The World's Biggest Debtor Nations

silverharp

Nody wrote: »

ROFL; you've just said that gold in itself do not have a value yet you turn around and claim that it is sound money? And yes, the money will lose value over time for the simple reason that we're going to constantly dig up more gold which means a constant increase of money which means constant pressing of new bills. Why? Because you're not going to accept to keep on working for the same salary for your full career. The prices in the store are going to go be going up, the bills you pay for power will go up etc. as this is standard fluctuations of any commdity; so now you're going to ask for a salary increase. Once you ask this you're creating a demand for the system to have more cash available (since people are living longer the pensions have to be paid longer so the input/output flow of cash to new vs. people dying is constantly meaning more cash needs to be in the system or everyone takes a constant pay cut), inflation require more cash which drives also the fact we're digging up more gold to print it.

Suddenly your gold backed currency is not buying as much because an ever increasing supply of gold is now worth less due to inflation.

just curious , are you using that point to justify the the nominal money creation since say 1970? the average gold production on a yearly basis is about 2% , which would have led to more stable prices? remember that in theory mild deflation is the natural order of things which reflects increased productivity over time.
The global economy is now reaching a breaking point because of the build up of unproductive debt not attached to real economic output. Credit creation was too easy and its hard to see a central authority ever getting it right. The market would have been more stable if there had been a more natural market based on savers and borrowers transacting as they see fit.

Nody

silverharp wrote: »

just curious , are you using that point to justify the the nominal money creation since say 1970?

No the point was that gold is not a stable commdity with a fixed value that never changes (the original idea) and always buys you the exact same item with the same amount of gold. Gold increase, and decreases, in value over time and hence does not provide a permanent stable back up for a currency where 1 ounce of gold buys you product A, B and C now and the equalent product 100 years from now for the same amount.

One of the biggest mistakes in the global economy was allowing companies (esp. banks) to become "to big to fail". This removes the whole point of the capitalistic system because it has all the upsides (high risk, high profit) but very limited, if any, downsides (loss of money) because the governments (i.e. tax payers) will bail it out. A lot of this can be tracked back in the US as well with deregulation under Bush and Clinton (so no throwing egg at either side of the party line) for example.

In any system you can't have one party getting to big/strong as not to be allowed to go under; if it does there needs to be a break up into smaller entitites even if that means a higher cost. How ever because people tend to be short sighted and demand reward now that usually don't last long as they buy politic, sorry, donate to their campaigns, for their private profit.

silverharp

Nody wrote: »

No the point was that gold is not a stable commdity with a fixed value that never changes (the original idea) and always buys you the exact same item with the same amount of gold. Gold increase, and decreases, in value over time and hence does not provide a permanent stable back up for a currency where 1 ounce of gold buys you product A, B and C now and the equalent product 100 years from now for the same amount

it does a pretty good job though, in your gold chart much of the variance comes down to currency inflation or fear of over time. Prices in the US before 1970 were reasonably stable when the dollar was pegged to gold at $35/oz. absolute price stability would not even be logical in all cases, for example if an oz of gold bought 100Kg of meat in 1900 one would expect an oz of gold to buy more then 100kg today based on increased productivity during this period , there is no moral case to be made for creating artificial inflation, the process may have exaggerated speculation and it also creates an artificial transfer of wealth generally favouring the wealthy over the lower classes.

Nody wrote: »

One of the biggest mistakes in the global economy was allowing companies (esp. banks) to become "to big to fail". This removes the whole point of the capitalistic system because it has all the upsides (high risk, high profit) but very limited, if any, downsides (loss of money) because the governments (i.e. tax payers) will bail it out. A lot of this can be tracked back in the US as well with deregulation under Bush and Clinton (so no throwing egg at either side of the party line) for example.

I agree but would add the micro managing of the Fed , it simply isnt possible to coordinate interest rate policies especially when they have a mandate to support economic growth , you end up with the drunk and bartender model of economic management.

af_thefragile

Gold is a stable commodity with an almost constant value that will only slowly creep up over time. This is because gold is a non-renewable substance and only so much of it exists in the planet. We can't keep constantly digging out gold forever. At some point we'ld have run out of gold in the earth or it'ld become too uneconomical to go to extreme places on the planet to dig out the remaining gold.

Point about diamonds is that it can't be moulded into quantifiable portions to be used as a monetary standard. You could use platinum, titanium or any other metal though.

The fluctuations of Gold value you're stated there are a representative of the value of the currency not the value of gold. Gold is a stable commodity hence its still used as a standard to measure the actual value of currencies. If you plot a chart of the value of gold against another commodity like silver, copper, meat, cotton etc, you'll see that throughout the years the vale of Gold has remained fairly constant if not increased slightly because of the increase in productivity of other commodities due to the technological advances.

Again, the gold standard worked excellently since the beginning of history till 1971. But then suddenly now we find all sorts of flaws in it. Maybe the flaws are in the way the modern economic and banking system was functioning rather than the monetary standard itself!

With a gold standard, as seen throughout history, there was no inflation. There was only a slow constant deflation as that is the natural order of nature towards progress. As you progress your wealth should increase, your quality of life should get better, commodities should get cheaper, people should have more wealth and more time to spend. Instead since the introduction of the Fed, we're seeing the opposite. It was because of the involvement of the Fed with the market, which caused most of the market collapses, including this one. It was the Fed who offered the market all the drink for the market to get drunk.

Businesses getting big is a part of free market capitalism. When a business does good, it becomes big, when it becomes big, it can take bigger risks, when it takes bigger risks, it can produce a better product which in turn would serve the consumer better.
Instead of rewarding the success of businesses, if you decide to cap their progress, you're gonna cap the progress of the market. This is not capitalism. This is moving towards socialism. Everyone should get an equal share etc. etc.
This is the main reason why we're seeing the economic collapse of today.


I'm sorry, i'm not an economist to back up my words with fancy graphs, equations and statistics. But i know enough to be able to observe market trends. If you see a graph that is heading towards one direction for quite a while, it doesn't take a rocket scientist to figure out where its gonna head towards in the future. Also it doesn't take a genius to figure out how ridiculous the concept of creating money out of thin air and then charging interest on it is!
Also i don't get all my business and economic knowledge from BBC and CNN. I spend the time on the internet to follow what renowned economists and people with proper knowledge of the subject have to say about the current financial matters and predictions for the future.
Too bad the smartest of economics can clearly see (and have been clearly seeing for the past decade at least) how the market is heading towards total economic collapse. But too bad people can't digest the truth and prefer to remain in their bubble saying the government and institutions who created this very mess are gonna fix it all up for us and everything will be alright!

O'Coonassa

af_thefragile wrote: »

Also it doesn't take a genius to figure out how ridiculous the concept of creating money out of thin air and then charging interest on it is!

To me the issue of Representative Currency Vs Fiat Currency is a side issue compared with the aparrent lunacy involved in fractional reserve banking. Is there anybody at all out there who can explain or justify it?

eamonnm79

I know this is a controvercial viewpoint but I think one of the few things that the catholic church got right ever was when they outlawed usury (saw it as a sin) up until venice in the 1500's. I know that means growth would be a lot slower but is that such a bad thing? Look what the the fast paced growth has done to our planet. Another big mistake was relinquishing the gold standard in the world currencies. Arguing wheather gold is stable or not is not the point.
Its a lot better than a promise, which is all fiat money is!

eamonnm79

asdasd wrote: »

why does money have to be backed by anything? As long as people believe it has value, as a medium of exchange, it works.

If you have to back up money using a precious metal there are lots of dubious things that become a lot more difficult. Quantitive easing, Overleveredging, etc. In other words its harder to invent money on a screen and then just say it exists!

BTW people are loosing faith in it having value.

eamonnm79

O'Coonassa wrote: »

To me the issue of Representative Currency Vs Fiat Currency is a side issue compared with the aparrent lunacy involved in fractional reserve banking. Is there anybody at all out there who can explain or justify it?

If you have lots of customers, the chance of all of them looking for there money on the one day is very low. Also even if they did the central bank could bail you out while you liquidate your investments. Therefore you take a chance that it does not happening. Now once you only invest in things that appreciate there is no problem. Unfortunitely the whole first world underprices risk. This is because in a transaction we only take into account the effect of the direct transaction forgetting the related unintended effects.

Would the wold financial system be safer if fractional reserve banking was outlawed. Obviously.

But now there is a big problem. How can the banks lend? They no longer have access to savings which they can use for lending.

Actually there is an answer but Im not sure its ever been tried.
The bank does not lend untill it makes a profit. Only after making a profit may the bank use this money in order to lend. i.e. They lend using thier own money.

The majority of all our advancements in the last 500 years may not have happened if it were not for 2 things, lending and Ltd Liability. I mate told me the irish invented Ltd liability, not sure if it was just the Thai whiskey:)

asdasd

Actually there is an answer but Im not sure its ever been tried.
The bank does not lend untill it makes a profit. Only after making a profit may the bank use this money in order to lend. i.e. They lend using thier own money.

The (Misean) answer to fractional reserve banking is to have no reserves, indeed no banks, and one on one transactions. if someone wants a 30 year loan he needs to get someone good for the money who is prepared to lend money for 30 years. This means the lender cannot withdraw his money for that time since the borrower has it - interest can be charged of course, and payments made in installments.

good luck with that one. Money lending tis called.

silverharp

asdasd wrote: »

The (Misean) answer to fractional reserve banking is to have no reserves, indeed no banks, and one on one transactions. if someone wants a 30 year loan he needs to get someone good for the money who is prepared to lend money for 30 years. This means the lender cannot withdraw his money for that time since the borrower has it - interest can be charged of course, and payments made in installments.

good luck with that one. Money lending tis called.

When it comes down to it, leverage and credit creation out of thin air is the core issue, also moving away from the situation where dumb savers dont care where they put their money because they will be bailed out. It would be very possible to have a banking system where checking account balances are not lent out, and savers have the option of investing in a fund that lends to borrowers. As such the bank would be the market maker but the losses would fall on the savers not the bank. Credit would be tighter but you would have avoided the moral hazard of lending to people who could not possibly pay back loans. Would any sane peson have lent anyone 125% using a ninja loan?