jon_perez explain yourself

[Bradley in DC]

See, this is a big issue. This what the 'trolls' do. I say "troll", at this point, because when given questions and you just keep playing round robin or deflecting with questions or steering the conversation is dishonest.

I would say, 'IF' he doesn't answer your question point blank. Then you should dismiss him as he dismisses your questions.

Liberals/socialists do this alot. Do you think he actually read ANY of your resources or references? It is like a neocon. You use references to foreign policy, and writings that support your argument and they still parrot their same position. I think his ONLY reason here is to dissuade those from following or believing in Ron Paul's monetary policy, OR just any opposition to the 'current' money policy implementation.

See, he controls the threads because he uses your passion for monetary policy against you. He/she knows that you will get sidetracked by his/her nicely veiled attaks and insinuations.

He has not read the references provided, no. That is pretty obvious. Nor do his responses generally acknowledge an understanding of the explanations I give, no. He was, I suspect, frustrated that I restated my singular question in every post when I answered.

 

[AoiMasamune]

I would like to interject at this point that I am not a troll as fsk has indirectly refered to me. I jumped in to defend jon_perez because I felt his concern held merit. I am a long time lurker, this was merely the catalyst that caused me to start posting.

That being said, I'm going to attempt yet another thread to address this in a civil manner because I really want to find a solution.

I still don't think jon is a 'troll'. I don't think he is an economist, I'm not either. I'm a normal joe computer programmer, who also has a love for philosophy and economics, in that order. After going back and reviewing way too many pages of posts, I am going to suggest once again that what is going on here is entrenched defense positions causing both sides to not listen to the other. Theres too much debate of semantics and vocabulary going on to allow for a meaningful discussion of ideas.

 

[Bradley in DC]

Theres too much debate of semantics and vocabulary going on to allow for a meaningful discussion of ideas.

Or, jon_perez could just stop obfuscating and answer direct questions.

 

[jon_perez]

We could go back and forth about who is trolling who, but the simple fact is that I was the one who asked the question first and instead of getting some real answers, what I got was malicious innuendo regarding my motives and more questions in return.

I asked: In a gold-only standard, what would prevent bankers from charging an interest rate higher than the rate of increase in the gold supply and gaining proportionally more and more control of the supply?

There were in fact, a couple of replies which were worthy of consideration, but I notice that the people who resorted to hasty innuendo were the ones who did not bother answering the question satisfactorily in the first place. Simple question deserved a simple answer.

In fact, I finally came up with one myself that I could tentatively accept: bankers would compete with each other to offer the lowest lending rate. But that presumes that cartels and monopolies would not arise. One successful example - Scottish banking of a particular period - is not enough because it might have been an exception. Just like we could allow for the fact of high inflation arising in a gold-money regime (Spanish empire) might have been an exception.

Also, another important question went unanswered:

How would it be feasible for the US to unilaterally go on a gold standard? Wouldn't this allow other countries on fiat to drain US gold reserves?

Stop thinking like a socialist. Not a personal attack, but seriously: instead of macro, join us and think micro. The fallacies of oversimplified "aggregate supply and aggregate demand" (and yes, this one time, I'm putting words in your mouth) are well established.

Ok, at least we've established something. You are of the opinion that the field of macroeconomics is largely bogus. Macroeconomics, to go by that, is a tool of socialism (and so even Friedman would count as a socialist... )

This is probably the reason why the whole debate is such a nonstarter. Your viewpoint is so far to the "right" that you refuse to even engage using the vocabulary of current monetary thinking. I can appreciate to some extent why, but you have to realize this is why you have your work cut out for you.

May I suggest then that you ought to try harder and not resort to unsavoury tactics next time? More power to you in your quest, and I mean that sincerely. But I'm sure you recognize other people's right to remain agnostic about the issue and have the freedom to ask questions.

 

[TaxSlave]

I'll try to answer your question, from an amateur's view:

A gold-only standard would be the same as a fiat money standard, except with a limitation on inflation.

Which one is more dastardly? A banking system hoarding gold (and putting itself out of business in the process if it takes it all out of circulation), or valueless debt money that is created with unpayable interest? I'd say the nonlinear increase in interest debt is the more dastardly because of the fact that not only is the creation of the notes without value a crime, but charging the bearer interest on them indebts us in perpetuity. And it is the more dastardly because ever greater amounts of new debt money must be lent to satisfy the interest payments, so recession or collapse is inevitable, and in either event the bankers end up with all of the money and all of the property.

As has been explained in other posts, the removal of government force, to allow competing or alternative currencies, provides a market mechanism to stop hoarding of gold. If gold becomes very rare from hoarding (prices fall), people will stop selling their goods for such a small amount of gold if they can do better with debt instruments or other metals. I'll add to that my opinion that the government's constitutional role in all this is to maintain a standard of weights and measures. The constitution allows states to make their own coins, as long as they are of gold and silver. And it allows the states to make their own legal tender laws (which might be subject to abuse).

If wealth keeps getting created and the supply of metals were static, it simply results in lower prices, same as or better than getting taxable interest on deposits. But as long as other metals or debt instruments can be traded, the public is protected from the theft of all of their wealth. Debt instruments can be and are traded as money, and if the terms are better than borrowing gold at interest, who would borrow gold?

On the other question, as to whether other countries' fiat money could drain gold reserves (whose reserves?). Only if the gold were traded for the fiat currency at a fixed rate. Why would you sell your gold for paper that falls in value?

I'm nowhere near as well schooled as Bradley on this subject, but that's an honest attempt by me to examine the issues you raised.

That said, I don't believe you have been very diligent at explaining the basis for your positions. Why don't you at least attempt to answer the question?

 

[jon_perez]

I'll try to answer your question, from an amateur's view:

A gold-only standard would be the same as a fiat money standard, except with a limitation on inflation.

True. The theoretical danger with a gold standard that I posited was the opposite: deflation, high interest rates and massive unemployment brought about by *too little* a money supply. My question that remains unanswered: What free market mechanism(s) would prevent cartels and monopolies from arising that artificially constrict the gold supply?

Which one is more dastardly? A banking system hoarding gold (and putting itself out of business in the process if it takes it all out of circulation),

How easily you forget history, Americans have railed against a pure gold standard in the past and blamed "foreign bankers" for constricting the gold money supply. This made life extremely difficult for businesses who owed banks money. Falling prices meant lower income for businesses, which means less money with which to pay the bank's interest. And if businesses are unable to pay the interest, foreclosure results:

See http://en.wikipedia.org/wiki/Bimetallism, http://en.wikipedia.org/wiki/Coinage_Act_of_1873 and http://en.wikipedia.org/wiki/Panic_of_1893

I'll add to that my opinion that the government's constitutional role in all this is to maintain a standard of weights and measures. The constitution allows states to make their own coins, as long as they are of gold and silver.

Of course the problem of bimetallism crops up again. What is the proper ratio between gold and silver? The answer is the government cannot/should not set such a ratio and would instead have to let supply and demand set it.

Why so? Because if the government made silver and gold coins that, for example are worth 25 cents (silver) and 5 dollars (gold) respectively, for a ratio of 1:20, when gold prices are above 20x silver, people will be encouraged to hide (or melt) their gold dollars and the economy will effectively move towards monometallism. Gresham's Law - "bad money drives out good". This *has* happened in the past.

This is why the most conservative step that can be taken is merely to remove capital gains taxes on holding of gold and silver and not necessarily create gold/silver coins or even back FRNs with silver/gold. Untaxed gold/silver transactions would act as a warning canary for when the Fed inflates the money supply. This, of course, already occurs today, but taxes add a fair bit of 'friction' to the process.

Debt instruments can be and are traded as money, and if the terms are better than borrowing gold at interest, who would borrow gold?

FRNs can be thought of as debt instruments, but due to fractional lending, grossly inflated ones.

Why can FRNs be loosely considered as "debt instruments"?

First of all, contrary to any misrepresentations that you may have heard, the Fed does not create money 'at will'. Money is created when banks or the government borrow from the Fed, hence 'debt-based money'. The Fed lends to the banks presumably with the bank's assets as collateral and to the government presumably with the nation's assets (incl. taxes) as 'collateral'. Stop the government from borrowing too much from the Fed and you will have removed much of the impetus for the creation of new money.

The real power of the Fed is in setting interest rates. The Fed cannot increase the money supply if no one borrows from them, *however*, if it sets interest rates at a very low level, it would encourage a lot of borrowing and *this* is what will possibly lead to an inflated money supply. Throw in situations where the Fed engineers bailouts of financial institutions that are deemed 'too big to fail' by 'injecting liquidity' or by aggressively lowering interest rates and you get your recipe for inflation.

On the other question, as to whether other countries' fiat money could drain gold reserves (whose reserves?). Only if the gold were traded for the fiat currency at a fixed rate. Why would you sell your gold for paper that falls in value?

I'm thinking of the situation wherein USD notes are redeemable for (e.g. backed by) gold but other countries' currencies aren't. Example: The US imports from China and pays for it with gold-backed USDs. China can then opt to either spend its USDs by buying US assets or can exchange it for gold. Now, if the yuan weren't redeemable for gold, the gold flow would essentially be one-way.

 

[TaxSlave]

I didn't advocate for a gold-only or bimetallism-only standard. Either creates an artificial standard of value by fiat. If the government plays its role by setting standards for weights and measures, but doesn't use legal tender laws to make other forms of currency illegal, then it will be unproductive to try to artificially restrict the gold or silver supply. Coins can be by weight and purity of whatever metal, and taxes can be percentage of value, expressed in conversion to any of a number of different value units.

I already know FRN's are debt instruments. When I spoke of debt instruments, I meant debt instruments backed by something other than faith and a gun, with unpayable interest attached to its creation and spent into the economy without any value creation first. A mortgage, bond, or IOU would be a legitimate debt instrument with real value. As opposed to FRN's which put us in perpetual debt servitude to those who create nothing of value.

If China has paper money and sells goods for real money, it seems that the paper money would quickly collapse. Why would people there sell for paper when they can get value instead? And what good would it do for Chinese people to just hoard gold rather than spend it? If we continue to outlaw production here as we do at present, and the trade imbalance continues, and the Chinese want to buy U.S. assets, who here is going to sell them for yuan?

It's been awhile since I self-schooled in this stuff. Anyone with better knowledge, please correct me.

 

[TaxSlave]

In other words, with competing forms of currency, if one becomes rare, people will switch to others, and those holding the rare form will have every incentive to spend it after its relative value goes up.