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People will want to have it as an asset, not as a usable currency. Appreciating currencies are disastrous for any economy stuck with them, which is why we're no

• oleganza 14y ago
  We are no longer on the gold standard because the gold was confiscated under threat of 10 years in prison. Please explain how holding a piece of metal under mattress destroys someone else's wealth, so you can come to a person and extract gold by force. http://2012patriot.files.wordpress.com/2011/06/executive_order_6102-1933-gold-confiscation2.jpg http://2012patriot.files.wordpress.com/2011/06/executive_ord...
  • omellet 14y ago
    When you have a growing economy but a fixed money supply, money will appreciate. When this happens, people will prefer to keep money rather than spend it, and you get deflation-induced recessions/depressions. See the latter part of the 19th century in the US for repeated examples of this.
    • 3pt14159 14y ago
      And our GDP growth rate is so much high now, right? With our depreciating money that people spend within a month of earning it.
    • smallegan 14y ago
      Exactly, and I'd like to point out that you having to explain this goes to show we aren't teaching economics properly (or at all) in school. The school systems focus on make sure our children are well rounded in every way except financially.
      • criley 14y ago
        In regards to the concept above: even if kids take macro, they'll remember this concept for about 6 months ....and it's gone. This is like lamenting that kids don't know enough about Chaucer or don't understand that evolution only applies to populations, not to individuals. These kinds of small details will be forgotten intentionally by most people within months of learning them. Quite frankly: I don't care if kids come out of high school with a functional knowledge of the effects of an inflating currency: I'd rather they understand personal finance instead of macroeconomics.
        • smallegan 14y ago
          Well put, I wholeheartedly agree that personal finance should should come first. I do think the concepts of supply and demand, hording, etc.. can be taught very simply and once they sink in once they can be reapplied to a variety of situations.
    • icebraining 14y ago
      It should be noted that other countries at the time had similar currency restrictions yet they didn't have the bank runs and depressions that the US had. Economists like Eugene White believe there were other, possibly even more influential, factors in those panics, like the branching restrictions, which made banks more fragile. http://www.econtalk.org/archives/2012/04/eugene_white_on.html http://www.econtalk.org/archives/2012/04/eugene_white_on.htm...
      • jellicle 14y ago
        > yet they didn't have the bank runs and depressions that the US had. Really? http://en.wikipedia.org/wiki/Long_Depression http://en.wikipedia.org/wiki/Long_Depression
    • AznHisoka 14y ago
      What's wrong with that though? So people will end up not spending money unless it's very valuable to their lives. So less money gets spent on Angry Birds, iPad Minis, and games. Makes entrepreneurs have to up their game if they want people to spend money on them.
      • stouset 14y ago
        Literally the entire purpose of currency is to facilitate trade. Having a fixed money supply penalizes and discourages trade, and encourages currency hoarding. People on the bottom rung end up spending all of their money, and will find it even harder to ever dig their way out. The top 1%, who cannot spend money fast enough to exhaust it, will hold onto their money which will become exponentially more valuable over time. Capital investment will plummet, because statistically, you're better off simply holding your money. It's like holding an index fund in the stock market (your money increases with value correlated to the market), except there is practically zero risk. Any investment you make by definition will perform on average no better than the economy as a whole; so why bother investing your money with risk, as opposed to holding onto your money with no risk? They both have the same expected value.
  • rtkwe 14y ago
    We're no longer on the gold standard because it lead to hoarding and economic inflexibility. It doesn't destroy wealth, however when gold is your currency and people hoard gold (for any reason be it economic instability or as an investment in the future price increases) the economy loses that amount of circulating money and moving money is what makes an economy work, not stagnant saved money. So by signing that executive order and replacing hoarded gold with non-appreciating paper money there was less incentive to hoard and more likely to spend, which is what we needed to get out of the Great Depression. It'd be a little harder for that to happen with Bitcoin since it's not a currency backer but a side currency but the chance it could stagnate into investment only is there. Then it's value is entirely determined by the whim of the market since it's entirely ephemeral. (Yes all monetary value is ephemeral, intangible and based on the belief and good will of the market, but thing like gold have a longer history of having value everywhere.)
    • code4life 14y ago
      Keeping the fruit of your labor should be called saving, not hoarding.
      • Nursie 14y ago
        Not when it's also the medium of exchange, and not when its got a fixed supply.
        • oleganza 14y ago
          Used iPhones have some liquidity and a market price. Should I be forced to not hold mine for a very long time? At what point the good becomes a "medium of exchange" in your view, so you allow yourself using force to extract it?
          • Nursie 14y ago
            Force? LOL. Inflation is force, currency is force, but let me guess - property rights aren't a form of force right? Sorry, but bringing the use of force into this is the first sign I'm talking to a libertarian, and one that is not open to any form of reason. Hoarding the primary means of exchange (what BTC advocates would really like BTC to become) is a negative for society. As the hoarding increases so does the value of the item, encouraging more hoarding and less lending and concentrating wealth in the hands of those that already have it. Not really a recipe for a healthy economy.
  • willholloway 14y ago
    > Please explain how holding a piece of metal under mattress destroys someone else's wealth Inflation creates a strong incentive to allocate capital to productive investments. Inflation decreases the value of a currency, and therefore people attempt to allocate capital to investments that appreciate above the rate of inflation. Without inflation there would be less incentive to fund new companies, lend money etc... Gold under a mattress is not productive capital. This leads to a virtuous cycle of investment and reinvestment. Deflation is a far bigger threat than moderate, controlled inflation. Think of the economy as a MMORPG. The game's creators (central banks) need tools to balance gameplay and keep the game (the economy) growing and interesting. The value of fiat currency is very real. It is backed by the ultimate power on earth, the state's monopoly on violence.
    • oleganza 14y ago
      Do you have a single rational standard of what's "productive" and "not productive"? Should you have moral right to enforce this standard upon everyone around you? If millions of tourists make millions of pictures of Eiffel Tower an buy millions of cameras and iPhones for that - is it productive? Should they be prevented from buying cameras and instead "invest" money in something more "productive"? My answer to everyone who thinks there is an objective distinction between productive and non-productive and advocates use of violence to redistribute resources: you are an egoistical immoral evil person who has no humility or interest in people around you. Instead of figuring out why people do what they do, you suggest pointing guns at them to do what you think is better for mysterious "society".
      • willholloway 14y ago
        > Do you have a single rational standard of what's "productive" and "not productive"? Yes. Trade is productive, it is the highest civic virtue. Hoarding is not productive, it makes us all poorer. I'm not for banning the ownership of gold. I am just pointing out why the redirection of capital from bond markets, venture funds and lending into ownership of gold leads to reduced money velocity and decreases trade. The story on why we should own gold is a highly pessimistic one. Goldbugs point to a collapse scenario as a reason to own gold. Mass economic collapse would make everyone poorer, even those with large gold reserves.
• adventured 14y ago
  The gold standard worked in the US for about 170 years, which is part of why the US became the wealthiest nation in history: it had an extraordinarily trusted currency (green back = good as gold). Gold was worth $19 to $35 for 100+ years, and it worked, America had no problem growing dramatically. The US economy also had no problem growing fast during the 1990s, when the US Dollar was strong and had appreciated extremely strongly against gold over a 20 year period ($600 in 1980, to $270 in 2001). China also dramatically counters this notion. The Yuan has appreciated significantly (for a currency) over the last decade, while they've simultaneously gotten far wealthier. The disaster has been what has happened to our money since 1971 (specifically the 1970s and since 2001). The real cost of goods has gone parabolic. 1964, 5 silver quarters (90% silver, 10% copper) for a $1.25 minimum wage, now worth $25.90 ($5.18 each). That's pure destruction via inflation. And that's not even getting into how the Fed + Congress funds insanity like endless war because there is no gold standard restricting their spending habits.
  • rubyrescue 14y ago
    Is the yuan backed by precious metals?
    • adventured 14y ago
      The statement was that appreciating currencies are a disaster. The counter point is that the Yuan has been appreciating for the last decade while China has simultaneously gotten much wealthier and maintained a fast growth rate.
  • jbooth 14y ago
    China also dramatically counters this notion. The Yuan has appreciated significantly (for a currency) over the last decade, while they've simultaneously gotten far wealthier. Real world calling. China pegs the Yuan at 6.22 Y / $1. It's appreciated by something like 3 cents over the last decade. How do they do this? They continually buy dollars with Yuan. Increase the supply of Yuan, decrease the supply of dollars. They can't stop, or the Yuan appreciates, devaluing the dollars they already hold and, more importantly, hurting their exports. This is why you're seeing the federal government borrow money for 0.1% interest, and why there's been almost-zero inflation despite deficts and quantitative easing.