5 ms·

I don't get what's so confusing about gold. It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system,

by yarky 5y ago

I don't get what's so confusing about gold. It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ?

shrimp_emoji 5y ago
https://en.wikipedia.org/wiki/Debasement https://en.wikipedia.org/wiki/Debasement
FastMonkey 5y ago
Gold isn't confusing, it just doesn't work so great for the economy as money. Money is more complicated than just being a token that you can own.
- eru 5y ago
  Gold makes for a decent enough unit of account. Money that's based on gold and redeemable into gold on demand worked fairly well in history. (Do note, that different from using gold directly for all transactions. And also different from the interwar gold standard or Bretton Woods, were private individuals did not have the right to demand redemption.)
colechristensen 5y ago
The amount of value exchanged in an economy changes over time, the value exchange between two separated economies trading with each other changes with trade imbalances. The inability to control this because you're pegged to the amount of gold available has significant consequences. Growing populations and economy increases the demand for gold but there's not much that can be done to increase supply. You get deflation where people who already have money get progressively more spending power, not by investing but just by existing so there's a lot of idle capital, this trend increases hording further reducing available gold increasing deflation. The average person would be faced with regular pay cuts to keep up with deflation and an extra source of volatility with no recourse for nations who would from time to time just go bankrupt and be overthrown because they run out of money to spend and have no out.
throw0101a 5y ago
> It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ? Being on the gold standard does not help with inflation specifically, or with monetary stability generally, as the historical record in the US shows; see the first chart: * https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.ph/FWKcL https://archive.ph/FWKcL Further a monetary system based on fixed currency often leads make deflation a problem for the average person. Look at the history of the Great Depression: the longer a country stayed on the gold standard, the longer it's economy stalled. Countries who left the gold standard sooner started to recover sooner. It's been used / tried and we've moved on for a reason: * https://www.vox.com/2014/7/16/5900297/case-against-gold-standard https://www.vox.com/2014/7/16/5900297/case-against-gold-stan...
- yarky 5y ago
  > as the historical record in the US shows; see the first chart. The Greeks didn't print money out of paper. But let's be us-centric and focus on a short span of history to keep your point. > a monetary system based on fixed currency often leads make deflation a problem for the average person Why is this a problem? The problems arise from rising prices not the contrary. Yeah we've moved on for a reason : to print more "money". After years in finance/economics, I've never heard a real argument against deflation. It all comes down to : trust me it's better. And that's why we use fiat currencies, "trust".
  - throw0101a 5y ago
    >> a monetary system based on fixed currency often leads make deflation a problem for the average person > Why is this a problem? The problems arise from rising prices not the contrary. For one, moderate inflation reduces the burden of debt, which a good portion of people are in, e.g., mortgages, student loans. Deflation makes debt more burdensome. Further, The Haves are generally the ones lending money to the Have-Nots, and so deflation would make worse the effects of wealth inequality (which have hit levels last seen in the Gilded Age). * https://en.wikipedia.org/wiki/Deflation#Effects https://en.wikipedia.org/wiki/Deflation#Effects > Yeah we've moved on for a reason : to print more "money". It allows for more flexibility for various economic conditions. See James and Bemanke for example: > Deflation (and the constraints on central bank policy imposed by the gold standard) was an important cause of banking panics, which occurred in a number of countries in the early 1930s. As discussed for the case of the United States by Bernanke (1983), to the extent that bank panics interfere with nor- mal flows of credit, they may affect the performance of the real economy; indeed, it is possible that economic performance may be affected even without major panics, if the banking system is sufficiently weakened. Because severe banking panics are the form of financial crisis most easily identified empiri- cally, we will focus on their effects in this paper. However, we do not want to lose sight of a second potential effect of falling prices on the financial sector, which is "debt deflation" (Fisher 1933; Bernanke 1983; Bernanke and Gertler 1990). By increasing the real value of nominal debts and promoting insol- vency of borrowers, deflation creates an environment of financial distress in which the incentives of borrowers are distorted and in which it is difficult to extend new credit. Again, this provides a means by which falling prices can have real effects. […] > Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall. * http://www.nber.org/chapters/c11482 http://www.nber.org/chapters/c11482 The sooner that countries got off the gold standard in the Great Depression the sooner they started to recover. * https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Great_Depression https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Gr... For a history of the use of gold as currency see The Power of Gold: The History of an Obsession by Bernstein (the second edition has an introduction by Volcker): * https://en.wikipedia.org/wiki/Peter_L._Bernstein https://en.wikipedia.org/wiki/Peter_L._Bernstein Economic activity can be hampered by the lack of money if there is only a fixed amount: > Although there are instances in economic his- tory in which moderate deflation is accompanied by economic growth, deflation as extreme as in the 1930s is virtually always linked to falling output and employment. The literature suggests various mecha- nisms through which deflation may affect production and employment. Three in particular appear to have played a role in the Great Depression (see Bernanke and James, 1991; Bernanke, 1995): * https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/quartbul_2003_2.en.pdf https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/q... It is possible to literally run out of money and not be able to do business: * https://en.wikipedia.org/wiki/Great_Bullion_Famine https://en.wikipedia.org/wiki/Great_Bullion_Famine (Bernstein has a chapter on this.) Austerity economic measures are associated with deflation (or at least deflationary tendencies) in the past as well: * https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Dangerous_Idea https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...
imtringued 5y ago
The average person is mortal.

by yarky 5y ago

shrimp_emoji 5y ago

https://en.wikipedia.org/wiki/Debasement https://en.wikipedia.org/wiki/Debasement

FastMonkey 5y ago

Gold isn't confusing, it just doesn't work so great for the economy as money. Money is more complicated than just being a token that you can own.

eru 5y ago
Gold makes for a decent enough unit of account. Money that's based on gold and redeemable into gold on demand worked fairly well in history. (Do note, that different from using gold directly for all transactions. And also different from the interwar gold standard or Bretton Woods, were private individuals did not have the right to demand redemption.)

colechristensen 5y ago

The amount of value exchanged in an economy changes over time, the value exchange between two separated economies trading with each other changes with trade imbalances. The inability to control this because you're pegged to the amount of gold available has significant consequences. Growing populations and economy increases the demand for gold but there's not much that can be done to increase supply. You get deflation where people who already have money get progressively more spending power, not by investing but just by existing so there's a lot of idle capital, this trend increases hording further reducing available gold increasing deflation. The average person would be faced with regular pay cuts to keep up with deflation and an extra source of volatility with no recourse for nations who would from time to time just go bankrupt and be overthrown because they run out of money to spend and have no out.

throw0101a 5y ago

> It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ? Being on the gold standard does not help with inflation specifically, or with monetary stability generally, as the historical record in the US shows; see the first chart: * https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.ph/FWKcL https://archive.ph/FWKcL Further a monetary system based on fixed currency often leads make deflation a problem for the average person. Look at the history of the Great Depression: the longer a country stayed on the gold standard, the longer it's economy stalled. Countries who left the gold standard sooner started to recover sooner. It's been used / tried and we've moved on for a reason: * https://www.vox.com/2014/7/16/5900297/case-against-gold-standard https://www.vox.com/2014/7/16/5900297/case-against-gold-stan...

yarky 5y ago
> as the historical record in the US shows; see the first chart. The Greeks didn't print money out of paper. But let's be us-centric and focus on a short span of history to keep your point. > a monetary system based on fixed currency often leads make deflation a problem for the average person Why is this a problem? The problems arise from rising prices not the contrary. Yeah we've moved on for a reason : to print more "money". After years in finance/economics, I've never heard a real argument against deflation. It all comes down to : trust me it's better. And that's why we use fiat currencies, "trust".
- throw0101a 5y ago
  >> a monetary system based on fixed currency often leads make deflation a problem for the average person > Why is this a problem? The problems arise from rising prices not the contrary. For one, moderate inflation reduces the burden of debt, which a good portion of people are in, e.g., mortgages, student loans. Deflation makes debt more burdensome. Further, The Haves are generally the ones lending money to the Have-Nots, and so deflation would make worse the effects of wealth inequality (which have hit levels last seen in the Gilded Age). * https://en.wikipedia.org/wiki/Deflation#Effects https://en.wikipedia.org/wiki/Deflation#Effects > Yeah we've moved on for a reason : to print more "money". It allows for more flexibility for various economic conditions. See James and Bemanke for example: > Deflation (and the constraints on central bank policy imposed by the gold standard) was an important cause of banking panics, which occurred in a number of countries in the early 1930s. As discussed for the case of the United States by Bernanke (1983), to the extent that bank panics interfere with nor- mal flows of credit, they may affect the performance of the real economy; indeed, it is possible that economic performance may be affected even without major panics, if the banking system is sufficiently weakened. Because severe banking panics are the form of financial crisis most easily identified empiri- cally, we will focus on their effects in this paper. However, we do not want to lose sight of a second potential effect of falling prices on the financial sector, which is "debt deflation" (Fisher 1933; Bernanke 1983; Bernanke and Gertler 1990). By increasing the real value of nominal debts and promoting insol- vency of borrowers, deflation creates an environment of financial distress in which the incentives of borrowers are distorted and in which it is difficult to extend new credit. Again, this provides a means by which falling prices can have real effects. […] > Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall. * http://www.nber.org/chapters/c11482 http://www.nber.org/chapters/c11482 The sooner that countries got off the gold standard in the Great Depression the sooner they started to recover. * https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Great_Depression https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Gr... For a history of the use of gold as currency see The Power of Gold: The History of an Obsession by Bernstein (the second edition has an introduction by Volcker): * https://en.wikipedia.org/wiki/Peter_L._Bernstein https://en.wikipedia.org/wiki/Peter_L._Bernstein Economic activity can be hampered by the lack of money if there is only a fixed amount: > Although there are instances in economic his- tory in which moderate deflation is accompanied by economic growth, deflation as extreme as in the 1930s is virtually always linked to falling output and employment. The literature suggests various mecha- nisms through which deflation may affect production and employment. Three in particular appear to have played a role in the Great Depression (see Bernanke and James, 1991; Bernanke, 1995): * https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/quartbul_2003_2.en.pdf https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/q... It is possible to literally run out of money and not be able to do business: * https://en.wikipedia.org/wiki/Great_Bullion_Famine https://en.wikipedia.org/wiki/Great_Bullion_Famine (Bernstein has a chapter on this.) Austerity economic measures are associated with deflation (or at least deflationary tendencies) in the past as well: * https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Dangerous_Idea https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...

imtringued 5y ago

The average person is mortal.