All that glitters is not gold, or why a return to the Gold Standard is sheer idiocy.

[Farnan]

Now, Ron Paul and many of his followers have recently suggested a return to the Gold Standard, in which money is backed by gold. However, this plan is sheer idiocy and will results in destroying the US economy. Not hurting it, destroying it, will make the Great Depression look like a rough patch.

Now why is this?

You must understand first how money works. Money works because it is sort of a transferred IOU between two or more people. Your money works as a promise of being redeemable for future goods or services, and other people accept the money knowing they can use it for future goods or services. As long as money is accepted as such it has value. Whether it is paper, gold or deer foreskins. The form it takes does not matter. Gold is no different than paper money in this aspect despite what some may say. You cannot eat gold, you cannot use it to build a decent house, you can't drink it, and you can use it to make clothing to keep you warm. Its only value is that it can be used to be redeemed for future goods or services just like paper money.

Now why is the gold standard bad?

The same reason people want the gold standard is why it is a bad policy. There is a finite amount of gold, once it is all given out you cannot make anymore. While this may stabilise the value of money it prevents growth of the economy. If more money cannot be generated then companies will be unable to invest and expand which means new jobs cannot be created. Without new jobs being created unemployment will increase as population increases, and it will cause Demand-Pull inflation as more and more people will demand the, thanks to lack of economic growth, same supply of goods. Demand will go up, while supply will stay the same raising prices.

Any questions or debate?

[Exarch]

isnt the US economy based on gold and oil as well as demand?

[Ulyaoth]

I like Ron Paul, but the going back to the gold standard would be a bad idea, but there has to be a reform, as the Fed is just as bad an idea. It's by bankers, for bankers.

[CtrlAltDe1337]

Going back to the gold standard would stop this rampant inflation...maybe I could actually buy a coke again for 5 cents like you used to could.

[Farnan]

Nope deflation does not happen in the American ecomony, rather growth will end. Inflation will actually happen through demand-pull, due to the fact that the Coke company will not be able to expand as easily due to restricted credit, thus the amount of Coke it will be able to produce will remain more constant and less flexible. At the same time the population will continue to increase, and as population increases the amount of demand for Coke will increase. As the change in the supply of Coke increases at a lower rate than the change in the demand of Coke, price of Coke will increase.

[Rush Limbaugh]

There is a finite amount of gold, once it is all given out you cannot make anymore.

First of all we dont know how much gold there is. When gold is discovered it has a short term effect on the monetary standards of the world. The worlds economies quickly adjust. Fiat economy however is creeping death, There is nothing to control it other than the bankers. Besides you can use other precious metals as well.

[Farnan]

First of all we dont know how much gold there is. When gold is discovered it has a short term effect on the monetary standards of the world. The worlds economies quickly adjust. Fiat economy however is creeping death, There is nothing to control it other than the bankers. Besides you can use other precious metals as well.

That is just delaying the inevitable. Unless we find massive reserves on Pluto, we are going to have too little especially as economies expand. The Gold Standard also relies on the trusting the government not to devalue the price of gold.

And what makes gold different than paper money other than it being more finite? Can you build a decent home out of gold? Can you eat gold? Can you drink gold? Can you wear gold as clothing? Nope, so gold only has the value that society puts on it, the same for paper money. Paper money's value comes on what society places on it, the one dollar or piece of gold dust has value because society knows it can be exchanged for a good or service later on.

[Rush Limbaugh]

And what makes gold different than paper money other than it being more finite?

Gold has and will always have intrinsic value

The Gold Standard also relies on the trusting the government not to devalue the price of gold.

The current system relies on the Fed and not even the government. Also the government cannot set the price of gold the world market does.

This is a no brainer and Im afraid your way off base. Gold automatically limits the power of government and thats why the FFS insisted on it.

[Farnan]

Sorry I didn't mean devalue the price of gold, I meant devalue the dollar in relation to the price of gold.

And what intrinsic value does gold have that paper money doesn't?

[Rush Limbaugh]

How much can you get for a paper ring?
How well does it conduct electricity? Can you make gold?

[Farnan]

For the first one, can you write a book on gold without backbreaking labor and a of gold ingots? How well does gold burn? And the last one is the problem with gold.

[Rush Limbaugh]

For the first one, can you write a book on gold without backbreaking labor

A book has no intrinsic value. Besides you dont need paper to write a book.

How well does gold burn?

You dont need paper to burn. Gold is used in countless things because it is one of the best conductors of electricity. A gold book would be worth far more than a paper one.

And the last one is the problem with gold.

So you favor inventing money from thin air

[Xarulsis]

Now, Ron Paul and many of his followers have recently suggested a return to the Gold Standard, in which money is backed by gold. However, this plan is sheer idiocy and will results in destroying the US economy. Not hurting it, destroying it, will make the Great Depression look like a rough patch.

Now why is this?

You must understand first how money works. Money works because it is sort of a transferred IOU between two or more people. Your money works as a promise of being redeemable for future goods or services, and other people accept the money knowing they can use it for future goods or services. As long as money is accepted as such it has value. Whether it is paper, gold or deer foreskins. The form it takes does not matter. Gold is no different than paper money in this aspect despite what some may say. You cannot eat gold, you cannot use it to build a decent house, you can't drink it, and you can use it to make clothing to keep you warm. Its only value is that it can be used to be redeemed for future goods or services just like paper money.

Now why is the gold standard bad?

The same reason people want the gold standard is why it is a bad policy. There is a finite amount of gold, once it is all given out you cannot make anymore. While this may stabilise the value of money it prevents growth of the economy. If more money cannot be generated then companies will be unable to invest and expand which means new jobs cannot be created. Without new jobs being created unemployment will increase as population increases, and it will cause Demand-Pull inflation as more and more people will demand the, thanks to lack of economic growth, same supply of goods. Demand will go up, while supply will stay the same raising prices.

Any questions or debate?

That is a good example of why the gold standard is flawed, but you failed to establish why the alternative is flawed as well. I have seen a few interviews of Ron Paul and in none of these interviews did he demand a revival of the gold standard system. He simply wanted US currency to be anchored to something so that the government couldn't just print X amount of money. What it comes down to is that a government doesn't have to obey a budget if they can just print money off. Of course this massive increase of printed dollars, thanks to government approved printing, causes inflation which in turn causes the value of dollars per unit to decrease. This mainly government inflicted inflation is basically a tax. It gives the government more spending power as well as decreasing the value of money owned by tax-payers. The government can use this as a backdoor to implement a tax without congressional approval or general public knowledge.

But this is just one side of the issue. As explained before, dollars act as an IUO that in the past could be redeemed for gold, which is universally known for value or worth. Eventually one could no longer exchange cash for gold through banks but the dollar was still backed by gold, even at 1/50th value. Soon after this all remnents of the gold standard was lost and now we are just left with dollars. This system will work as long as its users still have faith that these dollars have value. What was happend in recent times is foriegn and domestic people have realized that the American government is just printing off money without reguard, without need for backing, the government can essentially just make its own value. Everyone knows that if money grew off trees then it would be worthless. When a government just prints money off without decretion or a backing force the money may soon be reguarded as just green paper. The end result is a weak or worthless dollar, sound familiar?

Is the gold standard perfect? No. Is is better then the government having the power to print infinite dollars? Yes. Is there a better solution? Probably, any backing and limitation would be better then none.

[Rush Limbaugh]

Is the gold standard perfect? No. Is is better then the government having the power to print infinite dollars? Yes. Is there a better solution? Probably, any backing and limitation would be better then none.

I echo every word you posted.

Just noticed that was your 1st post and a dousy +1 rep

Welcome aboard.

[Xarulsis]

I echo every word you posted.

Just noticed that was your 1st post and a dousy +1 rep

Welcome aboard.

Thanks, getting the sleep schedule turned around for work means more forum time and this topic was to hard to resist.

[Rush Limbaugh]

So Farnan have we moved you from the dark side?

[JP226]

Is the gold standard perfect? No. Is is better then the government having the power to print infinite dollars? Yes. Is there a better solution? Probably, any backing and limitation would be better then none.

The only reason gold was valuable was because people said so. It was shiny enough I guess. You have to understand as much a blessing as limitation is it's just as much a curse. If you have a finite level of money and an infinite level of wealth, as the nature wealth is of course infinite, prices are naturally going to go up and constrict wealth. You see this time and time again with currency crises in the 3rd world with hard pegs. Money maintains a natural equilibrium at a set level and it's never going to be enough in the long run because economic growth will surpass it. Essentially gold is impractical.

Now I understand Ron Paul's assertion that something needs to control money and prevent the government from arbitrarily printing it. To an extent such a mechanism exists, the Euro, the chinese, russian and jap currencies do the job to an extent. One of the more radical ideas i've seen is 51 differing currencies. You have your dollar, than a dollar per state, although we could limit it at regonal currencies and create a domestic currency competition system. In turn that would indirectly shift power to the states which i'm all for. Obviously there are complexities in exchange rates but that's what's computers are for.

So yes, ultimately I agree the government should not be able to arbitrarily print, even though they don't quite do that (it's based on treasury auctions), but a soft limitation needs to be imposed and our ultimate understanding of economics doesn't quite know how. Given economic growth, gold is not the answer.

[Farnan]

Nope just trying to give others a chance to debate in this thread...

[JP226]

The easiest argument against gold is constriction. Deflatin is jst as bad as inflation and if you don't like one you shuld be against the other. We aren't dealing with the 19th and early 20th enturies when there simple was enough gold to represnt wealth.

[Farnan]

That was my argument, though I think that using the gold standard would cause demand-pull inflation rather than deflation. Companies usually do not react to deflation by lowering prices, rather they just stop expanding. With an increase in population, thus macroeconomic demand, without an increase in supply will cause the increase in demand to outstrip the supply causing inflation. However, this would be worse than normal inflation as the money supply would not be able to match the inflation thus wages will not be able to increase to meet it.