I think it is important to keep into perspective that the current fiat monetary system has only been in use for 40 years, give or take, vs. thousands of years for hard assests like gold.
gold occasionally shows rapid increase in value over a 5-10 year period, but usually just slowly erodes in real value over a long time. There is probably 0.0% chance that gold has a role in the "next monetary system" as the author mentions. There isn't enough on the planet to be useful as a currency and it doesn't transfer value easily enough in a rapidly growing and interconnected world.
Currency will continue to be based on promises from governments to back the value. The relative values of currencies amongst one another will vary based on faith in those governments. But the system assuredly is not going away. Blockchain technology like Bitcoin likely has far better odds of being used in a new type of currency than gold does.
It's hook on some people's imagination continues and yet it is still just a shiny metal of which the total amount on the planet could fit inside a 20m cube.
If the iPhone crashed the world economy, I actually believe we would go back to the flip phone.
Here is an essay describing how the gold standard works.
Politicians want to spend more money than fiscally possible. A fiat system is great for that. Just print more money.
Would you also abolish fractional reserve lending with this new gold standard? It seems to me that a "fiat" currency is unnecessary when it comes to "printing" money.
I think it is unfair to use that chart to poo poo gold. At the moment gold is not currency. It is a commodity. It goes in and out of vogue depending the prevailing sentiment. If gold were declared currency I'm sure that chart would look a lot more stable.Going back to the gold standard is one of the dumbest ideas, ever. People complain about how weak the recovery has been without considering the counterfactual: we would currently be in a depression that would make the Great one look like a hiccup if it weren't for fractional reserve banking and QE. In today's economy, it's is simply impossible to escape a recession if credit markets are frozen solid.
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http://www.businessinsider.com/why-...e-worst-idea-in-the-world-in-one-chart-2012-9
Let us use global transactions as an example (though the case applies just as well for national transactions). We assume that globalisation holds steady, with global trade averaging around 20% of the world’s GDP. Under these circumstances, the value of global trade will rise in step with the rise in the value of global GDP. If the world economy has a trend nominal rate of growth of around 6% to 6.5% (perfectly realistic in the current climate), then the supply of currency to the world economy needs in order to conduct international trade has to rise by around 6% to 6.5%.
The problem that the world faces is that the supply of gold rose less than 3% last year. Thus there is too little growth in gold supply to facilitate the growth in the trade of international goods and services. There are only two possible outcomes that can be generated by this situation. The first is that globalisation goes into reverse (so that trade becomes a declining share of the world economy, and nominal trade grows at around 3.5% while the economy grows at around 6.5%). Reducing the role of international trade in the world economy would make the world economy less efficient. That means that people would have a lower standard of living than they could otherwise achieve.
Alternatively, the world could experience deflationary pressures. If the world economy is experiencing deflation, with prices falling at 0.5% every year, global GDP would grow at around 3.0% per year in nominal terms. That could give a nominal trend rate of growth for exports of around 3.0% per year, in line with the growth in gold supply. However, a world economy with repeated bouts of deflation is hardly healthy – as Japan in recent years or the US in the 1930s demonstrated. Deflation imposes a heavy burden on borrowers. That can serve as a disincentive to investment and entrepreneurship.
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That's a deadbeat mentality. "Debt is good. Inflation is great, so that I have to pay less."
That's a sexy post but you seem to forget that America was on the gold standard when all those large cap dividend paying companies were created.No, it wouldn't. In the 20th century inflation was much more volatile before Nixon depegged. The period since the late 70s and early 80s has been the least volatile for inflation either up or down in history.
It's silly trying to analogize national and world economies with the image of a household sitting around the dinner table looking at their credit card statement. A government is not a family of four, nor should a government be restricted to the financial ingenuity of an individual when having to deal with myriad macroeconomic problems.
"Debt is bad and savings are good" is such a gross oversimplification as to be laughable. The total market capitalization of the US stock market is somewhere around $20-25 trillion. The total value of US corporate debt is somewhere around $25-30 trillion. Large cap, dividend paying US companies are the greatest wealth creating entities in the history of the world. They did not get this way cause a bunch of entrepreneurs sat around the dinner table and saved pennies to start a company. They financed heavily with debt, grew their revenues, used revenues to finance more debt, and eventually started making enough revenue to have a significant profit and pay a dividend while still servicing their debt. Every single industry and service sector (be it housing, autos, manufacturing, healthcare, education, technology, GOLD MINERS, insurance, retail, food) would collapse overnight if credit markets dried up, and that's exactly what would happen if we had a sudden reversion to the gold standard.
I don't know what to say if you think what drives the economy has changed in the last 100 years. Have people stopped trying to get rich in the interim?
1 These companies are memorable because of the accounting fraud used to hide the massive debt hole they were in. It was the debts that killed these companies, not the fraud. The fraud just kept them going for longer than they should have. I'm sure there are countless other companies that have succumbed to debt but we have forgotten.
No, it wouldn't. In the 20th century inflation was much more volatile before Nixon depegged. The period since the late 70s and early 80s has been the least volatile for inflation either up or down in history.
What is this chart of? It doesn't even say what the Y axis is.You're missing the point. It doesn't matter when these old Dow majors were established- what matters is that dividends were able to grow decade after decade because of significant debt issuance in the age of fiat currency. These companies were able to keep growing EPS at significant rates instead of stagnating and being pegged to the rate of how much additional yellow metal could be pulled out of the ground (3%).
I think that chart is somewhat unfair without a proper background. This one is better:
http://www.24hgold.com/english/contributor.aspx?article=4269461978G10020&contributor=Tim+Iacono
The "acceptable" 3% inflation every year for the past 40 years has caused a massive inflation in prices compared to the prior 150 plus years, yet you proclaim that as stability.
Talk about an extremely misleading chart. It looks scary when GDP per capita isn't shown for context. The parabolic inflation slope in the chart you posted isn't impressive as long as GDP is outpacing inflation
1 The price of your house and your paycheck must rise way more than inflation if you don't want to end up in the red. It is not necessarily cause and effect.
Whoa, whoa, whoa ... slow down there.
No. I did not miss the point. I was fully aware that the dollar value for the GDP was in 2005 dollars. The fact is that since 1970 the GDP has only tripled in 2005 dollars, while the price of goods has gone tenfold. That is a for recipe for poverty.
Sure, whatever you say.
Interest rates aren't going negative. The Fed is set to raise them soon, with more increases on the horizon. The financial system is actually fairly stable- you don't hit the reset button until you're in a Zimbabwe, Argentina, or Weimar situation, which we're faaaaaaar from. Not only that, but such a reset could cause world wars, particularly if we were to do so, as our currency functions as such a large reserve that China and other nations would be quite understandably upset and would likely seek to take their claims by either force or harsh economic sanctions that sent us back to the stone age. Basically, a reset is national suicide.
I sure hope so. I would like for interest rates to be over 5%. 10% to 15% even better. The savers need to be compensated for the travesty that was allowed to happen in the past 5 years. Gold would go to nothing if that ever happened, and that would be a good thing.
