Financial crisis explained

But the value of gold and the value of the economy are so far apart that by linking it to the value of gold then you either force massive inflation by devaluing the dollar to meet the value of gold  or massive deflation by lowering the value of your assets to that of your gold.

As you said, the gold value can't be changed and you can't magic more gold up, so you have to drastically alter the value of your currency.

Linking £ or $ to gold might have made sense backwhen, but now to do so would obliterate our economy.

No, you say right now £1000 buys 8 grams of gold or whatever it is. And that's that. The value is there or there abouts forever more. The debt can be payed with labour instead of gold over time, but it stops banks printing money and selling debt (your labour) in quantities that don't yet exist. When they keep selling future labour, it makes your labour worth less and enslaves what is now several generations to work off that debt to the banks. A debt they never rang up in the first place. Invented debt.

Except that there's already x amount of money in circulation and in people's accounts  so the pound in your pocket suddenly becomes either vastly overprced  or you need a wheelbarrowful to buy a loaf of bread, depending on how you cap your currency.

As you said, Churchill tried it, the sudden deflation crashed the British economy and prolonged the slump - he was reintroducing the standard after only a few years and with a substantial gold reserve to back the money.

In theory I wouldn't be ideologically opposed to linking currency with gold, but you couldn't do it with the pound as it is today, the simplest solution if you wanted them linked might be to introduce a new currency linked to the pound  and move over to the new currency slowly.

if we introduced a new curerncy (call it shillings and cents for this example) you could move the BoE and the gov't onto the shilling whilst leaving the pounds in circulation to slowly deflate as they went out of circulation, when the exchange rate between pounds nd shillings approached 1 you could either get rid of the shilling or the pound, whichever would cost less.

it would lead to a few years of relative chaos with two currencies making the rounds but it would save the sudden  collapse by suddenly revaluing the pound.

Gold isn't the only asset a bank has. But by linking money to the value of gold (a value that really doesn't change at all ever) you stop private banks printing money for profit.

Yep.  Really doesn't change at all ever.

And what are you comparing gold to? Money. Which is being turned to crap.

Now compare gold prices to oil prices.


Boom. Money jumps up and down. the value of commodities is actually very very stable. We only get all the instability because investors and banks create that instability so they can exploit it.


Look at what happened to the price of oil in America. Really consistent and in 1971 all of a sudden oil starts to cost lots of dollars but still the same amount of gold. And in what year did the USA come off the gold standard? Oh, 1971. That spike since 2002 shows just how much money they've been printing in the last 10 years. This is why we have a financial crisis. Because your money is f*cking worthless. As is ours. And the Euro. by the way, in the US, you called the transfer away from gold Nixon shock just in case you were wondering.
The actual price of oil has been largely the same for 50 years.
the reason energy prices, fuel, food, homes etc are all seemingly so expensive is because your wages have been inflated away to absolute peanuts.

Getting us back on gold stops banks flooding the world with money that gets progressively worthless. Diluting away your savings, making your wages a pittance. All that money has gone somewhere. Private banks.

http://www.gold-eagle.com/editorials_04/greene032104.html

^ A good article on fiat money. Explains how if f'd the Romans, how it f'd the Chinese empire, the Spanish empire, The French and how its now about to f us as well.

Fiat money is how you collapse a civilisation. All economists know this but they are too busy making a fortune to give a crap about you.

http://www.financial-planning-techniques.com/Fiat-Currency-Failures.html

^ Here is some more. This is where we are headed.

Gold/CPI


Gold/Oil


The value of gold is not intrinsically stable.

All economists know this but they are too busy making a fortune to give a crap about you.

lol.  http://www.ehow.com/info_7964198_average-salary-economics-phd.html

Maybe economists don't support your version of the gold standard because it would genuinely be a really terrible idea.

Quote from: Saddam Hussein on January 08, 2013, 09:41:03 AM

I've been trying to research this, and as far as I can tell, all physical money that a bank receives goes into its reserves, yes.  All I can say is that it's very rare when loans are paid back with physical money.  The vast majority of the time, loans are paid back with commercial money, which then disappears from the money supply.  That's not my opinion, it's a fact.  If the money supply never shrank, the economy would have fully collapsed a long time ago.

It may be coming sooner than you think.

Google fiat money failures.  Or fiat currency.  See the characteristics the US has with the failed systems in the past.  We didn't learn from history and now we are going to repeat it. 

Why do you think conservatives are screaming about the debt ceiling debate AGAIN?  You can't honestly believe its just because they don't like black people.

They are screaming about the debt ceiling because they either don't know what the debt ceiling is, or they don't care and only wish to appear tough on government spending.

Maybe economists don't support your version of the gold standard because it would genuinely be a really terrible idea.

They don't support it because it would be a terrible idea for them. I'd love you to give me one reason its a terrible idea for the rest of us.

http://dondwest.hubpages.com/hub/Oil-Prices-are-NOT-Going-Up

Are you reading the links I provided? No currency in history has ever survived becoming a fiat currency.

Gold is incredibly stable. Stop comparing it to currency. Watch the you tube video in that last link. Gold, silver, oil, property. these things all cost the same as they ever did. Watch the video. The dude will explain it.

Historically every civilization has collapsed, and its rare for historians to peg it on Fiat currency,  In reality you can have severe inflation, slavery, and civilization collapse using a gold standard.

All economists know this but they are too busy making a fortune to give a crap about you.

Quote from: garygreen on January 09, 2013, 11:10:25 AM

Maybe economists don't support your version of the gold standard because it would genuinely be a really terrible idea.

They don't support it because it would be a terrible idea for them. I'd love you to give me one reason its a terrible idea for the rest of us.

What exactly do you think it is that an economist does?

Quote from: Thork on January 09, 2013, 10:25:01 AM

All economists know this but they are too busy making a fortune to give a crap about you.

Quote from: Thork on January 09, 2013, 11:38:07 AM

Quote from: garygreen on January 09, 2013, 11:10:25 AM

Maybe economists don't support your version of the gold standard because it would genuinely be a really terrible idea.

They don't support it because it would be a terrible idea for them. I'd love you to give me one reason its a terrible idea for the rest of us.

What exactly do you think it is that an economist does?

Mostly I think these days they keep secrets.

I found a great comparison of the collapse of Rome due to fiat currency and our own use.


When it happens, it happens very very quickly. Say 5 years and you are in the dark ages.

And returning to gold would not prevent that. Assuming that you were prepared to hand all your country's financial control over to international gold markets and simply cap your currency to gold's current rate then we would be totally vulnerable to economies who could inflate their currency to remain competitive.

How would your new gold economy handle an export slump as other economies become cheaper to buy from?

And returning to gold would not prevent that. Assuming that you were prepared to hand all your country's financial control over to international gold markets and simply cap your currency to gold's current rate then we would be totally vulnerable to economies who could inflate their currency to remain competitive.

No. The USA tried to do this in the late 1960s. They inflated the price of the dollar pretending its was still worth $35 to the ounce. However the French called their bluff and started to buy gold from the Americans at $35 a ounce. The US quickly realised it couldn't afford to do that and so had to come clean about its currency. That led to the Nixon Shock and fiat cash from 1971 onwards.

But before you say its therefore impossible as they print more cash anyway, the US only got itself into that mess because of the Bretton Woods system. This was where the US gave permission to other nations to print the dollar and tie their currency to it so it would be come the world's reserve currency which is why everything is still traded in dollars today.  Of course they were printing cash like no tomorrow and this made the dollar not worth $35 to the ounce any more.

So in summation by tying gold to your currency, you cannot just print cash, else people will use your cash to buy gold from you. And that will break you financially.

Fun fact. There are 8.4 trillion dollars of gold in the world at today's prices. The amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion. That's 22 times the GDP of the entire world.
Most of the money is imaginary and bares no resemblance to anything. They have absolutely taken the piss. They could not have got anywhere near that without fractional banking (loaning 10 times the amount a bank actually has out) and with a gold standard currency.

In a quiet piece of the news and absolutely nothing made of it, I believe the final harbinger for our financial system is in place. I mentioned fractional banking before. This means a bank can lend out 10 times what it has in reserves. So instead of a bank making 5-10% interest on its capital, its actually making 50-100% interest. Banking is profitable.
This is called the Basel agreement and is the reason for the financial shock in 2007. Banks couldn't lend anymore as they'd all leant out all the wealth on earth many times over up to the limits.
Well, a few days ago, our unscrupulous overlords removed that limit. Banks can now invent as much money as they like in the UK. Our money is about to become absolutely useless.
http://www.bbc.co.uk/news/business-20927534
^ No limits. They can print as much as they want, now. This is less regulation, not more. this shows you who really runs the UK.

But the inflation in the 60s you mention was on a currency still tied to gold which meant that, as you say they couldn't artificially inflate it. However, imagine the following:

The UK moves to GS (and somehow avoids gross revaluation) and the EU doesn't. In order to promote eurozone exports the value of the Euro is inflated. UK companies cannot compete with the artificially cheaper EU products. How does the chancellor protect British industry in such a market?

The choices are stark. You go the GS and you will export less. For now. You are spared the horrible future of those who piss about with fiat currencies.

Or, you continue the race to the bottom, you end up with a generation that can't afford homes or to raise children, (we are here already) and then you watch as the lower classes can no longer participate in trade as they can't afford luxury. The money continues to be made even more worthless. Prices of food and fuel rocket. Prices of things like iPhones and computers will plummet. Money for police/army is driven through the roof as maintaining civil order of a disposed lower class becomes increasingly difficult. This is next for us. After that the middle class can no longer participate in trade. The revenue they made from the lower class has dried up. Finally the elite can't get any more money as the middle class collapses. This all happens in just a few short years. This is system collapse and the start of the dark ages.

What happens then. Well, I've been researching. The first is that people stop using money. The military/police will only accept payment in goods/gold silver. As will bureaucrats. Property and land is taxed heavily. However tax must be paid in goods/gold. The government will refuse to accept its own currency but insist that you use it. You will ignore them wherever you can. You can't leave your land or refuse to work it if you have it. Welcome to serfdom.
For the rest you lose almost all civil liberties. You will not be allowed to change jobs. This is a regular favourite after system collapse. Worse still, your children are forced to do the job you do. The escape from taxes is death after all. If you are a milkman, that's what your children must do, by law.
Corruption and tax evasion rocket as taxes become more and more ridiculous to pay for an ever growing military presence. So the government will likely stop collecting tax itself. Instead it will put the middle class in charge of an area. They are then liable for the tax. If they can't collect it, they must pay it themselves. Amusingly after the Roman empire collapsed if you ran away so as not to be in charge, the punishment was to be bound, carted back to your area and re-instated to your distinguished position in charge of the plebs.
Global trade collapses as there is no market anywhere. Most goods become locally made. You didn't protect trade after all.

We are likely to see a system collapse during our working lives if they keep printing money as they have been (they show no signs of letting up. In fact QE is accelerating the process.) However none of us will live to see the economy ever recover. If you think things are bad now, they will never ever be better again in your life time. Right now employment is higher than it will ever be in the future, your money is worth more, food, fuel and homes are at their cheapest. And you are powerless to do anything about it.

Versus the alternative.

As the rest of the world pull ahead in manufacturing and British businesses are suffocated under a vastly overvalued pound (Valued against gold, which Britain doesn't have anymore) this affects every area of industry, from mining to high-tech manufacturing, to finance. As one exporter closes down, so do the vast numbers of businesses which support them from below.

Wages continue to drop as the companies have to mak more and more from a shrinking sales until they simply acn't afford to keep staff. mass layoffs are seen and unemployment rises, crushing demand and drawing more and more companies into the hole.

Of course, less money being spent means less taxes gathered, the government is faced with only one option when the business environment is so bad, and that is to raise taxes, further stagnating demand. Public services are cut again and again and again as we cannot ease our debt demands, including front line services like the police and armed forces.

Tempers flare among a growing unemployed community, crime skyrockets as services are withdrawn. Protests become riots, riots become commonplace. Those who can afford to leave do so, killing upper-middle class demand.

Assuming the government continues on the gold-standard letting the pound become more and more overvalued as the output of Britain keeps falling, prices for essential goods continue to rise, despite the quality of goods falling. Local areas adopt new local currencies to pay for goods prooduced in the area as the pound becomes too valuable to actually spend, these new divided currencies help for a while as local areas can produce their own little inflationary bubbles to keep costs down until these currencies too become worthless against the pound.

The government is forced to curb civil liberties to keep control of its increasingly angry citizenry, armed forces try to contain riots and rebellions occuring all over the country. A crisis point is reached, either the pound is abandoned and the government jumps on the nearest currency not currently hyperinflating or face civil war.

Bang, we're back on a fiat currency except without the power to actually control it ourselves, all the fears of hyperinflation are exacerbated by a country where the infrastructure and social glue has collapsed.

If your currency is the strongest, you have the most spending fire-power. The great British pound was the backbone of the British Empire for 200 years. We abandoned it and the empire was no more. when you have the strongest currency, you can buy your competitors. The Germans are making cheaper cars? Buy BMW. Buy Mercedes. If you have the strongest currency you can sweep all opposition aside.

#" class="bbc_link" target="_blank" rel="noopener noreferrer">
Its a bit long but this is a Mexican Billionaire. He is siding with me. You need a commodity backed currency as paper money has a definite end.

I hope you know Thork that the reason that Britain is no longer a giant and powerful empire is not because of fiat currency.

Actually, it is. Bankers have asset stripped it.

#ws" class="bbc_link" target="_blank" rel="noopener noreferrer">Gold 8000 $ - James Turk Says, Hyperinflation A Sure Tthing
Another interesting video.

The article in the OP is right to the extent that some things/substances/etc. have more stable value than other things. But as Saddam said, that value is no more 'intrinsic' than anything else. Offer a starving man a lump of platinum or week's worth of food, and see which has more 'intrinsic' value to him. The same is obviously not going to be true of a well-paid worker in the west.


The scarcity of gold doesn't make its value any more 'real' than that of the dollar or the pound. It makes it more stable, or alternatively, less flexible, depending on your point of view. It is highly valued because it is stable, which is to say it is perceived to be stable. Tulips were a hot bet for a while too.


I'm not suggesting anyone should run out and bet against gold, but it's ridiculous to imbue it with 'intrinisic' value. We are the creators of value. Value originates within beings that have wants and desires. Just like anything else, gold is worth no more than how much other people want, which in turn etc. The gold standard originated from a very particular political situation. The contemporary idea that a gold standard or whatever is the solution to our problems is based on half-baked philosophy via Ayn Rand. Yes, gold has a value that is not defined by government, but that doesn't make it 'objective'. If Rearden metal was half as good as it sounded, Galt would have looked pretty thick with his gold.


Also, in terms of social history the article is laughable rubbish. How many people in Britain had the kind of comfort of living that we do when the U.K. was on the gold standard? It's hard to take comfort from the strength of a currency you have next to nothing of.

Actually, it is. Bankers have asset stripped it
Another interesting video.

You think that going off GSM had more to do with the end of empire than, say, the two world wars?

Quote from: Thork on January 10, 2013, 02:58:28 PM

Actually, it is. Bankers have asset stripped it
Another interesting video.

You think that going off GSM had more to do with the end of empire than, say, the two world wars?

Yes.
America also went through a war but emerged as a super power. As did a previously not so important Russia.
Wars were the reason we came off the GS to print money, but the empire didn't end then. In fact the empire is said to have ended when the American's told us not to defend Suez. And the American's made a run on the pound. That fucked us and the empire was over. They couldn't have done that to gold.

There was only one thing wrong. Eden had not told the Americans.

And President Dwight Eisenhower, concerned about wider relations with the Arab world and horrified at such an adventure anyway, was not amused.

British and French forces pulled out of Egypt by December 1956
"Our closest ally pulled the plug," says Corelli Barnett. "We acted on the back of a struggling economy and there was a run on the pound.

"Macmillan, who was Chancellor of the Exchequer, told the cabinet that the only way to save the situation was for an IMF loan backed by the United States.

"The Americans refused to back it. We were told by them to go no further and to evacuate promptly. So we did. It was a complete fiasco."

British and French troops left Egypt by December 1956. Eden left office early the next year.

It was cocking about with our currency that made us vulnerable. We could no longer stand on our own two feet because we didn't have the currency to back it.

The article in the OP is right to the extent that some things/substances/etc. have more stable value than other things. But as Saddam said, that value is no more 'intrinsic' than anything else. Offer a starving man a lump of platinum or week's worth of food, and see which has more 'intrinsic' value to him. The same is obviously not going to be true of a well-paid worker in the west.


The scarcity of gold doesn't make its value any more 'real' than that of the dollar or the pound. It makes it more stable, or alternatively, less flexible, depending on your point of view. It is highly valued because it is stable, which is to say it is perceived to be stable. Tulips were a hot bet for a while too.


I'm not suggesting anyone should run out and bet against gold, but it's ridiculous to imbue it with 'intrinisic' value. We are the creators of value. Value originates within beings that have wants and desires. Just like anything else, gold is worth no more than how much other people want, which in turn etc. The gold standard originated from a very particular political situation. The contemporary idea that a gold standard or whatever is the solution to our problems is based on half-baked philosophy via Ayn Rand. Yes, gold has a value that is not defined by government, but that doesn't make it 'objective'. If Rearden metal was half as good as it sounded, Galt would have looked pretty thick with his gold.


Also, in terms of social history the article is laughable rubbish. How many people in Britain had the kind of comfort of living that we do when the U.K. was on the gold standard? It's hard to take comfort from the strength of a currency you have next to nothing of.

I don't know if you are trying to be philosophical or argumentative but the fact is this cerebral argument is nothing more than a thought experiment. Gold is pretty much the only thing with real value. You can't trade food. It spoils. You need something everyone else recognises. And that something is gold. I'm going to ignore your objections because this thread is about economics. Not philosophy.

Actually another historical note of some relevance from the same article about the suez fallout.

Harold Macmillan, who succeeded Eden, decided that in future Britain had to side with America. He made good friends with President John F Kennedy and even persuaded Kennedy to let Britain have the Polaris nuclear missile.

Since then, Britain has been reluctant to oppose any US policy. Even during Vietnam, the Labour Prime Minister Harold Wilson forbade criticism of the US while shrewdly refusing Lyndon Johnson's request to send a token force.

This is why we follow the US around like a poodle joining all their awful wars.

Actually another historical note of some relevance from the same article about the suez fallout.

Quote from: http://news.bbc.co.uk/1/hi/world/middle_east/5199392.stm

Harold Macmillan, who succeeded Eden, decided that in future Britain had to side with America. He made good friends with President John F Kennedy and even persuaded Kennedy to let Britain have the Polaris nuclear missile.

Since then, Britain has been reluctant to oppose any US policy. Even during Vietnam, the Labour Prime Minister Harold Wilson forbade criticism of the US while shrewdly refusing Lyndon Johnson's request to send a token force.

This is why we follow the US around like a poodle joining all their awful wars.

What, Macmillan's friendship with Kennedy?

No, you b*stards threatening to make a run on the pound if we ever step out of line.

Quote from: Lord Wilmore on January 10, 2013, 09:30:48 PM

The article in the OP is right to the extent that some things/substances/etc. have more stable value than other things. But as Saddam said, that value is no more 'intrinsic' than anything else. Offer a starving man a lump of platinum or week's worth of food, and see which has more 'intrinsic' value to him. The same is obviously not going to be true of a well-paid worker in the west.


The scarcity of gold doesn't make its value any more 'real' than that of the dollar or the pound. It makes it more stable, or alternatively, less flexible, depending on your point of view. It is highly valued because it is stable, which is to say it is perceived to be stable. Tulips were a hot bet for a while too.


I'm not suggesting anyone should run out and bet against gold, but it's ridiculous to imbue it with 'intrinisic' value. We are the creators of value. Value originates within beings that have wants and desires. Just like anything else, gold is worth no more than how much other people want, which in turn etc. The gold standard originated from a very particular political situation. The contemporary idea that a gold standard or whatever is the solution to our problems is based on half-baked philosophy via Ayn Rand. Yes, gold has a value that is not defined by government, but that doesn't make it 'objective'. If Rearden metal was half as good as it sounded, Galt would have looked pretty thick with his gold.


Also, in terms of social history the article is laughable rubbish. How many people in Britain had the kind of comfort of living that we do when the U.K. was on the gold standard? It's hard to take comfort from the strength of a currency you have next to nothing of.

I don't know if you are trying to be philosophical or argumentative but the fact is this cerebral argument is nothing more than a thought experiment. Gold is pretty much the only thing with real value. You can't trade food. It spoils. You need something everyone else recognises. And that something is gold. I'm going to ignore your objections because this thread is about economics. Not philosophy.

People who support returning to the gold standard make these arguments. A lot of the most vocal proponents of a return to the gold standard in the US are self-professed Randians. The republican nominee for the Vice Presidency, Paul Ryan, is a huge fan of Ayn Rand, and is on record as supporting a 'commodity standard', which is just a slightly more nuanced version of the gold standard. In short, support for the gold standard is grounded in this discussion. If you don't know about it, perhaps you should do some reading, because the major supporters of a return to the gold standard hold that view for ideological rather than economic reasons.


And there is nothing 'cerebral' about the lack of flexibility inherent to being on the gold standard, or the fact that the value of the pound has nothing to do with prosperity in real terms. The article in the OP doesn't make any effort to address this, simply suggesting it might be because "mankind has advanced". This is so dumb it beggars belief. What matters is not the purchasing power of the pound, but the purchasing power of people.


Nations didn't come off the gold standard for laughs. It was hugely controversial at the time, and a major embarrassment for Britain when she was forced off the gold standard. Nobody wanted to do it, because there was a great deal of national prestige linked to being on the gold standard. However, many now believe that coming off the gold standard was good for her economy at the time.


A gold standard is not a terrible or crazy idea. But it's not necessarily a good idea, nor is it a magic solution to economic problems.

Yeah, I mean its possible to print money even when you are on a gold standard, and the result is the exact same, hyper inflation.  Unless you plan on only using hard currency, but that comes with its own set of terrible problems, not the least of which is people sitting around shaving of gold to make every coin thinner.

Great Britain's fall as the most powerful nation can be attributed to a small population and a tiny island.  There are obviously many more issues of increased complexity, but you were bound at some point to be passed up by larger nations with much greater national resources, such as the United States and the Soviet Union, not to mention China.

Ahhhh, fiat money! The USA is discussing the idea of minting a $trillion coin.
http://www.bbc.co.uk/news/magazine-20951417

Yep, just write off the debts by making a coin. That shows the real value of the US dollar.

Would you accept the platinum coin (real value about $1000) if the US government owed you $trillion and had stamped $trillion on the coin? Would you believe they'd honour it? That they could honour it? Or would you rather they gave you thousands of tons of gold instead?
Fiat money. The stuff dreams are made of.

A few choice quotes.

Experts say the plan would be lawful and should allow the government to keep spending if President Barack Obama fails to convince lawmakers to raise the "debt ceiling" - a cap, set by Congress, on the US government's borrowing ability.

Allow them to keep spending. lol. Spending what?

These mostly centre-left critics, including Democratic Congressman Jerrold Nadler, have pointed to a loophole in US law that allows the Treasury Secretary to allocate any value he or she likes to a coin.

These people really don't give a f*ck about you at all. They are saying your savings are worthless. That your wages are also worth nothing. That its whatever value they deem it to be.

Walden said he feared the practice would be "very inflationary".

Oh, it'd be inflationary alright. You could find it costs $40,000 to fuel your car the very next day.

"I think the president will be reluctant to do it because it undermines everyone's credibility," says Roche.

More like it undermines the dollar. It will be worthless. America would be finished.