Explain to an idiot the benefits of going back to the Gold standard

[PLOlover]

but my point is you are saying gold standard the money would undergo deflation (same money supply, increasing economy), I'm just saying that gold mining would be an inflationary effect, and the greater the amount of intrinsic deflation, the more profit there would be in gold mining(inflation.).

so it seems to me the free market would find the balance there.

[PLOlover]

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All I'm saying is that if you plan to switch from fiat to gold, you're either going to need a staggering amount more gold than has been mined in the history of mankind/possibly more than exists on the planet, or you're going to have to drastically devalue gold (which has its own issues because gold is now useful industrially.)

[/ QUOTE ]

a) it's a seperate issue (btw, US was historically on a bimetallic money standard, no need for a single metal)

b) in your scenario gold would have to be increased in value, not decreased in value.

[Copernicus]

[ QUOTE ]
but my point is you are saying gold standard the money would undergo deflation (same money supply, increasing economy), I'm just saying that gold mining would be an inflationary effect, and the greater the amount of intrinsic deflation, the more profit there would be in gold mining(inflation.).

so it seems to me the free market would find the balance there.

[/ QUOTE ]

Even if there were enough gold to be mined, that carries a very large cost. One of the benefits of gold as backing is that it is scarce, one of its downfalls is that its...scarce.

I think it was your earlier question "why are central banks hoarding tons of gold", and I didnt see a direct answer. The reason is that there are treaties on how much gold a central bank will sell in any given year, in order to not flood the market and drive the price of gold down too rapidly.

[adanthar]

[ QUOTE ]
but my point is you are saying gold standard the money would undergo deflation (same money supply, increasing economy), I'm just saying that gold mining would be an inflationary effect, and the greater the amount of intrinsic deflation, the more profit there would be in gold mining(inflation.).

so it seems to me the free market would find the balance there.

[/ QUOTE ]

You're dealing with a gigantic economy which operates on a scale that would have been unimaginable as recently as a century ago, which directly impacts 300 million people and currently has an M0 of 700 billion/M2 of 7 trillion. When proposing to switch it to a metal the total sum of whose mined deposits on the planet - not just in the US, mind you - total $2.5 trillion or so, you're going to have to do way better than "well, the free market will come up with more gold mines".

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b) in your scenario gold would have to be increased in value, not decreased in value.

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The only way to physically do what you're proposing is to decrease the value of gold, period.

[PLOlover]

[ QUOTE ]
Quote:
but my point is you are saying gold standard the money would undergo deflation (same money supply, increasing economy), I'm just saying that gold mining would be an inflationary effect, and the greater the amount of intrinsic deflation, the more profit there would be in gold mining(inflation.).

so it seems to me the free market would find the balance there.



You're dealing with a gigantic economy which operates on a scale that would have been unimaginable as recently as a century ago, which directly impacts 300 million people and currently has an M0 of 700 billion/M2 of 7 trillion. When proposing to switch it to a metal the total sum of whose mined deposits on the planet - not just in the US, mind you - total $2.5 trillion or so, you're going to have to do way better than "well, the free market will come up with more gold mines".

Quote:
b) in your scenario gold would have to be increased in value, not decreased in value.



The only way to physically do what you're proposing is to decrease the value of gold, period.

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a) i'm saying increase gold production would produce inflationary effect *once a stable gold standard was already in place*.

b) as for switching, look at what you're saying. you're saying worldwide gold supply is only "worth" X amount, and it needs to be work X*Y amount for it to work as a replacement. So I'm saying if you wante to switch from fiat to unimetallic monetary standard, gold would have to go from a "worth" of X to a "worth" of X*Y. I'm simply stating X*Y is greater than X, that is gold would be "worth" more if it were the sole worldwide currency.

c) also central banks having gold begs the question of why they have gold in the first place.

[tolbiny]

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This is all well and good, but that's not at all what happened in Japan (edit: and, I should say, every other deflationary economy ever, although Japan is the only really recent one).

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Japan's deflation was not a monetary phenomenon, as evidenced by their lowering of the the interest rate to 0 being unable to spur investment. The deflation there was a symptom of an ill economy due to mismanagement during the 80s. The same with deflation in the 1930s, which occurred when there were fundamental issues with the economy (thanks to fiat money and inflation). The deflation in these instances was part of the correction of other economic problems to do with mass mal investment and a lack of savings (the types of things you would NOT expect to see large scale under a gold standard).

[PLOlover]

[ QUOTE ]
a) i'm saying increase gold production would produce inflationary effect *once a stable gold standard was already in place*.

b) as for switching, look at what you're saying. you're saying worldwide gold supply is only "worth" X amount, and it needs to be work X*Y amount for it to work as a replacement. So I'm saying if you wante to switch from fiat to unimetallic monetary standard, gold would have to go from a "worth" of X to a "worth" of X*Y. I'm simply stating X*Y is greater than X, that is gold would be "worth" more if it were the sole worldwide currency.

c) also central banks having gold begs the question of why they have gold in the first place.

[/ QUOTE ]

what I mean is that if suddenly the world went to a gold stanard, gold would suddenly change in worth from X, to X*Y, it would increase.

what you're saying is that for the value of gold to keep it's current worth and still go to a gold standard, we would need more of it, about Y times as much of it as we have.

I think so, right?

[adanthar]

[ QUOTE ]
what I mean is that if suddenly the world went to a gold stanard, gold would suddenly change in worth from X, to X*Y, it would increase.

what you're saying is that for the value of gold to keep it's current worth and still go to a gold standard, we would need more of it, about Y times as much of it as we have.

I think so, right?

[/ QUOTE ]

Yes, keeping in mind that since "the world" will never go to a gold standard and you presumably want to do it unilaterally, Y is several times more than it otherwise would be.

[tolbiny]

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This is all well and good, but that's not at all what happened in Japan (edit: and, I should say, every other deflationary economy ever, although Japan is the only really recent one).

[/ QUOTE ]

Japan's deflation was not a monetary phenomenon, as evidenced by their lowering of the the interest rate to 0 being unable to spur investment. The deflation there was a symptom of an ill economy due to mismanagement during the 80s. The same with deflation in the 1930s, which occurred when there were fundamental issues with the economy (thanks to fiat money and inflation). The deflation in these instances was part of the correction of other economic problems to do with mass mal investment and a lack of savings (the types of things you would NOT expect to see large scale under a gold standard).

[/ QUOTE ]

To put it another way

Deflation that occurs under fiat currency occurs due to negative economic shocks, while deflation under a full reserve system occurs due to positive economic shocks. Comparing the results of deflation under condition A and extrapolating it to condition B is a flawed approach.

[pvn]

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One of the main disadvantages of the gold standard is that it artificially inflates the value of gold. The total amount of gold that has ever been mined is estimated at ~125,000 tonnes.[1] At the current gold price of around USD $640 per Troy ounce, or around $20,000 per kilogram, the value of this entire planetary stock would be USD $2.5 trillion, which is less than the value of currency circulating.

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It's gonna take a whole lot of extra gold mining to get there from here.

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You don't see the fallacy here?

Say the total amount of mined gold is one million ounces. And let's say the "price" is $100/oz.

So there's $100,000,000 "worth" of gold.

But there's 200,000,000 pieces of paper out there.

What's the problem here?

The value of the entire planetary stock of wheat is also less than the "value" of all the currency circulating.

Ditto for oil.

Ditto for cans of tuna fish.