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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mrbk2fi
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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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Kbg
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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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Kbg
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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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I Shrugged
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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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