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 Post subject: Dollar Hegemony, Soft Empire and War Financing
PostPosted: Thu Feb 23, 2006 7:22 pm 
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http://www.house.gov/paul/congrec/congr ... 021506.htm

Recent speech to Congress by U.S. Representative Ron Paul (R, Texas), IMO one of the more "honest" elected officials in the U.S. today.

A bit long, but IMO very good and informative. Deals with a lot of stuff that I have been watching for some time now.

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 Post subject: Re: Dollar Hegemony, Soft Empire and War Financing
PostPosted: Fri Feb 24, 2006 9:13 am 
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KirimaNagi wrote:
http://www.house.gov/paul/congrec/congrec2006/cr021506.htm

Recent speech to Congress by U.S. Representative Ron Paul (R, Texas), IMO one of the more "honest" elected officials in the U.S. today.

A bit long, but IMO very good and informative. Deals with a lot of stuff that I have been watching for some time now.


An excellent and fascinating article. I hadn't even heard about Iraq wanting to switch to taking Euros for oil.

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PostPosted: Fri Feb 24, 2006 10:58 am 
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Man, I thought the gold bugs all died out a half-century ago. But they're still around and still as paranoid as ever.

The modern theory, as best I recollect it, is that in any sophisticated economy no medium of exchange is worth more than than the strength of the economy supporting it.

Gold, itself, in practical economic terms, is a pretty worthless item. Before the electronic age, the only thing it was ever good for was for making jewelry. However, because it was unique, universally valued (like salt, grains, and tool metal, but rarer) and hard to counterfit, it was always useful as a medium of exchange across cultural boundaries.

What sophisticated economies discovered, over and over again over the last few millennia, is that there are many othe exchange media much more efficient and useful than precious metals. In medieval Italy, for instance, the first modern European economy was born when Bills of Exchange were invented to allow trade to cross the continent without people lugging bags of metal to pay for transactions. The invention of banking, the various media of exchange associated with it (checks, for instance) and all the other mechanisms of modern finance allowed European economies to expand in value by several orders of magnitude leading into the Industrial Revolution and after.

Now, because precious metals still have a certain cross-cultural value as media of exchange at a very primitive level, they make a useful back-up for other media, including electronic accounts, stocks, bonds, and, of course, paper currency.

That is their <i>only</i> value in modern economy. Beyond that primitive cultural faith, gold is less useful than barter as the basis for economic activity. You can't eat it, after all. Both barter and gold work at certain survival level of exchange, but they cripple your economy if you try to depend on them for anything beyond that.

The reason the Euro is looking good to the oil countries, etc., is because the United States has debased its economy and (therefore) its currency with gigantic deficits, government corruption, and business corruption. If we don't clean up our act, China and Europe will provide the leading currencies for the 21st Century, and we'll spend the next couple of generations digging ourselves out of the hole we're in.

Gold has little or nothing to do with the problem. It hasn't been a major factor since World War II.

Except, of course, in the minds of various factions that still fetish about it, assigning it a worth that hasn't existed since the mid-19th Century.

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PostPosted: Sat Feb 25, 2006 10:15 pm 
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Boss Out of Town wrote:
Man, I thought the gold bugs all died out a half-century ago. But they're still around and still as paranoid as ever.

The modern theory, as best I recollect it, is that in any sophisticated economy no medium of exchange is worth more than than the strength of the economy supporting it.


Your interesting ideas of finance, economics and history make me giggle... like a schoolgirl. :P

"Modern theory" is largely an attempt to rationalize "something for nothing. However, it is as yet unproven and, given the continual loss in value of all modern currencies, appears to be failing.

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What sophisticated economies discovered, over and over again over the last few millennia, is that there are many othe exchange media much more efficient and useful than precious metals. In medieval Italy, for instance, the first modern European economy was born when Bills of Exchange were invented to allow trade to cross the continent without people lugging bags of metal to pay for transactions.


Five thousand years of history show that regardless of what is used as the medium of exchange, no unbacked currency has ever survived in the long run. There are no -- repeat, no exceptions. To believe that a currency backed only by the "full faith and credit" or even the military might of a country can be viable in the long term is to believe in the honesty, integrity and intelligence of government bureacrats. (This is especially true in case of backing by military might since inflation is generally required to pay for the military might.)

Of course this backing does not have to be gold, but there still must be some backing. For reasons such as storability and portability, gold has functioned as the default currency throughout the ages, and despite minor fluctuations in value, has maintained its purchasing power. In fact I would assume it would become even more valuable (along with silver and other precious metals) in the electronic age due to its unique physical properties. Recent government responses to financial and currency crises around the world would also appear to reinforce the current relevance of gold.

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The invention of banking, the various media of exchange associated with it (checks, for instance) and all the other mechanisms of modern finance allowed European economies to expand in value by several orders of magnitude leading into the Industrial Revolution and after.


In most if not all cases, the major advances occurred when currencies were backed (and thus trusted by the people), and elimination of this backing invariably led to rampant inflation, speculation and collapse.

Furthermore, if you look at long term real growth rates in the U.S., you will see that the greatest and most stable growth occurred when the currency was backed. There are two major inflection points in the graph, one in 1913 when the FRB was established and then another in the 1970s when the gold standard was dropped and the dollar was cut loose from any backing. Interestingly, the U.S. has experienced huge nominal growth, but zero real growth since the 1970s. Furthermore, this nominal growth coincides closely with the huge expansion in public and private debt, showing that the "New Economy" was a fraud and the 80s and 90s boom was largely a credit-based inflation. (Give me a credit card with a million dollar limit and I will show you a good time, too.)

In short, people are not god, and you cannot create something from nothing. There is no such thing as a free lunch, despite "Maestro" Greenspan and his loose monetary policies.

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PostPosted: Sun Feb 26, 2006 2:12 am 
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Sure, there is such a thing as a free lunch. When somebody else is paying for it.

I fully expect to recover on my investments the first day after economic collapse.
Through looting and a stockpile of weaponry.

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PostPosted: Sun Feb 26, 2006 2:41 am 
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Labrat wrote:
Sure, there is such a thing as a free lunch. When somebody else is paying for it.


Good joke, but untrue from a macroeconomic perspective. Someone still had to pay for it.

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I fully expect to recover on my investments the first day after economic collapse.
Through looting and a stockpile of weaponry.


Haha -- reminds me of a funny quote that goes something like:

"Some people believe that gold/silver coins and freeze-dried foodstocks are the ultimate hedges, but they are wrong. The ultimate hedge is a gun and bullets."

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PostPosted: Sun Feb 26, 2006 3:45 am 
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There is no such thing as inherent value. All money is is a physical representation of the time you have spent furthering the economy by working.

Also: money first arose in ancient Mesopotamia. Initially, things were simple, because there were only a few different items for people to list their prices in: things like a day's labor, livestock, wheat, etc. As time went on, though, and more goods entered the marketplace, the pricing got really complicated, until one day, when the people had to list their prices in over 20 different types of goods, a king went "Fuck it. From now on, all business will be done using silver as the method of payment."

And that's how money started.


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PostPosted: Sun Feb 26, 2006 8:32 pm 
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Lawlz. Gold standard. </MIB>

KirimaNagi wrote:
Of course this backing does not have to be gold, but there still must be some backing. For reasons such as storability and portability, gold has functioned as the default currency throughout the ages, and despite minor fluctuations in value, has maintained its purchasing power. In fact I would assume it would become even more valuable (along with silver and other precious metals) in the electronic age due to its unique physical properties. Recent government responses to financial and currency crises around the world would also appear to reinforce the current relevance of gold.

Probably not. Even though gold is currently enjoying an upswing, an index of metals still outperforms it. Also, in modern electronics use very few gold components except for connectors which are sometimes gold-plated to prevent corrosion. In fact, the largest consumer of gold is India, where traditional marriages require the bride to be covered from head to toe with gold jewelry. The gold immediately attains heirloom status and is frozen out of the economy in safe deposit boxes.

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In most if not all cases, the major advances occurred when currencies were backed (and thus trusted by the people), and elimination of this backing invariably led to rampant inflation, speculation and collapse.

The problem with gold is that the value of your holding is always determined by present market value. Your whole economy is at the mercy of a rather volatile market that is subject to manipulation by outside powers. Do you REALLY want national savings to suddenly devalue because of a mine opening in some other country? Or because one of your enemies decided to flood the market?

Indexing a currency to a 'basket' of items might make more sense, but I'm not convinced that inflation in the US is the cause of our massive debt. (Rather than the other way round.)

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PostPosted: Mon Feb 27, 2006 2:12 am 
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Thinman wrote:
Lawlz. Gold standard. </MIB>


:P:P:P

I should emphasize here that it does not necessarily have to be a gold standard. All that is necessary is that a currency be backed by something tangible, valuable and relatively unchanging. For various reasons (and a lot of history=baggage) this has been gold. In fact to some extent it still is, seeing as how countries still hold and accumulate even more gold in the event of currency crises (i.e. Asia '97-98 ).

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The problem with gold is that the value of your holding is always determined by present market value. Your whole economy is at the mercy of a rather volatile market ...


Not true. You are too used to looking at it in dollar denominated terms from inside the U.S. which currently issues the world's reserve currency. Historically speaking, while there are fluctuations (most of which are a result of government ineptitude and meddling), it is gold that has maintained a relatively stable value, and not the various currencies. A chart of gold prices denominated in dollars is nothing more than an upside-down chart of the dollar's value in terms of gold. An ounce of gold that currently costs around $550 has roughly the same "purchasing power" as an ounce of gold 50, 100, 200 or even 2000 years ago. In contrast, you would have to spend $550 to get the same thing that could be bought for $20-30 100 years ago. This clearly shows that it is the paper currency that is volatile and not gold.

Go look at a long-term chart of the dollar's value and purchasing power and you will see that the currency was most stable when fully backed, and fluctuated wildly when not. Furthermore, when the dollar was fully backed, the gold price was usually stable to within a few percent over decades. Coincidentally (or not), this was also generally the periods of greatest real economic growth.

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... that is subject to manipulation by outside powers. Do you REALLY want national savings to suddenly devalue because of a mine opening in some other country? Or because one of your enemies decided to flood the market?


Again, not true. If gold is money, then any country who decided to "dump" would be committing the ultimate act of idiocy as they would literally be giving away money at a discount. Other countries and the private market would snap it up faster than you could say... gimme that gold. :P (Again, I am using "gold" here for reasons of convenience and history, but the same could be said for any item that meets the requirements for backing.)

Also, the amount of gold produced around the world has historically increased at an average rate of 2-3% of the total above-ground gold. Yes, there are minor fluctuations due to new discoveries and mine openings, but this long-term average has maintained fairly well over centuries. The last significant disruption (oversupply) during the Spanish Empire when the yellow stuff was being looted and shipped back from the New World by the galleon-full. This did inflate Spain's money supply and result in economic dislocation and depression, but again that was 4-500 years ago. Even recent technical advances allowing more accurate exploration, reopening of old "spent" mines, or extraction by centrifuge from seawater have not significantly changed this rate of increase which has also been shown to correlate with both healthy long-term economic and population growth.

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Indexing a currency to a 'basket' of items might make more sense,


Indexing a currency can only work if the currency is actually backed by the items to which it is indexed. Any government can declare that a currency is indexed, but unless the amount of money that authorities can print is limited to the amount of backing, then the link will not hold. Also, the use of intangible or depletable/consumable items with fluctuating output as backing has obvious problems as well. Many types of backing have been tried throughout the ages, but ultimately things have always reverted to gold or other precious elements. Maybe this time things will work out differently (see below), but IMO it would be a very risky bet.

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but I'm not convinced that inflation in the US is the cause of our massive debt. (Rather than the other way round.)


Empirically speaking, every case of excessive debt and speculation leading to collapse in history has been preceded by inflation and corruption of the money supply and not the other way around.

Modern monetary theory is basically an attempt by bureaucrats to play god -- to pretend that they are smarter than all before them (vanity) and that the old rules no longer apply (hubris). However, the four most dangerous words in the world of finance and economics are "It's different this time."

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PostPosted: Mon Feb 27, 2006 8:13 am 
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KirimaNagi wrote:
Go look at a long-term chart of the dollar's value and purchasing power and you will see that the currency was most stable when fully backed, and fluctuated wildly when not.

Got url? You provide source, then I'll go "ooh" and "aah" and make a decision.

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Furthermore, when the dollar was fully backed, the gold price was usually stable to within a few percent over decades.

And had absolutely nothing to do with the fact that the gold exhange rate was fixed during the time of the gold standard? Yet inflation continued throughout the period, thus leaving gold undervalued (even if nominally) by the time that the gold standard was abolished. If USD = X amount of precious metal all the time, you better make sure that there is absolutely no inflation or deflation in the economy.

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Also, the amount of gold produced around the world has historically increased at an average rate of 2-3% of the total above-ground gold.

Again, got link? This time purely for curiosity. It's kind of irrelevant if a mix of precious metals get used , but any currency backing will likely require more flexibility than that and I sincerely doubt there is enough gold reserve available to back the global economy.

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Maybe this time things will work out differently (see below), but IMO it would be a very risky bet.

But we're cocking everything up in a new and excitingly different way, which is better than repeating past errors.


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PostPosted: Mon Feb 27, 2006 2:36 pm 
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Gold, Gold, GOLD, I tell you!

Bwwwwhhhhhhhhaaaa . . .

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PostPosted: Mon Feb 27, 2006 3:09 pm 
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Boss Out of Town wrote:
Gold, Gold, GOLD, I tell you!

Bwwwwhhhhhhhhaaaa . . .


That's better...the yellow hurt my eyes on subSilver. XD

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PostPosted: Mon Feb 27, 2006 5:25 pm 
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KirimaNagi wrote:
An ounce of gold that currently costs around $550 has roughly the same "purchasing power" as an ounce of gold 50, 100, 200 or even 2000 years ago. In contrast, you would have to spend $550 to get the same thing that could be bought for $20-30 100 years ago. This clearly shows that it is the paper currency that is volatile and not gold.

Vass is right, let's have some links for all of this. I have no idea what you mean by <i>quote-purchasing-power-unquote</i>. Inflation-adjusted US Dollars? Tons of wheat per gram of gold? And how does this square with the rule of thumb that western standards of living double every fifty years?

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Quote:
... that is subject to manipulation by outside powers. Do you REALLY want national savings to suddenly devalue because of a mine opening in some other country? Or because one of your enemies decided to flood the market?

Again, not true. If gold is money, then any country who decided to "dump" would be committing the ultimate act of idiocy as they would literally be giving away money at a discount. Other countries and the private market would snap it up faster than you could say... gimme that gold. :P (Again, I am using "gold" here for reasons of convenience and history, but the same could be said for any item that meets the requirements for backing.)

Short-term market bobbles can still be a bad thing, especially if they were to be maliciously timed. (The day before your IMF payment is due, for example.) Also, flooding isn't the only way to manipulate a market. Recently, the copper market went for a loop because Chinese production was so far below their own published estimates that the state-owned company had to make major market purchases just to cover its contracts.

Finally, ever heard of a little group called OPEC? They operate in an inelastic market similar to the "gold" based economy we're talking about where demand does not fall off as the price goes up. Because of this fact, OPEC has a disproportionate effect on the global economy.

So yes, markets can be gamed if you have enough time and capital and the stakes are high enough. (As in international trade ...) Hence my argument that reliance on a single product is silly.

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PostPosted: Tue Feb 28, 2006 6:35 am 
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Okay, charts.

Charts with links are going to take a while because the vast majority of what I am drawing from (including memory in some cases) is dead-tree format books, papers and newsletters from 5, 10 or even 15 years ago. Give me a bit to see what I can find. In the worst case I can always reactivate my charts.com account or sift the archives at mises.org. Who knows, you may even get photos taken with a digital camera and posted to a photobucket account.

While I am doing this, I would like to throw a bit of a challenge back:

Every fiat (unbacked) currency in history has ultimately failed. This is empirical fact. Furthermore, the current experiment with fiat currency that started in 1913 with establishment of the FRB and then went all the way by dropping the gold standard in the 1970s has resulted in inflation and a loss in value of well over 90%. In particular, the balance of payments has turned negative and both the current account deficit and overall levels of indebtedness have skyrocketed since the decoupling in the 70s. None of these trends show any signs of stopping.

So I have to ask: What proof is there that a fiat currency can survive? Is some form of backing required or not? Given basic human nature I think backing is required, but if not, why not? If so, what can and should be used as backing?

----------
And to touch on various points:

Thinman wrote:
I have no idea what you mean by quote-purchasing-power-unquote. Inflation-adjusted US Dollars? Tons of wheat per gram of gold?


Only as far as inflation is reported correctly. Purchasing power is more accurately be described as how much of a representative basket of goods (i.e. basics such as food, clothing and shelter) can be purchased per unit currency. Also commodity and other costs fluctuate depending on short-term surpluses and shortages, so an average would have to be used.

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And how does this square with the rule of thumb that western standards of living double every fifty years?


What is your basis for this, and how are "standards of living" defined? (lifespan? living space? diet? leisure time?) Just curious on this, especially since there has been little or no real economic growth since the 70s.

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Finally, ever heard of a little group called OPEC? They operate in an inelastic market similar to the "gold" based economy we're talking about where demand does not fall off as the price goes up. Because of this fact, OPEC has a disproportionate effect on the global economy.

So yes, markets can be gamed if you have enough time and capital and the stakes are high enough. (As in international trade ...) Hence my argument that reliance on a single product is silly.


Comparing OPEC and the gold market is like comparing apples and oranges because unlike gold (and similar base elements), oil is consumed and thus lost/depleted. This is why oil might be used to collateralize debt, but cannot be used as stable backing for a currency. And as I have said, it does not have to be just gold; other items could also be used. However, the backing items must meet certain requirements which rule out most commodities (consumables) as well as "intangibles" such as future labor units, etc. (Something to keep in mind when answering the "What can be used as backing?" question above)

As for gaming markets, I don't see how that is different from the currency games that are played now. If anything the gaming and fluctuations would be reduced because of the limiting nature of the backing, that is to say the inability to play with printing presses and electronic credits.

Vass wrote:
Yet inflation continued throughout the period, thus leaving gold undervalued (even if nominally) by the time that the gold standard was abolished. If USD = X amount of precious metal all the time, you better make sure that there is absolutely no inflation or deflation in the economy.


The inflation was the fault of the government bureaucrats and not the gold backing. Furthermore, it can be easily prevented by making the currency fully convertible (redeemable for the backing item) and requiring annual accounting of backing stocks in the same manner that the BIS currently requires accounting of foreign currency and precious metal reserves.

Quote:
Quote:
amount of gold produced has historically increased at an average rate of 2-3% of the total above-ground gold.

Again, got link? This time purely for curiosity. It's kind of irrelevant if a mix of precious metals get used , but any currency backing will likely require more flexibility than that and I sincerely doubt there is enough gold reserve available to back the global economy.


http://www.gold-eagle.com/gold_digest/guru329.html
Sorry for the sales pitch for investing in gold, but this was the quickest link I could google, and correlates with data from gold producers associations (e.g. "From 1900 to 2004 the average annual increase in gold supply was 1.73%." [www.kitco.com]). Ignore the hype and just look at the figures.

Main points:
- Nearly 100% of all the gold mined in history forms part of today's above-ground gold stock which currently totals around 120,000 tonnes and is an available source of supply at any time.
- Above-ground gold stock increases at a fairly constant rate of around 1.7% per annum (during the last 50 years the largest annual increase was 2.1% whilst the smallest was 1.4%).

In order to back the global economy, gold would obviously have to be revalued (more accurately, currencies would have to be realigned with gold), and other backing might also be used, but it is possible.

Quote:
But we're cocking everything up in a new and excitingly different way, which is better than repeating past errors.


Actually, most of what is being done today has already been tried in one form or other in the past and failed. The only difference is the electronic (computer) factor, which if anything should just increase the speed of events. History doesn't repeat; it rhymes.

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PostPosted: Tue Feb 28, 2006 11:07 am 
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KirimaNagi wrote:
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Finally, ever heard of a little group called OPEC? They operate in an inelastic market similar to the "gold" based economy we're talking about where demand does not fall off as the price goes up. Because of this fact, OPEC has a disproportionate effect on the global economy.

So yes, markets can be gamed if you have enough time and capital and the stakes are high enough. (As in international trade ...) Hence my argument that reliance on a single product is silly.


Comparing OPEC and the gold market is like comparing apples and oranges because unlike gold (and similar base elements), oil is consumed and thus lost/depleted. This is why oil might be used to collateralize debt, but cannot be used as stable backing for a currency. And as I have said, it does not have to be just gold; other items could also be used. However, the backing items must meet certain requirements which rule out most commodities (consumables) as well as "intangibles" such as future labor units, etc. (Something to keep in mind when answering the "What can be used as backing?" question above)


I might point out that during and before the Tokugawa Era, Japan survived using rie as a currency and if I'm not mistaken China did this for a long time as well. I'm not saying that the two things are comparable, just that consumables can be VERY reliable currency in and of themselves. I have no idea the effect of using a currency backed by a consumable, but I would imagine that it would be similar to using the consumable without having to carry it around. Other consumables that have historically been used as currency include, to a lesser extent, salt, spice, silk (sort of consumable) and in some ancient cultures various types of seed.

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PostPosted: Tue Feb 28, 2006 11:48 am 
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Wrin wrote:
I might point out that during and before the Tokugawa Era, Japan survived using rice as a currency and if I'm not mistaken China did this for a long time as well. I'm not saying that the two things are comparable, just that consumables can be VERY reliable currency in and of themselves. I have no idea the effect of using a currency backed by a consumable...

A problem with using consumables as a currency, especially anything that is grown, is that the economy becomes much more prone to booms and depressions based upon the season and crop yield. If there's a bumper harvest, then you have plenty of food and plenty of money: economy expands; if there's a famine: sod all food, little money, economy crashes and you've got an uprising or two on your hands. Stockpiling it would not significantly alter the situation either, due to human nature and the effect of rumours. It's pretty much one step above a barter economy.

Now a bit of a redux:
KirimaNagi wrote:
Empirically speaking, every case of excessive debt and speculation leading to collapse in history has been preceded by inflation and corruption of the money supply and not the other way around.

Erm, current US inflation rate is 3.99% right? If so, it's just within what has been considered acceptable levels since umm... the early 1990s at least.

I'll get to the rest later, Kirima. Maybe as late as in another 24 hours, depending on whether I want to bother acquiring graphs and stuff.


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Vass wrote:
Wrin wrote:
I might point out that during and before the Tokugawa Era, Japan survived using rice as a currency and if I'm not mistaken China did this for a long time as well. I'm not saying that the two things are comparable, just that consumables can be VERY reliable currency in and of themselves. I have no idea the effect of using a currency backed by a consumable...

A problem with using consumables as a currency, especially anything that is grown, is that the economy becomes much more prone to booms and depressions based upon the season and crop yield. If there's a bumper harvest, then you have plenty of food and plenty of money: economy expands; if there's a famine: sod all food, little money, economy crashes and you've got an uprising or two on your hands. Stockpiling it would not significantly alter the situation either, due to human nature and the effect of rumours. It's pretty much one step above a barter economy.


Touche.

Quote:
Now a bit of a redux:
KirimaNagi wrote:
Empirically speaking, every case of excessive debt and speculation leading to collapse in history has been preceded by inflation and corruption of the money supply and not the other way around.

Erm, current US inflation rate is 3.99% right? If so, it's just within what has been considered acceptable levels since umm... the early 1990s at least.

I'll get to the rest later, Kirima. Maybe as late as in another 24 hours, depending on whether I want to bother acquiring graphs and stuff.


Is that the inflation rate for the dollar in all countries or is it the inflation rate of the cost of living/whatever standard we go by here in the states where most of it can be hidden according to this paper? I'd be interested to know how it's measured. (/devil's advocate)

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Wrin wrote:
Quote:
Now a bit of a redux:
KirimaNagi wrote:
Empirically speaking, every case of excessive debt and speculation leading to collapse in history has been preceded by inflation and corruption of the money supply and not the other way around.

Erm, current US inflation rate is 3.99% right? If so, it's just within what has been considered acceptable levels since umm... the early 1990s at least.

Is that the inflation rate for the dollar in all countries or is it the inflation rate of the cost of living/whatever standard we go by here in the states where most of it can be hidden according to this paper? I'd be interested to know how it's measured. (/devil's advocate)

I was speaking of inflation purely in the US, not global inflation (which is more of a weighted average of all the nations' inflation) or inflation of any other nation. Generally inflation gets dumbed down to something like "increase in the cost of living" so that's entirely possible. You'll have to find out via someone else how it's measured in the US; most of my courses concentrated upon how things are done in Aus (or on a global scale for the ones about the international economy), with little time spent on the US systems.


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Vass wrote:
with little time spent on the US systems.


That's probably a good thing...look at how we measure things.

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PostPosted: Tue Feb 28, 2006 7:26 pm 
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Vass wrote:
Wrin wrote:
I might point out that during and before the Tokugawa Era, Japan survived using rice as a currency and if I'm not mistaken China did this for a long time as well.

A problem with using consumables as a currency, especially anything that is grown, is that the economy becomes much more prone to booms and depressions based upon the season and crop yield. If there's a bumper harvest, then you have plenty of food and plenty of money: economy expands; if there's a famine: sod all food, little money, economy crashes and you've got an uprising or two on your hands. Stockpiling it would not significantly alter the situation either, due to human nature and the effect of rumours. It's pretty much one step above a barter economy.


Barter economy was the term I was going to use as well. Also, there are major problems with long-term storage (= spoilage) not to mention storage space/facilities and of course transportation.

Quote:
Now a bit of a redux:
KirimaNagi wrote:
Empirically speaking, every case of excessive debt and speculation leading to collapse in history has been preceded by inflation and corruption of the money supply and not the other way around.

Erm, current US inflation rate is 3.99% right? If so, it's just within what has been considered acceptable levels since umm... the early 1990s at least.


Actually, the "official" U.S. inflation rate as currently reported and used for statistics is only the "core" rate which excludes "voltatile" elements such as food and energy. It also improperly accounts for housing costs and other items. However, actual inflation generally exceeds the core rate, and in fact has done so for the past 39 months straight. The current "real" inflation rate including all elements is closer to 9-10%. :o

This is why I distinguished between inflation-adjusted currency and purchasing power in my reply to Thinman.

And to make things worse, the U.S.Gov has said it will no longer report M3 after this March. This is a creating a stir in economic circles because M3 is the broadest measure of money supply and has been growing at double digits for some time now. Essentially, the government does not want anyone to know how much it is inflating the money supply. :o

Quote:
I'll get to the rest later, Kirima. Maybe as late as in another 24 hours, depending on whether I want to bother acquiring graphs and stuff.


I feel your pain. I feels like I am back in school researching and writing a term thesis on currency/monetary theory and economics... :cry:

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