Karl....shoot some holes in this or ?. Unlike a new world fiat currency proposed by central bankers, Jesse suggests sound "money" could evolve from the bottom up, including via individual US states.

“So a convenient and widespread bullion coin appears to be the best alternative. The question in my mind is not so much 'will it happen?' as it is 'who will be the first?' To me it would be the ultimate irony if such a move to promote economic freedom came from a non-Western country”.

http://jessescrossroadscafe.blogspot.com....

Bullion and those who argue for it as a monetary base is a waste of time.

Look at Gold's move today. That's not about monetary theory. It's about FEAR.

Price flactuations.


Problem with gold, is that its not the most stable base. Business needs to know what the price is now, 6 months from now, 18 months from now.


(What we do now, to make sure that we have the right currency price to pay our suppliers, is bid against ourselves on the futures.)

So if you need to pay your supplier 100K in US currency 6 months from now, but you are worried about the price of the dollar going up. You can leverege your position by betting agaisnt yourself.

It's like buying insurance. This happens a lot now, with currency, it would be severe if gold was the base. Look how it has moved in a short time.

Understood, but how do we get to "sound money"? Will we be forced to believe in whoever is most credible convincing the rest of the world that they will restrict credit expansion to the expansion of GDP?, i.e. trust in fiat currencies will remain subjective and is working just fine.

Ben, the solution is simple - it's called "One Dollar of Capital" and I've expounded on it before.

If you're forced to expose all prices of things you claim to hold in trade (by actually having them on a public market, which means anyone can verify your claims) then there's no problem at all.

This is easily abstracted for any class of asset. It can be done easily for mortgages, for example. Instead of "whole loans" or complex securities, bundle them into self-extinguishing closed-end funds that trade on the stock exchange. Presto - instant price, every business day. Of course creating those is a ministerial function and doesn't make much money. But it's not supposed to; it's supposed to facilitate mortgage liquidity, right?

Quit talking common sense, Gen. You're confusing people.

Karl wrote..

Bullion and those who argue for it as a monetary base is a waste of time.

Look at Gold's move today. That's not about monetary theory. It's about FEAR.

Is it proper to make example of a move in the price of PM in a system of unbacked fiat currencies? If there were a global gold or silver currency (as in mass & purity, not dollar, mark, rupee etc) how would it be possible for there to be a fear driven move? It is what it is, ain't it? The worst that could happen is a run against deposit bank receipts/notes, which would be nothing more than a regular bank run.

I know I'm treading on a sacred cow with this one, and I've gone back and forth on my views of PM, inflation, deflation, so I'm positing in order to elucidate understanding, not pushing a particular barrow.

Let me see if I understand you.


You are basically saying that the current fluctuations in gold, are only a result of the fact that its not the base, and hence if it was the base it may not be so volatile? (this is a good observation, but it does not absolve the volatility of gold as a base currency entirely)


Consider this: With your currency being backed by a precious metal. Your prices can change over night, if a prospector strikes a rich vein. They can change due to a given metal finding new technological applications, or collapse if its made redundant by a new process. (These are negative factors in favour of making something physical a base)


Ask yourself why gold or any precious metal is used as a monetary base... the answer is, because its scarce. You can't fake it.

However, because it has physical applications, and quantities may be found at a moments notice, its not the best base for a currency in modern times. I think that with encryption we no longer have the problem of counterfeiting, and can look away from gold or anything physical and quantify the economy to a base that is more representative of overall economic value.


ALSO CONSIDER:

If you were to revalue the world based on precious metals. You would have instant winners and losers based on stock piles. Not productivity or output.

Lending money into existence to back a valuable asset is the ideal way to back currency by hard value. It's corruption, secrecy and the state's monopoly of violence able to force you to play by rules that change every day that is the problem behind the financial system.

I'll never forgive the SEC for deciding the day before options expiration to ban shorting the financials in an obvious move to punish shorts (which I was). It cost me a third of my portfolio.

Agreed.

No1,
You've got to pair it with something to discuss volatility. Gold could be volatile against apples, if there was a major crop disaster. If gold were in widespread circulation as a currency, then you would not have wild swings in the quantity of money even if that commodity also had an industrial use, since you would then also need commensurate wild swings in the industrial demand.

The big problem with 'gold backed' currencies is simply seigniorage. If a currency is denominated in something other than mass and purity, then it is a de-facto fiat currency. The formula can be changed at the whim of the issuing authority.

At this point, my disposition favors a mass-purity denominated PM currency. I also think I favor a competitive banking system with no government intervention. I'm still open to well argued alternatives, but I have become distinctly distrustful of anything proposed by a political body.

There has never ever, in recorded history, been a hard-money currency that has not been corrupted by seigniorage and government intervention. Because of this, it is impossible to say whether it would or wouldn't work. The only impediment I can think of right this moment is simply education and acceptance.

I think it warrants discussion though, firstly because it might work, but also because during discussion, the means and efficacy by which actors might corrupt such a system would also be debated and brought to light. Dismissing it out of hand is foolish, IMHO.

Gold and silver are already currency!

You just have to convert them to FRNs if you want to buy stuff.

Thread over.

Thang you. Thang you vera much.

Question: When the big dump comes, and you go into a grocery store and ask the manager, while holding up a silver eagle, "What can I buy with this"? If you exchange it for $200 worth of groceries, do you have to pay "collectible" tax on it?

I think you will find that history has numerous examples of volatility when a currency is backed by a precious metal. (the swings are actually quite intense and crippling)


Consider the implications of tying your economic index to a base that can be horded. This can create strategic hording for price manipulation.


A more generalized base that measures economic activity is impossible to horde in order to manipulate the markets.

BTW, a gold system is susceptible to the same inflationary measures if there is no audit to make sure that the reserves are actually there or have not been hollowed out and cored with led.

So, like it or not, you still have to trust the integrity of the monetary authority in charge of denominating the base.


Hence, if you can't audit the fed now, what makes you think you will when they change to gold?

Quote:

BTW, a gold system is susceptible to the same inflationary measures if there is no audit to make sure that the reserves are actually there or have not been hollowed out and cored with led.

Don't you think it would be a bit obvious if the central bank (and I would eschew such an entity anyway), showed a money supply that was multiples of the amount of gold ever mined, or didn't add up with the GDP numbers (again, not that I would be bothered by such manipulated economic indicators). I would suggest that with a suitably diverse private and competitive deposit banking system, such opportunity for fraud would be pretty localized.


Boz: Lemme know when you land a job with a salary denominated in oz of 0.999 AU or AG. Alternatively. try negotiating a salary indexed to the M2 or M3...

Quote:

Question: When the big dump comes, and you go into a grocery store and ask the manager, while holding up a silver eagle, "What can I buy with this"? If you exchange it for $200 worth of groceries, do you have to pay "collectible" tax on it?

Question: When you run out of silver eagles in a year or two - what will you use for money then?

The unemployed are having that problem with dollars too...

True but how many people have metal? 1%?

The whole metal-as-money thing is simply championed by people with metal (duh!) because they hope that .gov will issue dollars backed by a tiny fraction of an ounce of silver or what-not thereby multiplying their cache of silver/gold into a hugely exponential gain in purchasing power.

It's selfish, solves nothing and leads to bigger problems down the road as we have discussed ad nauseum here on TF.

Quote:

Don't you think it would be a bit obvious if the central bank (and I would eschew such an entity anyway), showed a money supply that was multiples of the amount of gold ever mined, or didn't add up with the GDP numbers (again, not that I would be bothered by such manipulated economic indicators). I would suggest that with a suitably diverse private and competitive deposit banking system, such opportunity for fraud would be pretty localized.


Boz: Lemme know when you land a job with a salary denominated in oz of 0.999 AU or AG. Alternatively. try negotiating a salary indexed to the M2 or M3...

Doesn't really matter what your central bank does, there are many of them. You will never audit them all to make sure that all the gold ever mined adds up.

Your banks could sell all of its gold, and say they still have it. Without an audit, you will never know.