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Simple each serialized bill/digital credit is tracked with a certain amount
of gold backing it. When you deposit the money in the bank they pay you a
certain amount to use it.
If you are intrested in this subject you can study Austrian Economics or
check out the Von Mises Institute.
Simple supply and demand.. If gold is scarce, your gold backed bills will
be able to buy many loaves of bread.
It goes back to the first existance of money. They didn't want to drag all
this gold around.
People appeared that were willing to store it for a fee and write a receipt
for it. You could then trade the receipt (a paper note) for goods and
services. The person receiving the note knew that he could at any time go
and redeem it for gold at the storage facility. The fraud started coming
into the picture when they had thousands of notes out backed by gold in the
storage faciltiy. Knowing that not all the people are going to redeem their
notes, they started printing up more than one note for each unit of gold in
storage (fraudulently).
Worse case scenario -- A run on the banks occurs, this is fine as long as
the banks are held accountable to repay depositors.
FDR relieved the banks of ever having to repay depositors (the so called
banking holiday). This was the worst thing he could do. In the free market
he should have let the banks that were going fail do just that. And the
ones that made it financially by the the skin of their teeth or better would
be the banks that would be the stronger and more fiscally sound.
And for a side note.... The Roaring Twenties was built on a credit bubble.
When you can borrow money cheaply people are willing to expand their
businesses (get loans for new equipment, buildings, employees ect.) This
creates a look of prosperity on the surface. New houses and pizza
franchises going up everywhere. But it is built on credit that must be
repaid. If there is a slump you can't make the payments etc...
Under the gold standard there are not extreem fluctuations in business
cycles and interest rates..
La Gonzo
-----Original Message-----
From: Kent Rollins <kentr@xxxxxxxxxxxxxx>
To: Gonzo <gonzo@xxxxxx>
Date: Tuesday, August 11, 1998 5:30 PM
Subject: Re: DEFLATION CRISIS... myth exposed <----Actually Stagflation.
>Is there enough gold in existence for us to back our money with it? What
>about all the currencies around the world? Also, if I deposit $100,000 in
>the bank and the bank lends it out for someone to pay a home builder, does
>the reserve need $200,000 or $100,000 in gold to back it up?
>
>Kent
>
>
>At 10:59 AM 8/11/98 -0600, you wrote:
>>The answer is simple get away from fractional reserve banking and return
to
>>a full gold standard (not the brenton-woods semi gold standard). The
>>problem is that it is to late for the US because you can not run deficits
on
>>a gold standard. They wanted powerful money overseas so they allowed
>>foreigners to exchange their money for gold bullion, but wanted
inflationary
>>money at home. This infationary money cheats the people. Why? because
when
>>you first print the money at the top it has a set value that is greater
than
>>when it trickels down through the economy (a lag time effect). Also they
>>can take this money that they just printed and buy real assests such as
land
>>and buildings. This is why they wanted to dual standard money.
>>
>>Nixon took us off the Semi-gold standard (Brenton-Woods) because
foreigners
>>became scared about the US economy and decided to exchange their dollars
for
>>the gold. The government got worried when the gold reserves became low.
>>Why was the government worried? Because we were using a fractional
reserve
>>system (a fraction of the dollars out there have gold backing them). If
we
>>had money fully backed by gold whether paper, coin, or digital credit you
>>would experience new parallels or prosperity.
>>
>>Why is this gold backed money better? When you print a bill backed by
gold
>>you have to spend time/energy to get the gold. This time/energy/gold has
>>greater value. Slapping a bill on a legalized counterfeiting machine does
>>not create value.
>>
>>
>>-----Original Message-----
>>From: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>
>>To: bruceb@xxxxxxxxxxxxx <bruceb@xxxxxxxxxxxxx>
>>Cc: Omega List <omega-list@xxxxxxxxxx>
>>Date: Tuesday, August 11, 1998 9:43 AM
>>Subject: Re: DEFLATION CRISIS... myth exposed
>>
>>
>>>bruceb@xxxxxxxxxxxxx wrote:
>>>>Why, because of all the potential threats to the US economy, this is by
>>far the easiest >problemto fix.
>>>
>>>> What got us into the deflationary cycle of the 1930's? The government
>>>> contracted the money supply at the very time they should have been
>>expanding
>>>> it. What got us out of it? A massive expansion of the money supply to
>>pay
>>>> for World War II (some things you learn by trial and error...).
>>>>
>>>> Bruce
>>>
>>>
>>>Bruce:
>>>
>>>Personally, I'm not particularly interested in forecasting where the
>>markets are
>>>going--I'll trade them if they go up or if they go down. And until now,
>>I've
>>>read your personal opinions of how the world works and found them
>>interesting. I
>>>don't agree with all of what you've written, but that's what makes the
>>world go
>>>round.
>>>
>>>Now, your statement about deflation being simple to end...I was trained
as
>>an
>>>economist at the University of Chicago. In fact, while there in their
joint
>>>degree program in the late 1970's, I paid for my schooling by doing
>>research for
>>>the BLS. In theory, deflation can indeed be cured simply by printing lots
>>of
>>>extra money. But you speak about it as if the economy will react and turn
>>on a
>>>dime. It isn't that simple and it doesn't work that way. No matter what
you
>>>read.
>>>
>>>I gave a speech at a dinner in Princeton, NJ about seven years ago, and
Dr
>>Paul
>>>Samuelson was also speaking. And during his speech, he described the
great
>>>difficulty they had trying to get the economy to respond to ANY type of
>>fiscal
>>>stimulus, as well as the printing of huge amounts of 'dollars.' His
>>statements
>>>boil down to one phrase: At some point, deflation is almost impossible to
>>>turn--It's like pushing on a piece of limp string. The economy just
doesn't
>>>respond. He was on the shadow open market committee during the 1930's...
>>>
>>>I've had my stint as an economist and I'll leave that job to someone
else.
>>But I
>>>hope people that are reading your series take the time to think for
>>themselves.
>>>You've presented some interesting views, but unfortunately, you've
>>presented
>>>them as if they are fact and written in stone. They may be your views.
They
>>may
>>>be right or wrong. But in many of the things you have written about here,
>>the
>>>way things unfold will not be dictated by anyone's opinion. And that's
why
>>there
>>>is a market place.
>>>
>>>Best,
>>>
>>>Tim Morge
>>>
>>
>>
>
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