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[FearfulJesuit]

I didnt say create a new KIND of currency. It would still be dollars.  Banks create dollars all the time under fractional reserve. I was meaning a similar mechanic-- Congress announces that there is money, and the mint makes it.

I did NOT mean like the shit we had with the banks in early california in the gold rush days, making their own private notes.  Also at no point did I even suggest the gold standard. (There simply is not enough gold to even contemplate this. Seriously?)

You may not think the gold standard is a good idea- and for good reason, because it's a terrible idea-, but half of Congress does, and if you let them make currency that's what they'll do.

[wierd]

They would be better off throwing all sanity out the window and adopting bitcoin than they would be trying to use the gold standard.  At least bitcoin is not tied to a physical scarcity model, just a computational scarcity model. (So it can theoretically be infinite, but sitll scarce, as strange as that combination sounds.)

[smjjames]

Why does half of congress even think re-adopting the gold standard is a good idea anyway?

[Reelya]

I didnt say create a new KIND of currency. It would still be dollars.  Banks create dollars all the time under fractional reserve. I was meaning a similar mechanic-- Congress announces that there is money, and the mint makes it.

I did NOT mean like the shit we had with the banks in early california in the gold rush days, making their own private notes.  Also at no point did I even suggest the gold standard. (There simply is not enough gold to even contemplate this. Seriously?)

You don't need to have any gold to peg the dollar to the price of gold. It's just setting the nominal value of $1 to a certain weight of gold.

Company's trade in hypothetical commodities all the time. It's a core part of the modern economy.

Of course, pegging the price of gold to the dollar would absolutely kill the value of gold (since you could never profit by holding onto it), and thus also kill the value of the dollar.

[wierd]

I didnt say create a new KIND of currency. It would still be dollars.  Banks create dollars all the time under fractional reserve. I was meaning a similar mechanic-- Congress announces that there is money, and the mint makes it.

I did NOT mean like the shit we had with the banks in early california in the gold rush days, making their own private notes.  Also at no point did I even suggest the gold standard. (There simply is not enough gold to even contemplate this. Seriously?)

You don't need to have any gold to peg the dollar to the price of gold. It's just setting the nominal value of $1 to a certain weight of gold.

Company's trade in hypothetical commodities all the time. It's a core part of the modern economy.

Of course, pegging the price of gold to the dollar would absolutely kill the value of gold (since you could never profit by holding onto it), and thus also kill the value of the dollar.

No, Gold certificates (and silver certificates) guaranteed reimbursement in gold (or silver) on demand.  They are very much constrained by the physical scarcity of the metals.

Spoiler: Here's a scan of an actual gold certificate, Note the text at the bottom ot the bill in the margin. (click to show/hide)

[FearfulJesuit]

Here's a chart of the gold price over the last twenty years: http://goldprice.org/gold-price-history.html.

What would happen if we'd been on the gold standard? Only an 80%+ deflation rate between 2002 and 2012. Hoarding money in your bank account would be the best investment in the country. Nobody would spend or invest anything. The economy would collapse.

Allowing Congress to issue currency as it sees fit means letting ideologues from an alternate reality do shit like put us back on the gold standard. The Fed is staffed by economists with Ph.D.'s. They might make mistakes, but they won't make mistakes of that magnitude.

(EDIT: as Reelya pointed out, if we'd been on the gold standard, the historical price of gold would probably have gone quite differently. The point stands, though- commodities are just way too volatile to back a currency with.)

[Frumple]

Why does half of congress even think re-adopting the gold standard is a good idea anyway?

Mostly because, y'know, there's not actually any requirements to get elected. Many of these people are not economists, or even remotely competent or interested in anything to do with the economy. They couldn't tell a good economic idea from their own arse.

_{naturally, we've elected them to have a large influence over american economic policy}

[Reelya]

Just like fractional reserve banking, the gold standard only requires you to have a very small amount of gold.

So there is definitely no requirement that if there are $4 trillion dollars in circulation, then the government must have that amount of gold, any more than banks do. Not supporting the standard, but it's just not required. What would be required is that you nominally would exchange the dollars for gold.

But, I think you could definitely pull it off even if you didn't have any gold at all. One type of gold standard pegs the currency against something that's pegged to gold, and you have commodities markets where you're trading in virtual commodities already, at volumes much greater than real production. None of those have a problem with "existence" of the thing being traded.

[wierd]

You are preaching to a chior boy about the gold standard. It simply would not work with the number of actors we have now, in any practical form, and does not have the safetyvalve that inflation offers. (Which is what discourages hoarding.)

With gold, the price of the dollar is tied directly to a quantity of metal, which we cant make more of. That's the biggest problem ever with it. Sure, we can mine more, but that's not making more gold. (There's also the nuclear option, but that's so impractical that you can just ignore it.) 

As I said just a few posts up, congress would be better off abandoning all sanity, and openly adoping bitcoin, rather than trying the gold standard. Bitcoin is a scarce commodity, but it is one that can have more of it created from basically nothing. (Just energy and time.)  that makes it a far better candidate than gold ever could be, because it can be inflated. Gold cant be.

I gave a concessionary quibble earlier.  Instead of allowing congress to issue currency, give them the power to compel the federal reserve to issue dollar bills without interest.


Reela--  The problem is that 10$ in gold is what-- a few flakes? Not a coin at all unless it is mostly copper.

Also, read the top of the bill.  It outright reads, in total, as follows:

This certifies that the treasure of The United States of America has deposited 10$ in gold coins, payable on demand to the bearer of this certificate"

So, yes-- it DOES mean that there are 4 trillion dollars worth of gold IN THE TREASURY.

[Reelya]

Quantity doesn't come into it. You're tying the price of one thing to the price of another. It doesn't matter for dollars/gold any more than dollars/oils or dollars/wheat whether or not the thing exists in the required quantities. In futures trading quantities traded are always more than the actual existing stuff.

Where quantity affects things is probably more related to scarcity causing the price of the thing to increase, which would cause all other things to drop in price related to the gold/dollar.

[wierd]

I am just telling you what a gold certificate literally says. 

It says that the treasury has the gold, and you can have it on demand.  If the gold is not there, well-- that's what happened in the 1920s.

[Reelya]

http://en.wikipedia.org/wiki/Gold_certificate

Unallocated gold certificates are a form of fractional reserve banking and do not guarantee an equal exchange for metal in the event of a run on the issuing bank's gold on deposit.

Which is what I was saying. In the end it's just a piece of paper with nominal value linked to gold, and this value is backed up by contract law, not actual gold.

[wierd]

The dates are important here Reela.  1933 is when the gold recall happened, because we went on the fractional reserve-- this happened AFTER the 1929 stock market crash, and subsequent currency shortage, as everyone tried to get their paper currency converted to gold coinage, because it had fixed actual value, and would not devalue under the hyper inflation that the fed reserve would produce, to cover the currency shortage.

Going back to the gold standard, as FJ is worried about certain insane congress critters doing, would mean setting a fixed price for gold, and then using gold as a tangible allocation of coinage-- just like we had prior to 1933.

The problem that happened in 1929 was that the value of the dollar fell precipitously as the stock market circled the toilet, and everyone wanted gold.  Since banks could issue more notes than they had gold on hand, and normally be able to conduct business, there were more notes than there was coinage to cover it, and this led to a run on the bank, and loss of faith in the currency.

To fix this currency shortage, the only real option was to go off the gold standard, as there simply was not enough gold to go around. There simply wasnt.  There are more people now, and even more bills in circulation. Gold is completely unworkable as a medium in this capacity, even when offered as a mere pricing point. Instead of a run on the bank, the increased demand would drive up gold prices, which would deflate the dollar. BAD JUJU.

The gold standard simply would not, and will not work.

[misko27]

What would happen if we'd been on the gold standard? Only an 80%+ deflation rate between 2002 and 2012. Hoarding money in your bank account would be the best investment in the country. Nobody would spend or invest anything. The economy would collapse.

Deflation that high (well deflation period, but also specifically deflation that high) would lead to an absurdly bad debt crisis. I can't even wrap my mind around the consequences.

[Reelya]

On the other hand though, there would have been no incentive to hoard gold in the first place if it was pegged to the dollar. So we have to take into account why gold became so valuable, which was because it increased in value vs the dollar. Since that wouldn't have happened in the gold standard scenario, that amount of deflation isn't likely.

Being tied to a currency could affect the price of gold, because the price of gold is also tied to the value of the piece of paper and vice-versa. So, a government expanding the money supply could also depress the value of gold in that scenario. Neither has intrinsic value, both have whatever value people believe they have.

in a similar way to how real commodity prices are heavily affected by futures trading, even if those commodities are never actually handled.