The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

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The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by Ad Orientem » Sat May 11, 2019 4:39 pm

This article attempts to provide a new view of how the bimetallic standard was maintained before 1873 and how it came to change into a monometallic gold standard between 1870 and 1880. The conventional view that the gold standard emerged out of the contradictions of bimetallism is not persuasive. Instead, this article claims that bimetallism might have survived and provides an alternative explanation of the emergence of the gold standard. Political and historical factors proved essential in precipitating the uncoordinated emergence of the international gold standard.
Available as a PDF here...

https://www.researchgate.net/publicatio ... _1870-1880
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by ochotona » Sat May 11, 2019 9:20 pm

If you own gold and silver, are you Bi?
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by boglerdude » Sun May 12, 2019 12:47 am

eli5

Im still struggling to understand when economists say "there wasnt enough money during the depression." Rockefeller had "enough money"
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by pmward » Sun May 12, 2019 9:25 am

boglerdude wrote:
Sun May 12, 2019 12:47 am
eli5

Im still struggling to understand when economists say "there wasnt enough money during the depression." Rockefeller had "enough money"
I highly recommend reading Dalio's Navigating Big Debt Crisis, especially the really in depth case study he does on the Great Depression if you want to understand. You can download the PDF free here: https://www.bridgewater.com/big-debt-crises/

TLDR is that money is debt. When debt defaults money has to be written off the balance sheet of the banks which means money literally vanishes into thin air. Shrinking supply of money causes liquidity issues which increases demand, which increases the value of money drastically. This also becomes a self perpetuating cycle that continues to get worse and worse until more money is finally supplied to the system. Good luck to Rockefeller if he actually wanted to get his cash out of the banks at that time, haha. This is in essence what happens during any mass deleveraging / deflation / depression / financial crisis, or whatever other term you want to use for it. The same exact thing happened in 2008. The difference in why we recovered so much quicker in 2008 is that in the Great Depression they procrastinated printing money and tried to go for austerity first. The day they removed the gold peg was the very day that the statistics show the recovery started. In 2008 they immediately eased and that made all the difference in ending the crisis soon after.
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by boglerdude » Mon May 13, 2019 12:08 am

Hopefully the book will be turned into a podcast.

> TLDR is that money is debt.

Japan gov prints a billion yen bond, 0%, due in 500 years. BOJ prints Yen and the gov spends the billion into the economy. That money isnt "debt" its never going to be repaid. The bonds are an antiquated system, says MMT

> When debt defaults money has to be written off the balance sheet of the banks which means money literally vanishes into thin air.

The money the bank didnt get back is still out there.

> This is in essence what happens during any mass deleveraging / deflation / depression / financial crisis, or whatever other term you want to use for it.

The Fed can step in as a lender of last resort and lend to credit worthy borrowers. But should they continue to print after the panic? Which is the FRED chart that shows how much new money they make every month
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by pmward » Mon May 13, 2019 9:09 am

He can't really turn that into a podcast and do it justice, there's too much data and charts, and it would be way too long. He does have a YouTube video doing a TLDR version of his principles of how the economic system works, but it doesn't go into the case studies. It's a book that is really worth reading.
boglerdude wrote:
Mon May 13, 2019 12:08 am

> TLDR is that money is debt.

Japan gov prints a billion yen bond, 0%, due in 500 years. BOJ prints Yen and the gov spends the billion into the economy. That money isnt "debt" its never going to be repaid. The bonds are an antiquated system, says MMT
MMT does not say that at all. MMT doesn't state to do away with bonds or debt, MMT can be done with bonds, and is how it is actually being implemented in Japan and China, and also how it would end up being implemented here. Also, just because the money won't be repaid in this lifetime does not mean it is not "debt" and is not an owed liability on the BOJ's balance sheet. It is still debt. Without debt there is no money in a fiat currency. In a fiat currency debt is an absolute necessity.
boglerdude wrote:
Mon May 13, 2019 12:08 am
> When debt defaults money has to be written off the balance sheet of the banks which means money literally vanishes into thin air.

The money the bank didnt get back is still out there.
No it is not, because when someone takes out debt they don't have the cash to back the debt. Debt is future spending brought forward. The money did not exist until it was borrowed, and when it was defaulted that money was destroyed. You really should read into how the banking system actually works, it's really quite complex and fascinating. Trillions of dollars are created and destroyed every single day.
boglerdude wrote:
Mon May 13, 2019 12:08 am
> This is in essence what happens during any mass deleveraging / deflation / depression / financial crisis, or whatever other term you want to use for it.

The Fed can step in as a lender of last resort and lend to credit worthy borrowers. But should they continue to print after the panic? Which is the FRED chart that shows how much new money they make every month
That is the question now isn't it. We will find the answer to that one first hand shortly.
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by boglerdude » Mon May 13, 2019 8:11 pm

If I borrow 100k from a bank, and spend it on cars, then default on the loan, that cash is still out circulating

Why call something a "debt" if its never going to be paid back

MMT wants to stop issuing bonds and do overt money printing
http://bilbo.economicoutlook.net/blog/?p=31715
http://mikenormaneconomics.blogspot.com ... -rich.html
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by drumminj » Tue May 14, 2019 8:56 am

boglerdude wrote:
Mon May 13, 2019 8:11 pm
If I borrow 100k from a bank, and spend it on cars, then default on the loan, that cash is still out circulating

Why call something a "debt" if its never going to be paid back
Because in most cases the loan gets paid back/the money gets destroyed, so it's only temporarily inflationary to make the loan in our fractional reserve system, vs just printing and handing out the money, which is 100% and permanently inflationary?
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by pmward » Tue May 14, 2019 9:07 am

boglerdude wrote:
Mon May 13, 2019 8:11 pm
If I borrow 100k from a bank, and spend it on cars, then default on the loan, that cash is still out circulating

Why call something a "debt" if its never going to be paid back

MMT wants to stop issuing bonds and do overt money printing
http://bilbo.economicoutlook.net/blog/?p=31715
http://mikenormaneconomics.blogspot.com ... -rich.html
Yes, but the cash is then destroyed at the bank during default cancelling out what is circulating through the economy. That's the whole point I'm getting at. The money supply in the country is less immediately following a default than it was just before. Then when you get epidemic level defaulting like 2008 or 1929 you get a deflation, why? Because the mass defaults lead to a very quickly contracting money supply. Then the scarcity of money leads to people panicking and trying to pull money out of the bank, leading to runs, which exacerbates the problem. Increasing demand and ever reducing supply leads to liquidity drying up. But the first domino that falls in a deflation is *always* a contracting money supply through mass defaulting on debt.

Debt is a liability on a balance sheet somewhere. Whether or not it is paid back is another story. But if you're referring to government debt it will be paid back in nominal terms, so your thinking is not very logical to me on this point.

And some MMT advocates are saying to stop issue bonds, but not every one. And it's currently not legal here in the U.S. so we would likely go the Japan and China route, of continuing to issue bonds against the Feds balance sheet. We are already long on the road to MMT, and Trump is already our most MMT president ever. The only thing that needs to change is using QE to directly promote fiscal stimulus, and boom we have pure MMT. All the other pieces are in place already, even with the bonds. Now, at some point congress could allow the Fed to forgive their balance sheet and clear the liabilities (this is very likely to happen at some point, imo), but either way it's still printing money and still has the same end result. I mean, what's the difference between the Fed having a balance sheet that is never intended to be unwound and them outright printing? They are both the same, it's merely technicality that separates them. The Fed using their balance sheet is simply a loop hole around the current legal limitations.
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by boglerdude » Wed May 15, 2019 12:31 am

What about not being allowed to take your money from the bank. eg they offer 0% for liquidity, and 4% for a yearly CD. 250,000 FDIC guaranteed instant liquidity seems like way too much. And margin loans seem like a product that should not exist. They make a "deflationary spiral/panic" worse.

Maybe these ideas are better than printing money/always reflating "bubbles"

> Because in most cases the loan gets paid back/the money gets destroyed, so it's only temporarily inflationary to make the loan in our fractional reserve system, vs just printing and handing out the money, which is 100% and permanently inflationary?

yeh, "natural" inflation is driven by new household formation (population growth). Someone turns 25, takes out a car loan, student loan, and mortgage. They pay them off by 40 (for example). So if your avg population is 40 and increasing, you get deflation. So the BOJ is buying up Japanese companies. Imagine Trump (ie the government) buying your local Taco Bell. Im not sure this is ideal, but its the plan for next time US stocks drop ~50%.
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by pmward » Wed May 15, 2019 8:57 am

boglerdude wrote:
Wed May 15, 2019 12:31 am
What about not being allowed to take your money from the bank. eg they offer 0% for liquidity, and 4% for a yearly CD. 250,000 FDIC guaranteed instant liquidity seems like way too much. And margin loans seem like a product that should not exist. They make a "deflationary spiral/panic" worse.

Maybe these ideas are better than printing money/always reflating "bubbles"

> Because in most cases the loan gets paid back/the money gets destroyed, so it's only temporarily inflationary to make the loan in our fractional reserve system, vs just printing and handing out the money, which is 100% and permanently inflationary?

yeh, "natural" inflation is driven by new household formation (population growth). Someone turns 25, takes out a car loan, student loan, and mortgage. They pay them off by 40 (for example). So if your avg population is 40 and increasing, you get deflation. So the BOJ is buying up Japanese companies. Imagine Trump (ie the government) buying your local Taco Bell. Im not sure this is ideal, but its the plan for next time US stocks drop ~50%.
When the loan gets paid back the money does not get destroyed, it is used as capital to finance other loans.

There are also other factors to inflation than just the amount of money in circulation. Case in point, look at the last 10 years. We've printed more money than we ever have post industrial revolution, yet inflation has been anemic. The next greatest period of time for money printing was WWII and inflation was not super high then either. If money supply and inflation were truly correlated this would not be possible. Inflation is driven mostly by a mix of confidence and population demographics. As long as the population demographics are not improving, and the majority fully trust the currency, inflation will stay tame. Now look at the 70s on the other hand. What did they have? A very inflationary demographic of baby boomers coming of age, a generation of baby boomers that had lost all trust in the government because of Vietnam, as well as some supply shortages and drama in the currency and politics that caused the general public to lose even more trust in the government and the currency.

For whatever reason, millennials currently are very trusting in the government, matter of fact they want the governments power to grow to levels never seen in this country before because they trust it so much. Combine that with an aging baby boomer generation, and the fact that most millennials are getting a later start in life than past generations, as well as the student loan crisis... and that is the real reason inflation has been so tame. I see a lot of these inflationary headwinds turning into tailwinds in the next decade though, as the bulk of the boomer retirement bandaid gets ripped off, the large population of millennials come of age, finally join the workforce, and start advancing in their careers / earning more money. I also think that the current populist movements on both the left and the right are eventually going to break the millennials trust in the government and that will effect the currency.

Japan is a scary example that I hope doesn't happen here. They are literally choosing the haves and have nots. This is a very dangerous road to go down, and I have a feeling this will come back to bite them at some point. Well, it already is, the reason why they have such anemic growth is because they don't allow the unproductive branches to be pruned to make way for more productive ones. But it's going to get much worse before it gets better.
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Re: The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

Post by jhogue » Wed May 15, 2019 10:15 am

I still don't understand why we have not had massive inflation. My inability to explain the effect of multiple rounds of QE and enormous deficits has a lot to do with why I embraced Harry Browne's market agnosticism.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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