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« President McCain | Main | GGO »

Aug 24, 2009

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Beelzebubba

In 1932 the US had 2/3's of the world's gold reserves.
In 1932 the US was the largest creditor in the global fiefdom.
In 1932 the market had completed its 90% correction.

So far, at every early stage, the Fed and the potent directors have failed to notice the problem, diagnose the problem or address the problem. They have applied a cold meat compress. However, the cold meat was removed from healthy, thriving unwilling tissue donors and applied to necrotic symptoms. You're not an expert on the depression unless you lost everything while it was still in a bank. There are only two survivors left in my family. Obama's experts have consulted neither as of yesterday. I agree. The good news is it's not 1932 anymore. The bad news is, the US still has Keynes as a portfolio manager. Look at his record.

Ed Cone

"In 1932 the US had 2/3's of the world's gold reserves."

Right. And all that gold had helped us do what?

Succumb to massive instability in the economic system, fall into a Great Depression, and face epic rates of unemployment, that's what.

I want to believe, Beez. I want things to be as easy as you goldbugs say.

But I've yet to see the historic case for it.

Beelzebubba

well lessee here. "gold helped" can't be agreed upon by experts. but this is known. gold was removed the equation, legislated into obscurity and we still have what Keynesians call "unexplainable shocks" in the business cycle. Now we have M1, M1+ all the way to M5 to track the money supply and we still get something that central planners can't agree upon. Some say deficits are good. Some say they don't matter. Some say they're bad.

if you were to buy the best men's suit available today, it would cost you the same amount in ounces of gold as in 1790, 1865, 1913 and today.

if you bought a mid-sized car today, it would take the same number of troy ounces as it did in 1915, 1929, 1960.

in 1900 a European industrial worker's weekly wage averaged one half ounce of gold a week. in 1979 the same. today the same. It may not be gold which is causing the instability, depressions and epic rates of unemployment. i'm open for suggestions

Ed Cone

Beez, I'm not saying gold caused those things, I'm saying that gold didn't prevent those things, so I don't see the argument for returning to gold, at least in that context.

Beelzebubba

gold can't prevent anything in a fiat/debt based/ fractional reserve system. even in a pure gold system, history is rife with governments corrupting the standards by clipping and adulteration of the metals, but some nations had measures in place such as removing the hands, arms or heads of anyone who debased the currency, including the rulers. I believe most people want honesty and truth to be the basis for their transactions and to be rewarded with the same for their efforts and actions. Metals have always provided that.

Roch101

Beez, how has the compensation of labor compared to gold over time? Would an hour of factory work earn one the same amount of gold in 1915, 1929 and 1960? Asked another way, if the products you give as examples kept improving in quality, but their price in gold remained static, did their price relative to the amount of gold one could earn by work also stay static. I don't have a point in mind, just curious.

Ed Cone

Measuring prices over time is trickier than comparing raw numbers.

For example, a modern automobile is safer, more reliable, and longer-lived than an analogous product from just a couple of decades ago, much less earlier years. So the value for the same dollar (or gold weight, or whatever) is much higher.

Roch101

Right. I assumed that to be understood, and thus my question. If that increasing value of the car has, according to Beez, remained static with gold, how does one's ability to procure that gold i.e. labor, compare? Has it been a 1 for 1 for 1 relationship?

Thomas

But why does gold have value? Because we say it does. A lump of metal is only worth what someone is willing to pay for it. But what utility is derived from the ownership of gold, as opposed to copper? Gold is a better conductor of electricity, but unless you're using it for that, they're both paperweights. I guess gold makes a prettier paperweight.

winstongator

Resistivity of Cu < Au (lower number better).

Regarding Au & pricing: assume we've extracted all the world's gold and it is 100units(Au). The world only produces widgets, starting from 0 100/yr, so yr 1, 1 widget = 1 Au. At little depreciation, yr 2, 200 widgets, 100 Au, 1 widget = 0.5 Au. The degree to which the true capital base expands (people build stuff that is actually useful, creating capital) faster than the supply of gold, gold would become more valuable in a gold-only-money economy. With an expanding capital base, you can allow for an increase in the monetary base without any inflation.

It's all moot becasue BZB acknowledges fractional-reserve lending pretty much kills gold-as-currency, and very few are advocating an abandonment of frac-res banking. Lowering leverage ratios, yes, lowering to 1-1, no.

RBM

See the work of Paul Grignon for alternatives to fractional reserve banking.

Beelzebubba

RBM: that site is a phd in monetary policy and a cuts the legs off of a famous current model. thanks

Thomas: gold malleability allows it to be pressed so thin that it is transparent. it is then used to complete circuits in windshields of aircraft for de-icing while allowing total visibility. even the USG, which is sometimes anti-gold, equips pilots, paratroopers and agents with .90 troy ounces of gold to barter with in "escape and evasion" kits. There is an Atlantic kit and a Southeast Asia kit. each contains different gold items. who knows if it's our ancestral subconscious or intellectual understanding of history that keeps the Pentagon from using gold as a paperweight. No confederate money or Treasury notes are used. Though copper is marvelous with its own qualities, it's more challenging to impress chicks with it. In 1932, the government couldn't print, spend, tax or think its way out of the funk, even after breaking all gold contracts and making it illegal to own. This why i doubt the efficacy of the model as much as i question the skills of the technicians.

RecycleBill

Along the same line as Beelzebubba, gold has many uses besides its monetary uses whereas paper money has few other uses (wiping paper, rolling paper, firestarter?)and digital money has no uses other than monetary uses. Therefore gold has value even when money has no value.

RecycleBill

Also, gold is infinitely recyclable whereas paper money can only be recycled about 3 times and digital money cannot be recycled.

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