
Financial Collapse and Energy - Something Other than a NINJA Problem - ph0rque
http://www.theoildrum.com/node/5431
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midnightmonster
The story Gail tells about currency rings true at first, but I don't buy that
the link between energy/time/labor and trading value was ever so strong. Even
starting with the bartering chair maker and farmer, if the farmer can get a
chair for a basket of eggs, he won't give two baskets of eggs for a similar
chair to the other chair maker in town just because chair maker B is slow and
takes 12 hours to make a chair. Even if there were no fast chair maker around,
he may still decide he's better off sitting on the floor or on a stump than
paying two baskets of eggs.

The real relevance of time/effort value is this: farmer doesn't pay 1 basket
of eggs (6 hours work) for a chair b/c the carpenter spent 6 hours on the
chair, he pays 6 hours of work b/c he couldn't have built a nice chair in 6 of
his _own_ hours (and there's nothing else he wants/needs more at the moment
that he could get with 1 basket).

Commerce has never required anyone to believe (though some may have believed)
that a chair was _worth_ a basket of eggs in carbon footprint or in the eyes
of God, only that the chair is worth the eggs _to me, the farmer_.

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triplefox
Also see: <http://www.ascentofhumanity.com/chapter4-10.php>

------
Retric
Compleatly ignores inflation and defaults.

~~~
gibsonf1
I think one of the major points of the article is that you can only actually
have inflation if you disconnect money from the gold standard. Life would be
much better if we had a gold standard, no doubt.

~~~
Xichekolas
Actually it's quite easy to have inflation with a gold standard. As soon as
you dig up a single ounce of new gold, you have inflated the money supply a
little.

So instead of having the central bank control your inflation rate, it is
controlled by the gold mining companies of the world. That may not necessarily
be worse depending on how much you trust the central bank, but it's hardly
better.

Of course, if we didn't want our money supply to be determined by gold miners,
we could pick another arbitrary commodity like oil or coal. I'd go with coal,
since we have a lot of that. But then again, once you have the power to dig up
more, you have the power to inflate your own currency again. Might as well
skip the digging (and all the environmental abuse that entails) and just
adjust the supply on paper like we currently do.

This is treated really well here:
[http://www.optimist123.com/optimist/2007/05/sound_money_ver....](http://www.optimist123.com/optimist/2007/05/sound_money_ver.html)

This article points out (rather obliquely) that ideally you'd want to grow
money at the same rate that GDP grows (assuming constant velocity of money).

That is really hard to do obviously. If you rely on the gold standard, you
have to attempt to add gold to the world supply at a specific rate. I'm no
miner, but I'd imagine production levels are hardly constant from year to
year. (Not to mention that, due to geology, we'd have to rely on other
countries to do so, notably Russia and South Africa.) If you rely on fiat
money, you thankfully don't have to actually produce anything to increase the
supply, but you do have to spend a lot of time deliberating over how much to
do so.

Deflation would be really bad in a debt driven economy like we have, since it
increases the burden of debt-holders, so central banks err on the side of
moderate inflation. If they could get it perfect, that would be awesome, but
so far they can't so they choose the lesser of two evils.

~~~
gibsonf1
Hmm, you may want to compare the total amount of known gold to the potential
new gold brought in by miners. You may find that new gold accounts for a
fantastically small percentage of the total. Compare this, on the other hand,
with paper. How easy is it to double the money supply or more in a very short
period. There simply is no way to underestimate the stability you get with a
gold standard. Please refer to the money supply stability during the period of
the gold standard in the US - history speaks for itself.

<http://en.wikipedia.org/wiki/Gold_standard>

~~~
Retric
Less than one percent of the gold on the earth has been mined.

However:

The total amount of gold that has ever been mined has been estimated at around
142,000 tonnes.[12] Assuming a gold price of US$1,000 per ounce, or $32,500
per kilogram, the total value of all the gold ever mined would be around $4.5
trillion. This is less than the value of circulating money in the U.S. alone,
where more than $8.3 trillion is in circulation or in deposit (M2).[13]
Therefore, a return to the gold standard, if also combined with a mandated end
to fractional reserve banking, would result in a significant increase in the
current value of gold, which may limit its use in current applications.

~~~
gibsonf1
You are avoiding the issue of how difficult it is to dig up gold vs. print
money. At $1000/ounce, that is a pretty big incentive to dig for gold now, so
why aren't people dumping it on the market? Do you know of any examples of
hyper-inflation with a gold standard?

If we return to a gold standard, the value of a dollar would change from the
current situation, and then hold steady. How is this a problem? Does it make
sense to value current dollars in gold equivalent now as a premise for an
argument on the "value" of the money supply? This sounds like a non-sequitor
to me.

The gold standard removes the most pernicious and powerful way for the
government to take our money, inflation. It is happening now at a rate faster
than ever in US history.

[http://bloomberg.com/apps/news?pid=20601087&sid=aIeLg1dj...](http://bloomberg.com/apps/news?pid=20601087&sid=aIeLg1djbBps&refer=home)

~~~
Xichekolas
And _you_ are avoiding the issue that the Gold Standard removes a lot of
flexibility in monetary policy, and buys you _zero protection from
manipulation_.

There are numerous points in history that the US Gold-backed currency was
manipulated. During WWI, it was suspended twice. In fact, gold standards are
regularly and habitually suspended in times of war. (Ideally, once reinstated,
a deflationary postwar period would counter the inflationary period during the
war, but there is no rule saying the standard must be reinstated at the same
notational value, so this is wishful thinking.)

During the depression, the Gold Reserve Act reset the value of gold from
$20.67/oz to $35/oz, effectively devaluing the dollar against every other
gold-backed currency (inflation), and, to quote wikipedia "the higher price
increased the conversion of gold into dollars, allowing the U.S. to
effectively corner the world gold market".

So the government can still manipulate the value of it's currency at will,
simply by changing the redeemable value of it's notes. This is on top of the
possible manipulation by private parties (mining companies) and other
governments (nationalized mining companies) that I have already pointed out.

~~~
gibsonf1
I think the point of the gold standard is to remove flexibility in Government
monetary policy. The government should not be able to reduce the value of your
wealth, or do you think they should?

~~~
Xichekolas
Money is a _medium of exchange_. So no, I don't think they should be able to
arbitrarily reduce your wealth, but hopefully cash doesn't comprise more than
a tiny fraction of your wealth.

If inflation truly scares you, don't keep a significant portion of cash on
hand. Go take it all and buy gold/houses/land/businesses/securities. If
hyperinflation truly happens, we can both laugh all the way to the bank (most
of my 'wealth' is likewise in some kind of asset). If it doesn't happen,
you'll probably still have made some decent investments.

