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Thread: Solution to the Credit Crisis: The Return to the Gold Standard

  1. #21
    [QUOTE=Jets Voice of Reason;2804371]Black Death, all you are doing is railing on the fiat money system which obviously has its drawbacks. Start talking about how this system is vastly different from the Gold Standard that crippled our economy in the First Great Depression.

    Honestly, you are talking as if the Gold Standard is a panacea for the economy. When it in itself brings another set of problems to the table. Of course the advantage to a fixed exchange rate is to be able to control inflation. That's the advantage. The disadvantage is the pattern of events set off that is quite indefensible and leads to economies constantly having to contract money supply to fend off attacks. Leading to a recession.[/QUOTE]

    That's a fair comment - in reply, this thread is actually titled the 'Gold Standard', so that's what I've focused on in this thread - I don't actually believe that it will cure cancer and make the lame walk. By the way, my name isn't Black Death, its Midas.

  2. #22
    [QUOTE=Jets Voice of Reason;2804371]Black Death, all you are doing is railing on the fiat money system which obviously has its drawbacks. [B]Start talking about how this system is vastly different from the Gold Standard that crippled our economy in the First Great Depression. [/B]
    Honestly, you are talking as if the Gold Standard is a panacea for the economy. When it in itself brings another set of problems to the table. Of course the advantage to a fixed exchange rate is to be able to control inflation. That's the advantage. The disadvantage is the pattern of events set off that is quite indefensible and leads to economies constantly having to contract money supply to fend off attacks. Leading to a recession.[/QUOTE]


    The reason for the Great depression was the artifically low interest rates of the 1920s. The roaring 20s... ever wonder why they were so roaring? It's because everyone could get a loan coupled with the fact that people believed the stockmarket would rise forever. Sound familiar? My Point: The Great Depression had nothing to do with the gold standard! Yes, then and now the gold standard is blamed for the Depression but these are staight lies. The truth is the government hates the gold standard because it restrictes their pocketbooks... and thats why it is painted so poorly in the eyes of the public.

  3. #23
    [QUOTE=jefethegreat;2805579]The reason for the Great depression was the artifically low interest rates of the 1920s. The roaring 20s... ever wonder why they were so roaring? It's because everyone could get a loan coupled with the fact that people believed the stockmarket would rise forever. Sound familiar? My Point: The Great Depression had nothing to do with the gold standard! Yes, then and now the gold standard is blamed for the Depression but these are staight lies. The truth is the government hates the gold standard because it restrictes their pocketbooks... and thats why it is painted so poorly in the eyes of the public.[/QUOTE]

    I partially agree that the Great Depression wasn't caused by the gold standard.
    There were indeed artificially low interest rates.
    The gold standard was being used as a tool of manipulation by the international (central) bankers.
    The Bank of England was trying to run the entire world financial system by managing gold flows. They were trying to put France back on the gold standard and did it by forcing low rates at the Federal Reserve, forcing the export of gold from the US to Europe. This created an irrational bubble.

    In my opinion, the Chicago School economists of the 1930s had it right (Irving Fisher, Henry Simon, later Milton Friedman). You don't need a gold standard, but you need 100% reserve banking of government money. You also need stable, moderate growth in the money supply.

  4. #24
    [QUOTE=quantum;2804463]I'll admit that I always found economics boring. Don't you need to have enough gold to cover your GNP? I would think that's impossible now... :confused:[/QUOTE]


    Not GNP, but debt.

    The current debt is at $10 TRILLION and change.

    At $900 an ounce of gold, you would need 347,222 TONS of gold to back up that debt.

    The US has approximately 8200 tons of gold reserve and it is estimated that only 145,000 tons of gold have been mined world-wide to date.

    Like any system, there are many positives and negatives. The price of gold today, for example, fluctuates due to market forces driven by economic fear. As more people strive for a safe haven from equities, they may choose to purchase gold, thereby driving down supply and increasing demand - hence the price per ounce goes up. Conversely, if a move to equities were to follow with share prices as depressed as they are, you will see a flight from gold and other stable commodities back to stocks. More gold on the market means the price will drop. The result is that day-to-day, the "weight" of a gold dollar currency changes with the market.

    The biggest issue the US economy faces is not the stock market, but the overwhelming amount of US debt. Putting aside the Democrat vs Republican political debate, the US should be balancing the yearly budget with a profit built in designed to chomp away at the principal amount. Contrary to popular belief, responsible debt is not a "bad thing" as it helps people and countries pay for things over time that they do not have the immediate resources at hand. The problem is that if debt gets out of hand it can quickly overwhelm. Much like compound interest positively affects savings and stock value over time, debt with interest can be an anchor on the economy.

    The bottom-line is that a concerted effort to balance the budget and pay off the debt is beneficial to this country. That is not a Republican or Democratic belief - it is plain common sense.

  5. #25
    [QUOTE=klecko73;2805759]Not GNP, but debt.

    The current debt is at $10 TRILLION and change.

    At $900 an ounce of gold, you would need 347,222 TONS of gold to back up that debt.

    The US has approximately 8200 tons of gold reserve and it is estimated that only 145,000 tons of gold have been mined world-wide to date.

    Like any system, there are many positives and negatives. The price of gold today, for example, fluctuates due to market forces driven by economic fear. As more people strive for a safe haven from equities, they may choose to purchase gold, thereby driving down supply and increasing demand - hence the price per ounce goes up. Conversely, if a move to equities were to follow with share prices as depressed as they are, you will see a flight from gold and other stable commodities back to stocks. More gold on the market means the price will drop. The result is that day-to-day, the "weight" of a gold dollar currency changes with the market.

    The biggest issue the US economy faces is not the stock market, but the overwhelming amount of US debt. Putting aside the Democrat vs Republican political debate, the US should be balancing the yearly budget with a profit built in designed to chomp away at the principal amount. Contrary to popular belief, responsible debt is not a "bad thing" as it helps people and countries pay for things over time that they do not have the immediate resources at hand. The problem is that if debt gets out of hand it can quickly overwhelm. Much like compound interest positively affects savings and stock value over time, debt with interest can be an anchor on the economy.

    The bottom-line is that a concerted effort to balance the budget and pay off the debt is beneficial to this country. That is not a Republican or Democratic belief - it is plain common sense.[/QUOTE]

    Pretty much the same message I've been championing on here for some time. Nice to see someone else of similar mindset.

  6. #26
    Brilliant article recently written by a well-known Canadian economist:

    [URL="http://www.canada.com/story.html?id=851901"]http://www.canada.com/story.html?id=851901[/URL]

    [QUOTE]It is not surprising that financial crises have been on the rise. They always are when governments abandon one monetary system and bet on others, often based on half-baked ideas, or no ideas at all -- this is what today's floating exchange rate system and our lack of commitment to any standard implies.

    To avoid such crises, people must know what their money is and what it will be worth. With no agreement on a standard, and without trust that there are institutions to enforce it, the world and the U. S. in particular are crises prone, as the expansion of credit based on the mismanaged reserve currencies can easily happen. It is time to get back to basics, to get rid of the jargon, and to see the monetary system for what it is.[/QUOTE]

  7. #27
    [QUOTE=Black Death;2805962]Pretty much the same message I've been championing on here for some time. Nice to see someone else of similar mindset.[/QUOTE]

    The points you have brought up should be seriously considered. The vast majority of people only look at how the system "benefits" them and doesn't realize the ill effects of what is occurring.

    Over the last 50 years this country has moved from being a net-saver to a net-spender. This has occurred at all levels in our society - from the federal government to Mr. Jones living down the street. As net-spenders, we have constructed a financial system based upon credit and leverage to the point that we are in the current financial crisis. The bottomline is that you cannot arbitrarily keep printing paper and say that it is worth something - because that is only as good as the confidence in that paper is worth. And what we are seeing now is that this confidence is gone in the financial system - for some very good reasons no less - but still gone.

    The problem isn't that there isn't enough money around - actually an agrument can be made that there is too much printed money around - but there isn't enough confidence in credit to allow bank-to-bank loans of the existing money. As a result, because everyone essentially "trusts" the Fed, you get a $700 million bailout to prime the pump. Goldman, Morgan, Citi, BAC - they all have money - the just don't trust each other because they don't know what the other bank or company's balance sheet actually looks like. One look at the LIBOR rate will confirm this - it is at about 4.8% this week, which is extremely high.

    Back in the late 90s, Clinton was pushing his home for every American policy and as a result mortgage lenders were basically being required by the Federal government to give everyone an affordable loan no matter what their credit history was. Fannie and Freddie were required to soak up those loans as well - both by the gov't and because low interest rates kicked in around 2000 to take the sting out of the tech bubble. The end result was that a lot of people ended up with too much home because of too much cheap printed money in the form of assinine low interest rates. That only works so long as the housing prices keep escalating - which will only continue provided the Fed keeps the interest rates low. However once the interest rates started climbing, that housing ATM dried up and those people with 3/1 or 5/1 ARMs were stuck with a mortgage worth more than the house - basic supply/demand theory ~ if there are too many homes on the market, the real estate value/demand will eventually drop.

    At the end of the day, GREED by all involved caused this to happen:

    -Clinton wanted to get the % of home ownership up as part of legacy
    -Bush and others didn't want to regulate or raise interest rates because 9/11 and the tech stock bubble.
    -The FED lowered the interest rates to start the housing ATM to bailout morons who put their entire life savings into worthless tech stock
    -Mortgage companies were making a killing on the ARMs because houses kept being flipped due to cheap money.
    -Banks and finance companies bought packaged derivatives from the lenders, whose value sky-rocketed due to cheap money and land speculation.
    -Quasi-owners (i.e. not real owners, because they put no money down and had no equity in the home) benefited because they were living the American dream of "owning" a $500,000 on a $65,000 salary.

    Once that inventory of available homes outstripped demand, the entire boom/bust bubble came into play. That is why we are where we are.

    At the end of the day, who gets screwed?

    PEOPLE LIKE YOU AND ME!

    Because...

    -I own my car outright.
    -I have no outstanding loans or credit card balances.
    -I have a 30 year fixed rate mortgage on my home with 20%+ growing in equity, that I can afford on my salary alone.
    -I contribute to my 401K and my own stock portfolio.

    Why do I get screwed?

    Because when Uncle Sam comes to collect on the bailout, he ain't coming to
    the people who are greedy and broke. Uncle Sam is coming to me to pay because my neighbor is a greedy and bankrupt moron. But according to Obama, it is my patriotic duty to pay higher taxes because of my stupid fellow Americans. Perhaps it should be eveyone's patriotic duty to only buy what they can reasonable afford and pay their bills on time? Wouldn't that be a nice change!

  8. #28
    Personal savings is a great ideal to shoot for and we always should

    However this problem will not be resolved if we don't take a fundamental look at the debt-based monetary system. Debt is increasing at an exponential rate that cannot be covered by our productivity increases. Therefore the system reaches a mathematical limit and collapses. It is a ponzi/pyramid scheme in its truest sense.

    All money in circulation comes from debt to a private bank and bears interest. This is the false fundamental issue that must be corrected. Otherwise collapse is inevitable and it is in its early stages right now.

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