16 ms·

The Gold Standard and the Great Depression (1997)

54 points by VHRanger 5y ago

jihadjihad 5y ago
Ben Bernanke has studied and written [0] extensively about this topic; a copy of a speech he delivered at Washington and Lee University in 2004 can be found at [1] for those interested. 0: https://www.nber.org/system/files/chapters/c11482/c11482.pdf https://www.nber.org/system/files/chapters/c11482/c11482.pdf 1: https://www.bis.org/review/r040305e.pdf https://www.bis.org/review/r040305e.pdf
- nums 5y ago
  "Helicopter" Ben famously said that the Great Depression could have been averted by throwing $100 bills from helicopters to pump liquidity into the economy. I believe the implementation of this concept via the Fed (bank of banks) is the real issue. Basically, liquidity goes to the banks. Anyone having a relationship with banks gets access to this liquidity and benefits. Of course, we plow these "gains" back into assets (hard or stock market), this drives up prices, and we get asset inflation. For the person renting an apartment, leasing a car, and with credit card debt ... well, they lose. The trickle down doesn't work. You can interpolate and extrapolate from this brief comment, and I believe that this is the fundamental source of the expanding rich/poor divide.
  - throw0101a 5y ago
    The Fed cannot do helicopter money. It is not connected to the "real" economy directly, only through the banks as middle-men. Helicopter money comes via fiscal policy. As for so-called "asset inflation", I like Cullen Roche's take: > In any case, I would argue that most of the asset price appreciation of the last 10+ years appears largely rational in the sense that it is supported by corporate fundamentals (record profits, record GDP, etc) and other robust economic data that is consistent with a growing economy. It isn’t just a fictitious boom as many “asset price inflation” narratives like to imply. > As for inequality – asset price inflation would tend to exacerbate inequality since it will disproportionately benefit those who own assets. This makes sense. But as I like to always point out, inequality is a policy failure, not a market failure. After all, a capitalist economy will always veer towards monopolistic behavior if we allow it to. The extent to which we allow that to happen is not a failure of capitalism, it is a failure of policy makers to contain capitalism. * https://www.pragcap.com/lets-talk-some-more-about-assflation/ https://www.pragcap.com/lets-talk-some-more-about-assflation...
    - marcusverus 5y ago
      > In any case, I would argue that most of the asset price appreciation of the last 10+ years appears largely rational in the sense that it is supported by corporate fundamentals (record profits, record GDP, etc) and other robust economic data that is consistent with a growing economy. It isn’t just a fictitious boom as many “asset price inflation” narratives like to imply. The PE ratio for the S&P 500 is currently ~28X, which is roughly double it's historical average and ~50% more than the average from 2010-2020. Is it really supported by corporate fundamentals? [0] https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio
    - imtringued 5y ago
      > The Fed cannot do helicopter money. It is not connected to the "real" economy directly, only through the banks as middle-men. Helicopter money comes via fiscal policy. Exactly. All those people talking about money printing don't understand that money doesn't exist in a vaccum. Every dollar created is backed by one dollar of debt which ads up to a net worth of $0. So the Fed cannot helicopter money for the obvious reason that they cannot ever pay that money back. The government can borrow and spend money into the economy because it can tax its citizens. The money will come back one day.
  - shagmin 5y ago
    I imagine that's more of an issue now than during the Great Depression. Back then you could easily put that money into large pools of labor, whether assembly lines at factories or agriculture or infrastructure projects and gave a pretty good return on investment. Now a large pool of labor at a company is treated more like a liability, and yeah just putting money into real properties may get you a better return than anything that directly benefits any meaningful number of people. Even if the money goes towards something like infrastructure - the cost of equipment is one thing, but I imagine there are plenty of instances where a handful of lawyers and beaurocrats involved in a project get paid more than some massive crews that do the actual labor combined.
  - andrepd 5y ago
    > Basically, liquidity goes to the banks. Anyone having a relationship with banks gets access to this liquidity and benefits. Ding ding ding. This is a key issue. If you want to bail out the economy, you need to do it to increase aggregate demand, and therefore the best way to do this is to give money directly to the people. The programs in place since 2008 (1) benefit people with capital (2) leave the poor and the working class in the dust, and (3) are paid for by milking the taxpayers directly, or indirectly through inflation. Banks are leacherous middleman in normal operation. Theoretically they are providing a valuable service of evaluating risk and allocating capitable to the most profitable ventures. But in practice the incentives are totally misaligned, since they do not get accurately punished/rewarded for doing a shit job. Not to mention old-fashioned corruption, understood as giving undue benefit to a party/parties due to their personal connections.
  - OldHand2018 5y ago
    > Great Depression could have been averted by throwing $100 bills from helicopters A lot of people don't know this, but the main reason Calvin Coolidge suddenly, and without warning, decided not to seek reelection in 1928 was that he couldn't find any helicopters. Hoover was set up.
BenoitEssiambre 5y ago
I have an hypothesis that the same could happen with deflationary cryptocurrencies if they become used widely enough in financial institutions that central banks decide they should tie part of the monetary system to them. https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html
- remarkEon 5y ago
  I don’t think you’re the only one with this hypothesis. There’s a couple bag holders I know who share that view. It’s a confusing one, IMO, but it’s interesting to think about.
- andrewmutz 5y ago
  100% Agree. From everything I've read, our being able to print money is an indispensable tool during financial crises. Fixing the great depression and the great recession depended on this ability. If the world transitions to cryptocurrencies whose supply is unmanaged or fixed, that will not be possible and presumably will be stuck during financial crises.
  - Lifelarper 5y ago
    Venezuela, once one of the richest coutries on Earth with more oil than Saudi Arabia thought this way too. Turned out great for them. By all metrics they should be Western Europe level rich and yet many young kids find it more profitable to mine coins in runescape 12 hours a day rather than actually get a job, strange how that happens hey, if only they printed more Bolivar this all could have been avoided?
    - colinmhayes 5y ago
      Venezuela also nationalized every sector of the economy and handed the reins to Chavez/Maduro's corrupt buddies. Not sure why you think hyperinflation is a problem as opposed to a symptom of their failed institutions.
    - rovolo 5y ago
sleepysysadmin 5y ago
We are pre-great depression in many respects. Debt levels being at very high percentages. Income inequality out of control. Inflation out of control. Fundamentally as well it's the baby boomer's fault. Right before the great depression was when the boomers of the american civil war were retiring. The 1980s inflation and crashes were WW1 boomers and now is the WW2 baby boomers retiring. History repeats.
- mabub24 5y ago
  Not to say it can't happen, but there are quite a few new institutional and regulatory safeguards that (in spite of the attempts by some to neuter them) exist now that did not exist pre- and during the great depression that make such a thing happening again, or to the extent that it did, quite hard. The more interesting question is whether there is the political will, let alone ability, to accurately and quickly respond to events as they are happening, rather than with extreme delay. Covid-19 (granted as much a public health crisis as an economic one) showed that American domestic problem solving has grown rather fragile and inflexible.
  - sleepysysadmin 5y ago
    >Not to say it can't happen, but there are quite a few new institutional and regulatory safeguards that (in spite of the attempts by some to neuter them) exist now that did not exist pre- and during the great depression that make such a thing happening again, or to the extent that it did, quite hard. So it's interesting. 1 of the key rules is that you cannot borrow money to invest. You know what ive never seen all my life until recently? THAT! My bank and others that have nothing to do with me have been advertising, 'you can borrow $5000 to get your investment fund going!' People said the reason the great depression happened was stuff like this. I personally dont expect it's a depression level event. I think most people were hoping for this because it's better than extreme inflation like the 1980s. HArdly a prediction given inflation is so high already.
- anonporridge 5y ago
  The United States at least is actively in a great depression. It's just being papered over with currency debasement so rich people don't notice. But if you actually visit parts of this country that are outside of the wealthy, coastal bubbles, you'll see first hand the real world devastation that's happening to people. It's why there's a major opioid epidemic in the Midwest. It's why homelessness is exploding. It's why rampant, degenerate speculation in stocks and crypto is going crazy and rife with scams and conmen selling hope to the hopeless. It's why populists like Trump and Sanders have so much political energy behind them. And all of this is pre pandemic. I'm sure the past two years have added a new level of devastation. People are depressed and dying everywhere, but us winners in our gilded bubbles have the privilege of being able to look away and continue living in our illusory, drunken stupor.
aazaa 5y ago
The article begins with the idea that the causes of the Great Depression are not known or too numerous to pin down. It then continues by claiming that "recent scholarship has resulted in striking agreement on the reason for the crisis." The cause of the Great Depression was the gold standard, according to the article: > ... The constraints of the gold-standard system hamstrung countries as they struggled to adapt during the 1920s to changes in the world economy. ... Central bankers continued to kick the world economy while it was down until it lost consciousness. What this article ignores, like countless articles before and since, is the Roaring 20s. Articles like this treat the Great Depression as an event that hit the US economy out of the blue. But even superficial study of the ten years prior reveals something obvious: a massive, compounding, technology-fueled asset bubble. The article also ignores the event that kicked off the Roaring 20s: the depression of 1920-1921: https://en.wikipedia.org/wiki/Depression_of_1920–1921 https://en.wikipedia.org/wiki/Depression_of_1920–1921 This depression resolved itself under a gold standard regime and with minimal intervention by the Federal Government and Federal Reserve. 50 years ago the US abandoned the last vestiges of the gold standard. Today we find ourselves in the middle of a technology-fueled asset bubble. The US president talks, without a hint of embarrassment, about the need to borrow to continue to service debts. This is, of course, the very definition of a Ponzi scheme. Whatever this comes to, we won't have the gold standard to kick around. It's been out of the picture for decades. What happens when the world's governments decide to outdo each other on how much currency they can conjure into being?
- vvoaterr 5y ago
  Anybody is welcome to download the Robinhood app, and buy FAANG/FAGMAN stocks with all your disposable income. Then you, too, will be contributing to the leading cause of the next "Great Depression", plus, you'll come out of it having become quite Rich. You're welcome.
  - txru 5y ago
    > FAGMAN ... So do you use that often in polite company...?
- praxulus 5y ago
cletus 5y ago
I honestly don't understand the obsession some people have with the gold standard. Even when the US had the gold standard, the US never had gold reserves that matched the dollars in circulation. Not once. Ever. Also, the gold standard doesn't stop sovereign devaluation as happened by FDR in the 30s. Historically gold existed as a currency because it had some useful properties: 1. Unusual appearance; 2. Relatively scarce; 3. Inert; 4. Fungible; and 5. (This is a big one) Density. Up until the modern times it was the densest material someone could be expected to have (eg Iridium, which is denser, wasn't common in the Middle Ages). Why does this matter? Counterfeit currency, as was a problem with anything based on silver. Currencies only have value because people give them value. There's a lot here but this jumped out at me: > The Germans fell into a policy of financial excess, ending in hyperinflation. Their experience was considered one of the object lessons proving the value of the gold standard. No mention of the Treaty of Versailles here. Germany was forced to pay war reparations. Those were denominated in deutschmarks. Hyperinflation actually "solved" Germany's reparation debt problem. In a way, Germany was incentivized for hyperinflation. The importance of that cannot be overstated.
- 1-6 5y ago
  Question: Has anyone ever been to or seen the gold at Fort Knox?
- dnautics 5y ago
  you forgot verifiable. you don't need advanced technology (not much more than a black rock) to get a good estimate of the purity of gold which can be used as a neutral negotiating point in an exchange. Due to its relativistic quantum mechanical properties, gold lowers the activation barrier of creating trust between two parties.
  - truculent 5y ago
    Isn’t this just the density point restated?
    - dnautics 5y ago
graycat 5y ago
Compared with the OP and much of this thread, there is a simpler view: Here I outline Asset Bubbles, Fractional Reserve Banking, and the Money Supply 101: In the 1920s, the US blew a stock market bubble. Lots of people bought stocks on margin, that is, with loans from commercial banks and using the stock as collateral. The banks got the money not from "the Gold Standard" with so much attention in the OP but from fractional reserve banking, that is, loaning out deposits of savers, demand deposits. Due to the crash of the stock market, suddenly at the end of Black Tuesday, 10/29/1929, lots of the loans could not be paid back. The borrowers were broke. Then the banks were broke. Then savers were broke. Much of the money supply had been from the loans from the fractional reserve banking, and with the stock market crash that money had in effect been destroyed. So, we suddenly had a huge reduction in the money supply. The people who suddenly were broke weren't spending much money, and, thus, their vendors had reduced revenue and fired their workers who then weren't spending much money, and we were in the Great Depression. The source of the bubble was fractional reserve banking, not really, directly the Gold Standard: With or without a Gold Standard, we can still use fractional reserve banking to blow asset bubbles that can pop and destroy much of the money supply -- we came close for the same song, second verse with the mortgage bond crash in 2008. So, after 10/29/1929 the US was buying less and, thus, England, Germany, etc. were selling less and also went into a Great Depression. Then also the US was not selling as much to England, Germany, etc. and went into a deeper Great Depression. On 12/7/1941, Japan attacked Pearl Harbor and, thus, got the US into WWII. As a result, using borrowed money, War Bonds, the US started massive war production so that everyone who was willing and able to work had 1-3 jobs. Then 90 days later, say, 3/7/1942, over 12 years since the stock market crash of Black Tuesday, 10/29/1929, we were out of the Great Depression. Slam, bam, thank you, Ma'am, in 90 days we were out of what we had been in for 12+ years since 10/29/1929. Yes, we can suspect that with some real understanding of the economy we COULD have been out of the Great Depression in 90 days after, Black Tuesday, 10/29/1929, that is, on about 1/29/1930. The 12+ years in the Great Depression caused lots of serious harm just here in the US, some of which is still with us. For the world, one could argue that the Great Depression was the main cause of WWII that killed 50 million, maybe 100 million, people. Fumbling with the real causes of the Great Depression seems, say, unfortunate. The War Bonds in effect increased the money supply, and at the end of the war we stayed out of the Great Depression. Yes, we can control fractional reserve banking via reserve ratios, stress tests, etc. Lesson: Yes, sound money is important. What to do with gold as money is also important. But the key failure that caused the Great Depression was the pop of an asset bubble puffed up with borrowed money from irresponsible cases of fractional reserve banking while this and that about gold was essentially irrelevant. Simple, 101 level stuff.
ogogmad 5y ago
What do people think of the thesis expressed in The Bitcoin Standard that the replacement of the gold standard by fiat currency led to a short-termist mindset among people? In other words, we now have artificially high "time preference" as a result of our currency inflating and the resulting disincentive to save money. The book also argues that fiat currency encourages people to get into debt and risk bankruptcy as a result. In doing so, it increases demand, drives prices up, thereby further incentivising people to borrow money, creating a vicious spiral of debt and increasing prices. While the former sounds strange to me, I find the latter to be interesting. But I'm not an economist, so I don't know whether my summary is accurate.
- rat87 5y ago
  Seems pretty off Fiat currency encourages growth and stability
- imtringued 5y ago
  You got that backwards. Gold leads to extreme short-termist mindsets. Just read up on the Great Depression. During a recession people hold onto money to isolate themselves from losses in the real economy. People would rather speculate on currency than do real work that may be unprofitable today but highly profitable in 5 years. If you have a company that is losing money, then simply holding onto interest bearing money nets a superior return. The strange part is, what do you spend the money on, now that the company is gone? Even stranger, that company might not be needed today but it certainly will be needed in 5 years when the economy has recovered. If your money goes up in value you would burn down the rain forest today to earn as much money as quickly as possible. You would sell your company and fire everyone to get your hands on money that goes up in value or at least doesn't lose value in a recession. Unfortunately, reality doesn't work that way. You cannot wash this year's dishes in January. You cannot grow all the food you will ever eat in your 20s and then preserve it until you are 90 years old. So your money is going up in value and you stop working. Who's making the damn food? Who's washing the dishes? Either the young or nobody. If your money goes down in value you want to burn down the rain forest as late as possible because burning it down today will leave you with money that decreases in value. Burning it down tomorrow lets you avoid your money going down in value. Inflation raises the expected value of future cash flows. It encourages you to exchange decaying money for durable goods that decay at a slower rate. This is important because the real world decays through aging (living organisms and materials like steel). If money decays at a slower rate than the world then people will pretend that the world doesn't decay and perhaps accelerate its decay. If money decays at a faster rate than the world then people will try to minimize decay in the real world. So if anything, extremely low inflation is bad.

54 points by VHRanger 5y ago

Ben Bernanke has studied and written [0] extensively about this topic; a copy of a speech he delivered at Washington and Lee University in 2004 can be found at [1] for those interested. 0: https://www.nber.org/system/files/chapters/c11482/c11482.pdf https://www.nber.org/system/files/chapters/c11482/c11482.pdf 1: https://www.bis.org/review/r040305e.pdf https://www.bis.org/review/r040305e.pdf

nums 5y ago
"Helicopter" Ben famously said that the Great Depression could have been averted by throwing $100 bills from helicopters to pump liquidity into the economy. I believe the implementation of this concept via the Fed (bank of banks) is the real issue. Basically, liquidity goes to the banks. Anyone having a relationship with banks gets access to this liquidity and benefits. Of course, we plow these "gains" back into assets (hard or stock market), this drives up prices, and we get asset inflation. For the person renting an apartment, leasing a car, and with credit card debt ... well, they lose. The trickle down doesn't work. You can interpolate and extrapolate from this brief comment, and I believe that this is the fundamental source of the expanding rich/poor divide.
- throw0101a 5y ago
  The Fed cannot do helicopter money. It is not connected to the "real" economy directly, only through the banks as middle-men. Helicopter money comes via fiscal policy. As for so-called "asset inflation", I like Cullen Roche's take: > In any case, I would argue that most of the asset price appreciation of the last 10+ years appears largely rational in the sense that it is supported by corporate fundamentals (record profits, record GDP, etc) and other robust economic data that is consistent with a growing economy. It isn’t just a fictitious boom as many “asset price inflation” narratives like to imply. > As for inequality – asset price inflation would tend to exacerbate inequality since it will disproportionately benefit those who own assets. This makes sense. But as I like to always point out, inequality is a policy failure, not a market failure. After all, a capitalist economy will always veer towards monopolistic behavior if we allow it to. The extent to which we allow that to happen is not a failure of capitalism, it is a failure of policy makers to contain capitalism. * https://www.pragcap.com/lets-talk-some-more-about-assflation/ https://www.pragcap.com/lets-talk-some-more-about-assflation...
  - marcusverus 5y ago
    > In any case, I would argue that most of the asset price appreciation of the last 10+ years appears largely rational in the sense that it is supported by corporate fundamentals (record profits, record GDP, etc) and other robust economic data that is consistent with a growing economy. It isn’t just a fictitious boom as many “asset price inflation” narratives like to imply. The PE ratio for the S&P 500 is currently ~28X, which is roughly double it's historical average and ~50% more than the average from 2010-2020. Is it really supported by corporate fundamentals? [0] https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio
  - imtringued 5y ago
    > The Fed cannot do helicopter money. It is not connected to the "real" economy directly, only through the banks as middle-men. Helicopter money comes via fiscal policy. Exactly. All those people talking about money printing don't understand that money doesn't exist in a vaccum. Every dollar created is backed by one dollar of debt which ads up to a net worth of $0. So the Fed cannot helicopter money for the obvious reason that they cannot ever pay that money back. The government can borrow and spend money into the economy because it can tax its citizens. The money will come back one day.
- shagmin 5y ago
  I imagine that's more of an issue now than during the Great Depression. Back then you could easily put that money into large pools of labor, whether assembly lines at factories or agriculture or infrastructure projects and gave a pretty good return on investment. Now a large pool of labor at a company is treated more like a liability, and yeah just putting money into real properties may get you a better return than anything that directly benefits any meaningful number of people. Even if the money goes towards something like infrastructure - the cost of equipment is one thing, but I imagine there are plenty of instances where a handful of lawyers and beaurocrats involved in a project get paid more than some massive crews that do the actual labor combined.
- andrepd 5y ago
  > Basically, liquidity goes to the banks. Anyone having a relationship with banks gets access to this liquidity and benefits. Ding ding ding. This is a key issue. If you want to bail out the economy, you need to do it to increase aggregate demand, and therefore the best way to do this is to give money directly to the people. The programs in place since 2008 (1) benefit people with capital (2) leave the poor and the working class in the dust, and (3) are paid for by milking the taxpayers directly, or indirectly through inflation. Banks are leacherous middleman in normal operation. Theoretically they are providing a valuable service of evaluating risk and allocating capitable to the most profitable ventures. But in practice the incentives are totally misaligned, since they do not get accurately punished/rewarded for doing a shit job. Not to mention old-fashioned corruption, understood as giving undue benefit to a party/parties due to their personal connections.
- OldHand2018 5y ago
  > Great Depression could have been averted by throwing $100 bills from helicopters A lot of people don't know this, but the main reason Calvin Coolidge suddenly, and without warning, decided not to seek reelection in 1928 was that he couldn't find any helicopters. Hoover was set up.

BenoitEssiambre 5y ago

I have an hypothesis that the same could happen with deflationary cryptocurrencies if they become used widely enough in financial institutions that central banks decide they should tie part of the monetary system to them. https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html

remarkEon 5y ago
I don’t think you’re the only one with this hypothesis. There’s a couple bag holders I know who share that view. It’s a confusing one, IMO, but it’s interesting to think about.
andrewmutz 5y ago
100% Agree. From everything I've read, our being able to print money is an indispensable tool during financial crises. Fixing the great depression and the great recession depended on this ability. If the world transitions to cryptocurrencies whose supply is unmanaged or fixed, that will not be possible and presumably will be stuck during financial crises.
- Lifelarper 5y ago
  Venezuela, once one of the richest coutries on Earth with more oil than Saudi Arabia thought this way too. Turned out great for them. By all metrics they should be Western Europe level rich and yet many young kids find it more profitable to mine coins in runescape 12 hours a day rather than actually get a job, strange how that happens hey, if only they printed more Bolivar this all could have been avoided?
  - colinmhayes 5y ago
    Venezuela also nationalized every sector of the economy and handed the reins to Chavez/Maduro's corrupt buddies. Not sure why you think hyperinflation is a problem as opposed to a symptom of their failed institutions.
  - rovolo 5y ago

sleepysysadmin 5y ago

We are pre-great depression in many respects. Debt levels being at very high percentages. Income inequality out of control. Inflation out of control. Fundamentally as well it's the baby boomer's fault. Right before the great depression was when the boomers of the american civil war were retiring. The 1980s inflation and crashes were WW1 boomers and now is the WW2 baby boomers retiring. History repeats.

mabub24 5y ago
Not to say it can't happen, but there are quite a few new institutional and regulatory safeguards that (in spite of the attempts by some to neuter them) exist now that did not exist pre- and during the great depression that make such a thing happening again, or to the extent that it did, quite hard. The more interesting question is whether there is the political will, let alone ability, to accurately and quickly respond to events as they are happening, rather than with extreme delay. Covid-19 (granted as much a public health crisis as an economic one) showed that American domestic problem solving has grown rather fragile and inflexible.
- sleepysysadmin 5y ago
  >Not to say it can't happen, but there are quite a few new institutional and regulatory safeguards that (in spite of the attempts by some to neuter them) exist now that did not exist pre- and during the great depression that make such a thing happening again, or to the extent that it did, quite hard. So it's interesting. 1 of the key rules is that you cannot borrow money to invest. You know what ive never seen all my life until recently? THAT! My bank and others that have nothing to do with me have been advertising, 'you can borrow $5000 to get your investment fund going!' People said the reason the great depression happened was stuff like this. I personally dont expect it's a depression level event. I think most people were hoping for this because it's better than extreme inflation like the 1980s. HArdly a prediction given inflation is so high already.
anonporridge 5y ago
The United States at least is actively in a great depression. It's just being papered over with currency debasement so rich people don't notice. But if you actually visit parts of this country that are outside of the wealthy, coastal bubbles, you'll see first hand the real world devastation that's happening to people. It's why there's a major opioid epidemic in the Midwest. It's why homelessness is exploding. It's why rampant, degenerate speculation in stocks and crypto is going crazy and rife with scams and conmen selling hope to the hopeless. It's why populists like Trump and Sanders have so much political energy behind them. And all of this is pre pandemic. I'm sure the past two years have added a new level of devastation. People are depressed and dying everywhere, but us winners in our gilded bubbles have the privilege of being able to look away and continue living in our illusory, drunken stupor.

aazaa 5y ago

The article begins with the idea that the causes of the Great Depression are not known or too numerous to pin down. It then continues by claiming that "recent scholarship has resulted in striking agreement on the reason for the crisis." The cause of the Great Depression was the gold standard, according to the article: > ... The constraints of the gold-standard system hamstrung countries as they struggled to adapt during the 1920s to changes in the world economy. ... Central bankers continued to kick the world economy while it was down until it lost consciousness. What this article ignores, like countless articles before and since, is the Roaring 20s. Articles like this treat the Great Depression as an event that hit the US economy out of the blue. But even superficial study of the ten years prior reveals something obvious: a massive, compounding, technology-fueled asset bubble. The article also ignores the event that kicked off the Roaring 20s: the depression of 1920-1921: https://en.wikipedia.org/wiki/Depression_of_1920–1921 https://en.wikipedia.org/wiki/Depression_of_1920–1921 This depression resolved itself under a gold standard regime and with minimal intervention by the Federal Government and Federal Reserve. 50 years ago the US abandoned the last vestiges of the gold standard. Today we find ourselves in the middle of a technology-fueled asset bubble. The US president talks, without a hint of embarrassment, about the need to borrow to continue to service debts. This is, of course, the very definition of a Ponzi scheme. Whatever this comes to, we won't have the gold standard to kick around. It's been out of the picture for decades. What happens when the world's governments decide to outdo each other on how much currency they can conjure into being?

vvoaterr 5y ago
Anybody is welcome to download the Robinhood app, and buy FAANG/FAGMAN stocks with all your disposable income. Then you, too, will be contributing to the leading cause of the next "Great Depression", plus, you'll come out of it having become quite Rich. You're welcome.
- txru 5y ago
  > FAGMAN ... So do you use that often in polite company...?
praxulus 5y ago

cletus 5y ago

I honestly don't understand the obsession some people have with the gold standard. Even when the US had the gold standard, the US never had gold reserves that matched the dollars in circulation. Not once. Ever. Also, the gold standard doesn't stop sovereign devaluation as happened by FDR in the 30s. Historically gold existed as a currency because it had some useful properties: 1. Unusual appearance; 2. Relatively scarce; 3. Inert; 4. Fungible; and 5. (This is a big one) Density. Up until the modern times it was the densest material someone could be expected to have (eg Iridium, which is denser, wasn't common in the Middle Ages). Why does this matter? Counterfeit currency, as was a problem with anything based on silver. Currencies only have value because people give them value. There's a lot here but this jumped out at me: > The Germans fell into a policy of financial excess, ending in hyperinflation. Their experience was considered one of the object lessons proving the value of the gold standard. No mention of the Treaty of Versailles here. Germany was forced to pay war reparations. Those were denominated in deutschmarks. Hyperinflation actually "solved" Germany's reparation debt problem. In a way, Germany was incentivized for hyperinflation. The importance of that cannot be overstated.

1-6 5y ago
Question: Has anyone ever been to or seen the gold at Fort Knox?
dnautics 5y ago
you forgot verifiable. you don't need advanced technology (not much more than a black rock) to get a good estimate of the purity of gold which can be used as a neutral negotiating point in an exchange. Due to its relativistic quantum mechanical properties, gold lowers the activation barrier of creating trust between two parties.
- truculent 5y ago
  Isn’t this just the density point restated?
  - dnautics 5y ago

graycat 5y ago

Compared with the OP and much of this thread, there is a simpler view: Here I outline Asset Bubbles, Fractional Reserve Banking, and the Money Supply 101: In the 1920s, the US blew a stock market bubble. Lots of people bought stocks on margin, that is, with loans from commercial banks and using the stock as collateral. The banks got the money not from "the Gold Standard" with so much attention in the OP but from fractional reserve banking, that is, loaning out deposits of savers, demand deposits. Due to the crash of the stock market, suddenly at the end of Black Tuesday, 10/29/1929, lots of the loans could not be paid back. The borrowers were broke. Then the banks were broke. Then savers were broke. Much of the money supply had been from the loans from the fractional reserve banking, and with the stock market crash that money had in effect been destroyed. So, we suddenly had a huge reduction in the money supply. The people who suddenly were broke weren't spending much money, and, thus, their vendors had reduced revenue and fired their workers who then weren't spending much money, and we were in the Great Depression. The source of the bubble was fractional reserve banking, not really, directly the Gold Standard: With or without a Gold Standard, we can still use fractional reserve banking to blow asset bubbles that can pop and destroy much of the money supply -- we came close for the same song, second verse with the mortgage bond crash in 2008. So, after 10/29/1929 the US was buying less and, thus, England, Germany, etc. were selling less and also went into a Great Depression. Then also the US was not selling as much to England, Germany, etc. and went into a deeper Great Depression. On 12/7/1941, Japan attacked Pearl Harbor and, thus, got the US into WWII. As a result, using borrowed money, War Bonds, the US started massive war production so that everyone who was willing and able to work had 1-3 jobs. Then 90 days later, say, 3/7/1942, over 12 years since the stock market crash of Black Tuesday, 10/29/1929, we were out of the Great Depression. Slam, bam, thank you, Ma'am, in 90 days we were out of what we had been in for 12+ years since 10/29/1929. Yes, we can suspect that with some real understanding of the economy we COULD have been out of the Great Depression in 90 days after, Black Tuesday, 10/29/1929, that is, on about 1/29/1930. The 12+ years in the Great Depression caused lots of serious harm just here in the US, some of which is still with us. For the world, one could argue that the Great Depression was the main cause of WWII that killed 50 million, maybe 100 million, people. Fumbling with the real causes of the Great Depression seems, say, unfortunate. The War Bonds in effect increased the money supply, and at the end of the war we stayed out of the Great Depression. Yes, we can control fractional reserve banking via reserve ratios, stress tests, etc. Lesson: Yes, sound money is important. What to do with gold as money is also important. But the key failure that caused the Great Depression was the pop of an asset bubble puffed up with borrowed money from irresponsible cases of fractional reserve banking while this and that about gold was essentially irrelevant. Simple, 101 level stuff.

ogogmad 5y ago

What do people think of the thesis expressed in The Bitcoin Standard that the replacement of the gold standard by fiat currency led to a short-termist mindset among people? In other words, we now have artificially high "time preference" as a result of our currency inflating and the resulting disincentive to save money. The book also argues that fiat currency encourages people to get into debt and risk bankruptcy as a result. In doing so, it increases demand, drives prices up, thereby further incentivising people to borrow money, creating a vicious spiral of debt and increasing prices. While the former sounds strange to me, I find the latter to be interesting. But I'm not an economist, so I don't know whether my summary is accurate.

rat87 5y ago
Seems pretty off Fiat currency encourages growth and stability
imtringued 5y ago
You got that backwards. Gold leads to extreme short-termist mindsets. Just read up on the Great Depression. During a recession people hold onto money to isolate themselves from losses in the real economy. People would rather speculate on currency than do real work that may be unprofitable today but highly profitable in 5 years. If you have a company that is losing money, then simply holding onto interest bearing money nets a superior return. The strange part is, what do you spend the money on, now that the company is gone? Even stranger, that company might not be needed today but it certainly will be needed in 5 years when the economy has recovered. If your money goes up in value you would burn down the rain forest today to earn as much money as quickly as possible. You would sell your company and fire everyone to get your hands on money that goes up in value or at least doesn't lose value in a recession. Unfortunately, reality doesn't work that way. You cannot wash this year's dishes in January. You cannot grow all the food you will ever eat in your 20s and then preserve it until you are 90 years old. So your money is going up in value and you stop working. Who's making the damn food? Who's washing the dishes? Either the young or nobody. If your money goes down in value you want to burn down the rain forest as late as possible because burning it down today will leave you with money that decreases in value. Burning it down tomorrow lets you avoid your money going down in value. Inflation raises the expected value of future cash flows. It encourages you to exchange decaying money for durable goods that decay at a slower rate. This is important because the real world decays through aging (living organisms and materials like steel). If money decays at a slower rate than the world then people will pretend that the world doesn't decay and perhaps accelerate its decay. If money decays at a faster rate than the world then people will try to minimize decay in the real world. So if anything, extremely low inflation is bad.