In response to:

The Gold Standard Gets Another Look

conservative_librarian Wrote: Aug 30, 2012 12:08 PM
johninohio: despite what some camps say, there are certainly problems with a return to the gold standard, and there are alternatives available (which can have their own drawbacks) It is important to note that gold has minimal intrinsic value beyond the jewelry market, it is really just a place holder for the ability to accomplish work Further, national GDP is tightly linked to national energy production/usade
OldMexicanblog Wrote: Aug 30, 2012 3:05 PM
Re: conservative_librarian,
-- It is important to note that gold has minimal intrinsic value beyond the jewelry market --

Whereas the greenbacks have... what?

-- Further, national GDP is tightly linked to national energy production/usage --

What exactly does this has to do with a gold standard? Besides being wrong (GDP is linked to consumption spending and not production, the very reason why it is a very flawed economic metric), you give no reason why a gold standard would be detrimental, besides the obvious fact that you would not be able to inflate your way out of debt.
conservative_librarian Wrote: Aug 30, 2012 3:54 PM
take a deep breath and count to 10

I made no case that 'greenbacks' have intrinsic value... in fact that is the point. gold and greenbacks basically have the same intrinsic value in the 21st century economy
Lets not start injecting strawmen and reading between the lines too much, the topic is complicated enough with creating additional issues

With regard to GDP, I can agree that it isnt the perfect model. But what I am trying to present is that the creditworthiness of a nation and value of the currency is more tightly linked to useful production than it is to how much of some metal we have stored in vaults. So while CDP is a measure of consumption, it is also can be viewed as a simplistic measure of useful production by the economy.
conservative_librarian Wrote: Aug 30, 2012 3:59 PM
One problem with using precious metals as backing for currency, is that one outworking of this is significant investment in the exploration/mining of said metals. This has a very small upside for the economy and would generally be viewed as a low return investment. All those manhours and energy could be applied to other economic endeavors beyond expanding the supply of gold/silver.
The benefit of building lots of reactors would be lower energy costs, which should provide expanded capability and/or higher profit. The real problem in 'instability' would be what would happen if a huge gold deposit was found and lets say supply tripled.
conservative_librarian Wrote: Aug 30, 2012 4:02 PM
I dont dispute that in the immediate term a gold/silver/platinum backed currency wouldnt have the benefit of forcing governments (the US isnt the only one playing games with numbers and printing presses) to adhere to more sound economic principles

but it is shortsighted to think that using a physical placeholder is the ONLY way to achieve sound fiscal policy. I happen to believe that the challenges presented by a return to the gold standard outweigh the opportunities presented by and energy backed currency. there are tradeoffs, you are certainly entitled to disagree
OldMexicanblog Wrote: Aug 30, 2012 4:07 PM
Re: conservative_librarians,
-- I made no case that 'greenbacks' have intrinsic value... in fact that is the point. --

I didn't make that suggestion, either. What I am pointing out is that you're the one missing the point: Gold and silver have a value beyond that given by people as money, which is why gold and silver have been the prefered commodities for money.

-- So while CDP is a measure of consumption, it is also can be viewed as a simplistic measure of useful production by the economy. --

Not even close. The problem is that most consumption in the US is the result of borrowing, not production, starting from the biggest consumer there is: The US Goverment.
OldMexicanblog Wrote: Aug 30, 2012 4:12 PM
Re: conservative_librarian,
-- One problem with using precious metals as backing for currency, is that one outworking of this is significant investment in the exploration/mining of said metals.--

This has nothing to do with the properties they hold as money. Even if new gold and silvwer became impossible to obtain, that does not preclude either from helping in indirect exchanges.

I understand where you're coming from: You're affraid of deflation. This is probably because you think deflation is simply "lowering of prices" but in fact deflation is the correction that happens after a period of INflation. Lower prices due to increases in demand for mone (e.g. gold) is not detrimental to an economy, only to an inflationista.
conservative_librarian Wrote: Aug 30, 2012 4:24 PM
I dont think there is that much difference between us in philosphy. We are both interested in free market economies and stable currency. The only disagreement is in what the underpinning for that stability should be. You, and others that propose a return to the gold standard rightly see the limited availability of gold as one way of achieving this aim... I think there are preferable ways to achieve stability.
I am not 'afraid of deflation'... as I explain in a separate comment, the problem isnt the lowering of prices, it is the reason for the lowering. If production costs drop because a new efficiency is developed or power generation expands (reducing cost), that seems like a good reason. Just because we find a new rock, not so sure.
conservative_librarian Wrote: Aug 30, 2012 4:26 PM
I didnt say it was perfect. We dont have a much better measure available though (China is producing a lot of infrastructure for instance that is sitting vacant)... and the problem causing the distortion there is more the softening of lending requirements (what I mean is that GDP should be a good measure, but the availability of capital for borrowing is way out of balance, which is tied back in to what the fed is doing with money... so it can be a vicious circle.
conservative_librarian Wrote: Aug 30, 2012 4:32 PM
If we are going to read minds around here, I am going to guess you are a long time proponent of returning to a gold backed currency and have purchased, a large amount. Therefore you a terrified that if an alternative backing for currency was developed you would become very aware of just how much innate value those 'precious' metals actually have. Sort of like how the Native Americans came to a harsh reality with wampum. Just a hunch.
At the risk of seeming even nuttier, if I was going to stockpile anything for the coming meltdown, it wouldnt be gold. Ammo, medicine, water filtration equipment and land would all be better bets =P
conservative_librarian Wrote: Aug 30, 2012 12:28 PM
I have found this blog writer's thoughts on the potential for an energy backed currency well presented
http://eddiesblogonenergyandphysics.blogspot.com/

This post is I think a decent starting point, you can follow the tags/labels for energy backed currency to see some other posts that are related.

http://bit.ly/Ue8vDJ

I do have some minor differences of opinion... for instance he advocates a zero inflation policy and I would suggest a 1-2% inflation position to be healthier for the national economy... I think he presents a compeling argument and some steps for how we could transition to a energy backed currency, that would provide the stability
OldMexicanblog Wrote: Aug 30, 2012 3:10 PM
Re: conservative_librarian,

-- for instance he advocates a zero inflation policy and I would suggest a 1-2% inflation position to be healthier for the national economy --

Let's say for the sake of argument that you can achieve the impossible and manage the economy so tightly you can maintain those inflationary goals, as if goods and services were homogeneous. Just for starterts, there's a 100% difference between 1% inflation and 2% inflation. This tells me you're simply guessing at the "proper" rate of inflation as if you were preparing soup. Why exactly would you prescribe inflation to an economy is beyond my capability - I cannot read minds, but it certainly does not come from any valid economic theory.
conservative_librarian Wrote: Aug 30, 2012 4:11 PM
I think there is room for disagreement on what an 'acceptable' inflation target would be. I think it is easy to say 5% is far too high (because the return on investment for capital projects would almost never match the rate of inflation)

I also think if you attempt to reach zero, there is a disincentive for investors to put capital to work, and because there will always be some fluctuation, you would have periods of deflation (lets say moving between -2 and +2) which I dont think would be good.

I chose 1-2% because I want to be much lower than 5 and above zero, the exact number would be something I am sure the economists could figure out based on historic data

As Republicans convene in Tampa to nominate Mitt Romney and hammer out their party platform, one of the planks that could attract the most attention is the Party's official position on the gold standard. As it is now being considered, the platform stops short of recommending a return to the gold standard, but does advocate a commission to consider the possibility. However, judging by the reaction with which many Republicans have greeted the idea, one would think that the platform might as well have called for the return of slavery.

The fact that so many supposed conservatives...

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