Monetary Reform

[antinwo 57]

I started this thread to keep from hijacking another and to keep this topic going. We all know that the system we have now, since the creation of the Federal Reserve Banking System in 1913 is no longer sustainable. What are your thoughts as to an alternative system of money? Is there such a thing as a perfect system?

 

 

I have copied and pasted the last comment from the aforementioned thread in an attempt to keep the flow going here.

 

 

 

"As I understand it, a dollar is a unit of measurment, like a pound or an ounce. It issupposed to be a certain amount of weight in gold or silver coin. A quarter is supposed to be 1/4 of a dollers weight, a dime 1/10 of a dollers weight, a nickel was supposed to be made from a precious metal called nickel and a penny was supposed to be made out of a precious metal called copper. Prior to 1964, this country issued legitimate promisary notes which said:" payable to the bearer of this note, upon demand, the sum of..." and you could go to any federal reserve bank in the country and trade your dollers for gold or silver coin. One doller bill for one g/s coin, 100 doller bill for 100 g/s coins, or 1,000,000 for 1,000,000 g/s coins because each one printed was backed by gold and silver. Since 1964 however, dollars are no longer backed by gold and silver, quarters are no longer made of pure silver ( now made out of copper and nickel, look at the edges, you can see the copper) and nickels and pennies are now made from aluminum (pennies have a copper coating). A dollar bill is not real money, it is a promisary note (promise to pay) that was created for convenience purposes (imagine walking down the street with 500 silver dollars in your pocket). Over time people (with govt. and bankers assistance) have confused bills with real money. The American dollar as of right now is actually worth about 4-5 cents. Numerous countries are talking about changing the worlds Standard Currency from the U.S. dollar to something else. If and when that happens, what we now carry around in our pockets will be a worthless as toilet paper. 2008 was the hi-cup, the vomit is still on the way!!! Anyone not prepared to last 3-6 months plus completely on their own, may not make it. Not trying to be a perveyor of doom and gloom, but trying to give a word to the wise. Better to have it and not need it (what ever "It" is) than to need it and not have it.

Edited by Blaster, Today, 04:09 PM."

Edited October 5, 2011 by antinwo

[patriot 7,197]

The founders would have been shooting long before now.

[antinwo 57]

Blaster-

 

That's the way it used to be.. you could exchange a gold or silver certificate for the real thing. Now we have the Federal Reserve Note, which is nothing more than a fancy looking piece of paper with a dead president's picture on it to make it look official. Yes, there is a real shit storm heading our way, and it won't just be here, it will be world wide.

I'm posting a couple of links to some good info for discussion.

 

Money as Debt

 

The Money Masters

 

Edited October 5, 2011 by antinwo

[antinwo 57]

The founders would have been shooting long before now.

 

 

No doubt. Jefferson fought in earnest against the central banks in his day.

[Dad2142Dad 6,559]

Jefferson would have executed several people by now for treason, but that was back in the day when President still meant something.

[Scott Kenny 144]

So, let's check some basic economic theories for a minute: How many dollars are in the US economy? 12 Trillion, give or take, but let's use 12T for easier number-crunching.

 

Now comes an interesting point. How fast does money flow through the economy? I mean, I pretty much spend my paycheck as soon as I get it, so I think 12 is a not-unreasonable number for the velocity of money, but I think that's low for businesses. For simpler number-crunching, let's stick to 12. What that means is that the government only has to back 1 trillion dollars in currency.

 

So, how much gold would the US have to hold in order to back a trillion dollars cash with gold? At $1000 an ounce, the government would have to hold a billion troy ounces of gold. For reference, the science-types believe that since the dawn of time, mankind has extracted roughly 5 billion troy ounces, which leaves 4 billion troy ounces for all other uses (including backing other economies), and that's just to back the US's economy. That doesn't include any other major economy. The entire world's economy is roughly $60trillion US dollars. Oops, no gold left for other uses. For that matter, that leaves 20% of the world's economy free-floating *because there's not enough gold in the world*.

 

Well, that's no good, so let's go to the old 40% rule that the Federal Reserve used to follow when the US was on a gold standard. This means that the US only has to back 400billion dollars in cash. Make that 400 million troy ounces of gold at $1000 an ounce. That's better, the world only has to hold 24 billion ounces. Oops, still *six times* more gold than has ever been mined in the world.

 

Ok, so what would the value of gold have to be in order to support the US economy, based on today's GDP? Assuming that half of all the gold ever produced is used to back currency (leaving the other half for artifacts, jewelry, and industrial uses), that leaves us with a need of 2.5 billion troy ounces. Hey, we can do that! It just puts gold at $10,000 an ounce.

 

Do you know why the entire world went off the gold standard?

 

Because the gold standard choked off economic growth.

 

[my apologies, but I am an International Business major. exchange rates and commodity prices are my bread and butter.]

[G O B 3,516]

The US dollar should be backed with US grain. Food is still our major wealth. and as such should be the standard against wich our money is valued.

[Scott Kenny 144]

No way. grain production is too volatile. Just ask Holland what happened when their currency was Tulips, and all the tulips died.

[physicsnerd 139]

I started this thread to keep from hijacking another and to keep this topic going. We all know that the system we have now, since the creation of the Federal Reserve Banking System in 1913 is no longer sustainable. What are your thoughts as to an alternative system of money? Is there such a thing as a perfect system?

 

 

I have copied and pasted the last comment from the aforementioned thread in an attempt to keep the flow going here.

 

 

 

"As I understand it, a dollar is a unit of measurment, like a pound or an ounce. It issupposed to be a certain amount of weight in gold or silver coin. A quarter is supposed to be 1/4 of a dollers weight, a dime 1/10 of a dollers weight, a nickel was supposed to be made from a precious metal called nickel and a penny was supposed to be made out of a precious metal called copper. Prior to 1964, this country issued legitimate promisary notes which said:" payable to the bearer of this note, upon demand, the sum of..." and you could go to any federal reserve bank in the country and trade your dollers for gold or silver coin. One doller bill for one g/s coin, 100 doller bill for 100 g/s coins, or 1,000,000 for 1,000,000 g/s coins because each one printed was backed by gold and silver. Since 1964 however, dollars are no longer backed by gold and silver, quarters are no longer made of pure silver ( now made out of copper and nickel, look at the edges, you can see the copper) and nickels and pennies are now made from aluminum (pennies have a copper coating). A dollar bill is not real money, it is a promisary note (promise to pay) that was created for convenience purposes (imagine walking down the street with 500 silver dollars in your pocket). Over time people (with govt. and bankers assistance) have confused bills with real money. The American dollar as of right now is actually worth about 4-5 cents. Numerous countries are talking about changing the worlds Standard Currency from the U.S. dollar to something else. If and when that happens, what we now carry around in our pockets will be a worthless as toilet paper. 2008 was the hi-cup, the vomit is still on the way!!! Anyone not prepared to last 3-6 months plus completely on their own, may not make it. Not trying to be a perveyor of doom and gloom, but trying to give a word to the wise. Better to have it and not need it (what ever "It" is) than to need it and not have it.

Edited by Blaster, Today, 04:09 PM."

 

There is some correct and incorrect information here.

 

A dollar was initially (1790's) set as a certain weight in silver. Gold coins were coined in dollar denominations at a fixed exchange between the two (note that this in and of itself can prove to be problematic as a dual standard).

 

Nickels did not exist until 1866 at the behest of a nickel mine owner in PA. From the 1790's until that time the only $0.05 coin was the half dime which was coined in silver. Half dimes and nickel five cent pieces were coined at the same time from 1866 to 1873 when half dime minting ceased.

 

Nickels today have the same alloy they had in 1866: 25% nickel, 75% copper. They are not made from aluminum (though I could see that in the future as the purchasing power of the dollar decreases).

 

Pennies from 1982 onwards are made mostly of zinc with a copper coating, not aluminum.

 

Paper money in the US is pretty complex and I don't understand all the history but I do want to point out that there were many different types of notes that were printed between 1863 and now; not all of them were redeemable at a bank for gold or silver. Today there is one type of note: the Federal Reserve Note. In the past there were US Bank Notes, Silver Certificates (notes that *were* redeemable in silver), Gold Certificates (which were redeemable in gold) and from 1913 (or 14, I don't know when the first FRNs were printed) Federal Reserve Notes.

 

FDR made holding gold for monetary purposes by fiat in 1933 by forcing people to turn in their gold holdings at an exchange rate of ~$20.50 per ounce of gold. Then he revalued the dollar at a rate of $35 per ounce of gold. This is like "quantitative easing" based on the fallacy that the money supply was just too darn inflexible. Increasing the money supply would make all the economy's problems go away. Instead we got another 12 years of depression. However, international debts could still be settled in gold (this is important later). Silver was still used in the coining of several denominations using an alloy of 90% silver and 10% copper.

 

Silver was last used in coining in 1964 and Silver Certificate redemption was halted shortly thereafter. However, even at this time there was still a tie of the dollar to gold. At the end of WWII the Bretton Woods agreement amongst numerous nations made the US Dollar the reserve currency (that is, countries could pay debts to each other in dollars) but the dollar still had a tie to gold and countries could request that instead.

 

Due to a drastic increase in spending during the 60s (on bread and bullets) the Fed increased its pace of diluting the money supply with new dollars. Other countries became concerned that they were getting paid by the US Governement in devaluing dollars and asked for payment of gold instead. This escalated until Nixon unilaterally ceased honoring the agreement to pay in gold by severing all ties of the dollar to gold in 1971.

 

The ban on holding gold for non-numismatic and non-jewelry related reasons was lifted in 1974.

 

OK, onto the other quote.

 

So, let's check some basic economic theories for a minute: How many dollars are in the US economy? 12 Trillion, give or take, but let's use 12T for easier number-crunching.

 

Now comes an interesting point. How fast does money flow through the economy? I mean, I pretty much spend my paycheck as soon as I get it, so I think 12 is a not-unreasonable number for the velocity of money, but I think that's low for businesses. For simpler number-crunching, let's stick to 12. What that means is that the government only has to back 1 trillion dollars in currency.

 

So, how much gold would the US have to hold in order to back a trillion dollars cash with gold? At $1000 an ounce, the government would have to hold a billion troy ounces of gold. For reference, the science-types believe that since the dawn of time, mankind has extracted roughly 5 billion troy ounces, which leaves 4 billion troy ounces for all other uses (including backing other economies), and that's just to back the US's economy. That doesn't include any other major economy. The entire world's economy is roughly $60trillion US dollars. Oops, no gold left for other uses. For that matter, that leaves 20% of the world's economy free-floating *because there's not enough gold in the world*.

 

Well, that's no good, so let's go to the old 40% rule that the Federal Reserve used to follow when the US was on a gold standard. This means that the US only has to back 400billion dollars in cash. Make that 400 million troy ounces of gold at $1000 an ounce. That's better, the world only has to hold 24 billion ounces. Oops, still *six times* more gold than has ever been mined in the world.

 

Ok, so what would the value of gold have to be in order to support the US economy, based on today's GDP? Assuming that half of all the gold ever produced is used to back currency (leaving the other half for artifacts, jewelry, and industrial uses), that leaves us with a need of 2.5 billion troy ounces. Hey, we can do that! It just puts gold at $10,000 an ounce.

 

Do you know why the entire world went off the gold standard?

 

Because the gold standard choked off economic growth.

 

[my apologies, but I am an International Business major. exchange rates and commodity prices are my bread and butter.]

 

Unfortunately this argument is based on several false assumptions. One is that prices are inflexible (and to some extent they are) and that a return to a commodity backed would require everything to be denominated exactly as it is today. The other is that gold is too restrictive and "chokes" economic growth. This ignores the incredible growth seen in countries from the beginning of the industrial revolution until the early to mid-20th century. It also ignores the real push for fiat currencies which is to inoculate people to the real costs of government programs and to give more power to fewer people.

 

In a free market (that is the absence of constant meddling by the gov't via rules, regulations, tariffs and monetary manipulation) prices would rise and fall based on supply and demand. And in the absence of meddling if some type of money becomes untenable then the market would choose a new one.

 

Not that bad things didn't happen under gold but because there was a finite supply it helped to reign in monarchs and governments. A ruler didn't remain too popular when waging expensive wars because people wanted to be paid in something real, not a piece of paper with a promise on it.

 

Look at the explosion in the growth of government since they all decided to leave a commodity standard for one which they controlled.

 

I would encourage you to read the following which explains things a heck of a lot better than I can:

http://mises.org/resources.aspx?Id=8a1b9cc7-6569-4876-a608-91f70d8c0e58

 

I've only been trying to remove my economic ignorance since the fall of 2008 and been doing it in my spare time so I am sorry that the above is not better stitched together. Your profs are selling you a bill of goods if they're convincing you that inflationary money is a necessity. Since the Nixon Shock most families have seen a shift from a one income home to a two income home just to maintain a middle class lifestyle. This isn't a mystery its monetary inflation.

[IndyArms 10,186]

Just an FYI.... Pennies are made from ZINC nowadays... 97.5 % Zinc, 2.5 % copper. Not aluminum. ( aluminum is probably worth more... LOL )

 

 

physicsnerd beat me to it by mere seconds... LOL although he typed a book...

[Scott Kenny 144]

Ah, you read Mises. Explains a lot. They're Mercantilists and don't read history outside of Europe.

 

Indy (or other mods), go ahead and nuke this if y'all don't want to read economic history.

 

Commodity-backed economies have some serious issues. Let's take a nice example of mercantilist economic thinking: China, back about 1600. Now, the Chinese didn't want anything from the rest of the world but silver. So they got *lots* of silver. At the time, China used a 'single-whip' taxation system. Once a year, you paid your taxes to the government in silver. Up until this point the tax rate had been roughly 8 silver pieces. In the span of a single year, the Chinese brought so much silver into their economy that the value of silver to the government plummeted. It now took 48 pieces of silver to pay taxes, but the price of silver hadn't changed to the peasants.

 

Also, when the port of Nagasaki was closed, the Chinese economy collapsed again, because their silver income couldn't come through.

 

Spain liked their gold. They brought so much gold into their economy during the 1500s that they suffered massive price inflation.

 

One of the first things that you get hit with in International economics class is to prove that a country cannot sustain a constant inflow of cash and outflow of finished goods indefinitely. I will leave the proof to the physics nerd, *I've* already done it. http://www.amazon.com/International-Economics-text-only-R-Carbaugh/dp/B003RT92MS/ref=sr_1_2?ie=UTF8&qid=1317921464&sr=8-2 Some light reading for you, if you're serious about economic theories. Carbaugh is a Chicago-school economist, pretty rabidly libertarian free-market. He also goes into great detail about the different forces that required FDR to change the gold standard. I won't repeat them here.

 

As far as pricing structures are concerned, I wasn't talking about a long-term economic situation. I was talking about an IMMEDIATE effect on the economy by going back to the gold standard. Yes, eventually the economy would level back out, but until it did, the US dollar would be valueless, because everyone else could buy gold in their country and flood it into the US economy.

[antinwo 57]

I would like to discuss ideas on how to reform the economy. Our current fiat system is not working, and there is no way it can be repaired. Under the current system, all money is created out of nothing by a private banking cartel and then loaned into circulation at interest -- first by the Federal Reserve, via its purchase of government bonds; and second by commercial banks, via fractional reserve lending.

 

There are two critical problems with this process.

 

First, when banks loan (and thereby create) money, they create only the principal, not the interest. This is why the overall indebtedness of the economy is always many times greater than even the most liberal estimate of the money supply. Granted, if no one borrowed, there would be no interest to pay; but there would also be no money supply, and thus no economy.

 

Second, because all money is created as a loan, whenever the principal of a loan is paid back, the money supply is reduced by that amount.

 

With our current debt-based money system there is a built in shortage of money, due to the fact that money is "uncreated" whenever the principal of a bank loan is repaid; and the fact that the money needed to pay the interest on that loan is never created in the first place (which means interest can never truly be paid off, but merely shifted to someone else).

 

That more than anything else is what creates our dog-eat-dog, musical chairs economy -- an economy in which millions of people work frantically to capture other people's loan principal; and in which virtually everyone works (to one extent or another, and whether they realize it or not) as indentured servants to the banking elite.

 

The solution is to go to the root of the problem by instituting a debt-free money system in place of the current debt-based system!

 

If the Fed were to be abolished, what would we replace it with? Gold backed currency is what most preach, but we all know it would be impractical. Ideas??

[physicsnerd 139]

Ah, you read Mises. Explains a lot. They're Mercantilists and don't read history outside of Europe.

 

Indy (or other mods), go ahead and nuke this if y'all don't want to read economic history.

 

Commodity-backed economies have some serious issues. Let's take a nice example of mercantilist economic thinking: China, back about 1600. Now, the Chinese didn't want anything from the rest of the world but silver. So they got *lots* of silver. At the time, China used a 'single-whip' taxation system. Once a year, you paid your taxes to the government in silver. Up until this point the tax rate had been roughly 8 silver pieces. In the span of a single year, the Chinese brought so much silver into their economy that the value of silver to the government plummeted. It now took 48 pieces of silver to pay taxes, but the price of silver hadn't changed to the peasants.

 

Also, when the port of Nagasaki was closed, the Chinese economy collapsed again, because their silver income couldn't come through.

 

Spain liked their gold. They brought so much gold into their economy during the 1500s that they suffered massive price inflation.

 

One of the first things that you get hit with in International economics class is to prove that a country cannot sustain a constant inflow of cash and outflow of finished goods indefinitely. I will leave the proof to the physics nerd, *I've* already done it. http://www.amazon.co...17921464&sr=8-2 Some light reading for you, if you're serious about economic theories. Carbaugh is a Chicago-school economist, pretty rabidly libertarian free-market. He also goes into great detail about the different forces that required FDR to change the gold standard. I won't repeat them here.

 

As far as pricing structures are concerned, I wasn't talking about a long-term economic situation. I was talking about an IMMEDIATE effect on the economy by going back to the gold standard. Yes, eventually the economy would level back out, but until it did, the US dollar would be valueless, because everyone else could buy gold in their country and flood it into the US economy.

 

Just to note your premise starts out with two blatantly false premises that Austrians are mercantilists and only read European history. Anyone spending any time looking into it would know that those are both wrong.

 

Your point on China and silver is pretty interesting. What you describe is exactly what the Fed can do at any point. At least the Chinese had to work pretty darn hard to accumulate it. The Fed could do the same thing on a tiny time span.

 

In China were there legal tender laws that said that only silver could be used? I'm just curious because I would like to see the repeal of legal tender laws and let competition in currency happen instead of putting those people in jail.

 

So any object used as money could prove to be unstable. My point was just to say that I think that people are freer and are able to increase their wealth in the absence of fiat paper money controlled by the government (or some "quasi-private") institution.

 

Also, would you have something a little shorter to read? I am genuinely curious but it is a little unfair to recommend an entire textbook. I didn't recommend Mises "Human Action"!

[theturtlepond 31]

The dollar is like a universal bartering system. I want that more than I want the dollar.

 

Like this situation: I want a tv. I will give you $200 for one. You take that $200 and trade it for food.

 

There is no real value to it. And it could take only one event to make it all worthless.

[jrance@iacwds.com 716]

So, let's check some basic economic theories for a minute: How many dollars are in the US economy? 12 Trillion, give or take, but let's use 12T for easier number-crunching.

 

Now comes an interesting point. How fast does money flow through the economy? I mean, I pretty much spend my paycheck as soon as I get it, so I think 12 is a not-unreasonable number for the velocity of money, but I think that's low for businesses. For simpler number-crunching, let's stick to 12. What that means is that the government only has to back 1 trillion dollars in currency.

 

So, how much gold would the US have to hold in order to back a trillion dollars cash with gold? At $1000 an ounce, the government would have to hold a billion troy ounces of gold. For reference, the science-types believe that since the dawn of time, mankind has extracted roughly 5 billion troy ounces, which leaves 4 billion troy ounces for all other uses (including backing other economies), and that's just to back the US's economy. That doesn't include any other major economy. The entire world's economy is roughly $60trillion US dollars. Oops, no gold left for other uses. For that matter, that leaves 20% of the world's economy free-floating *because there's not enough gold in the world*.

 

Well, that's no good, so let's go to the old 40% rule that the Federal Reserve used to follow when the US was on a gold standard. This means that the US only has to back 400billion dollars in cash. Make that 400 million troy ounces of gold at $1000 an ounce. That's better, the world only has to hold 24 billion ounces. Oops, still *six times* more gold than has ever been mined in the world.

 

Ok, so what would the value of gold have to be in order to support the US economy, based on today's GDP? Assuming that half of all the gold ever produced is used to back currency (leaving the other half for artifacts, jewelry, and industrial uses), that leaves us with a need of 2.5 billion troy ounces. Hey, we can do that! It just puts gold at $10,000 an ounce.

 

Do you know why the entire world went off the gold standard?

 

Because the gold standard choked off economic growth.

 

[my apologies, but I am an International Business major. exchange rates and commodity prices are my bread and butter.]

Keynesian economics and it's adherents have gotten us into this mess. Every President & Congressman (save perhaps Ron Paul and a few others) are adherents of this philosophy because it nets them power over others. It has proven unworkable and imo needs to be replaced by the gold/silver standard which removes the ability of government to social engineer and rob subjects without their knowledge.

1911

[Scott Kenny 144]

Physicsnerd, you can find older copies of Carbaugh for low prices (or in most university libraries), and the discussion of how mercantilist thinking doesn't work is in the first 3 chapters. It's been a year since I took International Econ, I don't remember where exactly that discussion is in the book, but we covered it in class in the first week. Besides, Carbaugh is a good introductory text, he's not hard to read at all.

 

According to Keynesian economics, you cannot have inflation and unemployment at the same time. Inflation is a sign that there is too much money in circulation, and unemployment is a sign that there is not enough money in circulation. Guess what happened in the late 1970s in the US.

 

1911, being on a gold or silver standard doesn't protect you from government manipulation. It doesn't protect from inflation.

 

I agree that there is something seriously wrong with the world economy, but I can tell you that going back to any commodity-backed currency standard isn't going to fix the problem.

[kodaline 178]

My....one cent, lol, on this is that pennies went to zinc in 43, and copper coated zinc in 44.