Gyroscopic Investing

Libertarian666 wrote: I'm afraid that makes no sense.
The coins weren't backed by anything, because they were money.
The king's purchase of the coins was backed by his promise to pay for them later.
And by the way, exactly what did he promise to pay in? I think I know...

The coins weren't backed by debt, but their presence in the economy was. Let me give an example.

- King asks goldsmiths to mint him 1000 gold doubloons (I totally want some gold doubloons)
- Goldsmiths ask for payment in advance, in the form of gold
- King says, "I don't have the gold, mint them anyway from your own stores of gold and I'll pay you the gold later from the bullion I bring back from this voyage to the new world I'm commissioning!"
- Goldsmiths oblige and mint 1000 doubloons
- King spends the doubloons into the economy by buying frigates, cannons, hardtack, the labor of mercenary soldiers, etc.
- Goldsmiths say, "hey, what about our gold?"
- King says, "uh-oh, my voyage to the new world didn't bring back any gold. Hmm, I need to raise taxes and get back some of this gold"
- King raises taxes; people pay the taxes in gold, and the king gets back an amount equal to the money he borrowed (hopefully)
- King repays the goldsmiths


Thus, the coins themselves weren't backed by debt, but their presence in the economy was. When the King ran out of credit or had to repay his debt, those coins were removed from the economy.

Libertarian666 wrote: The coins weren't backed by anything, because they were money.

I think we all agree that gold is money. But to say that gold is the only money is a bit narrow — in the sense that it doesn't tell us anything about useful our current monetary system.

On the other hand just a couple of years ago California issued IOUs instead of income tax refunds.  However you could not pay property taxes or any other tax with these IOUs.  So is a state government IOU money or not money?  (can't do anything with it)

Pointedstick wrote:

Libertarian666 wrote: I'm afraid that makes no sense.
The coins weren't backed by anything, because they were money.
The king's purchase of the coins was backed by his promise to pay for them later.
And by the way, exactly what did he promise to pay in? I think I know...

The coins weren't backed by debt, but their presence in the economy was. Let me give an example.

- King asks goldsmiths to mint him 1000 gold doubloons (I totally want some gold doubloons)
- Goldsmiths ask for payment in advance, in the form of gold
- King says, "I don't have the gold, mint them anyway from your own stores of gold and I'll pay you the gold later from the bullion I bring back from this voyage to the new world I'm commissioning!"
- Goldsmiths oblige and mint 1000 doubloons
- King spends the doubloons into the economy by buying frigates, cannons, hardtack, the labor of mercenary soldiers, etc.
- Goldsmiths say, "hey, what about our gold?"
- King says, "uh-oh, my voyage to the new world didn't bring back any gold. Hmm, I need to raise taxes and get back some of this gold"
- King raises taxes; people pay the taxes in gold, and the king gets back an amount equal to the money he borrowed (hopefully)
- King repays the goldsmiths


Thus, the coins themselves weren't backed by debt, but their presence in the  coins in the economy was. When the King ran out of credit or had to repay his debt, those coins were removed from the economy.

Ok, so we agree that the coins weren't backed by debt. They were money in themselves.

Gumby wrote:

Libertarian666 wrote: The coins weren't backed by anything, because they were money.

I think we all agree that gold is money. But to say that gold is the only money is a bit narrow.

No. Everything else is a money substitute of closer or greater resemblance to gold. That resemblance varies depending on events.

Libertarian666 wrote:

Pointedstick wrote: Thus, the coins themselves weren't backed by debt, but their presence in the  coins in the economy was. When the King ran out of credit or had to repay his debt, those coins were removed from the economy.

Ok, so we agree that the coins weren't backed by debt. They were money in themselves.

Agreed.

Libertarian666 wrote:Ok, so we agree that the coins weren't backed by debt. They were money in themselves.

Correct. Though, gold tended to lead to a lot of debt in a society (from people who didn't have enough gold to people who did).

So Kshartle and others...

If money is a liquid commodity that people use absent of government, what if people, in the absence of government, chose to use IOU's for various products/services as a medium of exchange?  Would that still not be money?

Why would something used freely as money not be money just because it's not a commodity?


Also, if our current "government-forced" medium of exchange isn't really money, and neither is something freely used as a medium of exchange that isn't a commodity, how do we measure inflation indicators?


I would argue that instead of using base money (which isn't really money anyway), we use "broad liquidity," which is a measure of the fiat nominal purchasing power that the economy owns that can quickly be turned into real goods and services, even if not necessarily used directly to purchase them.

... and this would make a lot of sense, because if you increase the nominal count of fiat assets in a real economy, one could expect inflation if the production of that economy can't keep up.... but without an overall increase in fiat nominal assets there's no real additional fuel to claim resources.


I mean if "base money" isn't really money, or really even an asset, then how can a promise to pay said money be a "real" promise to pay, especially when it's owed by the entity issuing currency?  If our base money isn't even an asset, what does that say about every dollar-denominated contract we own as a society? 

moda0306 wrote: So Kshartle and others...

If money is a liquid commodity that people use absent of government, what if people, in the absence of government, chose to use IOU's for various products/services as a medium of exchange?  Would that still not be money?

No. Money is the only thing that can extinguish debt. "Paying" someone with an IOU means that he is still owed a debt. Paying someone with money means that the debt is gone.

moda0306 wrote: Why would something used freely as money not be money just because it's not a commodity?

Because it isn't used as money. It is used as a token of debt, which can be extinguished only by being redeemed for the actual good promised by the token.

moda0306 wrote:
Also, if our current "government-forced" medium of exchange isn't really money, and neither is something freely used as a medium of exchange that isn't a commodity, how do we measure inflation indicators?


I would argue that instead of using base money, we use "broad liquidity," which is a measure of the fiat nominal purchasing power that the economy owns that can quickly be turned into real goods and services, even if not necessarily used directly to purchase them.

... and this would make a lot of sense, because if you increase the nominal count of fiat assets in a real economy, one could expect inflation if the production of that economy can't keep up.... but without an overall increase in fiat nominal assets there's no real additional fuel to claim resources.


I mean if "base money" isn't really money, or really even an asset, then how can a promise to pay said money be a "real" promise to pay, especially when it's owed by the entity issuing currency?  If our base money isn't even an asset, what does that say about every dollar-denominated contract we own as a society?

That they can be destroyed by the action of the government.
This means that at least 50% of the PP can be ruined by the action of one entity.
("At least" because such action could also impair stocks on an exchange in a country affected by something like the Polish bond confiscation.)

Libertarian666 wrote: That they can be destroyed by the action of the government.
This means that at least 50% of the PP can be ruined by the action of one entity.
("At least" because such action could also impair stocks on an exchange in a country affected by something like the Polish bond confiscation.)

True. But the government could destroy everything. We trust and hope that they don't in order to facilitate commerce, which is much more fun than conducting a revolution.

Libertarian666 wrote:Money is the only thing that can extinguish debt. "Paying" someone with an IOU means that he is still owed a debt. Paying someone with money means that the debt is gone.

If that were true, then it would be impossible to extinguish debt and interest payments in our society on a micro level — since all money (except coins) used to extinguish debt comes from debt.

Though, on a Macro level what you're saying is true since more and more credit is issued to extinguish the previous credit and interest — thus we never truly extinguish any debts as a society!

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It's a never-ending cycle of debt and credit issuance to extinguish previous debts. And the same is true with the National Debt as well...

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Other than the coins... the US money supply is ALL just debt! (Base money comes from the T-Bonds and everything else comes from private credit).

Pointedstick wrote:

Kshartle wrote:

Pointedstick wrote: Does this mean that if the government forced people to use gold as money when they didn't want to (perhaps they preferred silver or platinum), gold would actually not be a legitimate form of money?

Yes. Same as peanuts. Or slips of paper with dead presidents on them.

But for other economic discussions reffering to gold as money would be fine.

So this actually raises the question: what would people use as money absent government?

I think there's a lot of historical weight pointing to fiat substitutes of whatever commodity gets chosen. I mean, back in the days of gold money, people eventually started trading gold certificates because lugging all the coins around was a pain in the neck. But then you get right back to the dangerous game of the paper/electronic money supply expanding faster than the commodity backing it all over again…

A peice of paper backed by gold or something else isn't fiat though. It's only fiat if something is money by decree (violent threat). If it's voluntarty it's not fiat.

Pointedstick wrote:

Libertarian666 wrote: That they can be destroyed by the action of the government.
This means that at least 50% of the PP can be ruined by the action of one entity.
("At least" because such action could also impair stocks on an exchange in a country affected by something like the Polish bond confiscation.)

True. But the government could destroy everything. We trust and hope that they don't in order to facilitate commerce, which is much more fun than conducting a revolution.

No. They can't destroy the value of gold. That's why they hate and fear it.
Except of course for their own monetary reserves... assuming that those still exist.

Kshartle wrote: A peice of paper backed by gold or something else isn't fiat though. It's only fiat if something is money by decree (violent threat). If it's voluntarty it's not fiat.

Aren't Bitcoins a form of voluntary fiat currency? There's really nothing backing them, except for an algorithm that has no market value.

Gumby wrote:

Libertarian666 wrote:Money is the only thing that can extinguish debt. "Paying" someone with an IOU means that he is still owed a debt. Paying someone with money means that the debt is gone.

If that were true, then it would be impossible to extinguish debt and interest payments in our society on a micro level — since all money (except coins) used to extinguish debt comes from debt.

Though, on a Macro level what you're saying is true since more and more credit is issued to extinguish the previous credit and interest!

[align=center][/align]

It's a never-ending cycle of debt and credit issuance to extinguish previous debts. And the same is true with the National Debt as well...

[align=center][/align]

Other than the coins... the US money supply is ALL just debt! (Base money comes from the T-Bonds and everything else comes from private credit).

Exactly.

Pointedstick wrote: In today's world of instantaneous electronic commerce and finance, it's unimaginable to me that we'd revert to a purely physical currency--there would have to be some kind of easily transmissible paper or electronic version of it that was backed by the underlying commodity.

But then you get right back to the dangerous game of the paper/electronic money supply expanding faster than the commodity backing it all over again…

I agree it's unimaginable and I'd add very unrealistic.

The goal of entrepreneurs would be to solve this problem and make a handsome profit from it. I'm sure without adding violence into the mess it would eventually be very smooth. Of course I can't offer proof that it would, just a theory based on how other market driven services perform.

Libertarian666 wrote:Exactly.

Yay!!

Libertarian666 wrote: No. They can't destroy the value of gold. That's why they hate and fear it.
Except of course for their own monetary reserves... assuming that those still exist.

I can think of a way. The government decides we're going back on the gold standard and pegs the value of an ounce of gold to $50. Overnight, the value of gold to holders of dollars is reduced by 96%!!!

Mdraf wrote:
 

Back in the 1970s Italian banks began to issue their own money due to shortage of coins. Although each bank issued its own you could cash them at any bank. So they became a medium of exchange as everybody accepted them to buy "stuff".  Money or not money?

Were they redeemable in something else? Why would people accept them? Why did other banks accept them? I'd have to lean towards not money. Sounds like a money substitute but I don't know enough of the details.

What did the bank have that gave the note accepted value?

Gumby wrote:

Libertarian666 wrote:Exactly.

Yay!!

So, if I can summarize... According to KShartle, Mdraf and Libertarian666, we aren't using "real" money today. We are just using debt to buy and sell things, and we just happen to call those various forms of debt "dollars".

If that's what you're saying, then we all can agree with that for the discussions at hand about US solvency, etc.

The question now is, how do we tell what our debt-based non-money (what we call "dollars") will be worth in the future. And to determine that... we should probably go back to the other thread...

Kshartle wrote:

Pointedstick wrote: In today's world of instantaneous electronic commerce and finance, it's unimaginable to me that we'd revert to a purely physical currency--there would have to be some kind of easily transmissible paper or electronic version of it that was backed by the underlying commodity.

But then you get right back to the dangerous game of the paper/electronic money supply expanding faster than the commodity backing it all over again…

I agree it's unimaginable and I'd add very unrealistic.

The goal of entrepreneurs would be to solve this problem and make a handsome profit from it. I'm sure without adding violence into the mess it would eventually be very smooth. Of course I can't offer proof that it would, just a theory based on how other market driven services perform.

It would be extremely easy to set up a "bank" that would take physical gold deposits and issue warehouse certificates in either paper or token ("coin") form, redeemable on demand in any reasonable quantity (possibly 10 grams or more). In my opinion, the only reason it is not done today is that the government would forcibly interfere with it. They don't like sound banks, as they are (would be) very severe competition with the fiat banks that they use to rob us.

Libertarian666 wrote:

Gumby wrote:

Libertarian666 wrote: The coins weren't backed by anything, because they were money.

I think we all agree that gold is money. But to say that gold is the only money is a bit narrow.

No. Everything else is a money substitute of closer or greater resemblance to gold. That resemblance varies depending on events.

I would not go as far to say nothing other than gold is real money. There are other things, silver is the best example I think, that share gold's characteristics that lead people to voluntarily choose it as money. I don't think the marketplace has found anything that works quite so well as gold for money though.

Pointedstick wrote:

Libertarian666 wrote: No. They can't destroy the value of gold. That's why they hate and fear it.
Except of course for their own monetary reserves... assuming that those still exist.

I can think of a way. The government decides we're going back on the gold standard and pegs the value of an ounce of gold to $50. Overnight, the value of gold to holders of dollars is reduced by 96%!!!

How would they do that? Would they pay out an ounce of gold on demand for every $50 in Federal Reserve Notes that anyone tendered? I don't think that would be possible.

If not, then they would be able to affect at most only those people foolish enough to keep their gold in the US... or I suppose anyone physically in the US if they resorted to kidnapping and torture.

Such behavior would cause the foreign value of the "dollar" to plummet and gold holders outside the US to be vastly enriched.

Kshartle wrote:

Libertarian666 wrote:

Gumby wrote: I think we all agree that gold is money. But to say that gold is the only money is a bit narrow.

No. Everything else is a money substitute of closer or greater resemblance to gold. That resemblance varies depending on events.

I would not go as far to say nothing other than gold is real money. There are other things, silver is the best example I think, that share gold's characteristics that lead people to voluntarily choose it as money. I don't think the marketplace has found anything that works quite so well as gold for money though.

So, would you say that only fungible commodities are money?

Gumby wrote:

Gumby wrote:

Libertarian666 wrote:Exactly.

Yay!!

So, if I can summarize... According to KShartle, Mdraf and Libertarian666, we aren't using "real" money today. We are just using debt to buy and sell things, and we just happen to call those various forms of debt "dollars".

If that's what you're saying, then we all can agree with that for the discussions at hand about US solvency, etc.

The question now is, how do we tell what our debt-based non-money (what we call "dollars") will be worth in the future. And to determine that... we should probably go back to the other thread...

I'm good with that.