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Re: The Problem with Gold-Backed Currencies

By: Zimbler0 in 6TH POPE | Recommend this post (0)
Tue, 22 Aug 23 3:32 AM | 33 view(s)
Boardmark this board | 6th Edition Pope Board 		Msg. 45187 of 60008
(This msg. is a reply to 45169 by Decomposed)
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Decomposed > The real problem is that Congress isn't honest and will never vote for an arrangement that prevents them from debasing money. They *LIKE* debasing money, particularly during so-called "emergencies," - because they're among the first and largest beneficiaries of the debasement.


That is severely true, De.

Decomposed > Right near the start, I see the article's 1st flaw. If the dollar was backed, it would be convertible to gold or silver at a price where we had enough gold for EVERY dollar. If that meant that each dollar was convertible into a billionth of an ounce of gold,


And just how or who sets the price of gold such that 'we had enough gold for every dollar'? And how to keep the lying thieving poloticians from 'changing the redeemable price of gold' for 'political effect'?

I believe 'Bretton Woods' pegged the 'American gold standard' at $35 an ounce . . . It also made the dollar the worlds reserve currency . . . The world then needed megatons of dollars to facilitate global trade . . .

If the price of gold in some foreign country went much above $35 an ounce . . . What would keep some enterprising entrepreneur from taking dollars and redeeming them for gold then promptly selling it at the higher price? (And I believe that was what was happening when Nixon took U.S. off the gold standard.)

Zim.




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Re: The Problem with Gold-Backed Currencies
By: Decomposed in 6TH POPE
Mon, 21 Aug 23 3:18 PM 		Msg. 45169 of 60008


... since the US was running trade deficits, all of America's gold would have been transferred to the exporting nations. America's gold reserves would have disappeared, leaving nothing to back the dollar.

Right near the start, I see the article's 1st flaw. If the dollar was backed, it would be convertible to gold or silver at a price where we had enough gold for EVERY dollar. If that meant that each dollar was convertible into a billionth of an ounce of gold, then so be it. Running out of gold under such a system would not be possible unless some entity acquired every dollar and cashed them all in, or an extraordinary lack of security over the backing material existed, or extreme currency counterfeiting was employed.

What the author has done is to implicitly defend corrupt systems (like fractional reserve banking, where the bank can lend money it only pretends to have) and international systems (like reserve currencies) as if we all agree they are vital, and then argue that the need for the corrupt systems and international programs is why we shouldn't have backed money. But he never actually says it. He just assumes that none of us will disagree about the need for the dollar to support such things. He's not telling the whole truth and knows that most of his audience won't pick up on it. He's being intellectually dishonest.


The price of gold globally is set by the market (setting aside manipulation by major players), not by the central bank of [fictional country] Slobovia. This means the value measured in gold of the [fictional Slobovian currency] quatloo is fluctuating as the value of gold fluctuates.

If the global value of gold plummets, so does the purchasing power of the quatloo. This peg to the price of gold becomes consequential if the quatloo loses purchasing power.

Oh, horrors. So the value of a gold-backed currency will fluctuate as the value of gold fluctuates. Tell me, what currency today DOESN'T fluctuate? The U.S. dollar sure does. In fact, it fluctuates every time confidence in government wavers - with long-term confidence always wavering DOWNWARD. The neat thing about gold is that relative to fiat currencies, its long-term value only INCREASES. It might waver, but at least it does so in a direction that helps those who hold it long-term. Those who bought twenty ounces of gold for $6,400 in 2002 can today use those coins to buy a $37,700 car. The author worries about wavering but doesn't care to discuss the immense difference between fiat-currency wavering and backed-currency wavering.

BTW, do you know who DOESN'T hold money long-term? Government. Government spends money as quickly as it gets it. Therefore, it does not benefit one bit from a currency that gets stronger over time. That's why Democrats and RINOs hate the thought of responsible money. They love big government despite their protests that they do not. They want it to get bigger still. Infinitely big. Totalitarian. Fascist or Communist.

Problem 2: what happens to the purchasing power of the quatloo when the central bank issues more currency? If the central bank issues an additional $10 billion in currency, if it doesn't add $10 billion in gold reserves, the purchasing power of the quatloo measured in gold declines by 50%.

When money is managed responsibly, if the economy has strengthened and the central bank has taxed "Slobovians" enough afford large amounts of gold from miners and foreign governments, then it can issue an additional $10 billion in currency. Otherwise it can't. It's that simple. And why should we worry about the welfare of central banks in the first place? It's the country that matters.

Now, if the problem is that "quatloos" have gained so much value that they're being hoarded instead of circulated, then the central bank can always print "micro-quatloos" - each worth just one percent of a quatloo - in sufficient quantities to meet demand. Problem solved. But I don't think this "problem" is too likely in the first place. Quatloos would only be hoarded because they are valuable and would presumably become more valuable. But even very wealthy people wouldn't be able to buy up enough of them to create a shortage if the conversion rate was initially set up intelligently. And what would they buy these rich people buy them up WITH? Their businesses? Their stocks? Foreign fiat currencies? LOL. I don't think so. Those are things that are already in demand and priced highly. That's why the rich people became rich in the first place, right?

So the quatloo is supposedly "backed" by gold, but its purchasing power can drop in half as the central bank issues more fiat currency? Then what value is the supposed "backed by gold" claim?

What sort of a nonsense argument is this? If it's backed, it's not fiat. Auditors [and prison terms] would prevent a central bank from printing currency beyond the amount of gold available to back it

The problem here is that the author doesn't seem to be able to grasp the concept of a central bank that isn't allowed to print money ad infinitum... or that such printing is itself the real problem. It is COUNTERFEITING and THEFT, pure and simple. I don't think people would want a government that is counterfeiting money and stealing from them. We need to put an end to it.

Note that the bank created the $100 million out of thin air when it originated the loan to Mr. PM. Did the Slobovian central bank acquire an additional $100 million in gold to back this new money? No--because in a fractional reserve banking system, this new money is lent into existence for the term of the loan, and disappears when the loan is paid off.

That's the corrupt system employed TODAY. But, where does the bank get the actual notes if it is prevented by law from printing them? With backed money, a bank would only be allowed to lend what it actually has. In short, the bank would be forced to behave responsibly. Is the author saying that that's a bad thing? Again, the horrors!

BTW, irresponsible bank lending has led to countless bank failures throughout history, to the detriment of investors and taxpayers both. IMO, taxpayers should not bail out depositors who lose money. If depositors don't want to take the risk of putting their money into a bank (in exchange for interest), then they should do something else with their money. Banks might have to pay higher interest rates in order to entice wary depositors. It would all work out. Also, right now we have the FDIC... and government regulations to try to keep banks honest. Government doesn't do things very well, though. In the future, perhaps private insurance and independent, 3rd-party auditors would be a better solution.

But I'm digressing. The article's "Problem 3" won't happen in a backed money situation because the fractional reserve system would be abolished. A bank that doesn't have money in its vaults wouldn't be able to lend it.

Why hold a "gold-backed" currency that can be diluted 10-fold overnight by the issuing government/bank?

I've never said we should implement a backed currency and provide no oversight to keep its management honest. I believe we should do what we can to keep them impeccably honest - and have as many other checks and balances as are needed to protect the currency. We could do that with our current fiat dollars too, if we wanted, but it's a whole lot harder and would require that Congress be honest.

The real problem is that Congress isn't honest and will never vote for an arrangement that prevents them from debasing money. They *LIKE* debasing money, particularly during so-called "emergencies," - because they're among the first and largest beneficiaries of the debasement.

Under a backed money system that Congress debases, people and nations holding dollars would realize that the backing was too cheap and would start to buy it up with their cheapened money. The fraud should be quickly detectable to auditors who would, hopefully, be in a position to put an end to it. I trust that quick, public trials and executions of the offending politicians and their families would help.

BTW, keep in mind that all the problems the article's author has ginned up happen with fiat money too. So, at best, all the author has done is to say that some problems with money won't go away under a backed money system. He's dishonest, though, making it sound as if these issues are unique to backed money. Many of the problems we have with our fiat money would improve with backing. What would get worse is its usefulness as a tool to facilitate government growth. Democrats and RINOs hate backed money for that very reason.

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