inventions. The digital version that for all intents and purposes is the latest iteration of a centuries old concept is amazing. Every time I step back from it I find it marvelous. I go to work for 40 hours and I get some digits in my bank account. Then I go online to Amazon and click on a button, some digits leave my bank account, and some actual real stuff shows up at my door two days later.

Seriously! It is amazing.
That's why it's so destructive in a modern specialized economy for the people to lose faith in the currency and resort to barter. Transactions become impossible. Dr. Lacy Hunt talked about this a few days ago on Macrovoices.com podcast, that would be the end result of MMT in his opinion.
People like barter because it keeps the transactions out of the 'system', thus avoiding taxation.
Sure, so long as you are cool with limiting your options to people you know or people who know people you know and as limited by those peoples' ability to pack, transport and exchange whatever it is you are exchanging. Given where I live, if I like bananas and coffee in the morning I'm screwed in a barter system.

You get what you "barter" for. (Pun intended)
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Re: Time to Return to the Gold Standard?

Post by Tortoise » Mon Apr 29, 2019 6:15 pm

Kbg wrote:
Sun Apr 28, 2019 3:55 pm
Don’t forget, we have money so people don’t have to exchange real stuff. As much as we all like to complain about it, it is truly one of mankind’s great inventions. The digital version that for all intents and purposes is the latest iteration of a centuries old concept is amazing. Every time I step back from it I find it marvelous. I go to work for 40 hours and I get some digits in my bank account. Then I go online to Amazon and click on a button, some digits leave my bank account, and some actual real stuff shows up at my door two days later.

Seriously! It is amazing.
Transactions in a gold-backed currency wouldn't all have to take the form of gold being physically handed from the buyer to the seller. Convenient electronic transactions would still be a thing.
boglerdude wrote:
Mon Apr 29, 2019 2:34 am
A gold standard is not just gold as money, its gold combined with legal tender laws that force you to use gold as the only money. So the more gold you bury in your yard, the more its worth as the supply shrinks and other money is illegal.
The same argument applies to physical cash. But in any case, it's not a good argument since the stuff you buried is only worth something to you (in terms of goods or services) if you eventually spend it -- at which point it's no longer buried in your yard.

It's always seemed like such a silly argument to me that under a gold standard, people would just hoard gold until it all disappeared. That would never happen, because certain spending isn't discretionary. People always have to spend something to meet their basic needs (food, water, shelter, clothing, etc.), so that sets a floor on the amount of gold that would have to change hands under any conditions.
boglerdude wrote: And how to collect taxes when its easily hidden?
Again, the same argument applies to physical cash. And people are already able to use gold and physical cash to hide assets from the tax authorities :)
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Re: Time to Return to the Gold Standard?

Post by boglerdude » Tue Apr 30, 2019 12:30 am

If gold is the only money, its purchasing power increases with time as more stuff is produced but the supply of gold stays the same. So you spend what gold you must, and bury the rest for a risk free return. Cash burns up at the inflation rate, forcing people to take risk and invest the money. Good for innovation.

Originally, currency was just blank paper and you'd write "I owe Joe 3 pumpkins" on it. Why should that paper be scarce? That would slow the economy (transactions). Then we transitioned to a system where the paper itself has value, it was redeemable for X ounces of gold.

Gold was chosen because its supply is stable, so you can measure everything against it. If Ford doubles the supply of cars for sale next year, they're each worth half as much gold as last year. That deflation helps consumers.
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Re: Time to Return to the Gold Standard?

Post by Kbg » Tue Apr 30, 2019 8:48 am

All forms of money have value solely because people believe it does, including gold. One of the best, most innovative podcasts I've very listened to is Freakonomics "Why Gold?" Highly recommended.

Nothing to do with the podcast, but in the ancient world, bronze, silver and gold were all valued and used as money. Try going anywhere with some bronze in your pocket and see if you could get anything for it (other than a salvage yard) today.

Assuming SHTF doesn't happen and technology continues to roll, in the future on I could easily see all three of the above being nothing but nice decorative or industrial metals with no monetary value as a stand alone feature. Personally, I think silver is a good way there already.
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Re: Time to Return to the Gold Standard?

Post by gaddyslapper007 » Tue Apr 30, 2019 9:29 am

Kbg wrote:
Tue Apr 30, 2019 8:48 am
All forms of money have value solely because people believe it does, including gold. One of the best, most innovative podcasts I've very listened to is Freakonomics "Why Gold?" Highly recommended.
no doubt....value only lives in our (people's) collective mind.

Competing currencies to the US dollar are not illegal...people are free to use whatever currency they choose... If you want a gold standard.....put yourself on a gold standard. Lead by example...encourage others to accept your gold. You cant wait for government to come around....they have no incentive. Create a competing gold standard paper or digital currency.....liberty is taken, not given! (unfortunately) <--If this is too much work, then embrace the next closest thing that currently exists.
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Re: Time to Return to the Gold Standard?

Post by Kbg » Tue Apr 30, 2019 7:56 pm

If you think coming up with an alternative form of money will bring liberty you are seriously deluded and need to read more history...power will come to it and take it over. Those guys are normally the ones with the biggest rocks, spears, guns etc.
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Re: Time to Return to the Gold Standard?

Post by gaddyslapper007 » Tue Apr 30, 2019 8:47 pm

Kbg wrote:
Tue Apr 30, 2019 7:56 pm
If you think coming up with an alternative form of money will bring liberty you are seriously deluded and need to read more history...power will come to it and take it over. Those guys are normally the ones with the biggest rocks, spears, guns etc.

Is gold not an alternative form of money to the US dollar? Does it not provide its holder liberty outside spying government eyes?

Anyway.....my “liberty is taken” comment was more directed at people expecting government to do or give them something. (in this case a gold standard).
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Re: Time to Return to the Gold Standard?

Post by Kbg » Tue Apr 30, 2019 11:01 pm

gaddyslapper007 wrote:
Tue Apr 30, 2019 8:47 pm
Kbg wrote:
Tue Apr 30, 2019 7:56 pm
If you think coming up with an alternative form of money will bring liberty you are seriously deluded and need to read more history...power will come to it and take it over. Those guys are normally the ones with the biggest rocks, spears, guns etc.

Is gold not an alternative form of money to the US dollar? Does it not provide its holder liberty outside spying government eyes?

Anyway.....my “liberty is taken” comment was more directed at people expecting government to do or give them something. (in this case a gold standard).
No it is not in the United States unless it us a US Eagle and you would be pretty stupid to spend it at its face value. To convince yourself of my correctness go to any business that is not a pawn shop/coin dealer/precious metals dealer and see what you can buy with the gold you bring in (try Walmart or McDonalds, they're ubiquitous and easy to find).

By the way, what's wrong with people expecting the government to give them something when they pay taxes? I expect my government to do lots of stuff for me in exchange for my tax money. Preferably they do so efficiently and effectively but sometimes that's a stretch. They do pick up my garbage every week for $21.25 a month and I find that service a great deal for the money. I also like the electricity they brought out to my grandfather's farm in the 1940s which I now get to use for a fee. It is way better than the crappy and very expensive rural internet I pay for provided by the private sector. (I should probably get off now as it's metered too.)
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Re: Time to Return to the Gold Standard?

Post by Kbg » Sun May 05, 2019 7:50 pm

Tn,

With respect, you are just flat wrong on several points concerning paper money. Financial crises were far more frequent in earlier times and usually more severe on average. Additionally, very few economic crises have anything to do with money per se. They are almost always caused by something more fundamental and real.

Be careful where you get your info on gold and money, inevitably (surprise) the stuff you were spouting sounds like it comes from people who sell gold...

Riddle me this: Why doesn’t anyone use the gold standard anymore? Conspiracy theories not allowed. Actual historical facts and contemporary statements required.
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Re: Time to Return to the Gold Standard?

Post by Libertarian666 » Sun May 05, 2019 8:02 pm

Kbg wrote:
Sun May 05, 2019 7:50 pm
Tn,

With respect, you are just flat wrong on several points concerning paper money. Financial crises were far more frequent in earlier times and usually more severe on average. Additionally, very few economic crises have anything to do with money per se. They are almost always caused by something more fundamental and real.

Be careful where you get your info on gold and money, inevitably (surprise) the stuff you were spouting sounds like it comes from people who sell gold...

Riddle me this: Why doesn’t anyone use the gold standard anymore? Conspiracy theories not allowed. Actual historical facts and contemporary statements required.
The reason that no government uses the gold standard is that it prevents them from stealing people's wealth by stealth.

That is not a conspiracy theory, but a fact.

However, I don't debate with people who use such tactics, so you are blocked.
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Re: Time to Return to the Gold Standard?

Post by Hal » Mon May 06, 2019 12:50 am

Kbg wrote:
Sun May 05, 2019 7:50 pm
Tn,

With respect, you are just flat wrong on several points concerning paper money. Financial crises were far more frequent in earlier times and usually more severe on average. Additionally, very few economic crises have anything to do with money per se. They are almost always caused by something more fundamental and real.

Be careful where you get your info on gold and money, inevitably (surprise) the stuff you were spouting sounds like it comes from people who sell gold...

Riddle me this: Why doesn’t anyone use the gold standard anymore? Conspiracy theories not allowed. Actual historical facts and contemporary statements required.
For the answer of a metallic standard vs fiat currency, have a read from pg 75 where the title is: "A greenbacker".

https://archive.org/details/coinsfinanc ... ial+school

The book was written back in the 1890's, so it was in the Gold Standard days.

<edit: title>
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Re: Time to Return to the Gold Standard?

Post by Kbg » Thu May 09, 2019 12:10 pm

Libertarian666 wrote:
Sun May 05, 2019 8:02 pm
Kbg wrote:
Sun May 05, 2019 7:50 pm
Tn,

With respect, you are just flat wrong on several points concerning paper money. Financial crises were far more frequent in earlier times and usually more severe on average. Additionally, very few economic crises have anything to do with money per se. They are almost always caused by something more fundamental and real.

Be careful where you get your info on gold and money, inevitably (surprise) the stuff you were spouting sounds like it comes from people who sell gold...

Riddle me this: Why doesn’t anyone use the gold standard anymore? Conspiracy theories not allowed. Actual historical facts and contemporary statements required.
The reason that no government uses the gold standard is that it prevents them from stealing people's wealth by stealth.

That is not a conspiracy theory, but a fact.

However, I don't debate with people who use such tactics, so you are blocked.
Tn,

How is it stolen and to whom do the benefits and costs go from inflation?

Am I stealing from the bank that decided to give me a 30 year fixed rate loan? Am I benefiting from it now or still getting my clock cleaned?

But if you are going to assert inflation is always a detriment, pray tell why is a deflationary hard currency crisis a good thing and how am I benefitted by one more than low grade inflation.

Or do you prefer an ostrich approach to life?

I hold gold as a part of a diversified portfolio, but the vast amount of information you get fed from the gold coinage industry is pure crap and does not survive an unbiased analysis of which there are many both as a financial asset and an historical monetary basis instrument.

Fact: In the modern world money is money because an internationally recognized government says it is.

Test question: What do we quote the value of gold in? Last time I checked I haven’t been able to find a quote for 17.5 lbs of green colored paper with dead US presidents on it per 1oz of gold metal.

Second test question: If you are running a gold bullion selling/ storage business, why in the world would you accept a list of 1s and 0s over the internet and send actual real gold to someone? It seems the height of foley to me.
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