Gold standard = no investment?

[msl]

I was arguing with my roommate and he said that investment requires one to be able to borrow money, and if we had the gold standard we wouldn't be able to borrow money (or something), and so there would be less investment.

Does anyone know much about these types of issues and what I can read to learn more about this?

Thanks.

 

[angrydragon]

Yes you would still be able to borrow money with other people's money in the banks, which banks loan out.

 

[murrayrothbard]

In order to borrow money, someone has to SAVE money. Under a 100% reserve system all funds available for loan are the result of someone else's decision not to consume, i.e. to save. Thus all investment is backed by real savings and all growth of the economy is sustainable.

 

[Cleaner44]

Investing does not require borrowing at all. Certainly one can invest more if they borrow and that is also how people can over extend and go bankrupt.

 

[Fox McCloud]

you would still be able to, but it would be considerably lessened....and Praise the Lord if that happens!

as the current model stands, loans are encourage for nearly anything, from purchasing a candy-bar because you're $1.00 too short, clear up to a near million dollar home, despite the fact the family only has 1-2 children.

a gold standard would discourage frivolous loans, but would still be enticing enough for serious investors.

actually, there'd still be investment, but it'd be more serious investment (less stock speculation, and more true investment)....so, your friend is really really misled.

 

[OReich]

Yes, it means less investment, but it means the market-determined right amount of investment. The right amount of investment is however much money the people can set aside for the long-term, either by directly investing it or putting it in bank accounts (and then banks invest it). When the Fed prints money and the banks invest that new money, it triggers the devaluation of the dollar, until (when all prices adjust to the higher amount of money in the economy) your purchasing power is lowered. Imagine that instead of the Fed printing the money, whatever proportion they printed was instead taxed from you. Its effectively the same thing, only no one pays attention. We had investment and steady, consistent growth throughout the 2nd half of the 19th century, UNTIL the Federal Reserve and the boom/bust cycle it gives us.

 

[ClassicalLiberal]

When we were on the gold standard people could borrow money.

When people decide that they have more capital than they need or want to spend they will save it or invest it. This makes money available for business expansion, home mortgages, whatever. Being on the gold standard, or having some other form of "hard money," would encourage savings because people wouldn't lose the value of what they have saved to the inflation caused by expansions of the money supply and credit based on nothing.

 

[DRV45N05]

Growth does require investment, and investment does require borrowing. But investment also depends on SAVING and EXPECTATIONS about the economy. In a sound economy, assets that are borrowed are PERSONAL SAVING. The problem right now is that under our current fiat system and deficits, investment is primarily being driven by two things: creation of credit out of thin air, and foreign capital. This is fine for investment in the short-term, but what ultimately happens is:

* The erosion of the value of assets by price increases, thus inhibiting saving long-term with increased expected inflation and influences people to substitute saving for consumption;
* The collapse of foreign investment as the value of the currency on international markets collapses;
* The absorption of private savings by the government;
* The collapse of fiancial markets under too much debt, which worsens economic expectations long-term and discourages investment;
* And on and on.

In a sound economy with sound growth with a healthy financial condition long-term, you need high private saving to finance investment, you need the government to maintain balanced budgets, and you need a monetary system that isn't exclusively government-run and in which a central bank does not try to steer the economy by manipulating credit and bring about all of the negative consequences that come from it.

 

[mleclerc]

msl_ gold is money

msl,
There are many web sites and videos that will help you to begin learning about money. You can quickly learn that changing our money system back to a gold standard is not complicated. The change would not limit investment so much as it would limit speculation, wild risk taking, and inflation. The money in circulation would retain value over time, limited to approx. 2% max growth as new gold is mined from the earth. As the economy grows, this limited money supply would grow in VALUE with it, not become debased as the fiat system ensures today and it would be possible to allow some fractional reserve adjustments as the needs of the economy demanded, which directly addresses your friends point. The key is that the reserve requirement would not be controlled by the private Fed Reserve Bank but by congressional order.

"Money Masters" and "Money as Debt" are two good threads to search on with many associated videos. Also kitco.com has many contributing writers that address hard money policy and the mess our fiat money supply has created.
Also, MANY great books are available; "The Creature from Jekyl Island"; by G. Edward Griffin is one... if you read this book, you will discover our world and money as viewed by those who control it. First published about 15 years ago, it predicted the financial crisis of today and provides the history behind how these bubbles are INTENTIONALLY created, and why our government colludes to maintain it.

With the gold standard, a bank would not be able to create new money on the spot and call a loan you promise to pay an "asset" against which they can immediately digitally create even more new money for the sole purpose of charging interest thereon. This is known as our current system of fractional banking and there is currently NO LIMIT on rolling this practice forward exponentially until it collapses, so long as they can get new borrowers on the hook... like right now in the CREDIT CRUNCH... Completely predicted and what was always occured with every fiat money system ever conceived in world history... it is the nature of its design to boom and crash while the inflation rapes those who save and rewards the ones who create the cash as they then buy up the mess they create on the cheap.

 

[Unspun]

He is confused. We won't be able to PRINT money to borrow, but we will still be able to borrow.

 

[redpillguy]

Right now the corrupt monetary system confers a HUGE subsidy on the entire financial industry. This subsidy ultimately comes from the middle class and the poor. Inflation recently has been 8-12% because of the debt-based fiat money system and the ministrations of the Fed.

Here is a good explanation:
http://fskrealityguide.blogspot.com/2007/11/ron-paul-federal-reserve-and-gold.html

Given the high inflation, one would have to invest his savings at >12% in order to get ahead. Most people do NOT have the skills to do this. Even if you had SOME skills, you are still at a disadvantage vis a vis the insiders and other professional money manager types.

The idea that you can leverage money (i.e. borrow at a certain rate and invest at a higher return), is one way to get ahead if you have the skills. However...

You have uncertainty from the boom/bust cycles; your investment decisions are addled by this uncertainty; you can be wiped out in one bust cycle, more easily if you are leveraged, and you start from zero again. The insiders know when the bust cycles are and therefore profit from them.

With a sound money system, inflation would probably be zero, and any boom bust cycles would be very mild if not non-existent. There also wouldn't be an unfair advantage conferred on large corporations that can borrow money closer to the Fed's rate. You and companies can plan much farther in advance, and there is no unfair subsidy on the financial industry. Money wouldn't be as easy to borrow, but I don't see why you wouldn't be able to leverage money if you had the necessary skills.

 

[Hancock1776]

With sound money, bad investments are more costly. Since the money is a real asset and not just digits printed out of credit, there's more risk to investing. You can invest your own savings, or you can borrow someone else's savings through their bank.

This also means that when people make bad investments, there's no guarantee of getting bailed out by the Fed.

The practical upshot of this is that yes, the capacity for investment narrows, but investments become necessarily SMARTER, and the market is permitted to make corrections for "irrational exuberance" which, while painful, is necessary to keep an economy sustainable and healthy.

Consider it a "Sustainable monetary policy."

--

I should also add that under sound money, investors and speculators are forced to be very smart and conservative, lest they lose all their money. This turns them into a very valuable part of the economy, since successful investors are people who are good at seeing potential, and funding it.

 

[braumstr]

The system we have now encorages people to live beyond their means. They borrow money printed by the fed and use it to buy mostly foreign made goods, these folks are thus far willing to accept our funny money.

Individuals that borrow like no tomorrow and get in over their heads land in bankruptcy court like every 7 years where a virtual credit reset button is pushed and they start the cycle all over again.

So far, this has worked to enrich off shore manufactures, disassemble our own manufacturing base and artificially prop up our standard of living.

Anyones guess how long this can be sustained, but it seems risky to assume it can continue forever.

We back up the whole shabang right now with the barrel of a gun.

 

[hrdman2luv]

can someone explain this so I can re:

This is from a poster at The Truckers Report . com who continues to say that going back to the gold standard would be a disaster. Thsi is what he posted. Can anyone give me a rebuttle to his claims?

One year's worth of GDP for the USA (+/-) 14,000,000,000,000 [14 trillion]


All gold ever mined in history approx. 145,000 tonnes
All gold ever mined dollar value 3,451,000,000,000 [$3.4 Trillion]

one tonne of gold equated to a value of U.S. $23.8 million in September 2007 ($739/troy ounces

U.S. Gold Reserves 8,133.5 tonnes
U.S. Gold Reserves 8133.5 tonnes X $23.8 million= $193,577,300,000.

Makes no sense to go gold people

 

[user]

Less malinvestment.

hrdman2luv, that's not how anyone would want to go to a gold standard.

Anyway, this is all moot. For now, Ron Paul just wants to legalize competing currencies.

 

[fsk]

Anyone who says "going back to the gold standard would be a disaster" is a fool, troll, or propaganda artist. My attitude is "I don't waste my time on fools".

If you want a good analysis, as redpillguy said, go visit my blog.

 

[hrdman2luv]

Anyone who says "going back to the gold standard would be a disaster" is a fool, troll, or propaganda artist. My attitude is "I don't waste my time on fools".

If you want a good analysis, as redpillguy said, go visit my blog.

That maybe true, and really not worth the debate with this guy. But, I am not going to give up on this until I can explain Ron Pauls reasoning for returning to the Gold Standard. I myself, cannot understand it. Gold is only a metal, and other than it's beauty, hold no value to me. As in Oil. Which is needed. Gold is not needed. It only makes jewerly. Whether on your fingers, necks or (in some cases), teeth. But paper money pays my bills, allows me to drive to town instead of walking or riding a horse. It allows me to heat and cool my home for me and my kids. paper money allows me to do anything I want to do. I can't go to the store and buy groceries with gold.
I understand thats not exactly what Ron Paul is talking about. But if it's based on gold, then it means the same.

Is anyone else having a problem with this "Gold Standard" theory? In the concept of the USA having more money than we have gold to back it?

 

[Enoch]

Anyone who says "going back to the gold standard would be a disaster" is a fool, troll, or propaganda artist. My attitude is "I don't waste my time on fools".

If you want a good analysis, as redpillguy said, go visit my blog.

Well that's a pretty good open minded opinion to have and you're such a fine representative of your viewpoint. How anyone could not agree with you I don't understand. Your charm and humility exudes from your words and we have nothing to fear from the fascist mongrels we've come to know with you blogging the gospel.

Ya know, I follow the words of One who warns about calling people "fools" so I'm not going to return stone for stone. But how returning to the gold standard doesn't enslave us to the World Bank, as Europe is and was during even the days of the Roman Empire and later under the Knights Templar, eludes me.

There's 2 large separate sides working to monopolize us, yet I believe they work for the same purpose.

We are free in this country under congress to issue debt free greenbacks at any time and don't need gold nor funny electronic barcodes, or stock or anything but the power of the law to back it. The filthy lucre stained hands of the gold bearers or the oil barons cannot get involved and it's the simplest idea in the history of man. We've done it in the Revolutionary War and the Civil War but then the Central Bank crept in and now we are slaves.

Furthermore, if there's enough gold in the world to back even our debt alone, then someone has figured out how to make it from mudpies and it's as worthless as a mudpie and hardly "rare" at all.

 

[Enoch]

Here..

http://209.85.173.104/search?q=cach...periment&hl=en&ct=clnk&cd=13&gl=us&lr=lang_en
http://www.media.mit.edu/physics/publications/papers/98.06.sciam/0698gershenfeld.html
http://www.uibk.ac.at/exphys/ultrac...s/ultracold/projects/rubidium/dark/index.html
http://www.dhushara.com/book/quantcos/qnonloc/eraser.htm
http://www.lifesci.sussex.ac.uk/home/John_Gribbin/quantum.htm
http://www.uibk.ac.at/exphys/ultrac...s/ultracold/projects/rubidium/dark/index.html
http://www.space.com/businesstechnology/technology/quantum_teleportation_010926.html

I suggest you take a break from you blog and read those links and understand the advancing world we live in today. To base any full blown new world economy on the molecular structure of a metal only insures the future dismantling and reassembling of said flimsy standard. I find it very hard to believe the master minds of the world's economy are not aware of the future advancements of science and the fable of turning lead into gold, is on the horizon of reality. Unless you are telling us these experiments are not real and these scientists are part of a secret propaganda machine with nothing better to do than foil your blog.

 

[DamianTV]

Section 8 - Powers of Congress

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

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

Personally I would like to go back on the gold standard but I can understand that if taking 20 DOLLARS and making that equal to ONE OUNCE OF GOLD, well, that would kind of create a bit of a problem as gold is something insane like $800 for an ounce. What that means to you and me is taht the dollar in your pocket is worth about 40 TIMES LESS than it was when we were on the gold standard.

So if gold doesnt work, or the associated value of it does not work, congress does have the power to REGULATE THE VALUE THEREOF, and can set, hopefully statically, a different value to it. A standard or something to back the dollar is absolutely needed but it need not be gold. Kennedy tried to put us back on a standard with SILVER as the standard. A standard is designed to regulate BANKS, not the government. And the absolute worst thing we can do is to take one step backwards and have a FRACTIONAL RESERVE. That doesnt work either because the money is over printed and run out, causing the same problem that we have right now.

A standard is needed, and currency is the ultimate law of the land.

Couple of interesting videos on the problems with money that is not backed:

http://video.google.com/videoplay?docid=5232639329002339531 Google Video: Fiat Empire
http://www.youtube.com/watch?v=_dmPchuXIXQ

Fix it by having a standard and congress issues the money interest free.

“The Colonies would gladly have borne the little tax on tea and other matters had it not been the poverty caused by the bad influence of the English bankers on the Parliament, which has caused in the Colonies hatred of England and the Revolutionary War.”

"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."

(also)

"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the government at defiance. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

The Refusal of King George the III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the Money Manipulators was probably the prime cause of the Revolution.

Benjamin Franklin

We need an honest money system.