The View From 1776

Enduring Ravages Of Inflation

Assessment of the chronological data suggests that one of Obama’s campaign themes this year - income inequality - is a product of liberal-progressivism’s embrace of fiat money inflation.

Piketty’s Gold? Editorial of The New York Sun | April 21, 2014

Posted by .(JavaScript must be enabled to view this email address) on 04/28 at 07:48 PM
  1. The author's suggestion that cause of the increasing concentration of wealth among the 1% is that we went off the gold standard is risible.

    And in reality, all money is fiat money. Unless you can eat it or wear it, the green stuff we trade around is just a representative of accepted value, and does not have intrinsic worth.

    Posted by .(JavaScript must be enabled to view this email address)  on  04/29  at  10:03 AM
  2. Mr. Jay, why is it laughable? Any specific reasons?

    All money is not fiat money. Gold, for instance, could be taken out of one country and into another, where its purchasing power would not be any different. Taking dollars abroad requires paying a higher price there, because the supply of dollars has outpaced the productivity of the U.S. economy. That assertion flows from the historical fact that underlying any monetary transaction there is ultimately nothing more than an exchange of goods or services.

    The Fed's increasing the fiat money supply does nothing to increase the available supply of goods or services, witness our long, dragged-out recession since 2008.
    Posted by .(JavaScript must be enabled to view this email address)  on  04/29  at  03:09 PM
  3. Mr. Brewton,

    On the most basic level, when Joe Schmo goes to the store to buy a quart of milk, and hands the grocer a five dollar bill, he does not consider whether there is a pile of gold at Fort Knox standing behind that piece of paper. He relies on the full faith and credit of the United States that his sawbuck can be exchanged for the milk.

    If you wanted to peg the value of your currency to something tangible, gold is actually a questionable choice because its value fluctuates wildly, so the amount of goods and services an ounce of gold can be exchanged for is by no means stable.
    Posted by .(JavaScript must be enabled to view this email address)  on  05/04  at  04:16 PM
  4. Mr. Jay, the value of gold doesn't fluctuate wildly. The value of the dollar fluctuates from day to day when measured against gold. The price of a barrel of oil in ounces of gold, for example, has been stable for a very long time. In the year 2000, only $272 was needed to buy an ounce of gold. At Friday's London closing, the dollar had fallen so far that $1,281.25 was required to buy an ounce of gold.

    Jo Schmo may be happy to depend on the full faith and credit of the United States, but clearly he didn't live thought the 1970s stagflation. I did, and I don't trust the Federal government or the Federal Reserve to protect the purchasing power of my investments, which is why I keep a moderate position in the gold ETF and much of the rest in natural resources-based securities.
    Posted by .(JavaScript must be enabled to view this email address)  on  05/04  at  05:18 PM
  5. Mr. Brewton,

    The problem with Exchange Traded Gold Funds is that typically a commission and annual fee is charged to cover storage, insurance, and management. These monies are generally obtained by selling a small amount of gold represented by each certificate. So, typically, the amount of gold in each certificate gradually declines over time.

    There are several problems with the current Republican idea to go back on a gold standard. First, the government would need to obtain enough gold to redeem every one of the $2.6 trillion now in circulation. Unfortunately, Fort Knox contains only about $431 billion in gold (260 million ounces). So, how do you get more gold? If the government went out on the market to buy it, the price of gold would skyrocket. So, the government would go broke trying to get on a gold standard.

    The record of deep and brutal recession while on the gold standard was horrendous. Once off the gold standard, there have been many fewer of shorter duration, because the Fed can adjust the supply of money and thereby help avoid these disasters.

    While you say the price of gold is stable, between 2009 and 2010 price of gold increased by one third! If the dollar had been tied to gold during that period, salaries would have fluctuated as wildly, but the amount of debt would have remained constant - creating an impossibility for people to keep up with their debts.
    Posted by .(JavaScript must be enabled to view this email address)  on  05/07  at  07:04 PM
  6. Mr. Jay, to repeat: fluctuations in the dollar price of gold don't reflect changes in the purchasing power (value) of gold; rather, those changes reflect the usually declining value of the dollar in foreign exchange markets, i.e., changes in the purchasing power of the dollar.

    With regard to the supposedly improved record of recessions since uncoupling the dollar and gold for private payments, you are overlooking the Great Depression, the 1970s stagflation, and the current Obama Great Recession.
    Posted by .(JavaScript must be enabled to view this email address)  on  05/07  at  09:00 PM
  7. Mr. Brewton,

    Since we import a huge amount of consumer products from abroad, the foreign exchange rate would indeed almost instantaneously vary the purchasing power of the domestic dollar, were we to be on the gold standard.
    Posted by .(JavaScript must be enabled to view this email address)  on  05/08  at  10:50 AM
  8. I suggest the real problem with the FRB's fiat money is not so much anything intrinsically bad, but bthe excess that we have seen. A moderated printing of money, an issuance amount that respected the need to balance the budget, would have ameliorated the inflationary impact. Unfortunately, the excessively exhuberant "stimulus" of recent years has been the major culprit. In short, the FRB could, with restraint, emulate some of the steadiness gained from the gold standard?

    But, on another point, it may not be just the fiat money to blame for growing inequality. The article doesn't refer to it but I believe the Great Society programs of the 1960's may have kicked in by 1971 and caused the growing amount of income inequality that we see today.

    I am not sure how the figures are developed. But obviously the pre-welfare income of many people has declined as more and more people rely solely on welfare transfer paments. There are many fewer people working as they have switched over ro disability, welfare, etc. It may be that if we look at income after disability and welfare payments, (food stamps, tax credits, housing allowances, etc.) we would find a different inequality--I suspect the after tax income of the Middle Class would have gone down and that of the lowest classes gone up?

    Finally, the highest income group has been inordinately benefitted by loosened regs on financial manipulation, government subsidies, bailouts, favored tax breaks, and other features of the new crony capitalism we see today.
    Posted by BIULL GREENE  on  05/12  at  07:37 PM
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