money "out of thin air" is an emotional appeal

[wd4freedom]

No, absolutely no.

Attach the fricken dollar to gold, I don't give a shit what every other currency in the world does. Selling us off bit by bit is how we got into this shit, Trade will always continue. Fortunes will still be made. But what you are ascribing is the exact thing that is resulting in the destruction of the largest middle class on earth, and bringing about the downfall of the most technologically advanced, and prosperous society the world has ever seen in the entire history of the human race.

I think you mis-interpeted my statement. I have no problem attaching the dollar to gold or any other form of precious metal which can be used as the "calibration source" because in effect that is all it is. Gold is a benchmark. You can't eat gold. It is a great benchmark because it is scarce, it lasts, and there is a relatively fixed amount of human effort required to mine, trade, and store it.

However, if we do this recalibration right now given the complete non-worth for the "dollar", then a substantial portion of the middle class will be wiped out and will not be recoverable. We must get some amount of faith back to the dollar in order to "re-peg" it to a standard.

So how do we get some faith back in the dollar? Get others external to the USA to buy our goods, capital and services. Once we have some level of restoration, then reset to the gold standard. My little retriement account has lost (in real terms) about 35% of its purchasing power value just in the last 2 years, even though the actual number has gone up. I would prefer to get some of that worth back by restoring the purchasing power of the dollar.

Resetting to Gold today, right now?? Ouch.

And please refrain from your vile language- not too flattering and substantially lessens your ability to make a sound argument as it turns off your audience.

 

[Danke]

Debt does more than simply transfer idle funds to where they can be put to use -- merely reshuffling existing funds in the form of credit. It also provides a means of creating entirely new funds -- funds needed to finance the greater volume of new projects and spending that contribute to economic growth.

Again, checkable deposits in commercial banks and savings institutions are debts -- liabilities of these depository institutions to their depositors.

But checkable deposits are also the money used for most expenditures.

How do these deposit liabilities arise?

For an individual institution, they arise typically when a depositor brings in currency or checks drawn on other institutions. The depositor's balance rises, but the currency he or she holds or the deposits someone else holds are reduced a corresponding amount. The public's total money supply is not changed. But a depositor's balance also rises when the depository institution extends credit -- either by granting a loan to or buying securities from the depositor. In exchange for the note or security, the lending or investing institution credits the depositor's account or gives a check that can be deposited at yet another depository institution. In this case, no one else
loses a deposit. The total of currency and checkable deposits -- the money supply -- is increased. New money has been brought into existence by expansion of depository institution credit. Such newly created funds are in addition to funds that all financial institutions provide in their operations as intermediaries between savers and users of savings.

 

[Gilby]

As Aravoth said...usury (charging of interest) is evil; it allows money to be gained and earned by doing nothing...worse yet, with our system, if everything goes bad, there's always the Fed+FDIC to bail you out.

Charging interest isn't evil. It's simply compensation for the opportunity cost of using that resource yourself.

Another thing you all need to see is that in this global economy there really is no such thing as a "fiat" currency any more. All currencies are traded against each other essentially as commodities.

They are fiat. Just because they fluctuate in the market, it does not mean they are not a fiat currency.

The dollar is not truly "fiat." It's value is not held up just by our government alone.

The government's ability to use coercive power, it's ability to tax the people, is what holds up what we commonly refer to as the dollar today.

unless cheaper alloys of metal are substitued for previous coin or smaller amounts of metal are used....it needs to be set like a ounce of silver is a dollar, an ounce of gold is $50, an ounce of platinum is a $100....with a set amount of every commodity to be used for currency that cannot be changed.

No, you do not want these to be fixed. Let silver fluctuate with gold. Fixing them happened in the 19th century and caused many problems. Instead, we should do something like "silver grams" and "gold grams" for our currency, along with similar things for the other metals we choose to use.

Please tell me, exactly what is a Federal Reserve Note redeemable in? And don't say goods and services, cause we're all loosing the ability to buy those every single day because those "notes" are becoming more and more worthless.

It's technically only redeemable by the US Government to pay off it's debt to the Federal Reserve. The US government, since they have a lot of debt to pay off, have forced it on us to pay any liabilities we owe to the US government.

A dollar still is 371.25 grains of pure silver.

 

[scotto2008]

I don't see how charging interest on a loan is doing nothing. The one who issues the loan is taking a risk. Taking a risk requires judgment, action, perhaps market research. How is that evil? Also, I thought usury was *excessive* interest. And what excessive really is is a subjective thing, I think.

entirely subjective. Mises points out that interest will always exist because of the time value of money, i.e., people generally prefer to have something now than in the future.

People who lend are sacrificing the immediate use of their money for a fee. The money supply is not changed, because the purchasing power is just temporarily transfered from the lender to the borrower.

The "thin air" part comes when banks lend money that is supposed to be in safekeeping or available on demand from the depositor. In this case, the money supply is increased because both the depositor and the borrower technically have an immediate claim on the money.

In the old days, a bank that did this would eventually go bankrupt. Now it's bailed out by bigger banks or the taxpayers.

 

[Zippyjuan]

No, you do not want these to be fixed. Let silver fluctuate with gold. Fixing them happened in the 19th century and caused many problems. Instead, we should do something like "silver grams" and "gold grams" for our currency, along with similar things for the other metals we choose to use.

Do you mean to have the dollar fluctuate in respect to the value of gold- ie let gold increase or decrease in the amount of dollars it is worth? If so, that is the situation we are in today. If you mark your currency to only one metal then the relative values of the metals are free to change. It would be too confusing to have "silver money" at the same time as "gold money" unless they were defined as a fraction of each other meaning fixing their relative prices.

It's technically only redeemable by the US Government to pay off it's debt to the Federal Reserve. The US government, since they have a lot of debt to pay off, have forced it on us to pay any liabilities we owe to the US government.

Not true.
"This note is legal tender for all debts, public and private" is on every Federal Reserve note. They are not only good for debts to the government. They can be redeemed or exchanged anywhere for anything- even gold- if you have enough to meet the price the seller is asking. It is true that you cannot exchange them for gold with the government- but in the private markets you can.

The government debt is owed to the holders of Treasury notes and other government securities- not the Fed.

 

[scooter]

It's technically only redeemable by the US Government to pay off it's debt to the Federal Reserve.

No. A dollar is redeemable for other foreign currencies, for commodities, products, services, and numerous other things. It is backed by the markets that are willing to use it.

They are fiat. Just because they fluctuate in the market, it does not mean they are not a fiat currency.

And no, the dollar and other currencies are not really fiat any more. They trade on the open market across the entire globe, essentially as commodities. Fiat means they are enforced by government decree only. Centuries ago when China and other non-global economies issued paper money, it was truly fiat. In today's world with every government on paper money, they are no longer ruled by government decree only.

I can't really drill this any harder. Paper money definitely has a backing. It is far from "thin air" or entries in a book. Paper money is backed by whatever goods and services it can buy in its economy. It is essentially a government-created commodity, trading around the world by the rules of supply and demand. Print too much of it, and it will buy less things around the world and will trade for less compared to other currencies.

Backed by nothing... definitely not.

 

[scotto2008]

A dollar is redeemable for other foreign currencies, for commodities, products, services, and numerous other things.

I think we're talking semantics now. "redeemable" currency historically has referred to paper that can be redeemed on demand from the government for a designated amount of commodity such as gold. It doesn't mean that you can't trade it for products or services, because in that case it wouldn't even fit the narrowest definitions of money.

Paper money is backed by whatever goods and services it can buy in its economy. It is essentially a government-created commodity, trading around the world by the rules of supply and demand.

Mises would disagree that paper money is a "govt-created commodity." A commodity has intrinsic value. The value of paper money is that the government decrees by "fiat" that it is legal tender, hence it has exchange value far beyond that of the commodity -- paper -- that it's printed on.

Incidentally, Mises did not believe that a government could create a pure fiat currency without first making the currency redeemable in some already-accepted form of commodity money such as gold, then gradually breaking the connection until it was completely fiat.

Print too much of it, and it will buy less things around the world and will trade for less compared to other currencies.

I think we can all agree on that...

 

[Gilby]

No. A dollar is redeemable for other foreign currencies, for commodities, products, services, and numerous other things. It is backed by the markets that are willing to use it.

Why is the market willing to use it? If we sever the acceptance of the dollar bills by the Federal Reserve from the US government, then what will the market value of the dollar bill at? Zero.

It's not redeemable for any product or service by you and I, it's simply can be traded by you and I with whoever wants to accept it, but once that connection between the Federal Reserve and the US government is severed, it becomes worthless in the market to you and I.

And no, the dollar and other currencies are not really fiat any more. They trade on the open market across the entire globe, essentially as commodities. Fiat means they are enforced by government decree only. Centuries ago when China and other non-global economies issued paper money, it was truly fiat. In today's world with every government on paper money, they are no longer ruled by government decree only.

Using your logic, there is no such thing as fiat currency then, ever. Again, if the government decree is severed, would the dollar bill have any value to be traded anymore?

Do you mean to have the dollar fluctuate in respect to the value of gold- ie let gold increase or decrease in the amount of dollars it is worth? If so, that is the situation we are in today. If you mark your currency to only one metal then the relative values of the metals are free to change. It would be too confusing to have "silver money" at the same time as "gold money" unless they were defined as a fraction of each other meaning fixing their relative prices.

If the market would think it's too confusing, then the market will settle on one as the dominate one, probably silver.

The problem when you fix the value between them is that it will invoke Gresham's Law in which the bad will drive out the good and only one would be used in the marketplace. If you let them fluctuate, then they both could be used.

"This note is legal tender for all debts, public and private" is on every Federal Reserve note. They are not only good for debts to the government.

If someone else is willing to accept it, sure. But it is ultimately a "Federal Reserve Note" and is an instrument to discharge debt that you owe to the Federal Reserve. Do you owe any to them?

I can issue "Gilby Notes" and even put on the note "This note is legal tender for all debts, public and private" and allow anyone to use them to discharge any debt they have with me. People may start using them in the market for trade of goods, but ultimately it's only good since I will accept it to discharge debt owed to me. If a lot of people have a debt with me, it may become a very common medium of exchange.

 

[scooter]

Using your logic, there is no such thing as fiat currency then, ever. Again, if the government decree is severed, would the dollar bill have any value to be traded anymore?

My point is that the modern global currencies, while being legal tender only by government decree, still trade on the open markets versus other currencies. As long as the government still exists (don't try to argue that ours is in danger) then our money will exists with some form of value. If that value kept pace or outpaced the value of foreign currencies, then it would be pretty sound.

The point is, they don't have to be exchangable for some metal to be "backed" by something. As long as they can be exchanged for the other currencies, then they are backed by whatever your economy is worth versus the number of them in existence. In my opinion, the argument for gold is not that it gives you something of value to back a paper money with. The only argument that I will accept is that it acts as a measure to restrict the growth of paper money. But even that proven to be futile in the past.

By the way, the Kurds have been trading Swiss dinars for decades, long after Saddam stopped treating them as legal tender in Iraq.

 

[Pianist4Freedom]

My point is that the modern global currencies, while being legal tender only by government decree, still trade on the open markets versus other currencies. As long as the government still exists (don't try to argue that ours is in danger) then our money will exists with some form of value. If that value kept pace or outpaced the value of foreign currencies, then it would be pretty sound.

The point is, they don't have to be exchangable for some metal to be "backed" by something. As long as they can be exchanged for the other currencies, then they are backed by whatever your economy is worth versus the number of them in existence. In my opinion, the argument for gold is not that it gives you something of value to back a paper money with. The only argument that I will accept is that it acts as a measure to restrict the growth of paper money. But even that prooved to be futile in the past.

By the way, the Kurds have been trading Swiss dinars for decades, long after Saddam stopped treating them as legal tender in Iraq.

Yep. Anything can be money. Since I realized how the different systems worked, I realized all fiat systems will be bolted on top of already existing money supplies. So in an economy based on silver and gold, the government will come along and say: "Give me all your metal and I will give you paper with the same denominations to buy things at their current prices." At the instant that swap occurs, everyone now has paper instead of metal, but because they are the same denominations, they have exactly the same purchasing power. The problem from then on of course is the inflation, which as you say is restricted if the money is a commodity that can only be acquired by digging it out of the earth.

I wonder if anyone has proposed having a gradually increasing paper money supply, regulated by computers. That is, the government would literally print or spend money into the economy as it became available in some computer regulated government account. This would be similar to just minting gold coinage and spending it into the economy. However as will be pointed out that would require restraint on the part of the government, and I don't really trust the government to have restraint. But at least if it worked that way the money that was spent into the economy would not be debt, it would be a liability to no one. I think in that sense we'd be closer to a "government created commodity." than the present debt money system.

 

[scooter]

Yep. Anything can be money. Since I realized how the different systems worked, I realized all fiat systems will be bolted on top of already existing money supplies. So in an economy based on silver and gold, the government will come along and say: "Give me all your metal and I will give you paper with the same denominations to buy things at their current prices." At the instant that swap occurs, everyone now has paper instead of metal, but because they are the same denominations, they have exactly the same purchasing power. The problem from then on of course is the inflation, which as you say is restricted if the money is a commodity that can only be acquired by digging it out of the earth.

I wonder if anyone has proposed having a gradually increasing paper money supply, regulated by computers. That is, the government would literally print or spend money into the economy as it became available in some computer regulated government account. This would be similar to just minting gold coinage and spending it into the economy. However as will be pointed out that would require restraint on the part of the government, and I don't really trust the government to have restraint. But at least if it worked that way the money that was spent into the economy would not be debt, it would be a liability to no one. I think in that sense we'd be closer to a "government created commodity." than the present debt money system.

Actually, there were quite a few economists a few decades back who did some research on expanding the money supply by some fixed rate each year, say 3-5%. Some of the Chicago-school economists proposed that, and also proposed methods to increase the money supply based on growth and economic statistics.

A guaranteed 3-5% growth is actually not too bad of an idea. If you did not let government deficits go above that standard level, then you could almost guarantee inflation would not rise above 3-5%. True 3-5% inflation is very manageable and I think it would be an interesting way for the government to manage the currency.

Of course, they'd have to admit that inflation is directly tied to increases in the money supply for something like that to fly. As it stands now, they wrongly still believe they can increase money by 10% and hold prices to 3-5%.

 

[Mongoose470]

Not all emotional appeals are bad. It's when an argument rests solely on emotional appeals that we should reserve judgment. Without emotion as a tenet of reason, we become a civilization of cold, analytical Spocks. Logic, assisted by emotion, becomes a powerful tool of persuasion and argument.

 

[Gilby]

A guaranteed 3-5% growth is actually not too bad of an idea. If you did not let government deficits go above that standard level, then you could almost guarantee inflation would not rise above 3-5%. True 3-5% inflation is very manageable and I think it would be an interesting way for the government to manage the currency.

Maybe better than what we have now, but it still requires coercive power to create demand for such a currency. If I just started to issue "Gilby Notes" what demand for them is there? The coercive power that exists today is the taxation system. I'll take FRNs in payment of whatever I offer, because I need those to pay any taxes the government thinks they can impose on me.

The constitution does not give the power to emit bills of credit to the government, so constitutionally, all they can do is coin Money. It also does not give them the power to make legal tender laws. The States have that power and they can only make gold and silver legal tender.

So who makes the money then? Well, the federal government coins them, but any paper money would be done in the market, likely by the banks, and likely indexed to some common index, which may be gold or silver.

In a free market, the "money supply" is everything that can be easily traded, and we may hold and exchange notes issued by banks that represent what they have in safe keeping for us. The money supply therefore expands and contracts with the available goods and services in the market.