Trump to put nut on fed reserve board

Politics & Elections
81

To add:

Imagine the arcade will give a billion tokens to anyone for $20. Great deal and the arcade will make a lot of money in its first few months.

But then the bills keep coming. Rent, power, staff, maintenance costs and so on. No one outside of the arcade will accept those tokens as payment. They want cash. But since you put out a billion tokens per person you now have no real cash flow. There is no exchange rate for the tokens to pay bills and you put so many tokens out there that there is no one who wants to buy any for real money that pays your bills.

The business crashes.

82

That’s just an argument against hyper-inflation (which I think everyone agrees is bad). It’s not an argument against fiat currency in general, nor is it an argument against the transitionary gold standard I’ve outlined.

83

But that’s what the gold standard is meant to stop.

You can’t have hyper-inflation with a gold standard. If you do then it is not the gold standard.

84

You can’t have hyper-inflation (or really any inflation faster than the production of gold) with the system I outlined, either. And it doesn’t require on-demand gold payment.

I feel like we’re kind of going around in circles here.

85

Yes but there is a fundamental difference.

The gold standard is meant to thwart most of the things you are describing.

You are hoping your version works in some gray area between fiat currencies and a gold standard.

I do not think there is a middle-ground at all. It just does not work as some conglomeration of this and that. It is either THIS or THAT.

86

The power of the pre-Bretton woods gold standard was that substantially all the governments whose economies mattered participated.

So e.g. the USD was pegged to gold and the GBP was pegged separately to gold and the FF was pegged separately to gold and …

Which had the effect of pegging all the currecies (that mattered) to each other.

The whackjob idea of the US unilaterally going on the gold standard merely locks the USD to gold and prevents exactly zero of the other currencies fluctuating against each other or against gold and therefore against the USD.

The e.g. Chinese would be free to manipulate their currency more or less as they have been free to do in the past.

I’m not turning into a CTer (I don’t think), but I’m having a very hard time understanding how any sane person, even a thoughtful America First right winger, would actually think this helpful for America.

I can certainly see how somebody who owned a bunch of gold bought at $1,000/oz who thought we could peg the dollar at $1,000,000/oz might believe he could profit enough to laugh all the way to his private island before the rest of the US economy cratered. But other than for that Blofeldian few, it makes no sense among the thinking America-first Right. Which I generally credit many long-time Congresscritters with being members of.

87

The problem is that by your argument, an existing gold standard doesn’t prevent hyperinflation either, because the first thing that the bank that wants to inflate does is abandon the gold standard.

I’m saying if the government promises to not make more money except when they receive gold, that that’s just as good as promising to not make more money except when they receive gold and promising to give gold to people with money as far as inflation goes. As long as the government keeps its promise, inflation can’t happen.

It is true of both that if the government breaks its promise, then it can make more money, but there isn’t anything particularly compelling about on-demand reserves that makes it harder or easier to break the promise about inflation.

88

Gold standard relies on faith in the government just like fiat currency.

“We have gold to back up the dollar.”

“Can I exchange my gold certificate for gold?”

“No.”

“Well, where is this gold?”

“Secret, secure space.”

“Can I go there to audit it?”

“No. We have to keep it secure and can’t let just anyone in.”

“Well, how do I know the gold is there?”

“Trust us.”

“But I want something more than that.”

“The gold reserves are audited every year and the report of the auditors is released. You can go online and review their report.”

“Who appoints and pays the auditors?”

“We do.”

“How do I know that their report is accurate?”

“They’re required by law to be accurate.”

“Who decides whether to prosecute them if they’re not accurate?”

“We do.”

“But if they release an inaccurate report that says there is more gold in reserve than there actually is, will you prosecute them?”

“Of course.”

“How do I know that you will?”

“Trust us.”

“Something else: You’ve pegged the dollar to gold at a fixed rate, correct?”

“Yes. That’s the purpose of a gold standard.”

“But you can change that fixed rate by an executive order, right? FDR did that back in 1933.”

“Yes, we can.”

“How do I know that you won’t change the fixed rate to benefit your political agenda?”

“We won’t.”

“But how do I know that?”

“Trust us.”

89

What do you see is the big positive of moving to a static money supply? How do you know that positive is in fact positive?

90

Then could you provide an actual cite, so I can at least understand what liberties they took with reserve shortages?

91

Thé best example is the belligérants in WWI. They simply could not prosecute the war with the currency restrictions imposed by the gold standard so went off the gold standard as a wartime measure. Britain and the Commonwealth countries, and Germany both did that. I think France did as well.

92

Sure, but then you’re not on a gold standard. Everything I’ve read and everything that has been cited shows that you have to, at the very least, start with the premise that the entire volume of paper currency is backed by gold.

93

Looking at this Wikipedia page starting at “Bimetallic standard”, there are a bunch of examples.

94

No, those aren’t examples of a gold standard without proper reserves. They appear to allow reserves of gold or silver, but one or the other is required, and it gets a new name as well. You’ll recall, this sidebar started with you stating:

You’re saying that the only way to have a gold standard would be to take the amount of gold the US government currently holds and the amount of outstanding currency in $ and divide one by the other to get the price of gold, but I don’t think that’s true.
That is: You can have a currency pegged to the value of gold without giving holders of dollars a right to convert them to gold at that price. That implementation has other issues, but I think that leads us back to what we both tend to agree on: a gold standard is a bad idea.

I’m not even saying you’re wrong. I’m simply stating that you have yet to demonstrate that it is true.

95

What problem would this solve?

96

I think what you’re saying is that no one has done this before. Which might well be true (again, not a historian, nor an economist). I still think it would work fine.

If you look at this bit from the wikipedia page about the return to a gold standard:

So, they wanted to return to a gold standard, and the way they did it was not to overnight divide the outstanding currency by the gold reserves and devalue the dollar. It was to stop printing money faster than gold was coming in. That seems pretty much in line with my suggestion.

97

It doesn’t seem in line with my understanding of your suggestion. You’ll note that the idea you just mentioned was about returning to it, i.e. working our way there. The very definition of the gold standard requires that the currency is backed by, and exchangeable for, gold. You can work your way there, but you still have to reach it or whatever you are doing is something other than a gold standard.

That is NOT a gold standard by any definition that I can find, nor any that you have provided. It also says nothing about working our way towards something that would allow the currency to be exchanged for gold.

At this point, I have given countless cites that reinforce my take on the gold standard and you have given zero that counter it. For now, I’m going to move forward with the understanding that @Whack-a-Mole and I have the correct understanding.

98

There isn’t enough gold in the world to support a globalized economy.

99

I think we’re sort of talking past each other. You’re asking for cites that the proposal I made has been done before and called “a gold standard”, and you are correct that those don’t exist because we are in uncharted waters.

When the US started a return to the gold standard after the civil war, the market value of gold was ~$22 in fiat money compared to the stated mint price of $16. That’s a discount of about 30%. That’s the kind of thing where you probably could just announce an overnight adjustment and crash back into the gold standard, but they wisely took a slower path. The current money supply (I’m using M2, feel free to tell me why that’s the wrong thing to use) is $18 trillion, and the current US gold reserves are worth about $10 billion. That’s a discount of 99.95% compared to the market price of gold.

My first post in this thread was a response to @Whack-a-Mole’s claim that going back to the gold standard would mean that overnight, gold would go up to $1 million an ounce. Which is what you’d get if you tried to crash back into a historical concept of a gold standard.

And my point, with all of my posts, is that that’s total crazy talk. Even beyond the extent to which moving the US economy to a gold standard is fairly crazy to begin with. And I outlined a way that you could get the parts of a gold standard that most people who want a gold standard seem to want (inflation that’s not controlled by central bank governors).

You are as far as I can tell, 100% correct that no one has done such a thing in the past, nor called it a gold standard. But it’s likely a lot closer to what a “return to the gold standard” would look like today, in the sense that it achieves the desired policy goals and doesn’t result in the kind of crazy economic disruption that crashing back in would.

100

The original post was:

To which you replied:

I don’t see anything about $1 million an ounce, nor do I see anything incorrect about his post. You understandably used Book Value (it is confusing) as provided by the Fed when speaking of the value of gold, but that’s based on an old $42 per ounce calculation, so perhaps that was the reason you called it nonsense.

Current stated US Gold Reserves: 261,498,926 troy ounces
Current value of gold per troy ounce: $1864.00
Value of US Gold Reserves today: $487,433,998,064
Money in circulation (1/9th of M2 and almost 1/3 of M1, so very conservative): $2,040,500,000,000

So, to get us to a gold standard would either require us to increase our reserves five-fold (which is a bit more than the sum total of the current world reserves and therefore not terribly likely) or increase the price of gold to $7803 per troy ounce. The latter is certainly possible to do, but as @Whack-a-Mole noted correctly, would only help those who currently own gold.

In the end, he was right, you were not. Not much else to add.