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 Post subject: Inflation, the Fed, the Gold Standard
PostPosted: Wed Sep 09, 2009 2:22 am 
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So I have been posting some things about US Economics for some time now in other threads, and I finally just decided to take the time and make a new thread about it so I wouldn't just be spamming other topics with my tangents about this :D

Starting out (because I am a tad bit lazy) I am going to mostly quote myself from other threads.

The Federal Reserve Act of 1913 created what is most often referred to as "The Fed". An overseeing power over the banking systems in America.

The Fed has the power to coin money, which was delegated to it by Congress (as the Constitution strictly dictates that only Congress has this power,) and it was given the power by Congress to print money (A.K.A. printing a fiat currency, the paper currency most in use today, as well as the emerging electronic currency.)

Notice, I made a distinction between coining and printing money. Nowhere in the Constitution does it say that money may be printed. In fact, I do believe it limits the creation of money to be only coining, but at the moment I am too lazy to find where it says that...

Furthermore, The Fed, as well as every other centralized bank that has been created in the US's past, has participated in Fractional Banking; the act of lending out more money than you have physical means to cover. In other words, when you put money into the bank, the bank lends it out and asks for interest, but they lend out more money than they actually have on reserve... this is what caused the Banking crisis in the Great Depression, as the People withdrew all of their money from the banks, but the banks didn't have enough money to pay everyone back.

Bad joo-joo there.

As Fractional Reserve Banking is conducted, money is created, until it is returned to the bank after a loan. What happens when people cant pay back the loan? The Fed must cover this loss of money in the Banks, so they print it up. That is why in periods such as the one we are in now, when a large number of people default on loans, the inflation rate tends to increase.

No, I am not talking about the CPI (Consumer Price Index) but rather, the actual inflation rate. The CPI is a measurement of inflation which has been flawed by politics (it no longer measures food or oil products... umm, no, consumers don't buy those at all...)

To explain what true inflation is...
Inflation is all about the supply and demand of money.

How much money is there in the system, what is the supply of it? (The M3 money supply, which is no longer reported by The Fed, but is reported by 3rd party sources, check below - my belief is that they know people will figure out how screwy they are being with the system if it is reported.)

How much do people spend the money, what is the demand for it? (This is consumption, just look at the GDP, Gross Domestic Product, for this measurement.)

So basically, as more money is created (like right now with defaults on loans, trillion dollar stimulus packages, etc.) and less money is demanded (GDP goes down, people spend less, there are less jobs, etc.) the inflation rate goes up. Costs increase. This is because the equilibrium price (or more accurately, value) of money drops significantly. Money just isn't worth as much.

Now hows about this thing called the "Gold Standard".

The gold standard was a restriction of the dollar, how much can be printed (A barrier to the supply of money.) The value of money was based upon a predetermined value of an ounce of gold. I believe the value was in the range of $23 and a few cents, but its been a long time since I've seen the actual number. As soon as I find that again, I will try to post it for you.

Now for me to reference some really cool data...
http://oregonstate.edu/cla/polisci/faculty-research/sahr/sumprice.pdf
http://www.shadowstats.com/alternate_data

Please take a look at those graphs, they are extremely accurate (and there are many sources to back them up... I'm just too lazy to put them all up here) and they tell the story that the political system won't show you.

As for how the data ties into inflation and the gold standard... take a look the first graph of the .pdf, where the turn upwards (hockey stick!!! I SEE A HOCKEY STICK!!!) occurs.

About 1933.

Wait a minute... isn't that the year that the Gold Standard was "loosened" by FDR? Oh my golly gee gosh (Im going to use that one as an acronym from now on... OMGGG!!!) It is!

The physical restriction on how much money can be made was removed, which means there was no more barrier to the supply of money. Supply curve shifts to the right, equilibrium value of the dollar drops, that means inflation increases, which means you have to pay more for what you buy.

Just a quick tangent though... isn't it funny how things get screwy when the government removes the barriers that were set up against itself? Are you guys beginning to see why I love the Constitution so much? ANYWAYS!

I want to point out something else about those graphs.
War time spikes of inflation rates.

Now I am no expert on these, but I do know that during war times, the government tends to spend more money than it has on hand (defecit spending... hmm... doesn't that sound familiar??) which as I mentioned earlier causes a creation of money, which increases supply. Also during war time, there tends to be less production of consumer goods, and more focus on military goods (goods made to destroy, and be destroyed... basically the opposite of good economic policy) at a time when there are less people in the country (troops are overseas.) These things coupled together mean less overall consumption, in other words... inflation.

The reason why there is deflation afterwards though is because consumption returns to normal, and the government was once held accountable to repay their loans, and/or to destroy any money that was printed up during that time (because there was no physical value backing it up.)

Also note that during the Great Depression, until the "New Deal" was started (defecit spending, huge taxations on the People, etc.) there was huge amounts of deflation. I'm not saying that deflation is good, just that it happened naturally in recessions. That meant that prices went down, so more people could afford to live in their time of need, so long as they had any money saved up. Nowadays inflation tends to move with recessions, thus making the recessions worse than they were before, money doesn't stretch as far.

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Now I want to get to one other point... many people criticize the gold standard for creating "huge fluxuations" in the money system. As you will note, the graphs do somewhat support this. (check page 5 of the oregon state reference) Here is something else I see though... the fluxuations become less and less pronounced as time goes on in that graph. That is the working free market... equilibrium is being found (although it is disturbed by things such as war, note the Civil War near the end.) Also note that this is much better than the alternative (what we have now) where the inflation rate is constantly in the positive. (Check page 4 of the same reference.) I.E. Hockey Stick Graph.

Other than that though, I have not heard any complaints about the Gold Standard that have any true merit...

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So, I have rambled long enough, I would like for you all to comment on this, attack it all you want, whatever... Just make sure that you have good reasoning behind your criticisms, because for the most part, this is something that I know quite well.

[edit] I also just wanted to point out that I put some of this together in a rush, so there may be a few things that I go back to correct. When I do this, I will put a notice in the following post (unless it would be double posting... then I will just edit the last one/edit this one)[/edit]


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 Post subject: Re: Inflation, the Fed, the Gold Standard
PostPosted: Wed Sep 09, 2009 10:37 am 
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Quote:
Notice, I made a distinction between coining and printing money. Nowhere in the Constitution does it say that money may be printed. In fact, I do believe it limits the creation of money to be only coining, but at the moment I am too lazy to find where it says that...


Printed Money is simply a form of IOU. Its become a currency in this age. It simply made more sense to carry around a bank note then it did to carry around duffel bag full of coins.


I'm not sure if it actually says that I'm also to lazy to look through the entire constitution. However I know the founding fathers left room in the constitution for editing because they had the intelligence to know that times change and being bound by rules that haven't changed for 200 years isn't a good thing. They went through that during the rule of a king.

I am also making the point that loving the constitution that doesn't change is against the constitution, but that's off topic, hence the parenthesis)



Quote:
About 1933.

Wait a minute... isn't that the year that the Gold Standard was "loosened" by FDR? Oh my golly gee gosh (Im going to use that one as an acronym from now on... OMGGG!!!) It is!



That's also the year he ordered the confiscation of gold coins. The value of the dollar prior to the confiscation was 23.22 grains/ 1.505 g of gold/ 1 troy ounce/ $20.67

Post confiscation was 13.71 grains/ 0.888 g of gold/ 1 troy ounce/ $35.

Did he loosen it? Yes. Did it help get us out of the depression? Yes.

And the world goes on and on and on and the world goes on and on.


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 Post subject: Re: Inflation, the Fed, the Gold Standard
PostPosted: Wed Sep 09, 2009 1:46 pm 
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Sylis wrote:
Printed Money is simply a form of IOU. Its become a currency in this age. It simply made more sense to carry around a bank note then it did to carry around duffel bag full of coins.


My point about that wasn't that it was or was not practical, my point is that the politicians didn't do what was necessary to make the constitution allow for the change. I do believe that it is much more practical to carry paper money instead of a bunch of coins. They should have amended the Constitution.

Sylis wrote:
However I know the founding fathers left room in the constitution for editing because they had the intelligence to know that times change and being bound by rules that haven't changed for 200 years isn't a good thing. They went through that during the rule of a king.


Quite right, but currently our politicians are doing the stupid thing... they are sidestepping the proper way to alter the Constitution. If a change really is necessary and proper, it will have no problem passing as an Amendment... its just easier to pass things as bills. The ultimate problem here is that a bill is strictly limited by the Constitution to only enforce the allowed powers of the Government as defined in the Constitution, whether it be an amendment or in the original articles.

This has resulted in a LOT of unnecessary legislation, and essentially more power for the government than they should have.

Sylis wrote:
That's also the year he ordered the confiscation of gold coins. The value of the dollar prior to the confiscation was 23.22 grains/ 1.505 g of gold/ 1 troy ounce/ $20.67

Post confiscation was 13.71 grains/ 0.888 g of gold/ 1 troy ounce/ $35.

Did he loosen it? Yes. Did it help get us out of the depression? Yes.


Ahh, I love it when some other person does the research work for me :D

Yes, that $20.67 was the value, its allll coming back to me now :D

As for the claim that it helped bring us out of the depression... That is absurd.

First off, he did not alter the value of the Dollar, he altered the value of Gold. Supply and demand. He took away the supply of Gold. Simple stuff really.

What he DID do, however, is take away real value from the People... in essence, his confiscation was really stealing.

How could that possibly help take a country out of a depression??

That is called backwards logic that you are using... Once you apply brainpower to it, you realize that no sense can actually be made of it.

If you still do believe that it helped get the US out of the depression, then please, by all means, explain your position away.

Sylis wrote:
And the world goes on and on and on and the world goes on and on.


Funny... the world always goes on and on and on... that statement doesn't even begin to consider whether it is a good direction that it is going.


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 Post subject: Re: Inflation, the Fed, the Gold Standard
PostPosted: Thu Sep 10, 2009 6:12 am 
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Quote:
This has resulted in a LOT of unnecessary legislation, and essentially more power for the government than they should have.


go challenge the supreme court, im sure they will side with you *sarcasm*

if the supreme court do agree with you on a technicality then there will be an amendment and it will be passed as paper currency being unconstitutional will get crushed in parliament.

learn to protest :D

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 Post subject: Re: Inflation, the Fed, the Gold Standard
PostPosted: Thu Sep 10, 2009 7:28 pm 
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mrducky wrote:
Quote:
This has resulted in a LOT of unnecessary legislation, and essentially more power for the government than they should have.


go challenge the supreme court, im sure they will side with you *sarcasm*

if the supreme court do agree with you on a technicality then there will be an amendment and it will be passed as paper currency being unconstitutional will get crushed in parliament.

learn to protest :D


You either completely messed up that statement, or you just plain don't understand how the system should work according to the Constitution...

First off, I firmly believe that the US Supreme court has not conducted its duties correctly. If they did their duties right, we wouldn't be in this mess.

As for the supreme courts power in making an amendment, you are completely mistaken... it is all in the legislative branch (congress) where that happens, the courts can only rule that laws are unconstitutional if the laws are brought to court, which most laws have not been brought to court in the first place.

But the point of your statement as a whole doesn't really seem relevant in the first place... I already said that I believe paper currency just makes sense, but I also firmly believe that it should be backed by something tangible, something with real value. That means the gold standard.

I just plain do not like fiat currency.


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 Post subject: Blah
PostPosted: Fri Oct 09, 2009 9:09 am 
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 Post subject: Re: Inflation, the Fed, the Gold Standard
PostPosted: Fri Oct 09, 2009 12:33 pm 
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OR better yet, there are people who don't like advertisements in forums. Delete that post and read the TOS please.


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