Gold Standard and money supply growth

[therealjjj77]

The interest paid goes into the Treasury.

How do you figure? Every year look at the federal budget. Interest is listed as an EXPENSE and it is right up there with the cost for our military adventures around the world.

The FED uses the interest rates it charges to banks to control the supply of money- it does not print currency.

This may be an affect of changing the rates, but this certainly isn't why they charge an interest rate.

Interest is not evil. Would you loan money out and only expect the exact same amount of money back?

Interest isn't a bad thing. When you have REAL money that you are using to back the loan. That means if someone put $5,000 into a bank with a contract that they keep it in there for a period of time and give them back a part of the interest they gain, that is fine.

But what the federal reserve does is not charging interest on loaning real money. They charge interest on bank notes. A bank note is defined as "an instrument of debt". Look at the top of your FRNs. It says Federal Reserve Note. That means it is an instrument of debt. In fact, this is what they used to read:

"Will Pay to The Bearer on Demand Twenty Dollars"

http://cgi.ebay.com/SERIES-1934-B-T...638.m118.l1247QQcmdZViewItem#ebayphotohosting

In other words, that note is NOT the money. The real money is the gold and silver and hard assets. The real money is your hard work, and your property. That's real. So if I loan you property or gold at an interest rate, that is fine. But if I print out some paper and call it a "note" when it has no redeemable value for anything, and tell you to go spend it and trade with it and I'll charge you interest and expect you to pay it back, then I'm committing fraud.

 

[NaT805]

A bank cannot loan out more money than they have in deposits. The case you describe is indeed a fraud- and not legal and not practiced by banks today.

It's called fractional reserve banking. The Fed is auctioning off $60 billion dollars every other week to banks. Where are they getting that money?

http://www.foxnews.com/wires/2008Feb01/0,4670,FedCreditCrisis,00.html

http://money.aol.com/news/articles/_a/fed-plans-60b-auctions-to-banks-in-feb/n20080201101109990041

 

[Zippyjuan]

How do you figure? Every year look at the federal budget. Interest is listed as an EXPENSE and it is right up there with the cost for our military adventures around the world.

That interest amount is on the $9 trillion in debt we owe. It is the interest paid on treasury bills and notes and the like which are held by investors from individuals to companies to foreign governments.

This may be an affect of changing the rates, but this certainly isn't why they charge an interest rate.

So why do they charge an interest rate? Should they allow banks to borrow money from them for free? That would definately lead to a huge growth in money supply if banks could borrow from the Fed at zero percent and loan it out at a profit. The interest rate is to discourage unlimited borrowing.

 

[Zippyjuan]

It's called fractional reserve banking. The Fed is auctioning off $60 billion dollars every other week to banks. Where are they getting that money?

http://www.foxnews.com/wires/2008Feb01/0,4670,FedCreditCrisis,00.html

http://money.aol.com/news/articles/_a/fed-plans-60b-auctions-to-banks-in-feb/n20080201101109990041

Your comment and the article are a bit misleading. They are not constantly auctioning off $60 billion every other week all the time. What they are basically doing is issuing short term loans. The auction is the banks and financial institutions bidding on the rates they are willing to pay to get the loans. The banks loan out the money and then pay back the loans with the money they get in return. The loans from the Fed are usually much cheaper than the loans they can get from each other.

I do agree that the Fed is probably putting too much money into the economy at this time which can lead to higher inflation in the future. The previous Fed chairman, Alan Greenspan, kept a tighter control of the money supply than Bernanke has so far- and inflation was lower as a result.

This article will help clear up some myths about what the Fed is and how it operates:
http://money.howstuffworks.com/fed.htm

The proceedure being used in the linked article is part of their "Open Market Operations"
http://money.howstuffworks.com/fed10.htm

In this case, the Fed will be buying securities- giving the banks and financial intitutions cash for them (well, credit really).

The Fed Tool Box: Open Market Operations
The most effective tool the Fed has, and the one it uses most often, is the buying and selling of government securities in its open market operations. Government securities include treasury bonds, notes, and bills. The Fed buys securities when it wants to increase the flow of money and credit, and sells securities when it wants to reduce the flow.
Here's how it works. The Fed purchases securities from a bank (or securities dealer) and pays for the securities by adding a credit to the bank's reserve (or to the dealer's account) for the amount purchased. The bank has to keep a percentage of these new funds in reserve, but can lend the excess money to another bank in the federal funds market. This increases the amount of money in the banking system and lowers the federal funds rate. This ultimately stimulates the economy by increasing business and consumer spending because banks have more money to lend and interest rates are lowered.

 

[Zippyjuan]

But what the federal reserve does is not charging interest on loaning real money. They charge interest on bank notes. A bank note is defined as "an instrument of debt". Look at the top of your FRNs. It says Federal Reserve Note. That means it is an instrument of debt. In fact, this is what they used to read:

"Will Pay to The Bearer on Demand Twenty Dollars"

That is a silver certicicate. At the time of its issue, you could exchange it for $20 worth of silver. If you look at it closely it also says "Federal Reserve Note" at the top- just as today's notes do. You can still trade a $20 bill for silver if you want- just not at the bank. You have to go to a metal dealer instead- at the free market price of silver, not some government dictated price.

 

[therealjjj77]

So why do they charge an interest rate? Should they allow banks to borrow money from them for free? That would definately lead to a huge growth in money supply if banks could borrow from the Fed at zero percent and loan it out at a profit. The interest rate is to discourage unlimited borrowing.

Again, they are NOT borrowing money. They are borrowing FR notes. What we exchange is NOT money. These are debt notes. They are simply "IOU"s. In fact, there are so many of them now that they are unredeemable for real money and thereby no longer money as defined by the courts:

"Bank notes are the representative of money, and circulate as such only by the general consent and usage of the community. But this consent and usage are based upon the convertibility of such notes into coin, and the pleasure of the holder, upon their presentation to the bank for redemption. So long as they are in fact what they purport to be, payable on demand, common consent gives them the ordinary attributes of money." Westfall vs. Braley, 10 Ohio 188, 75 Am. Dec. 509

Can you take a Federal Reserve Note and redeem it to the issuer for a dollar of gold? How about a dollar of silver? If not, it is no longer money. It is fraudulently being portrayed as money when it is not.

 

[therealjjj77]

That is a silver certicicate. At the time of its issue, you could exchange it for $20 worth of silver. If you look at it closely it also says "Federal Reserve Note" at the top- just as today's notes do. You can still trade a $20 bill for silver if you want- just not at the bank. You have to go to a metal dealer instead- at the free market price of silver, not some government dictated price.

Then the government no longer regulates the value of a dollar, which is one of the Constitutional responsibilities given to Congress.

 

[Zippyjuan]

But it does regulate the value of the dollar- by controlling to the extent that it can the supply of dollars. It is a free market currency- its value is not attached to one item at a defined ratio. It is subject to the supply and demand for it combined with the supply and demand for all the items you can exchanve it for. That is a truely free market. Not being set at some artificial level it will adjust its value according to market factors.

You can exchange a dollar for a dollar's worth of gold, but not a gold dollar coin since that would contain more than a dollar's worth of gold. Unless it was really tiny. Or a dollar platinum coin. Or a dollar diamond coin. That does not mean it has no value. Millions of people in this country and around the world believe that the dollar has value and use it without question every day. It is still the most sought after currency in the world today. For a worthless piece of counterfit paper it does pretty well. There is general consent and usage in the community. If you choose not to use them for transactions, that is certainly up to you but it works for the rest of us.

I am curious about the case you list, Westfall vs. Braley. Do you have any idea of when the case was? Is the quote taken from the judgement in the case- or is it one of the arguments presented? The only info I have been able to find is on dollar conspiracy sites and nobody seems to have much more than the name of the case. I would like to see the context of what is said.

 

[therealjjj77]

But it does regulate the value of the dollar- by controlling to the extent that it can the supply of dollars.

It does not. Those are not dollars. Those are bank notes. It regulates the AMOUNT of fraudulent bank notes. Not even the value of them.

Bouvier's Law Dictionary, 1856 Edition
DOLLAR, money. A silver coin of the United States of the value of one hundred cents, or tenth part of an eagle.

2. It weighs four hundred and twelve and a half grains. Of one thousand parts, nine hundred are of pure silver and one hundred of alloy. Act of January 18, 1837, ss. 8 & 9, 4 Sharsw. Cont. of Story's L. U. S. 2523, 4; wright, R. 162.

3. In all computations at the custom-house, the specie dollar of Sweden and Norway shall be estimated at one hundred and six cents. The specie dollar of Denmark, at one hundred and-five cents. Act of May 22, 1846.

CENT, money. A copper coin of the United States of the value of ten mills; ten of them are equal to a dime, and one hundred, to one dollar. Each cent is required to contain one hundred and sixty-eight grains. Act of January 18th, 1837~' 4 Sharsw. cont..of Story',s L. U. S. 2524.

Blacks Law Dictionary, 1st Edition (1891)
DOLLAR. The unit employed in the United States in calculating money values. It is coined both in gold and silver, and is of the value of one hundred cents.

CENT. A coin of the United States, the least in va1ue of those now minted. It is the hundredth part of a dollar. Its weight is 72 gr., and it is composed of copper and nickel in the- ratio of 88 to 12.

Blacks Law Dictionary, 3rd Edition (1933)
DOLLAR. The unit employed in the United States in calculating money values. It is coined both 1n gold and silver, and is of the value of one hundred cents. Thompson v. State, 90 Rex. Cr. R. 125, 234 S. W. 406, 408.

Blacks Law Dictionary, 4th Edition (1951)
DOLLAR. The -unit employed in the United States in calculating money values. It is coined both in-gold and silver, and is of the value of one hundred cents. People v. Alba 46 Cal.App.2d 859, 11.7 P.2d 63. Money or currency issued by lawful authority and intended .to pass and circulated as such. Neufield v. United States, 118 f,2d 375, 387, 73 App.D.C. 1.74. The dollar of nine-tenths fine consisting of the weight determined under the 31. U.S.C.A. A§ 321, shall be the standard unit of value, and all forms of money issued or coined shall be maintained at a parity of value with this standard. 31 U.S.C.A. AS 31.4.

You can exchange a dollar for a dollar's worth of gold, but not a gold dollar coin since that would contain more than a dollar's worth of gold. Unless it was really tiny. Or a dollar platinum coin. Or a dollar diamond coin. That does not mean it has no value. Millions of people in this country and around the world believe that the dollar has value and use it without question every day. It is still the most sought after currency in the world today. For a worthless piece of counterfit paper it does pretty well. There is general consent and usage in the community. If you choose not to use them for transactions, that is certainly up to you but it works for the rest of us.

But if I attempt to use an alternative that is backed by gold or silver, I am told that I am violating the law:

"Consequently, prosecutors with the United States Department of Justice have concluded that the use of NORFED’s "Liberty Dollar" medallions violates 18 U.S.C. § 486."

http://www.usmint.gov/consumer/index.cfm?flash=yes&action=HotItems

I am curious about the case you list, Westfall vs. Braley. Do you have any idea of when the case was? Is the quote taken from the judgement in the case- or is it one of the arguments presented? The only info I have been able to find is on dollar conspiracy sites and nobody seems to have much more than the name of the case. I would like to see the context of what is said.

Not sure bud. But even if that court case hadn't existed(which it did), the facts that they said still remain. You can't call a bank note that has been fraudulently made(it does not represent what it says it represents) no more then you can call a Certificate of Title a Title when there is no Title or object it represents.

If I sold you a Title to a car, but the car didn't exist, would that be fine with you?

 

[Zippyjuan]

Well I for one am glad that everyone else has not figured this out. I have been lucky enough to trade my counterfit paper for all kinds of things. Food. Clothes. Even buying a home. Will they make me give it back if they figure out that the money is worthless? Maybe I should tell my boss I want my next paycheck in gold. I wonder what he would say.

 

[josephadel_3]

There actually isn't enough gold to back our dollars. We have printed so much money that it's no longer possible to back them all with gold. The price of gold would have to double or so, if we were to do this, and that of course would be a market distortion.

However, a 19th century gold standard is not something that Ron Paul is actually saying we should go back to, at least not immediately. It would be perhaps a durable goods index, or some other standard (including gold in some way, I bet), so as to back our money with something. It would be a gold standard updated for our 21st century economy. I'm not an economist, so I can't really explain how this would be done. It's something that would need to be figured out.

Why not make platinum and palladium legal tender in addition to gold and silver. Surely this would be enough hard currency to back our dollars?

 

[therealjjj77]

Well I for one am glad that everyone else has not figured this out. I have been lucky enough to trade my counterfit paper for all kinds of things. Food. Clothes. Even buying a home. Will they make me give it back if they figure out that the money is worthless? Maybe I should tell my boss I want my next paycheck in gold. I wonder what he would say.

It needs to be understood that we cannot have economic stability and true economic growth when there is no real money being used for exchange. When fraudulent notes are being passed as money then the government can endlessly print and use up any economic growth, and thereby the citizen does not benefit from their labors. The citizen is then the slave to the government, and no longer is the government the servant of the citizen.

 

[Gilby]

Where is this defined? There is a free market for silver and the price varies.

It was made the currency of the US before the constitution by the Continental Congress. The most common dollar that existed was the Spanish milled dollar, which was a silver coin, known for it's precision in weight and measures. In compliance with the powers written in the constitution, Congress declared the dollar the official unit of account, as that was the most common currency in use in the US. They weighed and measured the Spanish milled dollar so that they could precisely declare what a dollar was and so they could mint their own. This resulted in the passing of the Coinage Act of 1791:

Sec. 9. And be it further enacted, That there shall be from time to time struck and coined at the said mint, coins of gold, silver, and copper, of the following denominations, values and descriptions, viz.
Eagles--each to be of the value of ten dollars or units, and to contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold.
Half Eagles--each to be of the value of five dollars, and to contain one hundred and twenty-three grains and six eighths of a grain of pure, or one hundred and thirty-five grains of standard gold.
Quarter Eagles--each to be of the value of two dollars and a half dollar, and to contain sixty-one grains and seven eighths of a grain of pure, or sixty-seven grains and four eighths of a grain of standard gold.
Dollars or Units--each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.
Half Dollars--each to be of half the value of the dollar or unit, and to contain one hundred and eighty-five grains and ten sixteenth parts of a grain of pure, or two hundred and eight grains of standard silver.
Quarter Dollars--each to be of one fourth the value of the dollar or unit, and to contain ninety-two grains and thirteen sixteenth parts of a grain of pure, or one hundred and four grains of standard silver.
Dimes--each to be of the value of one tenth of a dollar or unit, and to contain thirty-seven grains and two sixteenth parts of a grain of pure, or forty-one grains and three fifth parts of a grain of standard silver.
Half Dimes--each to be of the value of one twentieth of a dollar, and to contain eighteen grains and nine sixteenth parts of a grain of pure, or twenty grains and four fifth parts of a grain of standard silver.
Cents--each to be of the value of the one hundredth part of a dollar, and to contain eleven penny-weights of copper.
Half Cents--each to be of the value of half a cent, and to contain five penny-weights and half a penny-weight of copper.

...

Sec. 11. And be it further enacted, That the proportional value of gold to silver in all coins which shall by law be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals.

...

Sec. 20. And be it further enacted, That the money of account of the United States shall be expressed in dollars or units, dimes or tenth, cents or hundredths, and miles or thousandths, a dime being the tenth part of a dollar, a cent the hundredth part of a dollar, a mile the thousandth part of a dollar, and that all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation.

The dollar, which is defined as a specific mass of silver, is the official unit of account for the United States.

Perhaps some like youself would like to see silver defined as at a certain price, but that does not mean that the world agrees with you. You are free to buy and hold silver if you feel it will preserve the value of what you have earned.

It's not that we define silver at a certain price, it's that a dollar is defined as a unit mass of silver. It is fixed and has to be fixed according to the constitution:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

The term value is very important in here, and the capitalization is significant. They defined the dollar, and then assign a value for other metals, such as gold. A unit mass of gold is an "eagle", but the value is regulated and assigned an equivalent dollar value.

Here are some other fixed standards of weights and measures. A gram is a specific unit of mass. An inch is a specific unit of length. They don't change, just like a defined unit of money does not change. The value can change, but the definition is fixed. For example, while silver qould not change in value since the dollar is defined as silver, the eagle did change as the ratio of the market value of gold and silver changed. As you see in the coinage act, it was 15 to 1, but in the early 1900s, it was 20 to 1, and I think the most recent declaration is 35 to 1, though right now the market value has been fairly steady at about 50 to 1.

But for most people, it is too cumbersome to negotiate every transaction in that manner. The rest of us use dollars. It is much easier to use.

Again, you don't use dollars. You use federal reserve notes. They are different.

The FED uses the interest rates it charges to banks to control the supply of money- it does not print currency. That function is performed by the Treasury.

We use the term printing money to mean the creation of new money. Now days it is mostly done in an electronic database. There are many ways the Fed creates new money. The M3 money supply increase is currently at 15%. Who gets that extra money created? Not me or you.

The whole point of a gold or silver standard is to define the currency as something that can not be manipulated. Using Federal Reserve Notes as our currency means that some other entity can create money for their own benefit at the expense of those forced to hold and use them. The cost of issuing new silver coins is cost of the silver plus the cost of coining them. But the cost of issuing new FRNs is practically nothing since it's just an update in a database.

Well I for one am glad that everyone else has not figured this out. I have been lucky enough to trade my counterfit paper for all kinds of things. Food. Clothes. Even buying a home. Will they make me give it back if they figure out that the money is worthless? Maybe I should tell my boss I want my next paycheck in gold. I wonder what he would say.

Federal Reserve Notes are not worthless. Again, they are valuable to the US government to use to pay their debt to the Fed. The alternative is to pay it off with real dollars, which is silver. Obviously, if you owe debt and someone is willing to take something of lesser free market value, you'll use the item of lesser value to pay off the debt. Because they are valuable to the US government, they are valuable to those who owe the government any money, which Americans have been coerced into heavy taxation to create this demand for them. But since we can not just take our Federal Reserve Notes to the Federal Reserve and redeem them for constitutional money, they have a lower value to you and I, which like I said before, is currently about a 13th of the value of a dollar.

 

[RonPaulalways]

We have had gold backed money. And during that time we had both higher deflation and higher inflation than we have seen since we stopped using it. We had economic crises under both- but more severe ones during the gold standard period. Some of this may be attibutable to the growing pains of both our economy and country. Returning to it will not make the economy of today magically better with no inflation and no recessions. Our current money system is run by people- and so is a gold backed system. Both can be manipulated if somebody in the right position wants to.

The dollar has NEVER been inflated as much as it has been since 1971, when Nixon took the US off the gold standard:

The rate at which the money supply expanded increased tremendously after 1971:

http://cmi-gold-silver.com/gold-standard-inflation-fiat-money.html

"In the 34 years before Nixon closed the gold window, the money supply in the U.S. grew less than two fold. In the 34 years after Nixon’s action, the money supply expanded 13 fold."

 

[Truth-Bringer]

Well I for one am glad that everyone else has not figured this out. I have been lucky enough to trade my counterfit paper for all kinds of things. Food. Clothes. Even buying a home. Will they make me give it back if they figure out that the money is worthless? Maybe I should tell my boss I want my next paycheck in gold. I wonder what he would say.

Again, you may love and adore Federal Reserve Notes, but for those of us who don't, you have no right to use force to prevent us from using other currencies. Stop trying to control us, Zippyjuan. We want to be free to choose our own currency since it is a peaceful, honest, voluntary activity.

Your arguments have all been refuted in this thread. Your position is irrational. Be honest and admit it.

 

[Zippyjuan]

It's not that we define silver at a certain price, it's that a dollar is defined as a unit mass of silver

If the dollar is say defined as 0.25 ounces of silver, then you have indeed defined the price of silver at four dollars an ounce (an arbitrarily selected number). That is not a free market price- it is defined.

The dollar has NEVER been inflated as much as it has been since 1971, when Nixon took the US off the gold standard:

The rate at which the money supply expanded increased tremendously after 1971:

http://cmi-gold-silver.com/gold-standard-inflation-fiat-money.html

"In the 34 years before Nixon closed the gold window, the money supply in the U.S. grew less than two fold. In the 34 years after Nixon’s action, the money supply expanded 13 fold."

We need more information to decide if things got worse or not. What happened to wages? Did they rise along with the CPI? If so, then people had exactly the same purchasing power. If wages went up faster than the CPI, they would be better off- if wages grew more slowly, then people were worse off. Your graph does nicely describe any exponential growth. If something grows at even say two percent a year it will have the same shape as the one you show.

I refer you to a graph I linked to earlier. Over the last 20 years, inflation has rarely ventured above 5%. The peak of the 1980's is lower than the peak of the 1940s which is lower than the peak inflation of the 1920s.
http://en.wikipedia.org/wiki/Image:US_Historical_Inflation.svg


As for the money supply, it would be natural and necessary for the supply of money to increase as the economy grew. Nixon had some bad policies that led to a big increase in inflation- and part of that was indeed too much money in circulatoin to fund the Vietnam War. It took almost a decade to work that out of the system. Inflation now is about average from what we have experienced in the past. Here is a decade by decade look:
http://www.inflationdata.com/Inflation/images/charts/Articles/Decade_inflation_chart.htm

I have supported my arguments with historical data. You are free to ignore them if you choose. As for my desire to use Federal Reserve notes, I use them because they work for whatever I need to purchase. If you wish to trade silver or gold for goods, you are free to do so- provided that the person you wish to make the exchange with agrees. But few people will. You may also use other currencies but in the countries that use them. Here we use dollar denominated Federal Reserve Notes. I do not have any personal control over you so I do not understand why you think I might.

 

[JosephTheLibertarian]

I prefer legalizing competing currencies over a gold standard. Gold standard beats fiat but I believe that competing currencies is best, which means that any currency in the world would be allowed to be used in the US and the market would decide. This would force the US government to strengthen the US dollar. You see, competition. They don't want competition because they have obliterated the value of the currency. Not sure if any economist advocates this, I pretty much just made it up one day.

 

[Zippyjuan]

That would really make it confusing at the grocery store. Businesses would have to keep ten times as much money around to be able to make change in the different currencies-as well as a register with at least ten drawers in it. That would greatly add to the cost of doing business and if the businesses passed along the costs would mean more inflation.

I believe that our economic problems are based on policy issues, not on what sort of money we use. The first thing we need to do is balance the budget and start trying to pay down the debt. Once that is gone, you have much more flexibility to deal with other issues. Otherwise, things will continue to get worse.

 

[JosephTheLibertarian]

That would really make it confusing at the grocery store. Businesses would have to keep ten times as much money around to be able to make change in the different currencies-as well as a register with at least ten drawers in it. That would greatly add to the cost of doing business and if the businesses passed along the costs would mean more inflation.

Choices are confusing? You're just assuming it would be that way.

 

[Zippyjuan]

Perhaps you could illustrate for me how it would be any easier with using multiple currencies instead of one. Today, if you spend $4.50 and give the clerk a $5.00 bill, they will give you fifty cents back. If you have multiple currencies, they not only have to be able to calculate how many Euros or Rubles or Pesos or whatever that equals and also have them on hand to give to you. I do not see that as an equally or even more simple process.