Gold standard = no investment?

[gaazn]

velocity of money

money has to move to create wealth. the gold standard would make money move less. but in any case, someone has to stop the federal reserve from printing a lot of money at will.

 

[Bradley in DC]

I would've thought a "loose/easy" monetary policy is heavily associated with lower interest rates and not the opposite. Greenspan after all gets blamed for creating the mortgage crisis by keeping rates at 1% for along time.

There are, of course, different interest rates for different things, and importantly there is the inter-temporal issue (Hayek's triangles, Prices and Production), and there's a delay in effects of monetary policy, generally around two years for full effect according to the monetarists (Friedman and Schwartz seminal book) that isn't really refuted by anyone.

But, no, think about it logically and historically and by observations around the world: look at countries with very loose monetary policies producing hyperinflation and tell me that you would think they'd have low interest rates...

 

[jon_perez]

There are, of course, different interest rates for different things, and importantly there is the inter-temporal issue (Hayek's triangles, Prices and Production), and there's a delay in effects of monetary policy, generally around two years for full effect according to the monetarists (Friedman and Schwartz seminal book) that isn't really refuted by anyone.

But, no, think about it logically and historically and by observations around the world: look at countries with very loose monetary policies producing hyperinflation and tell me that you would think they'd have low interest rates...

So how does one define "loose" monetary policy then if not by looking at the interest rate (set by the central banks)?

My understanding so far is that central banks create money not directly but by setting/targetting interest rates and it is the mechanism of non-central banks borrowing from the central bank at such rates which accounts for the injection of new money into the economy.

I get the idea that high inflation means that lenders will demand a higher rate of interest, but your way of looking at it seems to be putting the cart before the horse. I am guessing also that we are talking about 2 different things here, you are talking about long-term interest rates and/or other rates not set by the central banks, whereas I was talking about looking at the Fed rates as a way of describing whether their monetary policy was easy or tight.

 

[Bradley in DC]

So how does one define "loose" monetary policy then if not by looking at the interest rate (set by the central banks)?

My understanding so far is that central banks create money not directly but by setting/targetting interest rates and it is the mechanism of non-central banks borrowing from the central bank at such rates which accounts for the injection of new money into the economy.

I get the idea that high inflation means that lenders will demand a higher rate of interest, but your way of looking at it seems to be putting the cart before the horse. I am guessing also that we are talking about 2 different things here, you are talking about long-term interest rates and/or other rates not set by the central banks, whereas I was talking about looking at the Fed rates as a way of describing whether their monetary policy was easy or tight.

Ah, there's the rub. "setting/targeting" are two VERY different things.

The Fed "sets" very few rates that have increasingly little relevance in the real world. This is just the way the economy, regulations, technological innovations, Fed rules, laws and financial innovations bring us. About $2 trillion dollars is transacted on the forex markets everyday (huge variations there of course) while DIRECT Fed actions on the SETTING of interest rates is comparatively nothing.

TARGETING interest rates is another matter. The FOMC's daily and multiple interventions in the bond market (increasing/decreasing the money supply) is the main issue. Simplistically, it is the Fed's monetizing of government debt that is the main problem (causing inflation and the resultant price increases of goods).

I'm referring to the "natural rate of interest" that there would be set by the market without artificial interventions by the Fed. It is a "loose" or "tight" policy when compared to what the real world would do without their shenanigans. In the real world, people are smarter than that and make accommodations. It is you, I believe, that is putting the cart before the horse.

 

[jon_perez]

Ah, there's the rub. "setting/targeting" are two VERY different things.

The Fed "sets" very few rates that have increasingly little relevance in the real world. This is just the way the economy, regulations, technological innovations, Fed rules, laws and financial innovations bring us. About $2 trillion dollars is transacted on the forex markets everyday (huge variations there of course) while DIRECT Fed actions on the SETTING of interest rates is comparatively nothing.

TARGETING interest rates is another matter. The FOMC's daily and multiple interventions in the bond market (increasing/decreasing the money supply) is the main issue. Simplistically, it is the Fed's monetizing of government debt that is the main problem (causing inflation and the resultant price increases of goods).

I'm referring to the "natural rate of interest" that there would be set by the market without artificial interventions by the Fed. It is a "loose" or "tight" policy when compared to what the real world would do without their shenanigans. In the real world, people are smarter than that and make accommodations. It is you, I believe, that is putting the cart before the horse.

Sure. But when someone uses the term "loose" or "tight" in the context of the Fed's monetary policy, they mean lower and higher interest rates (those that the Fed sets) respectively. I get what you're trying to say here, but to try to reverse the meanings of the terms that people generally use is to confuse people.

 

[hrdman2luv]

This whole gold standard thing is one reaon why people aren't turned on to Ron Paul. We, the average joe's of the country couldn't care less about what the money is backed by. We don't understand it, and don't want to. We want to have a job, pay our bills, take care of our families, and save as much as we can save.

Ron Paul needs to get off the gold standard. After doing some checking, I found that he has a huge amount of stocks in Gold. Gold is a good investment. But, to be a member of congress and have this much interest in Gold, doesn't look good.

 

[AceNZ]

We, the average joe's of the country couldn't care less about what the money is backed by. We don't understand it, and don't want to.

Yeah. That's the problem.

We want to have a job, pay our bills, take care of our families, and save as much as we can save.

And those are exactly the same reasons why you should care what your money is backed by. Some of the issues related to not having a gold standard include:

-- inflation (which pretty much doesn't happen on a gold standard) causes the business cycle, which means you can lose your job and be unable to pay your bills and care for your family when a recession happens
-- inflation is a hidden tax that steals from everything you save
-- inflation raises your taxes faster than your income goes up
-- how much did your income increase last year? if it was less than about 12%, you are losing ground to inflation
-- how many things do you buy to care for your family that are imported? the prices of those things are going up even faster than inflation because of the destruction of the dollar (a gold-backed dollar would be a very strong dollar)

Ron Paul needs to get off the gold standard. After doing some checking, I found that he has a huge amount of stocks in Gold. Gold is a good investment. But, to be a member of congress and have this much interest in Gold, doesn't look good.

Sorry you feel that way. So it's not OK to own gold stocks, but it is OK to own stock in companies like Halliburton? On what basis does owning gold stocks not "look good"?

 

[kyleAF]

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.

You also need to realize that the rampant consumerism cannot survive under this sort of system. Some people just can't live with that conclusion. I can, and think that in reality, we must.

 

[kyleAF]

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.

Ouch, man. Settle down!!

You may be correct in the philosopher stone prediction, but you've missed the point. There's no problem there. There's the solution.

Gold's got its worth owing to its natural properties. But its not the only thing that can work.

The question is this: what's the one thing that can never be created, nor destroyed...the same thing that is the principle behind the philosopher's stone. That's the source of wealth in this universe...as wealth can only be conceived of in the context of life. Life requires this one thing to keep living. Money (including gold) is a method of transferring it in an orderly and social fashion. Gold transfers it rationally, and prevents unsustainable excess, or "bubbles". Limitless paper money does not.

(Energy)

 

[kyleAF]

Human society has been an exercise in determining the best medium and context of exchange. Once we figure out how to counterfeit (and thus debase) gold, we'll have taken the next step toward the "real" money of the world.

 

[kyleAF]

That's (IMO) a good way off yet. And we've got MUCH more pressing issues at the moment: the crap paper and digital entry money that's threatening to sink us.

 

[spudea]

With the current inflation cycle, everyone is forced to spend now, borrow now, because a dollar today is worth more than a dollar tomorrow.

With the gold standard, we wouldn't need as much loans, because our money retains value. We would be able to SAVE tremendous amounts more. This saving capital is what would be used for loans. Loans are supposed to come from saving capital. But our current system is totally screwed up by the fed printing billions per day.

 

[spudea]

This whole gold standard thing is one reaon why people aren't turned on to Ron Paul. We, the average joe's of the country couldn't care less about what the money is backed by. We don't understand it, and don't want to. We want to have a job, pay our bills, take care of our families, and save as much as we can save.

The average joe NEEDS to care about their standard of living going DOWN! As inflation rises and prices increase, your average joe income is staying the same! Meaning you save less and less, so you are forced to work 50 hrs a week just to make ends meet...