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THE FORUM HALL OF FAME

A Special Gold and Monetary Discussion -- Page 2

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CONTINUED. . . from A Very Special Monetary Discussion! [Click here for Part One or here for Part Three] This discussion took place during February of 2000. It was joined by many fine-thinking individuals who touched upon several important and unique aspects of the interrelation of gold and the monetary system. We hope you gain new perspectives from this convenient collection of this most remarkable discussion.


Page Two . . .

Trail Guide (2/12/2000; 9:52:36MDT - Msg ID:25137)
Reality
Hello ORO,
Well, I knew that if I only asked, we would all receive! Boy did you deliver in
ORO (Msg ID:25113).
Good stuff for everyone to read, my friend. You mentioned; """ The comments below - particularly those to Aristotle, are somewhat harsh. I hope this is taken in the spirit of friendly criticism."""

Sir, you can serve me (and probably everyone here) your "harsh" anytime. Waiter ,,,,,,,, I'll have a double order of that please! (smile)

OK, brace yourself ORO ,,,,,, a big plate of my "Trail" harsh coming up!

You write:
-------There are consequences to the existence of a fiat currency and for the use of debt money for trade settlement. FIAT HAS NEVER BEEN THE CHOICE OF THE PEOPLE ACTING IN COMMERCE OF THEIR OWN ACCORD. Even when wildly popular, fiat money has not had a single instance when it had not been established by force - by laws imposing its use.-----------

ORO,

On a larger scale there was always more to it than this. Human society has from the very beginnings formed tribes and picked sides against each other. When we are not battling nation against nation, we jockey for position within our own groups. Right down to "me and my neighbour against the three houses down the street". As a tribe ,,, as a nation ,,,,,, as a group ,,,,,, our war is really a human problem with each other and always has been. In better context; the problems are in the way we use our laws and governments to gain advantage over the next in line.

Whether through force (war) or democratic means, we subject ourselves to the order of governments. We rightly perceive that,,,,,, the order gained from this action ,,,,,,, the security of a group, overcomes the rights and property lost on a individual level that living in a tribe requires. It's been this way through the ages. It's a political process that has always had its in-house battles ,,,,, namely portions of society try to circumvent their percentage of lost rights and property by maneuvering the rules (laws) in their favor. Yes,,,,,if I can gain the advantages of tribe life and still keep my "portions lost",,,,,I'm gaining wealth to the disadvantage of the group. Truly, the most obvious action of not paying your taxes,,,,,and that's only a small item when viewing the world battle as a whole.

So, how does this apply to money?

When you and others say """ FIAT HAS NEVER BEEN THE CHOICE OF THE PEOPLE ACTING IN COMMERCE OF THEIR OWN ACCORD """ ,,,,,this is true.

This is true, but this was never the thrust of the argument. The use of money in any context, fiat, gold or seashells, has always entailed the use of borrowing and lending... And as long as economies function at a profit, debts are made and paid back without argument. However, when the eventual downturn arrives, some portions (perhaps a large portion) of the owed wealth (debt) cannot be returned.

It's here,,,,at this point in tribal life,,,,,,,that all of the context from above comes into play. The "reality" of life on this earth is this: ,,,,,,Some portion of society will use their influence or control of the leaders to make their debts easier to pay. In fact,,,,,it's times 2 for that number of government influencers ,,,, because even the ones that have debt owed to them will try to alleviate an impossible payback situation the ones that owe them face.

You see,,,,,tribal life and the human nature that comes with it,,,,,,,,will not allow any money system to "completely" destroy the wealth of a good portion of society. Even if everyone is plainly shown that they are going to lose something ,,,,,,they would still option for the good of the overall tribe. This is why we return,,,,time and again to fiat monetary systems. In the few examples where a gold system brings the harsh reality of loses to bear on a nation,,,,,,usually war is the result. Not a
good outcome.

Yes, we can break gold into many small parts,,,,,,stamp it into coins and circulate gold certificates as money. We can borrow it, lend it and also circulate gold bonds as the economy grows. It is the perfect "weights and measures" monetary system. Exactly representing our productive efforts in every faucet of human endeavour. But, when the loses mount, our tribal human tendencies will not allow us to support a government or banking system that forces these real loses on only a portion of the group. Never has,,,,and never will! Without this escape valve, we go to war ,,,,,, internaly or on a world scale,,, so we all can share the loss,,,one way or another. As a human society of thousands of years,,,outside of war,,,,,we have learned to inflate our loses upon everyone as a whole,,,,,for the good of the keeping the whole from each others throats. Even to the point of a total loss of the current system,,,,,and all the destruction that entails for everyone.

Yes, indeed,,,,,,,we will transition to the next fiat system from the dollar, when the time comes. Believe it!

Further:

For myself and other observers ,,,,, we know about "peace on earth" and live our life in this context but,,,,as a member of the world tribe,,,,,,and following our best interest,,,,,, one must still arrange his affairs to shield their family from the "I'm going to get yours" times we live in. Should we get our leaders to help us? Well, the leaders of this world can only be but a reflection of us as a whole. Yes, many things are not right, but they can only strive to do what can be done, not what must be done.

Consider the dilemma:

If a small portion of society telegraphs thoughts that "if we cannot have our oil we will go to war",,,,,,,,how would you force them to not elect officials that ease their pain in a gold money system? What's right and what's wrong is not the issue,,,,,,it's what this present generation will live with that rules. If they will break the gold yoke, no matter,,,,then why place gold on them? Is it not better to at least free the "knight" (gold) for the good of those that would stand with him?

During the period we are now entering,,,,,we can see all the ugly aspects of a fiat system that is failing it's tribe. Look far and wide and witness the various groups ,,,, all jockeying for position as they use whatever influence they have to lessen their own private loses. If this had been a gold system, the outcome would be the same,,,,,as players force their leaders to lessen the gold debts that could not be paid. They would raise the price of gold and inflate their way out of it,,,,,,for better or worse ,,,, come hell or high water.

So, my friend (smile),,,,,,,as you can see,,,,,I completely agree with all of your post. Only, my trail is hiked with a different mind. "Another" mind set, if you will.
We use the life experiences of man to dictate the best path to follow. As such,,,,,,Gold must not be part of any money system,,,,,,it must reside as a freely traded asset without debt or paper to resemble it. In this position ,,,,, it's value can fully represent the ebb and flow of the affairs of man. And in doing so retain the wealth of man as a holding of things. Truly, the "Wealth of Nations" in the peoples' hands. We move forward by starting at the beginning of time.

We'll talk much about this and all the affairs of the world,,,including gold,,,, on the gold trail.

"We walk this new gold trail together, yes?" I hope to see everyone there when I return.

Trail Guide


nickel62 (2/12/2000; 10:03:30MDT - Msg ID:25138)
usa gold Are not the dirivatives ability to distort the markets a key to under
cutting the very nature of the private capitalist system? After all if the markets can consistantly be rigged to provide whatever price the manipulators want there is not a free market and once the other players relaize this they will stop participating. It isn't a free market system at all but a form of organized theft. You make your investment but I through my market power to determine the outcome of the market forces of supply and demand confiscate your investment every time. That is not capitalism in any stretch of the term. And it will quickly lead to the withdrawal of all investment capital as its nature is more fully revealed. Your additional comments would be appreciated.


USAGOLD (2/12/2000; 10:29:38MDT - Msg ID:25139)
Nickel...
Privatizing profits and socializing losses in my view is a form of corporate socialism that removes the disciplines of a truly free market. Bad habits and practices are rewarded instead of punished leading to ever higher bailouts. The natural conclusion to such a string of events would be a meltdown of the entire economic system instead of the failure of just the offending parties -- the innocent are punished along with the guilty (socialism's final solution). I very much disagree with the way LTCM was handled from a moral point of view. It gave notice to all the derivative players that if you are big enough you need not worry. You will get bailed out. They followed through by expanding their hedge books to extraordinary proportions. Off the top of my head, I can't give you the size of the derivative exposure at the top ten U.S. financial institutions, but it is far in excess of capital -- in the multi trillions -- and it grows by the day without stricture by either the free market or government regulation.


TheStranger (2/12/2000; 11:09:54MDT - Msg ID:25143)
Make Mine Grape Nuts Flakes
ORO - I got sidelined this morning on my way to breakfast when I checked in here and started reading. Your posts of the last two days are nothing short of extraordinary. As I write this, it is 11 o'clock, and I am just now able to go and get some cereal. Wow! Thanks for every word of it.


USAGOLD (2/12/2000; 11:14:35MDT - Msg ID:25145)
Nickel...
The thing we must all keep in mind is that the free market is not a creation of some economist way back when. It has always been the medium in which human beings operate simply because it is an extension of our own basic instincts for survival. Profit is not some textbook result of the economic process; it is the result of our desire to survive. Socialism is an attempt to harness the free market politically (legally) and redirect it in a way that benefits certain groups. It takes the collective power of the society and re-directs it wherever those who control the government want it directed. This, of course, was Ayn Rand's great complaint about socialism -- it robbed the producer of the fruits of his or her labor.

When you own gold, essentially you are saying that you recognize the poltical (and tenuous) nature of the current march toward the socialist utopia (also referred to as the New Paradigm). You are saying that the free market will eventually have its way and in the process destroy those who tamper with it. All the socialists have accomplished is to extend the timelines through endless round the clock management of the economy (in a larger sense) and their own trading books (in a microcosm). They have not abrogated the free market, nor can they.

If you want to know why momentum and momentum alone has become the cause celebre in American markets today, it is because market management, not free choice, is the strongest force governing this economy, but this is not a permanent state of affairs. When the momentun turns in the other direction, those not fast enough will be crushed in the stampede. Where we stand right now on the timeline, the market managers (to use a kinder, gentler word) have effectively beaten back the free market, but
ultimately the free market will have its way.

Up until the advent of the derivative and its widespread use, we thought of markets from a Newtonian perspective -- what goes up must go down; for every action there is an equal and opposite reaction, etc. Now, with the derivative, we must think in terms of Einstein's physics with respect to markets -- wherein a nuclei is bombarded with particles until it reaches critical mass and all is scattered in a single, destructive event. So we wait and watch.
Gold owners will be glad to have hard metal nearby when natural law and economic law combine to restore equilibrium. The current political reality (as manifested in today's markets) will be the most obvious and public victim.


Tomcat (2/12/2000; 11:55:27MDT - Msg ID:25152)
Nickle 62:

We haven't met (I am an old poster from yesteryear), so to speak, but I have read and benefited from some of your recent posts.

In the 70's I profited from inflation. I played the game and won. How do I feel about it. Ashamed. That's how.

The problem was that I profited from an immoral rip-off of the general public. Indirectly, I joined the banksters, and won at the expense of future generations. In effect, I stole money from my own children.

Do I want to profit from the current bankster sickness? Not on your life. God, if there is anything I learned from my days in the 70's it is that there is no honor in joining the banksters.

Currently a Ponzi scheme is being played on the dot com field. Sure, I could rationalize a way to make buck there also. But in the end, it will be the last greedy suckers holding on to their stocks as the market crashes that will be the finaly losers. I don't want Ponzi money. When I was a kid, on the streets, I stole and cheated with more honor than what I see on the dot com field.

I follow in the footsteps of Aristotle and others who live by the integrity of holding physical. Aristotle is not only concerned with owning physical. He wants the world to benefit from the personal integrity that grows when a golden monetary system exists. It not only would keep us honest. It would also bring out the inherent honesty that resides in most men. That's a far cry from the current fiat system that brings out our potential for dishonesty.

That is why I own gold. I choose to make money by earning it. I convert my earnings and profits to the only honest money I know of: gold.

That is why the integrity of this forum stands out amongst the others. That is why we are the beneficiaries of the wisdom like ORO's recent post where he pointed out that there is no rational reason for the central banking system to even exist; where SteveH brings out the truth associated with protecting gold; where Trail Guide keeps us on the right path.

This forum helped me regain my own sense of integrity. Long live honored group.


USAGOLD (2/12/2000; 12:26:07MDT - Msg ID:25153)
Tomcat...
I was going to wrap-up my last group of posts with a thought along similar lines and I was having trouble getting it into a few paragraphs. You hit on the positive in all this. They say that living well is the "final" revenge. I would say living well and knowing you have not betrayed your own belief system in doing so is the "ultimate" revenge. Thanks for saying what I was hoping to say so well and thanks for showing up here every once in awhile to offer your well-considered words.

All: I don't know if you've noticed but we are going to another level here with ever more and higher quality participation. Sir Peter of Asher alluded to something along these lines yesterday. My thanks to all the originals (who have stayed and keep coming back), the current group of extraordinary people who post here, and the newbies who keep things lively with their new ideas, thoughts and discussion.

I agree with The Stranger...We have created a wonderful place for ourselves here.


Hipplebeck (2/12/2000; 14:19:16MDT - Msg ID:25167)
to Jason Happy
If I may,

<<<Journeyman, yes, you have stated my position well. Interest not ok, return on investment is ok. That's how I understand theBible's position as it presents these issues. I hope you are not going to take this in the direction I fear. Are you going to ask me how these two are different? Oh boy!>>>

The difference is that you take the risk with the other party. If things don't go so good you both lose, not just the one who took out the loan.


Elwood (2/12/2000; 15:16:39MDT - Msg ID:25168)
To Jason Happy:

Jason Happy in post (2/12/2000;10:44:46MDT-Msg ID:25140) wrote:

Elwood's comments are preceded by a *.

I am enjoying our topic of discussion!

*As I am. (smile)*

Your suggestion that you would be unable to legally economize your time unless usury (lending with a rate of interest) is legal is an interesting notion. I can also imagine a man argue that the human race would be wiped out unless he were legally able to buy a woman to have as a wife. Have you ever heard the phrase, "there is more than one way to skin a cat?"

*Yes, there is more than one way, but to limit the range of choices is no different than imposing the slavery itself. Sorry, but I don't see the connection between a voluntary contract between myself and a lender of money and engaging in the outright sale of other human beings.*

I have found that one way to economize one's time is to hire someone to help you out. Time is a strange thing, somewhat like money. You can sell your time for money, or you can spend your money for another's time, which, if you do it right, can free up some of your own time again.

*There's the rub. A poor farmer am I with nothing to offer another man until my crop comes in, that is, if I'm allowed to borrow the sum necessary to acquire the land and sufficient capital to plant it. Would you allow my hired hand to work on credit?*

Your suggestion that an interest rate is the natural result of marketplace freedom is another very common idea. I would suggest that freedom is the natural result of a people willingly following God's laws. If a people reject these laws, then their freedom is naturally curtailed more and more, until you get a dictatorship or totalitarian society, which is the direction the U.S. is headed today. Some say we are already there, given that the average serf in feudal times paid a smaller portion of his labor to his overlord than we pay in taxes today.

*A wise person once told me that when reason meets faith neither will prevail, and the result is usually violence or war. As a fellow Christian I'm willing to try anyway. (smile) I agree with you above, but would also say that God gave man a free will, the intelligence to contract for future delivery and payment, and the capacity to value things differently. Again, I state that man, because his time on this earth is limited, values present goods differently than those same goods delivered in the future. This difference is what is known as interest.*

I would also suggest that borrowing at a rate of interest is somewhat akin to voluntary slavery, except that the terms and length of this slavery may be unknown, even perhaps forever, (due to unforseen circumstances if you cannot repay an interest bearing loan promptly), unless there is a rememdy such as bankruptcy.

*I suppose that's one way of looking at it, in the same way that one man employing another is voluntary slavery.*

Also, there is more than one way to accumulate capital. Have you ever heard of an "inheritance"? Perhaps if you don't take out a 30 year loan to buy a house, you would have three houses by the time you paid for one, and then, you would have something to leave for your children?

*Inheritance is not capital accumulation. Inheritance is the transfer of previously accumulated wealth or capital from one to another upon the death of the one.*

Finally, you concluded by saying that unless interest bearing loans are allowed, then the only possible other outcome for capital is that the "loan proceeds sit, unused, under a mattress somewhere". Did you miss the main point of my last post? This unusable money as you see it always has another option to it. It could be invested directly by the person who owns the money.

*Yes, it could be. In your economy that would be the only choice available to the owner of the capital. If, however, the owner did not have the inclination, entrepreneurial expertise or time to "invest" it in such a manner it will sit under his mattress. You give the owner only two choices: investing it in an enterprise which he must run or lending it at zero interest. Such a solution is a prescription for the destruction of the division of labor within our economic system. The risking of one's capital in any endeavor is an economic service that requires and deserves compensation over and above the collateralized return of the capital itself.*

Suppose a very wealthy man has as much money (gold) as the total monetary wealth of a small town. Because you abhor this man keeping his money to himself, unused in his mattress (due to your greed and envy), he graciously decides to lend it ALL out, (collateralized, of course) at 10% annual interest to the people of the small town, keeping all of his original money lent out for a duration of 10 years by making new loans as needed. Unless this small town increases it's productivity to amazing levels creating the export of real goods and begins importing massive ammounts of money, in less than ten short years, the wealthy man will own ALL of the money in the town, or it's near equivalent in collateralized property. If it were up to me, I'd rather the wealthy man keep his money in his mattress, and let the townspeople keep their money and freedom. The other option, if usury is unlawful... this wealthy man could "spend" his money by building a factory in town, being the owner therof, and increase the town's productivity much more efficiently than would personal loans.

Note: there is no "fractional reserve lending" in this example. The evil is usury; interest payments.

*You're thinking in terms of a static economy with no growth. In reality, technology progresses such that man IS able to produce more with the same or fewer inputs. Thus, everyone is better off. There is no such thing in the real world as a free-market zero-sum economy. Your stated rate of 10% would only apply within an economy that is able to sustain such a rate through the increasing productivity. Note that in a lending transaction there are two parties either of which may walk away if the value to be given up is greater than the value to be received.*

As Oro so clearly pointed out, in a similar manner, wealthy nations, through interest bearing loans, have enslaved the third world nations, owning everything they can produce, and more. Third world debt forgiveness is a hot topic these days. Unfortunately, they typically talk about forgiving about 1-2% of the interest payments, still demanding 98% of the interest. Really, they should forgive all of the interest, AND all of the principle, which was funny-money non asset dollars to begin with.

*I agree the world is in a mess caused by our fiat dollar system and the corruption it breeds, however, enforcing zero-interest lending is not the answer. The answer lies in a free market money which, history has shown, would result in a system in which a commodity such as gold would be the money.*

Somebody else posted yesterday a question on this same topic such as, "if two people engage in a private transaction where one borrows 1 oz. of gold and repays the debt with 1.1 oz at a later date, what crime is broken, who is hurt?" The same logic is used to justify prostitution, or drugs, or abortion. The crime is called usury and it is defined by the same moral source that says murder and prostitution are wrong.

Oro, you hit upon the idea that "mano" debt, if lawfully enforced, would be like slavery. Isn't this part of the reason why the proverbs state, "The borrower is servant to the lender." ?

Yes, Elwood, borrowing (voluntary slavery) is one way to provide work for yourself. There are other ways to provide work for yourself that are more profitable.

*Again, I have no answer to faith-based arguments. If you insist on presenting such arguments I will withdraw and give you the final word so that we may end our debate as friends.*

Regards,
Elwood


Aristotle (2/12/2000; 16:59:58MDT - Msg ID:25173)
RossL, your question --(Msg ID:25073)
"How do you prevent gold from being lent? What if I, in a private transaction, lend 1 ounce fine gold to my neighbor for improvements to his house. He then pays me back 1.1 ounces fine gold at a later date. This is a voluntary contract to all persons involved. What law have I broken? Where is the victim?"

I had a very nice reply typed up for you, but switching to another application crashed my computer's operating system so I lost the fragile work which had been residing in a notepad window. Dang!

Here's the short and sweet version, because my patience is temporarily in short supply, courtesy of this recently lost effort. I can't emphasize enough that my commentary set out to describe the "perfect" monetary System for an IMPERFECT world. (Please note the use of quote marks and the description of the world in which we live.) I am not about to pinch individual freedoms, so in truth, I would like to say that anything goes, and the "perfection" of the system will have to accomodate a living world. However, with this tiniest adjustment regarding institutional lending, we will arrive at a whole new reality, and new personal perceptions will rule the day. We will finally have a system that is better than any other that has come along--with Gold at the foundation if it comforts you to think of it that way. In that day, everyone will gain a firsthand and intimate appreciation for Gresham's law.

Getting to your question, I would not anticipate any formal restrictions against such personal activity--no different than we have today regarding the lending of $5 from your wallet to a brother or friend, or the lending of your wheelbarrow or car. However, if you put yourself in the context of that future day where institutional lending has been halted such that the Gold market may finally reveal its true value, you would likely say to your friend seeking the loan, "What do you need the loan for? To pay for something? Here, let me lend you the dollars you need instead." That way your Gold stays safe and sound. Do you lend him your car when he wants to chase a hot stock tip? I don't think so! Personal Gold loans won't likely be a big problem, but then again, you be the judge.

Seeing the trouncing that Gold's market value has taken at the hands of lending operations and derivatives, Gold advocates should welcome this termination. It's Gresham's law that assures us that they won't rush to spend their Gold, choosing to save it and spend their dollars instead. To be certain, Gresham's law is not enforceable under penalty of punishment by society. But like the Law of Gravity, it commands a reliable respect and predictability.

ORO--I will get to your comments later.

Gold. Get you some. ---Aristotle


Aristotle (2/12/2000; 17:23:03MDT - Msg ID:25177)
Tomcat, thanks for the recognition in your (Msg ID:25152)--
You said, "I follow in the footsteps of Aristotle and others who live by the integrity of holding physical. Aristotle is not only concerned with owning physical. He wants the world to benefit from the personal integrity that grows when a golden monetary system exists. It not only would keep us honest. It would also bring out the inherent honesty that resides in most men. That's a far cry from the current fiat system that brings out our potential for dishonesty. That is why I own gold. I choose to make money by earning it. I convert my earnings and profits to the only honest money I know of: gold."

You are right on the mark, my friend! I wonder how many people have formed the erroneous conclusion from my recent series of posts that I am some kind of fiat currency monger. Nothing could be further from the truth. I recognize that paper money is good for whatever its users may find it to be good for. (No rocket science in that analysis!) While my personal philosophy and strategy of wealth management is probably not suitable for most people, let there be no doubt that I "put my money where my mouth is." My life's earnings are completely represented by solid wealth (property) with Gold forming by far the largest and most liquid position--my savings for the ages. This is much more secure than holding the ledger accounts which track the "promises of future man-hours" (dollars). I do sleep well at night knowing that I am living a decent life in the here and now, with honest prospects for a decent future when I must become a net Gold spender rather than saver during my eventual feable and nonproductive years.

Gold. Our key for living a good life. Have YOU started yet? ---Aristotle


RossL (2/12/2000; 17:50:21MDT - Msg ID:25179)
Aristotle

Thank you for the gracious reply. However, I still see an economic function for lending gold in a "perfect" monetary system. ORO touched on it this morning.

In my little scenario about lending gold to my neighbor, I believe the transaction to be perfectly legitimate... unless I was to take my neighbor's IOU and use it as money. That would open Pandora's box ! Paper gold !


USAGOLD (2/12/2000; 17:56:22MDT - Msg ID:25180)
Aristotle...
Paper money in and of itself is not an evil. As you have tried to point out repeatedly in post after post over the past year or so, it is its misuses that must be brought to account. At the same time, handing over a piece paper (perhaps representing gold) can facilitate day to day transactions without the imposition of moving this heavy metal around (a state of affairs those who own it fully understand.) The problem comes when we trust a government in the management of this asset as part of the national treasury. We have repeatedly run into problems in this regard during the 20th century and that is why so many mistrust any paper representation of gold let alone fiat paper -- not realizing that the two circulated successfully side by side for decades both here and abroad.

On a related issue, there was a well known goldmeister economist years ago (I wish I could recall his name) who made a surprising comment during hearings on a whether or not we should return to a gold standard. His attitude was who cares if the money is backed by gold as long as we can own yellow metal as free citizens. As long as we can do that, we can put ourselves on the gold standard when we feel it necessary and renounce government paper at will-- another point you have made repeatedly. At the time, I was surprised at this economists' maverick viewpoint for a gold advocate, but nevertheless could see the wisdom of it. The real crux of the matter is ownership. As the old saying goes "He who owns the gold makes the rules" -- an admonition that I would suggest be hung in big, bold letters on bullion bank trading room walls all over the world. (They tend to forget as we have seen in recent weeks.) If enough people at any given time convert to gold (and perhaps that is the motivation behind all the machinations against gold we have witnessed just in my lifeteime, let alone the rest of the 20th century), there can be no doubt the message trying to find its way to Washington and Wall Street.

Don't worry, my friend. No one here questions where your heart is. The gold standard is an extraordinarily complex issue, especially for we Americans who are so far immersed in the paper money game that its difficult to see a way out (though I think it can be done.)


Aristotle (2/12/2000; 18:02:54MDT - Msg ID:25181)
Question for RossL--
YOU: "In my little scenario about lending gold to my neighbor, I believe the transaction to be perfectly legitimate..."

ME: Sure it's legitimate. I don't question that at all. But I DO question whether you would in fact willingly choose to part with your Gold on such a day if dollars could also satisfy your neighbor's need. Would you? I certainly wouldn't.

Gold. Save you some. ---Aristotle


Chris Powell (2/12/2000; 18:41:50MDT - Msg ID:25184)
Freedom to own gold requires a free market in gold
Let me emphasize a comment posted here tonight by MK. It
reflects GATA's attitude. We add only the provision that, in
addition to the freedom to own gold, free citizens are assured of a free market in gold. For the freedom to own gold is nothing without a free market that fairly values gold and makes it convertible into other currencies and forms of exchange.

Here's what MK wrote:

"There was a well-known goldmeister economist years ago
(I wish I could recall his name) who made a surprising comment during hearings on whether we should return to a gold standard. His attitude was: Who cares if the money is backed by gold as long as we can own yellow metal as free citizens? As long as we can do that, we can put ourselves on the gold standard when we feel it necessary, and renounce government paper at will."

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Tomcat (2/12/2000; 19:26:58MDT - Msg ID:25190)
Aristotle

You know, I was also wondering what people would get from those posts. Early on, I was fortunate to read your posts on how you integrated gold into you view of life. I don't remember the details but I realized that you were speaking of a philosophy of life; a philosophy that included: honest work for honest pay and a sense of honor and personal integrity.

Ari, those posts were the one's that really influenced me. In my personal notes, I referred to your view as the Aristotle Standard. For me the Aristotle Standard wasn't an economic system but a higher standard I could follow for myself. It represented going the extra mile and giving my clients more than they expected. It included more charity. It included more honesty with myself and others.

And I was paid in gold! That gold that represented real value for what I was giving in life. I went the extra mile and was rewarded with a pay in gold. For me it was a personal gold standard. I felt better about myself, slept better and I was freed from the bondage of trying to get wealthy from money I did not earn. It was not an accident that my investments became more sound and I even earned more than earlier.

I also felt that the mutual respect demonstrated by Knights of the Round-Table was also a part of the Aristotal Standard. And when we communicated with Old English mannerisms and invited someone to sit down and share an ale we were, in effect, acknowledging a common, undefined but understood, quest for the honor and self respect that came from a Knight's actions which were based on honesty and fair play.

I would like to believe that this standard also influenced many of the distinguished posters we have here to share their views and to honor us with their presence.

I also want to acknowledge Michael for his genius-like role in all this. To me it is amazing what he has created and how subtle but powerful his influence has been. If someone ever asks me how much money Michael makes I will say "I don't know, but he sure has made a difference".

Thanks again, my friend.


Solomon Weaver (2/12/2000; 19:34:08MDT - Msg ID:25192)
great Tomcat
Tomcat

This was a very beautiful and honest expression of a feeling that has also grown in me.

For the fact that you can so clearly recognize the "real gold standard" that is a way of life that comes from our hearts.

I can think of no better praise for such goldhearts on this forum than what you have just given us.

May the Providence of the Universe continue to enrich your life.

Poor old Solomon


Aristotle (2/12/2000; 20:29:45MDT - Msg ID:25199)
Sir Tomcat! I love you, brother!
There must be something about February and sharing one's thoughts about integrity and striving for higher plateaus of the quintessential human experience. Perhaps it's the several months of winter that make us introspective? It was in February of 1999 that I made my first appearance at this noble Round Table, and as you have correctly recalled, the topic of those earliest posts were more philosophical in nature than economic. I do still cling to those thoughts, and, like you, my life has been richer and more productive for it.

When you get right down to brass tacks, the details of settling your personal household budget is immaterial. What puts us both on a Gold Standard is that we exchange the remaining currency for the safety and comfort of that special yellow precious heavy metal. Over the course of the past year, I have endeavored to lay out in the clearest of terms how this program of Gold accumulation actually has a sound, economic merit to it that goes beyond the emotional and psychological benefits. (Although as I have discovered through actual practice--and you now confirm that you have too--these latter, non-economic benefits alone are enough to justify our course of action to save our excess productivity with Gold.)

I am saddened that so many people fail to discover Gold in the course of their lives, and am doubly saddened to see misery run so deep among those gathered at a forum such as this where the natural assumption is that they have in fact discovered Gold. Are they all doing something wrong--buying paper forms of Gold on leverage and whatnot?? To be so close, and yet so far...Sheeeeesh!

I do have another important theme, but I don't dare share it at this time for fear of excommunication from the forum. As with all of my other posts, including this latest series, it is a very pro-Gold message and very pro-life. But, as a wise friend of mine once cautioned me, "there is a proper time for all things...try and deliver heaven on Earth before the world is ready, they'll crucify." I'm just a child in this planetary garden hurtling though space, but I strive to be a quick study. As such, I'm quickly beginning to appreciate the difficulties of world leaders as they try to ensure that we all continue to play nicely with each other. I have discovered that as you move from the philosphical ideal into the real world--trying to find a way to make the latter resemble the former--the people will have none of it. They twist your words so as to sooner justify your hanging.

Here's a final thought for you Tomcat, if your busy schedule allows you some personal time. Read a classic book by George Eliot called 'Silas Marner.' It's about another kind-hearted soul who first found comfort in Gold during his emotionally trying times before discovering his unique way to share what he had to offer to his small portion of the world.

Gold. It's so much more than money. ---Aristotle


Elwood (2/12/2000; 22:02:13MDT - Msg ID:25205)
Reply to Jason Happy:

Jason Happy (2/12/2000; 17:41:43MDT - Msg ID:25178) wrote:
- - - - - - - - - - - - - - - - - - -
"*Such a solution is a prescription for the destruction of the division of labor within our economic system. The risking of one's capital in any endeavor is an economic service that requires and deserves compensation over and above the collateralized return of the capital itself.*

Jason: Why is there risk if there is collateral? Doesn't collateral eliminate risk? How would "no usury" destroy the division of labor? That's a LARGE leap to make, and you need to support this argument. Also, why do you assume that an interest payment is required for investment? Wouldn't a wealthy man without food in a starving location be willing to invest in farming or trade, if it meant that he, himself, would be able to eat? Also, we both admit that as a society progresses, more goods are produced more cheaply. Thus, if a wealthy man decides to loan out money (interest free) doesn't he receive an extra benefit when society uses the loan proceeds to advance society, since he will be living in a more advanced society?"
- - - - - - - - - - - - - - - -

From "Man, Economy and State" by Murray Rothbard, 1993 ed, pg 321-323
All emphasis is in the original as italics, not caps.

Although the loan market is a very conspicuous type of time transaction, it is by no means the only or even the dominant one. There is a much more subtle, but more important, type of transaction which permeates the entire production system, but which is not often recognized as a time transaction. This is the purchase of producers' goods and services, which are transformed over a period of time, finally to emerge as consumers' goods. When capitalists purchase the services of factors of production (or purchases the factors themselves), they are purchasing a certain amount and value of net produce, discounted to the PRESENT value of that produce. For the land, labor, and capital services purchased are FUTURE GOODS, to be transformed into FINAL FORM AS PRESENT GOODS.

Suppose, for example, that a capitalist-entrepreneur hires labor services, and suppose that it can be determined that this amount of labor service will result in a net revenue of 20 gold ounces to the product-owner. The service will tend to be paid the net value of its product; but it will earn its product DISCOUNTED by the time interval until sale. For if the labor service will reap 20 ounces five years from now, it is obvious that the owner of the labor cannot expect to receive from the capitalist the full 20 ounces NOW, in advance. He will receive his net earnings discounted by the going agio, the rate of interest. And the interest income will be earned by the capitalist who has assumed the task of advancing present money. The capitalist then waits for five years until the product matures before recouping his money.

The pure capitalist, therefore, in performing a capital-advancing function in the productive system, plays a sort of intermediary role. He sells money(a present good) to factor-owners in exchange for the services of their factors (prospective future goods). He holds these goods and continues to hire work on them until they have been transformed into consumers' goods (present goods), which are then sold to the public for money (a present good). The premium that he earns from the sale of present goods, compared to what he paid for future goods, is the RATE OF INTEREST earned on the exchange.

THE TIME MARKET IS THEREFORE NOT RESTRICTED TO THE LOAN MARKET. IT PERMEATES THE ENTIRE PRODUCTION STRUCTURE OF THE COMPLEX ECONOMY. All productive factors are future goods: they provide for their owner the expectation of being advanced toward the final goal of consumption, a goal which provides the raison d'etre for the whole productive enterprise. It is a time market where the future goods sold do not constitute a credit transaction, as in the case of the loan market. The transaction is complete in itself and needs no further payment by either party. In this case, the buyer of the future goods - the capitalist - earns his income through transforming these goods into present goods, rather than through the presentation of an IOU claim on the original seller of a future good.

The time market, the market where present goods exchange for future goods, is, then, an aggregate with several component parts. In one part of the market, capitalists exchange their money savings (present goods) for the services of numerous factors (future goods). This is one part, and the most important part, of the time market. Another is the consumers' loan market, where savers lend their money in a credit transaction, in exchange for an IOU of future money. The savers are the suppliers of present money, the borrowers the suppliers of future money, in the form of IOUs. Here we are dealing only with those who borrow to spend on consumption goods, and NOT with producers who borrow savings in order to invest in production. For the borrowers of savings for production loans are not independent forces on the time market,but are rather completely dependent on the interest agio between present and future goods as determined in the production system, equaling the ratio between the prices of consumers' and producers' goods, and between the various stages of producers' goods.

End of quote from Rothbard.

Sir, if you understand the above, it should be obvious to you that what you propose (enforcement of zero-interest time contracts) will destroy the division of labor within our economic system.

Elwood


18KARAT (2/13/2000; 12:06:34MDT - Msg ID:25229)
ORO
Oro, your twin posts 25113/25114 are easily the best posts I have ever read on this forum.
You make a devastating case for the elimination of CB's.
Have you ever considered writing a book on the subject and getting it published for a wider audience?
It is a case that needs to be put to the wider community.
18K


Journeyman (2/13/2000; 13:14:28MDT - Msg ID:25233)
Shocked and appalled @ALL

Quite frankly, I'm in awe of the extreme effectiveness the
incredibly weak anti-gold propaganda from the establishment
has apparently had over the years. For example, the recent
announcement from GATA of the Financial Times article
suggesting gold has been manipulated carrys the disclaimer -
- -

"GATA, whose officers consider themselves patriotic
Americans and WHO ARE CERTAINLY NOT ADVOCATES OF RETURNING
TO A GOLD STANDARD, maintains that their government's
economy should not be based on dishonesty, secrecy, and
private advantage." [CAPS emphasis added -j.]
http://www.egroups.com/group/gata/376.html?

- - - as if you had to be slightly crazy to advocate such a
thing. FOA echoed this same refrain. I guess this proves
that even embarassingly defective propaganda, when combined
with ignore-ance in government schools is good enough. I
guess the big lie works as long as no one stands up and
states loudly and with authority, "BALONEY!" eh Stranger?

In fact, even here at USAGOLD, in the very heart of "gold
country" there are only a handful of stout hearted
individuals with the intestinal fortitude to unabashedly
suggest the obvious truth about the gold standard and who
also posess the knowledge to stand up and defend it. No
wonder we have been losing!

Who here will join ORO and declare for the gold standard?

Journeyman


Journeyman (2/13/2000; 13:15:57MDT - Msg ID:25234)
Defending Gold Ch. 3: The Gold Standard Failed and Was Unpopular

@Aristotle, Trail Guide, ORO, Mr. Gresham, Peter Asher,
Elwood, ALL

It's funny how the human mind works. OK. I can't speak for
your mind. . . . . Ah, it's funny how my mind works.
Though I agree with the majority of what you say, Aristotle,
and really admire your approach, honesty, and yes, even
bravery in presenting your well done five part series, I
find my mind dwelling on the particular aspects where we may
disagree. Perverse little devil, my mind.

In support of ORO's fine work on the whole issue, there are
several things that I believe it would still be useful to
address. This post presents two of them. I will attempt to
address some of the others later if time permits. A bit of
historical perspective will serve to place previous points
in context, especially some of those presented in the "Crime
of 1873" link provided awhile back by Cavan Man:

http://www.micheloud.com/FXM/MH/Crime/carricat.htm

First, though, are we arguing that the gold standard was or
would be perfect?

"The gold standard is certainly not a perfect or ideal
standard. There is no such thing as perfection in human
things. But nobody is in a position to tell us how
something more satisfactory could be put in place of
the gold standard." -Ludwig von Mises, Human Action A
Treatise on Economics, Third Revised Edition (Chicago,
Illinois: Contemporary Books, Inc. 1966), pg. 473

Thus we need not argue that the gold standard is perfect,
only that it's better, and that's an easy argument to win.

Onward. There seems to be a pair of common underlying
assumptions upon which many gold standard detractors as well
as both Aristotle and Trail Guide seem to build a large part
of their thinking. The first assumption seems to be that
the old gold standard in some way failed; the second
assumption, that as a result of this failure, the gold
standard was rejected by a sort of majority vote.

To paraphrase this position: "Since we used to have a gold
standard, but now have a paper/megabyte financial system,
there must have been something wrong with the gold standard
and people just didn't like it anymore so they got rid of
it."

Nothing could be further from the truth.

Gold DIDN'T lose the election:

First, let's look at the "gold lost the majority vote"
notion a bit. Actually history shows that "the people" had
no say what-so-ever in the move from the gold standard to
the paper "standard," and a sense of history and common
sense says if they had, they would have overwhelmingly voted
_for_ the gold standard.
Neither the people nor even their erstwhile representatives
in Congress voted their country off the gold standard.
Ultimately the conversion was ordered, appropriately if
ironically, by presidential fiat, by infamous Executive
Order 6102 signed by that traitor to his country and its
constitution, Franklin Delano Roosevelt. The move from gold
to paper had nothing to do with democracy or popularity;
horrendous as it seems, it was purely an elitist banking-
political power play.

In the late 1800s and early 1900s, as Murray Rothbard
pointed out that amongst "the people," no one in their right
mind was against the gold standard. Not liberals, not
conservatives, certainly not farmers, and not even William
Jennings Bryan. That was because everyone knew the bank
runs, so-called "panics," were caused by issuance of paper
bank notes that, while claiming they were redeemable in
gold, lacked sufficient gold to redeem them. That is, while
everyone knew there were some problems with hard money,
everyone knew there were far _more_ problems with paper
money.

When William Jennings Bryan campaigned against being
"crucified on a cross of gold," he didn't have a cross of
paper in mind as the substitute. He just wanted to include
another class of hard money, silver, in the official
monetary constellation to offset a perceived "deflation."
It's easy to see from this how his perceptions led him to
support the Federal Reserve. All the banksters had to do
was convince him they would keep the money supply stable and
so no one would have to worry about a golden crucifiction
anymore. It's unlikely Bryan knew the Federal Reserve would
eliminate _both_ gold _and_ silver from the money supply
twenty years later.

To repeat: The move from gold to paper was a horrendous
elitist power-play, in no way democratic. Had "the people"
of the time been given the choice, it's a safe bet that had
they been forced to think about it by participating in a
vote, they would have overwhelmingly voted for the then
taken-for-granted gold standard. Far from being done
democratically, the move off the gold standard was presented
to the American people as a sudden unexpected gut-wrenching
fait accompli, accompanied by a full range of gestapo-like
tactics.

The gold standard DIDN'T fail:

Predictably an unprecedented expansion of the money supply
by excess issuance of "Redeemable In Gold" Federal Reserve
Notes without enough gold reserves to redeem them began in
1913 shortly after passage of the Federal Reserve Act. The
consequences, however, didn't become apparent until it
blew-up 20 years later in 1933 with half of US banks
unsound, that is, without enough gold to make good on all
those "Redeemable In Gold" Federal Reserve derivative IOUs.
Sound familiar?

How do you defend yourself when you can't make good on your
IOUs? The best defense is a good offense so - - - That's
when the banksters, in cahoots with the US Government,
officially stole the gold -- AND MADE GOLD OWNERSHIP BY
AMERICANS ILLEGAL TO BOOT!! That theft is the main reason I
have chosen to call them "banksters."

[It looks to me as if the gold hiest was probably planned in
conjunction with the passage of the Federal Reserve Act,
though I have only logic with no direct evidence to support
that contention. Anybody out there able to shed any light,
pro or con, on this contention? MK? ORO? Aristotle?
ANYONE?]

A small off-topic comment: Most of the people running the
banking systems of the world today are completely ignorant
of the origin of the institutions they inherited, and as the
population at large, unaware of our probable destination.
They don't think of themselves as the beneficiaries of
stolen goods and special political favors anymore than U.s.
land holders feel they are the beneficiaries of land stolen
from the native inhabitants by their ancestors. I'll try to
keep that in mind, thanks to one of Aristotle's posts from
several weeks ago. That doesn't change the vector of the
situation, however.

Finally, if the gold standard was fatally flawed, how do you
explain that the U.s. prospered on hard money for more than
a century with only one major hiatus during the American
Civil War? If the gold standard strangled business
expansion, how do you explain that growth in the later part
of the 19th century was regularly in the 6% to 7% range?
How do you explain that the U.s. prospered through the
largest economic expansion in history, the "industrial
revolution," on the gold standard? In fact, it prospered
right up thru 1912, at which point, with the chartering of
the Federal Reserve System, the money supply was, in
reality, no longer tied to gold.

As we here at USAGOLD know, once the Federal Reserve went
into operation, the percentage of gold reserves per issued
"dollar" paper note began dropping continuously (because of
inflation of the money supply by the FED), leading in short
order to the "Roaring 20s." If you'd been an Austrian
economist at the time and heard the term "Roaring 20s," you
would have thought, "Ah oh! They've been manufacturing
vapor-paper with inadaquate gold backing! Malinvestment!
There's going to be hell to pay." And, as we all know,
there was - - - beginning in 1929.

For all intents and purposes, the gold standard ended in
1913. Thus anything "bad," economically speaking, that
happened after that date can not with a straight face be
blamed on the gold standard. In fact, anything economically
bad that happened after 1912 can be laid solidly at the
altar of fiat paper money.
True, in form FRNs between
1912 and 1933 were still backed by gold, just as today in
form the gold contracts traded on COMEX are backed by
gold. However, in both cases the reality reveals the form
as the travesty it was and is.
If, as FOA suggested, the
paper gold markets burn, is it the fault of the gold? Or is
it the fault of the paper and the institutions?

I know what you're thinking. When the politicians like Bill
Clinton (with bankers like Alan Greenspan in the background)
claim they have our best interests at heart, you want to
believe them. When they say, "We know how to manage a
currency," you'd like to believe it's with the common man in
mind. I'd like to believe it too, but recent history
especially (the Brady bonds, the Mexican crisis, the Asian
crisis, the Russian crisis, Ecuador's money melt down, etc.)
and the US bubble won't let me.

OK, OK, --- let's give them the benefit of the doubt. They
DO have our best interests at heart. They really DO want to
manage the currency for the benefit of "the people." It's
just that the last 90 years of history, and particularly the
last five, proves, even here in the United states, they're
simply not up to the job.

Finally - - - -

If you wish to argue that fiat currencies will inevitably be
instituted {evolve }because the political and banking
cliques will conspire, will lie, cheat, steal, distort
history, do whatever is necessary to institute them in order
to gain advantages at everyone else's expense, well, history
bears you out. However, if you wish to argue that "the
people" preferred a "paper standard" to the gold standard,
history proves you're dead wrong.

If you wish to argue that the benefits of fiat monetary
tokens far outweigh the advantages of hard money - - - - to
the political and banking cliques - - - - history bears you
out. If you wish to argue that those benefits accru to the
rest of us as well, history proves you're dead wrong.

TANSTAAFL (There Ain't No Such Thing As A Free Lunch)

Regards,
Journeyman


Journeyman (2/13/2000; 15:58:36MDT - Msg ID:25245)
A golden clarification @ Elwood & ALL

In defending the "gold standard," I'm really comming from
the Austrian viewpoint of competing currencies. In this
pursuit, I believe it is necessary to debunk anti-gold-
standard thinking, which was used to temporarily unseat gold
as the competing currency which had evolved to be the
preferred medium of exchange. Despite what you may think, I
have no _personal_ bias against other currencies -- I've
used many of them. My bias is against the market lacking a
free range of choices primarily because of disinformation
and outright manipulation. I have no disagreement with ORO
on any of his points, as you may have guessed. "Peripheral
Banks" and no government involvement sounds good to me!

To sum-up my position, including all those previously
unstated assumptions: I favor a free-market in currencies,
including any IOUs anyone wants to try to sell or trade,
including Uncle Billy's scribble on the back of that
envelope, and even "yen," "dollars," or "euros." I suspect
that under such competition among trade token alternatives,
gold will prove to have an "unfair" advantage in that it's
still the "esperanto" or "electricity" of trade.

Keeping in mind goldfan's classic observation - - -

"In trading systems, barter is the only reality. All
the rest is an illusion put in place to "manage" the
system for stability until the exchange is "settled" by
completing the barter." -goldfan (1/30/2000; 9:30:04MDT
- Msg ID:23863), Chaos Dynamics and the World Economy

I suspect gold will have the advantage of being perceived as
"settling" the underlying barter on the spot as opposed to
carrying a future obligation around and hopeing it will be
settled later -- or hopeing that you can off-load it before
someone discovers it's bad debt.

Disregard these notions as to gold's likely predominance as
speculations if you wish, competing currencies is the goal.

Regards,
Journeyman


Journeyman (2/13/2000; 22:13:17MDT - Msg ID:25261)
Some curve balls on usury @Jason Happy, Hipplebeck, RossL, Harley, almost ALL

Sir Happy,

Continuing the following:

<<<Journeyman, yes, you have stated my position well.
Interest not ok, return on investment is ok. That's how I
understand the
Bible's position as it presents these issues. I hope you are
not going to take this in the direction I fear. Are you
going to ask me how these two are different? Oh boy!>>>

Yes, I was going to ask that! -j.

"The difference is that you take the risk with the other
party. If things don't go so good you both lose, not just
the one who took out the loan." -Hipplebeck (2/12/2000;
14:19:16MDT - Msg ID:25167)

Exactly! -J.

Three curve balls:

There's an information/cost built into both alternatives.
All you need to know to make a loan at interest, at least
these days, is someone's credit rating, which is easily and
cheaply available, both in terms of time and money. An
investment on the other hand, since you are risking on only
one aspect of a person's enterprises, requires much more
research and specific, information unique to the enterprise,
which, not being either as easily (and thus cheaply)
available, or easily verified, costs you more time and money
to evaluate. Thus it's more expensive and theoretically
more risky as well to make an investment than a loan.

It will cost the entrepreneur a larger chunk of his profits
if you invest rather than making him a loan.

Consider. I had a deal with a business acquaintence of mine
in Poland just before the Berlin Wall came down. It was a
unique situation for which he couldn't get conventional
financing. The situation looked so good, I _wanted_ an
investment share rather than just interest. He promised me
15% interest instead of giving me an investment share
because by his calculations that would cost him less - - - -
and he didn't want me looking over his shoulder. He
insisted on "usury" rather than investment, over my own
preference.

Also, it's assumed that poor men are the ones borrowing and
making interest payments. That's not necessarily the case:

A poor man never gets to be a big debtor. Only a rich
man, or a man with a reputation of being rich, can get
into that situation. . . . . it is more than doubtful
that the "creditors" would prove on the average to be
richer than the "debtors"; it is much more probable
that the relationship would prove to be the other way
around. " -Henry Hazlitt's March 1959 introduction to
Andrew Dickson White, _Fiat Money Inflation In France_,
(IRVINGTON-ON-HUDSON, NY: THE FOUNDATION FOR ECONOMIC
EDUCATION, INC. 1959) pg. 13 & 14

Sometimes things aren't as simple as they seem!

Regards,
Journeyman


Trail Guide (2/14/2000; 8:08:19MDT - Msg ID:25302)
Gold
http://www.fame.org/HTM/Mundell%20and%20Parks.htm
NOTE: These are (see the bottom) segments of questions and answers copied from this interview. I PLACE THEM OUT OF CONTEXT TO UNDERSCORE THE THOUGHT! Please see the link above for the full discussion. It's very good and so is Mr. Park's and his site.

ALSO: The point I was trying to make in #25137 (and the question I was asking) was this;
A full gold money system works during level and rising economic dynamics. It also works "VERY" well during a downturn. In fact it works "Perfectly" all the time! It's the lending of money that creates debt, be it gold debt or fiat debt ,,,, and the failure of that debt during a downturn is what causes the pain.

I ,,,,, we as gold bugs ,,,,,, most financial thinkers ,,,,, do not debate this point. The argument is that:
If the pain dynamic (loses) of a financial downturn is not "Somewhat" shared by society as a whole ,,,,, the economic dislocation always intensifies until we go to conflict. (see my earlier post)

It's during the downturns that society in general will not tolerate a full gold system because it concentrates the loses upon their rightful owners. As such "these same" are usually "wiped completely out" and their fallout effects on the social and economic structure can be widespread and very destructive to tribal life.
Again, history has proven, time and time again that humans will not allow the full (natural) effects of gold money ,,,,, if it threatens to create factions. They accept gold during long periods until conflict (internally political or externally war) forces a break in the gold bond.
We as nations will break the "gold bond" by calling for the shared pain of inflation. Whether we (as countrymen) understand the reasoning behind it or not; currency inflation (not price inflation) in the modern world is carried out until it's debt destroys the current system ,,, there by, sharing all the pain of the loses before it. We then move into the next fiat system.

The question:

Is it not better for all ,,,, if we remove gold from the official currency structure by forcing derivitives failure and creating a free physical only marketplace,,,,, so as to keep "US" ,,,,,, ourselves ,,,,,, from controlling it through our politicians?
Through "legal tender laws" currently in place ,,, let's force us (ourselves) to continue to create debts only in paper.
As such, "they" ,, "we" can manipulate the fiat as needed for society.
Does this not place gold in it's rightful position of being a "real currency asset" as it was chosen to be used from the beginning of time?
A private money for trade and savings that's outside the "contract / debt' system. Your thoughts?

Trail Guide

Robert Mundell:
--------I think that legal tender is a very old institution. It certainly goes back thousands of years and legal tender is an institution, whether we like it or not is going to stay. ----------

Robert Mundell :
------There's no institutional mechanism by which we could ever duplicate the kind of financial system we have under a system that relied almost entirely upon gold. Of course you could always have a system that used a lot of paper that was in some sense convertible into gold. You could always find a price of gold that you could convert that paper theoretically into gold. But I don't think anyone has thought in terms of the enormous price of gold that would be required in order to achieve that.-----------

Larry Parks:
---------George Soros says in his book Soros on Soros that the gold standard had to be given up because it did not make possible a lender of last resort. And says Soros, because financial markets are in his words ìinherently unstableî you have to have a lender of last resort.-------


ORO (2/14/2000; 11:49:40MDT - Msg ID:25310)
Trail Guide - Gold system
I am working on a detailed reply, however, I wanted to put up a short version since you are online at the moment.

In your latest post, as in the earlier one in which you replied to my previous comments, you talk of pain and losses under the gold standard in the bust that follows th economic boom. After a period of growth a pile of debt had formed and that this debt collapses the system.

I pointed out that it is the existence of a "lender of last resort" that causes the debt boom. It is obvious then, that had there not been a lender of last resort there would not have been a substantial credit crunch, because the lenders would not have taken the same risks they allowed themselves once a promise of bailout was given, and thus would have avoided the credit boom.

The argument is false in that it is circular. The lender of last resort was there in the first place, the inevitable credit boom followed, the credit crunch followed - just as inevitable - and a further lender of last resort was needed.
History shows that the credit policies of the BOE led to its bankruptcy before WWI and before the Fed was created. This was among the reasons for the argument for the Fed being pressed. All the previous lenders of last resort were tapped out and a new one was necessary. In 1929-1930 the Fed was tapped out and the gold standard obligation was abolished shortly after.

The incredible incompetence of the large banks makes the lender of last resort necessary. That incompetence was bred into the banking system by previous lenders of last resort. Bankers are like a herd of cattle, they follow the leading bank bull and end up running in his Sh%$. All feeders on leverage know this as "the trend is your friend".

The pain and losses are those of the bankers and the outdated and mismanaged corporations they control, as well as the wildly unprofitable new technology corporations they build. Society as a whole suffers mildly, but wide range suffering occurrs only if there is a lender of last resort. The lender of last resort functions to destroy the business and purchasing power of those who acted responsibly and saved cash. The purpose of the lender of last resort was to save the fat man's bacon by raiding everyone else's larder so that he would not go hungry.

The recourse to war results from the spreading of misery by the lender of last resort. The war serves to divert people's attention and to reflate the system by creating enormous new debts that would later be paid by the citizens as a whole.

A far more efficient way to take care of the credit crunch is to allow the markets their fine function in limiting it in the first place. The second most efficient way is to have the markets do their job in punishing the bankrupt and their incompetent lenders.

The key issue of the lender of last resort is that it is the mechanism for the transfer of losses from the incompetent bankers (and their defunct clients) to the public at large.

Without the lender of last resort, the bankers would have their empires taken apart and disbursed to their creditors, and the corporations they controlled through debt would be reorganized through bankruptcy.

The real assets would change hands, but would still be there. The assets that produced losses would sell at a discount - perhaps at a low enough price so that they could be run profitably without the burden of the original debt that formed them (when they financed the capital investment of the businesses).

The key is that the Morgans and Rockefellers hold on to their empires not because they are so successful in their business, but because they have first dibs on the bail-out funds because they control the Federal Reserve. To be sure, the large financial empires were created by consolidation of smaller operations through the use of government enforced banking monopolies that forced the small operators to come to the bankers for finance. These small operators would only be able to overcome their competitors through the subsidized lending available from the bank monopoly members. The post Civil War commercial business of Morgan and the rest of the large banks was to do in the rest of industry what they did in banking. They formed a monopoly on money creation that gave them an edge in consolidating enormous "trusts" who'se purpose was to avoid competition. Part of the methodology was to run the competition out by price competition. The bank backed business had the benefit of endless loss capacity, while the resources of the independent corporation were limited by the markets. Once control was gained, the trust would raise prices to the sky and generate enormous profits. Since the large bankers divided the territory among themselves, there was no competition among them.

The purpose of antitrust regulation was not to break up the trusts, it was to break up NEW corporations that created new markets and threatened the trust's business with obsolesence.

To summarize, (1) lenders of last resort cause moral hazard and uneconomic investment because of the expectation of bailout. (2) The credit boom that ensues during growth periods results in the uneconomic investments failing and with an actual need for bailout. (3) The bail-out by the lender of last result ends up converting the losses of the few into the pain for many.

Again, the problems are not those of the gold standard but of the government enforced bank cartel and its lender of last resort.

Indeed, Soros has it right in that central banks and the gold standard do not mix. However, it is the central bank that needs to be chucked into the waste bin.
----------------------
There is a secondary myth of free gold banking not producing the large amounts of money that are necessary for expansion of the capital base in times of expansion.

Money is the mechanism for trade of goods and services through indirect barter. The amount of money does not change the amount of goods. At most, it changes WHO gets the resources, it can not change the amount of resources significantly. Furthermore, artificial increases in the money supply through uncompetitive banking cartel lending produces less goods and less capital overall. What matters to the cartel members is that they are the "who" that benefit from the new money.


Trail Guide (2/14/2000; 18:20:51MDT - Msg ID:25335)
Freegold
Thanks for your reply, ORO.
My comments presume that readers have read our full posts.
Your major point, logic and comments that I got from your post (25310) , followed by my comments:

POINT:
"I pointed out that it is the existence of a "lender of last resort" that causes the debt boom"

Logic:
"It is obvious then, that had there not been a lender of last resort there would not have been a substantial credit crunch, because the lenders would not have taken the same risks they allowed themselves once a promise of bailout was given, and thus would have avoided the credit boom."

Your Comments:
"The argument is false in that it is circular. (Trail Guide note: I think he is referring to my logic?) The lender of last resort was there in the first place, the inevitable credit boom followed, the credit crunch followed - just as inevitable - and a further lender of last resort was needed. History shows that the credit policies of the BOE led to its bankruptcy before WWI and before the Fed was created. This was among the reasons for the argument for the Fed being pressed. All the previous lenders of last resort were tapped out and a new one was necessary. In 1929-1930 the Fed was tapped out and the gold standard obligation was abolished shortly after."

My Comments:
ORO, I cannot accept that a "lender of last resort" causes a debt boom. It presumes that a great portion of lending is done for reckless, uneconomic reasons. Yet, at the end of great expansions many projects that were considered "blue chip" in the beginning still go bad. Sometimes, the most necessary economic activity is curtailed because people's needs change during the course of life ,,,
not to mention a recession. Thus changing business dynamics.

How many instances can we document where banks lent into real demand ,,,,,,, backed with the very best demographic patterns ,,,,, only to find the loan blow up from changing demand. Oil in the late seventies would be a convenient example for us (smile). People were breaking down the doors of the old "Texas Commerce Bank" in Houston ,,,,,,, all in an effort to finance hugely profitable petroleum projects. This was no flash in the pan, as the oil industry had a progressive expansion history of 15++ years before this. Truly, a lender of last resort was the very last thing on their minds. Later, even paper based on $10 producing reserves was trashed! Certainly there are many, many other examples,,,,,,,, most are of a more mundane, unglamorous nature, but fine examples.

Further:
Was this really circular thinking on our part? Did the Lender of last resort exist during the 'South Sea Bubble" or the "Tulip mania",,,,,, and did the "Black Plague" of Europe shut down a few sound financial systems then? I think gold was the norm in that period?

ORO, this portion of your thinking needs to include the other side of the lending aspect,,,,,, people want and demand loans for sound, economically justifiable, profitable projects,,,, and they get them on sound lending principles. Still, some 90% of them can become only "at the margin" when demand changes. And typical of our human society, we all shift at once.

Truly, my friend, bank loans often fail because human events change the course of money dynamics,,,,,, and it does so in a way that is beyond the vision of any lender. Be the lenders you, me or a group of people as a bank, large portions of deals go bad just as much from human affairs as from "over lending".

After all, the entire economic structure of the world is nothing more than people dynamic ,,,,,,,,, in the long run it's just too risky to bet one's physical gold on (huge smile)!

Yes, our present financial system gives the impression of total insanity,,,, but we are looking at the very "end of the timeline",,,, not how it began. It all starts with the very first loan and progresses until everyone has borrowed "too much", but no one wants the music to stop. Last resort lenders then become the norm because society will lose "across the board" if everything is "marked to the market". It is not a circle (smile) as it starts and ends with the currency system (gold or fiat) everyone demands to borrow into. It all ends in the shared pain of debt collapse as the debt is discounted to zero from price inflation ,,,, even if it's based on gold ,,,,,, gold that cannot be returned. Not much different from our present gold loan structure.
We will move on to the next money system when this one ends.

If it were gold we started with? The banker would lend his gold only to find the same metal returned to his bank as a new deposit. The "society at large" would remove his franchise if he did not re-lend that same gold during "good times", "booming times" no less! Round and round the gold goes. Reserve lending hits it's limit and society demands the limits be raised again ,,, and again ,,, and again! Lender of last ,,,,,, or not.
In our modern world we must remove gold from the official money system, place it in a free market and people will use it as wealth money, not borrowing money. Then the fiat can come and go as the wind! Yes?
You agree now!
I'm so very glad!

Trail Guide


Elwood (2/14/2000; 18:52:10MDT - Msg ID:25336)
To Trail Guide, Re: Trail Guide (2/14/2000; 18:20:51MDT - Msg ID:25335)

Sir, I could never hope to make a reply as eloquent as ORO has done in his previous responses to you (or in yours to him), but I think Mises could shed some light here.

I offer this:
http://www.mises.org/humanaction/chap20sec8.asp

Table of Contents:
http://www.mises.org/humanaction.asp

Kind regards and my sincere thanks for your participation,
Elwood


Cavan Man (2/14/2000; 19:59:08MDT - Msg ID:25340)
To Trail Guide
I think I am beginning to understand.

First of all, if the gold price is freed from the $USD, monetary discipline will re-assert itself relative to all fiat currencies.

This one sentence of yours tells me quite a lot; "In our modern world, we must remove gold from the official money system, place it in a free market, and people will use it as wealth money, not borrowing money. Then fiat can come and go as the wind."

Second, fiat currency is for convenience only and is now truly represented in proper context for all the world to see; all of its weaknesses and limitations are manifested in the relationship between a particular genus of fiat and the POG. If it can come and go as the wind then truly, one should hold equity and wealth in gold and not fiat; exposure to the medium should be minimalized as is prudent.

Third and perhaps most importantly, the personal gold standard that Aristotle speaks so eloquently of from time to time still continues to assure an individual's right to and desire for honest money. A personal gold standard in the context you espouse will and should encourage and promote the realization that gold is indeed the money and wealth of the ages. Gresham's law will keep fiat relegated to a small percentage of one's net worth as it is mine now. Perhaps even those who see a Biblical mandate for a gold and/or silver standard will see the reason in your remarks. I believe I do.

Our Creator endowed mankind with freedom of choice. With gold in this context so obviously the choice to make, it could be reasoned that this new paradigm satisfies the Needs first of God and secondly the needs of the modern world in which we live. Could this be so?

In the back of the pack....taking up the rear..."Cookie"

aka: CM

Furthermore, when gold is understood in this light, this new paradigm, then, any fiat currency will suffice for transactional purposes; USD, Euro, Yen or even the Cavan geounit. The fiat currency that will maintain the role of first among (un)equals will be that which purchases the largest amount of gold for the least amount of fiat.

Hope to hear back from you when you have the time.

Many thanks TG!


Trail Guide (2/14/2000; 21:11:17MDT - Msg ID:25350)
Freegold
Elwood,

I have read much of Mises and even a few others. Actually, I completely agree with them that the Gold money systems of the nineteenth century worked very well. As such we do not fall into any groups that argue against that concept. Our problem is with people (smile).

In a Money and Freedom speech at a Mises meeting Mr. Joseph T. Salerno made this point:
-------Unfortunately, the monetary freedom represented by the gold standard, along with many other freedoms of the classical liberal era, was brought to a calamitous end by World War One.----------

Further, he stated:
------Within weeks of the outbreak of World War One, all belligerent nations departed from the gold standard. Needless to say by the wars end the paper fiat currencies of all these nations were in the throes of inflation of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst.---------------

My point (as an extension of earlier posts):
No country, however rich in gold or resources, can continue to fight a war once their money runs out! Consider ,,,,,,, You and your family as a country, a nation ,,,,,, you are under attack and have spent the last of your gold ,,,,,You will print money and continue the effort, no matter the inflationary costs,,,, come what may!

Many nations utterly failed to return to the original gold standard simply because they were mostly tapped out from the war. At the best, the richer, surviving countries would have taken a major economic hit by going back into a full gold system. All the eventual gold deals and non- deals were little more than a part of the progression of events that lead us here today. All in an effort to keep from fully marking to the market the cost of a shared loss in war, defence and other financial failures.

There is not one person among us that ,,,,,,,,, if their family was completely broken from the war experience ,,,,,,,,,, would have asked for a return to gold. In full a honest context, millions would have starved in the process. The world optioned to share the loss and spread it out as far and as long as possible.

The war experience is but one example of why society has such a hard time with an official gold system during times of stress. Over and over again we have seen where gold is the very best holding and defence against private and public financial loss. Yet, when large scale national loss threatens society as a whole ,,,,,, it's always the money system that receives the brunt of the demands for change. Society demands that whatever money system is in place at the time of stress, be shifted so as to spread the burden amongst all.
Is it right,,,,,, is it just,,,, I do not think so. But it is what we do and have done for a long time!

Today, if gold can be forced out of the official money system, it will be to the benefit of everyone during times of stress in the future. In times of war people spend the legal tender in commerce. Yet they save the food, liquor and necessities. A common currency of the world would be just such a necessity to hold as part of your wealth.

Trail Guide

Cavan Man, see you later or on the trail!


Elwood (2/14/2000; 22:18:04MDT - Msg ID:25352)
Trail Guide (2/14/2000; 21:11:17MDT - Msg ID:25350)

But, sir, isn't it true that war destroys everything it touches? Isn't the fact that our freedom disappears during time of war just one of the many varied reasons to avoid war?

I must admit that I am confused about your position, a state for which I don't hold you responsible, by the way. You state in your post:

"Today, if gold can be forced out of the official money system, it will be to the benefit of everyone during times of stress in the future. In times of war people spend the legal tender in commerce. Yet they save the food, liquor and necessities. A common currency of the world would be just such a necessity to hold as part of your wealth."

Yet, from what I've read of others here, the inherent strength of the Euro/Gold system is 2-fold: 1) that there IS an official place for gold in the system and 2) that it is not burdened with the debt-overhang which plagues the dollar.

I think that history has shown that it is during such times of stress that you describe when issuers of fiat currency pull the rug from under the feet of those who hold the free-market money through confiscation and wealth-taxation. I respectfully submit that a fiat currency cannot, for long, co-exist with a free-market money. The issuers of such fiat currency will not allow it. They will always engage in manipulation or change the rules in favor of such fiat currency in order to drive the free-market money out because the free-market money undermines their ability to smoothly inflate the fiat.

You have pointed this out to us in your posts regarding the paper and physical gold market manipulations.

What guarantees have the Arabs been able to wrest from the issuers of the Euro fiat currency that their free-market money will endure?

Regards,
Elwood


ORO (02/15/00; 05:14:21MDT - Msg ID:25372)
Trail Guide - comments on your latest
Comments to Trail Guide (2/14/2000; 18:20:51MDT - Msg ID:25335) Freegold

Trail Guide:
Thank you for your thoughts. I'll comment on the points you have countered.

POINT:
"I pointed out that it is the existence of a "lender of last resort" that causes the debt boom"

Logic:
"It is obvious then, that had there not been a lender of last resort there would not have been a substantial credit crunch, because the lenders would not have taken the same risks they allowed themselves once a promise of bailout was given, and thus would have avoided the credit boom."

----------------------------------
ORO:
Under a gold standard and the debt dollar standard as well, the existence of a lender of last resort in one substantial country will cause all international banks to lower their rates or minimum credit rating to make use of the guarantees of that lender of last resort - If they had not, the banks of the country with a lender of last resort would have forced them out of the markets during the boom. This is as much the case today as it was during the turn of the previous century.

For reference in reading the comments below, this note:
Booms and busts do occur. Debt bubbles occur without government sponsored cartels. What is different is the following:
1. Early failure. The non-central bank gold standard produces a small crash after 4-5 years of overextension. This is long before a gold debt boom made possible by a central bank and government sponsored bank cartel would have fully developed.
2. The scale of debt. The natural dynamics of the free banking business is towards caution. By disabling the market's tempering mechanism (it functions through the specie money supply), the cartel can push debt to 15-20 years. The resulting scale of debt would be some 8 fold larger, because the rollover game made possible by the government cartel and the presence of a lender of last resort.
3. The weeding out of weak business. Weak businesses are weeded out much earlier than under a central bank regime.
4. Who benefits. The key motive of a cartel is the elimination of competition by means other than fair competition on the merits of the corporation. The best cartel to have is that of banking. The bank cartel allows endless losses during the establishment of the cartel, until the competition is destroyed. One familiar example to the goldbugs is Barrick. Their growth through the use of hedging was very rapid, much more so than any other gold company starting out at their size in the mid 80s.
5. Who Pays. The failures of the centrally controlled bank system are swept under the rug and reappear in the form of fresh loans coupled with monetization. In the case of monetization, the "good" securities are purchased by the central bank, adding to the monetary base. The additions to the monetary base are leveraged through the bond markets and the banks into a price rise that swindles the saver of the purchasing power of his funds.
------------------

ORO:
The argument is false in that it is circular. (Trail Guide note: I think he is referring to my logic?) The lender of last resort was there in the first place, the inevitable credit boom followed, the credit crunch followed - just as inevitable - and a further lender of last resort was needed. History shows that the credit policies of the BOE led to its bankruptcy before WWI and before the Fed was created. This was among the reasons for the argument for the Fed being pressed. All the previous lenders of last resort were tapped out and a new one was necessary. In 1929-1930 the Fed was tapped out and the gold standard obligation was abolished shortly after.

Trail Guide:
ORO, I cannot accept that a "lender of last resort" causes a debt boom. It presumes that a great portion of lending is done for reckless, uneconomic reasons. Yet, at the end of great expansions many projects that were considered "blue chip" in the beginning still go bad. Sometimes, the most necessary economic activity is curtailed because peoples needs change during the course of life ,,, not to mention a recession. Thus changing business dynamics.

How many instances can we document where banks lent into real demand ,,,,,,, backed with the very best demographic patterns ,,,,, only to find the loan blow up from changing demand. Oil in the late seventies would be a convenient example for us (smile). People were breaking down the doors of the old "Texas Commerce Bank" in Houston ,,,,,,, all in an effort to finance hugely profitable petroleum projects. This was no flash in the pan, as the oil industry had a progressive expansion history of 15++ years before this. Truly, a lender of last resort was the very last thing on their minds. Later, even paper based on $10 producing reserves was trashed! Certainly there are many, many other examples,,,,,,,, most are of a more mundane, unglamorous nature, but fine examples.

Further:
Was this really circular thinking on our part? Did the Lender of last resort exist during the 'South Sea Bubble" or the "Tulip mania",,,,,, and did the "Black Plague" of Europe shut down a few sound financial systems then? I think gold was the norm in that period?

--------------------------------
ORO - current reply
The South Sea Bubble was a result (in part) of the new Bank of England. Chartered in 1694 with a monopoly on the issuance of gold backed paper money, being official money, the BOE notes were used by other banks as reserves. Within two years it had issued enough notes to have prices to double. At that point, the banknotes were being discounted in the markets versus specie and people came in droves to cash out their gold. The bank was on the verge of collapse. Parliament and the King passed a law eliminating the redeemability of the BOE notes. The notes were to continue in use with selective redemption in specie. The booms and busts that followed paupered many and enriched the bankers immensely.

The South Sea Bubble was just the worst cycle in the investment community. The imaginary business of the company was even less real than that of the internet companies of today. With exciting prospectuses and much promotion, the company was floated in 1711, just before the Spanish War of Succession was fought. The boom started soon after the end of the war in 1713 and made its great strides in 1720 as stock emissions in secondary offerings were issued in a deal with the BOE, whereby the company was granted trade monopolies by the King and took on the Exchequer's debt in return. The BOE received stock which was sold to the public, often financed by margin loans from the bank itself.

The Tulip Mania was the speculative mania of 1636-1637. Though the Bank of Amsterdam was very conservative and served only as a depository, the Banco Del Giro chartered in Venice was then in the latest stage of its inflation. Much of the speculative mania could be traced to the international loans, some made by this central bank of Venice. The closure of the Banco Del Giro in 1637 is partially attributable to the crash of the Dutch Tulip markets and the incredible debt bubble that grew around the Tulip Mania.

Trail Guide:
ORO, this portion of your thinking needs to include the other side of the lending aspect,,,,,, people want and demand loans for sound, economically justifiable, profitable projects,,,, and they get them on sound lending principles. Still, some 90% of them can become only "at the margin" when demand changes. And typical of our human society, we all shift at once.

Truly, my friend, bank loans often fail because human events change the course of money dynamics,,,,,, and it does so in a way that is beyond the vision of any lender. Be the lenders you, me or a group of people as a bank, large portions of deals go bad just as much from human affairs as from "over lending".

-------------------
ORO:
You are obviously right. However, the hare brained schemes and late stage boom time borrowing - particularly those of monopolies blow up into a balloon that is much larger than possible in free banking and results in stagflationary disaster that would never have occurred in free banking.

The bottom line here is that the new money does not change the available resources, but is does change the allocation of the resources. It takes resources away from the markets as a whole and puts them at the disposal of the banker's failed investments. The lender of last resort reduces the responsibility a bank must exercise, increases the proportion of resources available to the bank and its corporate clientele, and then spreads the pain from the captains of perpetually sinking Titanic Industry to the public at large.

The key "people" dynamic is this - holding depository receipts and fiduciary trust are difficult assignments. Few can withstand the temptation to make use of the client's moneys for ulterior purposes. The institutionalization of fraud is not the solution to it.

The supposed need for flexible money would have showed up in the markets during any of the short periods of history where government and bankers did not help each other to our pocketbooks. It never happened.

This leads to the point of the discussion of what it is that people want. The broad public would be happy to have debts erased overnight, but that would not make anyone's lot any better. Why? Because the income freed from debt service would be going into the purchase of goods - raising the price of everything so that the same amount of consumption would be available. More money does not mean more purchasing power, just more zeroes in your account. This is an ancient observation that was well formalized by David Ricardo and taken into the Austrian School's thinking. People know this. The popular support of currency inflation happens to correspond with the generational shift from maturation to middle age when paying down debt and saving for retirement ends up with the preference for getting rid of debt taking precedence. However, it comes out of the hides of everyone else.

Trail Guide:
After all, the entire economic structure of the world is nothing more than people dynamic ,,,,,,,,, in the long run it's just too risky to bet ones physical gold on (huge smile)!

ORO:
This is not the case, gold is not holy, it is money. Like the wealth that it represents it has a time value and the risk of gold lending are not different from the risks of lending in other monies (currency). If the risks were so much greater, the interest rates on gold loans would have been higher than those on currency loans. Both nominal and "real" interest rates on loans are much higher on the floating currency debt relative to the rates charged on gold in the pre central bank period of the US and during the gold standard period with the central bank.

Gold is what any lender would prefer to have as the denominator of debt. The borrower would like to owe the sleaziest money - if the interest rates are the same. Well, the interest rates on sleazy money are much higher, and are significantly higher than necessary to compensate for the currency risk.

Trail Guide:
Yes, our present financial system gives the impression of total insanity,,,, but we are looking at the very "end of the timeline",,,, not how it began. It all starts with the very first loan and progresses until everyone has borrowed "too much", but no one wants the music to stop. Last resort lenders then become the norm because society will lose "across the board" if everything is "marked to the market". It is not a circle (smile) as it starts and ends with the currency system (gold or fiat) everyone demands to borrow into. It all ends in the shared pain of debt collapse as the debt is discounted to zero from price inflation ,,,, even if it's based on gold ,,,,,, gold that cannot be returned. Not much different from our present gold loan structure.
We will move on to the next money system when this one ends.

ORO:
"It all starts with the very first loan and progresses until everyone has borrowed "too much"," - This is not the progress pattern of free gold banking. There, the reality of competition causes the over-leveraged borrower and his bank to fail quickly. The cycles are short and the market metes out punishment in proportion to the idiocy of the failed projects. "Too much" borrowing is quickly stopped. And the preference for going into debt is much smaller because of the absence of the benefit of price inflation.

The pattern of free gold banking is different in that the leverage is limited by the market dynamics and it can not blow up in this way. That is the social preference. Bankers and governments lacking for popular support use the central banking structure for the purpose of allocating our resources for themselves.

"Last resort lenders then become the norm because society will lose "across the board" if everything is "marked to the market"." The lender of last resort only serves to make sure the loss is spread "across the board". Markets do differentiate between the good and bad debtors even in the throes of this kind of "mark to market" event where debt implodes and currency printing is initiated with the purpose of stopping the implosion

In the next iteration of the monetary system it would serve well to have the central banks closed and the bank regulatory bodies chopped up and done away with. This is the only way to prevent losses to "society" at every stage of the boom and bust cycle.
---------------------

Trail Guide:
If it were gold we started with? The banker would lend his gold only to find the same metal returned to his bank as a new deposit. The "society at large" would remove his franchise if he did not re-lend that same gold during "good times", "booming times" no less! Round and round the gold goes. Reserve lending hits it's limit and society demands the limits be raised again ,,, and again ,,, and again! Lender of last ,,,,,, or not.

ORO
Again, it is not society. It is a small group of bankers and a government bureaucracy coming to an agreement to maximize their returns at the expense of everyone else. Society does not condone theft from itself if it understood that theft was happening.

Trail Guide
In our modern world we must remove gold from the official money system, place it in a free market and people will use it as wealth money, not borrowing money. Then the fiat can come and go as the wind! Yes?

ORO
I disagree strongly.
1. Without gold (or whatever other money the markets may prefer) as denominator of debt at some point in the system, there would not be any way to prevent constant and severe currency depreciation. A pure debt money is very unstable. The central bank makes it more so.
2.
The best result would be to remove the "official" designation from the financial markets. No more government deals with banks to thieve the resources from the public.
3. The use of gold in debt would not disappear even if it were made illegal. There would have to be a tie between gold and the debt money.
4. Surely the Euro structure belies the intention of keeping gold within the "official" financial system.
5. The debt free gold system you imply would be good in the eyes of the biblically minded, but has no basis in economic principles.

Finally, there is this thought that democratic government is somehow different in motivation from its predecessors. The democratic model is just as easy to use in burglarizing the public as any other. The only structure that prevents or delays this is a strong constitutional backbone to the structure of government that eliminates the legal loopholes a government could use to bilk the people.


Trail Guide (02/15/00; 05:57:35MDT - Msg ID:25376)
Freegold

Cavan Man (2/14/2000; 20:00:09MDT - Msg ID:25341)
To Trail Guide
I think I am beginning to understand.
First of all, if the gold price is freed from the $USD, monetary discipline will re-assert itself relative to all fiat currencies.

Hello Cavan Man,
You write my words:

-----This one sentence of yours tells me quite a lot; "In our modern world, we must remove gold from the official money system, place it in a free market, and people will use it as wealth money, not borrowing money. Then fiat can come and go as the wind."----

TG:
The above is my point in it's most simple form. I word it this way in an effort to engage ORO in one of the many aspects of our modern gold world.

------Second, fiat currency is for convenience only and is now truly represented in proper context for all the world to see; all of its weaknesses and limitations are manifested in the relationship between a particular genus of fiat and the POG. If it can come and go as the wind then truly, one should hold equity and wealth in gold and not fiat; exposure to the medium should be minimalized as is prudent.-------

TG:
In it's most basic form, the beginning concept of gold money saw it as only one of many wealth items people held on their shelf. We traded anything and everything back then,,,, as all wealth was tradable money. Gold became the dominant circulating wealth money because of it's many unique qualities.

-------Third and perhaps most importantly, the personal gold standard that Aristotle speaks so eloquently of from time to time still continues to assure an individual's right to and desire for honest money. A personal gold standard in the context you espouse will and should encourage and promote the realization that gold is indeed the money and wealth of the ages. Gresham's law will keep fiat relegated to a small percentage of one's net worth as it is mine now.-------

TG:
Somewhat yes, CM! We can trace gold's first troubles,,,,,, back to when it was made an official currency that one could borrow and lend. This entangled it into the human emotions of fraud and cheating. I don't dispute (and completely encourage) the fact that real gold,,,,,, stamped into coins and circulated as such,,,,,,, is the correct form of world money. The problem comes in that "modern society" (as opposed to perhaps 19th century society) will never let an official money just circulate without manipulating it.

If gold is the only currency in circulation (in paper or coin form) our modern world demands that we borrow and lend it to service human functions. In this realm, we have and do change it's true format as our stress requires. However, if gold can circulate in coin form ,,,,, and trade on a world
physical freemarket,,,,,, without legal tender status,,,,,, it will become a perfect background currency for all mankind. Let the various governments stamp it as they now do in Maple Leafs, K-Rands, Eagles,,,,,, (especially relevant are the old world gold coin long in circulation prior to these modern ones) even call it "non binding Legal Tender" or place a ficticious low LT price on it. But, most importantly destroy the banking aspects of gold and let it all trade for physical settlement only.

In this ages old format, it evolves backwards into a wealth asset that once again projects all the fine qualities of circulating real wealth,,,,, and does so without the entangling alliances of contract legalities inherent in a gold standard. Truly in this old format, Central Banks, governments, citizens will all be able to use gold,,, side by side with fiat currencies. In this position, any official will quickly see how "more gold" held in reserve becomes a defacto backing for national moneys,,,,,, instead of competing with them.
Of course, the relative rarity of gold will force it's currency price sky high. But, in this position, it will quickly become "the dominate currency asset" that values all other circulating fiats. This position negates the desires of society to manipulate it while utilizing it's ages old purpose of holding wealth in a way that transcends time.

We are today, heading towards the trading of freegold,,,,, and the ECB is laying the political software for it. For better or worse we will ride this river of change to the sea.

Also: Elwood, is this more clear? Read it quickly as ORO is putting on his largest boots to grind it down (smile).

Trail Guide


Cavan Man (02/15/00; 06:07:10MDT - Msg ID:25377)
ORO 25372
"Without gold......as a denominator of debt at some point in the system, there would not be any way to prevent constant and severe currency depreciation."

Regarding the type of monetary system TG proposes, isn't gold a de facto denominator of debt because, for example, the USD, heavily debt encumbered, would be found "weak" relative to POG and the Euro "strong".

Do you see this point in monetary history as an all or nothing; convert to gold standard in this transition or else? Couldn't the adoption of another fiat currency structured as the Euro is be considered a step in the right direction?

I'll stop here because I am not following you so well. Thanks.

Cavan Man (02/15/00; 06:15:47MDT - Msg ID:25378)
Trail Guide
As the US observes the "political software" you reference, could the US be building yet another (no pun) better mousetrap? I am not referring to the gold colored token that is stamped dollar (smile).


Trail Guide (02/15/00; 07:07:49MDT - Msg ID:25381)
Freegold
Good day ORO,
Because your ORO (02/15/00; 05:14:21MDT - Msg ID:25372) is on this page and easily found, I will not completely re post it.

I believe that you have still not challenged the thrust of my argument. That being:
------
Today, in our modern society,,,,,, no form of any national currency system will be left unmanaged. Be it a full gold system or a fiat system, society will expand it (inflate the currency through the loan process) or shrink it (deflation through uncontrollable stress default). As soon as the system in place bumps against it's natural or manmade limits, society will option to change those limits. Without fail.---------

You write:

ORO
Under a gold standard and the debt dollar standard as well, the existence of a lender of last resort in one substantial country will cause all international banks to lower their rates or minimum credit rating to make use of the guarantees of that lender of last resort - If they had not, the banks of the country with a lender of last resort would have forced them out of the markets during the boom. This is as much the case today as it was during the turn of the previous century.

For reference in reading the comments below, this note:
Booms and busts do occur. Debt bubbles occur without government sponsored cartels. What is different is the following:

1. Early failure. The non-central bank gold standard produces a small crash after 4-5 years of overextension. This is long before a gold debt boom made possible by a central bank and government sponsored bank cartel would have fully developed.

Trail Guide (TG):
How true! But this does not address the aspects of society control in our modern world. We will not allow any system to contract after a 4-5 year overextention. Any "small crash" today,,,,,, if using a gold standard,,,,,,would be countered with an immediate devaluation of the currency (raise
the nation's, official price of gold) so as to allow the boom to continue. Outside of that remedy ,,, and the loss of currency prestige it would entail,,,,,,, we would just dump the gold system entirely. Not my idea of sound operation, but it's what society does today.

2. The scale of debt. The natural dynamics of the free banking business is towards caution. By disabling the market's tempering mechanism (it functions through the specie money supply), the cartel can push debt to 15-20 years. The resulting scale of debt would be some 8 fold larger, because the rollover game made possible by the government cartel and the presence of a lender of last resort.

TG:
In a natural dynamic what is the greater fear,,,,,losing your banking capital or losing your banking franchise? There is no method of disabling a market's tempering ambitions. We have not outlawed fear, greed, fraud or war and conflict with each other. Today, if it's official, it's open for negotiations and rule changes.

3. The weeding out of weak business. Weak businesses are weeded out much earlier than under a central bank regime.

TG:
As above, society today has a way of tolerating it's weeds and always says "oh, let's help them out for a while ,,, it' only just these few weeds". Soon, the boom is on!

4. Who benefits. The key motive of a cartel is the elimination of competition by means other than fair competition on the merits of the corporation. The best cartel to have is that of banking. The bank cartel allows endless losses during the establishment of the cartel, until the competition is destroyed. One familiar example to the goldbugs is Barrick. Their growth through the use of hedging was very rapid, much more so than any other gold company starting out at their size in the mid 80s.

TG:
I agree! But when you have a nation that loves "Las Vegas" and all that represents,,,,,,, buys dot.com stocks and trades stock options,,,,,,they also enjoy the soap operas of these cartels. Hell, they buy into them, no less! ORO, with this mindset, no nation will tolerate the discipline of having gold as their official money. Yes, it's my loss,, your loss,,,,,,all of our loss!

But,,,there is another way! And it will politically work because it builds on the desires of this mind set, while offering an escape route. You are reading my posts, yes?

5. Who Pays. The failures of the centrally controlled bank system are swept under the rug and reappear in the form of fresh loans coupled with monetization. In the case of monetization, the "good" securities are purchased by the central bank, adding to the monetary base. The additions to the monetary base are leveraged through the bond markets and the banks into a price rise that swindles the saver of the purchasing power of his funds.

TG:
Absolutely! But, remember, this is the same format we have been using for 20 years now. Everyone shares the loss through currency inflation (not price inflation yet) as they try to jockey for position. Yes, in the end (one that is coming soon) the entire system fails and most everyone loses
totally (at least in dollar based assets). But return to gold? No they won't!

However, place gold in a format where everyone can watch it run,,,,,then they will reach for it,,,, outside their fiat world. In doing so an ages old process begins that will clean the dirty currency pipes without making laws to enforce it.

You are the best ORO! We will all hike this gold trail to the sea and see all we can see.

Cavan Man and others, later!

Thanks,,,,, gone now Trail Guide


Journeyman (02/15/00; 11:10:43MDT - Msg ID:25391)
Defending Gold: Chapter 3B, Comments on FREEGOLD @Trail Guide

What's all this fuss about? @Trail Guide, ORO, Elwood, Peter
Asher, Mr. Gresham, dragonfly, ALL

It's finally gotten through to my opinionated mind that
there isn't really that much disagreement between Trail
Guide, Aristotle, and the Austrian faction here. Although,
remember, wars have been fought over _smaller_ disagreements
-- let's be cautious; we're all on the same team afterall
aren't we?

If the people who saddled us with fiat money and central
banks by using the problems caused by the gold standard as
an excuse were lassoed by Wonder Woman's lariat of truth,
they'd tell you, "You've got the sniffles, we'll fix it by
giving you antibiotic-resistent double pneumonia -- but you
won't come down with it for awhile."

To understand why mankind regularly ends up with fiat
currencies despite the consequences, it helps to remember
the context. Since trade first developed, "political
economy" has involved continual agitation by one financier
or another (John Law, etc.) to have paper banking. In the
older days at least, the motivation was mostly for the
segniorage (profit) available from manufacturing unbacked
paper money and loaning it. Unfortunately because of human
nature, the results of unbacked paper (one form of "money
substitutes" in Austrian terminology) is boom-bust cycles of
enhanced amplitude. The busts are characterized by
"deflation," that is, major economic slowdowns accompanied,
previous to about 1970, by a shrinking supply of money and
money substitutes.

It is human nature for the paper bankers and their
government partners to want protection from competition and
from the results of their fiat behaviors. The preferred
form of protection is the monopoly power embodied in central
banks and legal tender laws. It is logical that bankers
should constantly agitate for this protection. It is
against the backdrop of this constant agitation by banking
elites that the gold-fiat dance is performed.

Inherent in this constant agitation is to "spin" all
possible events to favor your desired outcome, which is a
fiat banking cartel working through and with the aid of the
dominant government. Thus any problem which develops is the
fault of the non-fiat system and could be easily corrected
if only we could ditch that barbarous relic, gold. With
this chronic background "spinning" firmly in mind, the rest
makes easy sense.

As Trail Guide points out,

"
It's the lending of money that creates debt, be it
gold debt or fiat debt ,,,, and the failure of that
debt during a downturn is what causes the pain.
" -Trail
Guide (2/14/2000; 8:08:19MDT - Msg ID:25302)

It is indeed creation of excess money substitutes, whether
by lending, printing, or computer that enables development
of excess debt. The only reason one might want to
distinguish between gold debt and fiat debt is that if gold
debt is created through the perniciously dishonest mechanism
of printing up extra "redeemable in gold" type money
substitutes, this creates confusion between the paper gold
and the real physical gold --- and we know the trouble THAT
causes. If I'm not mistaken, Trail Guide, that pernicious
dishonesty and the trouble it causes is the main reason to
set gold permanently free from fiat??

The writing of IOUs, that is, lending, is unavoiadable, and
when done "correctly," is good. (There is "consumer debt,"
which except for rare instances is in the long run
inherently "bad," and "commercial debt" which is good or bad
based, ultimately, on whether or not it increases
productivity.) But how are you going to stop Uncle Joe from
writing an IOU and using his gold soverign as collateral?
Just as unavoidable is that there will be some bad debt, and
from time to time, bank failures and the resultant pain. I
would think we all agree that keeping this to a minimum is
desirable
.

The best way to minimize bad debt is through accountability
-- the bank and it's owners suffer when it's officers make a
bad loan. But it's not enough for them to suffer after the
fact --- they must _know_ ahead of time that they will
suffer in order to motivate them to be careful of the loans
they make. If they get too comfortable -- believing they
are too big to fail, or for that matter that the economy
will continue to grow forever (that belief is another of
Greenspan's worries)-- the "moral hazard" that Greenspan and
the central bankers speak of comes into play, and the
bankers, believing they will be bailed out, become more
likely to let their loan judgment lapse. (Banks also may
get stuck with large inventories of money they must loan out
because they must pay interest on it -- a real problem in
Japan right now.) The main source of "moral hazard"
thinking is created by so-called "lenders of last resort,"
who label themselves as such and are perceived as such by
bankers and others as well.

Failures will happen. The problem then is the size of the
pain and the time concentration of it. When banks were
individual enterprises, the pain was much more local,
affecting only the patrons of that one individual bank, and
possibly a few other associated enterprises. But with a
banking cartel, you can spread it around more. You can't
eliminate the pain -- in the long run, all you can do is
postpone it. Maybe you'll be lucky and die of old age before
the pain hits.
As Keynes quipped, "In the long run we're
all dead."
Perhaps the kids or grand kids will be the ones
to suffer.

If every once in awhile a neighbor's house burns down, the
neighborhood can help out fairly easily; if the whole
neighborhood burns down all at once there are way fewer
resources left to help with. What's more, if enough houses
burn at the same time, the whole infrastructure goes up too
-- the telephone poles, the blacktop street, the trees,
everything sort of like the fire-bombing of Dresden.
At any
rate, it's better, if burning is unavoidable, that it
happens in small increments and at separate times
- - - like
bank failures did before the Federal Reserve Act.

When you create a banking cartel, only done effectively with
government complicitly, and usually in the form of a
"central bank," you prevent the small fires but when things
finally burn, they all go up at once. This is NOT an
improvement.
Better to let the banks fail naturally in
small numbers, at different times and places caused directly
by the decisions made by each bank's officers. But remember
we have that constant background agitation and "spinning,"
clamoring for the central bank!

Of course, here would be the place for someone to argue that
a central bank, a lender of last resort, actually doesn't
just delay pain, but rather prevents it entirely.
Anyone????

"It's during the downturns that society in general will
not tolerate a full gold system because it concentrates
the loses upon their rightful owners. As such "these
same" are usually "wiped completely out" and their
fallout effects on the social and economic structure
can be widespread and very destructive to tribal life.
"
-Trail Guide (2/14/2000; 8:08:19MDT - Msg ID:25302)

Absolutely!! But what makes it so bad "society in general
will not tolerate" it is the results of the operations of a
"lender of last resort like, for example, the Federal
Reserve. The downturns are factors of 10 times worse when
you have a central bank cartel. For example, in the worst
pre-Federal Reserve panic, the panic of 1873, only 2.8% of
banks failed (and that was due, largely I believe, to the
loss of a huge gold shipment off the East Coast), while
after only 20 years of Federal Reserve operations, about
50%, that is fully HALF, the nations banks were unsound.

Some conceptualized the perceived dangers of Y2K in terms of
hurricanes. If a hurricane strikes your town, that's bad -
- if it strikes the whole country, that's catastrophically
worse. Why would you want to set up a central-bank system
that makes the nation-wide hurricane possible? Remember
that constant background pro-central bank agitation?

As Trail Guide points out, we DO want to help our neighbors
when they're in pain. This is _our_ group, and there's a
lot of biology behind this desire to help. But a bank,
especially a central bank, is part of the extended order,
and as Hayek suggests,

If we were to apply the unmodified, uncurbed, rules of
the micro-cosmos (i.e., of the small band or troop, or
of, say, our families) to the macro-cosmos (our wider
civilization), as our instincts and sentimental
yearnings often make us wish to do, _we would destroy
it
_. Yet if we were always to apply the rules of the
extended order [trade with those we don't know face-to-
face -j.] to our more intimate groupings, _we would
crush them
_. So we must learn to live in two sorts of
world at once. To apply the name 'society' to both, or
even to either, is hardly of any use, and can be most
misleading (see chapter seven)." -F. A. Hayek, _THE
FATAL CONCEIT The Errors of Socialism_, (Chicago: The
University of Chicago Press 1988), p. 18.

The bank treats us, not as part of their "small band or
troop," but rather as part of their "extended order" (and
rightly so) when times are good ---- we'd better pay up or
there goes the ranch. But when they're in trouble, they
want to be bailed out, treated by us now as if they were
part of our small band or troop, or now that they're really
big and might cause the whole neighborhood to burn, treated
as "too big to fail."

And who are "the rightful owners" of the debt who are "wiped
completely out?" As it turns out, the people hurt most, the
people who's pain the elites want us to share when banks
fail aren't necessarily our poor neighbors, aren't by any
stretch members of our small band or troop:

A poor man never gets to be a big debtor. Only a rich
man, or a man with a reputation of being rich, can get
into that situation. . . . . it is more than doubtful
that the "creditors" would prove on the average to be
richer than the "debtors"; it is much more probable
that the relationship would prove to be the other way
around. " -Henry Hazlitt's March 1959 introduction to
Andrew Dickson White, _Fiat Money Inflation In France_,
(IRVINGTON-ON-HUDSON, NY: THE FOUNDATION FOR ECONOMIC
EDUCATION, INC. 1959) pg. 13 & 14

There's nothing wrong with being rich or a big debtor -- but
if you lose big, that's YOUR problem, unless you're part of
my small band or troop and I _voluntarily_ decide to help
you out.

Clearly the answer for everyone is don't allow all that
background agitation to force us to facilitate bigness with
government-central bank monopoly cartels. Thomas Jefferson
understood this, as did Andrew Jackson. Both men put their
presidencies on the line to stop the particular elitist
central bank movement of their historical melieu because
they understood both the agitation for these central banks
and the results should they give in to it. Keep 'em small,
then they'll make better decisions, and if they do burn, it
won't destroy the whole neighborhood.

If we have small local pain, distributed over time instead
of broad local pain all at once, it also won't be so bad
that we have to go to war, etc. to overcome the effects.

As for legal tender and the ultimate price for gold, should
we go back to redeemable gold, well, $30,000 gold is not
unthinkable for those of us here who have followed FOA.
Actually, it seems to me there is only a relatively very
small difference between what Trail Guide sees and what I
see.

Without going into detail here, I believe a natural
evolution from having a parallel market in gold will be full
free gold banking and the appropriate price for gold.
Especially with internet commerce and encryption, there is
no way to prevent this. Legal tender will become irrelevant
and die.
Yes, dragonfly, trust IS important, but it'll
happen. A post for another time. When I finally do it,
look for "NEWS FLASH: Journeyman disses Yogi Berra and
Climbs Out On A Very Thin Limb.

Regards,
Journeyman


ORO (02/15/00; 16:45:38MDT - Msg ID:25407)
Journeyman and Trail Guide a summary of sorts
Journeyman, I am in complete agreement. Which brings the question of what it is that Trail Guide's friends have up their sleeves and why. Also, what is it that would actually happen in the short and long run. So far as the ultimate end, the technology that made government and banking capable of excercizing their mutual power has been outdated long ago and the new technology will bring us back to a commodity money free banking system.

The balance of power has been slowly shifting to the free markets since the mid 60s. The emergence of NASDAQ and the automated financial futures markets in the 70s has made it possible to circumvent the traditional Wall Street and City of London Houses. They dismantled the costly regulatory structure that enforced their gentleman's agreements on the splitting of the financial markets among them. This was motivated by the understanding that a far more efficient electronic system would completely circumvent the grand old Houses and the governments with which they share power. The preservation of the Houses' market positions and the power of government control was not a possibility because the difference in efficiency between the automated free access systems and their own was great enough to withstand any legal intervention by the government - the discrepancy was as great as that in the drug trade.

Bankers had to undo the regulatory infrastructure that prevented them from competing with electronic systems, and once dismantled the bankers were capable of participating in the electronic economy, making up the lost fees with increased interest income (see transition of "real" interest rates from 0 and below to over 3% in the period 1976 to 1978 where these rates have remained) - at which point the dollar system was firmly reattached to gold - though well hidden from our eyes.

The electronic systems will carry the day.
Eventually they will switch to a free gold banking system because the fraud of the bank-government-Cabal's fiat money system leaches too much from commerce, and now that electronic free markets have no barriers to entry left, it is on the verge of total collapse. Whether the Cabal survives or not turns on Cabal member's acceptance of the reduced position left to them. So far, they have attempted to stretch their current position as far as possible - and then some. They are taking what they can out of the current structure and massively moving their holdings of old and new economy corporaitons onto an unsuspecting public full of enthusiasm. A last effort at one more fleecing of the flock.

Trail Guide - you obviously understand the issues as they are, yet you claim that there is a "society" willing to take upon themselves their own fleecing. Obviously, you include government and banking as part of this "society", and point out that they had in the past, and still have the upper hand and will be able to impose their fiat money on us for the foreseable future. You are arguing that the fiat system is unresponsive to the fact of its own inefficiency reducing long term growth by an enormous margin - by half as far as I can calculate the effect. Alternately, you are making the argument that the system does not reduce efficiency but is necessary for growth.

I know that the fiat system is not capable of increasing the growth of output. It imposes a transfer of resources from producers to government, banking, and related interests and reduces the resources available for producers to further produce and for the global community to raise standards of living.
The fiat system is a negative sum game and the free economy is a positive sum game. Their connection together produces less wealth than is possible without fiat.

My position is that society and the Cabal members are two wholly different things. Furthermore, I think the Cabal members are enjoying their last season in the sun and will come out with "gold burn" and heat stroke.

Trail Guide, your friends seem to have proposed that (their?) fiat game will continue in parallel to a free gold market devoid of debt. That sounds like a different Cabal structure - one who's participants would be Continental European banks and the Arab Oil interests. I will say in this context that without the gold debt system remaining in place, the Arab Oil interests are going to lose out on at least two thirds of the potential purchasing power of their gold, and up to 90% of it because demand for gold as active exchange money (in electronic form, of course) is far greater than demand for gold in the role of wealth money.

Your friends, Travel Guide, may have found a way to compensate by creating a gold bubble mechanism through the Euro gold backing and the marking to market of their reserves coupled with their active purchase of gold from the markets to raise the price to where it would be had gold actually been in use for exchange.

Cash gold only and pure debt money

The separation of gold from the debt markets can't succede without government intervention on a coordinated global scale. Even then, success would be limited as hidden gold denominated debt would still play in the markets.

Second point. The pure debt money is a self destructive mechanism. Without the lender of last resort it would periodically self destruct - probably in 4-5 year growth intervals followed by 1-2 year crashes. The lender of last resort coming in may extend this to 15-20 years with a complete crash at the end.

The system would not be suggested by your friends without a "connector" - a financial equivalent to a wire - to connect the debt money system to gold through a means other than exchange. The Euro reserve structure seems to provide the connection. If it turns into a fully gold backed reserve and debt instrument, which you indicate is part of the planned deal, then the Euro, as the future denominator of debt, would provide an emulation of the gold debt system. If it does not provide this function it will fail within the decade. If it does perform the function of translating the debt money into gold debt, it would follow the traditional pattern of cycling with 15-20 year upcycles punctuated by inflationary (or deflationary - less likely though) downward slides of 5-10 years in a Kondratiev like 50-60 year cycle that ends with collapse.

Since the ECB is intended to continue the role of lender of last resort and provides a link to gold denominated debt, it would necessarily be used for the construction of the next financial bubble. It will continue to attempt to tax the world for the benefit of the EU government structure and the bankers that attach to it.

The electronic shift

The one big difference for this go-round of the fiat game is that the transaction costs of free gold banking were lowered so far down by the electronic technologies, that the only way for the system to prevent free gold banking from emerging is to constantly keep gold rising relative to fiat - this would provide a perceived gold interest rate cost (expected gold appreciation + gold interest rate) higher than the interest charged by the ECB centered banking system (expected Euro depreciation + Euro interest rate). This would eliminate most of the potential volume of gold debt, but also eliminate any useful purpose for the holders of cash balances keeping funds in Euro denominations. The result is very price inflationary during economic growth, and hyperinflationary during slow growth. Considering the German distaste for inflation, I don't see them doing this.

The remaining option is a "public service" type gold reserve system where the ECB functions as a lender of last resort only during disasters, and does not allow either government or the banking cartel to make much use of the potential benefits of their credit monopoly. Thus it would be eliminating the bulk of the motive for the existence of central banking. Would the ECB not be subverted to the interests of bankers, would it allow 1-2% of banks to fail every 5 years? Or will the public service be subverted, as it allways had, to the wishes of bankers and governments to steal the wealth of the global public at large?

Under this latter structure we would be using the Euro as mock gold depository notes that could trade at the 1% (probably no more than 2%) to 5% premium to private gold depository accounts and specie that simillar arrangements had in the past. Would the ECB and its banker partners be happy with such a measly return? Would they do it this way unless they feared a private free gold banking system would supercede the centralized banking system?

Trail Guide, could you put together a summary saying - which way do you think they are going as far as mechanism (ref the options above)? Who are the players pushing for these decisions? What do they expect to get out of it?

The ECB is not structuring the Euro system to be a pure debt money. This means that the Euro bridges into the gold markets. So though debt would be denominated in Euro, Euro would be denominated in gold - leaving us with the same gold debt mechanism we have allways had?

Again, thank you for your outstandingly stimulating discussion.


Elwood (02/15/00; 17:16:05MDT - Msg ID:25410)
These Debates = Awesome!
Truly, my friends, it is not in the footsteps of giants we walk but in their very presence we stand!

Thank you, Trail Guide, ORO, J-man, Aristotle and ALL. Special thanks to MK for hosting such a thought provoking forum.

Elwood




dragonfly (02/15/00; 19:42:42MDT - Msg ID:25422)
Who we are
The discussion of late is quite stimulating. It is touching on such fundamental questions about what our 'society' actually is and how it best functions and survives. This notion that the pain must be shared in order to avoid a greater pain, if I understand correctly, seems odd to me. Maybe it is often the case that when elites get burned they get nasty (certainly true of most managers I have known - stretching the e word to absurd limits) and enraged enough to create a new order out of the wreckage of war, essentially an infantile reaction not much different in emotional content than a temper tantrum, albeit a deadly one for many. But should that understanding inform our actions and beliefs? Should fear of devastation overrule committment to the deepest principles that men and women have discovered as useful and productive in the pursuit of life and happiness? I think not. If the elites of this world have not become bored with their own antics by now maybe it is time that the many individuals who are just turn away from them. IMHO the solutions to all our many problems of living together on this planet rest with individuals not tribes. I know when members of my own family are wrong, occasionally all of them at once, and I do not stand with them in their error. Not for family, not for money, not for anything does a man give up the truth as he knows it, save the realization that he is wrong. When people can stand and brave the energies of living, without elites, then they can be free. This is available to each and all at any time and at all times. This is as true in a dungeon as in a castle. So, while I would admit that much of the "tribal" logic is historically accurate, I think it is a symptom of something else. More later.

Journeyman - msg id 25391
Enjoyed your post


ORO (02/15/00; 20:13:15MDT - Msg ID:25426)
dragonfly - who they are
It is pretty well established that what floats to the top is not what makes for a great elite class. If Pres. Jackson had any sense he would have charged the whole of wall street and the leadership of both parties with treason - conspiracy to overthrow the constitution and the lawful government of the USA. That he was the one who ended up facing congress in trial for trumped up charges tells much of the story there is to tell.

TPTB are not in anyone's favor but their own. Their political flavor changes with their view of what they can get out of each policy package. They will set up a Soviet Union just as quickly and easilly as they would bring down the dictator of a pea size republic in the Carribean. They are, fortunately, not always in agreement within their group, and some of them must recognize that if the world government their political arm has in mind actually comes into being, they would be among the first to be "disappeared".


Cavan Man (02/15/00; 20:16:27MDT - Msg ID:25427)
journeyman 25391
Enjoyed your post also. You might have a new fan.


Continued on Page Three . . . beginning with:

Trail Guide (02/15/00; 20:36:44MDT - Msg ID:25428)
Freegold
(etc.)



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