So disaster is coming, it's simply a matter of who is going to shoulder the majority of the burden. The way I see it, Keen's option seeks to reduce the weight on the lender and thus the average man without causing a wholesale collapse of the system thereby causing everyone a heap of problems. Is it the best option? I don't know. But I don't hear alot of other constructive ones cropping up at this stage in the game. Of course it would have been better to act MUCH sooner to prevent this crisis, but it's too late for that and it's inevitable now, even if there is still a lot of optimistic bargaining going on.
If anyone gives it a bit of thought, they would understand why a gold standard could never work, not with a population of 6 billion people. The problem we have now is debt not the medium of currency we use. You replace currency from fiat to gold and you will still have the same situation if you still allow debt. The only difference is you would get cases of default or 08 much more often (which may not be a bad thing). However the problem about where we are today is about debt NOT the currency. What people fail to understand about *printing money* or QE is that it isn't exactly thin air. That money has a backer and that is every person who is not yet born, so yeah say you print 1 trillion, essentially you are steeling one trillion worth of wealth from your kids, it isn't just thin air. Having a way to lend and grow economies without fiat would be impossible cause you could never bring future wealth into the present and this is essential. Let me give a very extreme example of a thought experiment as to why the gold standard would not work ... So imagine the hypothetical world has 100 pieces of gold circulating where 50 pieces are owned by Rothschild, 30 pieces is owned by JP Morgan and 20 pieces is owned by the rest of the world. Some genius kid is born somewhere in india and at the age of 12 he understands the human body so well that he has an idea to cure cancer & aids using a various different elements. Problem is he needs an element that you need source from the moon and it takes a total cost of 110 gold pieces to do it. Even with the collective powers of Rothschild, JP Morgan and the rest of the world we wouldn't be able to get that needed element because there just isn't enough money. Then you might say, why not lower the cost of the shuttle to get us to the moon, then this would require the metal manufacturers reduce their metal prices, it would mean the engineers need to reduce their salary and it would mean that the miners need to adjust their mining costs just so that it can fit into the world budget of 100 pieces of gold On top of that, fat chance mr Rothschild wants to do anything that benefits humanity. With Fiat its different, you can borrow an additional 110 to do this project cause you dont need to keep a ratio with gold, you can borrow from the future and bring that wealth into existence NOW. Then once you provide cure for cancer and aids that benefits the future generations, they pay it back VIA interest. So essentially its borrowing from the future to benefit the future. The problem with todays bankers is they are using this good system and completely mutilating it to benefit themselves. The problem here can't be solved via changing the currency its more about human greed cause if you change to a gold standard you will slow down the economy specially with 6 billion people world wide. Think about getting a mortgage, its the same thing, you buy a house so that in the future your can give something to your kids to live in, your securing their future. Without fiat you cant do any of this, its the twisting of the system that ruins it for everyone not the currency its self. If you are comparing it to the roman empire or to other times when they had gold standard it worked cause not everyone was civilised and wanted the same standard of things , people in china or south east asia couldn't turn on the tv and see how much better life is in australia or america and want the same things so they just did things their own way and traded in their own form of currency. You bring the gold standard into todays world it will grind everything to a halt. There just isn't enough gold to pay for everything that 6 billion people could ever want. It would be worse if you went to a gold standard cause people would be fighting and stealing to get what little gold is available. It would be the streets of greece everyday .... Then again if someone has ideas on how a gold standard (where the number of notes in circulation has to match a specific ratio to gold) could work in this scenario id love to hear it ..
It's the dicking around with the interest rates that has caused these problems. The problem with Fiat is that allows manipulation of the currency. And fundamentally at the end of the day, countries don't trust each other to do the right thing with their monetary policy, for good reason obviously. That's why we are starting to get the move back to gold. People always want the easy solutions. If much of the debt had been liquidated over a decade ago instead of now, the recession would have been much smaller. Instead they put off the pain, mess around with interest rates, increase leverage and end up making things far worse. No human can be trusted to make good decisions when it comes to the money supply. That's been proven over and over again. The evidence is in. I think we need to get rid of national currencies and have market-based solutions that people can choose from. This is what Ron Paul has been advocating, and now he seems to be getting some traction, things might get interesting. Competing currencies would significantly diminish the ability of govt to rule. Paul knows this and so does everyone else.
I know Ron Paul is an advocate of a gold, but maybe he has a more practical solution in real life (i dont know), but the question is how would you get around funding issues where you need more money then is currently available ? I guess if everyone lives within their means and never needs to take on debt and hence no interest its ok, but debt means interest. In some cases living outside your means can be for a good reason both from an industry and a personal level (im sure there has been many businesses initially built of debt) ... I for one would advocate a more honest system ... if it could also achieve the goal of building companies and businesses where capital is needed and also keep the bankers honest ... how could you get that with the gold standard ? You might be able to keep the banks honest but how do you build businesses without debt and hence interest, if the aggregate of all the good ideas that could lead to technical revolutions or medical revolutions exceed the current money supply that is available ?
No you can, but it will be very seriously limited to the point that almost no one can get a loan. If you need to maintain a ratio of 1:1 or 1:10 of physical gold to notes there will be a limit to how much you can lend out, say gold is $1 an ounce ... if there is 100 oz of gold in the world you can't lend out more then $100 and if its a 1:10 ratio then you can lend out more then $1000. What happens if the aggregate requirement for loans to build successful businesses around the world totals to more then $10,000 ? You can't just borrow more or print notes with the promise to pay it. You dont have that problem now, with a gold standard that requires you to maintain a ratio you do. Unless im missing something :| Imagine there is 100 oz of gold in the world each oz is worth $1, each persion has 1 oz of gold and all 100 people want to buy a house for 2oz of gold, currently (to think of it crudely) the banks can provide that money and increase the money supply though the debt and lend it out, everyone gets their house , gets into debt and brings the future wealth of two ounces into todays world, if you need to maintain that ratio it wont work cause the minute you take out the loan the ratio will no longer be 1:1 or 1:10, taking out the loan adds to the money supply. So yes, there can be debt and interest but it will be very very difficult to get one because of the limitations. It would mean almost everyone could not buy a house, many businesses , smb's who rely on debt would have difficulty getting it , only a very very very small percentage could get it ....
base money, or whatever might be used, to link to gold would be limited but that doesn't mean banks can't leverage as they do now. Under the classical gold standard there was mild deflation but was consider good. Money saved wasn't eaten away by inflation but business still access to funds to grow the economy you just wouldn't have as much financial shenanigans. A lot of what people consider wealth today is just inflation. A house that cost 200,000 years ago and is worth 500,000 now is really an increase in wealth all else being equal. The real problem with a gold standard is it doesn't suit governments a lot of the time.
The real problem is how to maintain our life styles under a gold standard... no more stealing wealth from the future . Having to live WITHIN our means... gold standard = sustainability without wanton excess. Fiat = unsustainable bubble WITH wanton excess. I know which on the US voters will choose
OK maybe there is something i need to look up here, but to lever means to increase the money supply, you buy a house using leverage means you just increased the supply of money, even if base money stays the same how do you back credit cards and line of credits that can be used to purchase goods and services. Credit is just as good as money, the only difference is it can be called back, unlike something bought outright. Say a bank has $100 worth of notes backed by gold in its reserve how can it lever its account to $1000 without increasing the money supply and killing that ratio. By definition levering is increasing your buying power from 1:1 to 1:10 isn't it ?! See im all for a more honest and stable kind of currency, i just wonder how you get around these issues , thats all ...
That may work if we were all peasants, what about the guys building technology, creating cures for cancer and space exploration that need to live beyond their means and go over the currently available funds to further advance those projects. I ain't trying to rock the boat here, i just want to know how these problems are addressed under the gold standard Without some of these projects and borrowing from the future we probably wouldn't have many of the things we have today ... The problem is that bankster and politicians rig the system but how do you get the best of both worlds, keep the criminals honest and also not stifle progress .. both are important
They wouldn't in a market based economy, some things seem like a nice idea but are NOT worth it and so never go ahead. As opposed to what we have no where some things are NOT worth it seem nice and then get funded with future prosperity and end up being a flop and wasting said future prosperity. Cures for cancer and space exploration = massive waste of money IMHO
The situation were in now is absolutely about the currency, if we had a gold backed currency all these problems would never have happened in the first place, so the first step into getting rid of all this debt is introducing gold as a competing form of money again which would force the government to reign in spending, let the bankrupt go belly up and purge the wasteful inefficient corporations from the economy America went through the industrial revolution on a gold standard, there was so much innovation and entrepreneurship it was crazy, if that happened today with the technology we have now there would be a new Renaissance True capitalism is what created the middle class, their living standard was higher than ever before in history and everyone had equal opportunity to "make it", weve been undermining that for the last 100 years thanks to our socialist governments Of course you cant expect changing just one thing in a completely broken and corrupted system would magically fix everything, but it would be a huge leap and one of the most important changes in the right direction
Ah if thats your stance then there is no more to discuss cause its purely opinion based, we could argue day and night why a cure for cancer or why space exploration is a waste of money or not but its like arguing about religion so its not worth it. Personally I do think looking for a cure for cancer is worth it and I do think space exploration is worth it (specially with all the new technology that comes out of it that has daily practical purposes) but i guess thats not worth arguing cause its all about personal preference
Take a read of this http://en.wikipedia.org/wiki/Gold_standard I think the advantages and disadvantages are pretty equal if you think of it. Its because we are feeling the pain of what has happened due to "not being" on a gold standard. If the events were turned we will be feeling the problems of "being" on a gold standard ... Im still unsure about what is better globally but ill post some videos for and against this when i get time ...
My point is in a economy where money (i.e. gold) is valued and not wasted would these projects get the go ahead... ? NO... why? Not enough money? NO, because people collectively think they are not worth it... if I had money to waste I would certainly investigate cancer cures, space travel and the worlds longest flying foxes , but I don't neither do we corporately have money to waste
You leverage off the money supply. Not all debt would need to back by gold. A gold standard would limit the growth of your base money supply to the growth of the stock of gold and hence limit the growth of debt. As I've said before today it would ideally in still mild deflation into the economy and people would have to think much harder about the debt they would take on. Inflation is not going to eat it away as it does now. It would have to go into productive incoming producing areas first and foremost to make sure the debt didn't becoming burdensome.
I think that you're forgetting that money isn't just an abstract thing with no ties to reality - it represents resources, effort, access to capital etc. Printing lots of money doesn't actually create any more of these things so it won't help your guy creating new technology, cures for cancer etc. Right now money has very little ties to reality and I still don't see anybody exploring space. All it does is put the prices up for everybody, which doesn't help the guy trying to find a cure for cancer anyway as you don't actually need money to find a cure for cancer. What you do need is access to laboratories, skilled personnel, etc. etc. The amount of these things is not related to money supply.
There will still be lending if you had a gold standard. The risk will be borne by the lender. As for not being enough to go around, the problem is there is too much 'money'[ to go around now. Eliminating some of the leverage from the system is probably the best thing we could do. Having a gold standard that is redeemable is nice, but the real crux of the problem is fractional reserve banking. If you have a gold standard and fractional reserve banking, it will eventually fail. (look at bretton woods)
There's nothing really wrong with FRB per se, it's just risk management. As long as they are open about it I don't see any reason why it can't be practiced. It's just lending and re-lending. As long as there is a decent margin of error I don't see a problem. The problem is when it becomes part of a central bank managed system. Now the risk is transferred from those making the profits to the taxpayers. That is asking for trouble. It is telling the casino gambler that any losses they incur will be covered. Guess what the gambler is going to do. A future free market system which allows both matching and non-matching maturities is fine by me. EDIT: the reason I am not for a govt managed gold standard is because they always break down. Politicians can't even be trusted with that. We all know there are problems with fiat currencies. That's why we are all buying gold and silver. Imagine if we had other currencies that we could choose to use that allowed you to buy things rather than just the govt imposed monopoly money. I'm sure one or more would be gold backed, but let the market come up with the best configuration. There are far more intelligent people out there in the marketplace than there are running the central banks.
What he's saying is that if we use the traditional method of flushing out bad debt - letting people go bankrupt - the sheer volume of bad debt out there means the process will take decades (hence his reference to Japan). The solution he's proposing rewards everyone equally so savers are not disadvantaged at the expense of irresponsible speculators. If you were to compare to to the $900 cheques the government handed out a few years ago, that was a very effective method of simulating the economy - people who had no debt spent the money and people who did have debt used the money to pay it down. The issue with that was that the $900 was not new money. It was existing money that came from the government's surplus and through government borrowing. I was an exercise in wealth redistribution, however the positives of economic stimulus still outweighed the negatives of creating government debt that has to be repaid by all the taxpayers. Keen is basically saying we should do the same thing again, but this time the government should print new money instead of borrowing it and hand that new money out to people. Presumably at that point there will also be some new regulations to stop banks lending money to people who can't afford to pay it back, and speaking as a Fabian-worshipping communist traitor I don't think its an unreasonable requirement to stop the banks from making stupid lending decisions. For example, a loan-to-value ratio of 90% means you can take a $50k deposit and buy a $500k house. If you increase that ratio by just seven percentage points to 97%, your $50k deposit buys you a house worth $1.67 million. That's a stupid level of debt. It's clearly a stupid level of debt, especially when you take into account the fact that...wait for it...house prices can fall and a tiny 3% drops means the borrower's $50k equity is gone and their mortgage is underwater. Keen's idea is a rather elegant way of removing debt from the books and it doesn't unfairly punish savers over speculators. And yes, I'd be buying gold with the money since I don't have any debt.
