Right now gold has gone past $1000 US because of all the money printing. That is an amazing money, something that can catch up with inflation.
Paper money can become valueless overnight but gold never will.
Their ignorance astounds me.
Gold is only valuable because people value it. In this respect it’s no different from any other sort of money.
Suppose scientists discovered that gold causes cancer. People would stop wearing gold jewellery, gold would be banned from use in consumer electronics, and laws would be passed against handling and stockpiling it except in secure areas. It would then lose a lot of its value and would become impractical as money. People would start trading certificates of gold ownership instead, i.e. paper money.
The main advantage of gold over paper is that it’s a lot harder to expand the money supply if you have to dig gold out of the ground. But nowadays central banks don’t even need paper and ink; they just change a few bits in a database to create new money.
5 Responses to “Doesn’t it annoy you when people act as though the gold standard was a bad money system?”
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Yes. But we also need to recognize that the gold standard is incompatible with the current banking system — because of a flaw in the banking system. Gold is a great policeman when it comes to catching financial criminals, but unfortunately it has the habit of taking long coffee breaks. And, while Officer Gold is in the coffee shop, eating donuts, the crooks wreak havoc.
During the Thirties, the gold standard forced the closing of most of the banks in the world, after it highlighted how massive amounts of capital had been embezzled legally from the banks (embezzlement is purely a statutory offense, and embezzlement by banks remains legal). The result was destruction of all the money the banks had created via the embezzlement (see any modern text re the money multiplier) and a consequent collapse of the money supply. Contracts written in the old money relation no longer were dischargeable, and many businesses unable to get emergency loans (because the banks were bankrupt or obliged by other bankruptcies to defend against runs) had to close. The collapse in the price level depressed prices (why we called it a "depression"), and the inability to create gold from thin air kept the prices low. The Great Depression was "cured" by WWII and the efforts by the U.S. Government at the beginning of our involvement to put the country on a war footing via direct-drive inflation. Because Roosevelt had taken the country off the gold standard in 1933, this effort was successful, and because the banks, in the course of the war, had purchased massive amounts of government bonds (which can be used to satisfy reserve requirements), the door was opened to the massive, sustained inflation and growth of the Fifties. That expansion long has run its course, and the current system is dishonest — all paper-money systems are dishonest at some point — but before we can rehire the cop (gold), we must fix the banking laws. Otherwise, the same thing will happen again, and since all this is a known nuclear initiator (WWII ended as a nuclear war), there might not be enough room for recovery next time.
"Those who remain ignorant of history are condemned to repeat it." –George Santayana
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It annoys me when people who do not have a clue about how the economy functions and why the gold standard was abandoned advocate policies using phrases from a tv commercial. Food will never become valueless either.
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b/c gold is in limited supply, which would (and did) limit the economic growth.
Just like the value of houses, the value of gold can be increased by an investment bubble, and then decrease rapidly as the bubble deflates.
In fact, gold is in a "bubble" state now as 90% of the gold in the world is sitting in banks as investment good, and only 10% are in actual use in jewelery and electronics. Compare that to 20% of houses that were treated as investment goods at the height of the housing bubble.
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Gold was final settlement of debt but under the current system more debt money is used to settle payment which is a perverse system that is why debt continued for decades of time but is now collasping-It an inverter pyramid falling upon itself and some day the "bankers" will be begging the people for food because they forgot what it is like to actually work for a living.
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Gold is only valuable because people value it. In this respect it’s no different from any other sort of money.
Suppose scientists discovered that gold causes cancer. People would stop wearing gold jewellery, gold would be banned from use in consumer electronics, and laws would be passed against handling and stockpiling it except in secure areas. It would then lose a lot of its value and would become impractical as money. People would start trading certificates of gold ownership instead, i.e. paper money.
The main advantage of gold over paper is that it’s a lot harder to expand the money supply if you have to dig gold out of the ground. But nowadays central banks don’t even need paper and ink; they just change a few bits in a database to create new money.
References :