The Last Days of the Dollar

[dknightx]

http://finance.yahoo.com/columnist/a...chricher/10932

I'm not very knowledgable about economy or anything like this ... does this article have any merit? why is a gold standard bad?

[cpk]

LOL RobertKiyosakiaments

[TuNeCedeMalis]

The article is reasonably accurate. My personal opinion, which is reflected in my investment strategies, is that the question of the dollar collapse is a matter of when, not if.

There is nothing wrong with a gold standard. A hard money standard is what stands in the way of politicians taking control of the money suppply and wielding it recklessly. Since the establishment of the Federal Reserve system in 1913 there has been a gradual de-linkage of the dollar to gold, culminating with Nixon's closing the gold window to foreign banks in '71.

Reccomended reading: The Case for the 100 Percent Gold Dollar

[hmkpoker]

cpk-

The basic principle that Kiyosaki illustrates (spending extra money to purchase the means of valued production for greater future return) is undoubtedly useful for the acquisition of wealth. Duh, one is wealthier owning a home than renting a home.

The idea that this can only or is most effectively accomplished through real estate investment is incorrect. If everybody starts buying homes with intent of renting them out, you're simply going to see an increase of owner-occupied homes and a decrease in rental demand and returns. That's what we're seeing now as the real estate boom falls into a lull. However, there is nothing bad about this from an economic perspective; more people are now simply owning their own homes and gaining the utility without having to pay someone else (a landlord). Would-be landlords then must do something else, which is where the economy gains.

OP-

The gold standard IS good, however, it has some severe criticisms. Many argue that the gold standard caused the great depression. This is only true in the same sense that having a penis is the cause of rape. The gold standard was an important environmental condition, however I would identify the proximate cause as very competitive fractional reserve banking, which people did not at that time understand, and which went fraudulently undisclosed.

Here is a video about the history of money, gold and the federal reserve system from an Austrian persepective, and here is an old thread discussing the gold standard point-counterpoint.

[bobman0330]

This article has no merit. Most of the author's arguments are: "Wow, currency economics are confusing. Since I cannot understand them, they must be illogical. Those highly-educated people who do understand must be pinhead fools. Let's switch to something simple like the gold standard."

The GS per se is not terrible, but it's a little foolish and would be a long-run bad thing for everyone. A lot of anarchists will show up soon and explain how paper money is counterfeit and fraudulent, etc. You should ignore the perjoratives (here and in that column) and try to get to the substance.

Here's my take:
Money is a lot of things. Money is the thing you physically hand over to transfer some of your wealth to a movie theater in return for your ticket. Money is a thing you can hoard under your mattress to store some of your wealth. Finally, money is a unit that you can use to figure out how much your bank owes you, or how much you owe on your student loans.

Now, GS supporters argue that the only item fit to serve these roles is precious metal. Why? Because precious metal is a fixed quantity (more or less). It's not inflationary, like paper money. Basically, since the number of dollars grows faster than the real value of transactions that take place each year, the value of each individual dollar goes down a little bit. Is that bad? Sometimes. If you keep all your money under the bed, yes, it's terrible. If you invest most of your money, however, you should be indifferent, because the value of your investment will climb a little faster to make up for the inflation. The anarchists will postulate additional inflationary harms, which are not really coherent, as I hope you'll see.

So, inflation is kinda bad, but it's been kept to a very low level recently, and its harms can be avoided. (As a sidelight, inflation is much more harmful when it's unpredictable, because no one can plan for the future.) What are the upsides? For one thing, price levels are actually more predictable. If you have a fixed supply of currency, the price level will increase or decrease as the value of transactions goes up and down. If there are lots of transactions, the currency becomes worth more to spread itself around. If transactions contract, the money is worth less (down to the minimum of its intrinsic value. At that point the money supply should begin to shrink. Theoretically, the instrinsic value of the currency would also begin to drop, but that is pretty much outside the realm of reality.) As we touched on earlier, unstable price levels make it hard to plan transactions. What rate do you put on your mortgage? What rate should you accept on a bank CD? If you buy a bond, do you need to be afraid of getting paid back in cheap money? Does the company need to worry about having to pay you expensive money? In the modern US, you can predict with pretty strong confidence that inflation will run within well-defined bounds, and make transactions accordingly. Now, for most people, this isn't a big deal, as a lot of obligations have interest rates that float with inflation (e.g., credit card rates, usually, and adjustable-rate mortgages). For the economy as a whole, however, it's quite important. Most corporate bonds and a lot of business loans are fixed-rate. Uncertainty is a serious problem and raises borrowing costs for businesses, ultimately hurting jobs and economic growth.

[HumanACtor]

[ QUOTE ]
If you keep all your money under the bed, yes, it's terrible. If you invest most of your money, however, you should be indifferent, because the value of your investment will climb a little faster to make up for the inflation.

[/ QUOTE ]

So you're saying that a government thin-air money printing system is terrible for those who don't hold long term investments?

*Edit add: And I'll point out that obviously my cash cannot be 100% allocated to long term investments. What if its only 70% with 30% in my checking account? That means that 70% must beat inflation on itself plus the idle 30%.

Lets start naming categories of Americans who suffer then. I'll start:

Anyone of the millions "in poverty"
Any working class American

[HumanACtor]

[ QUOTE ]
If you invest most of your money, however, you should be indifferent, because the value of your investment will climb a little faster to make up for the inflation.

[/ QUOTE ]

Also, you state that my investment will beat inflation.

How do you know this for certain?

[Mickey Brausch]

I clicked on the link and skipped through this John T. Reed fellow's blog, and noticed some howlers. Like this one, where he claims [ QUOTE ]
Another thing politicians do is take both sides of an issue. Kiyosaki is on both sides of many issues.

[/ QUOTE ] He then offers the following as proof, which I cannot figure as "taking opposite sides" at all.

[ QUOTE ]
Isssue : Fear
Kiyosaki takes one side On page 31 “...it's fear that keeps most people working at a job.”
...then the other
Page 37 “...many rich people are rich not because of desire but because of fear.”
On page 40, “rich people with lots of money often have more fear the richer they get.”


[/ QUOTE ] WTF?

[tolbiny]

[ QUOTE ]
If you keep all your money under the bed, yes, it's terrible. If you invest most of your money, however, you should be indifferent, because the value of your investment will climb a little faster to make up for the inflation

[/ QUOTE ]

This is making the assumption that infationary pressure works equally on all segements of the economy or that it is preditable. The inflationary pressures come directly from the printing of money and the printed money is not distributed evenly to all people, in general it is distributed to banks who loan it out. This gives whoever gets the loan of "new" money a slight edge. There are also adjustment problems for employees. Most employees get their raises at certain points in the year, while a business can change its prices to reflect inflationary changes on almost a daily basis. What you get is an information gap between those who can react quickly to inflationary presures and those who can't.
[ QUOTE ]

The GS per se is not terrible, but it's a little foolish and would be a long-run bad thing for everyone

[/ QUOTE ]

Would you like to explain this, or should we take your word for it?

[ QUOTE ]
Theoretically, the instrinsic value of the currency would also begin to drop, but that is pretty much outside the realm of reality

[/ QUOTE ]

What "intrinsic" value does gold have? You can't eat it, drink it or (realistically) build a shelter out of it. Its value is exacly what people are willing to trade for it. (gold does have a few commercial uses, in computer processors ect- but not in vast quantities by any means).

[ QUOTE ]
In the modern US, you can predict with pretty strong confidence that inflation will run within well-defined bounds, and make transactions accordingly

[/ QUOTE ]

Over what, 50-70 years? Gold has been freely transacted with and held its value for thousands of years. You can dump the stuff to the bottom of the ocean and 200 years later it can be salvaged and sold at market price. The Romans used gold and silver coins for a long time as their standard and it didn't cripple their economy.

[HumanACtor]

[ QUOTE ]
So, inflation is kinda bad, but it's been kept to a very low level recently, and its harms can be avoided.

[/ QUOTE ]

Bob,

You don't address wages in your apology for inflation.

How do laborers whose wages do not rise 3-5%+ every year avoid the harms of this 2-5% "predictable" inflation?

Do you believe inflation causes inequality?