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You couldn't exchange your paper for gold since 1931. Maybe that's why it felt like nothing changed to you. However, institutions could. Since 1971, unfettered

• DaiPlusPlus 5y ago
  > Requiring backing for dollars was a real limiter on inflation Which directly leads to instability when the value of the backing changes. I'm not aware of any mainstream movement amongst orthodox economists to revert to pre-Nixon policies.
  • dnautics 5y ago
    That's understandable. The value of stability seems to be doctrinal in orthodox economics (it is the orthodoxy, after all) Like any other metric, stability comes at a cost (and it also comes with baked-in assumptions). I wish there were more rigorous discussion of what the social cost of stability is (is it worth it to have stability if that means siphoning money from the poor?), who benefits from 'stability', what values our metrics for stability encode, and to what extent the Federal Reserve system is a victim of Goodheart's law in all of the goals it seeks, to include 'stability'.
    • kube-system 5y ago
      It is undoubtably the working classes who benefit from stability. The people who control businesses are not laying themselves off first, nor are they living paycheck-to-paycheck.
      • billytetrud 5y ago
        There is quite a lot of reason to doubt that is the case in the long run. What I think dnautics is saying is that stability is trading off short term gains for long term gains. What about the stagnated real wages in the last 50 years? Is that good for the poor? What about seigniorage? Is that good for the poor? When someone says something like "undoubtedly/obviously X" or "its commen sense that X" 99% of the time they haven't put much thought into it.
        • kube-system 5y ago
          We're not comparing equal "short term" and "long term" events though. The short term effects are much more severe in nature. And because they are severe, these "short term" economic effects end up causing long term financial impacts for the people they impact, even after the economy has recovered. Most non-high income people do not have huge rainy-day funds. If they lose their job, even for a short period of time, they will find themselves relying on debt that is a lot more expensive than 2% inflation. Stability has a high value, it is just hard to measure in dollars. > When someone says something like "undoubtedly/obviously X" or "its commen sense that X" 99% of the time they haven't put much thought into it. Or rather, it's an easy question to answer because we've seen the situation happen many times. Who suffers during economic downturns?
          • billytetrud 5y ago
            We should probably define what kind of stability we're talking about before we devolve into fisticuffs. Are we talking about a "stable" economy? A stable buying power of the currency? Something else?
            • kube-system 5y ago
              I am referring to economic stability.
              • billytetrud 5y ago
    • Filligree 5y ago
      How does inflation suck money from the poor? That is, the ones who are most likely to have loans that will be reduced by that very same inflationary policy.
      • bobthepanda 5y ago
        To a degree you have to have something to put up to have a loan in the first place. The finances of some freshly minted doctor loaded with medical school debt look a lot different than an unbanked poor person who's never qualified for credit.
        • dragonwriter 5y ago
          > To a degree you have to have something to put up to have a loan in the first place. Dollar denominated debt doesn’t all originate with getting credit-check-qualified approval for a loan.
      • dnautics 5y ago
        > How does inflation suck money from the poor? That is, the ones who are most likely to have loans... why the hell is this still a belief? The indebted poor have revolving credit at best (think 10%-ish APR) or short-term credit (payday loans: 15%+ APR). Inflation does not help those situations. The wealthy are benefitting from low-interest rate loans (margin accounts, leveraged trading, options) that are enabled by the existence of inflation, and by the mechanism, which is providing a discount window to banks (so they ride on nominal gains and are insulated from real devaluation). Consider someone who is spending 95% of their income on day to day expenses, and we have a 1% increase in prices. Now you are spending 96% of your income on day to day expenses, which is a 20% decrease in margin of safety. It's even worse if you start at 99%. If you are spending 20% of your income on day to day expenses and have a 1% increase in prices, your margin of safety loss is < 2%. "But wages catch up" you say. No they don't. Otherwise inflation as a policy doesn't work. https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-higher-inflation/ https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi... "in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts." Inflation is a stealth wage cut, a matter of policy for cheating the labor class. Don't get me wrong, it's well intentioned - it's to prop up the low unemployment metric, but Goodheart's law applies. Finally, inflation forces the middle class to invest instead of save, to stay afloat and build up a retirement nest egg. Investments typically must go through approved channels, e.g. "the stock market" which disproportionately favors the already wealthy, e.g. CEOs, investment managers, hedge funds. Thus it is a siphon that steals wealth from the poor and middle class and gives it to the wealthy.
    • bobthepanda 5y ago
      I don't know that the poor were any better off before the Federal Reserve system; in fact, it made the possibility of monetary rescue even more exclusive. Part of the reason why the Federal Reserve was formed was because in 1907 J.P. Morgan got his boys' club together and coordinated a financial rescue, but tough luck if you weren't benefitting from that.
      • dnautics 5y ago
        Broken window fallacy. Letting things fail is a possibilty. The boys' club can get together and coordinate a rescue, but in one out of every n attempts of coordinated rescue, they'll fail. Which will be good for leveling income inequality.
        • xxpor 5y ago
          That's also how you end up with wars.
          • deleted 5y ago
            [deleted]
          • dnautics 5y ago
            No, since 1900 wars are more correlated with inflationary predictors than deflationary predictors.
            • xxpor 5y ago
              They're correlated with instability. I'd agree hyper inflation is a cause of instability. 2-3% isn't.
              • dnautics 5y ago
                You are making an assertion based on a model that is strictly in your head because it seems "right". Please check your history.
            • 5y ago
    • billytetrud 5y ago
      I wish there was more rigorous discussion of monetary economics - or economics in general. Most people are economically illiterate, and economists are doing a real bad job of teaching it. The most famous ones seem to be constantly on the bleeding edge of whatever semi-verified theory they've pushed for decades without considering that they might be wrong sometimes.
  • billytetrud 5y ago
    > Which directly leads to instability when the value of the backing changes. You're not correct. Instability leads to changes in the buying power of currency, not the other way around. Unless you're talking about monetary inflation. What mechanism do you think there is to change the value of gold in a gold-backed world? The mechanism is that when there are better places to put your money than keeping it in dollars (gold backed or otherwise) the value of those dollars goes down. And vice versa, when there are fewer better places to put your money, more wealth will be held as currency and push its price up (this is why deflation is seen as bad - beacause it generally coincides with an economy that has been invisibly failing for years). Monetary policy had been inflationary and insolvent, and rampant expansion of the money supply lead to high price inflation which of course ended in a crash. It was monetary expansion that lead to the problems in the 70s not mysterious changes to the value of gold.
  • reedjosh 5y ago
    Pretty sure the value of gold only truly fluctuates against fiat currencies. It's not the intrinsic value of gold that fluctuates. In Roman times the value of an ounce of gold would buy a handmade robe, belt, and shoes. At today's value $1800, you could do exactly the same.
  • fuzzfactor 5y ago
    >I'm not aware of any mainstream movement amongst orthodox economists to revert to pre-Nixon policies. That's OK, mainstream orthodox economists have completely failed to yield anything resembling pre-Nixon prosperity ever since.
• mullingitover 5y ago
  > Since 1971, unfettered monetary inflation has been used to siphon wealth from the people for the benefit of a segment of rich elites close with the federal reserve. The median household debt is $90,460 in the US, and the median savings is significantly lower than that. So barring hyperinflation, some reasonable inflation is actually beneficial for 'the people.' It's diluting their debt. Meanwhile, the most common investment for working people is in their home, and real estate is one of the best inflation shelters. The parties most harmed by inflation are the ones sitting on huge amounts of cash without using it productively (so, not 'the people'), and those are exactly the parties who need a fire lit under them to prevent a deflation spiral.
  • hpoe 5y ago
    Here's the problem I own a home I am not owning that home as an investment vehicle I didn't choose the home to make a return I got that home as a place to fricking live, I chose my home because it would be most comfortable for my wife and family. The "value of the home" is an imaginary number in a database somewhere that doesn't actually do me any good when I need to pay for a hospital visit, or need to buy a car or something like that. In fact the more of my "value" is locked up in my home the less I am able to access it. Besides even if I were to liquidate what should I do then, go live under a bridge, the problem is even if my home has increased in value so has everyone else's home so even if I liquidate I'll still be stuck having to roll all that value over into a new home anyway because no matter what happens I still need a place to live.
    • mullingitover 5y ago
      > In fact the more of my "value" is locked up in my home the less I am able to access it. It's extremely easy to access the value of your home, home equity lines of credit are used all the time.
      • billytetrud 5y ago
        When the only way to access the value of your property is to pay a rent (interest) to someone else, then that isn't really easy access, now is it?
• RC_ITR 5y ago
  You think that centralizing the global economy around a metal that has limited intrinsic value, limited supply, relatively high density, random allocation below out earth’s surface, and extremely high storage costs is a good thing for poor people?
  • billytetrud 5y ago
    I think strictly limiting the ability for central banks to inflate the monetary supply (and use that created money to their own ends) is good for poor people. If it requires centralizing the global economy on gold, I certinaly think it would be worth it. However, an alternative would be to simply renationalize the Fed and put legislated limits on dollar monetary inflation. There are a lot of options here that don't involve going back to a gold standard. It kind of sounds like your argument is "gold is expensive, so how could it be good for the poor". Is that.. really the argument you're trying make here?
    • reedjosh 5y ago
      > simply renationalize the Fed and put legislated limits on dollar monetary inflation. Nothing simple about that though since the current system benefits the most powerful. This _is_ why bitcoiners treat it like a religion. There is no traditional political way to return to sane monetary standards. Moving to BTC removes the untrustworthy governmental control from the equation. Bitcoin's energy usage is only necessary as a hedge against powerful actors trying to kill it. Proof of stake currencies are great, but it's likely if bitcoin hadn't paved the way, any such system would have been killed by a state actor since it hurts their main source of finance.
      • billytetrud 5y ago
        Indeed. I meant its a simple idea. It would be simple to write a lwa for it. But of course, it would be politically fraught. Similarly tho, it wouldn't be politically simple to switch back to gold-backing. But yes, hopefully bitcoin can save us from this mess one day.
    • 5y ago
• torstenvl 5y ago
  My intuition is the opposite of what you're saying. Inflation devalues debt and savings while increasing the nominal value of wages. The guy with hundreds of thousands in savings and bonds loses from inflation; the guy with $80,000 left on his mortgage working as a senior sales associate at Home Depot benefits from it. How does this siphon money from the people to the benefit of rich elites?
  • hpoe 5y ago
    Because the inflation grows in respect to the access to captial you had before. So our Senior Sales associate at Home Depot doesn't see any real increase because he doesn't have any assest to take advantage of it. Meanwhile those that have access to cheap money are able to move it to others sources that are inflation resistant, stocks, companies, real estate, etc, meaning that overtime he is still getting paid $80,000 and his house may have increased in value but everything he needs to live is outpacing his ability to buy. Meanwhile those involved in finance are now substantially richer because they got more of the new money being created by having easy accless to captial. EDIT: If I am wrong in something here somebody tell me why, because that basically seems to be what is happening with the feds inflationary money policies is that everyone that can is borrowing at low interest rates then plowing that into real estate and the stock market because those are increasing in value so much, precisely because interest rates are so low and inflation so high.
    • treis 5y ago
      >IT: If I am wrong in something here somebody tell me why, Because wages rise with inflation too. A very simplistic explanation is that inflation hurts those that save/lend cash and helps those the own assets & borrow cash. It tends to be the poor that suffer because they save in cash & it's easier to suffer as a poor person.
      • stx 5y ago
        The reality is that wages have not kept up with inflation. https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
• Aunche 5y ago
  >Since 1971, unfettered monetary inflation has been used to siphon wealth from the people for the benefit of a segment of rich elites close with the federal reserve. Not deciding to arbitrarily tying the dollar to a random commodity makes the dollar more efficient. I can see how the wealthy disproportionately capture this benefit. However, it doesn't follow that people close to the Fed benefit more than anyone else does. Private equity and venture capitalists are further from the fed than banks, but have grown even faster. Also, if you wanted to stop inflation, why not just do it another way like forcing a debt ceiling or limiting how much money can be created to a rate similar to that which gold is mined? Tying your money to a volatile commodity seems like the worst way to do it.
  • billytetrud 5y ago
    > Not deciding to arbitrarily tying the dollar to a random commodity makes the dollar more efficient. How so? > it doesn't follow that people close to the Fed benefit more than anyone else does Its a well established fact that this is the case. Its called Seigniorage. Its called the Cantillion Effect. This isn't controversial in any way. > Private equity and venture capitalists are further from the fed than banks, but have grown even faster. Do you have a source for that? Banks are regulated in a way that limits the risks they can take, and therefore the return they can get, so it wouldn't be surprising that banks growth is smaller, especially over short time spans (eg years vs decades). Private equity and venture capitalists are often very close to banks too, so the difference is likely negligible. And I would have to imagine that people who own private equity firms are a lot more likely to also have equity in banks. > why not just do it another way like forcing a debt ceiling or limiting how much money can be created to a rate similar to that which gold is mined Yes, why not? I don't think I ever advocated that going back to a gold-backed dollar is the only solution. What was important about the gold standard was that it was a widely agreed upon culture of limited monetary supply. Any way that leads us back to that kind of culture where people undertand the importance of a limited money supply and fight to preserve it is a way out of our predicament.
    • Aunche 5y ago
      I'm not an economist, but I do think my intuition about money is correct. >How so? Money is supposed to be medium for the exchange of goods and services. At first, gold acted as a perfectly acceptable medium. However, as the economy grows, the supply of gold does not at the same rate, hence why money slowly became less and less tied to gold. First came fractional reserve banking and then the end of the gold standard. As long as the dollar is tied to gold, you always need to factor in the opportunity cost of holding gold into making an investment or a loan. For the decades following WWII, the American government could ignore this effect because the Bretton Woods system basically allowed the American government to pass that opportunity cost onto the Europeans and Japanese who were desperate for economic stability, but that wasn't sustainable forever. The wealth the American government got from essentially renting out dollars trickled down to the people, which is why I think many people reminisce the gold standard. >Its called the Cantillion Effect... Private equity and venture capitalists are often very close to banks too So can you define what you mean by being "close to the Fed"? I think the Cantillon effect just describes how the rich asymmetrically benefit from monetary expansion. The rich and poor can both take advantage of cheaper debt, but only the rich can afford to use that to grow their wealth. I don't think that this is enough reason to stop monetary intervention though. I'd much prefer our status quo to another Great Depression. The problem isn't that the Fed expands the money supply when the velocity of money falls. The problem is that they are unable to shrink the money supply when the economy recovers because with the rest of the federal government is required to issue $1 trillion in debt every year to operate. In theory, returning to a gold standard would incentivize Congress to be better at fiscal policy, but I'm pretty sure that they would just instantly become bankrupt.
• egh 5y ago
  This is a great comment because while it's completely wrong empirically, it also completely misses the point of the good question about free silver. Like the question of what was the US civil war about (slavery) the question of what silver v gold was about has been completely obscured by interested parties seeking to complicate the issue in such a way that nobody understands it any more. There are complications, which I don't really understand, but all you need to know is that silver vs gold was about inflation vs deflation. The free silver people were farmers (who are always debtors) and they supported inflation, because inflation is good for debtors. The supporters of gold were creditors, and the supported deflation, because creditors like deflation. It's that simple. The author of the above comment apparently thinks the populist farmers were completely wrong and they should have been against inflation. This may be true (it's not, but let's stipulate) but the commenter prefers to obfuscate the issue rather than confront the clear fact that free silver populists supported it BECAUSE it was inflationary.
  • billytetrud 5y ago
    > completely misses the point of the good question about free silver Oh the irony... talking about missing the point. I didn't miss the point. I just had nothing to say about that point.
• kaminar 5y ago
  You're a psycho.
• dredmorbius 5y ago
  You have causality backwards. Accumulating debt tends to drive inflation. Inflation is disliked by banks, as it reduces the value of any currency-denominated assets (loans, debt, insurance premiums, etc.). Inflation aids creditors. The question of how money is injected into the financial system is independent of whether or not inflation occurs. Direct injection to consumers ("helicopter drops") would be least injurious to inequality. The fact that the financial sector engineers monetary supply increases to be in their favour is a problem of the wealth-power connection.
  • billytetrud 5y ago
    > Accumulating debt tends to drive inflation. Well, its kind of a chicken and egg situation. I agree that moneatry (and price) inflation incentivizes more debt. However, the fact is that the mechanism by which monetary inflation happens is generally by creating debt. So if you were to pin whether the egg or the chicken came first, the answer would be that they happened at the same time. > Inflation is disliked by banks Mmm, no. Banks gain seigniorage from monetary inflation. So no they don't dislike it. > Inflation aids creditors. Devaluation of the currency aids creditors. However, monetary inflation does more than just currency devaluation. It also reallocates weath (seigniorage) and manipulates the market. Banks can simply loan out whatever money they want, so an inflating currency doesn't matter to them. They take that inflation into account already. What does matter is unexpected inflation. That's why uproar happens when inflation rates change significantly (either high inflation or deflation). > Direct injection to consumers ("helicopter drops") would be least injurious to inequality I agree. Still economically harmful, but less harmful than traditional seigniorage.
    • dredmorbius 5y ago
      If inflation increases effective demand by consumers (that is, increases effective income and wealth of the poorest sector of society), then debt relative to total economic activity should decrease. The problem with debt is that it is a manifestation of an underlying contradiction. One or more of: - The expectation that those not paid sufficiently to survive can. E.g., increasing wealth inequality. - That past obligations take precedence over current survival. - Past consumption patterns or expectations of future consumption exceeding actual production capacities. At some point, something has to give. Debt can be inflated away, debt can be discharged (bankruptcy, jubilee, expiry, default). Or the social order under which the debts are recognised can itself be dissolved (revolution). Your #2 is false. Seigniorage is gain on minting money, not inflation. I have no idea what term you're confusing it with.