What would happen if we use gold standard?

[teguh123]

I mean there will be deflation. That's one thing for sure. As technology goes up, cost of production is lower. So prices will drop.

What about interest rate? Will it be negative too?

Interest rate would drop I suppose. I mean money neutrality means that unless government do some "surprise" gold standard would not change anything. Main proponent of gold standard demand gold standard to prevent "surprise" from government.

So if gold price raise by say 6%. Current interest rate is 4%. I suppose interest rate would be around -2% if we use gold standard. But negative interest rate doesn't make sense. Why would anyone save money if interest rate is negative?

Then how do we value the price of asset then?

Say interest rate is 4%. Then the value of assets is such that price per earning ratio is 25.

If we use gold standard interest rate drop to say, 1%. Then the value of that asset suddenly become 4 times. What am I missing?

 

[Andrew Scherer]

I don't think we would just switch to a gold standard like that.

It would have to be gradual and start with the introduction of competitive currencies.

 

[guerilla]

I mean there will be deflation. That's one thing for sure. As technology goes up, cost of production is lower. So prices will drop.

Prices go up and down and in a market economy. Price deflation is poorly understood. In order for there to be price deflation, all prices must fall over time.

This is possible when an economy becomes more productive, but to be more productive, it must have capitalism to create investment.

Technically, inflation and deflation refer to the size of the monetary base, not to price fluctuations.

What about interest rate? Will it be negative too?

The interest rate is the value of savings in an economy. It is a price.

Why would it ever go negative? Do you expect the price of apples to go negative?

Interest rate would drop I suppose. I mean money neutrality means that unless government do some "surprise" gold standard would not change anything. Main proponent of gold standard demand gold standard to prevent "surprise" from government.

A gold standard (or any commodity standard) limits the capacity of government to grow through counterfeit and currency debasement. The only way the government can grow is to borrow from others, and at one point, the government can exhaust the total amount of credit available.

Under fiat money, the government isn't limited by the amount of credit available. It can continue expanding until it consumes all of the capital stock in an economy. That is why fiat money is so dangerous, so unstable, and ultimately ends badly.

So if gold price raise by say 6%. Current interest rate is 4%. I suppose interest rate would be around -2% if we use gold standard. But negative interest rate doesn't make sense. Why would anyone save money if interest rate is negative?

If the gold price went above the rate of interest, the rate of interest would adjust, or so much capital resources would be directed to gold accumulation, that the gold stock would increase, and the price would come down again.

Then how do we value the price of asset then?

Say interest rate is 4%. Then the value of assets is such that price per earning ratio is 25.

If we use gold standard interest rate drop to say, 1%. Then the value of that asset suddenly become 4 times. What am I missing?

I don't understand any of this. I suspect you have started with a flawed premise.

Prices go up and down in an economy. Interest rates are a price. A free economy is self-balancing as long as property rights are enforced (no theft, no fraud). Fiat money is fraud (counterfeit).

 

[evelynds]

there is not enough gold to fund the excesses of humankind

gold was removed and replaced by digits on computer screens for this exact reason, remember?

want gold back? begin to tell people to live modestly. i believe we all know how that goes

 

[ayzo]

No thanks

I can't make it rain with gold coins

 

[guerilla]

there is not enough gold to fund the excesses of humankind

This is incorrect. Any amount of gold would suffice to create a monetary standard.

gold was removed and replaced by digits on computer screens for this exact reason, remember?

Gold was replaced by paper (not the first time in history), and paper was replaced by digits. It has nothing to do with the supply of gold.

want gold back? begin to tell people to live modestly. i believe we all know how that goes

There is an element of truth to this, but it really doesn't matter. People will be forced back into modesty because borrowing against the future is unsustainable.

 

[guerilla]

No thanks

I can't make it rain with gold coins

You could still use paper notes and digital balances, but they would be redeemable in gold. Right now, money is irredeemable.

 

[knukk]

The only reason why one can buy commodities and services with today's paper money is because fiat money is government enforced, i.e. you are threatened with physical violence and coercive acts if you do not use the money printed by the central banks.

 

[megatabbers]

there is not enough gold to fund the excesses of humankind

That's a myth. The amount of gold increases every year by about the same amount of goods and services (approx. 1.6% I believe; don't remember the source). That's the reason that if you measure the prices of goods and services in gold they don't fluctuate. The only reason prices are "rising" is because currency is being debased.

 

[guerilla]

Any amount of gold is sufficient.

But outside of gold bugs, many free marketers are for market money. So maybe gold and silver. Silver and Palladium. Gold, silver, copper and nickel.

Money chosen by the people, which can be changed to another form by the people, can never be corrupted.

 

[amanda11]

What would happen if we use gold standard?

The Jews at the Federal Reserve won't let this happen.

 

[teguh123]

The Jews at the Federal Reserve won't let this happen.

Stop antagonizing the best and brightest or you ended up like German in second world war. I think the Jews are pretty reasonable people. There was once upon a time I was accused of damaging my dorms' washing machine. Many knows I didn't do it. No body speak up. One does. She was a Jew. A professor that went the extra mile so I can keep going to school was a Jew. There was a class I got an AB in Math because when I asked the professor how to get a good grade the prof simply said to work hard and try to understand. In the next class, I easily got the highest score. The professor in the next class, was a Jew. The professor where I got A easily when I took graduate math course straight without prerequisite while I only have 2 days to learn before mid and final was a Jew. A psychiatrist that helped me understand life was a Jew. A forum owner where I hang around a lot was a Jew. There are nice reasonable normal people all over the world from many different race that are nice to me. Why is it when someone is "reasonable" there is a high chance he/she is a Jew?

Evolution and prosecution force them to be smart and it's natural that the smart and diligence earn more money.

Hell, if we keep breeding the smartest chimpanzees and slaughtering those that don't figure out how to avoid it eventually they'll be pretty smart too.

However, most cultures like Chinese or Europe have dysgenic laws that prevent the best and brightest from reproducing. Monks don't get married. There is virtually no way a rich smart male in US can mate with women without risking his WHOLE money. Women's choice is either free sex or full life long monogamous marriage because too many women would choose somewhere between if it were legal.

If you're the best and brightest you just have to be complete jerks to win gene pool survival war in most cultures and most best and brightest people choose to be nice because they think they'll win anyway despite their niceness. Minority groups like Jews in Europe or Chinese in Indonesia don't have power or the luxury of killing each other and hence pick being competitive path more.

Those norms are created by and for economic losers that know they can't compete with the best and brightest in the gene pool if they were nice. No wonder the world are full with more and more angry socialist and religious bigots, which enforce more bigotic norms. No wonder people become Nazis. Exterminating the best and brightest is how those bigot stay in the gene pool in the first place. Like father like son.

 

[guerilla]

Those norms are created by and for economic losers that know they can't compete with the best and brightest in the gene pool if they were nice.

+rep. You just described nearly every politician.

 

[teguh123]

+rep. You just described nearly every politician.

Except the libertarian ones

I think I have figured out how to value an asset.

Say we have 2 currencies. One depreciate surely with no risk to the other at a rate of 10%.

To compute the value of asset we need to take into account that the asset gives increasing dividend if counted using the depreciating currency. After a geometric sum the value of asset should be the same.

Now, gold price go higher than American's interest rate. In a sense that if you put the same amount of money to buy gold and in deposit the one used to buy gold will actually have higher value in the future. That means in terms of gold, interest rate is actually negative. That means so many business with low return, including depositing money in the bank are business that should not have been done. Those are biz like real estate biz, which recently cause this depression.

I mean bad things happen when resources, real resources, are miss allocated.

So why can't all of us deposit gold in bank? Is there any place where we can save electronic gold like money?

Liberty reserve is a bad choice. What are they thinking saving their gold reserve in US. E-gold is recently fucked and succumb to US pressure. Pecunix?

You see, beliefs are self fulfilling if backed up by mighty power. Buying US dollar means US government believe I own a dollar. That belief matter because US government is pretty strong. I am sure US can squeeze every American out there to ensure that my dollar is respected . My biz earn much more return than dollar inflation anyway. Having a dollar worth of Pecunix means Pecunix corporation believe I own a dollar. That belief can have little effect because Pecunix is weak militarily.

That's an issue that libertarians, including me, often want to ignore. Might matters, if not the only thing that matter.

 

[dewme5]

there is not enough gold to fund the excesses of humankind

gold was removed and replaced by digits on computer screens for this exact reason, remember?

want gold back? begin to tell people to live modestly. i believe we all know how that goes

Anybody who's speaking, without knowing what they are talking about... Here's a little primer on [ame="http://www.youtube.com/watch?v=3i-j2skUVbg"]Youtube.[/ame]

 

[guerilla]

I think I have figured out how to value an asset.

Say we have 2 currencies. One depreciate surely with no risk to the other at a rate of 10%.

To compute the value of asset we need to take into account that the asset gives increasing dividend if counted using the depreciating currency. After a geometric sum the value of asset should be the same.

I don't think this is right. You're assuming there is some fixed formula which can compute asset value, but all value is subjective and determined in the market. The Soviets couldn't value their own assets, and so for the purpose of economic calculation, would copy the prices used in free economies like Hong Kong. A price system is absolutely necessary for a rational economy. That was Mises' work. The socialist calculation argument. In the absence of market based prices, an economy cannot be rational.

A depreciating fiat currency doesn't give any dividend in gold. Gold is static. It's purchasing power is relative to the nominal value given to it by various currencies. It is a store of value, not an asset class which appreciates much over time.

When you treat dollars/euros/etc as irrational, you can't rationally price assets in those currencies. And they are irrational, so calculating their price in that manner is pointless. You're better off calculating Gold vs. Oil, or Gold vs. Wheat.

I mean bad things happen when resources, real resources, are miss allocated.

When the capital structure of an economy is distorted by price interventions (minimum wage, subsidies, tariffs, taxes, monetary inflation) there is a compounding of errors from mis-allocation. These compound errors are inevitably fatal to that economy over time.

That is one of the primary reasons that the only role of government in the economy should be enforcement of contract and laws against fraud. Anything else actually diminishes free trade. Government only makes the dull, stupid and lazy better off. It hurts everyone who hustles and grinds, and in the aggregate, makes everyone worse off.

That's an issue that libertarians, including me, often want to ignore. Might matters, if not the only thing that matter.

Economies change swiftly and without shots being fired. Unfortunately, when economies change, their parasites (government) sometimes also change, and that usually comes with a lot of social upheaval and violence.

There are a lot of asset classes besides gold.