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●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which ultimately leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive, and the motive is the gap.
I just read a 2011 article in Forbes Magazine, titled, “What is the purpose of a gold standard?” (O.K., so I’m a bit late.)
Although the author, Nathan Lewis, has an axe to grind (he wrote the book: “Gold: the Once and Future Money”), he makes some interesting points:
If you ask the typical academic Keynesian economist this question, he would probably say that there was no purpose at all.
If you ask the typical gold standard advocate this question, he would probably respond with some vague platitudes like “gold is honest money,” or perhaps would argue that a gold standard prevents government debt issuance, or some such thing. They have, I would say, only an imprecise grasp of the purpose of a gold standard system.
I agree, with all he said.
The purpose of a gold standard system is to produce a currency of stable value.
Agreed. That is the stated purpose. Of course, a gold standard does not fulfill that purpose. And it begs the questions: What is a stable value and what is its purpose?
Now we can say what a gold standard does not do: It does not prevent panics, crashes, depressions and so forth, caused by various factors unrelated to currency value. It does not prevent government debt issuance – although it does prevent printing-press finance of government expenditures.
A gold standard doesn’t prevent, panics, crashes and depressions, but it produces a currency of stable value???
I’m not sure how that is possible, and not sure why anyone would want a currency of “stable value” during a depression, panic or crash, even if it were possible.
A gold standard system does not put some sort of artificial limit on the supply of money. You can have as much currency as your economy needs, within the constraint that the currency must be stable in value. In other words, you cannot over-issue money to the point that it loses value.
What does stable in value really mean? Does “stable value” mean no inflation? Or does “stable value” mean stable exchange rate? Two very different goals, neither of which can be accomplished with gold.
The Fed already controls inflation to it’s annual goal of 2.5% -3%, without gold.
Is there another, even better method of creating a currency of stable value? No, there is not.
Yes there is. Interest rates. Raising rates “strengthens” the dollar. It increases the demand for dollars, which increases their value.
That is why, when people desire a stable currency, they have used gold again and again over hundreds of years.
And they have gone off gold standards, “again and again.” The author doesn’t explain why. (It’s because limiting your nation’s money supply, by the accident of gold discovery and inventories, causes national insolvency — that is the “instability” the author preaches about.)
Is there some deficiency in the gold standard, such that we would be motivated to find another, better system? In other words, did gold’s value ever change so much that it caused some sort of significant economic problem? Did it fail in its role as a benchmark of stable value?
It is quite difficult to find evidence of any example, in the last three hundred years, of a major gold-instability event. It pretty much worked as advertised.
Yes, those gold-instability events are so-o-o-o-o hard to find — except right under our noses:
And we have had many, many recessions, as well as the Great Depression, while we were on gold standards. (See graph)
“Worked as advertised”?
(Today’s) currency manipulation leads only to economic stagnation and decline. A capitalist economy simply works better with a stable currency than with an unstable one.
Again, he gives no definition of “a stable currency.” Is he talking about inflation or is he talking about foreign exchange. A currency can be stable in one and not stable in the other.
And what does he mean by “works better”? Is there some measure of this criterion?
The article demonstrates the usual gold-bug, vague generalities.
We are now on the path of currency decline, which will eventually end in hyperinflation if it is not arrested at some point.
Ah, the old hyperinflation myth, which always includes the words, “eventually” and “at some point.”
Of course “eventually” and “some point” may be centuries away. After all, we already have gone more than two centuries, through wars, depressions, recessions and yes, inflations, without hyperinflation — sometimes on a gold standard, sometimes not.
The U.S. federal government is being funded in large part with printed money, a red flag if there ever was one.
Dollars are not printed. The U.S. government is Monetarily Sovereign. The dollar (not the printed dollar bill) is its sovereign currency.
The U.S government not only can create as many or as few dollars as it wishes, but it can change the dollar/gold exchange ratio any time it wishes.
So, how is this freedom to change the dollar/gold ratio at will, any more or less “stable” than the ability to create dollars at will?
We don’t have to put up with the endless chaos, punctuated by disasters and crises, characteristic of the floating currency arrangement.
When people are ready to return to a system of stable currencies, they will look for a way to do so, and discover once again that a gold standard system remains the best path to this goal.
Let’s get this straight. A Monetarily Sovereign nation is sovereign over its currency. It can do whatever it wishes with that currency.
It can run larger or smaller deficits. It can spend more or less. It can peg to another currency or to a precious metal, like gold or silver. It can “unpeg” at any time. It can set and revise its currency’s exchange rate with any other currency, a basket of currencies or with any element in nature.
A gold standard does not force a Monetarily Sovereign nation to do anything it can’t do when not on a gold standard. When a nation on a gold standard runs short of gold, it merely changes the money/gold ratio, as Nixon did on August 15, 1971.
So how can a gold standard be a path to a system of stable currencies?
It’s a path to one thing, and one thing only: Big profits for the brokers who hawk gold to the suckers who guess future prices.
Place your bets, folks. The wheel is spinning.
Rodger Malcolm Mitchell
Ten Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)
10. Tax the very rich (.1%) more, with higher, progressive tax rates on all forms of income. (Click here)
10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
Two key equations in economics:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports
THE RECESSION CLOCK
Vertical gray bars mark recessions.
As the federal deficit growth lines drop, we approach recession, which will be cured only when the growth lines rise. Increasing federal deficit growth (aka “stimulus”) is necessary for long-term economic growth.