An argument AGAINST returning to the gold standard

[Machiavelli]

The thing with competing currencies I have a hard time understanding is wouldn't the free market eventually dictate that one form of currency would be the best, and used exclusively? In the era of mass technology and information why would private banks need to compete with one another. I think there would only be a few private banks issuing there currency if not only one.

 

[Domalais]

If their paycheck shrinks in total dollars but buys more goods and services, did it shrink? Of course not. Not understanding that is a failure of our government run school system.

That's why I said nominal in my second post. Deflation requires wage renegotiations and wage cuts. For a wide assortment of reasons, workers/the economy responds better to real wage cuts (no raise or a raise that is smaller than the rate of inflation) than nominal wage cuts.

 

[Domalais]

The thing with competing currencies I have a hard time understanding is wouldn't the free market eventually dictate that one form of currency would be the best, and used exclusively? In the era of mass technology and information why would private banks need to compete with one another. I think there would only be a few private banks issuing there currency if not only one.

It's possible but I find it unlikely. In a particular area, you might find one currency used exclusively or nearly exclusively, but nationwide? I think there would be some variety.

Of course, a variety of currencies can also be inefficient. It's arguable if the gain in government efficiency would be larger than the loss of market efficiency.

 

[Brian4Liberty]

What you're describing is not a 'steady paycheck,' it is a growing paycheck. In the situation you describe, real wages are increasing.

In order to have a steady wage in a deflationary economy, your nominal wage would have to decrease.

And why shouldn't wages increase when productivity increases?

Once again, the entire system is set-up as a scam for the banksters to siphon off all wealth, including that created by increases in productivity.

 

[Domalais]

And why shouldn't wages increase when productivity increases?

Once again, the entire system is set-up as a scam for the banksters to siphon off all wealth, including that created by increases in productivity.

Because increases in productivity are not constant, consistant, or equal across all industries and all sectors of the economy. Also, even if productivity is increasing, there is no guarantee that it will be equal to or greater than the rate of deflation. In a deflationary economy, businesses experience a continuous increase in the real cost of labor, and have to choose between shrinking profit margins, a reduction in nominal wages, or layoff of workers. Because of the resistance of workers to nominal wage cuts, steady deflation can actually cause an increase in unemployment due to increased labor costs.

 

[seraphson]

"...fosters deflation..." the first pernicious fallacy, right off the bat - the idiotic notion that deflation is bad. It is very bad under a debt-money regime, by design. Nothing fosters deflation (while forcing inflation) like a collapsed debt-based monetary system, once the economy is incapable of further growth, further credit expansion. That's when the piper comes calling, and the end game is the disappearance of all currency from circulation. All such currency was created with the intent to destroy it, even while siphoning interest that was never created. That's when all debts are still due and owing, but the supply of future Ponzi scam marks, who are need to provide payment for past debts, have dried up. No more Peters of the Future left to invite into the debt-creation musical chairs circle to pay all the Pauls of the Past. And when that happens, paying existing debts plus interest, the deflation is catastrophic.

Under a sound money regime, with no collectivized "business cycle" based on fractional reserve lending, deflation and inflation are isolated, localized, natural phenomena - as good, natural and necessary as inhaling and exhaling.

Just so I understand this correctly. Is the reason why deflation is the number one enemy of our current "free" money/credit inflation system is because it reduces prices? Reduced prices means production is more easily bought with out abundant FDRs; but this also reduces the power to pay off the future debt created by the system; which means no more free money which means a sharp correction?

I have a feeling the answer's in Pauls Gold minority report book but I haven't gotten to it yet.

 

[Brian4Liberty]

Because increases in productivity are not constant, consistant, or equal across all industries and all sectors of the economy. Also, even if productivity is increasing, there is no guarantee that it will be equal to or greater than the rate of deflation. In a deflationary economy, businesses experience a continuous increase in the real cost of labor, and have to choose between shrinking profit margins, a reduction in nominal wages, or layoff of workers. Because of the resistance of workers to nominal wage cuts, steady deflation can actually cause an increase in unemployment due to increased labor costs.

I have no problem with reducing wages if prices of everything is deflating. Another option is reducing hours. It is better for wages to lag with regard to decreases instead of lagging with regard to increases.

 

[The Gold Standard]

Reducing hours would be more likely. Increased productivity leads to being wealthy enough to buy the same amount of stuff while doing less work.

 

[Brian4Liberty]

Reducing hours would be more likely. Increased productivity leads to being wealthy enough to buy the same amount of stuff while doing less work.

Exactly.

(If the entire system wasn't rigged so that the banksters can siphon off all productivity increases.)

 

[The Free Hornet]

The thing with competing currencies I have a hard time understanding is wouldn't the free market eventually dictate that one form of currency would be the best, and used exclusively? In the era of mass technology and information why would private banks need to compete with one another. I think there would only be a few private banks issuing there currency if not only one.

Why??? Also, the free market doesn't dictate. That is what an unfree market does. One bank only occurs when the government outlaws competition. A free market would sooner see a million banks than just one.

In the era of mass technology and information why would private banks need to compete with one another.

If the bank doesn't compete for your business, then somebody else opens a bank with better offers. Do you think that one bank would know the best interest rate for all people, businesses? The bank loans me money because they think I'm a good credit risk. There is no way we are all the same credit risk. More so, my savings are not going to be equally safe at all banks. Bank A1 might make conservative loans backed with solid collatoral and they pay a low interest rate. Bank C6 might make high-risk loans to seafaring ventures but they pay a high interest rate.

How do the millions of variables get juggled by just one bank?

And why one currency? If I own land with a silver vein, that might be my currency. Likewise if coal or if I grow corn. I won't necessarily convert to gold just to buy eggs and oil. Maybe I prefer to be paid in share of a company.

 

[The Free Hornet]

Reducing hours would be more likely. Increased productivity leads to being wealthy enough to buy the same amount of stuff while doing less work.

Reduced hours only makes sense if someone wants to work less. I don't know that all do. Likely, I value hours 40-50 (in a week) more so than 30-40. Part time workers often get by with the lowest per-hour compensation packages but if you want a tradesman to work on Sunday, you could be looking at doubletime rates.

Also, if I'm a business and have to lower my prices (that's what deflation means), it is likely the case that many of my inputs are decreasing in cost. The deflation has to be real so that if 4 workers can do what used to take 5 workers, then they expect to share in some of that wealth as do I, as do the customers. It is ideally win-win-win. Wages falling would be the least of my worries in this ideal deflationary scenario.

 

[Guzabuza]

Because increases in productivity are not constant, consistant, or equal across all industries and all sectors of the economy. Also, even if productivity is increasing, there is no guarantee that it will be equal to or greater than the rate of deflation. In a deflationary economy, businesses experience a continuous increase in the real cost of labor, and have to choose between shrinking profit margins, a reduction in nominal wages, or layoff of workers. Because of the resistance of workers to nominal wage cuts, steady deflation can actually cause an increase in unemployment due to increased labor costs.

Well this is not completely true. In the environment you describe productivity leads to higher production output or lower producing cost per each unit produced. Since every unit cost less workers with their salary will be able to buy more goods or services. You forgot to point out that deflation also doesn't occur at the same rate in every sector of the economy. Productivity in on sector will lower the cost of producing/using up resources and will have an domino effect throughout the economy. The point with capitalism is deflation, it creates an abundance of all products, lowering input cost, increasing output, do you think if the cost of producing one engine for the space shuttle would cost 100 $ that the whole industry would shut down, workers fired because the company cant make a decent profit? Hell no, every single one of us would have its own space shuttle in the backyard. To create abundance prices need to fall. The lower the prices, the higher demand becomes.

Also wages don't rise in higher productivity, the wage stays the same but the purchasing power of your pay check raises because productivity and competition creates cheaper final products. So if your yearly paycheck is 100 k each year but general prices fall 5 %, then you will have a wage increase without having the boss paying out a higher wage.

 

[Guzabuza]

Always thought that the end point of free market capitalism is to one day create such abundance and high purchasing power for each and every one of us that the concept of "money" simply fades away. But with today's mindset of people that would be highly unlikely

 

[Domalais]

And why one currency? If I own land with a silver vein, that might be my currency. Likewise if coal or if I grow corn. I won't necessarily convert to gold just to buy eggs and oil. Maybe I prefer to be paid in share of a company.

The reason that all civilizations have moved from barter based economies to the use of money is that barter is highly inefficient as a basis for trade.

 

[CogWheeler]

Competitive and free-floating (market-valued) currencies is the preferred solution right now.

Always keep an open mind.

So I must ask the question, what is wrong with deflation? It makes my savings and wages go up in value. It makes prices drop. Is that a problem?

Answer: It is a problem for the banksters, who want to take that increased value (wealth) from the people, and they do that via inflation.

As for the quantity of a metal based currency, new metals are constantly mined. Metal is divisible. Smaller and smaller denominations can be created.

It's a problem for labor. Labor going up against a fixed sum of gold, drives down its price. There's always a crew with a fast "deflation is good" arguement, but this doesn't seem to register. Food stocks might grow faster than labor, thus keeping food affordable, but we've seen what happened to corn in the last few years. Point is, there is no guarantee that incomes will fall any slower than the price of necessities.

As far as bankers, think of this. If you had all the wealth many of these guys made from selling off misrepresented risk, what would you do in deflation? How about sitting on your hands because you know your purchasing power (all that gold) simply goes up as newcomers struggle to get a piece. There's a reason more banksters like the gold standard than ordinary educated men.

 

[AFPVet]

Being on the gold standard doesnt mean you cant print money.

We were on the gold and silver standard for a very long time. The paper money was redeemable in gold or silver... that's all it meant. With this fiat currency, we print all of this paper with nothing to back it up.

 

[CogWheeler]

The article is an absolute joke. The way an economy grows is not by increasing the number of dollars flowing in it. An economy grows by businesses producing more products and services.

Let's look at their island economy. Five people, ten dollars. The guy who owns the guava plants only has what nature has given him, so his guavas are expensive. The guy who owns the banana trees has limited bananas available, and therefore high prices. They refrain from consuming so they can pay some labor to clear their land or plant more banana trees. In the future they will have many more guavas and bananas available. The money the 5 people spent on food before will yield much more food now, and leave them money left to save and invest or consume something else. No printing press needed to grow this economy. The same $10 will keep buying more and more goods making everyone wealthier.

Inflation incentivises investment, because there is a constant errosion of idle wealth. Deflation does the opposite. Why clear the banana fields to make "everyone wealthier", if it keeps me relatively even with them? I want to be a rich capitalist, wealthier than the others. If I have enough bananas, why participate in deflating their value? Why not propose a merger with the guava guy, until the monopolization of necessity enables us to pick-off the gold from the other three?

 

[Kregisen]

You want mild deflation over time, that means the purchasing power of the currency is increasing and that's a GOOD thing. The people are getting wealthier over time vs the people are getting poorer over time is how to think of it. The problems I see with a Gold Standard have nothing to do with Gold, it's simply the people who have the control/power over the system and abuse it that causes the problem. Will a return to a Gold Standard ensure Sound Money? Sure, for a while, at least until the people in control start to abuse it (AND THEY WILL). Everything is cycles.

IMO A paper money system with Ron Paul in control of it would be highly preferred to a Gold Standard with The Federal Reserve System in control.

Ron = Honest/Trustworthy
Fed = Dishonest/Not Trustworthy

The article is an absolute joke. The way an economy grows is not by increasing the number of dollars flowing in it. An economy grows by businesses producing more products and services.

Let's look at their island economy. Five people, ten dollars. The guy who owns the guava plants only has what nature has given him, so his guavas are expensive. The guy who owns the banana trees has limited bananas available, and therefore high prices. They refrain from consuming so they can pay some labor to clear their land or plant more banana trees. In the future they will have many more guavas and bananas available. The money the 5 people spent on food before will yield much more food now, and leave them money left to save and invest or consume something else. No printing press needed to grow this economy. The same $10 will keep buying more and more goods making everyone wealthier.

Competitive and free-floating (market-valued) currencies is the preferred solution right now.



Always keep an open mind.

So I must ask the question, what is wrong with deflation? It makes my savings and wages go up in value. It makes prices drop. Is that a problem?

Answer: It is a problem for the banksters, who want to take that increased value (wealth) from the people, and they do that via inflation.

As for the quantity of a metal based currency, new metals are constantly mined. Metal is divisible. Smaller and smaller denominations can be created.

"...fosters deflation..." the first pernicious fallacy, right off the bat - the idiotic notion that deflation is bad. It is very bad under a debt-money regime, by design. Nothing fosters deflation (while forcing inflation) like a collapsed debt-based monetary system, once the economy is incapable of further growth, further credit expansion. That's when the piper comes calling, and the end game is the disappearance of all currency from circulation. All such currency was created with the intent to destroy it, even while siphoning interest that was never created. That's when all debts are still due and owing, but the supply of future Ponzi scam marks, who are need to provide payment for past debts, have dried up. No more Peters of the Future left to invite into the debt-creation musical chairs circle to pay all the Pauls of the Past. And when that happens, paying existing debts plus interest, the deflation is catastrophic.

Under a sound money regime, with no collectivized "business cycle" based on fractional reserve lending, deflation and inflation are isolated, localized, natural phenomena - as good, natural and necessary as inhaling and exhaling.

Wow, I'll bet the OP can't even tell us why deflation could be a GOOD THING.

I mean, who is stupid enough to want to see their grocery bill and their energy bills go down, amiright

Just so I understand this correctly. Is the reason why deflation is the number one enemy of our current "free" money/credit inflation system is because it reduces prices? Reduced prices means production is more easily bought with out abundant FDRs; but this also reduces the power to pay off the future debt created by the system; which means no more free money which means a sharp correction?

I have a feeling the answer's in Pauls Gold minority report book but I haven't gotten to it yet.

The #1 reason why (almost) all economists say deflation is worse than inflation is because spending now is discouraged when your dollar will be worth more tomorrow. Steady inflation is preferred because it encourages people to spend today which can facilitate more trade and higher growth.

That's not to say that inflation is good either, but the main factors of inflation or deflation are NOT simply fractional lending. The propensity to consume changes all the time. Interest rates are often dropped during a recession like a couple years ago because people simply save their money during recesses, which causes a swiral of deflation. The lowered interest rates cause inflation which counter-acts the deflation caused by a higher propensity to save.


Even the biggest experts today get many things wrong in economics, because it simply is not so simple. There isn't even one-size fits all. I challenge everyone here who says deflation is good to go do some research before spouting claims that are simply not accurate. There are pros and cons to both inflation and deflation.

 

[Kregisen]

Also a gold standard:

1. causes deflation because population growth is higher than increases in the gold supply

2. Fixes exchange rates between two countries, which is anti-free market. If U.S. sets dollar to $10 per x amount of gold, and U.K. sets the pound to 5 pounds per x amount of gold, then the fixed exchange rate is $2 per british pound - which creates a host of problems.

Ron Paul may not want the gold standard as his #1 solution, but he brings it up a lot in debates and it's the one issue I don't really agree on. To be honest I'm very neutral still on it because the fed has many cons to it, but it still may easily be the best solution out there if it was utilized correctly. Who knows.

 

[sanssq]

Competitive and free-floating (market-valued) currencies is the preferred solution right now.



Always keep an open mind.

So I must ask the question, what is wrong with deflation? It makes my savings and wages go up in value. It makes prices drop. Is that a problem?

Answer: It is a problem for the banksters, who want to take that increased value (wealth) from the people, and they do that via inflation.

As for the quantity of a metal based currency, new metals are constantly mined. Metal is divisible. Smaller and smaller denominations can be created.

Correct. Federal Reserve money creation secures leverage/speculation. It is not wealth creation. We have twin super bubbles now. They are financial services and government. They reinforce each other. They also lead to a bubble economy, and redistribution of wealth to the powerful. That's why financial services are now 22% of the US economy. In 1965 financial services were 6% of the economy,. Government spending (federal, state and local) averaged 25% of the nations spending in the 50's. . Now almost double at 45%.

There is no recovery as long until the twin bubbles of financial services and government continue. They are the greatest mal investments in history.