4T? What 4T?

[Kinser79]

(05-27-2016, 03:14 PM)Mikebert Wrote:

Kinser Wrote:All of that assumes that representational money is an impossibility

My argument had to do with the relative rate of world GDP growth relative to money supply growth. This is a red herring. 

No it is not a red herring. You are implying that fractional reserve banking incorporating a representational currency (gold certificates, silver certificates and the like) is an impossiblity. We know that it is not impossible because most of the countries on the gold standard in the 19th and early 20th century used just such a format

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Quote:That being said by using sound money based on specie yes there would be deflation

That’s my point

Obviously not a point that is in dispute then.

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Quote:..but there is likely not going to be a depression.

On what basis do you make such a grand pronouncement?  When the gold standard was in common use, world GDP growth was less than the rate of gold supply increase.  The system had no built-in deflation. Local deflation (such as that in late 19th century America) was the result of fiscal policy (the government ran surpluses to pay down Civil War debt).  If you actually work with the numbers you can see this quite clearly. If you look at a larger period, such as the century before 1932, the price level was approximately constant, the late 19th century deflation pretty closely offset Civil War inflation.  That is what a gold standard is for.
 

All of this is true, but you're ignoring one key factor. A deflating currency ends up having greater purchasing power. In 1933, before the US went off the gold standard, an ounce of gold cost $20.00. A suit also cost $20.00. In 1972 an ounce of gold cost $35.00, a suit likewise cost $35.00. Now an ounce of gold costs $1,212.80 a suit around $1200. Prices of comparable goods will stabilize at their actual values in gold. Which means that a gold dollar will buy more things than the current paper dollars.

Deflation only becomes a problem for those who are heavily leveraged as it makes the price of money much more dear for them to pay off their debts. Inflation, however, taxes the poor most stealthily and most heavily destroying their purchasing power and consequently their demand--causing depressions of greater proportions.

Quote:The idea that a gold standard prevent secular inflation  is simply wrong. What about the sixteenth century price revolution or the earlier Medieval price revolution, both of which occurred when specie was money.

You'll forgive me if I'm not conversant in your model du jour--mostly because I don't care and mostly because you'll have a new one next week.

As for the price revolutions in the Medieval period and Sixteenth Century both are linked to large finds of gold and silver deposits, neither of which are likely to be replicated here on earth.

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Quote:There is such a thing as fractional banking.  If I deposit 1000 gold dollars into my bank then the bank should in theory be able to issue up to 5000 dollars in gold certificates because except where there is a run on the bank not everyone is going to demand their gold all at once.

Except they do occasionally. These times are called financial crises (or in gold-standard times, panics).  We had one in 2008, so they still happen.

So then obviously fiat currency is not the solution to that problem now is it. That being said 2008 was far less a bank run like you're alluding to, and the only real problem specie as currency has, but was instead the result of massive price inflation resulting from the massive creation of debt-currency instruments. QEinfinity has merely added to the problem by expanding the balance sheets of the fed and blowing up an other bubble. One does not cure cocaine addiction by giving the addict more cocaine.

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Quote:I know this will as the other day I just received in the mail a 50 million rentenmark note, it was from the hyperinflation in 1923 in Weimar Germany.

And my dad had stamps from that time, 2 million, 4 million, 6 million, 10 million marks.  I am well aware of the German hyperinflation of 1923 (my German grandparents came here that year) and was acquainted with it as a child.  That is a meaningless comparison, which you would know if you understood these things.

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It matters not what causes hyperinflation, what matters is the result of hyperinflation. The USD will lose reserve status, and it will lose it soon if we do not start exporting goods instead of debt. One can only inflate their currency so many times before the effects take hold. This was true in Rome, It was true in Zimbabwe, It is true in Venezuela. Fiat currencies always fail and eventually everyone goes back to precious and semi-precious metals eventually.