Jim Myrtle

Returning to a Gold Standard Is a Bad Idea

I am patient. Maybe I should be a school teacher.


On Dec 30 09:59 PM Ricard wrote:

>
> Jim,
>
> I can tell you're a very patient person LOL.
>
> On Dec 30 09:35 PM Jim Myrtle wrote:

Returning to a Gold Standard Is a Bad Idea

" If my gold is worth more later, and there is about the same amount of gold later, what makes it worth more?"

When the money supply remains steady and output grows, each dollar will buy more.


On Dec 30 09:16 PM Ricard wrote:

Returning to a Gold Standard Is a Bad Idea

"Apparently we're not discussing the same topic or we are using different definitions for the same words.

If there were an actual fixed gold standard and no fractional reserve banking, exactly how does the money supply 'deflate'? "

Deflation is a general decline in prices.

Returning to a Gold Standard Is a Bad Idea

Lower prices due to gains in productivity is a good thing. A great thing.

Lower prices, bankruptcy, massive unemployment and reduced GDP due to a deflating money supply is a bad thing. A very bad thing.


On Dec 30 04:51 PM huangjin wrote:

> If deflation is so terrible, how does the electronics industry survive?
> Deflation isn't better than inflation because of a value judgement.
> Deflation is better because it is the natural state of affairs.

Returning to a Gold Standard Is a Bad Idea

"This is the nature of capitalism, increased efficiency increases productivity and lowers the labor needed to produce the same amount of goods."

Increased efficiency? You mean maybe borrowing huge sums of money to automate your factory? Knowing that money you borrow in a deflationary environment is paid back with more expensive money in the future? Knowing that every year, your prices for goods sold must decline?

"However, some of that labor will be retained to produce
a larger amount of goods to meet increased demand at lower prices
while other parts of that labor will have to become productive at
another task"

And some will stay employed, at a lower salary. Kinda ruins your original point.

"To say this is a bad thing is the equivalent to saying Ford should
still be hand assembling cars at a rate of 10 per day because automating would have resulted in laying off a dozen people 100 years ago"

Let me know how the UAW reacts when you explain that due to deflation, their salary and benefits will be reduced 3% each year.

"Instead automating has allowed Ford to manufacture tens of thousands
> of cars a day"

Lower prices due to productivity gains is different than lower prices due to deflation.

"Do you think your standard of living would be as good as it is if
> you had to build everything you own? Plasma tv? Car? Clothes? iPod?
> I don't think so, and I'm pretty sure you'd rather pay less for any
> of them next year than it would have cost this year"

I'd love to pay less next year. You think that might lower demand for those goods as people delay their purchases? So now you see another problem with deflation.

"The Cross of Gold speech as I understand it was in support of a plan
> to debase the currency (replace gold standard with bimetallism) as
> an aid to farmers who had encumbered debts they couldn't pay off."

Yeah, farmers crushed by debt selling their goods for less each year. I wonder if that might cause any problems?

"The intent is the exact opposite of sound money and is more in accord with supporting a fiat currency - creating money because the circumstances "require" it."

As opposed to creating less (or no) new money as the economy grows?

"What Bryan tried to do in 1896 is not much different than what the FED is doing with the TARP today, using monetary debasement to favor one group at another group's expense"

The gold standard was favoring the Eastern bankers at the expense of everyone who owed money or who produced goods for sale. Keeping prices steady by adding silver to the money supply sounds fair to everyone, or do you disagree?




On Dec 30 04:02 PM Smarty_Pants wrote:

> Good catch on my math error Jim. I forgot to adjust for the initial
> 100% and slipped a decimal place too far. Still 1840% is a significant
> loss of purchasing power.......
>
>
.

Returning to a Gold Standard Is a Bad Idea

"The nice thing about a fixed money supply and declining prices is that the same salary will buy more stuff next year than it did this year. No more need for a raise just to break even next year"

Don't you think that companies cutting prices every year might lead to reduced employment? Declining prices during the Great Depression were great for the employed, not so great for the unemployed.

"History proves this is the case. Go google the history of the CPI.
From 1800 to 1900 when the US was on a strict gold standard the CPI
dropped by 50% from 51 to 25"

Or you could google the Cross of Gold speech?

"CPI has increased from about 30 to over 582 in 2005, and increase
of 19,400+%"

From 30 to 582 is an increase of 1840%.



On Dec 30 02:37 PM Smarty_Pants wrote:

> Several good comments in the discussion.
>
> "Money is only as 'sound' as the people who regulate it." - derryl
>
>
> While this is true as far as it goes, it does not go far enough.
> Our problems today are the result of gub'mint control of the money
> supply. Correcting that problem will require thinking outside the
> box of having any sound money 'regulated' by the gub'mint.
>
> The only true regulation that will work must be supplied by the market
> itself. This is one reason why a money denominated in weights of
> gold is a good idea. You can't debase weight and fineness of gold
> as long as you are allowed to test the metal personally (it's not
> that hard, you can buy a tester for about 1/4 oz of gold).
>
> www.goldtestsolution.c...;cPath=13&prod...
>
>
> The goal for sound money would be to allow free circulation of gold
> coin (or receipts for same with exchangability) and for everyone
> to have the opportunity to test the gold they receive if they desire
> and demand full payment if it is diluted in any manner.
>
> That would be more work, but you would know that you can always ensure
> your money is 'whole'. Once money has a known 'stable' value, then
> you won't have to worry that your savings are being eroded via inflation
> and prices on most items will stabilize or drift downward over time
> as your money becomes more valuable (more efficient production =
> more goods with same inputs, fixed supply of money + more goods =
> the price of goods declines = same money will buy more stuff). <br/>
>
> The nice thing about a fixed money supply and declining prices is
> that the same salary will buy more stuff next year than it did this
> year. No more need for a raise just to break even next year.
>
> History proves this is the case. Go google the history of the CPI.
> From 1800 to 1900 when the US was on a strict gold standard the CPI
> dropped by 50% from 51 to 25. You could buy twice as much stuff with
> the same income in 1900 as you could in 1800.
>
> Look at what has happened since the FED was founded in 1913 however,
> CPI has increased from about 30 to over 582 in 2005, and increase
> of 19,400+%.
>
> So, with gold backing the purchasing power of money doubled in 100
> years and without gold backing the purchasing power of money dropped
> nearly 95% in 95 years (most of the drop in the past 50 years).
>
>
> I don't know about others, but if I want to save money I'd much rather
> have it buy twice as much stuff in the future as have it buy 1/20
> as much.
>
> Wouldn't you?

Returning to a Gold Standard Is a Bad Idea

You might have a point, if bubbles and panics weren't more severe when we were on the gold standard.


On Dec 30 12:35 PM Socialism cannot compete! wrote:

> Mr Hui actually states points FOR gold-backed currencies, though
> he does not realize it!! It is precisely the case that going off
> the gold standard has created an economic bubble of artificial growth,
> triggered by manipulation of the money supply!! How can anyone deny
> that the easy money policies of the Fed are a core component of this
> current debacle?? We are now seeing the disastrous effects of fiat
> currencies. His argument that there is not enough gold to back current
> money supplies, except at much lower values is PRECISELY an argument
> FOR gold-backed currencies -- the growth in our economy has been
> ARTIFICIAL. It's time to end the manipulation of the currency for
> the benefit of the few.

Japan's Marshall Plan: Write off US Treasury holdings

Not even close. Until recently, the Fed's balance sheet was less than $1 trillion. Compared to $10 trillion in US debt, that was less than 10%.


On Dec 25 11:54 PM iyamwutiam wrote:

> We forge that 60-70 percent of the US debt is being held by the 'Federal
> Reserve'.

Is It Time to Buy Gold?

You have a source for this claim?

On Dec 05 12:11 PM bearfund wrote:

The dollar monetary base has more than doubled in the last year, and most other fiat paper issuers have made similar moves.

20 Comments on the Current Economic Scene

7) Also note that the Fed is buying a large amount of govt bonds at very high prices (near zero yields) in order to add cash to the economy.

I don't see the Fed buying Treasuries right now. Do you have a source for your claim?

The Manipulation of Gold Prices

So prove it.


On Dec 18 11:14 PM Ashmore wrote:

> Jim
>
> The markets are manipulated by cartels and that is common knowledge
> and can be PROVEN. Cartels and or monopolistic trading are NOT endorsed
> by regulatory bodies in certain markets.

The Manipulation of Gold Prices

"These markets need to be regulated"

These markets are heavily regulated.

" I also believe that a better system needs to
put in place to price gold"

Because buyers and sellers agreeing to a price in the market doesn't work for you? LOL!

"Shorts and longs dictating the price of gold"

Buyers and sellers dictating the price of gold.

" I don't think..."

We noticed.


On Dec 18 09:40 AM Ashmore wrote:

> I just watched the price of Gold fall from US$877 to $US860 (9:35am
> New York time, 18 December 2008) in about 5 minutes. These markets
> need to be regulated. I also believe that a better system needs to
> put in place to price gold. Shorts and longs dictating the price
> of gold and no one taking delivery (small percentage historically).?
>
> Whats right with this system? ZERO. GATA have tried to do something
> about this but in my eyes they have not done enough. They should
> be working towards a new pricing system and introducing that to the
> market and if you want to sell gold at the manipulated price its
> up to you. I don't think there is a prison big enough for Wall Street.

The Manipulation of Gold Prices

"You've ignored the first part. The overnight rate fell below the official federal funds rate"

The Fed doesn't loan money at the Fed Funds rate. Banks borrow from each other at the Fed Funds rate.

"Interesting to note that there are now predictions that Treasury
Note based money market funds are now going to be paying less than zero percent"

Who predicted that? The same guy who doesn't know the difference between Fed Funds and Discount Rate (that'd be the author of the article)?



On Dec 11 04:13 AM Philman wrote:

> You've ignored the first part. The overnight rate fell below the
> official federal funds rate. My understanding is that the overnight
> rate to borrow from the Fed has now dropped into the range of a fraction
> of a percentage point. That means the banks are not borrowing at
> 1%. The rate is somewhere below that. But, because the Fed pays at
> fixed rates, banks are making a profit, not a loss, on the reserve
> deposits.
>
> In other words, you may as well take your money, put
> it in a mattress, and sleep on it, rather than deposit it with one
> of these brokerage houses in a MM fund! Yesterday, the effective
> rate on Treasury bills dropped to zero!
>
> Personally, if I am going to be forced to sleep on my money, rather
> than paying bankers to hold it for me...I'd rather sleep on a physical
> currency known as gold, rather than a paper currency like the dollar.
>
>
>
> 12:26 AM Jim Myrtle wrote:

The Manipulation of Gold Prices

"The overnight rate happens to have dropped way below the “official” federal funds rate. Meanwhile, rates paid by the Fed on required deposits are only .1% less than the federal funds rate, and on voluntary deposits only .35% less than the federal funds rate. Accordingly, U.S. banks can engage in a dollar based one-nation carry trade, which further sequesters the newly printed dollars.

Banks are borrowing from the Fed, then taking the same money, redepositing it, and earning a spread on the interest rate differential"

Banks borrow from the Fed (Discount rate 1.25%) and deposit the funds at the Fed to earn FedFunds -0.1% (0.9%) or Fed Funds -0.35% (0.65%)?

Is this your idea of easy profits? Sign me up for this carry trade. LOL!

Leverage 101: The Real Cause of the Financial Crisis

Your math is a little weak.

" Now assume that I purchase a home valued at $100,000 and only contribute $10,000 as a down payment and finance the remaining $90,000 at 6% (equivalent to $5,400 in annual interest). If the house increases in value by $10,000 in one year, my rate of return (appreciation) on my outlay (down payment plus the interest costs) is $10,000 / ($10,000 + $5,400) = 65%. "

What if your interest rate was 100%? Now your first year rate of return is
$10,000 / ($10,000 + $90,000) = 10%. See your mistake?