What would a gold-backed currency do to America?

Summary:  The history of gold-based currencies, from Newton to the Great Depression, warns us that they are no panacea. If not carefully structured they can destroy an economy in extremis by preventing radical monetary easing.  This is part two of two looking at gold-based monetary systems, the theory and the history. See part one here.

Commerce has set the mark of selfishness,
The signet of its all-enslaving power
Upon a shining ore, and called it gold;
Before whose image bow the vulgar great,
The vainly rich, the miserable proud,
The mob of peasants, nobles, priests, and kings,
And with blind feelings reverence the power
That grinds them to the dust of misery.
But in the temple of their hireling hearts
Gold is a living god, and rules in scorn
All earthly things but virtue.

— Percy Bysshe Shelley, Queen Mab, Part V, Stanza 4 (1813)

All that glitters is not gold.

Contents

  1. Phillip II, broke with all the gold in the world
  2. Gold’s great failure during the 1930’s
  3. Gold’s role inciting WWII
  4. Newton vs. the gold bugs
  5. About Central Banks buying gold
  6. For more information

(1)  Phillip II, broke with all the gold in the world

A monetary system — the rules by which a State runs its money — can rest on almost any foundation.  Metals (like iron ore, which has skyrocketed in price during the past decade), a basket of commodities or currencies, or the faith and credit of a nation.  Systems work well to the extent they accommodate shocks and changing circumstances.

Nevertheless the probably futile search continues for a rule that binds human frailty and works in all conditions. Which is one reason many people like rigid gold-based systems (as opposed to other gold-based systems). The classic story about the limitations of traditional gold money is Phillip II: with almost all the gold in the world he still went broke (defaulted on his debts).  Twice.

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While the details are of little applicability to us, centuries later, they illustrate the vital point that traditional gold systems have prevented neither accumulation of government debt nor financial bubbles.  The manias and depressions of 19th century USA and UK, discussed yesterday, prove this. For more about this see:

(2)  Gold’s great failure during the 1930’s

Any reasonable monetary system can work in normal times. Like any complex system, what happens under stress determines its utility.

The gold standard failed on such a scale during the Great Depression that nobody familiar with economic history suggests repeating the experiment — and no nations today uses a gold standard.  Although on a gold standard, the US debt level ballooned to over 3x GDP during the 1920s.  What followed was a near-death experience for not just us but all western nations, locked into depressionary spirals but unable to apply sufficient stimulus to break out.

No nation recovered from the Depression without going off the gold standard. Everyone that did so quickly began to recover, as they initiated fiscal and monetary stimulus programs. It’s astonishing that one of the clearest lessons of modern history has become obscured by little more than intellectual dust kicked into the air (especially since the massive fiscal stimulus called WWII restored all economies to full-employment, although it can hardly be called a cure).

This graph should be burned into the mind of every undergraduate taking Econ 101, every Congressmen, and every columnist writing about economics:

(3)  Gold’s role inciting WWII

This is too complex to more than mention, but it’s important. Germany went off gold quickly, followed by massive fiscal stimulus (eg, autobauns, tanks) — conservative economists didn’t argue with Hitler (his rebuttals were too tough).  France was one of the last nations to go off gold during the Great Depression.

As a result in 1938 Germany was stronger, France was weaker.  WWII followed.  For details see “The French Gold Sink and the Great Deflation“, Douglas A. Irwin, National Bureau of Economic Research, June 2012 — forthcoming Cato Papers on Public Policy — Summary:

The gold standard was a key factor behind the Great Depression, but why did it produce such an intense worldwide deflation and associated economic contraction? While the tightening of U.S. monetary policy in 1928 is often blamed for having initiated the downturn, France increased its share of world gold reserves from 7% to 27% between 1927 and 1932 and effectively sterilized most of this accumulation. This “gold hoarding” created an artificial shortage of reserves and put other countries under enormous deflationary pressure.

Counterfactual simulations indicate that world prices would have increased slightly between 1929 and 1933, instead of declining calamitously, if the historical relationship between world gold reserves and world prices had continued. The results indicate that France was somewhat more to blame than the United States for the worldwide deflation of 1929-33. The deflation could have been avoided if central banks had simply maintained their 1928 cover ratios.

Newton, by Godfrey Kneller (1689)

(4)  Newton vs. the gold bugs

As fascinating aspect of our day is how so much hard won knowledge has been lost. Here is an example in economics.

The Ayn Rand speech that so influenced Paul Ryan’s life calls for eliminating paper money and going back to gold coins (see “Francisco d’Anconia on Money“, Paul Krugman, New York Times, August 2012).  It is an  old idea, to which Issac Newton gave a powerful rebuttal — described in “Sir Isaac Newton and the currency“, G.F. Shirras and J. Craig, The Economic Journal, June – September 1945 (red emphasis added):

Newton showed by statistics that the fluctuations of Mint output, gold and silver being taken together, had been due to changes in England’s foreign trade, mainly owing to war, and not to the growth of paper credit. Such credit — for example, “Exchequer Bills, Bank of England Bills, Malt Tickets, Million Lottery Tickets, Annuity Tickets, etc” — was in his view a useful substitute for, or supplement to, coin scarcely distinguishable from coin in its effects up to the point where it caused loss of coin sufficient to support it, and led to national bankruptcy.

If interest be not yet low enough for the advantage of trade and designs of setting the poor on work … the only proper way to lower it is more paper credit till by trading and business we can get more money.

… “Tis mere opinion that sets a value upon [metal] money,” adding “we value it because we can purchase all sorts of commodities and the same opinion sets a like value upon paper security.”

Another excerpt describes how even in the 17th century wise people understood the disadvantage of a fixed money supply:  it forces painful swings in the real economy. And, despite current myth, gold was not always considered the best monetary medium.

In these papers {John} Locke laid down the following views: Money throughout the civilised and trading world is silver, the metal, measured by quantity. … The purchasing power of money depends on the ratio of its quantity to the quantity of purchasable things. If a country contains too low a quantity of silver, the defect can only be remedied by a control of trade.

… Bimetallism is impossible. The nominal or minimum legal value of gold coin should be deliberately placed below the market value of the metal. … Locke suffered from the drawback to a completely rational mind that it is apt to assume that what is flawless in logic is, therefore, practicable.

Another example of lost knowledge: Recovering lost knowledge about exhaustion of the Earth’s resources (such as Peak Oil).

(5) Central Banks buying gold today

A few central banks are building their gold reserves.  Only a few because it is impossible for central banks to buy gold on any significant scale (there’s not enough gold) .  In the first half of 2012 three central banks bought significant amounts of gold (3/4 of all central bank purchasers): Philippines, Russia, Turkey. The Philippines and Russia bought locally mined gold. Russia is doing so because they don’t trust the US-run global financial system. Turkey is buying gold for complex internal reasons.

This raises a seldom-mentioned point: US use of the global financial infrastructure as a weapon against its enemies will drive our rivals (a broader group than “enemies”) to develop alternatives. Today holding gold is the best option, but over time alternative mechanisms will evolve.  Eventually perhaps the global financial system will evolve to a multi-polar system not dominated by the United States.

Some Asian central banks are buying gold to maintain the mandated composition of their reserves; this might stop or even reverse as their massive current account surpluses return to balance (as China’s may have already done).

For details about this see the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER).

(6)  For more information about gold-based monetary systems

(a)  Major works about gold:

(b)  Articles about gold for a general audience:

(c)  Other posts about the gold standard

  1. Government policy errors as a cause of the Great Depression, 1 November 2008
  2. Everything written about the economic crisis overlooks its true nature, 24 February 2009
  3. Fetters of the mind blind us so that we cannot see a solution to this crisis, 1 April 2009
  4. A top businessman and banker explains our political and economic challenges, 30 April 2011
  5. Explaining the gold standard, the Euro, Default, Deflation, and Hyperinflation, 17 December 2011

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47 thoughts on “What would a gold-backed currency do to America?

    1. Please note that discussion of investments is not allowed by the FM Comment policy, and such posts will be deleted. Those hijack threads at warp speed. There are thousands of websites to chat about investments and markets. This is not one of them.

      Thank you for your cooperation!

    2. “What has government done to our money?”

      Wasted huge amounts of it, and ceased responding to the will of the people regarding how it’s spent. There’s your problem. It’s not fixable simply by switching to a gold standard.

    3. Nicely said. No mechanical rule substitutes for citizenship.

      This is part of the larger search by Americans for easy fixes. Posts on the FM website about reforming America swarm with them. New laws, different voting mechanisms, a constitutional convention to tweak it… Lots of ways. Well do anything for our country, so long as it involves no work or sacrifice.

  1. Book: Money, Bank Credit, and Economic Cycles, Jesus Huerta de Soto

    The 3 years since the publication of the previous English edition of Money, Bank Credit, and Economic Cycles have seen a continuation of the economic recession process set in motion after the 2007 financial crisis. This process has consisted of the inevitable microeconomic readjustment and realignment of a real productive structure which the credit expansion of the prior “speculative bubble” years had rendered unsustainable. Though governments’ fiscal and monetary policies have on many occasions been erratic and counterproductive, in the end, enormous growth in public deficits has brought on a sovereign public debt crisis in international markets. This crisis has been so severe that one by one, the different governments have been forced to take measures, even if timid ones, in the right direction, measures to reduce public spending, interventionism, and regulation of the economy, and to liberalize factor markets and make them more flexible, especially the labor market.

    1. That YouTube video is 1 minute 47 seconds of an interview on Fox News in 2007. Here is the relevant section:

      Question: Why do we need a central bank?

      Greenspan: We have a fiat money, printed by a government … Some mechanism has to be in place that restricts the amount of money which is produced either a gold standard or currency board or something of that nature. Because unless you do that all of history suggests that inflation will take hold with very deleterious effects on economic activity.

      Typical for Greenspan, master of the vague. In the US the “mechanism in place” is the Fed. He does not say we should replace the Fed’s discretionary authority with a gold standard — merely that there must be a mechanism. Which is no surprise. He was Chairman of the Federal Reserve from 1987 to 2006, and did not make any attempt to advocate or implement any return to a gold standard.

      He’s pretty vague here. But give the man a break, he was 81 years old.

    1. It’s easy for gold sales to hit 40 year highs, since central banks were sellers for a long time. From memory, since the IMF – central bank agreement in 1978. Net gold sales/buys turned positive in 2010, driven by the massive build-up in emerging nations foreign reserves — mercantilist policies keep their currencies cheap. As their reserves grew to insane levels, they purchased gold in small amounts (relative to their reserves) to keep their allocations constant. Note this was not purchasing gold to keep their currency strong — it was buying gold as part of a policy to keep their currency cheap.

      Economics 101 always wins, of course. Nations that keep their currencies undervalued suffer inflation, which increases the real value of the currency vs. that of their trading partners. After years of high inflation (relative to that of their trading partners) most emerging nations’ currencies are closer to fair value. The poster child and exhibit one is China.

      How do we know their currency is close to fair market value? Their current account surpluses drop to near zero. This also reduces the growth of the foreign reserves, and so reduces or ends their gold purchases. We see the result in today’s post, which describes the major central banks buying gold — and why.

  2. Fascinating that the Japanese went off the gold standard before the other industrial states. I guess it has to do with East Asians having great temerity when it comes to state intervention in the economy.

    1. The Scandinavian nations, socialists all, also went off the gold standard in 1931. They quickly initiated social welfare relief and stimulus programs, and had a rapid recovery from the Depression.

    2. Good point, I didn’t mean to exclude them. In fact, the Scandinavian states prove the point that prudent economic intervention by that state is truly a boon to capitalist economies. My assumption was that the Scandinavian states acted so quickly during the Great Depression not only out of egalitarian beliefs but also under the influence of the Stockholm School of economics. Which to my knowledge is very similar to Keynesianism.

    3. Thanks for that mention! I was trying to remember the name and blanked on it. It’s worth reading about the Stockholm school (Wikipedia) — the mirror-like inverse image of the Austrian school of ecnoomics. The remarkable success of economies using their theory has not produced imitators. Plutocrats spend their money to propagate theories that benefit them, not what works for nations.

  3. Good link explaining in concrete terms why the gold standard would be a disaster: “Why not abolish the Fed and return to the gold standard?“, James Hamilton (Prof Economics, UC San Diego), 12 January 2012.

    “One of the problems with the gold standard is that when the real value of gold changes (as it does all the time) and the dollar price of an ounce of gold is fixed (as it must be by definition under a gold standard), that means dollar prices have to adjust in response to anything that happens to the gold market. With the economic and financial turbulence of the late 1920s and early 1930s, there was a big increase in the relative price of gold.

    For example, to get an ounce of gold in 1929, a farmer would need to deliver a little over a hundred pounds of cotton. By 1932, it would take more than three times as much cotton to get that same ounce of gold. Whereas 18 bushels of wheat would be enough to buy an ounce of gold in 1929, you would have needed more than twice as much wheat to get gold in 1932. And since the price of gold in terms of dollars was fixed between 1929 and 1932, that means you’d need to produce about three times as many pounds of cotton or two times as many bushels of wheat in order to earn one dollar in 1932 as you would have needed to earn one dollar in 1929.

    And those changes in the dollar valuation of the real goods that people produced meant an extra burden on farmers who owed debts denominated in dollars and added pressure to reduce the dollar wages paid to workers, all of which contributed to the magnitude of the downturn.”

    In other words, if we were on the gold standard during the recent (or still occurring) economic crisis, we would be ruined. The price of gold has risen dramatically recently. Therefore, the value of the dollar would have increased relative to other goods, and business (and salaries) would have been crushed. Of course, considering the current level of household debt, most normal Americans would have been ruined by debt deflation.

    Why is there a debate about this?

    1. Well if the 1%s goal is reduce the masses to poverty and lower wages while increasing theirs then the gold standard sounds like a neat way to do it without specifying all the bad things that would inevitably happen.

    2. Paying lower taxes than the 99% also concentrates wealth and income. As does government regulatory authority, once captured by the powerful.

      Today’s post shows another way the 1% gain power.

  4. Link to video by Bill Still called “The Gold Solution Is A Lie” along with numerous other videos on how destructive a gold standared wouls be.

    {William T. Still is an American documentary film producer and author of several non-fiction books. He ran to be the 2012 Libertarian Party’s candidate for President, but lost.}
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  5. “Germany went off gold quickly, followed by massive fiscal stimulus”.

    Hitler and the Nazi’s, also cancelled or wrote off Germany’s debt. It was this triangle of cancelling debt, fiscal stimulus( military spending and public works) and state intervention ( effectively a form of rationing and inflation controls) which help create an economic boom. As John Kenneth Galbraith once said oh Hitler, he was the ultimate Keynesian.

    1. Hitler invented “military Keynesianism”, the economic doctrine loved by American Republicans, before Keynes wrote his General Theory.

      It’s another example of how in many ways Hitler was just early. Assassination, torture, indefinite detention of suspected political enemies, the interstate highway system — it’s a long list.

  6. An inflating fiat currency is the most sneaky, unfair tax. Nobody feels it more than the the elderly poor folk. Gold is the worst form of money, except for all those other forms that have been tried from time to time.

    1. Yes, inflation is bad.

      Deflation is, of course worse — as shown by the horrific deflationary recessions in the era between the Civil War and WW2. The effects of long tern 2% inflation are nil. A few years of 2% annual deflation can initiate a debt deflation cycle, leading to severe recession or depression.

      Which is why central banks set their inflation targets above zero. The Fed usually uses a 2% target (formally or informally).

      Note that in a liquidity trap the nominal riskiness interest rate that “gets” the economy to full employment is negative. Since that’s impossible (probably; there have been proposals to do that), the only solution is to deliberately induce inflation.

      Central banks don’t want to do this, as they are de facto tools of banks in most nations. So, as in Japan, instead the nation suffers years is too-slow growth.

      We are probably in a liquidity trap now.

    2. An inflating fiat currency is the most sneaky, unfair tax. Nobody feels it more than the the elderly poor folk.

      That’s one way of looking at it. Another way of looking at it is that it is the only “tax” that the rich cannot dodge easily, and the only one that applies to them proportionally. Not coincidentally, there is a great deal of propaganda to the effect that inflation is worse than a plague of locusts combined with genital warts. And a lot of people buy it.

      I am categorically not saying inflation is good. I am merely pointing out that the primary consumers of propaganda are not aware of it – that’s how propaganda works.

  7. The graphic of the “gold fairy” unaccountably reminds me of the film “A.I. — Artificial Intelligence” and the way in which the android boy David becomes obsessed with the Blue Fairy from the story of Pinocchio. David believes that the Blue Fairy is real and that she would be able to magically solve all of his problems by turning him into a real boy in the same way she turns Pinocchio into a real boy in the story — and then his “mother” will accept him and love him the way he loves her. Unfortunately for David, his quest for the Blue Fairy ends in disappointment…or at least, an answer that’s significantly less satisfying than that which he’d originally hoped to achieve. In much the same way, those who are obsessed with the “gold fairy” believe it’s going to magically solve all of society’s problems (or at least their own problems within that society, especially if they regard themselves as the only people who really count)…but the chances are good that they, too, are fated to be disappointed in the end (or at least to wind up with far less than they had hoped for in return for all their dedication and effort).

    The “gold fairy” is a simple solution presented as an answer to a complex problem…but the problem with simple solutions (and especially when presented as answers to complex problems) is that they’re actually very rarely if ever either simple or solutions. At the very least, they’re certainly nowhere nearly as simple or as effective as they originally appeared. This is partially because in theory, the theory will work in practice — but in practice, this is often not the case. This is also true because in a complex system such as a human society — and especially in an open system which is potentially subject to influence from outside elements (that may very well be part of complex systems of their own) — so many things are connected to each other. To paraphrase one of my favorite authors (Douglas Adams), life is like a badly-hung piece of wallpaper…push a bubble down in one place and it usually just pops up somewhere else. Attempting to treat problems as if they exist in a vacuum (which is usually the driving force behind the simple solution) is not sensible for the obvious reason that most of our problems do not exist in a vacuum. Our inability to detect these complex interconnections, or our refusal to acknowledge them, does not mean that they do not exist or make them go away — nor will our ignorance and/or stubbornness spare us from the consequences of tinkering with the system, and especially when we only pay attention to those parts of the system that we want to see or allow ourselves to see.

    For further reference, please consult Draper Kauffman’s rules of complex systems (which contain enough hard truths for both conservatives and progressives to find them a bit hard to swallow). In my opinion, the blog belonging to freelance journalist David Niewert has provided an excellent in-depth analysis of Kauffman’s rules:

    http://dneiwert.blogspot.com/2007/02/kauffmans-rules-1-7.html
    http://dneiwert.blogspot.com/2007/02/kauffmans-rules-8-14.html
    http://dneiwert.blogspot.com/2007/03/kauffmans-rules-15-21.html
    http://dneiwert.blogspot.com/2007/03/kauffmans-rules-final-seven.html

  8. “…wise people understood the disadvantage of a fixed money supply, that it forces painful swings in the real economy.”

    I think this sentence may illustrate a big part of the reason why many people DO want to have a gold standard, rather than why they shouldn’t want one. Gold proponents presume that any advantage gained by intentional inflation is not “real” (both in the common understanding of the word, as well as the economic one).

    Many people would rather live in a harsh reality than in a pleasant fantasy.

    People are certainly entitled to their opinions about what is ‘right’, just as they might reject the premise that ‘ignorance is bliss’. Unfortunately, evidence presented by Fabius Maximus here and by others elsewhere clearly shows economic stability requires that we occasionally retreat from the “real” world.

    Think of it like taking a vacation from work to spend some time relaxing on the beach.

  9. Isn’t it true – and I believe it was stated in Bill Still’s “The Secret of Oz”- that with a gold standard the wealth of a country could be even more concetrated in the hands of a few than it is currently today with fiat currency?

    1. People tend to overstate the effects of a monetary system. There are so many factors at work, and so many different possible forms of gold standards — its difficult to draw those sorts of conclusions with any confidence.

    2. Ryan Brooks,
      I don’t know that it would be anymore concentrated but if we did convert to a gold standard the rich would still be rich and the poor would still be poor. Gold is a commodity (raw material just like any other) that has know value intrinsic to itself just like any other commodity. It only has value when it is shaped or utilized by man for some use by man. If gold were to be the basis of some currency it would still be fiat currency or fiat coin because ALL governments will “SET THE VALUE”……that is why they switched to paper.

      3 people were stuck on an island. One has gold, one has a supply of food, one has a supply of water. Would trade some food for gold or water. The stuff is worhtless except for it’s idsutrial uses or as some type of market manipulation for a currency trade.

      And to really prove the point what do all these gold buggers sell it for……paper money of course.

    3. Slapout9 is right in theory. In practice gold standards have a deflationary bias, as fiat currencies have an inflationary bias. The former benefits the rich and creditors (usually overlapping groups). The latter benefits the middle class and debtors (usually overlapping groups).

  10. I think Marcus makes an insightful point by noting that the yearning for a gold standard is really a desire for a simplistic rote rule that can substitute for human judgment, because American no longer trust the judgment of their leaders. And, given the policies of our leaders over the last 12 years, the American people are wise not to trust the judgment of their leaders.

    The simplest version of “why the gold standard is a bad idea” is this:

    All the gold ever mined in world history would form a cube just 82 feet on a side. The total amount of gold in the world is sharply limited, and thus cannot be increased rapidly in response to an economic crisis. By contrast, the amount of paper money in circulation can be quickly increased simply by running the printing presses. This means that paper money gives a government much more flexibility in responding to an economic crisis by changing the money supply than does gold — and when you’re in an economic crisis, the more flexibility and the more options you have, the better.

  11. Why? Government intervention, exercising so-called options, is the problem. Cf, most recently, 2008 to the present. Let free and fair markets work, or don’t you trust them?

    1. “Government intervention, exercising so-called options, is the problem. Cf, most recently, 2008 to the present.”

      Fred’s been indoctrinated to believe many things that are false, even absurd. This is perhaps the most foolish to date. The 2008-2009 shock was similar to that of 1929, and in some respects worse. In 1929 President Hoover followed Fred’s advice. Fortunately in 2009 the governments of the world learned from that experience and responded aggressively.

      It’s sad that so many Americans have been blinded by ideology not to see the obvious, more evidence that we’ve become a weak and gullible people. Is there anything we cannot be taught to believe? Black is white? 2+2=5?

    2. Fred: “Government intervention, exercising so-called options, is the problem. Cf, most recently, 2008 to the present.”

      FM: “Fred’s been indoctrinated to believe many things that are false, even absurd. This is perhaps the most foolish to date. The 2008-2009 shock was similar to that of 1929, and in some respects worse. In 1929 President Hoover followed Fred’s advice. Fortunately in 2009 the governments of the world learned from that experience and responded aggressively.”

      WOW!! Stimulating conversation, sir.

    3. Your rebuttals have all been in this form, just mockery. Dust thrown into the conversation, hoping to disguise your inability to support your statements.

      There is a world of debate about these complex matters, which has swirled around you in this thread (yours are 23 of the 143 total). Read those; see how people in the thread respond to each other. Ask why those are treated differently than your comments.

      Try an experiment. Pick one of your statements, look at the reply, and attempt to show why you are correct.

    4. I added the omitted dialog to your comment. Yes, it is stimulating conversation. You made a bold statement, to which I replied — providing a clear explanation.

      If you believe it is not good dialog, please state what is wrong with that exchange.

      If you believe my analysis was incorrect, please explain why.

  12. Fred Flintstone calims “Government intervention…is the problem (…) Let free and fair markets work, or don’t you trust them?”

    Crackpot nonsense. There is no such thing as a “free” or “fair” market. All markets operate by rules and are highly artificial. Avoiding government intervention was tried in 1930 as a response to the great depression: it resulted in massive unemployment, catastrophic deflation, catacylsmic social upheavals, mass poverty, starvation, and an astounding collapse in America’s GDP.

    Ignorant gibberish like this offers proof positive of the appalling lack of knowledge about basic economics and about economic history typical of the American population.

    1. Drink your own medicine. References to “crackpot nonsense” and “ignorant gibberish” are really intelligent contributions here. Moderate away, sir. It’s your website. Intolerance and censorship seem to be in your nature.

  13. If we take literally Fred’s recommendation that we should “avoid government intervention” in the economy, the following would happen:

    * The government would have to stop minting money since a government monopoly on issuing currency is clearly as “intervention” in the free market. This would create chaos, since private individuals would immediately begin issuing many different competing currencies and no one would be able to tell if a currency was bogus or not.

    * The government would have to stop investigating stock market fraud. This would create chaos in the financial markets since unscrupulous individuals would run wild perpetrating every imaginable scam.

    * The government would have to stop offering FDIC insurance, since that too is “government intervention” in the economy. This would immediately cause bank runs, panics and all the classic problems of depressions prior to the Great Depression. Millions of people would have their life savings wiped out overnight. The economy would convulse; financial institutions would collapse and chain reactions of bank panics would consume the economy as bank runs became pandemic.

    * The government would have to shut down the federal reserve system. This would eliminate regulation of the business cycle, leading to increasingly wild swings of boom and bust. Soon the entire American economy would collapse, as it almost did the great Panic of 1907 when the richest man in America had to step forward to bail out the U.S. economy.

    * The government would have to stop collecting and issuing economic statistics. This would leave people in the dark about the state of the economy, leading to wild speculative swings in the market.

    * The govenrment would have to delete all laws from the books requiring honest account of business, since this is also “intervention” in the free market. Scammers and con artists would generate bogus annual reports for all companies and investment would collapse as it became clear that without regulation there was no way to ascertain whether any company accounting was massively fraudulent or not.

    1. 1. A non-governmental minted currency would work just fine. Money is a commodity like any other.

      2. No one has suggested that assurance of a fair market and enforcement of criminal statutes is not a governmental function.

      3.FDIC “insurance” is a myth.

      4. The necessity of a central bank is what much of the discussion on this website is centered around. There are other systems and alternatives.

      5. Publishing stats has nothing to do with what we are discussing. But they are notoriously inaccurate, leading the private sectors to compile and publish their own.

      6. Regulation has it’s place. No argument here.

    2. Fred,

      Why do you make all these assertions, when so many of your past ones have been proven wrong? While your self-confidence probably works well for you in life, it appears to put you at a disadvantage in circumstances like this — where you’re called to provide evidence for your assertions. Have you provided any?

      This may be the defining characteristic of people replying on the basis of indoctrination. They firmly believe, are unable to support their beliefs — but being proven wrong does not shake their beliefs. This immunity to facts and logic makes it difficult for them to learn. A broken feedback loop.

      Anyway, we’re try another round.

      (1a) “A non-governmental minted currency would work just fine.”
      It’s been tried repeatedly, in many places. Such as 19th century America. Always messy and problematic, hence nobody uses them any more.

      (1b) “Money is a commodity like any other.”
      Wow. Too bizarre to comment on, except to say that money is in many ways the opposite of a commodity.

      (2) “FDIC “insurance” is a myth.”
      FDIC exactly meets the definition of insurance.

      (3) “There are other systems and alternatives {to central banks}.”
      Agreed, as has been said several times on this thread. That was the point Greenspan made in the video you posted (and he should know).

      (4a) “Publishing stats has nothing to do with what we are discussing.

      Empirical data is the basis of economics, and hence is exactly what we are discussing.

      (4b)
      “But they are notoriously inaccurate, leading the private sectors to compile and publish their own.”

      Government data is accurate to the extent we are willing to pay for it (in this, as in everything, we get what we pay for). I cannot think of any private economic data considered superior to the equivalent government data. Most of the private economic data is either provide to anticipate the government data (eg, the ADP payroll numbers) or additional data not collected by the government (Markit and ISM purchasing manager indexes, the leading indicators by the Conference Board and Economic Cycle Research Institute).

  14. With that said, FM, I will voluntarily withdraw myself from your little kingdom here under the threat of being censored and muzzled (moderated, as you call it) while defending myself from personal and emotional attacks by an anonymous poster, who is most likely you appearing under an alternate, anonymous handle. Take care of yourself. Keep at it — you’ll eventually figure out that its all not as complicated and complex as it has been portrayed. Indoctrination is an insidious condition — keep drinking the coolaid if it makes you feel better.

    1. You are welcome to defend yourself to your hearts extent. But the statement referred to was not a defense.

      I and others have patiently replied in detail to each of your comments. In return you have not supplied any evidence to support your assertions (the Greenspan video didn’t). The mockery does not count. That’s what we’ve commented on, and fairly so.

      You were warned at the top of the original thread how this website works. Logic and evidence tested in debate. Big talk without backing gets dissected.

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