InflationFollow

No, I have written this time and again. The value of the gold/silver in the US Treasury would not be equal to the value of gold/silver on the open market, for the obvious reasons you just mentioned. Gold on the open market would not be worth millions of dollars per ounce, only the gold in the Treasury. This would ensure that no one would ever trade in their dollars for gold/silver from the Treasury because they would lose millions of dollars. It has nothing to do with the price or availability of gold/silver on the open market.



We know for certain that our current system doesn't work. This particular system has never been tried by any society that I am aware of. You must still be confused and thinking I am advocating the gold standard at a fixed rate.

You guys are obsessed with taking one tiny and mostly insignificant part of this system I am advocating and misunderstanding or misrepresenting what I am actually advocating so you can try to be critical, but so far you have only misunderstood and misrepresented my position, no one has explained why what I AM ACTUALLY ADVOCATING, NOT WHAT YOU IMAGINE I AM ADVOCATING, is a bad idea.

So if you're such an expert on all things Smash do you think that our economic system is good as is?



Edited, Dec 10th 2008 6:38pm by soulshaver

I agree and have stated this multiple times, so why do you keep focusing on it?

We have already hashed out multiple expansion deposits and fractional reserve lending which is my primary complaint. You think the credit system of the last 100 years has been great for society, I couldn't disagree more.



No, I'm also arguing that we shouldn't go into debt to a private entity as a nation when we print currency. At an absolute minimum that entity shouldn't have non-transparent methods and it shouldn't benefit other private institutions whose members are one and the same.

Yes, I think we should take away the power from the Fed to regulate the amount of currency, but we don't just hand it to Congress or the Treasury without any stipulations. We make a system of laws and checks and balances so that one entity can't control it or be swayed by political pressure or self interest.

We could make a law that restricts growth to a specific ratio tied to our GDP or population growth (something like 3% a year for example, I don't know the exact numbers.) I don't like the idea of changing the rate or growth at all, but in case of emergency we could do something like 3/4th vote in Congress and unanimous approval from an oversight board in the US Treasury and then signed by the President, or something along those lines.



Sheep to the slaughter, I'm going to buy 100 pounds of rice this weekend. Good luck in the coming years.

We'll just have to agree to disagree then. I'm again still confused how you think things should be done, or when you think we started this, or what we should adopt or return to that would work better.

And that's after getting past the main disagreement over whether this is actually a net positive or negative.




Who should the government go into debt to then? See. Because if you don't, then the alternative is just printing more money yourself and spending it. For someone who started out railing about inflation (it is the title of the thread), that just seems like an odd position.

It has to be borrowed, as an accounting methodology if nothing else. Yes. This does not eliminate the inflationary prospects of the mechanism, but does provide some serious checks to it.

It should be a private organization for exactly the reason that this prevents it from being beholden to anything but the market. As to profit motive? Who better to do this then those who have a vested financial interest in the success of the market and the stability and growth of the economy?

Transparency is one of those things that sounds great when it's written on a bumper sticker or used as a slogan in a political campaign. But in this case, it's largely synonymous with "subject to greater political pressure". What does "transparency" between the Fed and the government (aka: "The people") mean? It means that "the people" can pressure the Fed to do things differently than it would otherwise do. That's the *only* point. And that defeats to some degree the entire point of having a semi-private bank do this in the first place.



Yes. And the system of laws and checks and balances we came up with a couple hundred years ago was the Federal Reserve System. That's why it exists! We appoint the heads of the banks, so that there is some government oversight, but attempt to prevent them from being subject to political pressures for exactly the reason that political pressures of the day will cause those in control of currency to make really bad decisions.

You seem to understand this to some point, but then reject the exact solution that was derived to do exactly what you claim we should be doing.



There you go lashing the steering wheel down.

No legal framework will do a better job than a group of financial experts who have vested interests in avoiding economic collapse? And who makes this law? Can they change it? You're creating a whole host of problems just for the sake of changing something from the way it is now, without once showing how the replacement would be better.



It has to change. The ability to change currency ratios and interest rates is necessary to avoid the economy constantly rolling into every ditch that comes along. It's not perfect, but it's better than any other solution.



Ok, Chicken Little. You go with your rice futures. I'll stick with my own investments and income. In ten years, you'll be sheepishly looking back on how ridiculously you over-reacted...

So, you want to cripple the functionality of banks?



Morally opposed to what exactly? Morally opposed to people being able to lend and borrow money?

It does sound like you want banks out of business. Requiring them to keep a huge inventory of cash that wouldn't be making money for them ... what would that do to any other business? Drive up costs and reduce profits a lot. They will pass those costs off to their customers (eliminate free checking, etc) or take losses. People will go back to keeping their emergency money in their mattresses, which will further reduce the amount banks have available to invest. If that's what you have in mind, you might as well say you want to close the banks completely.

I disagree with your theory about the effects this would have on banks, but I will say they wouldn't be able to afford $20 million dollar bonuses for their CEOs after crashing the economy.

You just crossed a terrible line, Smash. Next you'll be saying that I'm not meant to believe that a cat can really survive being hit with a hammer rwice its size, that I'm not meant to believe that all politicians are incompetent fools, that I'm not meant to believe that Lassie can save the world from domestic terrorism, that I'm not meant to believe a child can hold off a group of armed robbers with a series of ridiculous traps, that I'm not meant to believe a rat can become a successful chef if it really tries... And where will that leave us, as human beings?

Edited, Dec 11th 2008 7:23pm by Kavekk

While I don't agree with Soulshaver, I can't let this past, as I believe you are misunderstanding that he's referring back to what used to go on with banks, which used to be a perfectly viable business model, before things went very elaborate in the economy with fast global telecommunications.

The "huge inventory of cash" that banks used to make loans out of was all the deposits that their Savings Deposit customers had deposited with them. The bank took the deposits, and that "huge inventory of cash" DID make money for them, becuase they loaned that money back out to their Mortagage and Personal Loan customers at a higher rate of interest than they paid out to their Savings Deposit customers. I believe that Soulshaver is advocating a return to this basic money-making system. It is profitable. It has worked in the past to make banks a lot of money.

Letting banks borrow money to loan out just gives them more profit making opportunities..

I'm personally not particularly advocating it or not advocating it, because my economic understanding is limited, and I don't know what other repercussions would happen, now that everything is interconnected globally.

The only advantage to the old system that I can see is that it helped prevent movement of wealth from inside one nation to another nation overseas, because borrowings were partly repaid as interest and capitol to internal savers who were your fellow citizens, and partly repaid as interest to the bank, which also kept the money internal, if it was domestically owned.

This advantage is only an advantage if there's a national debt problem. There are also other ways to fix national debt problems.

The old system was also an advantage in being more stable just because it was more simple, thus easier to manage, and easier to keep track of "bad" debts heading your way from up/downstream.

The old system is disadvantageous because it takes flexibility out of the system. Not all flexibility is bad. Banks can grow faster if they don't rely totally on their own deposits which creates an outer boundary for them. Maybe domestically owned banking-profit-wealth created this way outweighs the wealth lost overseas if the bulk of the first loan to the bank-customer is financed by a second loan to the bank from another bank overseas? Who knows?

What is more certain is that ultimate borrowing from overseas can be a net gain for the country and individual if a profitable business is created out of the loan.

I have to admit that I was 90% guessing what he meant.

The "huge inventory of cash" that banks used to make loans out of was all the deposits that their Savings Deposit customers had deposited with them.

Not since about 1825 have lending institutions relied on deposits for capital.

Do you just kinda post stuff and not remember what you just wrote?

Let's go through these point by point:





You quote Mises saying that "sound money" means returning to the gold standard (among other things). You then compound your statement by saying we need to return to "sound money". But now you insist you weren't advocating a return to the gold standard?

WTF!?






And finally:







Put those together, and you've got the power to put money into circulation in the hands of the Treasury, under direction by the US Congress. Which is *exactly* what I said you were arguing for.

If not that, then what? Do you get why I keep saying that it sounds like you are parroting other people's ideas, that you think sound great, but that you yourself don't really understand very well? This, and many many other inconsistencies is why I keep saying that.



I have. Did you? Or did you somehow get amnesia between when you wrote the first 2 pages of this thread and now?

Edited, Dec 12th 2008 5:46pm by gbaji

Yes, it's a very late response, but the You are just f'ucking wrong song was beautiful.

So you guys think I am wrong about how money is created?

Go ahead and put it on record if you do, don't make ignorant and snarky little comments from the peanut gallery.

If you had bothered to look at the evidence I posted or were actually paying attention you would have known how banks create money.