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WELCOME to an Archive of a Very Special Monetary Discussion! This discussion took place beginning 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. This discussion also provided the context in which ORO (02/11/00; 13:59 - Msg ID:25019) reached special acclaim with qualifying nominations for induction into the Hall of Fame from his fellows. Where this assembled discussion ends, please feel welcome to explore the continuation of this theme in the Forum Archives for the following days, or else add your own thoughts by posting a new message to today's discussion. Enjoy! [Click here for Part Two or for Part Three]
Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589)
It begins!
-----* Executive Summary -- an Outline of Observations *-----
*** Any monetary system
that attempts to coin Gold, or otherwise use Gold as currency
will naturally give rise to banks -- for security and quality
assurance if for no other reason.
*** History
reveals time and time again
that this seemingly "perfect" Gold-only system naturally
evolves
into fractional-reserve lending
because it is what the people want.
((i.e., People want to consume or to own now that which they have not yet saved enough to purchase outright. They are willing to mortgage their future productivity in order to have their house today -- they seek sources of loans. Meanwhile, those that already have a quantity of money are seen to seek a source of income from their wealth...and banks come to be actively sought and employed by both sides to act as the middleman.))
*** While lending depositors' deposits, the efficiency of banking to reallocate fungible funds allows many people to behave as though they all are "owners" of (i.e., have access to) the same original quantity of deposits.
((i.e., The bank uses its available, unlent funds to satisfy any depositors' requests for withdrawals rather than the alternative of reminding them that the funds are temporarily unavailable -- because in order to earn interest, the bank lent the money out, as per their agreement.))
*** Through lending (coupled with the phenomenon
described above,) the artificial (i.e., man-made) increase in the money
supply erodes its per-unit purchasing power.
*** A growing economy (complete with rising prices from
a "softer" currency) raises the customers' demands upon
the banker's art of money creation, widening the gulf between
here and reality...between the vast amount of banking credit and
the small original amount of real wealth-deposits upon which it
was all built.
*** Because
Coin and bank-credit circulate as equivalent, interchangeable
currency and means of payment,
the value the currency-unit, regardless of form (Gold coin or
paper,) falls in accord with the growing supply of bank-credit.
((i.e., The many accounts filled with bank-credit "money" gives rise to the wealth-effect built upon the perception of abundant funds. This pressures prices higher and puts the effective purchasing power of the currency-unit severely out of balance with the proper and natural purchasing power that should otherwise have been enjoyed separately by the small quantity of real Gold on hand. In practice, this renders the metal used in the under-valued coins into little more than an artifact of "the good ol' days when things were cheaper."))
*** Thus, when the value of the coin comes in time to be viewed as merely a representation of the abundant supply of credit-money and thereby fails to reflect the value of its metal, from a practical standpoint it might as well be made out of anything at that stage.
((i.e., If a paper dollar can circulate at par with a Gold dollar, and the purchasing power of both is equally dictated by the supply of bank-credit money, then why incur the expense of minting token coins out of Gold??? If simple durability is desired, then copper or nickel would certainly be capable to represent the currency's function every bit as well as the paper does. Therefore, avoiding the expense of Gold in the production of currency for circulation would easily be seen to be an act of prudence, whether the value involved is 1¢ or 100 dollars.))
*** In this progession, the developing concept of
"money" gradually loses its originally-perceived meaning
along with ties to real wealth; it comes to be built upon
the thin ice of confidence and good loan/counterparty performance
through the banking system.
*** Fixed
Gold Convertibility as a
currency of the credit on account looms large as a threat to the banking
system.
((Keep in mind that it is through natural human activity that banking evolves into an important system for much of society, built by a population that has come to depend heavily upon it. Therefore, a stage will always arrive in which the fixed Gold convertibility in the shape of circulating currency will be purposefully abandoned. It is done to preserve "lifestyle as we know it" in the eyes of those people living at such a stage in a currency time line.))
*** What then is the role for Gold? Gold qualifies
as MORE TRUE than money. Among the many national currencies, only
Gold in physical form fills the three standard monetary
criteria (store of value; medium of exchange; and unit of account)
without *WITHOUT* the associated risk of default. Gold, therefore,
remains the ultimate, sovereign king of them all and subject to
none... as long as it isn't attached in any official capacity
to the fate or fortune of any one of them. Therefore, the monetary
system architecture must be such that Governments find no temptation
-- that they are unable to derive any benefit to their own situation
through any efforts to "keep a lid" on Gold.
*** Gold
must be set free to float,
seeking its proper value among the world of circulating currencies/monies;
preserved as a unique "international currency of wealth"
that may NOT be lent (because lending effectively causes a perceived
increase in its supply and corresponding decrease in its purchasing
power, as outlined above.) Gold must only be bought and sold outright, and
must remain free of the attachments of any and all financial derivatives.
*** All people, regardless of nationality, must be
free to exchange their national currency for Gold at prices established
by an open physical Gold market.
((As I've said before, any system in which a person is denied the liberty to own Gold as a form of savings is both financially and morally bankrupt.))
How will this work, you ask?
*** An extention of Gresham's law predicts that the world's supreme currency, Gold,
will not actually circulate in the conventional sense. Gold will be saved (and will appreciate in value absent
the lending/leasing of it for interest,) while national fiat currencies will circulate
under the needs of the economy.
It is these national fiat currencies that will continue to satisfy
the demand of borrowers for loans. National fiat currencies will
also serve as the means to satisfy the various governments' unrestrainable
inclinations to "manage" their economies to the extent
that they are able. They, too, will hold Gold in savings (reserves)
for the same reason we do.
The supporting chapters are to follow in this commentary -- "Building
the Perfect System by Capitalizing on Gresham's Law"
Aristotle (2/7/2000; 8:10:15MDT - Msg ID:24593)
Building the Perfect
System by Capitalizing on Gresham's Law
At first cut, people fall into
one of two categories: 1) those who recognize the value of an
honest monetary system built upon Gold, and 2) those who have
not yet given any serious thought to the matter. Proceeding with
the small but special population that belong to the first category,
my own experience has revealed them to be inclined toward idealism.
Good people, to be sure -- I wish we were all that way! But while
their general awareness of what makes for a more perfect world
should be providing them with fuel for an enjoyable life, instead,
this level of idealism often blinds many of them to any shades
of gray -- and there is little comfort living in a strictly black-or-white
world. I write this with hope in the off-chance that it may help
provide a source of comfort to this small group of idealists,
offering them some subtle shades of gray that won't completely
undermine their idealistic integrity.
While reaching out to my idealistic friends, I also hope to present
a "roadmap of thought" for that larger, all-important
population which falls into the second category mentioned above
-- those that have not tapped into a more thoughtful, enjoyable
life which I have seen to be the general hallmark of my few Gold-minded
friends (the ones who have themselves avoided the extremist idealistic
trappings.) Why do I call this second category the "all-important"
population? Because the Many do indeed dictate the terms under
which the Few must also live. I must, therefore, grudgingly devote
sufficient attention in this commentary to ensure some of the
idealistic readers can see this important "shade of gray"
regarding majority rule. It is my hope that they will then be
prepared to pragmatically accept the terms/constraints under which
this *perfect monetary system* must be designed.
In this commentary I shall attempt to clearly lay out what I feel
this "perfect" monetary system to be -- the *perfect*
system for a consistently imperfect world, that is. I am not so bold as
to think that the world of human ambition and disposition is something
that can be altered to suit the perfection of our preferred (Gold
coin) currency's characteristics -- especially the limitations
(fiscal austerity) it imposes on its users, the population at
large. I therefore resolve
myself (and hope you do, also) to the humble thought that our
currency system as a whole might be artfully developed
into a state of harmony with the world in which we do live. The
present system, and all failures before it, have been as square
pegs in round holes. With the system to be described, I hope to
avoid any
system that lends itself to the repetition of past abuses and
failures.
The Stage Has Been Set; Let the Play Begin...
Those familiar with the popular discussions of monetary thought
will recognize the common plea of the idealistic Gold advocate:
calling for a return to a 100% fully "backed" and convertible
Gold standard currency system. (As if that were somehow the magic
pill to cure all that ails us.) The solution is not so simple,
and to believe so is tragically naive black-and-white thought.
For confirmation of this, look to our past where you will surely
see a familiar world, populated with people that were motivated
by the same thoughts that motivate us today. In "their"
world (fundamentally the same as ours) we have already had a convertible
Gold Standard, but, in fact, history reveals that it did not work.
Or maybe more correctly stated, modern times reveal that it did
not SURVIVE. To be sure, any conceivable system might be seen
to work well for a limited span of time--and indeed, history paints
a vivid landscape populated by many currency creatures of various
lifespans--but true success is determined by who remains to answer
the daily roll call. HOWEVER,
from where we sit we can gain important wisdom in the observation
that, despite the overthrow of the Gold Standard regime, Gold
remains an unparalleled reserve asset; carefully weighed, numbered,
cataloged, and stacked, resting well-guarded within central bank
vaults throughout the world--unmatched in financial staying power
even as all else fails.
Having acknowledged this history, there is no point in rashly
calling for us to repeat the mistakes of our past. The problems
that killed a fully-convertible Gold Standard back then are still
with us today. But take heart. The problem was not with the Gold itself. The problem was with the Gold Standard's
fit with the prevailing banking/financial "System."
If we objectively
face the cold hard reality, we realize that we can't very well
live with the lack of either one. But paradoxically, history shows
us that the two cannot sustainably coexist--at least not under
the various system-designs tried in the past. In my usage here, the "System" refers
simply to the dynamic interaction between a currency and its users
within the context of evolving economic demands for development,
commerce, and banking. (Even to the extent of self-destruction,
the System is notoriously good at giving the people what they
want.) It is the subtle changes to that system that I hope to
spell out, revealing not only how Gold can survive society's preference
for the current self-serving System, but also how the System can
tolerate/survive the discipline of Gold. In fact, the diametrically-opposed
System will not only survive in the face of Gold, but will actually
be made more functionally viable by Gold.
Now that you see what we are in for, it seems appropriate to launch
my endeavor with this quote from John Kenneth Galbraith: "Most
things in life--automobiles, mistresses, cancer--are important
only to those who have them. Money, in contrast, is equally important
to those who have it and those who don't. Both, accordingly, have
a concern for understanding it. Both should proceed in the full
confidence that they can." It is in the spirit of that
assurance that the playing field has been made level for a such
a Little Leaguer like myself that I shall embark on this attempt
at passing along my own view of the monetary system. We are told
above that everyone should share a common concern for understanding
it. Actual experience reveals that few people can muster a basic
tolerance for any meaningful dialog on the subject (money.) To
be sure, they can be seen to talk at great length on the various
schemes for making more of it, but not a word is to be had on
the design of it. For that reason, I am thankful that USAGOLD
provides this dedicated roundtable of guests to serve where the
general population fails to pursue this line of monetary discussion.
Before I go further, I must confess that the map I see before
me for the proper delivery of this presentation reveals a path
I nearly fear to tread. (Although this view may not match theirs
precisely, I have been encouraged to see that some of these same
thoughts have also been touched on by PH in LA, FOA, Solomon Weaver,
Journeyman, and ORO, to name a few that come to mind. They are
seeing the shades of gray.) As I've already hinted, it will likely
go against the grain of thought among the staunchest of Gold advocates. But hopefully my long pro-Gold track
record will buy me their indulgence as required to read and absorb
the thoughts contained in this post with some remnants of objectivity
rather than outright dismissal. Herein lies the thorn: for the
reader to have any hope of finding merit in this commentary, he
must admit--even if only temporarily--that fiat ("paper")
currency (i.e. dollar, euro, peso, yen, etc.) is not "completely
worthless"...regardless of the enduring popularity of that
notion among Goldhearts. Please bear with me; I'm sure you'll
like the ending--even if you've already decided that you don't
like this ominous beginning.
It doesn't matter who I am, but...
A brief introduction may be called-for to help you to better understand
my position, and thereby evaluate whether or not my own thinking
behind this commentary is clouded beyond the best attempt on my
part at objectivity. So, who is Aristotle? You will know me better
for my actions than from any other detail. I seek to recognize
both the benefits and the failings of our existing monetary system,
and strive to live life for full enjoyment in accordance with
each. As such, you should be made aware that I already live "in
tune" with what I am about to describe as the perfect financial
system within an imperfect world.
I fully realize that I live in a world of fiat currency. Specifically, mine is
a fiat dollar world, though not by my individual choice. It's
what the majority wanted and dictated, and it's beyond any of
us to deny its existence and credibility. Recognize that, and
recognize also its failings, and you are poised to enjoy the best
life you can possibly muster. Fail to recognize either side in
this day and age, and you are either shorting yourself now (by
somehow feeling miserable that paper dollars actually work,) or
you will be shorted later (by the inevitable rude discovery that
paper dollars weren't quite as good as Gold after all.) I comfortably
walk the line of this understanding that dollars work for a purpose,
but are not as good as Gold.
I live and work in the real world of fiat currency--there is no
point in trying to be circumventive about it. As I work I am paid
by others with fiat currency, and I quite happily pay my own bills
with fiat currency. I manage my expenses responsibly, and so there
is always some fiat currency left over at the end of each month.
This I exchange for Gold without fail--to serve as my savings
for a later time. No
doubt this arrangement will appeal to you in equal measure with
your understanding that Gold is the ultimate money; with your
sense that it won't/can't be manipulated into extinction; and
with your appreciation for the notion that a person, on average,
can produce over a lifetime more than he consumes. That final element should also hold
true for a group of people (such as a nation,) and no magic of
accounting can alter that long-term necessity. Establishing a
reliable "accountant" for your life's period of productivity
should be enough for any honest person, and Gold serves that role
better than any other. I believe those who share this view are
among the fortunate few that are ahead of their time--even as
the world is rushing to catch up. This will be clearer in time
as I explain.
Greed is the one trait that would preclude the successful enjoyment
of this present position--a position one step ahead of the following
financial evolution. It is a trait that I thankfully find myself
lacking--perhaps due to deficiency of imagination. Greed (and
arrogance too, I suppose) would entice one to attempt to capitalize
on investment leverage and timing of the markets to maximize their
gains for the precise day that the world awakens to a new reality.
I am far too dull-witted to know the unknowable, so such a strategy
of leverage and market timing is prone to unfold as a spectacular
failure. Also, I find life to be full enough without the added
burden of losing sleep at night worried about such risky investments.
Only through the virtue of patience--in the understanding that
we are for this historically brief time one step ahead of the
world--will we find in the end that we are among the few who participate
in the rewards of a world that suddenly wants to be where we already
are. Hopefully this doesn't strike you as the rantings of an irrational
star gazer, so with that view of the author let's now move on
to the heart of the matter.
Aristotle (02/07/00; 10:52:39MDT - Msg ID:24602)
Part Three -- A Test
of Your Monetary Maturity
The vagaries of the economic
process in the real world make it infeasible to give this matter
a comprehensive treatment in this format (nor would I be mentally
capable!) so of necessity I will only build upon the most fundamental
core principles throughout this commentary. With that caveat out
of the way, let's tackle this fiat currency issue right now so
that we may sooner breathe a sigh of relief that the bitter pill
has been swallowed and that recovery is at hand. How often have
we all rallied at one time or another around the Goldhearts' battle
cries: "The Fed (or banks in general, or government) simply
makes this fiat currency from thin air!" "Fiat money
is worthless!" "Fiat currency is the Fed's (or banks',
or government's) tool to keep the poor man down." Well, a
cold hard reality is that contrary to this line of thinking, while
I do indeed fit the description, I certainly have not been kept
"down." Have you? Further, and directly to the point,
fiat currency isn't "worthless." Have you ever tried
to buy anything with it? Did you succeed? I'm sure that you did,
so what does that lesson tell you? As a general rule, a person
rarely gets "something for nothing." Therefore, the
fiat currency must certainly be "something,"
and that "something" can't BE worthless.
There is a subtle but important distinction here between being
"nothing of value" versus being no *thing* of
value. A dollar (or any other fiat currency) is certainly no longer
a *thing* although it once was (back in those days of yore when
it was defined as a certain weight of Gold.) But it does in fact
have value--a value it finds in measure of the success with which
it retains the original Concept of value it represented at the
time of its origination...at loan creation. This "Concept" is built on
a unit foundation of arbitrary size, to be sure; and there can
be no doubt that this remains a fundamental weakness for it to
serve properly as money (medium of exchange, store of value, and
unit of account.)
Nonetheless, the value in any given currency-unit originates in
the terms of the loan contract in which the borrower has promised
to repay these units of currency to the lender. And while it seems that
these currency units are indiscriminately created out of thin
air, each of the many trillions in existence today were created
through the joint cooperation of a lender AND a borrower. It takes two to tango. Want to find
value in a dollar? Simply track down a new homeowner who toils
each workday to pay off his mortgage. (Is he *evil* for borrowing
money from "thin air"? More on this later.) It's easy
to convince yourself that people will provide goods or services
in return for dollars--either because they themselves are in debt
and in need of the currency to repay their outstanding debts,
or else because they believe with near certainty that these same
dollars will be useful to them as a medium of exchange when they
encounter somebody else who is burdened with outstanding debts.
A Commonly-stated Problem With Fiat Currency
All
in all, the system works about as well as any other manmade thing.
Unfortunately, taken as a whole, dollars retain their original
value only as reliably as wage-earners and price-setters remain
content with past pricing levels. And that is influenced in large
part by the perceived ease with which additional dollars may be
obtained or loans defaulted on.
If a significant number of borrowers will not validate the dollars
they borrowed through some manner of equivalent production, then
the foundation of its value is eroded. Our own Federal government
for example, in its consistent failure to balance its operating
budget, has effectively become a significant collective of borrowers
that refuse to service their debt--they don't pay back their loans.
The government is thereby failing to validate its many trillions
of borrowed dollars; and the currency system suffers. The dollar
value falls and prices generally rise.
The flip
side of the coin regarding money supply is where loans are being
paid back more rapidly than new loans are written to keep the
outstanding money supply expanding with the prevailing growth
rate of the real economy. In this circumstance, increased competition
for dollars during this relative contraction in the money supply
generally results in an increase to the dollar's value; prices
would generally fall. The
problem with these expansions and contractions, these inflations
and deflations of the currency supply, is that in business and
in private life both, people tend to enter into long-term contracts.
Because earning power, prices, and wages are subject to this variability
over time due to changes based on business cycles and money supply,
the act of entering into long-term contracts becomes a mixture
of faith and gambling.
As I've stated in an earlier post, people have generally been
more comfortable to see monetary supply inflation erode the purchasing
power over time. The coping mechanism is to renegotiate for pay-raises--and
to face paying higher prices. They are less willing and less happy
to renegotiate lower rents and wages and lower prices received
for goods resulting from a currency that gains value over time.
Due to the
prevailing inability of people and businesses to accommodate a
currency that gains purchasing power over time, the fallout is
harsh. Instead of adjusting
the price of contracts downward, the reaction is typically to
reduce production and cut back on labor when business profits
yield fewer currency units. Economic recessions/depressions are
frequently the undesired effect of currency supply that either
fails to grow as fast as the economy demands; or worse, a currency
supply that actually contracts. This has traditionally been the impetus for a
well-intentioned government to attempt various degrees of monetary
interventions to bring about more desired economic conditions.
A Solution?
No doubt you are familiar with these problems, and tend to agree
with our intrepid forefathers whose anti-banking, anti-fiat currency
pronouncements are legendary. In all frankness, these were a handful
of exceptional men living at an exceptional time and who accomplished
an exceptional feat -- the birth of a new Republic. It should
not, therefore, come as a surprise to anyone that the opinions
and desires so expressed by the likes of Thomas Jefferson and
John Adams raised the bar for performance so high that practical
performance by their multitudes of mortal descendants could not
do but fall woefully short of their lofty vision. (In light of
their exceptional life and times they desired perfection -- and
why not? -- they thought they had set the world itself into a
state of perfection!) I am not saying that perfection is not a
worthwhile goal, but I am saying we must at least be rational
about what can and can't be done in a real world populated by...well,
just look around you.
Please for give my haste when I don't look up the exact quote
here, but I seem to recall the great Thomas Jefferson once voiced
his conviction which after all these years still has appeal and
finds ample support among Gold advocates: "If banks are allowed
to control the money supply first through inflation, then deflation,
our children will wake up homeless on the continent their fathers
conquered." The implication is that banks will issue their
credit from "thin air" in return for a pledge of collateral
against the return of that credit, drawing in everybody such that
currency values fall, prices rise, and people seek ever more loans
in their desire to buy before prices rise further, with the added
benefit of paying off the loan with devalued currency. But then,
in their nefarious desire to rule the world, the bankers would
cause the money supply to deflate, making it difficult for everyone
to successfully obtain the cash needed to repay their loans. The
bankers then walk away with the collateral, leaving the borrower
with nothing but a bad credit rating to show for the experience.
On the face of it, this seems to be a noble enough assessment,
and gives rise to the equally noble suggestion that our problems
would be solved if banks could simply be done away with...these
institutions that were once said to be "more dangerous than
standing armies." So there you have the perfect inspiration
for the monetary system of your dreams, worthy of any true patriot....you
suggest we eliminate banks--and with them goes the inflation-threat
from the paper money they create--leaving us with only Gold coins
as currency.
Not So Fast, Sport Shoes...(you'd better rethink your advice)
Ok, for the sake of indulging this off-the-cuff "perfect"
solution, let's be optimistic and assume that we could indeed
suddenly find ourselves in a system in which banks are non-existent,
and only physical Gold coin is currency. In our euphoric pursuit
of perfection, we need only to roll the clock forward from this
"perfect" starting point to see that we've rashly and
incorrectly assumed that our modern problems could be avoided.
First come the banks out of necessity, and then the fractional-reserve
lending phenomenon naturally evolves into existence-- whether
or not it was deliberately intended from the outset. Are you skeptical?
Consider this: it
would be a mistake to give thought to monetary matters without
due consideration of the weave of our social fabric--examined
through the magnifying lens of history.
In the real world, banks are necessary. We need only to look at
the circumstances surrounding the appearance of the first significant
public bank as documented nearly two centuries after-the-fact
by Adam Smith in his "Wealth of Nations," written as
America was just a newborn pup. The setting was Amsterdam, a bustling
international trading center as the 1500's gave way to the next
century. As Adam Smith describes it, the bank was formed and thrived
by filling a specific market niche: addressing the corruption
of the currency. In settlement of trade, Gold and silver coins
from many countries and many mints (public, private, and some
disreputable) were in circulation, and as is ever the case, the
coins of inferior alloy or those clipped of proper weight were
always the first to be offered to the merchants. In addition to
the money-changing manuals that served to document the metal (money)
content of the coins from the various known mints, the merchants
had scales to verify the sum of coins offered as payment. However,
the good
quality and reputation of these scales was seen as suspect in
the eyes of the shopper even as the coins were seen in the eyes
of the merchants. Smith
wrote: "In order to remedy inconveniences, a bank was
established in 1609 under the guarantee of the City. This bank
received both foreign coin, and the light worn [and other
debased] coin of the country at its real intrinsic value in
the good standard money of the country, deducting only so much
as was necessary for defraying the expense of coinage, and other
necessary expense of management. For the value which remained,
after this small deduction was made, it gave a credit on its books."
Here you
see the coins naturally coming out of circulation in favor of
"mathematically certain" bank accounting.
In this way, much of the effort and cunning that went into adulterating
the coinage by men of low integrity was thereby rendered unprofitable.
This system worked well for all parties involved in trade, and
the popularity gave rise to similar banks in the nearby trading
centers of Delft, Middlebourg, and Rotterdam, and then to other
countries. (I've got to work Rotterdam into every long post...have
you noticed?) History also records that "banks" have
also come into being for the purpose of the security against theft.
Early metal smiths also became early bankers by virtue of the
security offered by their strongboxes. What practical-minded person
would deny the modern need for a similar service in the event
of a return to a strictly Gold-based currency system...for safekeeping
and for quality assurance?
Yesterday's
Performance is no Guarantee on Tomorrow in the 'Business World'
The Bank of Amsterdam was said to work well for a full century,
with a man's deposits remaining his on actual deposit until such
time as he transferred the money in payment to another man's account.
The money (Gold) was not lent out, and so when Louis XIV's French
army approached Amsterdam in 1672, causing the depositors to rush
to the Bank in fear for the safety of their money, those panicky
depositors all discovered that their money was indeed on hand
for immediate withdrawal. The fear-induced bank run gave evidence
of yet another
universal truth about the nature of mankind--that when satisfied
as to the apparent safety and availability of their deposits,
they no longer desire to follow-through with the actual withdrawal
of their funds, remaining
content to let the bank serve as the guardian. And so we have
the seeds of the eventual fall of the Bank of Amsterdam, and many
thousands of its successors. The Bank's ownership by the City
of Amsterdam gave rise to close associations with the Dutch East
India Company by virtue of the same men often involved in the
governing or management of both operations. Due to the nature
of their business, when literally waiting for their ship to come
in, even while still a solid company with solid profits, the East
India Company would from time to time need a short term provision
of credit. In a precursor of what modern banks would come to call
their bread-and-butter business, the Bank began to provide these
loans to the Company out of depositors' accounts. When business
profits turned south for the East India Company in the late 1700's
as many ships and cargo were lost in the war, the loans increased;
the City government itself also came to rely on the bank for loans.
During the first century of operation, merchants preferred to
receive payment in bank deposits instead of the uncertain quality
of the coin of the day. But as the loans of the Bank increased,
and as the Bank began to put limits on withdrawals or transfers
to accounts at other banks, merchants began to cast a wary eye
upon payment made in bank deposits, and they raised their prices
to reflect this growing uncertainty, discounting the value of
the bank money. As you might expect, when a bank can't be counted
on to reliably provide your money on demand, its days are numbered.
And so it was for the Bank of Amsterdam--the doors were closed
in 1819. It should also come as no surprise that similar scenes
were played out many times on a smaller scale by the metal smiths
mentioned earlier. After being sought out for the security of
their strongboxes, and after a period of reliable service, many
smiths would observe the willingness of their depositors and citizens
in general to leave the Gold under lock and key, opting to circulate
the receipts of ownership instead. The more unscrupulous among
them would come to grant loans to others for profit, or else grant
loans to themselves through the issue of receipts for more Gold
than they held. When rumor brought about sufficient alarm to bring
in an abundance of receipts for redemption all at once, the game
was up and justice was swift--though to be sure, this righting of the
wrong on the inevitable day of reckoning was COMPLETELY unsatisfactory
to the good citizens left holding worthless Gold-receipts from
the bank after the Gold ran out.
Aristotle (02/07/00; 13:14:18MDT - Msg ID:24610)
Part Four -- Outright
Bank Fraud IS Black and White, but this gets Very Gray Very Quickly...
You have likely identified the
problem in both of these examples: the entity providing the banking
service began issuing loans using their customers' deposits without
the consent and cooperation of the depositor. Let's consider an
example in which the bank is of the most noble character and management,
simply offering safe storage and quality assurance of the Gold
currency. It
is human nature that those with wealth--such as we might find
among those having deposits in our hypothetical Noble Bank--might
seek to generate some income with their wealth. They might play an active role in this attempt
as a venture capitalist, offering their money directly to entrepreneurs
in return for some profits after personal negotiations convince
them of the viability of the prospect.
But not all would-be-lenders and borrowers are well suited to
negotiate and organize such arrangements themselves, particularly
the smaller would-be lenders seeking an income, and the smaller
would-be borrowers seeking funds for such things as small business
expenses. The Noble Bank easily develops the in-house expertise
in evaluating those borrowers that represent a good credit risk,
and can organize the formal loan arrangements on behalf of their
depositors. And rather than matching up a depositor/lender with
a borrower on a personal, individual basis, the Noble Bank would
come to pool the depositors' funds into an anonymous operation
in which the profits from the lending of capital are then provided
to the depositors (minus the Bank's own profit for providing this
service) according to the amount of funds the depositor put into
account with the bank. This provides the flexibility demanded
by the banking depositor to generally be able to access his funds
as needed.
It's like this. Assume that you, me, and someone else have all
put $10 in Gold coin on deposit with the Noble Bank for safe keeping,
with the added hope to earn a return on the Bank's ability to
lend it at a profit in the meanwhile. Let's say a shoe cobbler
needs to buy leather and a new sewing machine in order to make
new shoes, so the bank lends him $18 of the $30 available. The
cobbler takes his borrowed Gold, makes his purchases, and sets
to work in order to repay the bank $19 from his anticipated profits
within the coming months. In the meantime, you incur unanticipated
expenses, and need to obtain your $10 deposit back from the Bank.
Because this Bank wants to keep you happy, and to retain your
future business, it doesn't tell you that $6 of your account is
currently unavailable (out on loan) as per your wishes for the
bank to earn you an income, and that the cobbler will be returning
it (along with the profit you sought) in regular installments
over a period of time. Instead, the Noble Bank gives you $10 of
its remaining $12, and hopes that neither me or that third depositor
will want to reclaim our own deposits anytime soon.
Here you can see that no money was created out of thin air. But
the size of the Noble Bank grows as a good track-record of management
attracts ever more deposits in which withdrawals don't threaten
the remaining funds on reserve, and the depositors all come to
perceive through their good experience that the entirety of their
account is available to them should they need it. The bank would accommodate
this concept of reality by shuffling the credit distribution among
accounts to provide the depositor's money on demand. This creates
the illusion of money being in more than one pocket at the same
time through
no *fault* or evil intent of the Noble Bank. This is what the users of the System wanted,
and this is what we got. And as the cobbler's leather supplier
deposits the cobbler's Gold payment into the neighboring Honest
Bank in order to earn a return, the process may continue yet further.
The economy
seems to experience an abundant money supply, and the purchasing
power of all funds are thereby diminished by rising prices as
the actual goods offered for sale are then held more dearly than
the money which has suddenly become so easy to come by.
Please note that in this example, I didn't once use the term interest
in connection with the lending of money. A great many of the over-zealous
Gold advocates try to equate the lending of money at interest
with the evils of usury, so I purposely avoided that trap which
has become a mental stumbling block in their thinking. While they
might be inclined to say rightly or wrongly that lending at interest
should be banned in order to eliminate the "sin" of
usury, they certainly can't make that claim against the form of
venture capitalism that I laid out above. And if the banks come
to define the terms of providing venture capital from their available
pool of deposits as a standard low interest rate rather than higher
claims on profits that vary from borrower to borrower, what's
the harm?
Too Much of a Good Thing
A quick historical note is in order here on the position of famed
economist David Ricardo, who was a strong supporter of the Bullion
Committee and its position in favor of the Gold Standard in monetary
discussions hosted by the Bank of England in the early 1800's.
The purpose of the discussions was to get to the root of the problem
regarding rising prices, including [the price of] uncoined Gold
bullion. The center of the debate was whether bank notes--which
by that time had formed the bulk of circulating money supply--were
losing value, or was Gold simply rising in price? Given the observation
that other prices (such as bread) were rising, the verdict was
against the bank notes, just as it was in the latter years of
the Bank of Amsterdam when the merchants had diminished faith
that the bank could successfully redeem its credits for Gold coins.
In the course of the debates, Ricardo described in his works "it
was most justly contended that a currency, to be perfect, should
be absolutely invariable in value." While conceding that
precious metals couldn't be held to the desired level of perfect
invariability, they remain the best-suited item we have discovered.
And yet while holding this position, Ricardo was not completely
opposed to bank notes, finding them to be economical and convenient,
so long as they were always fully exchangeable for metal upon
demand.
I'll say again, if the Noble Bank could legitimately tell a rational
depositor that a portion of his deposit wasn't immediately available
for withdrawal, then things would likely be closer to OK, with
the bank notes in circulation representing the Gold allocated
to the borrower and properly held aside for redemption of the
note as Ricardo would have it. While this sounds good initially,
there would still be some perception of an abundant Gold supply
due to the borrowed funds hitting the marketplace, and there would
still tend to be the resulting diminution of the currency's purchasing
power. And further, the banks would always try to accommodate
the depositor's desire to withdraw funds by reallocating their
available resources, leading to a false (and eventually fatal)
sense of security in the general nature and supply of money.
As you can see from everything above, it begins innocently enough.
The depositors' money is physically distributed (unlike the ledger
creation of credit-money used today,) but it would not be long
before the depositors who had thus risked their deposits for a
return came to have faith that their full deposit would be returned
with interest, and acted on faith as though the Gold was actually
still at their immediate disposal. But inevitably, the day always
comes when confidence is in short supply, and depositors rush
en masse to reclaim their deposits, feeling that money in-hand
is more desired than the prospects of any returns that the bank
may have to offer, or perhaps fearing for the viability of the
bank itself and its ability to provide Gold for the quantity of
funds in account.
And as it begins innocently enough, it ends innocently enough,
too. The
availability for the common man to get a loan serves as an undeniably
equalizing force in society. It allows a poor person with time
and energy to participate in the economy on par with a man who
has his own capital. Through the credit obtained from the banks'
pool of deposits, a borrower is able to gain possession of land,
buildings, tools, raw materials, or other goods and facilities
with which to become a farmer, manufacturer, or merchant--using
the profits from his time, energy and know-how to earn a living
for himself and to compensate his lenders for their extension
of credit. The poorer and
more wretched a man might be, the more he might wish for the presence
of a bank of low standards willing to extend credit to the likes
of him.
The Same Old Arguments have Always Been With Us...
But despite this common desire for banks, even from the very beginning
there has always been an element of society that for one reason
or another saw banks as fraudulent means of transferring the wealth
of honest workers to an elite group (the lenders) with agendas
to rule the world. In a letter to John Adams about his own fear
and loathing over the proliferation of banks and their issuance
of paper credit, Thomas Jefferson wrote in 1814: "I have
ever been the enemy of banks; not of those discounting for cash;
but of those foisting their own paper into circulation, and thus
banishing our cash. ...these are to ruin both republic and individuals.
This cannot be done. The Mania [of borrowing and lending] is too
strong. It has seized by its delusions and corruptions all the
members of our governments, general, special, and individual."
But in contrast to Jefferson, in a little-publicized footnote
of history, Benjamin Franklin was a strong supporter of paper
money. He
saw that a national paper money provided a "general benefit"
of facilitating alternatives for a government against the dual
"horrors" to its citizenry of taxation and deflation. And as mentioned in the preceding paragraph,
very "specific benefits" were seen on an individual
basis by those who sought loans of any form of bank money (Gold,
paper, credit, whatever) in order to improve their position in
life.
Because the "little guy" clamors for loans just as the
"big guy" who pursues bigger projects, and because the
banks (which were naturally established to help the marketplace
maintain the safety and quality of its original Gold currency)
come to naturally play the middleman between the population with
money to lend to the population seeking to borrow, the blame for
all that follows is hard to pin on anyone specifically. Almost everyone in modern
society comes to rely on the continuing and smooth operation of
the banking system. As outlined
throughout this commentary, you can see that as civilization advances
and as the economy expands and the population grows, the general trend is
for the apparent money supply to expand, even if the banks themselves
do nothing more than efficiently reallocate deposits as needed
to keep everybody happy.
The threat
of a bank run grows with the growing disconnect between what is
perceived as the fair value contained in the underlying Gold contained
in the coin that originally defined the currency unit, versus
the witnessed purchasing power of the same currency units as dictated
by the apparently swollen supply
as borrowed and efficiently allocated by banks. Due to the unacceptably disruptive nature
of bank runs on society, and the hurt inflicted on those who were
late to the doors and therefore left holding worthless receipts
of a newly failed bank, the inevitable outcome (generally tolerated
by most) is two-fold. First,
for the officially-sanctioned (government) regulation or development
of a national central bank to bring more order to the hodgepodge
of wayward private banks, and second, for the eventual officially-sanctioned
termination of Gold convertibility for the abundance of circulating
bank notes and bank deposits on account.
Aristotle (2/10/2000; 3:37:44MDT - Msg ID:24877)
Part Five "Building
the Perfect System by Capitalizing on Gresham's Law"
Who's to Blame When the System
Fails?
Perhaps it would be clearer if I rephrased that question. "The
System" as I've defined it is the ever-changing monetary
principles, policies, and practices seen in the course of satisfying
the real demands of conducting business and commerce among real
people. At
any given moment, the System is undergoing change from one form
to another, generally smooth and gradual, but occasionally abrupt
and painful. But never in
the largest sense can the System itself be said to "fail,"
although parts of it certainly prove troublesome and are altered
from time to time as economic efficiency dictates. Did the old
Gold Standard era System "fail" when there was a bank
run at one institution or another? Well, if you were a depositor
who didn't get your deposits out before that particular bank closed
its doors, you might indeed be inclined to say that the System
failed. But more specifically, it failed YOU. Meanwhile, your
contemporaries who lived half a continent away might say that
the bank closure was a healthy adjustment to the system, weeding
out a weak bank. As such, System "failure" might be
viewed as any time YOU were legitimately dissatisfied with its
performance. Therefore, it would probably be more appropriate
to ask this question instead: "Who is to blame when the System
disappoints you?" An important thought to consider
in this regard is whether any conceivable System could please
all of the people all of the time.
Let's briefly examine the dissatisfaction of the typical Goldheart.
In his mind the System has failed because he is dissatisfied all
the time--so long as Gold is not the circulating currency, apparently.
How irrational is that? Romantic, to be sure, but completely irrational.
This superficial desire will never be the impetus for a change
to the System as we know it. Even in the "good ol' days" the coins
quickly gave way to bank notes as the circulating equivalent. There simply must be more at stake
than the whimsical preferences of an individual in order to inspire
change.
Something to rally around...
Here's
the key factor as detailed earlier in this commentary which ultimately
argues forcefully for the proper role of Gold in the monetary
system's architecture. In
what has been revealed as a misplaced goal, with Gold as the circulating
currency, artificial inflation of the Gold supply is the unavoidable
consequence because money will always be lent by somebody to somebody
else who wants to borrow. As a result, under any past System architecture,
there has never been a truly satisfactory means to safely and
reliably escape the ravages of inflation and deflation. Having Gold attached either directly
or indirectly to the circulating currency (or Gold itself subject
to being lent independently as we see today), the proper valuation of Gold is always
understated by the market due to the perception of of an increased
(artificial) supply. Truth
be told, it is this element that gives rise to my own dissatisfaction--that
Gold is not at all points in time held near to its honest physical-based
monetary valuation as it should be. This is true at nearly all
points in time except for those brief and historic moments when
the adjustment inevitably comes and Gold reaches an entirely new
price plateau. This
proves unacceptable for those who live in the interim periods
as they strive to protect their personal wealth...those holding
Gold during these past 20 years, for example. (Although make no mistake, the extent of currency
depreciation in various non-OECD nations would paint a more normal
looking picture for citizens holding Gold within those countries.)
As the number
of people increases who are dissatisfied with the System's performance
at any given moment in time, the greater the pressure mounts to
effect some degree of change. Similarly, the greater the level
of dissatisfaction, the greater the impetus to effect some rectifying
change. For those who are
yet clinging to the notion that we need a Gold Standard with fixed
convertibility of the currency, please forgive me as I verbally
try once again to shake you out of your mental stupor. Under a Gold Currency-based
system, any time someone borrowed money they would in essence
be participating in a Gold loan (much as we see happening today--an
act that is ill-tolerated by those who can rightly recognize its
depressing effect on the value of that same Gold/Money.) For the hundredth time, because people
will always have a desire to borrow money to meet their business
or personal needs at one point or another, you would always be
dissatisfied by any Gold Standard that allowed these (Gold-) loans
to occur. Meanwhile, everyone else would be dissatisfied by such
a Gold Standard System that specifically pleased you in which
money (which would be Gold) could not be borrowed as needed.
Accepting the constraints of the real world...
Any
properly functioning monetary system in the real world must accommodate
those seeking to borrow funds.
And if I've made no other point but one, we should all see from
the extensive commentary (bludgeoning) presented earlier that
such a system
cannot sustainably coexist with a Gold Standard which has a fixed
convertibility. Inflation is always a consequence, and then so
are bank runs, a phenomenon unique to any such Standard of fixed
convertibility. There can be little denying that those bank runs
are the ultimate monetary catastrophe experienced on an individual
basis. Think about it. If
you were among the depositors left with unhonored deposits of
metal on account at a failed bank, you might just as well be located
in a modern-day Third World nation when its currency loses value...your
life's savings have been wiped out through no fault of your own.
Examining this case of a bank run, everything was working fine
for you and your currency-units yesterday, but then suddenly your
world fell apart today. In truth, to witness that a bank run was
"justified" by the bank's obvious (after the fact) shortfall
of Gold necessary to honor all of the deposits reveals with abundant
clarity that a goodly portion of the system's funds were actually
"unbacked" currency. And since these same unbacked currencies
were seen to be functioning well prior to the pain of the bank
run, it makes little sense to those left holding the bag in a
bank run. And
as hard as it is for these unfortunate citizens to fathom fundamentally
why these currencies could work yesterday but not today, it is
even harder for them to grasp why the same currency could function
properly at the front of the bank line, but not for those in the
back end of the line. It
is this kind of pain, especially when bank runs become an epidemic,
that compel significant changes to be made to the System architecture.
History reveals that a natural starting point to ease this pain
is national regulation of the scattered and various independent
private banks.
This leads to a united-we-stand, divided-we-fall solution in which
resources are managed among the banks so that individual hemorrhages
can be addressed without leading to domino-style bank failures.
But ultimately, the whole system is put at unacceptable risk from
bank runs inspired by the realization that the bank-money inflation
has rendered a currency value that is less than the metal value
in the system's few coins. Again, the institutional thinking goes, "Since
all this unbacked paper worked yesterday, let's just get rid of
the inspiration for bank runs--the Gold coins." Those finding
themselves in the back of the lines certainly would welcome this.
Their currency would not only remain just as good as the currency
held by those in the front of the line, but it would also be not
significantly different than it was yesterday.
OK, so who IS to be blamed
for our disappointment with the System as it is?
The lesson to be learned is not to blame the push for fiat currency
upon "the few and powerful" men of wealth of the world.
While inflation
can be bad even under a Gold Standard (along with the pain of
bank runs for those who fail to rescue their deposits), inflation
has the distinct opportunity and track-record to be much worse
within a system built upon a fiat currency. The truth is, inflation
hurts those with money (it erodes their purchasing power), and
helps those with debts (it makes loan repayment easier.) David Ricardo said it eloquently: "The
depreciation of the circulating medium has been more injurious
to monied men...It may be laid down as a principle of universal
application that every man is injured or benefited by the variation
of the value of the circulating medium in proportion as his property
consists of money, or as the fixed demands on him in money exceed
those fixed demands which he may have on others." He
said further that the farmer "more than any other class
of the community is benefited by the depreciation of money, and
injured by the increase of its value." This is likely
for the dual reason that farmers as a general rule were often
in debt to begin with, and because their annual creation of crops
(from thin air!) could then be sold for more currency units in
each subsequent year, even if the net real-world value of the
product being offered remained entirely unchanged.
Don't waste energy on laying blame...
And
so we can see, with more people in society having common wealth
than uncommon fortune, it is distinctly the case that democracy
proves to be the greater threat to a convertible Gold Standard
than does even the unmanageable expense of war. I faintly recalled some historical figure who
made the astute observation that in a democratic society, when
the people come to realize that they can vote "largess"
for themselves from the public treasury, they will do so, and
hence bring about their system's collapse. And in researching
this matter further (thanks Journeyman, ji, and RossL for your
help) it seems that there actually have been a number of figures
echoing this same sentiment through time. But regardless of the
precise citation of this quotation, one look at the growing national
debt in America (serving as the substitute for the taxes that
would otherwise be necessary to fund our chosen social programs)
gives credence to this assertion. Simply put: the people (the
masses) get what the people want--and the people apparently want
easy money. Even outside of a democracy, over time, the forces
of the population always win out over the forces of the few men
of power. And in the end it matters not which group is on the
side of good, and which is destructive--the many prevail over
the few.
So, what
is the proper role of Gold in the monetary system architecture?
At this point, the staunchest Gold supporters are likely gnashing
their teeth and forming a posse to hunt me down for a proper lynching,
I'm sure. After all, I have made no bones about the need to cut
Gold out of any ties whatsoever with the various national currencies.
Due to inflation and deflation that naturally arise through variations
in the rates of borrowing, payback, and growth of the economy,
currency fluctuations lead to bank runs which are frankly too
disruptive and are not to be tolerated. Fortunately, they are
rendered completely meaningless under a fiat currency regime.
National
fiat currencies allow governments to manage their own national
economies to the extent that that are able, and to take whatever
efforts needed to avoid falling into those most destructive currency
deflations that wreak havoc on economies.
Gold must be removed from these currencies so that governments
are not tempted to manipulate its perceived value in order to
give a boost to their own currency.
The goal
would be that sudden value shocks will be avoided because at all
points in time the currencies will be fairly valued against Gold--there
won't be an inevitable and recurring "day of reckoning"
in which the pent-up false perceptions are unwound amid calamity
and crisis of confidence.
Gold must also be removed from any element of the monetary system
that would seek to make loans using Gold because, as we've seen,
these confound Gold's ability to reach its true physical-based
fair market value. Gold derivatives must also be done away with
for the same reason. Gold must remain a pure monetary asset, bought
and sold and owned outright--nothing else would be allowable.
National
fiat currencies will ably serve the market's various needs to
borrow funds...after all, that's how fiat currency is born in
the first place.
Although I've seemingly cut Gold out of the monetary system, that
is not the case at all.
Gold qualifies as the only true money; being able to function
as a unit of account, as a medium of exchange, and as a store
of value. A fiat currency only meets the first two elements, but
they fail as a store of value. Therefore, Gold will be be the
money of savings, while national currencies will be the currency
of commerce. They
will all float relative to each other, and constantly seek out
their proper value. Kept with special status as an independent
and unlendable currency, Gold will be the ever-rising North Star
of the monetary system. Central banks would be inclined to hold
only Gold in reserves of any significant size--because Gold is
not the liability of any other nation, and its real-world value
would continue to grow over time. As said before, quantities held
in other national currencies would be done only to the extent
that they facilitate trade between active partners. Individuals across the Earth would
also choose to hold Gold as their savings; their life's productivity
forever protected from inflation and deflation, and from reliance
upon another person's (or nation's) liability.
The beauty of reserving Gold as an unmanipulated monetary asset
is that individual local currencies can still be "managed"
by the government in whatever manner is seen befitting that specific
country, without
having an adverse effect on the meaningful wealth held in reserves
(in the form of Gold savings) among other nations and local citizens
alike. No single national
currency need ever be held by another nation as a reserve currency
(which "unfairly" allows the nation that issues the
reserve currency to export its inflation.) However, a nation might
choose to hold another's currency in a quantity simply because
it makes for expedient trade.
The reassurance of Gresham's Law...
Perhaps a short lesson is in order for those new to this realm
of thought. In 1558, Sir Thomas Gresham made his observation that
whenever there was latitude in tendering payment (as could be
seen in the major medieval cities where coins from many lands
came together in the course of trade--as we covered in the case
of Amsterdam,) inevitably the money of poorest quality was offered
while the better money was retained. In describing the circulation
of currency, Gresham's law says that bad money drives out good.
(The inferior money circulates, while money of superior quality
is held.) In our new system herein described, paper currency will
circulate while Gold money will be saved.
Pause for
a moment to fully consider this practical notion of saving Gold
on one hand, while on the other, borrowing and spending paper
just as we always have in our lifetimes (and know of no other
reality from personal experience.) This is in perfect tune with
Gresham's law. Given our own limited history, this accord with
Gresham's law provides a very comforting reassurance for predicting
the success of this system.
Why? Because Gresham's law is arguably the only economic law that
survives beyond challenge--an echo of the universal and enduring
truth that given a choice, people will choose the option that
serves their own needs best. Gresham's law predicts that the world's
supreme currency, Gold, would not actually circulate in a conventional
sense, though it would move from the hand of one saver to another
as individual circumstances might require. Sure, you could use
it outright as money if you insisted, but nodding to Gresham's
law, wouldn't you rather keep your Gold for the rainy day and
spend your paper instead? This system will enhance the transparency
of national economics and financial positions, rewarding those
with good fiscal policy and balanced budgets, and giving none
an exorbitant privilege over another through reserve currency
status. It
will allow the citizens a natural avenue to protect themselves
against depreciation of the national currencies (which will inevitably
inflate until the end of time,) and to actually gain a no-risk
real "return" by simply holding the metal without the
self-defeating aspect of lending it out for interest.
Gold. Get you some. ---Aristotle
Solomon Weaver (2/10/2000; 7:36:14MDT - Msg ID:24886)
ORO this is about what
I was thinking of in Gresham's law in the COMEX
ORO (2/9/2000; 23:23:06MDT - Msg ID:24865)
Solomon - Aristotle - Gresham's law
Gresham's law normally works the "other war round".
It is a result of two contradicting forces and the balance between
them. Consumers (goldbugs) - want the hard money (gold) for savings.
Business (bankers) - less sensitive to money longevity (day traders)
because the (paper contracts) funds are (physical delivery) is
demanded.
Consumers (those who want real gold) will continue to use the
funny money (futures and options) even during its hyperinflation
stage (inflation as described as money supply or number of open
contracts, not price). However, they will not hold much of it.
Their needs for cash balances (safe savings) will first move to
"real assets" such as real property (numismatics), goods
(bullion coins) and equity (gold stocks) in business. They will
then move to hard money when they are "full up" on the
latter items that are within their means. The less well off will
hoard goods (silver spoons) and whatever hard money (junk silver
in their attic coin collections) is within their reach.
The "good money" (bullion) is hoarded (held and not
sold) and the bad money (gold paper promises) is used in commerce
(trading on the exchange) till parity does not hold any longer
( as I stated in my note ì when these two bifurcate, meaning
divide, meaning no more price equivalence).
Behind them is either a government (ESF Fund) or powerful bank
cartel (Goldman, Deutsche, BoA) set on getting something for nothing
if they can get away with it. To this purpose, legal tender laws
(forced margin calls and threat of immediate cash settlements)
are passed to force acceptance of the currency (paper gold) at
par with its stated value (in gold bullion). If not stated in
terms of gold or silver (dollars), it is often stated through
wage and price setting (counter swaps with other hedgebook inventories
like oil contracts). In any case, a (perceived) parity is established.
Without a parity there is no application to this part of Gresham's
law.
The legal tender law (open and free wheeling actions of the exchange)
remains more or less effective as long as the rate of funny money
creation (increase in naked put and call options) is never high
enough to displace all the hard money (gold) or fixed price goods
(futures contracts which can call for delivery in the month) from
the marketplace - whatever it is that the currency is set to par
with (that being in our case the idea that there is gold metal
traded under the paper). As more funny money (contracts) or fiduciary
money (margin) comes to market, prices of non-fixed items (longer
term futures and options) rise relatively slowly and steadily.
When the cash (gold bars) and cash equivalents (valid claims on
remaining vault gold) of hard money are all gone from the markets
(exchange), and fixed price goods diverted to other uses where
more is received (options are dropped because they cannot be used
to opt for delivery), the situation turns suddenly sour. The currency
(remaining contracts) is openly traded at a discount to par (bullion)
and its purchasing power drops like a rock. The hard money (the
real stuff) rapidly rises to command a smart premium till enough
of it comes to market (back to the exchange to claim profits).
Outside the country (exchange) are those who have a choice as
to what they will take as payment and so they take hard money
(gold metal) as payment. In a reserve currency (cb-bb moderated
system) system the government issuing the reserve currency (lending
gold as needed) will see a steady stream of real assets (their
real gold) and hard money leaving the country (cb-bb-gov vault)
or changing ownership to foreign hands (arab, chinese, european)
so long as the funny money (worthless gold contracts in an exchange
which has allow excessive issuing of short paper) currency can
be converted to hard money (any last bars of gold still around
in the vault).
At times, an arrangement can be made, where a fiduciary form of
hard money (oil or oil contracts) can be used to trade for funny
money (discounted gold paper contracts). Thus the life of the
currency (gold paper contracts) is extended. When the issuers
of fiduciary media (oil parties who want cheap gold) come to near
insolvency (at least fearing to ever get their real gold), heavy
"players" (those who deliver oil tomorrow in very large
ships) will accumulate the hard money (real gold off the exchange)
while selling the fiduciary forms (oil and gold paper contracts)
accumulated before.
The hard money (value of real gold) breaks from the funny money
(value of paper gold) abroad (outside the the exchange) first.
When conversion of the currency of the fiduciary money (paper
contracts on paper contracts denominated in fiat currency) becomes
difficult, the first stage is that payment in currency (paper
gold) is accepted at a discount. Later the currency exchange is
just too expensive and it is steeply discounted.
As prices of imports (getting more real gold back into the exchange)
start rising, the currency (gold paper contracts) starts losing
purchasing power at home (in the exchange they were issued). Once
the trend is noticeable, the currency accelerates its decline.
Finally, the only accepted form of payment is the hard money (real
gold).
If a funny money is not tied to anything in particular at a parity,
then the currency will just erode as more is issued. The erosion
occurs in bouts of "panics" as people repeatedly get
indebted and are caught in debt traps just to find the value of
the currency suddenly drop as soon as they pay off the debt or
declare bankruptcy.
Poor old Solomon
Elwood (2/10/2000; 10:00:58MDT - Msg ID:24895)
Reply to Aristotle
Aristotle wrote in (2/10/2000; 3:37:44MDT - Msg ID:24877):
"For those who are yet clinging to the notion that we need
a Gold Standard with fixed convertibility of the currency, please
forgive me as I verbally try once again to shake you out of your
mental stupor. Under a Gold Currency-based system, any time someone
borrowed money they would in essence be participating in a Gold
loan (much as we see happening today--an act that is ill-tolerated
by those who can rightly recognize its depressing effect on the
value of that same Gold/Money.) For the hundredth time, because
people will always have a desire to borrow money to meet their
business or personal needs at one point or another, you would
always be dissatisfied by any Gold Standard that allowed these
(Gold-) loans to occur. Meanwhile, everyone else would be dissatisfied
by such a Gold Standard System that specifically pleased you in
which money (which would be Gold) could not be borrowed as needed."
Elwood replies:
Aristotle,
I think your 5 articles are based on a fundamental misunderstanding
on the role of money in a market economy. I would refer you to
a book by Ludwig von Mises, "The Theory of Money and Credit" which is available from www.mises.org.
There is also the website of Dr. Frank Shostak. His feature articles
may be helpful, especially the ones dealing with the Asian crises
and the one entitled "Inflation, Deflation and the Future".
It is at:
http://www.ords.com.au/frankshostak/
In short,
a monetary system based on debt, which all fiat systems are, will
always have this boom/bust cycle characteristic. It is the credit expansion which drives interest
rates below the true market rate of interest and leads to a boom
in economic activity. These lower rates cause entrepreneurs to
make "errors" when determining the prospective rate
of return on their investments.
This manipulation of the true rate of interest is only temporary
however and, thus, requires more and more credit be thrown into
the system to keep it going.
Mises stated, "The boom can last only as long as the credit
expansion progresses at an ever-accelerated pace. The boom comes
to an end as soon as additional quantities of fiduciary media
are no longer thrown upon the loan market. But it could not last
forever even if inflation and credit expansion were to go on endlessly.
It would then encounter the barriers which prevent the boundless
expansion of circulation credit. It would lead to the crack-up
boom and the breakdown of the whole monetary system."
Regards,
Elwood
Henri (2/10/2000; 10:47:07MDT - Msg ID:24900)
Elwood Msg 24895
It seems to me that these barriers to further monetary expansion
were encountered and then circumvented by wholesale bundling of
Mortgage Debt and sale to Fannie and Freddie allowing a whole
new slew of massive credit/Debt$/liquidity to be unleashed. The
massive increase in financial derivatives in the last few months
also contributed by pouring gasoline on an already raging inferno.
The resulting conflagration seems to have obscured exactly who
owes who what and more importantly when.
I am beginning to think that the tag team interventions of the
fed and treasury in the bond markets were deliberate with the
intent of breaking loose the shackles of the derivatives traders
and the rate-swap players. If only one or two levels of leveraged
derivatives are allowed following the holocost now in progress
and anything deeper prohibited, perhaps things might not get so
out of hand...Nah.
Elwood (2/10/2000; 12:09:27MDT - Msg ID:24910)
Reply to Henri (2/10/2000;
10:47:07MDT - Msg ID:24900)
I think the barriers to expansion that von Mises was referring
to are related to the refusal of the public to use the fiduciary
media as money at all. This occurred during the Weimar hyper-inflation
in which the monetary system broke down and transactions were
based on barter of goods rather than use of money. It also occurred
during the early 5th century in the Western Roman Empire after
a few hundred years of monetary debasement by the Emperors. The
Chinese, who invented paper money, also experienced this.
The government sponsored enterprises you reference are not engaging
in money-creation at all. They are merely borrowing and lending
that which is created by the banking system. I think there's a
guy named Noland who writes on the Prudent Bear site that propounds
this idea that the GSE's create money. I think he's wrong.
What we're
about to face is merely the follow-through of Gresham's Law. That
is, it's true that good money is driven out by bad money, however,
bad money eventually ceases to be money at all.
Regards,
Elwood
Al Fulchino (2/10/2000; 10:59:54MDT - Msg ID:24904)
THE TRUE VALUE OF GOLD
WILL ULTIMATELY PREVAIL
I am an expert in nothing, let me start by saying. However over
the years a lesson has been taught to me. A lesson I was not always
interested in learning, I might add. <smile>
I, like most, if not all people in the world, prefer to have my
own way in everything. Especially, if it made me very important
in the eyes of others or in my own mind <bigger smile>.
Usually, I would be pretty successful. But for some strange reason,
in the end, I would end up having some type of inner conflict
over my successes. Things seemed right on the outside. The inside
would often be different.
The conflict, I would come to learn was actually conflict with
the truth. The truth about my pride and that ultimately is selfishness.
Where did this conflict come from? My answer, if I may be so bold,
is the Ultimate Ego, our Creator. So, the pain of the truth, or
my conscience if you will, was actually what I needed. Sort of
a humbling idea if you have followed me so far. Nevertheless,
as I said I needed the clarity of the truth pointed out to me
about my lack of being the all knowing one. Just like a child
needs to be told that cookies fill but are not what your body
needs. No matter what I constructed, whether it be in my mind
or physically with material things, it was never enough. The same
will be true with what I call God's physical representation of
money. Gold.
The authorities which we have put in power, to serve us and to
say what we want to hear, represent our selfishness. We correctly
blame the manipulators of our currency. But we collectively don't
look deep enough. Collectively we have placed these people in
power. They satisfy our culture. They feed our egos. They keep
the attention away from looking at ourselves. They even degrade
our money so that they can do what they want with seemingly no
consequences.
In reality, WE WANT them to tamper with the money, so we can try to have what we do not need or is good for us. Unfortunately, we never have been able to create something from nothing, (in truth very fortunate),and that is a good thing, which we will eventually be reminded of. When, it fits God's Will, I feel, we will see God's earthly money retake its proper, or as near proper role as serves his purpose. We will be reminded. No need for anxiety for those who see this. No need to check the quote pages each day. Those of you who see this, as I have stated on other occasions, have already found your chair in this game of musical chairs. The players who deem themselves smart or those who played with blindfolds on will be the ones scurrying.
As our good friend Aristotle
says, Gold, Go get you some.
ORO (02/11/00; 04:58:34MDT - Msg ID:24980)
Aristotle - Monetary
structures
Aristotle, your efforts of late are well noted and appreciated,
however, you are mixing some apples and oranges and falling into
many "western" conceptual traps and some of the social-democrat
neo-fabian thinking.
A few comments should be put up here.
The myth of gold being deflationary
Gold standards are not deflationary. Gold is a cash money and
can not cause deflation. I have detailed long ago how closely
the improvements in gold mining/extraction/refining technology
has allways been to the technology improvements in the economy.
When economic producctivity increases in the broad economy, it
increases in the gold mining arena in lock-step. Therefore, price
stability, is the characteristic of a gold standard - banks and
convertible 100% backed currency included.
What is
inherently deflationary AND inflationary is a certain type of
bank system characterized
by the participation of government in either bank regulation or
in issuing currency.
Gold banking
in a free banking environment is by far more stable than any alternative
ever attempted. As your
own readings of the Dutch banking history indicate, it is not
banking itself that is the problem, but the cartel imposed by
government.
Under a monetary regime of free gold banking there are a few
rules:
1. The bank that goes on a limb by expanding credit at a higher
rate than its competitors without garnering a higher rate of return
on its lending gets clipped. Bankers know it. This still happens
today, but the failed banks get bailed out at the expense of everybody
else.
2. During economic crisis no more than 4-5% of banks go under.
3. The free banking system does what banks are supposed to do
- aggregate capital and lend it.
4. What they can't do is issue excessive ammounts of credit to
the point of causing inflation - and therefore can't form deflation
either.
Where inflation and deflation come from:
They come from bank cartels. Cartels in services are only possible
through government regulation. Two sets of purposes meet in the
formation of a cartel: Government - the purpose of the system
is to allow government unlimited borrowing for purposes that the
public DOES NOT SUPPORT. Banking - the purpose of the system is
to eliminate competition among banks and thus lift the natural
limits on credit creation that the competition causes. The banker's
goal is multifold (a) lower reserves to increase profits - from 40-60% without
a cartel to less than 3% with a cartel and with gold or less than
1% without gold. (b) Fleece
depositors by transfering their gold into the bank's owner's pocket.
(c) Capture goods with no cost by collecting interest on non-money.
(d) Transfer the cost of fiduciary responsibility to the public.
(e) Force people to deposit money with the bank - because the
inflation causes the cash holder to lose purchasing power if he
does not collect interest. (f) Force people to borrow - inflation
puts housing and investment outside people's reach without borrowing.
(g) The one-time profit from deflation is an uncommon opportunity,
but when it is too big an opportunity, the banker will pull the
rug. It will then bag the security people and businesses put up
for the loans.
Neither inflation nor deflation are the result of banking itself.
They are results of government participating in the banking cartel
- without government rule making, the banks simply can not inflate
significantly. Because that is the case, the banks can't deflate
either.
Popular preference:
People do not like loose money, neither does business. They like hard money
for their own holdings. They like soft money for their obligations.
Without the inflation of
the government sponsored bank cartels there is no lending in soft
money, and there is only the preference for hard money on the
part of cash savers and lenders.
In an inflationary system, the "real" interest rates
are much higher than they are in a free gold banking system. This
is because banks and people holding deposits want to retain purchasing
power, and the only way to do that is to over-compensate for inflation.
In reality, the yoke of credit costs is higher under inflation
than in free gold banking.
People are aware of this. What people have a problem with is that
their current obligations were taken under the inflationary system.
Therefore, any stabilization in the value of money would make
it more difficult for them to repay their contracts.
I suggest
that you rethink the structures with this in mind:
The perfect monetary system is that in which there is no central
planning and in which government plays no role.
1. No central
bank
2. No national
currency at all
3. No government
guarantees
4. No government
insurance
5. No regulatory
bodies over banking
6. Tight
laws on fiduciary responsibilities
7. Tight
laws on truth in lending
8. No licensing
requirements or regulation
9. No capital
control laws
10. Government
does not define money. Whatever
is used as money it must accept in payment and must provide in
its own disbursements.
This would lower costs of doing business by 15% and allow the
natural interest rates to prevail - 1% shor term, 2% intermediate
term - 3% long term. This would lower costs further - perhaps
by another 10%.
When analyzing historical precedents you will see clearly that
all banking disasters are a direct consequence of government obstruction
and elephantine intervention of the markets.
The gist of Gresham's law is not that bad money drives out the
good - but that good money drives out the bad. The common error
is that the special case of parity is the one all remember.
Only when a legally enforced parity is imposed on markets between
the near worthless and the precious, that your interpretation
is appropriate. The
source of the trouble is the imposition of an unjustified parity. Only then are people prevented from
excercizing their judegement to distinguish between the trash
and the treasure.
Journeyman (02/11/00; 09:17:12MDT - Msg ID:24994)
BRAVO! Aristotle &
ORO (02/11/00; 04:58:34MDT - Msg ID:24980)
I couldn't have put it better myself, ORO. In fact, I could have
put it only about half as well.
I may have a few coroborrating points later, but, well just great,
as usual.
Aristotle, this DOESN'T detract from your work. You've raised
many good points that need to be addressed, and raised them well.
That's just what I've been looking for, and it's necessary to
further the economic "education" that happens here at
USAGOLD.
For too long the bankster/government inflationists have held ideological
sway, and till the arguments they crafted are aired, the gold-bugs
amongst us are fighting fog. You have ably aired many of them.
And, of course, it's always possible the inflationists COULD be
right. To have as staunch a gold supporter as yourself partially
incorporate some of their positions gives me reason to more closely
examine my preconceived pro-gold prejudices.
My personal thanks to you both, Aristotle and ORO, for helping
me hone my own perceptions!! I salute you both!
High regards,
Journeyman
OK gold bugs, our ideational challenges are growing, but they're
becoming more clear! Onward ---
Trail Guide (02/11/00; 09:49:21MDT - Msg ID:24996)
The Gold Trails
Thank you Aristotle!
A fine work that's worth a long study, my friend.
ALL:
Many writers
today offer nothing less than a philippic discourse about the
flaws in today's fiat systems. Always looking backwards, they
are lost to grasp how what was considered "hard money policies
then",,, "eventually failed then",,, as these same
interacted within the economy. Truly, a hard financial structure
trying to blend with a soft, flexible "human nature".
In a larger degree, how much more could it not work in today's
modern world. Once implemented today, these same policies would
again "crash and burn" in response to the demands from
"real people" living a "real life".
Aristotle, your five part series is trenchantly written and offers readers a glimpse
into a future that must be. Will be!
My thoughts on a deep subject:
If the modern
banking system has mislead us at all, it mislead by supporting
a view that our wealth, our things, were not money. They implied
that "paper settlement money" was our real wealth and
only it could be as such. Truly, as we walk and breathe, human's
things have always existed as both money and wealth. Side by side by side they walked with
us in our financial life, in both modern and past context. Yet, in our modern "Western
World" of thought, the largest portion of one's personal
asset holdings now reside in the form of "paper money".
Worse, the majority in it's "contract derivatives" forms.
Gold included.
No longer do we hold our greatest portions in real forms that
transcends the peaks and valleys of fiat money value ,,,, a variable fiat money system that
our "changeable nature" demands. No, we option to ignore
the true purpose of this paper money system and cast the entirety
of our resources into it. Never stopping to understand that this
money is but an "economic need" "to process a trade".
Not an "economic product" and therefore wealth itself.
Through out recent time, fiat money has responded well to human
nature, flowing like a river as it expands and contracts to our
wants and desires to buy and sell things. From drought to flood
it is the channel of our trading system, as it moved the "end
product water" that flows within it's wide banks.
Today we use the remains of this dying "dollar settlement
system". It continues a natural death, as society struggles
to use a currency that can no longer represent our financial structure.
A changing structure in a world that marches on. The dollar's debt load
has aged it and brought it to the end of it's time line.
Only today, the end of this "time line" will find many
holding their wealth in this same system, for a purpose it should
never have been intended to perform.
That being, to represent one's life long accumulation of real
wealth as their money wealth things. Most will understand the
impact of this well after the fact as we are indeed in transition
to yet another paper system. One we must have, requested and will
use. Just as everyone used the old one to their own private advantage,
we will indeed grasp the next one. Just as you point out, Aristotle,
fiat exists more so because it does "what societies economic
function wants", not because it's a function of "what
society is forced to do"! Still, some will bark against this
in a effort to stop people from following human destiny. Fortunately,
relative to our lifetimes the world evolves quickly, with or without
our agreement.
In this
period however, we will return back in time much further than
many can see. This time gold will be pulled away from it's strained
attachment with "fiat contracts of currency" and again
take it's place as the ages old "wealth money holding"
it always was. It will occupy it's rightful place on the shelf
with all our other "wealth things". And here it will,
"for the first time in modern context" show it's true
value in relation to modern paper settlement money. A value no
one today will believe!
Should one risk financial assets based on this series (Aristotle's)
alone? Never! On the contrary, no one should believe what he has
written. Rather, we as a society should "study" his
fine work and seek to understand it's meaning. Once fully understood,
I think most would then agree with it's inevitable outcome. Indeed,
a "free gold market", based only on physical holdings
would impact the world economic system unlike anything seen before
it. And Yes, it's impact on the relative value of gold will make
that metal the monetary wealth investment for the next thousand
years!
This my friends is why so many today, "Walk In The Footsteps
Of Giants". They
walk a trail that takes them further and further from derivatives
of gold and the present currency it's (gold) priced in.
From Yesterday, through Today and onward into Tomorrow" ,,,,,
we say buy
Physical Gold for your future ,,,,,,, doing so will write your
personal history in the palm of your hand!
"Soon, we will all hike the "Gold Trails" and see
all there is to see ,,,,,,, over the mountains and through the
valleys ,,,,,,, across rivers and plains ,,,, looking near and
far as we stop along the way ,,,,,,, Truly, we will view the value
of gold as modern mankind has never seen it before ,,,,, join
in, it will be a journey in life, that's well worth taking.
thank you again Aristotle ,,, Trail Guide
Note to all: please study these fine works
Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589)
Aristotle (2/7/2000; 8:10:15MDT - Msg ID:24593)
Aristotle (02/07/00; 10:52:39MDT - Msg ID:24602)
Aristotle (02/07/00; 13:14:18MDT - Msg ID:24610)
Aristotle (2/10/2000; 3:37:44MDT - Msg ID:24877)
ORO
(02/11/00;
13:59:00MDT - Msg ID:25019)
Aristotle and Trail Guide
What is to stop the gold markets to regroup and form a new gold
banking system?
I would think that -
if there is gold there is also someone to lend it and someone
to borrow it.
If there is new gold mined, it will be contracted for future delivery.
If there is gold of many players in a number of vaults, the gold
will stay in the vaults and the title to the gold will trade electronically.
I still
say that there is no economic reason, no justification for central
banks at all. There is no economically useful purpose for national
currencies. I will go further and state that the purpose of central
banks holding gold is so their people remain beholden to the state
and the bank cartels it has chartered. The best thing for the
CBs and treasuries to do is to unload their gold and cease participation
in the financial markets.
Individuals and private organizations should hold their gold and
trade its receipts, to lend and to borrow it.
The amount of gold and other PMs can not be insufficient in quantity
to for the basis for the volume of trade settlement. It is precisely
the point that the quantity of gold matters not. What matters
is that it grows with the economy that trades it as money.
The myth of a living and breathing fiat system.
Many have proposed that there is some need in trade and business
for the flexible money that fiat allows. I contend that there is no such flexible
money, as its cost in trade and to business far outweighs the
benefits of flexion.
Fiat currencies do not expand and contract as the markets need.
Their mere existence forbids healthy interaction in the markets.
The seekers of the conversion of income into wealth and those
who must convert wealth into income are forbidden from setting
the rates of conversion by the existence of fiat currencies. The
necessary precondition of a fiat currency is the existence of
a monetary authority that controls the quantity and the rate of
conversion - the interest rate - at which both monetary and "real"
wealth coverts into income.
They introduce the same centralized decisionmaking that we decry
in cleptocratic Russia and in its predecessor's failed and dishonest
social and economic planning.
The quantity of money and the interest rates are set by the monetary
authority to fit the needs of those who run it. These bear no
relationship to the needs of the participants in the markets.
Indeed, it is with the purpose of favoring particular interests
that monetary authorities are set up, not at all with an eye to
service the markets.
The first necessary and indelible mark of a fiat currency system
is that of the obliteration of the market's process of finding
the correct wealth/income conversion rate - interest rate - that
clears the markets. It sets a source of funds for borrowing other
than the holders wealth. This source - the central bank - lends
at a reduced rate to a favored cartel of banks so that their cost
of funds is below that which is necessary to cause conversion
of real wealth into income. When the pendulum swings to the conversion
of income to wealth, the central bank inevitably intervenes by
raising the conversion rate so that income converts into less
wealth. We call the first inflationary policy and we call the
latter fighting inflation.
The main
point is that in the interest of the cartel the interest rates
are moved upwards and downwards AGAINST the market's needs. The
purpose is clearly thievery. It is in the interest of self-serving
government and those who have purchased its services to effect
the sale of economic privileges with which to fleece the public
at large - those who hold
wealth or earn substantial income. As we cheer the fleet footed
economic managers when we enjoy their largess, we stare blind-eyed
at the brazen lies these authorities author. When we benefit,
we are benefiting from the sharing of the spoils of plunder. We
are but economic canibals eating each other's wealth.
As the plunder goes on, we find that our turn comes up to be butchered,
cooked and served for the "higher purpose" of satisfying
the ravenous hunger of the fattest man and the scrawny flea bitten
dogs that keep him company and share in his leftovers.
Wherefore is the justification, economic or otherwise, for national
currencies? for fiat money at all? for the existence of a central
bank? for the charters of banks? for the regulatory body that
forces all banks to collude?
I claim there is none such justification. That any reason provided
we would immediately recognized as a fraud or theft perpetrated
upon us or an offer to join in its perpetration upon others.
Elwood (02/11/00; 14:18:06MDT - Msg ID:25023)
ORO (02/11/00; 13:59:00MDT
- Msg ID:25019)
Hear! Hear! I second ORO's thinking and hereby nominate this one
for the Hall of Fame.
Journeyman (02/11/00; 14:58:04MDT - Msg ID:25034)
HOF for ORO (02/11/00;
13:59:00MDT - Msg ID:25019 @ Elwood & Trail Guide
I second Elwood's nomination of ORO Msg ID:25019 to the Hall of
Fame.
I also ask especially our new Trail Guide to address the issues
raised by ORO in this post - - - otherwise I'm afraid I'll lapse
back into my former ID as an inveterate gold standard advocate.
By the way Elwood, I believe since you made the nomination, yur
supposed to sheppard the thing through, keeping track of the seconds,
to make sure Town Crier doesn't miss any. Sorry buddy, but thems
the rules.
Regards,
Journeyman
SteveH (02/11/00; 15:09:35MDT - Msg ID:25039)
ORO third and that puts
him in
Mr. G.,
Not a problem.
TC let's get that ORO post in the HOF, he has got three nominations.
Better yet, set aside all his posts too in a special section along
with a special for FOA and Another, eh?
goldfan (02/11/00; 15:35:50MDT - Msg ID:25045)
Journeyman (02/11/00;
14:58:04MDT - Msg ID:25034)
Yes!! I add myself as third seconder to the request to put ORO's
latesd in the HOF.
And I want to remind others that we need one more to get his post
on Japan and
the relation of demographics to fiats into the HOF.
ORO (2/7/2000; 1:08:34MDT - Msg ID:24565)
In fact I PROPOSE that all ORO's stuff be automatically put into
the HOF as also FOA's and Trail Guides.
Goldfan
Trail Guide (02/11/00; 16:01:51MDT - Msg ID:25047)
Changing times!
Thanks ALL! I'll
leave these two posts to tell the truth for me. When (?) the new Trail page is up FOA will set
a tough pace to keep up with, believe it! He has to, the preasure
of oil is building fast.
ORO, I'll be arriving here soon, in debate mode no less. Your
(and others) good post are noted.
ORO (02/11/00; 12:31:46MDT - Msg ID:25015)
Trail Guide - welcome
Welcome Trail Guide to your home.
We have kept it warm for you, awaiting your reincarnation.
Missed you badly.
Thank you for your return.
SteveH (02/11/00; 11:05:20MDT - Msg ID:25006)
Yep...has to be
One and the same?
SteveH (02/11/00; 11:02:35MDT - Msg ID:25005)
Trail Guide and FOA
One and the same?
Harley Davidson (02/11/00; 16:24:33MDT - Msg ID:25050)
@ORO, In your message
ID:25019 you wrote...
"Wherefore is the justification, economic or otherwise,
for national currencies? for fiat money at all? for the existence
of a central bank? for the charters of banks? for the regulatory
body that forces all banks to collude?"
I feel your pain, brother. The central bank is the brain-child
concept "of the people" and "for the people"
except that the "people" are the bankers that stand
to gain by having the cost of their indiscretions and greed, when
things go bad, transferred to the common people in the form of
government bail outs so they can continue their plunder! While
we hear talk of financial institutions that are "too big
to fail" I can't help but wonder what happens when the cost
is too great to save them when they do fail!
Thomas Jefferson was an ardent opponent to the central bank. He
pointed out that the Constitution did not grant to Congress the
power to create a bank or anything similar. In other words, such
power is reserved to the states or to the people.
He also said:
"No one has a natural right to the trade of money lender,
but he who has money to lend."
"A private central bank issuing the public currency is
a greater menace to the liberties of the people than a standing
army. We must not let our rulers load us with perpetual debt."
"I have ever been the enemy of banks, not those charging
interest on loans of real money, but of those foisting their own
paper into circulation, and thus banishing our cash. My zeal against
those institutions was so warm and open at the establishment of
the bank of the U.S. that I was derided as a Manic by the tribe
of bank-mongers, who were seeking to filch from the public their
swindling and barren gains... Shall we build an altar to the old
paper money of the revolution, which ruined individuals but saved
the republic, and burn on that all the bank charters present and
future, and their notes with them? For these are to ruin both
republic and individuals. This cannot be done. The Mania is too
strong. It has seized by its delusions and corruptions all the
members of our governments , general, special, and individual."
Edward Griffin's Creature from Jekyll Island is a well-documented
account that lays it out in very readable detail (for a common
man as myself) from the very beginning of banking in the US. And
it is infuriating!!!
Trail Guide (02/11/00; 17:21:28MDT - Msg ID:25055)
A different view?
ORO (02/11/00; 13:59:00MDT - Msg ID:25019)
Aristotle and Trail Guide,
What is to stop the gold markets to regroup and form a new gold banking system?
Q: Please define "gold markets" in the context you use? We need to know exactly what this market is before one can "bank on it"!
I would think that - if there is gold there is also someoned to lend it and someone to borrow it.
Q: Why use gold to create a lending contract? Would society use gold as a "lend able" account unit if it freezes any further function of their money asset? To date, the history of the past gold systems points that such a function creates gridlock in the banking system. Doesn't this contradict the first purpose of gold: to act as a pay as we go medium, under no contract risk?
If there is new gold mined, it will be contracted for future delivery.
Q: Again, Why must gold be used? And why the illusion of future delivery in contract form? If society places a high enough value (currency price) on it, a" no collateral financing" would easily create a pay as you go operation, NO?
If there is gold of many players in a number of vaults, the gold will stay in the vaults and the title to the gold will trade electronically.
Q: Tell me, do we pay for our gasoline with "stock certificates" of IBM? Or any other ware - housed asset. Would not real estate titles also trade electronically? In this period of high speed trade, digits of anything could do the trick, no?
I still say that there is no economic reason, no justification for central banks at all. There is no economically useful purpose for national currencies.
Observation: Years of history and the nature of modern society say you are wrong, no? Our use of digital currencies for trade always flows like a river that's strong and wide,,,,, and it always flows to it's end in the sea. The water takes it into the air and rains it again upon the headwaters for another trip,,,,,a new currency starts again. All the while gold is held from it's value as officials grapple with it's position on the currency river,,,,,,,,,, stopping it's use as a wealth asset held by all.
I will go further and state that the purpose of central banks holding gold is so their people remain beholden to the state and the bank cartels it has chartered. The best thing for the CBs and treasuries to do is to unload their gold and cease participation in the financial markets. Individuals and private organizations should hold their gold and trade its receipts, to lend and to borrow it.
Observation: Again, society has proven that any and all currencies and moneys that are lent and borrowed,,,,,,soon become corrupted. Even gold itself,,,,,many times! Let gold become an asset of real wealth,,,,,and it will shine as the best background money this modern world has ever seen,,NO?
The amount of gold and other PMs can not be insufficient in quantity to for the basis for the volume of trade settlement. It is precisely the point that the quantity of gold matters not. What matters is that it grows with the economy that trades it as money.
Q: What will you do today that is different from yesterday? Can we pass laws that remove human nature?
The myth of a living and breathing fiat system. Many have proposed that there is some need in trade and business for the flexible money that fiat allows. I contend that there is no such flexible money, as its cost in trade and to business far outweighs the benefits of flexion.
Observation: We want and use this "flexion" today. Is not the only thing missing,,,,,,,,,,a way to shield our wealth from the effects of this "flexion"'s inflation ,,,,
Fiat currencies do not expand and contract as the markets need. Their mere existence forbids healthy interaction in the markets. The seekers of the conversion of income into wealth and those who must convert wealth into income are forbidden from setting the rates of conversion by the existence of fiat currencies. The necessary precondition of a fiat currency is the existence of a monetary authority that controls the quantity and the rate of conversion - the interest rate - at which both monetary and "real" wealth coverts into income.
Perhaps: But no one ever said that wealth was digits? no? A Western view of a world that's always going mad?</