Post: #1

The Bank of England is now telling the truth about money and has admitted that the appetite for loans determines how large the money supply will grow.

http://www.theguardian.com/commentisfree...-austerity

Quote:In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with "quantitative easing" they've been effectively pumping as much money as they can into the banks, without producing any inflationary effects.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite.

Post: #2

Haven't had a chance to read the article yet. But the author, David Graeber, is one of my favourite writers. His history of Debt is a great book.

Post: #3

I know there are a few members out there who have deep problems with fractional reserve banking and believe the world should return to the gold standard. This would actually benefit me personally, so by all means campaign for it, but my opinion is that that would just create a new set of problems. I mean the world originally went off the gold standard because the powers at that time thought they were correcting problems that existed then. Why does anyone think that it is even possible to construct a system without problems? Sure you can try. Must try. But life is full of problems and moving from fractional reserve banking to something else will just create new problems. For all we know bigger problems.

It seems that the gold standard crowd deep down want to believe in a financial instrument that has intrinsic value, and if money were backed by gold it would have this. But it's obvious it doesn't, and can't. There's no guarantee on the value of gold. No power to credibly offer such a guarantee. Money is best seen as a sort of "visible" embodiment of economic activity withing a particular monetary area. It depends on the level of activity at the present time, and expectations of future activity. When these change the value of money changes. Believing gold can correct this problem is like believing you will stay upright on a bicycle when you stop peddling on a flat.

Post: #4

A Model T car in 1909 cost $850. Gold in 1909 was per ounce, $18.96.

Doing the math gets you a car that cost 44.86 ounces of gold in 1909.

Now jump to today at an exchange of $1311 per ounce.

44.83 ounces of gold at that rate is a quantity $58,772 dollars. That would get you a nice mid range truck or a nice (luxury?) sedan.

So even in 100 years, 44 ounces of gold will still buy you a car.

All thinks considered, isn't that remarkable that the buying power of gold would get you a car then and a car now? Thats almost a perfect flat store of value for 100 years. Obviously the dollar value changes, but when you go to exchange it for a commodity, it gets you the same quantity/quality of product.

From the national mining association:

Quote:The price of gold remained remarkably stable for long periods of time. For example, Sir Isaac Newton, as master of the U.K. Mint, set the gold price at L3.17s. 10d. per troy ounce in 1717, and it remained effectively the same for two hundred years until 1914. The only exception was during the Napoleonic wars from 1797 to 1821. The official U.S. Government gold price has changed only four times from 1792 to the present. Starting at $19.75 per troy ounce, raised to $20.67 in 1834, and $35 in 1934. In 1972, the price was raised to $38 and then to $42.22 in 1973. A two-tiered pricing system was created in 1968, and the market price for gold has been free to fluctuate since...

Post: #5

$850 in silver back then (850 silver dollars is .77 troy ounces times 850 = 654.5 troy ounces times $20/ounce silver) is now $13,090.

$850 of sirloin steak back in 1909 was ($850 divided by $0.16/lb) 5,312.5 lbs, which would now be equal to about $21,250 today at $4/lb.

My point is that using one commodity as a means to compare the relative value of goods is binary, and, while useful, it is an incomplete view. Besides this, we must not also confuse price and value. The value of a Model T back in 1909 likely far surpasses the value of an automobile today, even if we can say that the relative prices are equal across time periods.

For purposes of this topic, I do agree, however, that gold has an intrinsic value... but only because the collective masses have decided that gold has an intrinsic value. There was a decent series of blog posts at unqualified reservations which outlines this.

Post: #6

I can't remember where, but I read a very in depth article on this not long ago. If I can find it, I'll link it here

Post: #7

(03-28-2014 03:53 PM)tarquin Wrote:  $850 in silver back then (850 silver dollars is .77 troy ounces times 850 = 654.5 troy ounces times $20/ounce silver) is now $13,090.

$850 of sirloin steak back in 1909 was ($850 divided by $0.16/lb) 5,312.5 lbs, which would now be equal to about $21,250 today at $4/lb.

My point is that using one commodity as a means to compare the relative value of goods is binary, and, while useful, it is an incomplete view. Besides this, we must not also confuse price and value. The value of a Model T back in 1909 likely far surpasses the value of an automobile today, even if we can say that the relative prices are equal across time periods.

For purposes of this topic, I do agree, however, that gold has an intrinsic value... but only because the collective masses have decided that gold has an intrinsic value. There was a decent series of blog posts at unqualified reservations which outlines this.

I disagree with your opinion that collective masses make conscious decisions.

People get misled thinking of intrinsic value in terms of "oh! you can wear it!" when the true intrinsic value is much more nebulous: portability, divisibility, durability, and fungibility...

Nobody just up and decides that these are great standards to adhere to. but if you have experience and learn that commodities rot, wither, die, disintegrate, mildew, rust, explode, melt, dissolve, leak, and so on- you wouldn't want to waste your time, effort and social status to acquire them.

A word on sirloin steak: can you think of a reason why steak should be more expensive? Kinda makes the market and technology and innovation and inflation look silly if i could still get sixteen cent steaks...