Bi-Metallic Standard

[Hal]

Currently reading a most interesting book on the Bi-Metallic monetary system of the 1800's.

https://archive.org/stream/coinsfinanci ... 5/mode/2up

The question comes to mind is why the PP uses gold only, as both silver and gold have been de-monetized.

Any comments?

Hal

[l82start]

i believe it has to do with the industrial use of silver, they have both been money in the past, but only gold still reacts to the economy in a way that works for the pp, silver has a pure commodity profile now....

there are probably more detailed and accurate explanations of the how and whys of this to be had...

"edit to add" silver does have some potential for monetary value in a major SHTF situation but that is black swan/survivalist stuff.. it could be a VP play with money you can afford to loose as well... neither is invalid, but not exactly a "permanent" portfolio type investment

[MachineGhost]

l82start is correct, silver is an industrial metal now used in electronics and solar, etc. About 1 billion ounces was used last year. Same with platinum and palladium which are interchangeable in catalyt converters. They may all be precious but their use determines their function. Gold just sits around and looks pretty.

[Hal]

Thanks for the explanation.

Seems to align with whats said on pg 76 (Now I have read that far!)

So the PP makes sense unless gold/silver is ever remonetised.....

PS. You have to check out the bear hunters prayer on pg 134 !!

[MachineGhost]

Thanks for the explanation.

Seems to align with whats said on pg 76 (Now I have read that far!)

So the PP makes sense unless gold/silver is ever remonetised.....

PS. You have to check out the bear hunters prayer on pg 134 !!

I haven't read the book, but silver was everyday money in the true medium-of-exchange sense whereas gold was more or less stored in bank vaults to reconcile intrabank payments. Eventually it got to the point under one of the (four?) gold standards that silver was needed politically to increase the money supply because the elites (on the East Coast) were hoarding gold and were against "inflation". Of course, what they didn't realize back then in those simplistic, primitive times of economic thought is there would be no inflation if there is a demand for money. Doh! Thankfully all that silly and anarchronistic political crap went away with a central bank and elastic money. We no longer have to worry about deflation because some rich elitist is hoarding his gold and "Let them eat cake!"

And it's actually better now than it used to be or initially. The Fed has abolished reserve requirements for everything but checking accounts so they can no longer gum up the works like they did with their disastrous Monetarism experiment of the late 70's. And The Fed no longer has the authority to buy corporate bonds to stabilize employment. Can you imagine the legion of zombie companies we would have if the Fed still had that power? <shudder>

[boglerdude]

So you're against a gold standard?

> The Fed no longer has the authority to buy corporate bonds

Why? Seems the ECB didnt get that memo...

[MachineGhost]

So you're against a gold standard?

> The Fed no longer has the authority to buy corporate bonds

Why? Seems the ECB didnt get that memo...

Yeah, I'm against so-called gold standards because they're just fixed exchange rate mechanisms or pegs in drag which all ultimately blowup. There's no such thing as stable money. Money -- no matter what form it takes -- always flunctures in value vs assets since it responds to supply, demand, government manipulation or malfeasance and the madness of crowds. And commodity money is completely incompatible with an elastic money supply wherein money is created on demand as is needed and not one picosecond before. Elastic money is democratic and anti-deflationary; commodity money is elitist and pro-deflationary. The best thing you can do with any form of money is get rid of it ASAP by exchanging it for assets.

Congress forced the Fed to monetize WWI so they took away its authority to buy corporate bonds and forced them to buy Treasuries instead. And so here we are.

[boglerdude]

> The best thing you can do with any form of money is get rid of it ASAP

Isnt debasement one of the reasons people want to use bitcoin? So is bitcoin doomed to fail as currency because there couldnt be enough of it to support trade, or should it be illegal for the sake of the greater good?

> money is created on demand as is needed

Is there an essay or video that explains the basics of this. Like how the Big Short explained 08. You recommended http://papers.ssrn.com/sol3/papers.cfm? ... id=1905625

But that paper is too abstract, and 45 pages, not a simple explanation I can give to someone when they ask about a gold standard.

[MachineGhost]

> The best thing you can do with any form of money is get rid of it ASAP

Isnt debasement one of the reasons people want to use bitcoin? So is bitcoin doomed to fail as currency because there couldnt be enough of it to support trade, or should it be illegal for the sake of the greater good?

Its doomed to replace government fiat for sure, but the blockhain technology will be adopted by central banks and financial institutions. Bitcoin acts like a real asset since it is inherently deflationary so it's really a poor man's gold, one that is immensely more portable. It really doesn't have much use any more than e-gold did, but the revolution it is inspiring in money issuance is what's really groundbreaking, not right wingnut ideology.

Is there an essay or video that explains the basics of this. Like how the Big Short explained 08. You recommended http://papers.ssrn.com/sol3/papers.cfm? ... id=1905625

But that paper is too abstract, and 45 pages, not a simple explanation I can give to someone when they ask about a gold standard.

You could try this although its not technically 100% accurate: https://www.youtube.com/watch?v=PHe0bXAIuk0
But it gets the Big Idea across.

[Hal]

This is the 1890's view on cash. Read the section on "A greenbacker". Actually seems reasonable to me.

https://archive.org/stream/coinsfinanci ... /greenback

but the part I really like is talking about National Debt

https://archive.org/stream/coinsfinanci ... h/bankrupt

"Those who are personally in debt, will only become bankrupt the sooner" .......the state will take funds from you to cover their debts, so the fact that you had no personal debt doesn't matter in the long run.

And the bankers solution for borrowing money to pay the interest on existing loans

https://archive.org/stream/coinsfinanci ... h/interest

All in all, it was an interesting read !

[MachineGhost]

It was definitely interesting times back then and a hell of lot more informative than the lamestream tropes nowadays. Can you imagine debates over ""money" today? It would be like a bunch of spoiled girls trying to each out do the other in attempting to get the most (or prevent as much as possible) they could from Daddy. Fleas dancing on an elephant.

So the eventual "money revolution" that came out of all the debates was: 1) a central payments clearinghouse (recall what happened in 2008 when no one would lend to anyone else in the short-term corporate market... deer in headlights syndrome); 2) a debt-based, elastic monetary system to naturally respond to money inflations and deflations; 3) Keynes' econometrics to make economics more of a science and less hoodoo mojo.

Even though Browne was an Austrian School Theory gold bug doom porner (at least originally), he was very wise in being able to grok the concept of elastic money and how it applied to the eventual PP.

[bitcoininthevp]

>
Isnt debasement one of the reasons people want to use bitcoin?

Absolutely.

So is bitcoin doomed to fail as currency because there couldnt be enough of it to support trade...

While there are many reasons bitcoin might not work, but "enough of it" is not one of them. Bitcoin can be divided into smaller units (8 decimal places).

So since there are 21 million bitcoins and each is made up of 100,000,000 units, the currency units available are:

21 * 1,000,000 * 100,000,000 = 2.1 quadrillion

If that is not enough, the units can be further subdivided.

[boglerdude]

If a bitcoin is set to be worth $10k (by fiat? by the market?)

And someone builds a house worth $10k, should they not get a full bitcoin for it? (ergo if enough homes are built, we'd run out of full bitcoins?)

[MachineGhost]

If a bitcoin is set to be worth $10k (by fiat? by the market?)

And someone builds a house worth $10k, should they not get a full bitcoin for it? (and we'd run out of full bitcoins?)

In theory, Bitcoin should always go up in price until there are no more coins to mine due to decreasing supply, but it hasn't worked out that way so far. It's much more of a highly speculative market than one of a fundamental value driver. It acts very much like a real asset like gold.

If someone wants Bitcoins worth 10K for their house, I don't see why not. It is their risk to take.

[bitcoininthevp]

If a bitcoin is set to be worth $10k (by fiat? by the market?)

It is set by the market current via the $$ <===> Bitcoin exchanges which are open 24x7.

The exchange rate can change wildly. One bitcoin was worth $.01 and it was also worth $1200.00. Currently it is worth around $600.

And someone builds a house worth $10k, should they not get a full bitcoin for it? (ergo if enough homes are built, we'd run out of full bitcoins?)

If someone sells a house for bitcoin, they would get $10,000/$600per bitcoin = 16.66 bitcoins. They can be fractional.

If enough people were selling their house *and wanted bitcoin as payment*, that would be an increased *demand* for bitcoin which would result in a higher market price for bitcoin. So a bitcoin's value might go to $700, $1000, etc or whatever exchange rate makes sense to accommodate the demand for bitcoins.

[boglerdude]

To continue this [bitcoin/gold/fixed currency supply] example:

You build 10 homes worth $10k each ($ meaning the cost of a basket of goods)

First house you get 1 full 10k bitcoin, next house you get less than a bitcoin (increasing demand for limited coins) but that fractional coin is still worth $10k

So the value of bitcoin or gold goes up, the more it's needed for transactions in the economy (increasing with real GDP growth).

This seems to be the main argument against a gold standard, it'll cause hoarding, why spend your bitcoin/gold when it appreciates. But, gold standards have been used historically, and if paper money loses value you end up hoarding other commodities instead. Hoarding real estate might be worse for society than hoarding gold.

Another argument is the government cant "smooth out" recessions, if it can't print.

But the gov could borrow from citizens or tax for more gold in a recession, and use that to finance infrastructure spending (create jobs) during a downturn.

Bank runs are a problem, but maybe there are better solutions than printing. eg http://www.evanmiller.org/simple-way-to ... -runs.html

[MachineGhost]

Government doesn't "print"; it is constrained by its credit ability to issue debt unless the Fed monetizes it by buyng it.

In a recession, people don't borrow, banks don't lend and tax revenues go down as economic activity declines, so people hoard. If not cash then real assets. When consumers save and/or hoard it impugnes corporate and government profits so either one needs to borrow and spend more to offset the imbalance, but corporations rarely do as they're part of the same private sector that consumers are.

Bank runs aren't a problem. No one really demands cash anymore but if there was a demand for it more than the 1% a bank has on hand, the Fed just orders from the Bureau of Engraving and Printing who prints up more. Nowadays, bank money is electronic so a bank run would be less about cash withdrawals and more about outgoing transactions. There's no reason to do that unless the bank is so clearly mismanaged, fraudulent or insolvent. Either way, the FDIC will put it into receivership and make all account owners good.

[boglerdude]

So japan.gov is printing yen and buying real assets like companies. eg they print 100 billion, then write down on their ledger "100 billion I have to pay back in 10 years" Then 9 years later they print another 100 billion, pay off that loan, and have another loan due in 10 years. Repeat forever. This is monetization?

Also

GLD vs stocks last 10 years. What's this mean, dollar is losing value faster than the stock market is generating value?