Gold bug bears and BLOGDIAL for Bluffers

md wrote:
nagapie wrote:
Brixton’s getting it’s own currency.

Is it going to be made out of a precious metal (i.e. either gold or silver)?

I can’t pretend to even understand, let alone agree with, the various long term bug bears of the small Irdial group of bloggers, but fiat currency is an issue they post about frequently, and they vehemently support the set up of independent currencies based on precious metals.

http://irdial.com/blogdial/index.php?s=fiat

They keep contradicting themselves though. First they bang on about the reintroduction of the gold standard and then they say this:

We then went on to discuss why trans-national currencies ‘Currency Monocultures’ like the Euro are a bad thing.

Imagine that the Euro never happened, and each European country had kept its own currency. Each country would be able to formulate its own response to bank failures, and their currency would suffer or gain depending on their response. Each person with savings could hold a basket of currencies to protect themselves from being wiped out by inflation.

But if you have a gold standard then the value of your currency is pegged to the value of gold, so you CANNOT formulate a response to bank failures! Your money supply is constant (or rather, tied to current world reserves of gold) which robs you of your main tool for controlling inflation and unemployment. Moreover, if everyone adopts the gold standard then exchange rates are effectively fixed (because if any country’s currency began to depreciate, everyone else would buy it, convert it into gold and then convert the gold back into their own currency). And that’s the biggest `currency monoculture’ imaginable. Tin hat vibes.

Now, lets go through this slowly:

But if you have a gold standard then the value of your currency is pegged to the value of gold, so you CANNOT formulate a response to bank failures!

[…]

http://disception.net/lk/viewtopic.php?t=8117&start=25

No, this is incorrect.

First of all, Gold IS money. Sound economies are based on gold as the means of exchange. Government cannot create the money out of thin air when it is made of gold, they cannot print it. Gold is scarce and the amount of it in circulation cannot be arbitrarily increased.

Bank failures (bank runs) happen because of fractional reserve banking. Banks, when they are given a license to do business, are allowed to ‘print money’. When you deposit £10,000 in your account, the government allows your bank to loan out say, 40 times that amount to other people. Those people then pay interest on the money that is loaned to them. If you or I were to do this, it would be called ‘counterfeiting’ but because its a licensed bank, its called ‘banking.

The system ‘works’ as long as everyone who holds an account at the bank does not ask for their deposits back at the same time (a bank run). Since the banks run fractional reserves, they literally do not have the money to pay back their depositors.

Centuries ago, when people used gold for money in every day transactions, the danger of theft was ever present. Banks used to hold deposits, and since they were trustworthy, would issue I.O.U.s to their depositors. People began to trade these I.O.U.s because they knew that the money was in the bank and redeemable at any time. This is the origin of gold backed paper money.

The bankers realized that they could print I.O.U.s for gold that they did not have on deposit. As long as the I.O.U.s did not all come back at once, they could gain interest on gold they did not have in their vaults.

Pure Genius!

Modern banking runs exactly the same way, only the ‘money’ is Fiat Currency; money that is given value by order of the government by legal tender laws. It is paper, a fiction, worthless. And of course, the government has the printing press that can create ‘value’ out of nothing.

Lets say you earn £500 pounds a week. If there are only £2,000,000 paper pounds in the whole world, then the amount that you can buy with your £500 remains the same, week on week, year on year. But, lets now imagine that the government has doubled the money supply. There are now £4,000,000 paper pounds in existence. That means that the scarcity of paper pounds has been reduced by half. There is twice as much money in circulation. This means that your £500 is now worth half as much as it was when there were only £2,000,000 paper pounds in circulation.

You have just been cheated out of half of the value of your money.

Now, if there is one currency, and you cannot vote for the government who controls it, and it is a fiat currency, you are essentially giving the printing press for that money to someone who you cannot elect. They can destroy the value of your savings. If however, you have a paper currency and it is under the control of your own elected officials, if they debase the money, you can vote them out and the next government can destroy some of the money supply and restore the value of your savings.

If the money you use is gold, then no government, no matter who runs it, can print your money. It actually is your money, literally. The pound is not ‘your money’; it belongs to the government. They control its supply, they control its value.

Inflation is just what I described; the money supply increasing because of the printing press. If we had a gold standard, we would have no inflation by definition. Take a look at this YouTube video which demonstrates how the value of gold has not changed over time.

Your money supply is constant (or rather, tied to current world reserves of gold) which robs you of your main tool for controlling inflation and unemployment.

Like I say above, gold IS money. In a gold standard currency system you use gold as money, not paper that is linked or tied to anything.

There is no ‘world reserve of gold’ central banks of separate sovereign nations have their own reserves of gold, like the gold at Fort Knox. When the dollar (for example) was backed by gold before the Bretton Woods agreement, you used to be able to go to the bank and redeem gold (and silver) for paper dollars which were certificates that represented actual physical gold and silver. When you say ‘your’ main tool, who exactly are you talking about? That ‘your’ is the same ‘you’ that destroys the value of ‘your’ savings by printing money. The people who run central banks are not able to set interest rates correctly or control unemployment, for the record. Only the market can do this. But that’s more typing.

if everyone adopts the gold standard then exchange rates are effectively fixed

There are no exchange rates, because everyone would be using real money (gold coins) to do their business with. Did you know that in Viet Nam, people buy and sell land in gold? There is nothing strange about it at all; what is strange is that people think its acceptable that government can steal your savings from you without even going into your bank!

(because if any country’s currency began to depreciate, everyone else would buy it, convert it into gold and then convert the gold back into their own currency)

This line demonstrates a profound misunderstanding of what money is. When you say that a county’s currency starts to depreciate, what EXACTLY do you mean? If you mean that it loses its value, this can only happen if someone has access to the printing press that allows people to create money out of thin air. A gold currency cannot be printed, so any country using it would not suffer from inflation (which is actually what you are describing, NOT depreciation which is what your car does ten minutes after you have bought it). Take a look at this to understand what the word inflation really means in this context.

And that’s the biggest `currency monoculture’ imaginable. Tin hat vibes.

Try gold hat 🙂

Apart from having a gold standard, fractional reserve banking needs to be understood (note how I do not say ‘banned’) by depositors. If you are crazy enough to deposit your gold money in a bank that lends out many multiples of the amount of deposits, you are taking a big risk; they had better be paying you big interest rates. You and the bank had better be insured against bank runs. As we have seen there are moves afoot to run clean banks.

I assume that you are not in favor of war and the recent mass murdering. The war machine is financed by fiat currency running off of government printing presses. Gold currency forces discipline on governments. This alone is a reason why it should be adopted; everything else would be a great bonus.

You should also look up the Totnes Pound, which is an interesting development. Also, California is issuing its own Currency in the form of I.O.Us. They are not saying its a currency but of course, if they start exchanging them around LA, it will be a currency by definition.

Finally, if you want to watch a really fascinating documentary about this subject and educate yourself so that you can understand a little of what BLOGDIAL publishes on this subject, you could do worse than The Money Masters. When you can understand why a stick of wood with grooves in it was one of the longest running currencies ever, then you will have arrived!

UPDATE!

Added reciprocal facepalm.

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2 comments on “Gold bug bears and BLOGDIAL for Bluffers
  1. […] as we have been saying, if a bank does not operate a fractional reserve, it doesn’t matter if all the […]

  2. […] as we have been saying, if a bank does not operate a fractional reserve, it doesn’t matter if all the […]

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