[i] What to do to stop this madness and keep it from happening again—abolish the Federal Reserve and re-institute a hard currency. [/i]
Sort of like responding to Pearl Harbor by abolishing the U.S. Navy.
We had speculative booms while on the gold standard. We had speculative booms when we had no central bank. Indeed, we had a particularly grievous boom and bust not long after Andrew Jackson crippled the Bank of the United States.
“We had speculative booms while on the gold standard.”
Did we have anything like this global meltdown? Ever? I don’t know, but I suspect that Irenaeus does. I agree with tgs[#1] about getting rid of the Fed. I don’t see any advantage to having them. If we had such speculative booms while on the gold standard, what is the harm in returning to that standard? If we did not, then again, what is the harm to returning to that standard? What benefit is the Fed offering that justifies their existence? If it is true that we had this sort of thing in the economy before, then the Fed has been useless in preventing it. If we never had this sort of thing (on this scale) before, then the Fed has still been useless in preventing it. The fact that we are discussing it sort of demonstrates that the Fed is useless. It doesn’t help that what it does is contrary to the express wishes of our Republic’s founders.
The Panics of 1837, 1857, 1873, 1890, 1896, 1907 all occurred while the United States was on the gold standard and had no central bank.
The Panic of 1873 followed years of prosperity in the United States and Europe. It began with the collapse of the Vienna Stock Exchange and spread to much of the world. This panic ushered in the Long Depression of 1873 to 1896, a global phenomenon that many economic historians attribute to a shortage of gold (i.e., worldwide production of goods and services grew more rapidly than the gold supply).
(i.e., worldwide production of goods and services grew more rapidly than the gold supply).
Allow a free market in money, and this problem disappears. Again, just as a central committee can’t rationally set the rate of interest, so a central committee can’t rationally set the money supply.
“Just as a central committee can’t rationally set the rate of interest, so a central committee can’t rationally set the money supply” —Byzantine [#8]
A central bank doesn’t “[i]set [/i] the money supply.” But it can [i] influence [/i] the money supply by increasing or decreasing the reserves of the banking system. Increasing reserves tends to facilitate faster economic growth and counteract tendencies toward recession. Decreasing reserves slows economic growth and helps reduce inflationary pressures.
The trouble with the gold standard is that it only works if all nations adopt it. When we were on the gold standard but Europe and Asia was not, all that happened was that the dollar was so strong, that folks undercut our industry by selling us their goods at lower prices in order to obtain “valuble” dollars.
What would be better is to simply go back to Christian principles regarding usury. Declare a jubilee year every 7 years with all debts forgiven. If we did that, you can bet that bankers would make very very certain that folks could pay them back. It used to be that morgages were 7 years and folks saved up to get them. Cars were paid off in a year. Now we think that 30 year mortgages are “normal” and the Japanese think that it is swell to hand a 2 bedroom 1 bath house complete with 70 year mortgage to their kids.
Our debt culture is not only selling ourselves into slavery, but it is selling our children into slavery.
“The trouble with the gold standard is that it only works if all nations adopt it” —Clueless [#11]
Not so. If the gold standard is superior to the alternatives, then nations on that standard would tend to outperform other nations. For example, insofar as the gold standard quelled fear about inflation, it would reduce borrowing costs and facilitate greater economic growth. Gold-standard countries could enjoy those benefits even if some countries remained off the gold standard.
_ _ _ _ _ _ _ _
“When we were on the gold standard but Europe . . . was not”
When was that?
_ _ _ _ _ _ _ _
“Declare a jubilee year every 7 years with all debts forgiven. If we did that, you can bet that bankers would make very very certain that folks could pay them back.”
Sure. They’d demand collateral for most loans.
But in a world where all debts were forgiven every 7 years, how would you finance capital-intensive ventures like oil refineries, railroads, hydroelectric dams, and electrical power grids?
After Bretton Woods we converted out dollars for gold freely but other countries did not. They based their currencies on the dollar. This did (alas) lower our borrowing costs, but it also lost us our manufacturing base and our jobs. Part of the reason we lost our industry was because countries found it useful to peg their currencies to the dollar. They gave us cheap clothes, we gave them greenbacks. Since there was a desire for greenbacks since this was “stable money” that could be traded for grain or oil (unlike the rupee or yuan) greenbacks were net exported. It is easier to trade greenbacks or digital money than to drag tons of gold around the world. This net export of greenbacks would normally have led to a weakening of the dollar and an improvement in the balance of trade, however China, India and others deliberately pegged their currencies to ours, keeping their currencies from rising by buying our Treasuries. Thus we developed gigantic debts and none of our industry could compete with the deliberately undercut wares from overseas.
“how would you finance capital-intensive ventures like oil refineries, railroads, hydroelectric dams, and electrical power grids?”
The same way the Egyptians funded the pyramids, and Rome funded her acqueducts. The government taxes people for public projects that are thought to be worth while. There is no reason why a hydroelectric dam needs to be bought on credit by private companies (who if they fail will turn to the Feds for a bail out). Large projects for the public good can and should be funded by the State using the taxes at hand. If the taxes are not at hand, then maybe we shouldn’t have the project, however great it might seem.
The idea that every two bit nation (including our own) should have every benefit it thinks of and can pay for it on credit, has beggered many a third world nation through the IMF and World Bank. It will likely beggar us also.
A gold standard (or better yet, separation of money and state) would not eliminate speculative booms and their subsequent busts. Such is human nature, dating all the way back to the Dutch Tulip Bulb Crisis, but it would expose the malinvestments earlier and liquidate them quicker. It would greatly reduce if not eliminate inflation, which is the most insidious and regressive tax of all, besides being an immoral transfer of wealth from early dollar holders to later dollar holders. It would, generally speaking, force business and government to live within their means, and encourage savings thereby lowering time preference which has a salutary effect on the whole culture.
Clueless: “The same way the Egyptians funded the pyramids†—#
Iraeneus: “Forced labor? ”
Exactly. Taxation is, in effect “forced labor”. The Egyptians paid in work, we usually pay in currency. Governments have always paid for the stuff they thought was important by using coerced labor. We may not flog our State owned slaves, we do find other ways of making their lives miserable.
What to do to stop this madness and keep it from happening again – abolish the Federal Reserve and re-institute a hard currency.
[i] What to do to stop this madness and keep it from happening again—abolish the Federal Reserve and re-institute a hard currency. [/i]
Sort of like responding to Pearl Harbor by abolishing the U.S. Navy.
We had speculative booms while on the gold standard. We had speculative booms when we had no central bank. Indeed, we had a particularly grievous boom and bust not long after Andrew Jackson crippled the Bank of the United States.
“We had speculative booms while on the gold standard.”
Did we have anything like this global meltdown? Ever? I don’t know, but I suspect that Irenaeus does. I agree with tgs[#1] about getting rid of the Fed. I don’t see any advantage to having them. If we had such speculative booms while on the gold standard, what is the harm in returning to that standard? If we did not, then again, what is the harm to returning to that standard? What benefit is the Fed offering that justifies their existence? If it is true that we had this sort of thing in the economy before, then the Fed has been useless in preventing it. If we never had this sort of thing (on this scale) before, then the Fed has still been useless in preventing it. The fact that we are discussing it sort of demonstrates that the Fed is useless. It doesn’t help that what it does is contrary to the express wishes of our Republic’s founders.
[i] Did we have anything like this global meltdown? [/i]
Yes, indeed.
What was it?
The Panics of 1837, 1857, 1873, 1890, 1896, 1907 all occurred while the United States was on the gold standard and had no central bank.
The Panic of 1873 followed years of prosperity in the United States and Europe. It began with the collapse of the Vienna Stock Exchange and spread to much of the world. This panic ushered in the Long Depression of 1873 to 1896, a global phenomenon that many economic historians attribute to a shortage of gold (i.e., worldwide production of goods and services grew more rapidly than the gold supply).
Thanks for the information. I know you most likely do not believe this, but I am trying to become better educated about this issue.
Again, thank you.
(i.e., worldwide production of goods and services grew more rapidly than the gold supply).
Allow a free market in money, and this problem disappears. Again, just as a central committee can’t rationally set the rate of interest, so a central committee can’t rationally set the money supply.
“Allow a free market in money, and this problem disappears” —Byzantine [#7]
No, it doesn’t. We had a “free market in money” during that period.
_ _ _ _ _ _ _ _ _ _
“I know you most likely do not believe this” —Sick & Tired [#7]
I do believe you.
“Just as a central committee can’t rationally set the rate of interest, so a central committee can’t rationally set the money supply” —Byzantine [#8]
A central bank doesn’t “[i]set [/i] the money supply.” But it can [i] influence [/i] the money supply by increasing or decreasing the reserves of the banking system. Increasing reserves tends to facilitate faster economic growth and counteract tendencies toward recession. Decreasing reserves slows economic growth and helps reduce inflationary pressures.
The trouble with the gold standard is that it only works if all nations adopt it. When we were on the gold standard but Europe and Asia was not, all that happened was that the dollar was so strong, that folks undercut our industry by selling us their goods at lower prices in order to obtain “valuble” dollars.
What would be better is to simply go back to Christian principles regarding usury. Declare a jubilee year every 7 years with all debts forgiven. If we did that, you can bet that bankers would make very very certain that folks could pay them back. It used to be that morgages were 7 years and folks saved up to get them. Cars were paid off in a year. Now we think that 30 year mortgages are “normal” and the Japanese think that it is swell to hand a 2 bedroom 1 bath house complete with 70 year mortgage to their kids.
Our debt culture is not only selling ourselves into slavery, but it is selling our children into slavery.
“The trouble with the gold standard is that it only works if all nations adopt it” —Clueless [#11]
Not so. If the gold standard is superior to the alternatives, then nations on that standard would tend to outperform other nations. For example, insofar as the gold standard quelled fear about inflation, it would reduce borrowing costs and facilitate greater economic growth. Gold-standard countries could enjoy those benefits even if some countries remained off the gold standard.
_ _ _ _ _ _ _ _
“When we were on the gold standard but Europe . . . was not”
When was that?
_ _ _ _ _ _ _ _
“Declare a jubilee year every 7 years with all debts forgiven. If we did that, you can bet that bankers would make very very certain that folks could pay them back.”
Sure. They’d demand collateral for most loans.
But in a world where all debts were forgiven every 7 years, how would you finance capital-intensive ventures like oil refineries, railroads, hydroelectric dams, and electrical power grids?
After Bretton Woods we converted out dollars for gold freely but other countries did not. They based their currencies on the dollar. This did (alas) lower our borrowing costs, but it also lost us our manufacturing base and our jobs. Part of the reason we lost our industry was because countries found it useful to peg their currencies to the dollar. They gave us cheap clothes, we gave them greenbacks. Since there was a desire for greenbacks since this was “stable money” that could be traded for grain or oil (unlike the rupee or yuan) greenbacks were net exported. It is easier to trade greenbacks or digital money than to drag tons of gold around the world. This net export of greenbacks would normally have led to a weakening of the dollar and an improvement in the balance of trade, however China, India and others deliberately pegged their currencies to ours, keeping their currencies from rising by buying our Treasuries. Thus we developed gigantic debts and none of our industry could compete with the deliberately undercut wares from overseas.
“how would you finance capital-intensive ventures like oil refineries, railroads, hydroelectric dams, and electrical power grids?”
The same way the Egyptians funded the pyramids, and Rome funded her acqueducts. The government taxes people for public projects that are thought to be worth while. There is no reason why a hydroelectric dam needs to be bought on credit by private companies (who if they fail will turn to the Feds for a bail out). Large projects for the public good can and should be funded by the State using the taxes at hand. If the taxes are not at hand, then maybe we shouldn’t have the project, however great it might seem.
The idea that every two bit nation (including our own) should have every benefit it thinks of and can pay for it on credit, has beggered many a third world nation through the IMF and World Bank. It will likely beggar us also.
“The same way the Egyptians funded the pyramids” —#14
Forced labor?
A gold standard (or better yet, separation of money and state) would not eliminate speculative booms and their subsequent busts. Such is human nature, dating all the way back to the Dutch Tulip Bulb Crisis, but it would expose the malinvestments earlier and liquidate them quicker. It would greatly reduce if not eliminate inflation, which is the most insidious and regressive tax of all, besides being an immoral transfer of wealth from early dollar holders to later dollar holders. It would, generally speaking, force business and government to live within their means, and encourage savings thereby lowering time preference which has a salutary effect on the whole culture.
Clueless: “The same way the Egyptians funded the pyramids†—#
Iraeneus: “Forced labor? ”
Exactly. Taxation is, in effect “forced labor”. The Egyptians paid in work, we usually pay in currency. Governments have always paid for the stuff they thought was important by using coerced labor. We may not flog our State owned slaves, we do find other ways of making their lives miserable.
“We may not flog our State owned slaves, we do find other ways of making their lives miserable” —#17
What a sad way to think of yourself.