[Scotty]

The value of gold does not change.

False statement!  The value of gold, as with everything else in the world, is subjective.  A person not brought up with any familiarity with it would probably just say "oh, a pretty rock" if you showed them a piece.  People assign value to gold and use it to back currency for trade.  It would be just as possible to use silver.  Or steel.  Or coal.  Or rubber.  Or anything that people want and are willing to trade for.

[redsniper]

Well, being rare and useful helps.

[S-99]

That is true. On the other hand i found out what's up with the dollar. It's a flat currency. So i guess another one to speculate at is why paper money is able to pay off debts since the constitution doesn't allow for bills of credit (the dollar). Bills of credit are credit. Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some time later.

Today's money is IOU's when it's not supposed to be.

[General Battuta]

Thank **** we're off the gold standard. Every credible economist I've ever met considers it an obsolete economic deathtrap. There's a reason our economy is so much smoother today than it used to be!

[S-99]

That's if you don't mind being paid in credit. I know i mind. It means everything i buy i do not own because i'm buying with credit from the government. Paying for things with only credit is dangerous. In this case using government credits means that the repo guys is the government. The only thing to worry about is when they decide to exercise their power over credit.

[General Battuta]

yeahno

[NGTM-1R]

That's if you don't mind being paid in credit. I know i mind. It means everything i buy i do not own because i'm buying with credit from the government. Paying for things with only credit is dangerous. In this case using government credits means that the repo guys is the government. The only thing to worry about is when they decide to exercise their power over credit.

Your ignorance, it is astonishing.

[redsniper]

Thing is, all the money in circulation now is worth more than all the gold in the world. The gold standard limits you to just the value of how much gold is in existence.

[Mars]

Money is a middleman, a buffer. Instead of having to barter your particular good or service for all the other necessary or desired goods and services, you receive money.

Whether your money is based off of the government, the value of bronze, or the current distance to Mercury it stands as a form of CREDIT yes. You're paid in credit, you are credited with whatever it is you do for a living. You have a contract that says you receive so much CREDIT an hour.

Gold also varied widely in value throughout history, as demand goes up and down, smelting techniques get better and worse, piracy occurs. It does have a relatively high value, being rare.

[S-99]

That doesn't get rid of the fact that they're just and only bills of credit. The dollar isn't worth anything because it's only credit. The result is a financial loss and transference of debt from the government to the people. This results in further inflation, further weakening of the dollar, increases unemployment, and will damage trade.

Thing is, all the money in circulation now is worth more than all the gold in the world. The gold standard limits you to just the value of how much gold is in existence.

Wow, that's scary to hear you say How can bills of credit have more value than gold?

[The E]

Dude.

The economy as a whole, as an aggregation of all goods and services that circulate each and every day, is worth more (A LOT MORE) than all the gold in the world. If we took you seriously (and thank god we aren't), "a dollar's worth of gold" would be something like a few micrograms of shiny golden stuff.

For your education, please read Neal Stephensons' Baroque Cycle (especially book 2), and Terry Pratchetts' Making Money.

But since you probably won't, here's the cliff's notes version, copied from da wiki:

Let's see, listed advantages of the gold standard are:

• Long-term price stability has been described as the great virtue of the gold standard.[15] Under the gold standard, high levels of inflation are rare and hyperinflation is impossible as the money supply can only grow at the rate that the gold supply increases. Economy-wide price increases caused by ever-increasing amounts of currency chasing a constant supply of goods are rare, as gold supply for monetary use is limited by the available gold that can be minted into coin. High levels of inflation under a gold standard are usually seen only when warfare destroys a large part of the economy, reducing the production of goods, or when a major new source of gold becomes available. In the U.S. one of those periods of warfare was the Civil War, which destroyed the economy of the South,[16] while the California Gold Rush made large amounts of gold available for minting.[17]
• The gold standard limits the power of governments to inflate prices through excessive issuance of paper currency. It provides fixed international exchange rates between those countries that have adopted it, and thus reduces uncertainty in international trade. Historically, imbalances between price levels in different countries would be partly or wholly offset by an automatic balance-of-payment adjustment mechanism called the "price specie flow mechanism."
• The gold standard makes chronic deficit spending by governments more difficult, as it prevents governments from 'inflating away' the real value of their debts.[18] A central bank cannot be an unlimited buyer of last resort of government debt. A central bank could not create unlimited quantities of money at will, as there is a limited supply of gold.

The disadvantages listed are:

• A gold standard leads to deflation whenever an economy using the gold standard grows faster than the gold supply. When an economy grows faster than its money supply, the same money must be used to execute a larger volume of transactions. The only ways of achieving this are for the money to circulate faster or to lower the cost of the transactions. If deflation drives costs down, the real value of each unit of money goes up. This increases the value of cash, and decreases the monetary value of real assets, since the same asset can be purchased with less money. This in turn tends to increase the ratio of debts to assets . For example, assuming interest rates remain unchanged, the monthly cost of a fixed-rate home mortgage stays the same, but the value of the house goes down, and the value of the money required to pay the mortgage goes up. Thus deflation rewards cash savings.
• Deflation rewards savers[19][20] and punishes debtors.[21][22] Real debt burdens therefore rise, causing borrowers to cut spending to service their debts or to default. Lenders become wealthier, but may choose to save some of their additional wealth rather than spending it all. The overall amount of expenditure is therefore likely to fall.[23] Deflation also prevents a central bank of its ability to stimulate spending.[23] Deflation is considered to be difficult to control, and to be a serious economic risk. However in practice it has always been possible for governments to control deflation by leaving the gold standard or by artificial expenditure
• The total amount of gold that has ever been mined has been estimated at around 142,000 metric tons.[26] Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit (M2).[27] Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, would result in a significant increase in the current value of gold, which may limit its use in current applications.[28] For example, instead of using the ratio of $1,000 per ounce, the ratio can be defined as $2,000 per ounce effectively raising the value of gold to $9 trillion. However, this is specifically a disadvantage of return to the gold standard and not the efficacy of the gold standard itself. Some gold standard advocates consider this to be both acceptable and necessary[29] whilst others who are not opposed to fractional reserve banking argue that only base currency and not deposits would need to be replaced.[citation needed] The amount of such base currency (M0) is only about one tenth as much as the figure (M2) listed above.[30]
• Many economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns.[31] Following a gold standard would mean that the amount of money would be determined by the supply of gold, and hence monetary policy could no longer be used to stabilize the economy in times of economic recession.[32] Such reason is often employed to partially blame the gold standard for the Great Depression, citing that the Federal Reserve couldn't expand credit enough to offset the deflationary forces at work in the market. Opponents of this viewpoint have argued that gold stocks were available to the Federal Reserve for credit expansion in the early 1930s, but Fed operatives failed to utilize them
• Monetary policy would essentially be determined by the rate of gold production. Fluctuations in the amount of gold that is mined could cause inflation if there is an increase, or deflation if there is a decrease.[34][35] Some hold the view that this contributed to the severity and length of the Great Depression as the gold standard forced the central banks to keep monetary policy too tight, creating deflation.[28][36] Milton Friedman however argued that the main cause of the severity of the Great Depression in the United States was the Federal Reserve, and not the gold standard, as they willfully kept monetary policy tighter than was required by the gold standard.[37] Additionally three increases by the Federal Reserve in bank reserve requirements in 1936 and 1937, which doubled bank reserve requirements [38] lead to yet another contraction of the money supply.
• Although the gold standard gives long term price stability, it does in the short term bring high price volatility. In the United States from 1879 to 1913 the coefficient of variation of the annual change in price levels was 17.0, whereas from 1943 to 1990 it was only 0.88.[35] It has been argued by among others Anna Schwartz that this kind of instability in short term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt
• Some have contended that the gold standard may be susceptible to speculative attacks when a government's financial position appears weak, although others contend that this very threat discourages governments' engaging in risky policy (see Moral Hazard). For example, some believe the United States was forced to raise its interest rates in the middle of the Great Depression to defend the credibility of its currency after unusually easy credit policies in the 1920s.[36] This disadvantage however is shared by all fixed exchange rate regimes and not just limited to gold money. All fixed currencies that appear weak are subject to speculative attack.[40]
• If a country wanted to devalue its currency it would generally produce sharper changes than the smooth declines seen in fiat currencies, depending on the method of devaluation.[41]

But then, you are contend with quoting stuff from the typically american "Oh teh noes, guvmint bad" playbook. Which, it may surprise you, isn't generally accepted as being valid globally.

[Black Wolf]

Gold changes in value all the time. The gold price is on the news every day - not so long ago (the nineties) it was in the ****ter, and gold mines were closing down all over the place. Now it's healthy again, and old mines are being reopened. It's like any commodity - it changes. You could just as easily back your currency off silver, timber, grain - anything that has value. Or, you could back it off the strength of the total economy, which is what countries off the gold standard do.



That graph adjusts for inslation and such, so you can see the variability in the gold price.

[S-99]

I'm talking about more than just gold here. Flat currency is what's central to what i'm talking about. My mention of gold in the beginning was uneducated and really didn't need to be mentioned. For gold my further mentioning of gold, i think money was better when it was backed by gold; when the american dollar was a check for gold (redeemable for gold).

Today the american dollar is a bill of credit. For my stance on the government is not that they are the enemy, but that they made a mistake putting into circulation bills of credit. Which is why the dollar is no longer redeemable for equal value in gold. Bills of credit have no value in principal and technicality. Bills of credit only have value because someone says they do; in this case the government.

And people will go "oh noez, S-99 still playing from the guberments the evil enemy book". If that's all people will read from me, then fine. Can anyone talk about flat currency for a minute? I mean sheesh, i was told "you're wrong about gold, you're wrong about gold", and that's fine. That's why i stopped talking about value of gold and stuck with gold just being a backing for a currency.

Granted i make some mistakes. But one thing i try not to do, is only pay attention to one detail in something some wrote or said and consider all the rest moot or should be ignored.

[The E]

First of all, it's fiat currency, not flat currency.

Second, no matter what fixed value you choose to link your currency to, be it gold, oil, or bacon, you still get the same problems that you get when you back your money with gold.

I refer you to this point:

A gold standard leads to deflation whenever an economy using the gold standard grows faster than the gold supply. When an economy grows faster than its money supply, the same money must be used to execute a larger volume of transactions. The only ways of achieving this are for the money to circulate faster or to lower the cost of the transactions. If deflation drives costs down, the real value of each unit of money goes up. This increases the value of cash, and decreases the monetary value of real assets, since the same asset can be purchased with less money. This in turn tends to increase the ratio of debts to assets . For example, assuming interest rates remain unchanged, the monthly cost of a fixed-rate home mortgage stays the same, but the value of the house goes down, and the value of the money required to pay the mortgage goes up. Thus deflation rewards cash savings.

Let me make this clear. This makes property less desirable than cash, which means that people will start hoarding cash (because unlike property, cash will remain constant in value), which removes money from circulation, which decreases the money supply, which makes money more valuable etc etc. Investing money becomes less desirable, in other words, which freezes up the economy.

In addition, people who go into debt are screwed, as the debts increase in value. Do you really want to be saddled with even more debts that you can't repay in a few decades?


Third, as said above, a backed currency's value is dependant on the value of the material used to do the backing. If that value fluctuates, (and as the chart for the value of gold posted by BW shows, it can fluctuate wildly), your currency's value fluctuates. Tell me how that is a good thing.

[General Battuta]

Fiat currency is simply a necessity for the economy to grow.

[bobbtmann]

While we're discussing the economy and growth, how about looking at how many people believe that the economy can and should grow infinitely, regardless of everything and anything. I'm always suprised at how many people believe that it's possible.