Gary Johnson says auditing the Fed would cause a “worldwide panic,” praises the gold standard

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The following is a two-part interview from the Kitco News YouTube channel which was filmed at this past weekend’s Freedom Fest,uploaded on July 18th, 2016 (The descriptions provided before each video are taken from the channel):

The U.S. presidential race is entering its final leg and libertarian candidate Gary Johnson is gaining momentum as polls show frontrunners Hillary Clinton and Donald Trump are losing support from the American public. Gov. Johnson sat with Kitco News on the sidelines of this year’s Freedom Fest and comments on his platform and views on the Federal Reserve. “I do think that the Federal Reserve with its dual mandate should return to a single mandate, which is to control inflation as opposed to a dual mandate of inflation and full employment,” he said. On auditing the Fed, an idea presented by his predecessor Ron Paul, the candidate warned it could have negative consequences. “The reason we’re not auditing the Fed, I think, is because it would cause a worldwide panic of sorts,” he said. “The problem, and I don’t want to say problem because I support auditing the Fed, the issue with auditing the Fed is just the shock I think that it would probably create.”

(Video length: 5 minutes, 22 seconds)

Part 2 (Video length: 6 minutes, 7 seconds):

Libertarian presidential candidate Gary Johnson is gaining momentum in the polls as American voters seek alternatives to the current frontrunners, Hillary Clinton and Donald Trump. “People are hungry to vote for somebody as opposed to the lesser of two evils and wasting your vote,” he told Kitco News at this year’s Freedom Fest. Johnson also commented on gold and the idea of a gold standard, which he says wouldn’t be a bad idea. “I would love to have commodity-based currency so I would support legislation to have competing currency,” he told Daniela Cambone. “Obviously it’s very complicated but I would like to have a segment of my assets in a commodity-based currency.”

(Via American Third Party Report)

96 thoughts on “Gary Johnson says auditing the Fed would cause a “worldwide panic,” praises the gold standard

  1. Pete Blome

    He’s right. I’ve met people who actually run banks who don’t understand how currency is brought into existence, nor even understand how they are at a severe disadvantage to “primary dealers” and Fed main banks that get access to the discount window or bailouts when the rest of us don’t. If the working world knew how they were being taken advantage of by the fiat currency banking system, and an audit could do that, there would be panic. Instead we have the vast majority of humanity slaving away for bits of paper or digits while their wealth slowly gets transferred to the money creators through inflation and debt.

    Whenever someone tells me that the world needs this system to create more wealth and stability than there could be otherwise, I ask that if it is so good how come each of us cannot create money, or do fractional reserve banking? For little people that’s fraud. I also ask why do banks own everything nowadays, and why the bank has become the most prominent thing in society worldwide when it used to be gods, kings or heroes?

    Governments love fiat currency banking because it lets them bribe the country with what looks like free money. Now the central banks want to do away with cash so their hold on our lives, and the control of the government, will be undisputable.

    Don’t be so timid, Gary.

  2. George Phillies

    Once upon a time, someone accumulated a list of all of the different ways in which the Federal Reserve System is audited. It is a long list.

  3. Thane Eichenauer

    I don’t understand how any reasoning can connect audit the fed with panic of the people in general. Anger I could understand but panic? People in the US generally believe that new car buyers are gypped when buying their car but that belief doesn’t cause people to panic.

    I must admit that this is one example of how Gary Johnson is not ready for prime time.

    When discussing the audit the fed if the descriptions above are accurate Johnson connects an audit of the fed with “negative consequences”, “worldwide panic” and “shock”.

    I hope that he does a better job of selling benefits on other topics because on this topic I’d say he gets an F-.

  4. George Phillies

    Let me try this again.

    The Fed is currently being audited. Considerably.

    What does someone propose to audit that is not already audited, and why do you think anyone will care about the outcome.

    The world has regularly tried commodity-based currencies, and the results have not been good. Indeed, the English demand that a commodity-based currency (mostly silver) be used was a proximate cause of the American Revolution.

  5. robert capozzi

    te: I don’t understand how any reasoning can connect audit the fed with panic of the people in general. Anger I could understand but panic?

    me: Really? If the audit showed a severe challenge to the financial integrity of the system, or if as I’ve heard Ft. Know is empty, a financial panic would be highly predictable, I’d think.

    Anger, too, would be predictable.

  6. Thane Eichenauer

    As far as Fort Knox (United States Bullion Depository) is concerned, let’s say it IS empty. Functionally it is already empty because no outside party can rely upon empty assurances that everything is where it should be.

    http://www.usmint.gov/about_the_mint/fun_facts/?action=fun_facts13

    The Federal Reserve audit is of the Federal Reserve. I personally don’t think it is likely to show anything that isn’t already alleged. I don’t think that the people in general are going to panic over audit results that are far disconnected from their daily lives. The US and the world managed quite well when the FDIC was recapitalized. The US and the world when the financial crisis erased it in 2008.

  7. Thane Eichenauer

    “The US and the world when the financial crisis erased it in 2008.”

    was meant to read

    The US and the world when the financial crisis erased Lehman Brothers in 2008.

  8. Pete Blome

    George, you don’t know your history. In isolation, and not highlighting the “out of thin air” aspect of money creation, it is true the Fed has been audited. Their “profits” are regularly turned over to the Treasury. In the meantime the trillions printed up by the Fed, and the low interest rates set by the blatantly price fixing Fed Open Market Committee, make their way through the system, and make trillions for those comprising the biggest banks. This is never compiled or spelled out for the public. A real audit would wake a lot of people up since questions like “where did you get the four trillion to bailout the banks on 2008?” would come up (they just created it, like they did when they bailed out Continental Illinois Bank back in 19 eighty something). In addition, the English crown, following old mercantilist principles and the guidance of the English central bank (founded 1694), kept English hard money out of the colonies by forcing barter and letters of credit contracts while demanding payment for taxes in gold and silver. This action starved economic growth in the colonies. I read somewhere Spanish gold and silver coin was in greater use in the 13 colonies than English money was due to these policies, because the colonists could get hard money trading with the Spanish. You imply hard currency was to blame when it actually was government intervention.

  9. Jim

    George Phillies

    The Federal Reserve is partially audited.
    31 U.S. Code § 714
    Audits of the Board and Federal reserve banks may not include—
    (1) transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization;
    (2) deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations;
    (3) transactions made under the direction of the Federal Open Market Committee; or
    (4) a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.

    You are correct that the English demand for commodity based currency caused economic hardship among the colonies and that was a contributing factor for the Revolution. England’s demand came after the experiment in Mass. In 1749 England sent Mass. 21 tons of Spanish silver coins and 10 tons of British copper coins in payment for the French and Indian war contributions. Mass. used the coins to redeem all of its paper money and ban the paper money of other colonies. Rhode Island’s loose monetary policy resulted in 137% cumulative inflation between 1743 and 1751. In 1752, a payment by a business partner to Connecticut’s Roger Sherman in severely inflated Rhode Island scrip instead of the relatively more stable Connecticut scrip led Sherman to write his short pamphlet against paper money: A Caveat Against Injustice. Sherman then went on a 40 year crusade to ban all paper money. Mass, of course, went into a 2 year recession when it banned paper money, but then its economy improved dramatically and inflation was tamed. By 1756 Sherman convinced Connecticut to follow Mass. lead and it banned Rhode Island’s scrip and redeemed its own scrip at 11% of face value and returned to hard currency. Most other colonies continued using paper.

    Ben Franklin was one of the champions of paper currency. Not because it was particularly good for the economy, but because Franklin owned a printing company and was the Clerk for Pennsylvania. Franklin got all of the printing contracts for the colony, including for scrip. Franklin was just a colonial era crony capitalist.

    In the end, Roger Sherman won the argument. But not until after the Continental Currency hyperinflation debacle taught everyone a sharp lesson. It was Sherman who demanded the clause “No state shall make any thing but gold and silver coin a tender in payment of debts.” be placed in the Constitution.

  10. langa

    The world has regularly tried commodity-based currencies, and the results have not been good.

    If you believe that fiat currencies are superior to commodity-based currencies, then you shouldn’t mind legalizing both of them (as well as any other form of currency people want to use), and allowing them to compete with one another. Or do you think government-mandated monopolies are economically beneficial?

  11. George Phillies

    I know more economic history that the crackpots do.

    The colonies ran out of hard currency, notably in the south. The net result was that the economy ran into difficult straits because they did not have the money needed to function. As a result, hard currency les to pine tree dollars. Any sustained trade deficit has the same difficulty. Modern Greece is a good current example, They cannot issue their own money, are running out of money (the commodity this time happens to be paper) and hence their economy has imploded.

    The word “audit” appears to be misused, as the limits are largely outside what an audit would show.

  12. Darcy G Richardson

    While the woefully unimpressive Libertarian candidate, a guy who probably couldn’t name the last half-dozen Federal Reserve chairmen without stumbling all over himself and desperately looking to Bill Weld to bail him out, naively worries about a global panic if the Fed was to be thoroughly audited, the platform adopted by the GOP yesterday in Cleveland calls for precisely that — an annual audit of the Federal Reserve.

    The Republican platform, moreover, specifically calls for legislation to bring transparency and accountability to the Federal Open Market Committee and the Fed’s dealings with foreign central banks — two critical areas not currently subjected to audit by the Government Accountability Office (GAO).

    Surprisingly, the 2016 Republican platform also calls for the reinstatement of the Great Depression-era Glass Steagall Act, separating commercial banking from high-risk investment banking, and — in an unexpectedly populist twist — proposes to break up the “too big to fail” banks responsible for the 2008 financial meltdown and the ensuing “Great Recession.”

    Never in a thousand years could I have ever imagined myself saying this, but thumbs up to the party of Trump — at least on those three issues.

  13. Thane Eichenauer

    Darcy G Richardson > reinstatement of the Great Depression-era Glass Steagall Act

    Two out of three ain’t bad in my book. The third item is a band aid over a dangerously overfull tube that could pop at any sharp turn. The US government needs to get out of the bank insurance business so that the government has no need to regulate bank practices. Let the market regulate bank practices. Let customers do business with banks with low risk profiles. Let banks with low risk profiles offer services to customers that desire the same. Risk and price will benefit everybody (save the government bank payroll department).

  14. robert capozzi

    te: I don’t think that the people in general are going to panic over audit results that are far disconnected from their daily lives.

    me: Did you see THE BIG SHORT? Recommended.

    Financial panics start in areas disconnected from the daily lives of most.

    As for the politics of this, GJ does say, “…I support auditing the Fed….” Unlike many extremist Ls, however, he is a realist enough to know that there are likely to be unintended consequences of ANY move, positive or negative. For ex., if GJ were to somehow get elected and push through a 20% cut in federal spending (a positive, liberty-enhancing move), we should clear that that will cause short-term dislocations that will do harm.

  15. steve m

    All currencies are based upon the delusion that they some how have some sort of universal value.

    They don’t. The economy based upon currency is based upon mass psychosis.

    We believe “something” has a steady value and that we can trade what we have for it and then trade it for what we need later. But all in all it is based only upon what we believe. It is all religion.

    So the ideal currency expands at about the same rate as the growth of the economy. Too fast and you might get inflation (hoarding currency limits this) to slow and you get deflation (which discourages investment).

    Commodities don’t work well because they don’t expand at the same rate as the economy. I personally favor some sort of crypto currency that is tied to the gdp of the world.

  16. Thomas L. Knapp

    “a guy who probably couldn’t name the last half-dozen Federal Reserve chairmen without stumbling all over himself and desperately looking to Bill Weld to bail him out”

    Other than looking to Bill Weld to bail me out, I resemble that remark. Let’s see — Yellen, Bernanke, Greenspan … was Volcker the next one back, or am I missing one or more? … and I’m tapped for that knowledge.

  17. Be Rational

    An ideal currency would be a 100% gold-backed form of money, where every unit of paper issued is backed by gold. Banks would not be allowed to make loans on demand deposits.

    There would be zero inflation and zero deflation. If owners of gold wished to deposit gold with the paper (or digital money) issuing institution for paper receipts, that would be fine, as would withdrawal. Since every paper or digital unit of money would be gold backed, there would be no possibility of a bank-run problem.

    Prices would gradually decline relative to gold due to the increase in productivity and investment over time – but this is not deflation since the value of the currency, monetary unit, would be fixed, unchanging and defined in gold.

    Investment would increase as would savings. Since the purchasing power of the money would be increasing steadily, savers would be able to earn interest and know that their money would not only make a positive return but increase in spending value.

    Investors would borrow and invest because they can still make more money with a business than by sitting around and doing nothing. Business will make a positive return on investment, on top of which the money would be increasing in purchasing value – which is why there would be a decent, positive return paid to savers. However, this would benefit smaller businesses and the self employed more than large companies, so there would be a shift toward smaller, more efficient business production units. (Repeal of the income tax would also have a huge impact on shifting the optimal business size toward much smaller producers that are more efficient.)

    Since saving and investment would increase due to the increased positive returns and the stable economy, long-term economic growth would return to rapid 19th Century levels in the US. There is nothing to prevent a so-called advanced economy such as the US has today from growing 10% or more per year – except for the government policies and fiat money and the regulations and recessions they cause that prevent such growth.

    Increased saving and investment, increased productivity and the steady economy with no inflation, no deflation and no recessions would be the result of a 100% gold-standard. This would be coupled with a decrease in wasteful consumption, the end of the debt-fueled comsumer society wasting resources for stupid stuff that no one really values.

    The transition to a 100% gold backed dollar is possible and actually easy to accomplish in terms of the changes that have to be made institutionally and to the legal system.

    The political change and educating the ignorant – including many Libertarians who haven’t a clue about economics – will be perhaps impossible. There would be significant change to the way individuals, families, workers and businesspersons have to plan and think about money, spending, and debt and there would be a number of significant adjustments in the economy that would be difficult for some to handle.

  18. robert capozzi

    tk, without looking it up, yes, Volcker, and I think Burns before him. No guesses before that.

  19. Steven Berson

    Frederick Soddy (founder of the Thermodynamic School of Economics) back in the 1920’s correctly in my view pointed out the essential idiocy of currency that was truly backed by precious metals: given two societies endowed with the exact same amount of what is truly the master resource from which all economic activities depend on – that is, energy reserves – the society that depends on a metal based currency will waste energy and labor (and take an additional toll on its environment) excavating, transporting, and storing this metals (as well as potentially make them less accessible towards industrial and aesthetic uses) in order to create a common means of exchange – where as the society that uses a fiat currency will be able to utilize that energy, labor and metals towards creating products, infrastructures and services of greater use instead. This competitive advantage in using fiat currencies is indeed one of the major reasons that as industrial and other economic activities expanded greatly in the 1920’s the gold standard was slowly abandoned by the nations of the World.

    Regarding the USA’s ability to ever truly return to a gold standard – that is a total searching for a unicorn pooping rainbow ice cream idea if there ever was. The US Treasury claims that it holds at current market rates around $343 Billion worth of gold – which is a pathetic pittance compared to what kind of amounts could be expected to be requested for exchanges for a fully gold backed dollar – let alone a small fraction compared to the current annual budget of the US’s Federal government.

  20. robert capozzi

    br: Banks would not be allowed to make loans on demand deposits.

    me: Sounds like a call for the initiation of force!!!

  21. steve m

    There have been studies of the stability of the value of gold with respect to common commodities. Gold isn’t stable. Without the currency being rather stable then nothing else is stable. Look at what is happening with respect to the British pound right now and the impact that its devaluation is having on neighboring countries.

    You make something is Ireland and your usual customer is in England and you are just about to sign a contract when their currency drops like a rock. Both sides are going to be very hesitant to do the business. A slow down in the economy happens when there is such uncertainty. Going back to gold would cause such uncertainties.

  22. langa

    It is amazing that some LP members are so economically ignorant. “Oh no, if we used commodity-backed currency, we wouldn’t be able to have an economy based on speculative bubbles! Wouldn’t that be awful?”

    The arguments in favor of fiat currency are just like the arguments for all other types of central economic planning. They argue that the outcomes produced by free market competition wouldn’t lead to a utopia (well, duh!), and therefore that we need government intervention to “protect” us from “market failure.”

  23. Be Rational

    Steven Berson
    July 20, 2016 at 22:17

    Gold has been stable for thousands of years. The dollar has lost 99% of its value in 100%.

    The quantity of dollars divided by the amount of gold equals the price that the US should use to go on a 100% gold standard. It is impossible for there not to be enough gold. Your scientist didn’t understand economics or math.

    *****

    RC, It isn’t coercion to ban fruadulent lending. You cannot lend out money that you’ve promised to have available on demand without comitting fraud.

    ******

    Issuing currency or lending against demand deposits has been one of the primary causes of depressions and recessions, especially before the creation of the Fed. With the Fed, massive credit creation which amounts to issuing unbacked dollars gives us our modern day depressions.

    Without the credit expansion of the Fed in the 1920s, needed to bailout England from their inflationist policies, there would have been no Great Depression and no WW2 for starters. The cost of those events esceeds the cost of transporting and storing gold by a multiple in the range of a googleplex.

  24. steve m

    The prices of commodities under the Gold Standard (1879-1913) were significantly less stable then commodity prices were in the pot war period of (1946-1979)

    See page 7 on price movements of http://www.brookings.edu/~/media/Projects/BPEA/1982-1/1982a_bpea_cooper_dornbusch_hall.PDF

    “Price stability was not attained, either in the short run or in the long
    run, either during the period of the gold standard proper or over a longer
    period during which gold held dominant influence. In fact, in the United
    States short-run variations in wholesale prices were higher during the
    prewar gold standard period than from 1949 to 1979.”

  25. steve m

    If a bank customer desires that the bank not loan out their deposits then that bank customer can not expect any interest payments to them and can expect to be charge fees for storing their money.

    If I as a bank customer, make an agreement that the bank can loan out some percentage of my deposits to avoid fees and earn a pittance of interest, then the bank and I should be allowed to do so.

  26. George Phillies

    “Gold has been stable for thousands of years. The dollar has lost 99% of its value in 100%.”

    These were the thousands of years before the evolution of multicellular creatures.

  27. Be Rational

    Prices of commodities will always vary. It is the monetary unit that we desire to be stable. Gold has been stable for thousands of years. It has had some ups and downs, especially since it is not used as money at present. When used as money, gold is even more stable.

    The dollar has lost 99% of its value in 100 years. The only way to be less stable than that is to lose 100%.

    The Federal Reserve has failed totally. They took the dollar off the gold standard completely in the early 1920s and have caused every recession and depression since.

    During the 19th Century, banks were allowed to issue paper currency in excess of the gold on deposit. Generally only a 40% reserve was required. This was a primary factor (along with making loans against demand deposits and monetizing government debt) in every panic and recession of that era.

    On a 100% gold standard, or a 100% gold reserve on note issue by the banks, none of the financial panics or recessions would have occured.

    (The Brookings Institute doesn’t have any economists working there, although some pretend to be.)

  28. Be Rational

    GP, I thought you were a scientist. Now it seems you are a creationist.

    Sad to lose you.

  29. George Phillies

    Of course, there are many choices of which thousands of years, and the number of thousands of years is quite large.

    Gold is not vaguely stable in price.

  30. steve m

    Be Rational.

    No we want prices of goods and services to stable. If I am going to have a business making things from other things then in order for my prices of my goods to be stable, my prices for my materials and labor also have to be stable. Merely putting price controls on one commodity such as gold doesn’t make every other commodity and service have stable prices. Without relatively stable prices on most commodities you have increased risk for doing business which slows down economic growth and increases unemployment.

    By the way the average rate of unemployement was higher in the Gold Standard years then the post war years.

  31. steve m

    what really strikes me as silly about the gold standard is that in order to increase the monetary supply you have to use diesel fuel to dig up the gold, releasing undesirable substances such as arsenic which is found alongside the gold. Then you take this gold and you put it back into vaults back in the ground.

  32. Be Rational

    No Steve, we do NOT want prices to be stable. In a free market prices will gradually fall as productivity increases and the total amount of goods and services increases. The money supply will be fixed, or increase gradually as more gold is mined, but there is no need whatsoever for any increase in the supply of money. Only non-economists have that notion in their head.

  33. robert capozzi

    br: Only non-economists have that notion in their head.

    me: Hmm, I suspect a lot of people — perhaps most — with PhDs in economics will disagree with you.

    Personally, I’ve put the money issue on the back burner. At some point, it should be tackled, but that point ain’t now, in my estimation.

  34. robert capozzi

    br: RC, It isn’t coercion to ban fruadulent lending. You cannot lend out money that you’ve promised to have available on demand without comitting fraud.

    me: I just don’t see the problem if it’s disclosed at the time of deposit. Bankers could purchase deposit insurance to backstop the demand deposits as well.

  35. Be Rational

    “If I as a bank customer, make an agreement that the bank can loan out some percentage of my deposits to avoid fees and earn a pittance of interest, then the bank and I should be allowed to do so.” – steve m

    *************

    Yes, Steve, you should be allowed to make such an agreement.

    If you as a customer want the bank to be able to lend out some of your deposited funds, that is fine. The bank will need to know how long they can lend them out for, otherwise you could still walk in and demand the funds to be paid to you or to your order at any time. The agreement you would be making with the bank is called a time deposit.

    So, as I said. Banks would not be allowed to make loans against demand deposits. Banks would be allowed to make loans against time deposits.

    You have made the point well, Steve. You should be allowed to have time deposits. And you would.

    So, you would, wisely, hold some of your funds in demand accounts, as little as possible most likely, and you would deposit the rest of your funds in interest bearing time deposits. The bank would pay you interest on your time deposits and if your balance is large enough, they would probably still offer you free checking or whatever demand deposits use for transfers in the digital future.

  36. Be Rational

    RC, the problem, as it has happened hundreds of times in the history of banking – watch It’s a Wonderful Life to see it on the screen – is that when the customer shows up and the money isn’t there, the customer will demand his money, despite the agreement that the bank may lend against the demand deposit. When a large percentage of such customers demand their money, you have a run on the bank, a financial panic.

    However, if you make an agreement that the bank can lend out your funds, then you merely specify the terms of that agreement. How long are you willing to wait for your money if it isn’t there? How long will you wait to write checks against your account? Once you have completed this agreement you will have created a time account.

    So, back to my original point. Making loans against demand deposits is fraudulent and should be illegal.
    Many

  37. steve m

    Be Rational,

    I didn’t say fixed I said stable. The value of gold with respect to the dollar was fixed because they were pegged together.

    Fluctuating prices go in both directions up and down. Predictable decreases in commodities would be fine in that I could then predictably reduce the prices of my goods as well. Its the rapid up and down that makes businesses price in the risk.

    If a customer asks me to quote a future price of a product how can I do that if there are short term significant variations in the cost of my materials? I can only do it by pricing in the risk. So fluctuating prices of commodities means increased prices of goods, which causes decreased demand for the goods which causes decreased demand for labor. AKA higher unemployment.

    The average unemployment rate in the Gold Standard years was 6.8% compared to the post war years at 5%

  38. steve m

    BR there is no need for an increase in the monetary supply?

    Nonsense, the monetary supply needs to increase to match the growth of the economy. If we don’t have the currency how are we going to have transactions? If you restrict the supply of currency you will force devaluation of commodities which will discourage investment in making more of the commodity. Why buy and deploy capital equipment today making inventory today if tomorrow my costs are going to be lower and my value for I made today is going to be lost?

  39. Be Rational

    For thousands of years, one once of gold has provided enough purchasing power for a single individual to pay for room, board and the necessaries of life for one month. Not at a fancy hotel, but at rooming houses and inexpensive hotels outside the most expensive cities. Yes.

    (There have been periods of time when the government has caused distortions in the market – for example, during the rapid dollar expansion years under the Bretton-Woods agreement when the quantity of money was being inflated without gold backing, creating a non-market price for gold, so you can find times when the price of gold did not reflect its market value. This is another example of the disasterous machinations of the state.)

    Now, lets start with the value of the one ounce of gold just priort to the creation of the Federal Reserve. Yup, you could live, room and board and the necessaries of life for a week on that. Trade that for the $20 it was worth. Now, try to live on the $20 today for one month.

    The ounce of gold has maintained its value for thousands of years – and continues to do so.

    The dollar has lost 99% of its value in 100 years – and it contiues to fall. And the dollar is the most successful fiat currency in modern times, the others have done worse.

  40. robert capozzi

    br, I note you have a tendency to make assertions, and then repeating those assertions as self-evident truth. This is a tendency many might label as a dogmatist.

    If a bank offered superior returns, and it was backed by insurance, I just don’t see the problem.

    Don’t bother to respond as you have so far: “Making loans against demand deposits is fraudulent and should be illegal.” I heard you both times. I’m just not convinced by your truth, which seems self-evident to you.

    Similarly, you may well consider PhD Keynesians to be cultists and not economists if that gets you through the night, but for me they are economists, just not ones I pay much attention to.

  41. Be Rational

    Nope, steve m. Who has filled your head with such nonsense.

    With no increase in the money supply, the prices of many goods and services will fall. This is a good thing. It will encourage saving instead of wasteful consumption. It will encourage borrowing for sound investments instead of wasteful consumption. The economy will be more stable since there will be no recessions or depressions and business opportunities will expand. The world has unlimited wants and limited resources, so there will always be profitable investments that far exceed the slow return one can make just by holding money. Investors will thrive and the economy will be able to expand at rates of 10% per year or more.

  42. Be Rational

    Steve, there were no gold standard years. We had at best a 40% gold standard.

    Since 1913 we have had fiat money.

  43. Be Rational

    “If a bank offered superior returns, and it was backed by insurance, I just don’t see the problem. ” -RC

    ***

    The problem that you don’t get is the agreement. The bank would have to present you with a contract. You would agree that they can lend against your money. You would have to have terms. Can they lend against all of your money? Will you agree to wait when the money isn’t there? Will you instead demand that insurance kick in right away if the money isn’t there?

    Neither the insurance company nor the bank would agree to the instant payment type agreement (it requires a coercive goverment program to establish such a system).

    If you agree to wait on some or all of your money, then that is no longer a demand account. It becomes a time account, and the principle still stands.

  44. steve m

    Be Rational,

    The economic data comparing prices of commodities disagrees with your claim of the value of gold being stable with respect to the price of commodities.

    Add to that that the worlds production of gold is only 40 million ounces a year. At $1000 an ounce if the worlds economy only grew at $40 billion prices should remain stable. An economy growing faster would be restrained by the lack of availability of gold. The US economy at 16 trillion would use up this gold with a GDP growth rate of 0.25% leaving nothing for the rest of the world.

    The gold standard simply doesn’t work for today’s world.

  45. Be Rational

    There is no need for an expanding money supply. No one has ever shown such a need.

    Over time, prices will fall as productivity and investment increase the supply. The quantity of money will always be enough.

    In a free market the prices of commodities you worry about should rise and fall based on their productive value, demand and supply. That’s a good thing leading to better productivity and greater economic growth. Commidities with increasing values will encourage greater production, conservation or substitution – all desireable – instead of wasting resources as we do today.

  46. steve m

    so after we had the first gold coin…. we could have stopped mining for gold because that is all the world needed for trade to happen.

    Do you have any idea how much gold and silver the US government was buying at the height of the Gold standard?

  47. Be Rational

    A 100% gold standard is the only way for the world to insure continuing economic growth while ending recessions and depressions. We will have stable money and falling prices. This will encourage greater investment and spur savings, reducing wasteful consumption and encouraging conservation of resources.

    During the 1900s we only had a 40% gold standard at best. Goverment fiat money and borrowing at the state and federal level along with bank runs caused by demand deposits not being available when demanded caused the panics, recessions and depressions of this time period. Prior to this there were no business cycles since the world was mostly operating on self -sustaining agricultural and barter supplemented with actual gold and silver coins and bars used in trade. Since 1913 we’ve been on a form of fiat money with every recession and depression in the US has been caused by credit expansion by the Fed – that is by NOT being on a gold standard. During this time, gold has maintained its value while the fiat dollar lost 99% of its value.

    The world going forward needs to go on a 100% gold standard to ensure the survival of mankind. If we don’t go on a 100% gold standard, eventually the Keynsian cult will drive us into a money crisis so severe due to the unlimited credit expansion of the fiat dollar that the world will tip into political chaos and war from which no recovery may be possible for hunankind.

  48. Be Rational

    Steve, we have not been on a real gold standard. You are citing propaganda instead of looking at what a gold standard is and how it works.

    There were brief periods during the 1900s after the Civil War when the 40% gold standard operated fairly well compared to the years under the Fed. Had we been on a 100% gold standard there would have been no bank runs or recessions, however.

  49. George Phillies

    No depressions and constantly falling prices?

    Vermin Supreme had a better economic plan than that.

  50. steve m

    Be Rational,

    I am citing peer reviewed data. Not making things up to support my fantasies.

    The US has never been on a pure gold standard. We have done the silver standard initially and a bi-metal economies a mixture of gold and silver with the values artificially pegged to each other. Quantities of new discoveries had significant effect on the availability of one over the other. The California Gold rush made silver more valuable so people horded silver coins rather then accept the official silver to gold exchange rates.

    Again, the period of post civil war till the end of the “gold” standard. Which was a result of the great depression. For the reason that it was hindering economic expansion. Was not as good economically as the Post WWII era which didn’t use the gold standard. We had better economic growth and lower unemployment in the post WWII era.

  51. Be Rational

    The Fed took us off the gold standard, first during WWI and then again in the early 1920s. They tried briefly to control inflation and return to gold for about 2 years, quickly ending the 1921 depression (which was actually worse at the outset than the 1929 depression). Credit expnansion by the Fed in the 20s gave us the 1929 Depression. But, the Fed expanded money and credit in the 30s and along with foolish programs by Hoover and FDR turned what should have been a small, short depression into the Great Depression.

    Although we were never actually on a gold standard at all since requiring only 40% reserves is not a gold standard – as in the 1900s up until the establishment of the Fed. Bi-metalism is always doomed since there is no reasonable possibility of a stable relationship between two commodities such as gold and silver for long periods of time. Political demands have historically lead to bimetal systems, not sound economics which has always been against bimetalism.

    A 100% gold standard means that you issue a certain amount of currency for the defined amount of gold. You never print or issue money without gold backing. There is a match between the money and the gold. And yes, you could do it with one ounce of gold. However, gold became money because it was and is rare enough to be valuable, yet available in sufficient quantities to be useful, it has maintained its value throughout all of human history while fiat currencies have all fallen rapidly – most to zero – over a fairly short cycle (the dollar being down 99% and still falling).

    The Great Depression was caused by the Fed’s massive increase in credit during the 20s. The fiat money you love caused it.

    We have had stagnation and declining incomes since Nixon took closed the gold window. This was done to recognize all the inflation that had occurred under the failed Bretton-Woods years. The post WWII expansion is in part illusion since the actual inflation rate is hidden, and part malinvestment from which we still suffer. Of course, there was a great deal of real investment and real economic growth since a large part of the US economy was set free for a while after the death of FDR and the end of WWII, it was just far less than what would have happened on a 100% gold standard.

    The Fed has inflated the supply of money and credit causing recessions, depressions, slow recovery, stagflation and declining living standards. The dollar has lost 99% of its value and living standards which could have been rising at 10% per year or more stagnated for decades and have been falling in recent years.

    That’s your fiat money legacy of the Federal Reserve.

  52. robert capozzi

    br, you admit that the US was never on a gold standard, so how can you be so sure a 100% gold standard would work as you suggest?

  53. Be Rational

    RC,
    We can be sure because of the way a 40% gold standard worked. There were runs on banks of course because there wasn’t enough specie to cover the money that had been issued – this was a defect of the 40% requirement instead of a 100% requirement.

    But, in the years prior to the creating of the Fed and the end of the gold standard, between the Civil War and WWI, (during war government prints and borrows and the economy takes a back seat to the war). between the recessions caused by government monetizing its debt, and panics and bank runs caused by lending against demand deposits, there were a few decades when we had falling prices, a steady dollar and an expanding economy. After sifting out all the problems caused by politicians and government, we can see that a stable dollar with a fixed price in terms of gold – and only in terms of gold – will lead to the greatest prosperity. Gradually falling prices as the economy grows leads to the greatest levels of investment and savings, thus bringing about the greatest economic growth.

    We’ve had the 100 years of the Fed – a history of total failure in monetary terms. This is the old regime, a system that has failed throughout history, hundreds of years, governments manipulating money for their benefit but to the detrimit of the people and the economy. It’s time to recognize this failure and, using what we’ve learned, move on to the future, something new and modern but proven by a careful review of monetary history to work – a 100% gold standard.

  54. steve m

    BR,

    Again the data says you are wrong. In 1970 in inflation adjusted dollars the US household wealth was about 5 Trillion Dollars. Today the US Household wealth is about 55 trillion dollars. That is 11 times higher. Or a 5.5% annual increase over the 45 years. Hardly stagnant.

  55. steve m

    I contend all monetary systems are based upon belief that they will work until it is proven they won’t work. When evaluating different monetary systems I suggest looking at how well they can support economic activity, how transparent they are and can they be used to unjustly enrich one group of people over another.

    Using a specific commodity such as gold has been demonstrated to be inefficient at economic growth and has increased unemployment as a consequence. Using a fiat currency such as produced by the Federal Reserve fails to be transparent and potentially unjustly enriches certain occupations. This is why I advocate a currency which expands using a well defined mathematics formula based upon growth of the GDP with perhaps a factor for when GPD is contracting where the various levels of government can inject extra cash into the economy to stimulate growth. Not only have the Federal Government be a lender of last resort when needed but also allow state, county and city governments under these circumstances get “free” cash to help the mass psychosis that we call the economy keep functioning. This should only happen in extreme situations.

  56. George Phillies

    ” Banks would not be allowed to make loans on demand deposits. ”

    Banks don’t work that way. At all. This is the aggregationist model of banking, which ceased to be relevant a century or more ago.

    There is a simple accounting issue here. X is a bank. X lends Y money in the amount of Z dollars. X therefore gains an asset, namely the Z dollars that it is owed by Y, and a debit, namely the Z dollars it put into Y’s checking account. The asset and debit exactly balance, so there is no net effect on X’s balance sheet.

    Readers who do not understand why the loan is a credit for X should probably not discuss bank operations farther.

  57. robert capozzi

    br wants banks to be restricted to safety deposit box operations, it sounds like.

  58. T Rex

    Hats off to Be Rational for his excellent and articulate posts.

    I don’t understand libertarians who reject price controls on everything else (“$15 an hr? Why not $100 an hr? Hyuk hyuk hyuk”) but feel the Fed should set the price of money. Even if you disagree with BR on gold, why do you believe the Fed should be setting interest rates and reserve ratios for *any* currency?

    And if you think the government is doing (or can do) a good job of this, why not have it set the price/quantity of health care, education, etc like Uncle Bernie? It seems only logical.

  59. steve m

    The Gold standard relied upon the US setting the price of Gold. And the ratio of gold to silver. This is why the price of Gold was so stable while all other commodities fluctuated all over the place.

  60. langa

    Some people do not seem to understand the difference between “growth” and malinvestment, caused by Keynesian monetary policy. For example, ten years ago, when we were still in the middle of the housing bubble, people were raving about the tremendous “growth” in the economy.

    “Growth” is only good if it results from the proper allocation of resources to produce things that are in demand, and that can only happen when the market is free from government meddling. Whenever someone justifies government meddling by arguing that such meddling will increase “growth” (or reduce unemployment, or whatever) it demonstrates a fundamental misunderstanding of how a market economy operates.

    Things like price levels, unemployment levels, and so forth need to experience some fluctuations, because those fluctuations are necessary to provide feedback that allows for the proper future allocation of capital. Arguing that government should step in and try to prevent such fluctuations, in order to prevent short-term bumps in the road, is similar to the “too big to fail” logic that was used to justify the bailouts. It treats the symptoms, but allows the underlying disease to keep getting worse.

  61. Steven Berson

    Be Rational –
    You said “Gold has been stable for thousands of years.” –
    to which I say – huh?!? – have you even looked at the volatility in the 100 year chart for gold price??? Your statement is invalid based just on that.

    Be Rational – you said “The dollar has lost 99% of its value in 100%.” – to which I say – well that sentence doesn’t actually make sense but I can infer what you mean – HOWEVER – that statement is not completely correct by far because you are missing an essential part that gets covered in Econ 101 – that overall inflation of a currency does not matter if wage inflation is concurrent with it – e.g. if someone’s wage is $10/hour and the price of bread is $2/for a 1lb loaf is the same exact price in terms of actual buying power if someone’s wage is 1000 kopecs/hour for 200/kopecs for a 1lb loaf. Now what DOES happen though is that with central bank manipulations inflating currency supply there is nearly always a time lag between inflation of prices versus inflation of wages – and that’s the time lag where central banks can leach off a good bit of the productivity of any society for itself. Of course – this type of manipulation used to be done just as much in societies which worked directly with coined precious metals for their currencies – by the debasement of the content of the metals used in the coins (e.g. Roman Republic and Empire).

    Be Rational – you said –
    “The quantity of dollars divided by the amount of gold equals the price that the US should use to go on a 100% gold standard.” – to which I say – ok, then you wish to place thousands up thousands of times greater power into the hands of central banks (which control by far the largest share of gold holdings) based on that paradigm – and/or you wish to greatly devalue the buying power of the vast majority of American citizens whose savings are primarily in dollars. And the centralization of power into the hands of the few while robbing productive citizens of the value of their wages and savings is exactly the thing that I would presume someone such as yourself would be against.

    Be Rational – next amazingly you said ” Your scientist didn’t understand economics or math.” – ummm, actually Frederick Soddy won the Nobel Prize for good reason – his work along with collaborators such as Ernest Rutherford and Thomas Royds explained to the world what anomalous behaviour of radioactive elements actually was and why it occurred, with his research in radioactive decay and particularly for his formulation of the theory of isotopes. So please stfu that he did not understand math.
    As far as economics – one does not necessarily need to agree with his conclusions regarding what would be the best policies to advocate for to still recognize the incredible contribution and significance of his works. I’d suggest actually reading his treatises on economics before coming to assumptions based on ignorance – luckily some of these are freely available on the web now –
    e.g. “Wealth, Virtual Wealth and Debt”
    http://www.fadedpage.com/showbook.php?pid=20140873
    and “The Role of Money”
    https://archive.org/details/roleofmoney032861mbp

    Finally – what Steve M. said is very well worth repeating to me as it is exactly what I was talking about in terms of the competitive advantage of a society running via fiat currency instead of a metallic backed one:
    “what really strikes me as silly about the gold standard is that in order to increase the monetary supply you have to use diesel fuel to dig up the gold, releasing undesirable substances such as arsenic which is found alongside the gold. Then you take this gold and you put it back into vaults back in the ground.”
    I’d note also that the use of cyanide to separate the gold from the ore is another major negative environmental impact of gold mining. And the idea proposed by “Be Rational” that somehow people won’t mine for more gold during times when it is currency in and of itself and that gold supply will stay stable have been shown to be absolutely false – although I will admit that this is getting tempered by the increasing scarcity of untapped gold reserves that show anywhere near decent EROEI (energy returned on energy invested) ratios.

    Anyhoo – all of this debate is moot because history has shown that fiat currencies kick the ass of metallic based ones in terms of the amount of energy reserves a society must dedicate towards simply creating a medium of exchange. IF one was actually to “Be Rational” then it would lead one to dedicate the energy reserves (and precious metal reserves as well) one had available to oneself to create things of actual use and beauty rather than squander a good part of them away simply for an abstraction that is supposed to allow the creation, exchange and acquisition of things of use of and beauty.

  62. Steven Berson

    Langa said ““Growth” is only good if it results from the proper allocation of resources to produce things that are in demand, and that can only happen when the market is free from government meddling. ” –
    THIS!
    There are indeed tons of examples of “UNeconomic growth”

  63. Be Rational

    steve m.

    The CPI, which you are using, does not measure nor even approximate actual inflation.

    Under the gold-coin standard, before the US government created its first central bank, the value of a gold coin was determined completely by the marketplace, not the government. You really need to study economic history, but not with Keynsian or monetarist cult writers.

    Had banks been prevented from making loans against demand deposits, which is a type of fraud, and had they been prevented from issuing currency that was not backed by gold, which is also fraud, there would have been no bank runs or financial crises, caused by the banks.

    Of course, the state and US governments learned to use fiat currency and issued unbacked paper money which also caused shortages of specie, trade imbalances, mal-investment and depressions.

    The loss to the economy from any single depression – caused by the Fed NOT being on a gold standard – far exceeds the cost of mining and processing all the gold in the history of the world.

  64. Be Rational

    “There is a simple accounting issue here. X is a bank. X lends Y money in the amount of Z dollars. X therefore gains an asset, namely the Z dollars that it is owed by Y, and a debit, namely the Z dollars it put into Y’s checking account. The asset and debit exactly balance, so there is no net effect on X’s balance sheet.

    Readers who do not understand why the loan is a credit for X should probably not discuss bank operations farther.” – GP

    ******

    Since it’s obvious that you do not understand accounting, I suggest you take a first year accounting class, and that you not discuss bank operations and further.

    ******

    You are quite confused about debits and credits, and about assets and liabilities.

    Of course debits and credits have to be equal. That is a basic principle of accounting. But when you cite an asset and a debit, you are mixing and misusing terms. And when you say the balance sheet hasn’t changed, you are completely wrong.

    When the bank takes in a $100 savings deposit from person A, it gains an asset and debits CASH for $100. It also gains a liability for $100 and credits SAVINGS DEPOSITS for $100. (Dr = Cr)

    When the bank makes a loan for that $100 to person B, it gains an asset and debits LOANS to CUSTOMERS for $100 and gains a liability and credits DEMAND DEPOSITS for $100. (Dr = Cr)

    At this point, the banks Balance Sheet has changed. Both sides of the Balance Sheet – debits (left) and credits (right) have increased by $200 by the two transactions. (nd Dr = Cr still.)

    But the Balance Sheet has changed in another way. Since A = L + OE at all times as well, the financial leverage and risk of the bank has changed. The bank has increased its Assets and Liabilities without any increase in Owners Equity. The financial leverage of the bank has increased, the financial risk level of the bank has increased and, if all goes well for the bank, its ROI will have increased.

  65. steve m

    BR,

    Your prepositions are wrong and you need to study the history of currency in the US.

    The Consumer Price Index is one well excepted means of measuring inflation.

    The coinage act 1792 set the specific weights for Gold and Silver coins. A $10 eagle was set at 16 grams pure gold or 17.5 grams of standard gold. So no the marketplace did not set the value of dollars to weight of gold. It was done by an act of congress.

    We had depressions and runs on banks during the years where we were using “hard” currency. The US moved off of gold in 1934 after the great depression. The worlds various gold standards fell apart during the First World War.

    Using commodities as a basis of currency has proven to be inefficient. And at times completely breaks down. This has happened during times of war and it has happened when discoveries of large deposits of the commodity are found. And then since these commodities don’t expand at the same rate as the rest of the economy they often don’t provide enough currency to avoid deflation. Deflation being bad for encouraging investing.

  66. Be Rational

    ” BR there is no need for an increase in the monetary supply?” – absolutely correct.

    *****
    “… the monetary supply needs to increase to match the growth of the economy. If we don’t have the currency how are we going to have transactions?” _steve m
    *****

    But we do have currency, backed by gold. If the quantity of goods and services is incresing due to increased investment and productivity, then prices will fall, and there will always be enough currency.

    *****

    If you restrict the supply of currency you will force devaluation of commodities which will discourage investment in making more of the commodity. Why buy and deploy capital equipment today making inventory today if tomorrow my costs are going to be lower and my value for I made today is going to be lost? – steve m

    *****

    If prices are falling it is because the economy is producing more goods and services while the 100% gold backed money has a relatively fixed supply.

    Which means … wait for it … that producers ARE producing and investing more today, even though they know that prices will continue to gently fall as production increases.

    Why would they do that? Because just as average prices of goods and services sold are declining, average prices of the inputs to production are declining as well. So, they can mainain a healthy margin.

    And, If a foolish producer stops producing and waits for prices to fall, another producer will realize that they can make money and a good return, and they will step in and take the customers away from the foolish businessman.

    And without political risk and without the risk of financial depressions, businesspersons and investors will feel free to invest as much as possible – in fact, all individuals in the aggregate will save and invest far more since the return from savings accounts and the returns from investments will be far greater including both the interest or profit PLUS the increase in purchasing power of the money.

    In addition, consumers will decrease consumption, due to falling prices, and increase savings and investment. This means a huge reduction in unnecessary, wasteful and frivilous consumption – and less production of those goods and services that are wasteful and frivilious, and an increase in the productive investment in assets that improve the world, increase living standards and generate even greater wealth, savings and investment.

    Gently fallling prices and a stable economy is a business and investors’ dream world. They will invest as much as they can. The economy will achieve its maximum rate of growth using all of its potential.

  67. Be Rational

    robert capozzi
    July 21, 2016 at 13:52
    br wants banks to be restricted to safety deposit box operations, it sounds like.

    ******

    Sounds like you haven’t been reading what I’ve been writing. (typos notwithstanding)

    Banks will have a fine business making loans against savings accounts.

    Since there will be no earnings on demand deposits, individuals and businesses will be incentivized to reduce such balances to the minimum necessary. They will have to make rational decisions about how much they can save and earn interest on vs. how much they need for immediate expenditures. Banks may charge some customers for maintaining such accounts – as they do now – but others will have free demand accounts based on maintaining minimum balances in savings or other bank products and services they make use of – as they do now.

    Interest on savings accounts will be far higher than now, even though the value of money will be increasing instead of declining. This will benefit low and middle class savers greatly, allowing them to actually move up the economic ladder and will reduce greatly the wealth and income disparity in the world today.

  68. Be Rational

    The CPI doesn’t come close to measuring inflation nor is it a good estimate. By now only the truly stupid believe that the CPI measures inflation.

    Inflation is an increase in the supply of money and credit that is not backed by gold. It is possible to double the supply of money and credit, 100% inflation and have none of that increase turn up in the CPI.

    This can happen, for example, when the money is given to banks and rich, favored businesses and individuals and used to reduce debt and increase the value of stock market assets, high-end real estate, art, jewelry and other high end investments that raises the wealth of the 1% without showing up in the CPI.

    This is turn leads to an expansion of the disparity in income and wealth in the US …

    This is exactly what we’ve been living through in the recent decade.

  69. steve m

    BR,

    “But we do have currency, backed by gold. If the quantity of goods and services is increasing due to increased investment and productivity, then prices will fall, and there will always be enough currency.”

    Do you know that when the value of houses drop people stop buying them and you end up with a great recession.

    This deflation discourages buying equipment, building inventory. In short you are arguing for a monetary policy that would put people out of work. The effect of the lack of currency is to decrease production which will prevent the deflation but will cost millions of jobs here in the US.

    There isn’t enough new gold being produced to have anything other then rapidly collapsing prices. The worlds GDP is about 74 trillion dollars a 2% annual growth would require 1.48 trillion dollars in new gold to avoid deflation. But the world only produces about 40 to 50 billion dollars worth of gold each year. There is no getting around this problem. Not with gold.

    That is not rational.

  70. Be Rational

    No Steve, you need to study history:

    From the early settlement of the US through the Civil War, most of the gold and silver money circulating in the US was coined in other nations. The value was determined by the individuals and businesses accepting such coins by assessing the weight and quality of the coinage.

    Gold coins issued by the US government were subject to the same standard, no matter what numbers might be stamped on the coin itself.

  71. Be Rational

    In the Great Depression as well as the recent, so called, Great Recession, the prices of houses were run up due to a fiat money bubble (in the recent GR, government programs also encouraged overinvestment and speculation in housing).

    When the malinvestment caused by the massive credit expansion caused the bubble to burst, housing prices crashed along with the stock market.

    It was the credit expansion that caused the run up and then the crash in housing prices and the market.

    This cannot happen under a 100% gold standard.

  72. Be Rational

    …. a gradual decline in prices in the economy INCREASES buying equipment, and increases investment …

    Fixed that for you …

    It’s because as the prices of goods and services decline, the prices of inputs decline as well, so business will still earn a good profit.

  73. Be Rational

    Annual growth doesn’t require any additional gold

    – although there will be some gold production, some of which may be deposited with a monetary storage institution in exchange for paper or computer credit cash, and much of which will be used for industrial and decorative purposes –

    Instead, increased production and investment will result in gradually falling prices.

    Gently falling prices with stable money results in maximum employment and growth.

  74. Be Rational

    It is far better to spend a tiny bit of money to guarantee the financial stability of the economy and to end all recessions and depressions, by being on a gold standard, than to waste the hundreds of trillions of dollars lost through depressions and wars caused by fiat money …

    this would lead one to dedicate the energy reserves (and precious metal reserves as well) one had available to oneself to create things of actual use and beauty rather than squander a good part of them on a failed fiat money system that destroys economies, wastes human lives and potential, and has been a primary cause of many wars and the total destruction they have caused to countries worldwide, simply for an abstraction that is supported by cultist followers of Keynes or of the Fisherites.

    Only a 100% gold standard will allow mankind to maximize the creation, exchange and acquisition of things of use of and beauty.

    Had we been on a 100% gold standard since 1913 instead of creating the Fed, prices would be lower than they were in 1913 but living standards would have grown ten times.

    We have not been on a gold standard at all since the inception of the Fed in 1913.

    Just the waste and destruction caused by the Federal Reserve in creating the Great Depression and WWII has cost tens of millions of innocent human lives and hundreds of trillions of dollars – an irreplaceable loss. This failure alone requires abolition of the Fed and adoption of a real gold standard for the first time.

  75. steve m

    BR,

    No you didn’t fix anything. Just from the lack of gold production, you won’t get a gradual reduction in prices. You will get a rapid decrease in prices. To do otherwise you would have to change the value of gold from its $1200 per oz to about $35000 per oz. This would certainly reward those who own gold now. hmm, just how much are you sitting on?

    This would disproportionately value gold mining over semiconductor manufacturing so the worlds best and brightest would switch carriers and run of to the hills looking for more gold. I guess I just think digging up gold to put into vaults for the benefit of gold lovers, is less useful then looking for cures to cancer.

  76. Be Rational

    There has never been a depression or recession CAUSED by falling prices.

    Au Contraire …

    Inflation leads to rising prices without increasing the production of goods and services. Individuals will speculate on rising prices instead of making real investments – putting money into and driving up the prices of unneeded housing stock, driving up stock prices beyond earnings increases, causing malinvestment in the wrong places, wrong businesses, where no real demand actually exists …

    This Keynsian cult inflation (or fiat money expansionist cult inflation) creats a bubble that is unsupportable … corporate earnings don’t keep up with the expectations of higher stock prices, incomes don’t keep up with rising housing prices, business owners, investors and workers realize they can’t make payments or won’t realize anticipated returns …

    So, the inevitable crash begins … often precipitated by some shock or other, but inevitable, even if the exact timing is unpredicable…

    … and the Depression, caused by the inflationists, begins …

    THEN prices begin to fall.

    It is the inflation which causes the malinvesment which causes the crash which causes the depression and which results in falling prices.

    But, Falling prices never cause a recession or depression.

  77. Be Rational

    The world is a big place and there is very little gold mining going on. A bit more wouldn’t hurt, in fact it would make the world better off.

    … far more productive than bitcoin mining …
    … far more productive than watch the NFL …

    Perhaps you should require everyone to do cancer research on Monday nights and Sudays.

    But, if you believe in liberty, you gotta let alone those non-productive activities that people enjoy …

    *****

    Anyway, it’s obvious to anyone with a brain that since there is a gradual increase in productivity and a gradual increase in the quantity of goods and services produced each year, there would only be a gradual decrease in prices. Since the use of money itself can be more efficient, the reduction in prices can be even less than the rate of increase in production.

    Your argument is nonsense.

    We don’t need an increased supply of money … ever.

    Gradually decreasing prices and a stable economy will lead to maximum employment, maximum real economic growth, maximum saving and investment.

  78. steve m

    “We don’t need an increased supply of money … ever.”

    then why did we even need the first coin?

  79. Be Rational

    Oh my God, steve, you’re right, we needed that first coin, that’s why God gave the first coin to Adam in exchange for his rib. Human beings couldn’t exist without your expanding money supply …

  80. steve m

    I am pretty sure that no economy would accept not having an expanding money supply. We humans have been using various types of currencies to barter with long before we started using gold. It has been an evolutionary process to get to what we now have. I don’t believe we are going to devolve back to gold. The interesting question is what are we going to evolve into that is better then what we have.

  81. Be Rational

    It must be sad to be as wrong as you are about the things you are “pretty sure” about.

    The dollar has lost 99% of its value under the Fed. No business or investment group could stand up under such total failure.

    Gold has maintained its value for thousands of years.

    Every recession and depresion in the US since the Fed was created and took us off the 40% gold standard has been directly caused by the expansion of credit and money by the Fed.

    Under a 100% gold standard – the next step in our financial evolution – once implemented, there can be no such depression ever again.

    It’s amazing that anyone could compare these and pretend that the fiat dollar is an advancement.

    ******

    An airplane is flying through the sky, it is buffeted by winds, passes through turbulence, but despite the ups and downs, keeps on flying.

    Another airplane is crashing straight down to the earth steadily, with no ups and downs, having already fallen 99% of the distance to the ground.

    The cult of the fiat dollar likes the crashing plane, they claim it is better because it has no ups and downs. They want to take you on that doomed fiat dollar airline.

    ********

    And who loses most from this steady decline … poor and middle class individuals trying to save for homes, education for their children, a rainy day … working class individuals maintaining a balance in their checking account to cover their bills …

    … Because all of that lost value, that 99% of every dollar that is gone, was lost BY SOMEONE … it was lost by the working poor and middle classes and distributed to the banks and the rich …

    … and all the economic growth that was lost … 90% of our potential standard of living has been sacrificed to the fiat dollar, to the depressions and wars the fiat dollar has caused … that has stipped hard working Americans of the lives of peace, prosperity and freedom that were rightfully theirs to live.

    It’s time to use the principles of economics that have been learned by those who face reality, that only by abolishing the Federal Reserve, adopting a 100% gold standard and prohibiting fraudulent loans against demand deposits, adopting an honest monetary system for the first time in human history, can we end the monetary cycles of depression and stablize the economy to ensure maximum economic growth.

    Because of the massive inflation since the last depression caused by the Fed, in 2008, and even though it’s not yet over and millions of Americans have never regained their former levels of income of employment, we are heading for another depression. The Fed has already laid the explosive charges of inflation that will cause the depression, the malinvestment is already laid in. The quaking of financial markets in weaker nations has already forshadowed the looming disaster to come and we only await the next shock to set off the next depression caused by credit expansion.

    This next time, instead of reinflating, expanding the supply of credit and money, we need to let prices fall, let the market clear itself, let interest rates rise, and abolish the Fed, establish a 100% gold backed dollar, prohibit lending against demand deposits and make sure there will never be another depression.

    The hard working people and middle classes of America deserve to have a sound currency, the benefits of life-long economic growth and a dollar that increases in value year after year, so that they can save securly and profitably, instead of being robbed day by day and having their lives destroyed by the government, the Fed, the banks and the conspiracy of fools in the cult of Keynes.

  82. T Rex

    “Do you know that when the value of houses drop people stop buying them and you end up with a great recession.”

    So why not have the government set the price of houses too? Such “instability” cannot be tolerated, right?

  83. T Rex

    The idea that the money supply needs to perpetually expand is so ridiculous and false…but assume it’s true. Why not just write a check to every single American, instead of giving it to the banksters? It would at least be more egalitarian, no?

  84. T Rex

    Great quote by Rothbard
    :

    A typical example is the inflationist demagogue: the “monetary crank.” The vast majority of respectable economists have always scoffed at the crank without realizing that they are not really able to answer his arguments. For what the crank has done is to take the inflationism that lies at the core of fashionable economics and push it to its logical conclusion. He asks; “If it is good to have an inflation of money of 10 percent per year, why isn’t at still better to double the money supply every year?” Only a few economists have realized that in order to answer the crank reasonably instead of by ridicule, it is necessary to purge fashionable economics of its inflationist foundations.

  85. steve m

    [It must be sad to be as wrong as you are about the things you are “pretty sure” about.]

    When you resort to this kind of statement after displaying such little knowledge about the history of US currency then there really is no point in continuing the discussion.

    Fortunately your positions are not the future of the economy.

    Have a nice day, anyway.

  86. robert capozzi

    TR, the MNR may be “great” for you, but his logic is absurd. “Inflationists” contend that matching money supply with economic growth. They are NOT saying that any amount of money supply inflation is a good thing.

    And to think I once idolized Dr. Fetuses are Parasites! Oy vey!

  87. T Rex

    There is an important distinction to be made between expanding the money supply and making money more divisible. Nobody is arguing that people cannot or will not trade in smaller denominations if circumstances call for it. While that is “expanding the money supply” in some sense, it is not the same as counterfeiting. Gold receipts, for instance, could represent an extremely tiny amount of gold if economic conditions demanded it.

    But I’ll restate my question from earlier..let’s assume the Fed supporters are right and the money supply needs to regularly expand. Why not just write a check to every single American, instead of giving it to the banksters? It would at least be more egalitarian, no?

  88. T Rex

    If we must have regular counterfeiting, there are better ways of doing it! 😀

  89. steve m

    You have missed the point and demonstrate it by using the term “Fed supporters”.

    The first question is how much new money gets created. Right now the Fed tries to control this by setting short term interest rates and setting limits on how much the banks have to hold in reserve. In essence they don’t give the banks the new money they charge the banks for getting to use the new money.

    One problem is the lack of transparency. We have no idea what the federal reserve board is going to do. So the markets try and guess. I mentioned earlier that there have been proposals to take away the feds discretion by imposing a mathematical formula for determine the interest rates and perhaps the reserve percentages.

    To be continued…

  90. steve m

    Even when we had the “gold” standard the central bank was printing more paper money then they had gold reserves. We also had periods of time such as the civil war where the federal government issued “green backs” as currency and the Free Banking era where state chartered banks issued their own notes that all to often weren’t worth the paper they were printed on. To end the Free Banking era the Federal Government put a tax of 10% on these state bank notes. During this entire time we also had inflation in terms of wages paid to workers.

    to be continued…

  91. steve m

    The two points being that we have never had a pure Gold standard and we have never not had inflation over the long run. If you some how make a commodity more valuable then people will put effort into extracting more of it. And there is plenty of gold just waiting to be discovered and dug up. So what the Gold standard does do is make the Gold miners wealthy. The question is to me is that the best use of our productive time?

    But, here is what I might suggest is the Libertarian answer. Why not let say state chartered banks store gold and issue notes against that gold, not in terms of dollars but in terms of physical weights. And why not let crypto currencies also be used and why not let the market place decide? The one caviot is that we don’t disrupt the current economic system until the market, thus we don’t force the Federal System to switch we also let it compete.

    The way it looks to me is I can win ether direction.

  92. T Rex

    ” We have no idea what the federal reserve board is going to do. So the markets try and guess.”

    Exactly. Investors sit at the edge of their seats on whether the Fed is going to ‘raise rates’ and speculate based on price signals that are set arbitrarily, rather than on current saving or consumption levels. No argument there!

    “If you some how make a commodity more valuable then people will put effort into extracting more of it. And there is plenty of gold just waiting to be discovered and dug up.”

    This is true, but it’s a heck of a lot more difficult than simply printing money out of thin air.

    “So what the Gold standard does do is make the Gold miners wealthy.”

    And our current system just makes the banksters wealthy. At least the gold miners have to do actual work to get the gold!

    “Why not let say state chartered banks store gold and issue notes against that gold, not in terms of dollars but in terms of physical weights.”

    Great idea, but heck, we might as well just let private banks do this. We would just have to prohibit them from issuing notes for more gold than they actually have.

    “And why not let crypto currencies also be used and why not let the market place decide?”

    I’m fine with this. TBH I don’t think bitcoins will ever rise to the same level as precious metals (due to their complete lack of intrinsic value), but I’m perfectly fine with letting them compete.

    With its legal tender laws, tax treatment of precious metals, etc, the federal government makes it very difficult for any of this to happen unfortunately. We are all, in effect, forced to use money that is regularly devalued.

  93. steve m

    “Why not let say state chartered banks store gold and issue notes against that gold, not in terms of dollars but in terms of physical weights.”

    [Great idea, but heck, we might as well just let private banks do this. We would just have to prohibit them from issuing notes for more gold than they actually have.]

    In theory the state governments are who does the prohibition. Though you in theory could also have groups like consumer reports or moodys voluntarily regulate them.

  94. robert capozzi

    sm: ….moodys voluntarily regulate them.

    me: Check the track record of Moody’s and S&P in the run up to the Dot Bomb Crash and the Mortgage Meltdown. It might give you some pause.

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