The Federal Reserve is so 1913 anyway

March 20, 2010 1:56 PM

Idaho recently passed H.B. 633 (.pdf) that will allow Idaho citizens to pay their state taxes with an official state silver medallion. The news comes just a month after a South Carolina legislator introduced a bill seeking to ban Federal currency altogether, and replace the upstart greenback with gold or silver coins. Meanwhile, Georgia has introduced the "Sound Money in Banking Act" which would require any bank serving as a depository for the state to offer and accept gold and silver coins for deposit. Is gold making a comeback as currency?
posted by julie_of_the_jungle (111 comments total)

Georgia has introduced the "Sound Money in Banking Act"

No, five senators have introduced a bill that has been languishing in committee for more than a month and has to be passed by Thursday or it is dead for the session.
posted by grouse at 1:59 PM on March 20, 2010 [8 favorites]

I think all this proves is that state legislatures are filled with morons.
posted by graventy at 2:03 PM on March 20, 2010 [12 favorites]

Is this something I would have to google Ron Paul to understand?
posted by Artw at 2:05 PM on March 20, 2010 [21 favorites]

All their noise, over a black president.
posted by Blazecock Pileon at 2:15 PM on March 20, 2010 [4 favorites]

Should it ever happen, I look forward to oh-shit-what've-we-done reaction on Day 1 of currency/exchange trading. It should be hilarious.
posted by dantsea at 2:16 PM on March 20, 2010 [1 favorite]

I think they should just bring back confederate money for the wingnuts. They could put Orly Taitz on the twenty.

Also, I'm starting to wonder if the Gunz'n'Gold lobby rigged the election to get Obama elected. They have a lot more to gain from it than ACORN.
posted by mccarty.tim at 2:25 PM on March 20, 2010 [3 favorites]

I think Idaho has good intentions, they're trying to stimulate the local economy by getting their state silver mines working again and having them produce something useful (silver as currency being arguably useful for their situation). From the article:

The intent of this act is to use the abundant silver resources of the state of Idaho to create a means whereby the people of Idaho can pay their taxes to the state using silver mined from the ground of Idaho, processed in Idaho and finally minted into a medallion in Idaho. It is the intent of the Legislature to create mining jobs in Idaho while giving the people of Idaho a means to store their wealth in a precious metal that is immune from the effects of inflation while complying with the mandates of our federal Constitution.

But I think the other states are kind of hurf durf we hate the fed.
posted by julie_of_the_jungle at 2:27 PM on March 20, 2010 [1 favorite]

Wait, wait, wait, wait. It looks like Idaho didn't pass the bill, just that it made it out of committee somehow.
posted by kafziel at 2:27 PM on March 20, 2010

And apparently my reading comprehension skills are at zero since they're not talking about new paper currencies. But I maintain if they did, it would be funny as hell to watch the drama.
posted by dantsea at 2:27 PM on March 20, 2010

Once they they learn to melt down the right amount for my change, I'll be happy.
posted by ricochet biscuit at 2:28 PM on March 20, 2010

To be fair, once Ron Paul is elected and destroys the Fed with his fists ("Ayn" and "Friedman"), we will need new sources of money. Hundreds of web polls can't be wrong!
posted by mccarty.tim at 2:28 PM on March 20, 2010 [7 favorites]

Finally! I've been completely confused as to what I was supposed to do with all these silver medallions. Now I can pay my taxes with them!
posted by koeselitz at 2:31 PM on March 20, 2010

What next, a bill to execute Jews found to be coin-clipping?
posted by longsleeves at 2:31 PM on March 20, 2010

> Is gold making a comeback as currency?

Not as long as federal law still trumps whatever the states believe they can do.
posted by Doug Stewart at 2:38 PM on March 20, 2010 [2 favorites]

Well, I understand the thought behind our paper currency methods and the drawbacks of specie currency, but when I look at the time period of the Nixon Shock and how the CPI has behaved since then, the armchair economist in me wishes the CPI was still as consistent as it was for the first 200 years that the dollar was tied to precious metals.
posted by AzraelBrown at 2:41 PM on March 20, 2010

But Pitts maintains that his state is better off with something he can hold in his hand and barter with as opposed to federal currency, which he described to the Scoop as "paper with ink on it."

Kinda like that US Constitution you presume to love so much, eh?

"Got a little change in my pockets going jingalingaling..." I mean, really? To actually say you need to pay with literal silver/gold (not paper backed by the gold and silver (or does the bill stipulate that a paper currency could issue forth)?

I know what I can hold in my hand that issues forth a very amazingly potent substance... A substance which truly has the power to literally give life. A substance which has a built in expiration, which means it would require continued production (and thus act as a check on inflation)... Indeed, producing it is a truly manual labor. And we could store the substance in... Hmm... Some sort of bank.

Oh, and it would be a boon to the local pornography industry, as well!
posted by symbioid at 2:55 PM on March 20, 2010 [2 favorites]

It's come full circle. Now Republicans hate money.

HAMBURGER PLEASE DON'T HIT ME
posted by mccarty.tim at 2:56 PM on March 20, 2010 [2 favorites]

Ah, yeah ok... After looking at the text of the S. Carolina legislation, it is for "certificates" as well (I was getting worried for S. Carolina there for a minute).
posted by symbioid at 2:57 PM on March 20, 2010

The dude in South Carolina should call his bill the Ordinance of Nullification. If Obama is reelected in 2012 then he can draw up a declaration of the causes of secession. Then we can have CIVIL WAR II: ELECTRIC BOOGALOO.
posted by birdherder at 3:10 PM on March 20, 2010 [3 favorites]

mccarty.tim: "Now Republicans hate money."

Nah they don't hate money they just miss being able to throw it at servants and having it do damage.
posted by graventy at 3:11 PM on March 20, 2010 [3 favorites]

But Pitts maintains that his state is better off with something he can hold in his hand and barter with

Luckily, I come naturally equipped with something I can hold in my hand (well, two hands) and barter with.
posted by ROU_Xenophobe at 3:14 PM on March 20, 2010 [1 favorite]

The ultimate problem with metal-backed currencies is that precious metals are arbitrarily valuable; gold and silver are only as expensive as they are because of the perception that there is some value to them beyond their actual utility. Value- wealth- is created by the combination of useful materials and work, which is harder to actively trade. The beauty of fiat money is that fiat money is ultimately backed by wealth- by confidence in the stability and wealth of the economy of the issuing nation.

There's also the issue that basing a currency on metal limits the size of economies; if the US only has fifty tons of gold, we can only have fifty tons of gold worth of dollars in our economy. The ability to control the money supply beyond "Well, we have fifty tons of gold" allows for flexibility and power that commodity-based currencies simply can't match.
posted by Pope Guilty at 3:30 PM on March 20, 2010 [5 favorites]

Seriously, Bimetalism? You are going to have another civil war, aren't you? I'm hoping all you US mefites will give us a bit of a heads up, 'cause I'm sitting here in Canada thinking we should probably sort out some kind of defense policy.
posted by TheWhiteSkull at 3:34 PM on March 20, 2010 [1 favorite]

the armchair economist in me wishes the CPI was still as consistent as it was for the first 200 years that the dollar was tied to precious metals.

I don't see where you're getting the idea it was consistent. The graph shows wild swings between inflation and deflation up until Nixon ended the gold standard, and other than the inflationary spikes of the 1970s it's been below 5% every year since then, at least until last year where we had deflation for the first time since the 1940s.

If you're talking about the CPI Index, keep in mind we're looking back towards 1774, and money is going to compound over that much time. If it didn't, then it would be very hard to explain how the US GDP got to be $14T when it was an agrarian society until the start of the 20th century.

I've talked repeatedly about the problems with going back to any metal standard. There are only two reasons gold fever continues in this country -- one, because it gives those with little power the belief that they have some control over events they do not fully understand, and two, because the people promoting the panic are making a killing off all the precious metals investment schemes that have popped up. Gold and silver are becoming bubbles -- nowhere near as calamitous as the housing bubble, but bubbles nonetheless.
posted by dw at 3:43 PM on March 20, 2010 [5 favorites]

and two, because the people promoting the panic are making a killing off all the precious metals investment schemes that have popped up.

Like Glenn Beck, who makes money from Goldline International while telling people to invest in gold.
posted by Pope Guilty at 3:45 PM on March 20, 2010 [2 favorites]

If Pitts were a lawyer, instead of a moron retired cop, he'd understand that South Carolina doesn't have the power to ban federal currency and that the Federal Reserve isn't unconstitutional. This debate was over in the early 19th Century, and his side lost. Unfortunately, this body is too stupid to understand that it's dead.

I see Ron Paul's greasy fingerprints on this one.
posted by 1adam12 at 3:53 PM on March 20, 2010

Well, I understand the thought behind our paper currency methods and the drawbacks of specie currency, but when I look at the time period of the Nixon Shock and how the CPI has behaved since then, the armchair economist in me wishes the CPI was still as consistent as it was for the first 200 years that the dollar was tied to precious metals.

Leaving aside the absurdity of presenting "CPI" data clear back to the 18^th century when the earliest CPI data only extends back to 1913, one should always view charts of absolute investment returns on a logarithmic, not linear, scale, due to the mathematics of compounding interest. I suspect the resulting rescaling would tell quite a different story.
posted by indubitable at 3:57 PM on March 20, 2010 [2 favorites]

Like Glenn Beck, who makes money from Goldline International while telling people to invest in gold.

Of course, given the premiums goldline charges, they aren't really "investing"
posted by delmoi at 3:58 PM on March 20, 2010 [1 favorite]

It amazes me, so close to a near-catastrophe, when the Federal deficit is funding 10% of the entire economy, that people are still willing to hurf-durf like this.

Fake money is killing us; it's letting us paper over our problems instead of dealing with them. Think about it for a minute: we just barely averted a Depression. And it wasn't the bailouts using paper that saved us... it was the earlier bailouts using paper money that caused it.

There's nothing magic about gold. It may not even have inherent value; you can certainly argue, quite sensibly, that it doesn't. But that doesn't matter. What does matter is that it can't be created from nothing. It forces a limited currency supply, that can't be easily changed to suit political whims, which in turn forces transmission of the realities of shortages and surpluses through price shifts. When the Federal Reserve is managing the money supply explicitly to prevent price movement, they're hijacking the ability of the economy to communicate with itself. So it goes out of adjustment, and as they keep trying to hide those signals, it gets worse and worse.

It's not a coincidence that we were so immensely wealthy in the 60s and 70s, and 40 years after going off the gold standard, we can barely muster up the money to fix the damn roads... even with much, much higher state sales taxes. The wealth of the world is going into the pockets of those who manipulate currency, instead of to the people that actually make that wealth. Each year there's a little less for everyone, because so much wealth is being leeched away into the hands of a few hyper-rich entities.

In actual physical reality, the wealth of the world is energy, goods and the means to make them, raw resources, and knowledge. We trade those items back and forth in an attempt to make more goods and energy, increasing our standards of living. Currency is a wonderful method of abstracting our wealth production. You provide value into the economy, and get currency for it. By saving up currency, you in essence get to say, "Ok, it's my turn to have these resources now, I've invested a bunch of value into the economy and I want it back." Currency is just a sophisticated method taking turns with the limited resources we have, and it also allows large-scale cooperation that wouldn't be possible without it.

With fiat currency, the initial injection of the currency into the system is a lie. No real wealth has been generated, and no real work has been done. Remember, WEALTH is energy, stuff, and knowledge... fiat currencies are a claim on that wealth. In essence, it allows the entities near the source of the money, in this case the Federal Reserve, to say "it's my turn now!" and take stuff without providing any actual value at all. And now a whole host of ancillary financial entities have sprung up around that source of turns, many of which are not actually generate very little of value, if anything. And if they screw things up bad enough, the Federal Reserve just jams more new claims on wealth into the system. The people who MAKE the wealth suffer when that happens, while the people who MANIPULATE the wealth prosper.

I suspect that, had we not abused our currency in the 60s, forcing us to go off the gold standard in the 70s, modern projects like health care wouldn't be that big a deal. You lose just one percent of real wealth generation per year, and over four decades that makes a phenomenal difference.

Warren Buffett's entire life, as he puts it, has been showing what a difference one percent makes.

Apologists will always jump in and say, "but the economy grows faster under fiat currency!" And they're right, it does. But it's fake growth, stimulated by fake demand, from new "turns" being issued into the system without any new wealth. This means more people want resources, so the economy builds things to serve those people. But then if the stimulus stops, it turns out that the entire heightened growth was fake to begin with, and a large chunk of the maladjusted economy either collapses or goes into severe contraction. Slow, steady growth is sustainable; bursty growth from currency manipulation will collapse.

If you want to build a skyscraper, the foundation has to be excellent. If you lie about the materials you used, the building will eventually topple.

There is nothing more important in healthy economies than honesty.
posted by Malor at 4:05 PM on March 20, 2010 [8 favorites]

Well, I think I speak for everyone, including those who advocate returning to precious metals, when I say that I want to keep my $30,000 a year income while the cost-of-living returns to 1900s levels. It's so simple, isn't it? Fat cats/socialists/plutocrats/evangelists/Illuminati are keeping the little man down!
posted by AzraelBrown at 4:06 PM on March 20, 2010

Argh: many of which are not actually generate very little of value

I'm not actually that illiterate. Honest.
posted by Malor at 4:07 PM on March 20, 2010

Azrael, if you insisted on being paid in the gold that supposedly backed our currency in the 1970s, your present income would be well north of $150,000/year. I looked this up awhile back and ran the numbers.

From my estimation, if you were an "average" wage earner in 1971, as defined by Social Security, and converted to being paid in gold in that year, and never got a raise again in your entire working life, there is no year in the last 40 where you would have been worse off than an 'average' worker, even when gold dropped to $275/ounce in the 1990s. Even at the lowest point for gold, being paid in the ounces per year from 1971 would still have netted you a few more dollars than that year's average wage.

Not one year, not one time, would you have been in worse shape. And in a lot of years, you'd have been better, and since 2000, you'd have been in fantastic shape.

Now, there are reasons why that's not as accurate a comparison as it might be, not the least of which is that the American economy was overheated in the 1970s from the currency manipulation of the 1960s. We weren't REALLY on a gold standard, but rather a 'managed currency', and we way overprinted, so wages were artificially high. But, as a broad benchmark, it's an interesting data point.
posted by Malor at 4:21 PM on March 20, 2010

Hi. I'm English. I don't quite understand why it's moronic to accept real money (gold and silver) as payment as well as/instead of fiat money endorsed by the country. Could someone explain? Is it because typical "republicans" support such a thing?
posted by jpcooper at 4:23 PM on March 20, 2010

This is what happens when you demonize Marx to the degree that people fail to understand how gold and silver (or any metal) could not have an intrinsic, objective value other than what it is used for and how it is produced.
posted by TheWhiteSkull at 4:33 PM on March 20, 2010 [1 favorite]

A certain somebody I know, who invested in the 1980s silver rush will like this.
posted by acro at 4:49 PM on March 20, 2010

...state legislatures are filled with morons...

The federal legislature, on the other hand is ... oh, fuck it; I'm really getting tired of this.

No more political posting for me. I'm so done.
posted by ZenMasterThis at 4:59 PM on March 20, 2010

Each year there's a little less for everyone, because so much wealth is being leeched away into the hands of a few hyper-rich entities.

Going to a commodity-backed standard will not change this.

I don't quite understand why it's moronic to accept real money (gold and silver) as payment as well as/instead of fiat money endorsed by the country. Could someone explain? Is it because typical "republicans" support such a thing?

It's more because gold-backed currency isn't more "real" than fiat currency.
posted by one more dead town's last parade at 4:59 PM on March 20, 2010 [2 favorites]

I don't quite understand why it's moronic to accept real money (gold and silver) as payment as well as/instead of fiat money

The value of "real" (precious metal) money is determined by fiat as much as "fiat" (paper) money. There's no inherent benefit to its use, and many detriments.
posted by Blazecock Pileon at 5:03 PM on March 20, 2010 [6 favorites]

Malor, no, I totally get it, and that's sorta the point: with gold being a 'product' now, like a gallon of milk or a pair of pants, ideally its cost will keep going up, like my income keeps going up, and they stay somewhat balanced. But, dude, have you seen the price of gold? It keeps going up and up, and now people are going crazy that their dollar is going to become worth less, so it only makes sense to lock in at its weight in gold, because when the dollar is equal to its amount in gold, we'll fix the economy as gold keeps going up in value! Seriously, I do agree with your post above, that's why I favorited it, but the problem here isn't what we use for money or what we base our economy on, but greed -- I want more money, but I also want to be able to do more with the money, and that's been the way things have worked for the past twenty years but now the economy has hit a rough spot and people get nervous. Nobody wants to lose money due to a falling dollar; it's so unfair, but if they had gold instead of a dollar, they wouldn't be losing anything. Sure, in the long term, you're stuck with a bunch of gold whose value is equally uncertain, but that guy drew lines on a graph that made it look like there's an easy way out of a bad economy, so gold must be the answer! In this case, the claim is that specie will solve things; we do that for 40, 50 years until something screws up the value of the metal, and then people will be screaming for banks to issue fiat currency to save us all from the uncontrollable price of gold.
posted by AzraelBrown at 5:05 PM on March 20, 2010

The value of "real" (precious metal) money is determined by fiat as much as "fiat" (paper) money.

LIBERTARIANS AT LOSS TO UNDERSTAND CONCEPT OF SOCIAL CONVENTIONS FILM AT 11GOOGLE RON PAUL
posted by DU at 5:10 PM on March 20, 2010 [4 favorites]

The value of "real" (precious metal) money is determined by fiat as much as "fiat" (paper) money.

Thank you. Everybody tattoo that on your foreheads. We're done here.
posted by unSane at 5:19 PM on March 20, 2010 [1 favorite]

But... but... but... I just exchanged all my spare gold for cash. Oh infomercials, is there no end to your treachery?
posted by ob at 5:24 PM on March 20, 2010 [2 favorites]

It's more because gold-backed currency isn't more "real" than fiat currency. Actually, in the US, at least, it's more because you can't pay your federal taxes with gold.
posted by carping demon at 5:25 PM on March 20, 2010

As a commodity, gold is one of the most useless, economically worthless materials in all of creation. Sure, it's a great electrical conductor (and audiophiles love to think their gold-plated RCA jacks really bring out the sonic details in their favorite Rush album).

But gold's too soft and heavy to be used to make most useful tools and machinery, it's expensive and carbon-intensive to extract and refine, and there are limited quantities of it, virtually guaranteeing that gold based economies will end up with gross systemic economic inequalities.

If you ask me, gold should finally be recognized as the useless, overvalued junk commodity it is, and the myth that it actually matters should finally be abandoned once and for all--the last thing we should do is go back to equating "shiny" with "valuable" like a bunch of nattering crows. The modern world simply has no use for the crap. Anything its useful for, there are other materials that can do it better. We'd be better off switching to a pine-cone based exchange system, or at least some kind of renewable commodity, and such a choice would be just as rational and sensible. So WTF?

You know the old Cree saying about how, only when the last tree has been harvested, the last river poisoned, and the last fish caught will we realize that we can't eat our money? Well, shit, even by that measure gold is crap. At least with paper money, there's half a chance you could eat it in a pinch. Just imagine having to chow down on a sack full of gold coins.

Belief in the intrinsic value of gold is magical thinking, plain and simple.

What a load of complete garbage.
posted by saulgoodman at 6:03 PM on March 20, 2010 [6 favorites]

Oh, and even as an electrical conductor, it's not even close to the best. So WTF?
posted by saulgoodman at 6:05 PM on March 20, 2010

Azrael, if you insisted on being paid in the gold that supposedly backed our currency in the 1970s, your present income would be well north of $150,000/year.

Heh.

If you insisted on being paid in 1971 dollars (the year of the Nixon shock), you'd be making... $157,000/year. So gold beats inflation... barely.

But what if you asked to have that $30,000 put in a broad market stock mutual fund and then paid out as salary whatever that was worth? Well, assuming that the market has returned 6% year on year for the last 39 years (it hasn't; it's still closer to 9%, even with the meltdown) that means you'd be making $291,000/year.

So gold is a poor investment. And honestly, if the doom 'n' gloom of the anti-fiat folks really does come true, gold won't have any value; ammo will. Seriously, if you can't eat it, kill with it, or wipe your butt with it, it has no value in the Coming Financial Armageddon(TM).
posted by dw at 6:14 PM on March 20, 2010 [5 favorites]

The value of "real" (precious metal) money is determined by fiat as much as "fiat" (paper) money.

Blazecock, it's not that I don't believe you, but I don't understand how this can be. The federal reserve can't just print more gold when they run out.
posted by straight at 6:30 PM on March 20, 2010

Panics, bubbles and liquidity traps are not phenomena created since we went off the gold standard. Examples of events like the ones we've seen in the last 20 years are seen time and time again regardless of the metallic backing of the currency. The alleged problems that we are not dealing with are in fact simple human traits of greed and envy. These conditions are not lessoned by any moral lesson of poverty and ruin. As we've seen time and time again forcing a society to "deal" with these problems only punishes the poor more harshly for the sins of the rich and allows for greater tyranny.
This was in fact argument William Jennings Bryan made during his famous "Cross of Gold" speech. The farmers and the laborers were punished by the tight currency policies of the gold standard. This resulted in less work being done, less food on the table and a real reduction in the overall standard of living per capita.
To argue that we've some how become poorer in the last 30 years when the average middle class house has never been larger, kilowatt hours of utility usage have never been greater and the daily calorie in take of individuals is so high we are confronted with an epidemic of obesity; to make this argument is ridiculous on the surface. No doubt some segments of the population such as semi-skilled labor have seen their access to the middle class decline, but had we stayed on the gold standard these things would have been far worse.
posted by humanfont at 6:47 PM on March 20, 2010 [1 favorite]

The federal reserve can't just print more gold when they run out.

Sure, but the value of gold is determined by how much people believe it to be worth, and literally nothing else. That imaginary value may not be strictly determined by fiat, but it's still just as much a made-up value.

Seriously: Apart from its relative scarcity (and it isn't even all that scarce), what makes gold more valuable than, say, wood?

What people are willing to pay for it, based on its perceived value. As denominated in fiat currency. So by the transitive property, gold is fiat currency. Unless we abandon fiat currency altogether and denominate the value of gold arbitrarily in terms of equivalently valued goods and services. For example, say we just decide that a shoe shine is worth about an ounce of gold. Well, if the value of gold doubles due to a perceived scarcity or other increase in demand, then a shoe shine would cost only half an ounce of gold, so anyone with an ounce of gold in their pockets now in effect holds twice as much currency as they did before the "value" of gold increased. How is this scenario really any different than doubling the amount of gold in circulation by fiat?
posted by saulgoodman at 7:04 PM on March 20, 2010 [4 favorites]

The modern world simply has no use for the crap. Anything its useful for, there are other materials that can do it better.

A lot of electronic connectors have gold-plated contacts. (These are on regular working gadgets not Monster Cable-like audiophile fetish objects.) Surely there'd be a reason why they'd use gold, and not some superior conductor that's not hoarded in vaults in Switzerland and Dubai.
posted by acb at 7:30 PM on March 20, 2010

acb: A lot of electronic connectors have gold-plated contacts.

...And a lot of them don't. Gold is used instead of superior materials because it's less scarce. So that hardly makes a good argument for it's value.

And people have believed gold was valuable (because it's shiny) since long before we even knew how to make electronic devices. Nice try, but gold's value does not derive in any way from its practical utility. It's value is a collective fantasy.
posted by saulgoodman at 7:36 PM on March 20, 2010 [2 favorites]

Wouldn't a plan for a state to have its' own silver or gold currency inordinately expose them to both precious metals and currency traders? (Hope me please.)
posted by vapidave at 7:38 PM on March 20, 2010 [2 favorites]

"Panics, bubbles and liquidity traps are not phenomena created since we went off the gold standard. Examples of events like the ones we've seen in the last 20 years are seen time and time again regardless of the metallic backing of the currency."

And a sudden injection of your base metal can destroy your economy.
posted by Mitheral at 7:47 PM on March 20, 2010

We should back the dollar with carbon offsets just to screw with the right wingers.
posted by mccarty.tim at 7:58 PM on March 20, 2010 [10 favorites]

We'd be better off switching to a pine-cone based exchange system, or at least some kind of renewable commodity, and such a choice would be just as rational and sensible. So WTF?

Sure, that would work. It doesn't matter what's backing the money, as long as it's something real, and can't be invented on a whim.

Hell, remember Fallout? Using bottle caps as currency would be better than what we're doing now. You can't just invent bottlecaps with a few strokes on a computer keyboard.

Many supporters of the gold standard are doing so for the wrong reason, but they're right that we're slowly dying of the imaginary-wealth disease.

Again: it doesn't matter what gold's actually worth. If you're thinking about it in those terms, you're approaching the problem from the wrong direction. Gold's value is simply that it isn't imaginary. There's plenty of other options. If it really has no value, fine, let's choose something that does. Gold is only money because almost everyone likes the stuff when they see in person; it's a lovely metal. Some more modern substance might work just fine.
posted by Malor at 8:14 PM on March 20, 2010

gold should finally be recognized as the useless, overvalued junk commodity it is

Balderdash! Gold is the most malleable and ductile of all metals, and is virtually non-reactive in normal environmental circumstances (i.e., not submerged in a bath of aqua regia). That means the gold bar you hold in your hands today will be the same gold bar in a hundred thousand years. Combined with its relative scarcity it makes an almost perfect base of currency.

It's much harder to forge a bar of gold than it is to forge a $100 bill.
posted by Civil_Disobedient at 8:20 PM on March 20, 2010

Gold is only money because almost everyone likes the stuff when they see in person; it's a lovely metal. Some more modern substance might work just fine.

Oh ok cool, I think I'll stick with paper then.
posted by tjenks at 8:23 PM on March 20, 2010 [1 favorite]

Civil_Disobedient wrote: "It's much harder to forge a bar of gold than it is to forge a $100 bill."

It may not be useless, but it is still drastically overvalued. It is every bit the bubble that the housing market was or any other of history's bubbles. We've just been spectacularly successful at maintaining that particular charade over the years.
posted by wierdo at 8:26 PM on March 20, 2010 [1 favorite]

Panics, bubbles and liquidity traps are not phenomena created since we went off the gold standard. Examples of events like the ones we've seen in the last 20 years are seen time and time again regardless of the metallic backing of the currency.

Almost always, when you see bubbles and crashes, there's some form of currency in circulation that's not actually good for what it says it is. The abundance of that currency leads to over-optimism and bubbles; when the bubble peaks, and the underlying fraud is revealed, there's a panic and crash. In the case of a really big bubble, like the one in the 1920s, the fraud permeates the entire economy, and it can take decades to recover.

The late-1800s bubble and crash were, IIRC, set off by fraudulent railroad stocks. In the case of the 1920s, that bubble was inflated by over-optimistic money injection by the still-new Federal Reserve. There are many many many parallels between then and now. The big difference is that we took our lumps in the 1930s the first time around, setting the stage for an enormous recovery and unbelievable prosperity. This time around, we're refusing to allow the crash, so none of the problems are actually getting fixed.

Nothing has been fixed after the crash we just almost had. Nothing at all. All we have now is bigger problems than we had three years ago. And the reason we're able to keep digging this hole is because we can print money to paper over the ugly reality of the debt bubble.

The next time around, and it may be a number of years yet, possibly as long as a decade, before things come to a head, the dislocation will be far, far worse than the one we just had. We're building our economy on the lie that we'll someday pay back the resources we're consuming now; when that lie is revealed, there will be worldwide chaos. The longer we delay that adjustment, the worse it will be.

That's why commodity money matters; it doesn't allow politicians to live in fantasy. It forces them to actually deal with economic reality on the ground, instead of deferring problems and making them larger through cash injections. No system is perfect; you end up with many more small problems with commodity currencies, but you avoid the really large, nation-killing ones.
posted by Malor at 8:28 PM on March 20, 2010 [4 favorites]

Gold's heavy. Let's use Aerogel as money. It's light as anything, and has about a million cool properties. And it's inherently useful as the best insulation you'd care to look up. Only carbon nanotubes are more awesome (although kind of scary).
posted by mccarty.tim at 8:29 PM on March 20, 2010

It may not be useless, but it is still drastically overvalued. It is every bit the bubble that the housing market was or any other of history's bubbles.

You know, it's hard to tell, but I really don't think it is. It's been climbing very slowly for a long time. It only broke into public consciousness when Obama was elected and the nutjobs panicked, but it's holding up pretty well, and hasn't looked terribly bubbly for quite some time. And before that, even in the worst of the deflation panic, it held up surprisingly well, better than I expected.

If it really were a bubble, I suspect it would be a lot higher, because the oil-price mini-bubble of a couple years ago was in the single largest commodity market in the world. Financial speculators, because of their massive leverage and access to huge amounts of fiat money, can have wildly extreme effects on the regular markets, and the gold market is, overall, pretty small. I'd expect larger distortions if it were really a bubble. My guess is that the overall slow rise, punctuated by a quick spike when Obama took office, is more reflective of an overall expert opinion by the big players that the US dollar isn't worth as much as it was, and is heading much lower.

Everyone likes to snicker at the Beck zealots, but they're such a tiny force in the world economy, compared to the vast financial edifices we've built, that I think it's extremely unlikely that they could affect the gold price that much.

Further, I even have evidence of that, because the REAL trading value for gold coins when Obama took office was well over $1k/ounce, when the paper price stayed stubbornly lower, I think about $800. Gold was VERY difficult to actually get in this country, and the official price went absolutely nowhere.
posted by Malor at 8:37 PM on March 20, 2010 [1 favorite]

(well, it did eventually go up, but it took a long time; the price in late 2008 and early 2009 didn't reflect the Beck-zealot demand at all.)
posted by Malor at 8:40 PM on March 20, 2010

It's much harder to forge a bar of gold than it is to forge a $100 bill.

Well, if that's the argument, why not use just any old purified material? You can't "forge" iron, either. Or why not platinum? Or carbon?

If it's not scarce, then we just increase the size of the base unit we reckon the value in (a ton of carbon instead of an ounce of gold); the result's the same.
posted by saulgoodman at 8:41 PM on March 20, 2010

Gold can kill cybermen.
posted by Artw at 8:58 PM on March 20, 2010 [5 favorites]

The only important property of commodity money is that it can be horded.
posted by carping demon at 9:24 PM on March 20, 2010 [1 favorite]

The only important property of commodity money is that it can be horded.


Which generally ends so well.

can I haz HAMBURGER?
posted by unSane at 10:01 PM on March 20, 2010

The late-1800s bubble and crash were, IIRC, set off by fraudulent railroad stocks.

Fradulent? It was outright overspeculation in railroads, although 1873 also featured the US going off the bi-metal standard to a pure gold standard, which crashed the silver market, which in turn contracted the money supply and not only hurt average people with loans (e.g. farmers) but also Jay Cooke and his Northern Pacific railroad.

It should be noted that in the 27 years between 1873 and 1900 the US was in a depression or severe recession for 16 of them. And one could argue pretty successfully that the reason for the long years of economic calamity could be traced to the contraction of the money supply caused by dumping the bi-metal standard for gold alone. This should be something the gold bugs address -- the problems of trying to handle the dislocation moving to a gold/bi-metal/tri-metal would cause to the money supply -- but they handwave over it.

In the case of the 1920s, that bubble was inflated by over-optimistic money injection by the still-new Federal Reserve.

But it's often forgotten the inflation was actually at the START of the 1920s, not the END of the 1920s. In fact, again, the Fed contracting that money supply -- and also refusing to help any of the failing banks, which may have been the Machiavellian thing to do but severely eroded public confidence in the financial system -- exacerbated what was a bad market correction into the worst depression the US had seen (with perhaps the exception of the Panic of 1837).

You know, it's hard to tell, but I really don't think it is.

Gold is up over 150% since 2005, after returning roughly 1-2%/year on average in the 20 previous years.

Home prices in the US nearly doubled between 2000 and 2006, after returning roughly 2-4%/year on average in the previous 20 years.

Gold prices are being pushed up by speculators selling the public on the idea that this is the safest place you can put your money and prices will keep going up.

Housing prices were being pushed up by speculators selling the public on the idea that housing was the safest invested in America and prices will keep going up.

Daytime TV is filled with commercials for places like Cash4Gold and with infomercials touting how Gold Will Save You From The Coming Ruin.

Daytime TV was filled with commercials for places like Ameriquest and with infomercials touting how You Can Live The Good Life Through Real Estate Investing.

It's a bubble. Plain and simple.

Gold was VERY difficult to actually get in this country, and the official price went absolutely nowhere.

I remember when gas was cresting at $4/gallon that a co-worker refused to believe me when I said we'd see sub-$2/gallon prices with a couple of years. The reasoning I had was twofold:

1. Oil has always been very boom-bust, mainly because people underestimate the elasticity of the supply curve
2. I was hearing from people down in Oklahoma that there was a lack of storage for oil anywhere in the state -- big banks were filling the tanks to hedge against the dislocation that was looming

She didn't believe me. So we bet that within 5 years gas would go below $3/gallon in town.

Four months later, there was an envelope taped to my office door with "YOU WIN" written on it and the cash. Two months later I filled my car up for $1.87/gallon.

What happened? Goldman and the hedge funds started unloading their oil late that summer as prices started falling from collapsing demand. People were riding buses and driving less, that made prices waver, and the hedges started dumping the oil to cover their bets. And then in the great selloff of September, even more oil came out of the market. Some hedges held onto their oil in expectation of seeing $100/barrel again when the market finished shaking out, but most ended up cutting their losses by 2009.

So, that's my word of warning. When people are telling you can't get something, it may be because it's all in storage being used as a hedge. All it takes is one little wobble in the market, one new angle, one new financial opportunity, for the banks and hedges to start offloading. Oil peaked at $140 but was under $40 by the end of the year. Housing prices collapsed almost 30% in two years. When the gold bubble pops, it will pop in a hurry.
posted by dw at 10:18 PM on March 20, 2010 [10 favorites]

one goal of the effort in idaho might be to increase the velocity of 'local' money, benefiting both merchants and those who shop local. (similar to the 'berkshare', a local paper currency from mass/vt)

(edging toe first into the fire)

may i suggest that gold is not an investment, it is a store of value.

the widespread cooking of the books by lehman, greece, aig and one or two others implies that the entire system is corrupt beyond redemption.

last week, moody's and s&p both warned the u.s. that our AAA credit rating is at risk. inconceivable, as they say.

i wouldn't mind holding some idaho silver. canadian dollars. gold, of course. more currency options are good. diversification is good. seeds are good too.
posted by kimyo at 11:09 PM on March 20, 2010

Malor wrote: "when you see bubbles and crashes, there's some form of currency in circulation that's not actually good for what it says it is."

Or, you know, like the Panic of 1907, it's solely caused by a liquidity crisis that could have been easily averted had gold been in the right place at the right time.

Liquidity traps caused by a bust in speculative investment need not be so painful.
posted by wierdo at 11:21 PM on March 20, 2010

Blazecock, it's not that I don't believe you, but I don't understand how this can be. The federal reserve can't just print more gold when they run out.

If we get to the point that "they", whoever they are, run out of gold, whatever that means, I'm sure we'll come up with some other scrip that is equally usable for exchanging goods and services. There's nothing particularly special or unique about gold, except that it is shiny and that we continually set an arbitrary value to it.
posted by Blazecock Pileon at 11:29 PM on March 20, 2010 [2 favorites]

If you think that the kind of shit pulled by AIG, Lehman, and Arthur Anderson (remember them?) is somehow intrinsic to a fiat-based system or couldn't be done with a gold-backed currency, you are lacking in even the most basic understanding of capitalist economics.
posted by Pope Guilty at 11:53 PM on March 20, 2010

Seriously, Bimetalism?

AC/DC does not mean swings both ways, 'k?
posted by HP LaserJet P10006 at 12:08 AM on March 21, 2010

The scarcity of gold does not necessarily lend it value, except in a psychological sense that might mean something to vain kings of old, who all agreed that its divine brilliance carried prestige, power and wealth to its respective owners and their respective kingdoms.

The real value of any form of currency, be it gold or paper, is that people can use it to do things, like feed their kids, or build homes, or distribute clean water, etc.

That's why, when the pedal hits the medal, societies use whatever currencies that actually facilitate them conducting their affairs in an efficient manner.

Empires nowadays use petrodollars and petroeuros as a medium of exchange for energy — our societies' current "real" money, when you really think about what real money means, in terms of the changes it effects in people's daily lives.

Empires and tribes in olden days agreed to use fiat currencies of all kinds: cattle, salt, grain, whelks, and coinage of all varieties of metal, stamped with the current king or queen's head, to conduct their affairs.

Gold served a purpose once, maybe, but its days as a useful currency are probably done. These days, its only non-industrial and non-aesthetic use is political, as a means for racist demagogues like Ron Paul and Glenn Beck to whip their followers into a survivalist froth, in exchange for political influence and personal profit.

Ironically, in a way, the fear these people spread is a currency itself, bartered and sold on right-wing mainstream media every day. Fear is transmuted into livelihoods for these fools.

If people want to talk about the evil of fiat currencies, talk about FOX News and Rupert Murdoch declaring to their conservative audience members the maelstrom of fears of blacks and Muslims it should hold, and then transmuting those same childish fears into ratings numbers, quasi-legal tender that is exchangeable for advertising revenue.
posted by Blazecock Pileon at 12:32 AM on March 21, 2010

may i suggest that gold is not an investment, it is a store of value.

But an investment IS as store of value. Gold is just a low-risk investment (at least it was until 2005).

last week, moody's and s&p both warned the u.s. that our AAA credit rating is at risk. inconceivable, as they say.

No, Moody's warned the US that the budget projections point to a time when the Aaa rating may be hard to defend. So Moody's is saying that if things continue on the same course through 2020 there may be pressure on the rating. It's not "you're at risk" as much as "you know, you could be at risk in ten years, but it's ten years and all that, and there's still plenty of time to avoid it."

If the US drops to Aa1 it's not the end of the world. The important thing is that we need to get back to cutting the deficit. Taxes certainly need to come up, and spending needs to come down.
posted by dw at 1:03 AM on March 21, 2010

The intent of this act is to use the abundant silver resources of the state of Idaho to create a means whereby the people of Idaho can pay their taxes to the state using silver mined from the ground of Idaho, processed in Idaho and finally minted into a medallion in Idaho.

Cute.

It's not silver. It's Idaho Silver(TM). In other words, I'm not allowed to pay my taxes with silver I pick up in Nevada or China or Africa. No, I have to use magic blessed silver, declared Idahoian from the state.

It's a fiat currency, dressed up as a precious metal. Wow!
posted by effugas at 2:46 AM on March 21, 2010 [1 favorite]

Malor: It's not a coincidence that we were so immensely wealthy in the 60s and 70s, and 40 years after going off the gold standard

Actually, I believe it is a coincidence.

The prosperity of post-war America had almost everything to do with the fact that so much of the rest of the world's industrial capacity was destroyed in the war while ours was firing on all cylinders. IIRC in the early 1950s the US GDP was over 50% of the entire world's GPD, and we had over 90% of the world's industrial capacity (and we consumed most of it to boot). That unique and extreme economic fortune simply declined as the rest of the world slowly but surely rebuilt their industrial capacity and were able to compete with us more and more.

The reality is that America's economic prosperity is almost certain to continue its decline, in as much as unskilled labor in America faces ever increasing competition from much cheaper unskilled labor from around the world.

Why would a corporation pay an American $10/hour for unskilled labor when you can pay a worker in Vietnam $5/day for the same labor? Altruism? Loyalty to America? LOL

Returning to the gold standard isn't going to have any impact on those wage pressures contributing to the downward trend.

And in any case, it's something of a false dichotomy since, according to Alan Greenspan, the fiat money system of today has retained the favorable properties of the gold standard, i.e. central bankers have pursued monetary policy as if a gold standard were still in place.

Also, as a minor aside, currency based on the gold standard is at greater risk of foreign manipulation (see the Nixon Shock).

Also, take a look at some of the proffered disadvantages of the gold standard here.
posted by Davenhill at 2:48 AM on March 21, 2010

And in any case, it's something of a false dichotomy since, according to Alan Greenspan, the fiat money system of today has retained the favorable properties of the gold standard, i.e. central bankers have pursued monetary policy as if a gold standard were still in place.

Is this true? Or just truthy? I'm not an economist, but I'm looking at 0% interest loans as far as the eye can see and something doesn't seem right...
posted by effugas at 3:03 AM on March 21, 2010

They should let them pay with sacks of poatatoes instead.
posted by jonmc at 6:42 AM on March 21, 2010

Regardless the inherent lack of/value of gold, it surely isn't a good thing when states start going batshitinsane about the country's dollar. As in "beginning of complete collapse" insane, IMO. The country is tearing itself apart internally: that does not bode well for its future.
posted by five fresh fish at 9:32 AM on March 21, 2010

Malor: "Fake money is killing us; it's letting us paper over our problems instead of dealing with them."

Maybe it's just me but I'm totally cool with the whole papering-over-our-problems thing

I mean I get to drive on roads made by fake money

Think about how AWESOME that is when compared to not driving on roads

Pretty awesome!
posted by internet fraud detective squad, station number 9 at 9:45 AM on March 21, 2010 [1 favorite]

I think most of you have missed this for its true intent - An end-run around a certain class of (unfair, quite honestly) capital gains taxes.

Normally, when you invest in something for over a year, you pay a 15% "long term" capital gains tax on your profit from it.

When you "invest" in precious metals, the IRS considers it as a "collectible", not a real investment. As a result, you pay 28% on your profit from it.

But wait, it gets worse! Your average Joe doesn't typically buy bullion via a well-documented transaction. He buys a handful of silver or gold coins every now and then from a variety of sources. Pick up a roll of "poor" qualty mercury dimes at a show, perhaps the occasional gold Panda from a local dealer. Even if Joe keeps his receipts, many of those (some random guy scribbling "$120" on a generic scratch pad) wouldn't hold up in an audit. So, lacking a provable basis cost, Joe could well find himself paying 28% on the entire selling price.

If, however, your bank had to accept funds in the form of metals (presumably at the spot price), that nicely gets around the whole capital gains issue - You haven't sold anything, merely "deposited" it, in an account coincidentally denominated in USD.

Of course, I would expect the banks to want absolutely nothing to do with this - Even aside from the annoyance of needing to deal with weighing and assaying every gold ring and old foreign coin someone wants pawn off on them, the Fed would respond to this about as gracefully as the DEA does to "legal" medical marijuana grow-ops.
posted by pla at 9:51 AM on March 21, 2010

I'd wager large sums of money that this has nothing to do with a tax dodge on an investment that a small proportion of investors own and everything to do with GOOGLE RON PAUL.
posted by Pope Guilty at 9:54 AM on March 21, 2010 [2 favorites]

But would you bet GOLD?
posted by Artw at 9:56 AM on March 21, 2010 [1 favorite]

Your average Joe doesn't typically buy bullion via a well-documented transaction.

I daresay your average Joe doesn't typically buy gold and silver at all.
posted by five fresh fish at 11:09 AM on March 21, 2010

What else are you going to horde in the bunker you're digging so you can hide from Obama's death panels?
posted by Artw at 11:13 AM on March 21, 2010 [1 favorite]

Value- wealth- is created by the combination of useful materials and work, which is harder to actively trade. The beauty of fiat money is that fiat money is ultimately backed by wealth

Like the "value" of CDO's and the "value" of the people who trade them no doubt.

All their noise, over a black president.

Funny that claim, because people have been trying to rain on the FRN with silver/gold for years. You might have noticed it now is all. The nation known as the US of A is the 2nd go round - the 1st one failed. (the phrase "not worth a continental" might be worth you getting yourself educated about). History is full of failed states - I don't believe "having a black man in charge" will be the reason the US of A enters a failure mode. And history is full of failed fiat currencies. Things of "value" like gold/silver that bear the mark of some other State can be re-forged with a new State logo. I doubt a series of one's that make up a digital bank account will be worth a whole lot if the State fails. The Zero's will prob. maintain their value however.

And the US of A doesn't have to fail from crooked banking/political action/war. I doubt the nation and the digital currency would do well if Sol sends a slapdown via a solar mass ejection that fries the electronics.

Federal Reserve isn't unconstitutional. This debate was over in the early 19th Century

At one time women didn't have a "right" to an abortion. There used to be an official slave class, and 'seperate but equal' was equal till it wasn't in the 'legal debate'.

If tossing the Federal Reserve and declaring it unconstitutional is what the leadership class sees as the way to save its hide then toss under the bus it shall be. There are plenty of very uncomfortable questions to be asked about the money system and its assumtions, this "lets make money something real" effort is an effort.

The Blue hasn't commented on this from the Fed.
"The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system"

Such, in theory, would allow a bank the ability to lend an unlimited amount of money - aka create as much as they could find borrowers.

So I guess we'll all see how this works out.



Fake money is killing us; it's letting us paper over our problems instead of dealing with them.

Ding!

There's nothing magic about gold. ... What does matter is that it can't be created from nothing.

Not until the energy to matter converters come into existence. I believe the above ground ready to use silver is less than gold, yet gold is a tad more expensive. So if "market forces" based on supply determined price - silver should be a tad more expensive as silver gets used in things like antimicroibial medical, office and underware products.

In actual physical reality, the wealth of the world is energy,

And energy as "money" would be acceptable except for the inability to store a watt of electromotive force. If the ability to store is "cracked" - the technocracy's "lets use energy as money" could be tried.

Actually, in the US, at least, it's more because you can't pay your federal taxes with gold.

Ever go to your local IRS office and try and pay them with Federal Reserve Notes?
(hint - they want a check)

we can't eat our money? Well, shit, even by that measure gold is crap. At least with paper money, there's half a chance you could eat it in a pinch

And the electronic version of money most of Americans use - how ya gonna toss some one's and zero's out the window to the young lad and ask him to buy the big Christmas goose after you wake up from your haunted dreams?


We should back the dollar with carbon offsets just to screw with the right wingers
Overhead and profit-taking in the carbon offsets system eats up about 70 percent of what is spent on carbon offsets, according to a report from UK-based Carbon Retirement report.
About 30 percent of the funds go into actual projects that reduce emissions, such as a wind farm in a developing nation, reports BBC.
The rest of the money goes into the following channels:
30 percent – Investment banks often buy up carbon offsets before a project is up and running, and they take an average 30 percent of the total in profits and operations.

So the carbon offset idea puts 30% of the flow into places like Goldman Sachs.

Or how about Europe’s emissions trading system was in uproar yesterday amid a mounting scandal over “recycled” carbon permits.
Two carbon exchanges were forced to suspend trading as panic hit investors fearful that they had bought invalid permits.
BlueNext and Nord Pool, the French and Nordic exchanges, suspended trading in certificates of emission reduction (CERs) when it emerged that some had been illegally reused.
Concern that used and worthless permits were circulating caused the spot price of the certificates to collapse, from €12 per tonne of carbon to less than €1 .

Thus showing the "every fiat currency fails" camp another failed "currency" - assuming your idea was tried.

It's much harder to forge a bar of gold than it is to forge a $100 bill.

Gold Plated Tungsten BarRecently, the German television station ProSieben ran a news story covering W. C. Heraeus in Hanau, Germany, the world’s largest privately owned refinery. In the story, Wilfried Hörner, the head of the gold foundry, shows a 500 gram bar (16.0755 troy ounces) received from an unidentified bank. The bar had the right physical dimensions to be an authentic gold bar, but one of the Heraeus employees suspected something funny. After the bar was cut in half, you can see that the inside is tungsten, with only a coating of gold on the outside.

You can watch this news story on You Tube, where it was posted February 28, at http://www.youtube.com/watch?v=ZKczs-7BFRI.

So forging can be done. For extra fun, dig 'round the internet about forged coins. You should be able to spot charges that a nation state is allowing local forgers to make fake coins.

That's why commodity money matters; it doesn't allow politicians to live in fantasy.

And a functioning political system with rail based transport outta town (tar and feathers optional) would help curb politicians stay on Fantasy Island also.

according to Alan Greenspan, the fiat money system of today has retained the favorable properties of the gold standard.....Is this true? Or just truthy?

Lets see...Greenspan ....1969.....
GOLD AND ECONOMIC FREEDOM by Alan Greenspan

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire -- that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
.......
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.



I think Idaho has good intentions, they're trying to stimulate the local economy by getting their state silver mines working again and having them produce something useful

I believe these people point out how the food is local and they only take silver.
http://agtradingpost.com/
http://agtradingpost.com/silver-buyers-club/appears to be the coins from the
http://www.opencurrency.com/ group. To do your own local currency is spot + a fee + a die charge of $1200,

Silver may very well help the money stay locally and have velocity locally.

Ever try to "spend" a "liberty dollar" or an Open Currency medallion however?
posted by rough ashlar at 4:13 PM on March 21, 2010

it surely isn't a good thing when states start going batshitinsane about the country's dollar. As in "beginning of complete collapse" insane, IMO.

Do you happen to think there is nothing wrong with the Federal Reserve Note?

Do you believe that somehow the Federal Reserve Note will not suffer the same fate as other fiat systems - the fate of collapse?
posted by rough ashlar at 4:16 PM on March 21, 2010

rough ashlar wrote: "Do you believe that somehow the Federal Reserve Note will not suffer the same fate as other fiat systems - the fate of collapse?"

Do you believe that a gold backed currency won't face the same fate as any other gold backed currency - the fate of collapse?

Sure, the mechanism is slightly different, in that the collapse is brought about by a country whose economy is too weak to maintain the arbitrary conversion rate to gold, but collapse they do.

Gold is no less arbitrary than paper or plastic currency. Slightly more useful as a commodity, perhaps, but still quite arbitrary. Most of its value at the moment has more to do with speculation than any useful industrial demand.
posted by wierdo at 4:35 PM on March 21, 2010

Malor wrote: "And the reason we're able to keep digging this hole is because we can print money to paper over the ugly reality of the debt bubble."

Unless we rid ourselves of fractional-reserve banking, commodity-backed money will do little to curb future debt bubbles.
posted by wierdo at 4:42 PM on March 21, 2010

Do you believe that a gold backed currency won't face the same fate as any other gold backed currency - the fate of collapse?

If I have one ounce of physical gold, I still have an ounce of physical gold. If the "face value" was $1000 one day and $0 because there was no State (worse case I can think of) , I'd still have an ounce of gold.

So yea, there is a difference. At the end of a collapse chain - that ounce is still and ounce and doesn't become 'nothing'.


Unless we rid ourselves of fractional-reserve banking

Don't worry - the Fed is working on that.
"The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system"

On a different slant:
German Central Bank Admits that Credit is Created Out of Thin Air

Now I look forward to the claims about how "money" represents "value" in such a situation.
posted by rough ashlar at 4:59 PM on March 21, 2010

If I have one ounce of physical gold, I still have an ounce of physical gold. If the "face value" was $1000 one day and $0 because there was no State (worse case I can think of) , I'd still have an ounce of gold.

But we aren't talking about having an ounce of physical gold. We are talking about having currency issued by the state and allegedly backed by an ounce of gold. In that case, if the state collapses, you still have nothing.
posted by grouse at 5:04 PM on March 21, 2010

allegedly backed by an ounce of gold. In that case, if the state collapses, you still have nothing.

Hence the argument for having the physical "money". Having ETFs or gold stocks is not the same a physical gold.

One doesn't need a State to fail to be out, The people who had 'warehouse receipts' in the Liberty Dollar were out wrt the Sunshine Mint.
posted by rough ashlar at 5:16 PM on March 21, 2010

The only thing of any true value is a chicken. Currency is just a way to put a virtual chicken in your pocket. But you can't eat virtual chickens. And that is ultimately why all money is fiat money, IMO. The only thing that differentiates its different forms is the amount of risk that people will quit pretending it's a chicken. In that one regard, gold is less fiat than the US dollar.
posted by five fresh fish at 5:29 PM on March 21, 2010 [3 favorites]

"Money is just a way to put a chicken in your wallet," courtesy of 'Dan' (I forget his alias) on the old Edmonton, Alberta, Citadel BBSes.
posted by five fresh fish at 5:31 PM on March 21, 2010

five fresh fish: "The only thing of any true value is a chicken."

Put it in a Le Creuset pot and we have a deal
posted by internet fraud detective squad, station number 9 at 5:44 PM on March 21, 2010

All G7 countries, except Canada and Germany, will have debt-to-GDP ratios close to or exceeding 100 percent by 2014, Lipsky said in a speech today at the China Development Forum in Beijing.
posted by rough ashlar at 6:17 PM on March 21, 2010

Mr. McDuck, you're the RICHEST duck in all Tralla La!
posted by yhbc at 6:23 PM on March 21, 2010

rough ashlar wrote: "If I have one ounce of physical gold"

But you don't. You have gold certificates redeemable for gold. An exchange rate that can vary at any time, even all the way down to zero, as happened when Nixon ended convertibility in 1971. It doesn't even take the actual collapse of the state to render your certificates unredeemable for gold.

Using coinage isn't really an option, either. There's simply not enough gold.
posted by wierdo at 8:00 PM on March 21, 2010 [1 favorite]

@rough ashlar, why can't something created out of thin air have value. Also

If I have one ounce of physical gold, I still have an ounce of physical gold. If the "face value" was $1000 one day and $0 because there was no State (worse case I can think of) , I'd still have an ounce of gold.


The ounce of physical gold may have no actual worth though. Who is seriously going to take your ounce of gold for goods or services? How are we going to make change? Why not take the ounce of gold and buy a shotgun and shells; toilet paper, or vodka or canned goods. Those things will hold their value and have immediate practical utility. I assure you in the event of the dollar collapse we will fallback on Euros and some kind of barter system.
posted by humanfont at 8:09 PM on March 21, 2010 [1 favorite]

@rough ashlar, why can't something created out of thin air have value.

If the "thing" is "money" that should have the effect of making the "money" "worth less". Inflation defined as caused by putting more money in circulation kind of economic model.

If you got the 'thin air' "money" - it will look like a value to you.
If you hold 'non thin air' "money" - I'm betting the 'thin air' "money" would not appear to be a value.

But you don't. You have gold certificates redeemable for gold.

I've been there, done that with silver certificates. You either hold physical or you don't own it. Period.

Remember - it used to be you should have 10% of your wealth in precious metals.

Using coinage isn't really an option, either. There's simply not enough gold.

The miese/libertarian answer goes something like 'the value would increase to cover the difference'.

At $1000 an ounce gold VS the 'world economic value' - yea not enough gold. But at some other 'value' of a troy ounce of gold there is enough to express the 'world economic value'.

The ounce of physical gold may have no actual worth though.

If things are bad enough that the FRN is in zimbabwae-value-land (worthless) I'm betting converting gold/silver into, say, chickens will be the least of the worries.

Who is seriously going to take your ounce of gold for goods or services?

I'm sure if I hang around the temple I can find the money changers either in the temple or outside depending on if they've been kicked out yet.

Why not take the ounce of gold and buy a shotgun and shells; toilet paper, or vodka or canned goods.

Part of what 'defines money' is a state of non-decay of the item. Of that list the only thing that should not decay is the vodka. (Assuming it is sealed in glass) Gold has a history as money 'cuz it doesn't change over time/normal environment. Toilet paper won't be that great after 25 years and I'm not sure that wax-dipped cans would make 25 years. Shotgun shells should be ok. The ability of the 'money' to stay the same is why energy makes a poor 'money' - but imagine the relationship of humanity to 'money' if things were priced in 'energy'.

I assure you in the event of the dollar collapse we will fallback on Euros and some kind of barter system.

Barter I can believe. If the faith of the Federal Reserve Note is busted " I expect people won't trust anyone's fiat currency.
posted by rough ashlar at 9:35 PM on March 21, 2010

rough ashlar wrote: "The miese/libertarian answer goes something like 'the value would increase to cover the difference'.

At $1000 an ounce gold VS the 'world economic value' - yea not enough gold. But at some other 'value' of a troy ounce of gold there is enough to express the 'world economic value'."

These commodities, they have industrial value. Inflating a gold/silver/whatever bubble by backing currency with it only hurts those processes that require commodities.

You're being quite inconsistent. You're denouncing fiat money for being arbitrarily valued on the one hand, but then stating that we ought to assign an arbitrary value to some physical object instead?

I don't know where you get this idea that gold is somehow intrinsically safer. Its safety is conditioned on its liquidity. If all anybody wants is toilet paper, food, and guns, all your gold won't get you anywhere. After economic collapse I'd expect lead, gunpowder, and bullet casings to be far more liquid than gold.
posted by wierdo at 11:05 PM on March 21, 2010

These commodities, they have industrial value.

What has been talked about is the singular - gold.

Silver and Platinum (used as "money") have industrial value. Nickel and Copper can be used in batteries that has over a 50 year life. (Nickel - the Edison battery and copper for the wire)

You're being quite inconsistent.

You might have this POV.

But that might be because I'm not convinced that gold/silver is an answer. But I'm rather sure the present system lacks any meaningful controls - a world where limits are outside the control of the political system may be a better place to be.

Tell ya what - show me meaningful controls on the present money system and I won't agree with Malor.

lead, gunpowder, and bullet casings to be far more liquid than gold.

Brother Lead and sister steel may lack liquidity - but they may matter more in such a suck-tastic world.
posted by rough ashlar at 11:30 PM on March 21, 2010

Funny that claim, because people have been trying to rain on the FRN with silver/gold for years. You might have noticed it now is all.

Except that Idaho is one of the major bases for white supremacy movements in the United States, and governments in flyover states have been ramping up these and other kinds of survivalist, dominionist and other extremist right-wing political agendas at a fevered pitch, of the kind that we haven't seen since the militia days of the Clinton administration.

So, I think the fact that some Idaho officials and their constituents can't deal with a black president and want to undermine the union is not entirely coincidental in timing to setting up an alternative currency.
posted by Blazecock Pileon at 1:24 AM on March 22, 2010

the militia days of the Clinton administration.

Rather narrow view.

The militia of that time were the group who was talking about REX84 and getting ready for what ever was 'spose to happen. (REX 84 was a Reagan era thing, not a reference to 1984 the novel)

They were still talking and doing whatever during the Bush II administration. I believe the FEMA camps were still being mentioned.

So you can TRY and cast the issue as 'republicans VS democrats' but concerns about 'government overreach' and a reaction as militia have existed for years. Just because you decided to pay attention during President Bill and now doesn't mean the militia bitching wasn't going on during reagan/bush/bush. (and may have been going on well before that.)

So, I think the fact that some Idaho officials and their constituents can't deal with a black president and want to undermine the union is not entirely coincidental in timing to setting up an alternative currency.

Yea, heaven forbid that Malor's point about "What does matter is that it can't be created from nothing." be backed up by the Fed chairman stating how the desire is to be rid of the reserve requirement. Thus allowing a true 'create from nothing' situation.

I'll also note that no one here is claiming that the present system shows sign of self-regulation and control. And again, Malor pointed out how with a physical 'thing' there is external regulation.

So you can make all the claims about how "its because the president is black" but its not like you'll eat those words if the money system survives the mortal wounds it has suffered over the years long before the now to live beyond President Obama's administration into "a traditional White Male" administration and States *STILL* have such laws trying to be passed.

Oh, and somehow The Free Lakota Bank doesn't strike me as giving a darn about the color of the leadership of the US of A, but care about the past actions of the leadership. Nor has http://www.freedomforceinternational.org/ cared about the skin tone of The President. Rather sure that Ludwig Von Mises didn't care about the color of the President when he formulated his economic observations, but in the content of the character of man.
posted by rough ashlar at 7:16 AM on March 22, 2010

States are supposed to be our "laboratories of democracy," right? So let Idaho conduct their silver coin experiment and we'll all see how it works out, yeah?
posted by ZenMasterThis at 2:53 PM on March 22, 2010

their silver coin experiment

Medallion. The word 'coin' has a legal meaning they don't wanna touch.
posted by rough ashlar at 3:52 PM on March 22, 2010

Oh man, you kids. You don't remember the glory days that I do, when we HAD a gold backed standard. Oh it was GLORIOUS! Pure fucking Eden. Economically we had no problems! We never worried about inflation or deflation. We never worried about waking up slaves on the continents our forefathers conquered.

Oh nostalgia, sweet, sweet, nostalgia.
posted by symbioid at 3:55 PM on March 23, 2010 [2 favorites]

Look, I don't think anyone is defending the current system (nice strawman there, btw). I think almost everyone here agrees it's broken. Personally, I'm just tired of all the goldbugs acting like they have the answer. I admit I don't have an answer. I'm not keen on fiat currency, personally.

I do support local currencies. But then again, I support a global currency for international trade.

Unfortunately, the same people howling about the gold standard tend to be people who fall in line with a lot of other politcally sketchy shit that I can't fucking stand (and was aligned with in the early-mid 90s (young and impressionable as I was) ... obviously, that's a poor reason to discount it, but it certainly doesn't help to add much credence to the idea)
posted by symbioid at 4:03 PM on March 23, 2010

I don't think anyone is defending the current system

Naw, if one looks one can find defenders here on the blue. Less each time because either they are not willing to defend or because they don't see a point to going into the same he-said she-said how many econmists can dance on a pinhead.

So if the present system sucks and gold sucks - what's the answer for the next go round? Technocracies "watts are money" plan? Something else?

goldbugs acting like they have the answer

Goldbugs have history that helps and hurts them. Coin clipping, forging, debasement.... Gold/silver is 'barbaric' but other models are also.

"No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time. " - House of Commons on 11 November 1947, Winston Churchill

Gold may be like democracy in the above quote. Fiat has a history of failure and at the point this round of fiat blows up, unless a different, workable solution can be suggested - you may be stuck, once again, with a based-on-physical-stuff money.

(course, if the present world system is really the petro-dollar what happens if the petro goes POOF!)

I do support local currencies. But then again, I support a global currency for international trade.

Then you have the trading in/out of one VS another and all those issues.
posted by rough ashlar at 5:43 PM on March 23, 2010

Look, I don't think anyone is defending the current system

I will defend our current system. The system is dynamic and highly resilient. Despite massive shocks to our economy in the last 10 years we have avoided the level of economic problems that plagued the world in the years prior to the current open system. We will continue to reform and evolve the system as the economy changes, but going back to gold or adopting some other fixed monetary system does not solve any of our problems.

Let us assume we can create a forgery proof physical currency using our advances in materials sciences and manufacturing. So now we have a limited amount of currency in the world. How does this make things any better. Just scale this economy down to a small town and try to figure out based on changing population dynamics, different productivity outputs from year to year, the creation of substitute goods, imports/exports and supply chain inefficiencies, etc. How exactly does your model of fixed currency, or commodity based currency do any better than the model we have today. Commodity based currency is the worst of course because what happens when the world suddenly goes mad for gold jewelry and a huge amount of currency is taken from circulation, or some guy in the klondike finds the next mother load; or miners go on strike in south africa reducing discovered gold supplies. The high variability in currency supplies would be catastrophic for the economy.
posted by humanfont at 10:22 PM on March 23, 2010 [2 favorites]

I will defend our current system.

Ok. (feel free to comment on the Fed statement to get rid of reserve requirements and defend getting rid of reserve requirements as matching whatever model is being used. Oh and can you ID the model of the current system - aka what historic scholarly works describe it?)

The system is dynamic and highly resilient.

The system is fraudulant. If you feed CDO's, derivitives that are based on the value of other deritibves based other derivitives (to however many levels) or setting up a deal that will fail then buying insurance to cover the failure when you have no actual exposure to the downside risk isn't fraud because fraud has a legal meaning then congratz - you've "won".

At the end if your position is 'no one of any import has been tried and found guilty' then I can't refute that. Nor if your 'holy book of economics' says 'idea X' works - its an appeal to authority and "religious book" vs "religious book" battles only have the devout thinking they've won,

I can just sit and wait. The Federal Reserve Note system is doomed. It will pass from this Earth. And once it has
died if mankind is lucky we'll still have the infrastructure and be alive so that this thread can be revisited, then the debate can be what reasons brought about the death.

(only 6 billion ounces of gold ever produced is what my memory says BTW)

Despite massive shocks to our economy in the last 10 years we have avoided the level of economic problems that plagued the world

Interesting claim. So the mulit trillion debt is an expression of 'avoided'? How? From where I sit the problem is just moved into the future - and that isn't avoided.

A future where growth is supposed to pay the interest. Yet that growth needs cheap energy based on past models of growth - and if the cheap energy/resources are not there how does the present system work?

ing back to gold or adopting some other fixed monetary system does not solve any of our problems.

One issue it can solve is "money" created from nothing, Historically physical "money" has acted as a check.

And while the GATA's of the world scream for an audit, bonded gold bars are being found with tungsung centers and nation-states are being accused to counterfiting historic gold/silver coins - the present Federal Reserve system has a bill to audit it in Congress (because it seems to lack an audit), has nation-states accused of counterfitting, and has other actors making faked accounting entries so its not like either come to the table with clean hands.

How exactly does your model of fixed currency, or commodity based currency do any better than the model we have today

I'm not going to try and argue the fixed currency model - the Austrian camp of Economics have plenty of books and material.
http://mises.org/etexts/austrian.asp

At least I can point to a pile of works that say 'this is the system, this is what it does
and this is why'. What model is the Federal Reserve operating under?

If watts had storage and was as involatile as say gold, I'd have been pushing energy as money. But most of our energy flows are impulse and can be gone in an instant, and the gone in an instant nature of elecromotive force doesn't meet part of what money is. Energy as money would make for interesting comparisons during economic transactions however - is that Barbie doll 'worth' 3 days of electrical power for the refrigerator?

I'd let others decide if watts as a base exchange is an
Active, Ancient Satanistic Brotherhood behind the New World Order, World Government and the Coming World Currency

Still reading? Well here is the Complementary Currency Resource Center and you can go see what others have done for 'money' and all kinds of money theory that isn't gold/austrian or kensenian.
posted by rough ashlar at 3:22 PM on March 24, 2010