Swiss vote to end fractional reserve banking

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BRUTE
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Re: Swiss vote to end fractional reserve banking

Post by BRUTE »

Riggerjack wrote:
Thu Sep 06, 2018 6:26 pm
In light of what I have said about short term volatility. If I am missing something, this seems to be where it would be.
like the above post by Mister Imperceptible says, Riggerjack's claim is simply factually wrong. gold has been extremely stable much longer than the US dollar.

the only reason Riggerjack probably thinks gold is volatile in the short term is that the government has been banning and messing with it starting around the time the fed was founded.

Riggerjack
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Re: Swiss vote to end fractional reserve banking

Post by Riggerjack »

https://inflationdata.com/Inflation/Inf ... ation.aspx

Again, gold's ability to consistently maintain it's value against gold is not impressive. Gold has NEVER been short term stable, because nothing is stable.

You need less bubble in your links. Of course a goldbug site is going to feed you data in a misleading way like that.

Mister Imperceptible
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Re: Swiss vote to end fractional reserve banking

Post by Mister Imperceptible »

I do not think the volatility of the market price of gold is the concern. Of course it will fluctuate based on market variables.

The concern is the malinvestment bubbles generated by fiat currency, and the accompanying cronyism of central banking. We would still have malinvestment and bubbles and cronyism with a gold standard, but central banking and fiat currency seem to make all of that exponentially worse.

Riggerjack
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Re: Swiss vote to end fractional reserve banking

Post by Riggerjack »

I do not think the volatility of the market price of gold is the concern. Of course it will fluctuate based on market variables.
uh huh. So is it stable, or is it variable? Because if it's not stable, help me understand why we should find it more suitable than a fiat dollar? Because in the short term, the fiat dollar IS stable.

Mister Imperceptible
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Re: Swiss vote to end fractional reserve banking

Post by Mister Imperceptible »

As USD liquidity dries up, behold the malinvestment revealed.

Riggerjack
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Re: Swiss vote to end fractional reserve banking

Post by Riggerjack »

yeah, yeah. We can talk about effects, after we can agree on causes. For what it's worth, I agree with you about malinvestment, but we can't get there until we can agree about the strengths and weaknesses of each system, fiat vs, gold.

Quit ducking the gold issue.

BRUTE
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Re: Swiss vote to end fractional reserve banking

Post by BRUTE »

nobody is ducking the issue. why doesn't Riggerjack deliver some evidence for his (extraordinary) claim that gold was more volatile than the US dollar? the link he posted only goes back to 1913, and brute has no idea what it even has to do with gold.

brute is about to disengage from this topic because Riggerjack isn't even wrong about it. wheaton delta is too high for the conversation to be productive or interesting.

Riggerjack
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Re: Swiss vote to end fractional reserve banking

Post by Riggerjack »

OK.

The link was to show inflation AND deflation of the dollar, WHILE it was tied to gold. Inflation is not something that only happens to fiat currencies. What I need from you is some kind of explanation as to how a currency subject to wild swings of inflation and deflation in the short term, but stable long term, would lead to better investment decisions than a currency that is stable short term, and expected to inflate long term.

I will accept that inflation and deflation cancel each other out long term, thus negating the currency factor in investment decisions. But I will destroy that argument, so I'm hoping you have better.

Mister Imperceptible
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Re: Swiss vote to end fractional reserve banking

Post by Mister Imperceptible »

Is the dollar more effective at facilitating daily exchange?

Yes.

Is the dollar more effective at having the greater population unknowningly finance projects, both public and private?

Yes.

Does the dollar preserve wealth and purchasing power over time?

No.

Over time, every fiat currency has a destiny of zero. Now, if you cherry pick certain periods of time, you can find periods where the dollar has outperformed gold. Gold detractors love cherry picking the inflation-adjusted return of gold since 1980 or since 2011. Those gold peaks occurred because of dollar devaluations. The devaluation of the dollar precipitated a gold bull market in each the 1970’s and in the first decade of this century. At the end of each market, speculators (not believers in gold, but people trying to make a quick buck off of it) along with those panicking about the state of the dollar, caused an overshoot. It would seem that the lesson from this is to buy gold when it has gone sideways for awhile, and not when it is ballooning and everyone else is trying to buy.

If an ancient Roman family stored in a chest what at the time were equal portions of gold, fiat, and certificates of ownership in businesses, only the gold would still have value.

Now, because the dollar is more effective at facilitating daily exchange, and not necessarily because it has any particular qualities, but because the government forces us to use it at gun point, it would seem wise to have cash, but never more than to meet short-term obligations. Unless you have insight as to why gold might be cheaper in the near future- but that is a speculation. In the long run, gold will always trump fiat.

So you might say “That’s fine, and you are free to do that. So what are you arguing about?”

I bought a book called “Investing for Dummies” about 3 years back. I was still over $65k in student debt at the time, and had not yet bought my rental property. The book explicitly denounces gold as an investment. In fact, most mainstream investment guides will shit all over gold. “If only we can convince everyone to buy index funds, we can paper over the horrific losses from decades of malinvestment- thereby passing along the cost of that malinvestment from Baby Boomers to Millennials.” No way, man, I don’t want to hold the bag. Demographics is destiny. The longer we go without a major correction, the more we will become like 1980’s Japan. And no amount of Chinese ghost towns, expensive networks from Sacramento to San Francisco, or digging of holes to fill them back up again, can undo that damage. That wealth “invested” is gone, lost forever. And I cannot see how such gross errors can occur where gold is a standard, and deflation is a real threat.

Now I’m still relatively new to this investment thing, and quite probably on the wrong side of Mt. Stupid, but there is no way, having taken 8 years to climb out of over $150,000 of student debt, that I will trust what the mainstream tells me. Gold might go up or down, but at least I will be assured of owning something. With the stock market or the US dollar, do I have any such assurances? With the former, no, with the latter, I will eventually be assured of a loss. And looking at current stock market valuations, unless you can unblinkingly say “We have a new paradigm!” I would stay away from stocks at their current valuations. Every time people thought the stock market could go up forever regardless of price and of earnings, they met the fate of Humpty Dumpty.

Maybe this all seems tangential. But I see everything, the cost of education, healthcare, housing, all of it is tied to the problem of central banking. Where is the manufacturing in the US? The creation of real value? What wealth do we actually possess? We are living off of the legacy of the country’s great wealth accumulation, but we are quickly dissipating it, fueling our lifestyles and retirement portfolios with debt. America used to be the world’s greatest creditor, now it is the greatest debtor. That way leads sorrow. The financialization of the economy can be linked straight back to the ending of the gold standard. We used to create and build things; now, we “financially engineer.” The masses don’t care because they look at their 401(k) balances and feel like they are getting richer, even as they are actually getting poorer. And the multinational CEOs are selling out the future of the United States so they can take massive undeserved payouts. It all reads like Edward Gibbon.

https://en.m.wikipedia.org/wiki/Financialization

https://www.forbes.com/sites/mikecollin ... ef1dad5783

https://www.forbes.com/sites/stevedenni ... 9cd1464cd1

https://www.forbes.com/sites/stevedenni ... c29bfe1abc

https://www.forbes.com/sites/briandomit ... da4ea86ec3

That this should be plain to see, and yet we have no leadership trying to stem this dismal tide, and a culture of people who do not see this as a problem whatsoever, is what I mean when I talk about a decline that is not only economic, but spiritual. Dishonest money is part and parcel to a dishonest society. We cannot trust the means of exchange, we malinvest, we mortgage the future to live for the now.

So yes, the dollar is stable, in the same way that someone slowly dying in a hospice could be considered stable, as long they are not convulsing, screaming, and bleeding out of every orifice. As long we can “ease the pain” as you said..... “everything is fine.”

http://gunshowcomic.com/648

Campitor
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Re: Swiss vote to end fractional reserve banking

Post by Campitor »

Question for Rigger and MI:

Is the increased financialization of the economy partly driven by the increased cost of labor? Capital doesn't require benefits, vacations, and health insurance. I don't want to detract from the fiat vs gold currency debate - I'm finding it highly interesting. I only want your opinion regarding labor's pressure, or non-existent pressure, on deviating from gold and encouraging fiat currency.

Riggerjack
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Re: Swiss vote to end fractional reserve banking

Post by Riggerjack »

I'm sorry, I left the house for the weekend, and left my phone behind. I'm posting from my wife's phone.

I should point out that I'mat the edge of my knowledge, and far from certain about my conclusions.

I used to agree with you. Now I don't. I'm trying to walk you through the steps I took, so if I skipped something, I am hoping you will be kind enough to point out my error.

I believe that having a short term stable currency leads to better investment decisions, not worse. That removing deflation risk is good, not bad.

And I consider all the moral hazards you point out to be real. But before we can get to that, we have to address what a currency is, what it is good for and what it isn't.

Because I think you have some basic misunderstanding of how gold works as a currency. A misunderstanding that has been strongly encouraged.

So if I seem to be hammering away at that, this is why. Either I am wrong now, or I was wrong before, and I want to know which.

To establish that, we need to talk about deflation risk, and how gold behaves as a currency. Thus is different from how gold behaves independently. This is different from how fiat currency behaves. That is why I linked to the early inflation and deflation data. But I don't intend to turn this into a battle of links. I want to keep this at the logic level, with a bare minimum of math. No physics envy, here.

Sorry, but I'm checking out for a few days.
Last edited by Riggerjack on Mon Sep 10, 2018 2:39 pm, edited 1 time in total.

BRUTE
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Re: Swiss vote to end fractional reserve banking

Post by BRUTE »

Riggerjack wrote:
Fri Sep 07, 2018 2:44 pm
The link was to show inflation AND deflation of the dollar, WHILE it was tied to gold. Inflation is not something that only happens to fiat currencies.
again, brute never argued that a government mandated gold standard is the ultimate goal. the years in that link mostly include gold being banned from private ownership, and include 2 world wars. so it's not a very good case for "gold is a volatile medium of exchange in a free market".
Riggerjack wrote:
Fri Sep 07, 2018 2:44 pm
What I need from you is some kind of explanation as to how a currency subject to wild swings of inflation and deflation in the short term, but stable long term, would lead to better investment decisions than a currency that is stable short term, and expected to inflate long term.
this is not the claim brute is making. brute is saying that a currency chosen by a free marked without government intervention would likely be less subject to inflationary or deflationary swings in the short term.

it is also meaningless to compare "a currency that is volatile in the short term" and "a currency that is volatile in the long term" without details and trade offs. if gold were 1% volatile in the short term and 0% inflationary in the long term, it would be a better currency than a dollar that is 0.9% volatile in the short term and 3% inflationary in the long term.

this leads brute to the next point: his problem with the dollar is not that it is inflationary over the long run per se - but that it is diverging from the market rate of inflation. every currency will likely have some sort of long term inflationary/deflationary trend. gold gets used in industrial products. humans lose the keys to their bitcoin wallets. this is generally ok as long as it is not a)super surprising (short term swings as Riggerjack mentions) and b)there isn't a systematic bias that distorts markets systematically (like the 3% inflation does).

Riggerjack is arguing that a) is more important than b), but it is not clear that a) and b) are a dichotomy, and it is not clear (to brute) that gold (if chosen freely by a market) would suck at a) more than the USD.

now if humans in a free market currency system chose the USD over gold, brute is ok with it. but currently, that's not the case. brute simply wants the market and competition to determine the optimal medium of exchange, instead of the government.

Mister Imperceptible
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Re: Swiss vote to end fractional reserve banking

Post by Mister Imperceptible »

@Campitor

In any instance where there is a moral hazard and a conflict of interests, of course individuals and individual firms in aggregate will act out of self-interest. The problem is when the government becomes itself a tool for lobbyists and corruption in service of the financial sector, and sells the nation itself out, and the people in that nation lack the will to take any corrective or preventive actions. I’m sure we can outsource the organic economy indefinitely, in which case we can eventually expect to kowtow to the General Secretary of China.

Although it is amusing. Corporate America claims it cannot afford to pay for American labor, so it gets in bed with the government to depreciate the currency, so what little money the masses have left after being unemployed will be stolen from them via inflation. And after being ravaged by inflation and unemployment, they can complain that younger generations do not want to consume big ticket items or start families. Gee, I wonder why? Better prop up stock prices with more debt and corporate buybacks.

If there was any evidence that what central bankers did worked, we wouldn’t have a world financial system teetering on the brink. When it collapses, who are you going to blame? The labor?

If you want to take the aristocratic view, and I sometimes do, that we have a superfluous number of people, that’s fine. Adjust downward the expectations of growth, and stop pricing in inflation. You can only bake inflation into the currency to the detriment of foreign bond holders and domestic savers alike. Someone has to hold the bag. TANSTAAFL.

This is fine. I’m okay with the events that are unfolding currently. That’s okay, things are going to be okay.

BRUTE
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Re: Swiss vote to end fractional reserve banking

Post by BRUTE »

*sound of can being kicked down road*

Campitor
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Re: Swiss vote to end fractional reserve banking

Post by Campitor »

@Brute

What is your opinion on the pressure exerted by labor cost on gold versus fiat currency desirability? To what extent does it aggravate the problem if at all?

Mister Imperceptible
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Re: Swiss vote to end fractional reserve banking

Post by Mister Imperceptible »

@Campitor

Do you have an opinion on the matter? Dr. Fisker suggested the impossibility of a gold standard on page 1 of this thread, because humans are breeding faster than our ability to find new gold. The Austrian argument is that the nominal money supply is irrelevant, as prices will adjust to the relative supply of money. It is not my intention to speak past you, if that was your impression. It just seems to me that we have had 50 years of fiat, and it looks pretty toxic in the hands of very human and fallible central bankers.

The only argument I can see in favor of central banking is that wealth needs to be funneled away from labor so it can be invested to further the human race, in ventures such as space exploration. As far as I can tell, that money being siphoned away from labor via inflation is instead being lent by the billions to companies like Netflix so we can sit on our arses and watch Stranger Things.

The market is distorted and trying to suggest fiat is necessitated by increased labor costs does not add up. Because wealth inequality has increased, financialization has increased, manufacturing has decreased. We aren’t going anywhere positive with this wealth transfer and financialization, not that I can see. I would need to see a compelling argument to convince me otherwise.

I did ponder your question because I greatly respect your opinions @Campitor. If you have a counterpoint I would like to hear it.

BRUTE
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Re: Swiss vote to end fractional reserve banking

Post by BRUTE »

Campitor wrote:
Fri Sep 07, 2018 8:04 pm
What is your opinion on the pressure exerted by labor cost on gold versus fiat currency desirability? To what extent does it aggravate the problem if at all?
brute does not understand the question. the labor cost of having to mine gold? and what problem is being aggravated?

Solvent
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Re: Swiss vote to end fractional reserve banking

Post by Solvent »

@MI "the nominal money supply is irrelevant"

No no. You can't have meant that. If the nominal money supply is irrelevant and prices adjust frictionlessly, how does a CB printing money cause any ill effects?

Observing this discussion, something I note is that a certain argument against FRB (or for a gold standard) is one against inflation, and for a fixed value of a dollar. I posit that outside these particular Austrians, the majority of people don't actually view the dollar in the same way. Hence, with this axiom not agreed on on both sides, arguments get bogged down.

Some moderate inflation is expected and accounted for by the vast majority of players. It's not the problem it's made out to be.

Campitor
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Re: Swiss vote to end fractional reserve banking

Post by Campitor »

BRUTE wrote:
Sat Sep 08, 2018 3:56 am
brute does not understand the question. the labor cost of having to mine gold? and what problem is being aggravated?
I phrased my question poorly. Does the increased cost of employing humans put significant pressure on what type of currency is desired or how it's utilized? I genuinely want to see what you have to say on the matter; same goes for MI and Rigger. I have my opinions on the matter but I want to see what other thoughts are out there so I can ponder possible avenues of additional research or correct my thinking.

Jacob is right about gold's availability versus human population. There are known gold reserves that haven't been mined because it's not worth cost (gold ounce per cubic yard) or it's located in areas that prohibit mining (wildlife refuge, proximity to human habitation or water resources used for consumption). And there may be asteroids that contain gold. If gold prices are high enough, it makes previously unprofitable sources worth the mining expense. There's more gold out there but I don't know if it would be enough to sustain gold as a currency.

In regards to labor and it's increased cost resulting from scarcity of human capital or government regulation, I believe it incentivizes, to a certain degree, the adoption of financial instruments that are only made possible by the misallocation of resources. Resources which can only result via government intervention; too big to fail so we'll bail you out with taxpayer money irrespective of bad business practices, etc.

It's faster to accumulate wealth when you can minimize the external claims on money such as labor and taxes while outpacing the relative bite of inflation. So even if gold was a viable currency and had no population pressure on it, it could never grow fast enough to outpace the costs associated with any business that relies on a large pool of humans and commodities to turn a profit. Riches are quicker to attain, in their opinion, when you lessen the reliances on human labor and commodities for generating a profit; the only production needed is an electronic transaction and paperwork. It's easier to focus on non-producing ventures only made possible via money borrowed cheaply (thanks QE! :cry: ). So how do you incentivize better behavior irrespective of the cost of labor and commodities? Ergo my curiosity regarding your opinions.

Mister Imperceptible
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Re: Swiss vote to end fractional reserve banking

Post by Mister Imperceptible »

@Solvent

You are right. I should have said “Any nominal money supply is sufficient, provided its value as a store of wealth is sufficiently fixed so as not to encourage malinvestment.”

However I must disagree with your statement that moderate inflation is not a problem. For the reasons I described above, I think it is at the root of all the problems. As @Campitor affirmed, it encourages people to shuffle paperwork around and financially engineer a result, which is zero-sum and produces nothing. It hollows out the real economy, and is likely to blame for the widespread inequality.

I don’t want the the dollar fixed to the price of gold so I can hoard it (although it does make sense to have a reserve). I want the dollar fixed so that when investments do badly, it’s plain to see and not covered up by inflation. That’s how we get asset bubbles and wealth lost to malinvestment. With sound money, it will be (painfully) obvious when an investment fails, and the market participants will rotate funds to better investments.

It would also seem intuitive that the market price of gold would be less volatile without asset bubbles in stocks and real estates bursting. When those bubbles burst, the Fed prints a bunch of money, which causes the nominal price of gold to skyrocket, and suddenly gold deposits that were too expensive to mine become viable, the price of gold overshoots and crashes, the gold miners end up taking on all kinds of bad debt, and they end up with bad balance sheets after the stock market has been “stabilized” by the larger money supply. Like so many things, it’s a wave function. Overshoot and crash. (I don’t have statistics to support this, it would be worth looking into.)

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