That is not what the chart shows. The chart shows the value in dollars of the US Treasury gold reserves. As the dollar devalues (ie it now takes more dollars to trade for an ounce of gold), the size of the gold bars on the chart will increase. It takes no change in circulating gold for that to happen.
The purple line is the fraction of gold held in reserve. A gold standard requires some amount of reserve, and this fluctuates all over the place.
i already told you the cause for each great fluctuations in the purple line. That does not prove the money supply isnt stable in a gold standard. It only proves gresham’s law.
Gold is used as money all the time today? Where? I demand evidence of this. I also demand that you provide the definition of “money” that you’re using.
We’ve debated before about the efficacy of GDP. Do you want to go down that road again?
What definition of “credit cycle” are you using?
If the amount of Swedish currency increased by 8% over that 25-year period, then that implies a constant annual growth rate of about 0.31% (1.08^(1/25) = ~1.0031). However, this says nothing about what kind of fractional-reserve banking was going on during that same period. You seem to be conveniently ignoring that, hence providing further support for my accusation of intellectual dishonesty against you.
I do mind. I want your own explanation for it. But since you quoted Wikipedia anyway, I’ll address the quote in a subsequent post. I still want your own explanation though.
In that case, I’m a “statist” if I’m so much as willing to protect myself against someone who I perceive to be threatening my life. I guess there’s no escaping “statism” then.
Hey, if people want to exchange things for what amount to glorified lottery tickets, that’s up to them. I just ask that the glorified lottery tickets not be presented as anything else, because I consider that to be fraud.
Again, I demand that you provide the definition of “money” that you’re using. I highly doubt that it’s even similar to the definition used by Austrian-school economics.
Even with full-reserve banking, the money supply can increase. It can increase in absolute terms (i.e. more currency being made) and in relative terms (i.e. more currency coming into circulation). But if it can increase in those ways, it can also decrease in those ways. My point has been that fractional-reserve banking greatly amplifies the magnitude of those changes. Looking at changes in base money over time is only a small part of the picture, because it completely ignores fractional-reserve banking.
As far as financial derivatives go, I wouldn’t be surprised if many, most, or even all of them are fraudulent by my standards. There seems to be a lot of fraud going on in the banking system.
So you’re once again implying that the money supply can only get bigger, and furthermore that it necessarily will get bigger, unless people are coerced to the point (whatever that may be) that they stop making coins. In other words, you’re once again ignoring what multiple people have said in this thread - that mining new gold in no way necessarily means that the money supply will increase. Intellectual dishonesty strikes again! What more fun is there than constantly shifting between positions to confuse your opponents so you can… well, I actually have no idea what your end goal is for all this.
Okay, now to the Wikipedia quote, which I’ll disassemble piece-by-piece.
I fail to see how financial intermediation is impossible under full-reserve banking. Furthermore, I fail to see how “want of knowledge” and “sufficient capital to make a loan” - whatever those mean - necessarily mean that small savers cannot make loans or investments. Being unwilling to do so is in no way the same as being unable to do so. Clearly, if a person has saved money, he’s able to make loans or investments. Finally, I fail to see how a borrower necessarily cannot draw on multiple loans from different small savers.
If the invested-in firm or individual goes out of business, why shouldn’t the investors take losses? How does that risk of loss really go away with fractional-reserve banking?
In other words, with fractional-reserve banking, the bank can act like both it and the lender have the same money. Nice trick, that.
Full-reserve banking would certainly allow such economies of scale as well. How does it prevent a person from entrusting the investment of his money to a firm or another individual?
Non sequitur. I don’t see how that would necessarily be the case. Even if it was, if savers wanted their money to sit idle, that’s up to them, isn’t it? After all, it’s their money, isn’t it? Just because someone else could use that money for something doesn’t mean he has the right to use it.
The purple line is the dollar value of gold held in reserve in relation to the dollar vlue of outstanding bank notes*.* Once again, no change in the gold supply is necessary for this purple line to move.
We have thus far been talking about a situation where there are no bank notes because gold is the money, and what the change in the available circulating gold might be. A gold standard is something entirely different from gold as money. You should read the site you linked the chart from.
The circulating gold supply will change with it. That’s the amount actually being traded.
Yes, there are two separate discussions about gold as money versus the gold standard. I didn’t conflate the two.
Sorry to Picard, you might have some good points in there, but it’s been ten pages and I don’t feel like reading more walltext. Let this thread die a good death on the “I don’t care if the money supply grows as long as the Federal Reserve isn’t doing it!” note.
And just why should I listen to you here? That is, why should I let this thread die on that strawman statement? I don’t think I should do that.
No, mustang19, it won’t die on that note because you haven’t demonstrated anyone felt that way, nor have you demonstrated an understanding of the ABCT, nor have have you proven anything.
Recessions are not caused by an expansion of the money supply. That is, it doesn’t matter how much new gold is mined, nor how much the amount of gold in circulation fluctuates. This is not the cause of the business cycle. The business cycle, according to Austrian theory, is caused by an expansion of the money supply by the banking sector, thereby ARTIFICIALLY lowering the interest rates. This is the cause of the business cycle.
A gold mining company that spends its new money into existence is not altering the structure of interest rates. That’s it. There is no more to ponder.
It is if it’s putting more money into circulation.
How about expansion of the gold-as-money supply to the banking sector? How is it artifical when one group of people do it and not-artificial when another group of people do it?
On some level, you’re probably aware that your argument doesn’t make any sense.
Well, as technology advances, paper may be printed much faster than gold can be mined. Even if gold mining technology advances.
Hence gold supply still is slower than paper fiat money.
And if anything, no matter the technology, mining gold will always be harder than printing money/ punching credit into existence via computer.
So according to Austrian Cock and Ball Torture Theory (ABCT), we’re screwed either way?
There you go again, impala, letting your misunderstanding of Austrian theories hang out again.
The gold spent into existence by a mining company is different from paper bein printed (or digital accounts being increased on a computer screen). Gold spent is a physical good that took work to get, and can only first be spent by the one that did the work (the mining company and its employees. Money from the FED has no work behind it, and thus, must go to and be spent by entities that did NOTHING to earn it; there is no product behind it. You really just don’t know what money is, do you? When the freshly mined gold is introduced on the market, it does not ARTIFICIALLY lower the structure of interest rates, while money from the FED does. The freshly mined gold does have an effect on markets, an ADJUSTMENT, much like the markets adjust when farmers increase beef production. You know, supply and demand (of course you don’t)? When the FED increases the money supply, it has an effect on markets, a MANIPULATION. Do you really not see the distortion caused by the FED’s increase of the monetary supply?
On some level, you know you’re wrong, but you can’t stand the fact that Austrian theory doesn’t have some major flaw, so you refuse to learn how the markets work on a basic level (supply and demand, definition of money, trade, etc.) or what Austrian theory actually says because refraining from this education allows you to remain “intellectually” honest.
Sure, but why doesn’t adjustment occur when the Fed/why doesn’t distortion occur when the not-Fed changes the money supply?
Really? Why do you have to say it? Even Swiss Cheese has major holes. The fact that you’re not able to to present a real argument besides repeating the word “artificial” is not the problem. The problem is that you’re trying to bend reality to make your theory work and not the other way around.
You really are conflating the two. My posts have been about gold as money. The chart you posted is about the gold standard. You used the chart as a response to my gold as money posts. Specifically, I said that the quantity of gold is more stable than the quantity of dollars, and you pointed me towards a chart that compares dollars worth of gold the US Treasury owns as a response.
All the purple line shows is the percentage of gold held by the US Treasury (valued in dollars) compared to the percentage of banknotes (valued in dollars) over a period of time. Absolutely no change in the circulating gold supply is required for that to happen. Likewise, the circulating gold supply could have increased or decreased and the chart could have looked the same because there are other factors as work (revaluing of gold to dollar ratio, increase or decrease in the amount of bank notes). That chart has absolutely nothing to do with the circulating gold supply. At all.
If it’s in Fort Knox it’s not really circulating. If the government was using gold to finance its day to day operation, that would be different, but the Treasury held gold almost solely to maintain the standard.
Although it’s not exactly the same thing, and we don’t really have any data on gold circulation in a gold-as-money system since they haven’t existed in a long time, from what evidence we do have it would probably be just as much of a rollercoaster.
If a bank wants to expand credit but can’t get any from the Fed, how does it expand the money supply? It just buys gold out of whatever noncirculating reserves exist.
ed: Unless it’s already using gold as currency, in which case it just uses its own uncirculating reserves.
The difference might best be explained with an example, since simple theory doesn’t work with you (due to a lack of understand of supply and demand, definition of money, trade, etc.):
- 100% gold-backed currency is the major currency that circulates. Fractional reserve banking is considered fraud, and insolvent banks will go bankrupt like back in the good ole days.
- X is a gold miner.
- Y is a beef farmer.
- Z is a home builder.
- There is no major shortage of houses in the market, but there is on beef. That is, consumers want more beef and there is little demand for more houses, if any.
- X mines an amount of gold equal to 10% of the current stock of gold in circulation.
- X trades some of his newly mined gold for beef from Y.
- X deposits/loans the remainder of his gold with his bank.
- The bank now has more money, and wants to lend it out. To encourage potential borrowers, the bank lowers the interest rate it is willing to accept.
- Both Y and Z want to take out a loan from the bank in order to increase their production.
- The bank, only having enough gold to lend to either Y or Z, chooses to lend the money to Y, since the demand for beef is up and the demand for new houses is down. The bank figures Y will be more capable than Z of repaying the principle plus interest in a timely manner.
- Thus, resources have been allocated to their most efficient and most in demand uses by the free market. There were no malinvestments made that will collapse. People like Y get richer by getting loans, increasing production, and helping supply meet demand, satisfying consumers. People like Z either make due with less, decrease production, or find a new job, perhaps on a beef farm.
OR
- Fiat currency is the major circulating currency, held up by legal tender laws, and the FED is given a monopoly on creating this fiat currency. Fractional reserve banking is not only legal, but encouraged, and insolvent banks will be bailed out by inflation, or stealing wealth from those holding the currency.
- X is a gold miner.
- Y is a beef farmer.
- Z is a home builder.
- There is no major shortage of houses in the market, but there is on beef. That is, consumers want more beef and there is little demand for more houses, if any.
- The FED doesn’t like this, because if there was more demand for houses, people that already own houses might be willing to take a reverse-mortgage since their house is worth more and spend! And the FED believes all an economy needs is spending and debt, not production and savings!
- Thinking this way, the FED decides to print up more money in an amount equal to 10% of the current stock of fiat in circulation. It buys mortgage-backed securities with the newly printed money.
- This transfers the money to banks holding mortgages, which the majority are banks that even specialize in home loans.
- The banks now have more money (even more than a 10% increase thanks to the magic of fractional reserves) and want to lend it out. To encourage potential borrowers, the banks lower the interest rate they are willing to accept.
- Both Y and Z want to take out a loan from the bank in order to increase their production.
- The bank has enough money to lend to both Y and Z (thank goodness for central banking and fractional reserve banking!). And with the FED’s purchase of mortgage-backed securities, [WARNING! MARKET DISTORTION AHEAD!] the demand for new houses has increased. The bank makes loans to both Y and Z, although Z got more in loans since the demand for houses has ARTIFICIALLY risen [artificially because no consumer was buying more houses causing demand to rise, but the FED created the demand out of thin air].
- Malinvestments are made. The demand for houses was not really as high as it seemed. Economists will call this a “housing bubble,” and when it pops, many stocks and related businesses take a hit. People like Y are not hit nearly as hard, since consumers did, in fact, want more beef, and still do. People like Z are likely unemployed or under-employed, and some will be forced to find new jobs, like raising beef, where labor and production is actually needed.
- People like X are really no better off than before. The only difference is, although their gold can buy roughly the same amount of stuff as it did before the “housing bubble,” the value of gold in dollars has risen dramatically, like from $300/oz. before the bubble to $1700+/oz. after.
- Unfortunately, people like mustang19 look at this and say, “See how wild the gold market is?!” when in fact, what they should say is, “Wow! The FED is very unpredictable and it’s wild actions cause the value of the dollar to swing (usually in the downward direction) wildly over time!” Sadly, these people refuse to educate themselves on basic market principles (supply and demand, definition of money, trade, etc.) and instead try attacking ABCT without actually even trying to understand what it really says.
What does it buy the gold with? Gold? This is the point, without a central banking and fractional reserve banking, banks cannot expand credit on their own. Consumers must save first, then deposit with the banks. This allows the interest rate to function as a signal for investors as it is supposed to. You REALLY do not understand what money is, how markets work, nor what Austrian theory says and why it says it.
Yeah they can, they just need savings. Unless you mean banks aren’t going to have any savings of their own, which is… whatever.
Is the Fed the only person buying mortgages? Did the Fed ever buy mortgage securities before 2008? If some private bank named itself “The Fed” and did everything you mentioned in steps 1-12 with its excess reserves, would the result be any different?
A bank using its own savings to loan more is not an expansion of credit; it’s spending. And if it chooses poorly as regards to who gets the loans, there might be a bank run and bankruptcy in its future without a lender of last resort. No FED, no bank holidays, no fractional reserve banking, wiser lending. Different; as night and day.
It does not matter whether they buy mortgage-backed securities or treasury bills and the government uses the money to help prop up Fannie and Freddie. The point is when the FED buys anything, it buys it with money created out of thin air. When anyone else buys a mortgage, for example, they do it with money they earned (through trade).
If a private bank loaned out its savings to borrowers for increasing production in an industry with low demand instead holding its savings or lending to borrowers for increased production in an industry with rising demand, yes, it will create a bubble and the bubble will eventually deflate, according to ABCT. And when that happens to a private bank, there will likely be a bank run and it just may very well end up declaring bankruptcy. There would be no bailout, no bank holiday, and no reinflating of the bubble. The question is, why would a private bank put itself in such a situation without the promise of bailouts, bank holidays, and a lender of last resort that can print money out of thin air?
I’ll give you that some of those dumb banks were bailed out. But the vast majority weren’t, and went bankrupt.
Merely the fact that the market tends to select banks which work best in present conditions doesn’t mean that these banks will continue making good decisions in future conditions. In fact, if conditions change then there’s almost nothing stopping them from collapsing as the financial markets “adapt”.
The other problem is that market interest rates themselves don’t actually reflect productive savings (expectation of increased future income through abstension from present consumption), just different capital reswitching schedules.