Us Debt Default

[Roll the Bones 74]

Okay, I have a question.Why are we talking about this here?

[BaseJester 1]

Okay, I have a question.Why are we talking about this here?

It's on-topic for the thread because not paying the debt (defaulting) and making dollars worthless and paying the debt with dollars are only nominally different. To the extent that the US taxes the possession of dollars through inflation, people will seek alternative methods of storing wealth that aren't taxed.Maybe I don't understand what you mean by "here". Do you mean off-topic->general by here?

[Roll the Bones 74]

It's on-topic for the thread because not paying the debt (defaulting) and making dollars worthless and paying the debt with dollars are only nominally different. To the extent that the US taxes the possession of dollars through inflation, people will seek alternative methods of storing wealth that aren't taxed.Maybe I don't understand what you mean by "here". Do you mean off-topic->general by here?

haha, yeah. I mean it's not like it isn't confusing enough already. Political talk is in Daniel's blog section. I mean GenPop has it's place and crowd. I have the religon forum to myself mostly. At work is up top, sickies like the bottom. And then someone goes and screws the whole ecosystem. It's like the guy who let rabbit's loose in Australia. He let a dozen bunnies go so he could hunt like the old days, and then next thing you know there's a hundred million of them and half the country's plants were eatin' like Ron Mexico on a Friday's free wing night.

[AmScray 355]

Nah, I'm just some dumb young kid who hangs out in Wrigleyville.Well, I mean, sure fiat currency has a great history obv but pegging to a gold standard or something similar would be instantly disastrous. Do we want to have that discussion?

Fiat currency does not have a 'great history'. It has a disastrous history. Here's a list of countries that have learned that lesson. The only significant example of straight asset currency inflation/deflation was the Spanish situation when they started shipping the loot from the new world, back into Spain. Unless there's an undiscovered, gold rich continent full of natives we can enslave to mine it (or unless someone strikes a deposit of gold in Africa of such magnitude, it fundamentally alters the world supply ((which is basically the same thing as finding an undiscovered continent and enslaving the natives to mine it)) ) that situation will never happen again. While extreme inflation is usually a failure of policy, those policy failures are always rooted in very credible macroeconomic situations that leave inflation as 'the only option'. A $1/$1 pegging of the dollar to gold wouldn't work in the year 2011, but infusing a floating commodity basis into a currency product adds a foundational element that isn't liable to political whim. Our current currency (and in turn, economy) is being manipulated by politicians and the Federal Reserve- a motley crew if there ever was one. Asset backing removes those fuckers from the equation.

[ahosang 0]

hblask, you probably prefer the gold standard because it represents a possibility of fixing of monetary supply which politicians(read: CENTRAL PLANNERS) seemingly cannot affect. The gold standard cannot be maintained at a fixed rate by a state such as the US, which sought to have the dollar as international reserve currency(see Triffin's Dillemma). But even for any other state, a gold standard is problematic. Set the rate too low, and gold leaves your country quickly until you're out. Set it too high, and outsiders gain purchasing power over domestic population. This is before you get into monetary issues of deflation, flow etc. The standard requires omniscience of central planners too, in terms of what rate to set the exchange at.This article touches on some of the points, and nearly reaches a sensible conclusion. Triffins' Paradox, currencies, and gold

Gold might be the correct answer to Triffin's dilemma. Their National Review article proposes that, at current price levels, a fixed-price gold reserve introduced at $1,000 per ounce (versus a market price of about $840 at this writing) should both avoid deflation and maintain enough international liquidity to enable trade to revive somewhat.

But really, guessing the rate and attempting to fix it is just pointless. Floating currency against gold is the way to go. The ECB does this as it marks its gold assets to market price and publishes this in quarterly statements.A 'freegold' architecture as proposed by blogger FOFOA is an elegant solution whereby gold is tradeable by the public both inside and outside of any country. In that way, a market price is discovered, even though the government may enter the market with public gold reserves. Internationally, this evolves into his freegold concept, where the limited supply of gold is available for saving by the public, therefore diminishing malinvestments caused by currency(base money) and credit inflation. Gold naturally enters trade-surplus areas and leaves trade-deficit areas. Essentially, true productivity is sparked, as the bidding for gold(savings/wealth) intensifies. Rather than having savings forced into fiat-denominated debt instruments or marginal speculations, gold holds wealth until worthy candidates tempt savers into liquidation of such wealth into investment/spending. Fiat may be controlled by countries in order to address some flow problems, but value is always determined by the market in its bid for gold through the currency.

[hblask 1]

hblask, you probably prefer the gold standard because it represents a possibility of fixing of monetary supply which politicians(read: CENTRAL PLANNERS) seemingly cannot affect.

The fundamental problem is allowing the value of a currency to be determined by a small group that has no personal stake in the outcome and is influenced more heavily by political concerns than economic ones. There are probably dozens of potential solutions. The gold standard is probably the easiest to understand, but not without problems. Pretty much anything is better than pure fiat currency. I'm convinced a large part of our current debt crisis is this little voice in the back of politicians heads saying "we can always inflate our way out of this".

[ahosang 0]

Fiat currency does not have a 'great history'. It has a disastrous history. Here's a list of countries that have learned that lesson. The only significant example of straight asset currency inflation/deflation was the Spanish situation when they started shipping the loot from the new world, back into Spain. Unless there's an undiscovered, gold rich continent full of natives we can enslave to mine it (or unless someone strikes a deposit of gold in Africa of such magnitude, it fundamentally alters the world supply ((which is basically the same thing as finding an undiscovered continent and enslaving the natives to mine it)) ) that situation will never happen again. While extreme inflation is usually a failure of policy, those policy failures are always rooted in very credible macroeconomic situations that leave inflation as 'the only option'. A $1/$1 pegging of the dollar to gold wouldn't work in the year 2011, but infusing a floating commodity basis into a currency product adds a foundational element that isn't liable to political whim. Our current currency (and in turn, economy) is being manipulated by politicians and the Federal Reserve- a motley crew if there ever was one. Asset backing removes those fuckers from the equation.

Gotta think he was being sarcastic on the 'fiat has a great history thing'. Surely he was...

[ahosang 0]

The fundamental problem is allowing the value of a currency to be determined by a small group that has no personal stake in the outcome and is influenced more heavily by political concerns than economic ones. There are probably dozens of potential solutions. The gold standard is probably the easiest to understand, but not without problems. Pretty much anything is better than pure fiat currency. I'm convinced a large part of our current debt crisis is this little voice in the back of politicians heads saying "we can always inflate our way out of this".

Absolutely agree, yes, history suggests you are right. And in this day and age, so much easier for them to pursue those options!!

[hblask 1]

Gotta think he was being sarcastic on the 'fiat has a great history thing'. Surely he was...

I would've thought so because Bob is very level-headed and obviously smart, and his opinion is always worth listening to, but he did write this:

You really actually believe that going back to the gold standard would be a good thing.Holy Crap

[mk 11]

Gotta think he was being sarcastic on the 'fiat has a great history thing'. Surely he was...

ldo

[FCP Bob 1,312]

Interesting article from David Frum on the gold standard.http://www.frumforum.com/what-really-went-...the-nixon-shock

I feel no nostalgia for the Bretton Woods economy, despite the good results it delivered in the three decades after World War II. To sustain the Bretton Woods system required not only high – but ever increasing – levels of domestic and international financial regulation. Through the 1960s, Presidents Kennedy, Johnson and Nixon added rule after rule intended to keep US trade in balance, to prevent dollars from accumulating overseas, and to deter foreign governments from presenting dollars in demand for gold. Under the classical gold standard of 1873-1934, the United States would have accepted a domestic recession (even a depression) in order to quash domestic demand, balance trade, and end the outflow of dollars. But that was just not going to happen in the modern world, not in the US, not anywhere – and everybody knew it. The Bretton Woods substituted financial controls for the old painful remedies, but by the late 1960s, the controls were becoming even more painful than the alternative: allowing currencies freely to trade against each other. The modern currency float has its problems. There is no magical monetary cure, monetary policy is a policy area almost uniquely crowded with trade-offs and lesser evils. If you want a classical gold standard, you get chronic deflation punctuated by depressions, as the US did between 1873 and 1934. If you want a regime of managed currencies tethered to gold, you get regulations and controls, as the US got from 1934 through 1971. If you let the currency float, you get chronic inflation punctuated by bubbles, the American lot since 1971. System 1 is incompatible with democracy, because voters won’t accept the pain inherent in a gold standard. System 2 is incompatible with the free market economics I favor. That leaves me with System 3 as the worst option except for all the others.

[hblask 1]

Interesting article from David Frum on the gold standard.http://www.frumforum.com/what-really-went-...the-nixon-shock

This seems like a reasonable article, but one things jumps out:

If you want a classical gold standard, you get chronic deflation punctuated by depressions, as the US did between 1873 and 1934.

My understanding is that gold is neither inflationary or deflationary over the long run -- basically by definition. Over the long run, a currency pegged to gold will have no net change in value, either inflation or deflation. Now, you can make arguments that it leads to occasional deflation which is worse than low levels of persistent inflation, but that is a different argument that the statement here. It is an idea I'd like to see discussed at greater length, probably more like book length. But then it would be too dry for me to read until I retire, so the discussion will have to wait until then.

[AmScray 355]

System 2 is incompatible with the free market economics I favor.

I'll take "lies" for $200, Alex.Is it because the imagination of central planners i more valuable than gold and renders a superior currency product into the free markets than one that's partially backed by a tangible (and non-imaginary) asset?Speculators love anything that's manipulable to short term advantage. You cannot bullshit assets. These same speculators live and die by information relevant to the foundational elements of their investments yet when currency is in question, well, suddenly foundational elements no longer apply? **** that. We've learned our lesson.