Learning from Europe while it is , in effect, on a gold standard

[expat_panama]

....how can the farmers pay back what they owe + interest unless the amount of money in the economy grows?

The farmer used the borrowed money to buy land and equipment, hire workers, and plant crops. At harvest time he sells his crops to the guy that deposited the first 100 golds and to the people he bought the land and equipment from, and also to his workers. Now the farmer has all the money in town --$200 in gold-- and he pays the $100 plus $10 interest and now has a $90 savings account.

Now the money supply is $10 in the bank plus $90 with the Farmer. The money supply is now back to $100 because just as money expands when loans are made, the money supply shrinks when loans are paid off. That's OK --now the town's wealth has increased because the farmer owns a bigger farm with equipment (total value $1000) and the other townspeople own harvested crops (total value $110). All that wealth can be used as collateral for more loans that will expand the money supply as needed.

 

[EdwardBaiamonte]

Remember we were ON A GOLD STANDARD when the GREAT DEPRESSION happened, kiddies.

actually, it was, in effect, being off the gold standard that caused the Great Depression. No less than Friedman and Bernanke agree on this, but editec does not? What does that tell us, kiddies??

That informs us that when you read Friedman and Bernacke you didn't exactly understand what you were reading.

That or you read what somebody else credited those two with having said who didn't understand their point.

of course if true the liberal would not be so afraid to explain exactly what they actually said or where exactly I misunderstood. Hard when the liberal has no absolutely no idea- right?

Milton Friedman: :" In the Depression banks were destroying money. Nonetheless the Federal Reserve stood by and let it happen. The end result was that by time the whole sorry episode was over the quantity of money had gone down by 1/3..... for every bank that existed in 1929, 2 existed in 1933.....the terrible Depression was a direct result of bungling by the Federal Reserve system. Their monetary policy stifled any hope of economic recovery..... Worse still America's Depression was to become world wide because of [gold mismanagement].....

"Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules. It stood by as the banks started to collapse and with each bank failure the money supply fell."

 

[samjones]

Worse still America's Depression was to become world wide because of [gold mismanagement].....
"Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules. It stood by as the banks started to collapse and with each bank failure the money supply fell."

Just another example of a "gold standard" failing to achieve its purpose.

 

[EdwardBaiamonte]

Worse still America's Depression was to become world wide because of [gold mismanagement].....
"Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules. It stood by as the banks started to collapse and with each bank failure the money supply fell."

Just another example of a "gold standard" failing to achieve its purpose.

It would be like saying a law failed to acheive its purpose when it was not enforced. Do liberals ever make sense?

 

[samjones]

Worse still America's Depression was to become world wide because of [gold mismanagement].....
"Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules. It stood by as the banks started to collapse and with each bank failure the money supply fell."

Just another example of a "gold standard" failing to achieve its purpose.

It would be like saying a law failed to acheive its purpose when it was not enforced. Do liberals ever make sense?

A law that is not enforced probably isn't a very good law.... if it was they'd probably enforce it.

Probably why your notion of a strict gold standard is never followed. It's just a bad idea that doesn't make any sense and when politicians pursue bad ideas that don't make any sense they tend to lose their jobs.

 

[expat_panama]

Worse still America's Depression was to become world wide because of [gold mismanagement].....
"Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules. It stood by as the banks started to collapse and with each bank failure the money supply fell."

Just another example of a "gold standard" failing to achieve its purpose.

It would be like saying a law failed to acheive its purpose when it was not enforced. Do liberals ever make sense?

We agree that going into the depression this was money--

--and we were on the gold standard. Now the disagreement is whether the Fed's leaving the gold standard is what caused the depression per Friedman's "quote"--

Milton Friedman... "Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules...

Anyone got a link to that quote? Like, here the link to what Abraham Lincoln said about the internet. How about the fact that Friedman never said that and it's a bogus quote. From A Bogus Quotation from Milton Friedman on the Federal Reserve:

The FED did not shrink the monetary base in 1930-31. It kept it flat. The FED increased it in 1932. In 1933, it rose even faster. The money supply fell, 1929-33, because of bankrupted banks. This ended in 1934, because of the FDIC. The money supply then rose. This chart is from an article by the Vice President of the Federal Reserve Bank of St. Louis:

 

[editec]

The straight forward reply starts with how gold goes into the bank because it's heavy and can be robbed, and then how businesses raise capital for expansion. Bad idea; you're not asking questions, you're making statements that fit a chosen ideology and don't have to fit reality.

The question's straightforward: how can the farmers pay back what they owe + interest unless the amount of money in the economy grows?

It has nothing to do with how productive they are or how much they expand; they owe money, not wheat or soybeans. In fact, the more productive they are the worse it is - the prices they get for what they grow fall that much faster. The debt, however, only increases.

Sundial got it.

That is exactly what happened to the farmers in the 1920s.

Their productivity increased dramatically just as the market for their goods was collapsing.

As farmers typically borrow to get the next crop in, they found themselves squeezed between falling prices and their debts AT INTEREST.

Now, of course, the American people find themselves in a similar position.

They owe debts at interest, but as the wealth evaporated, and the economy is tanked, their incomes are reduced but their DEBTS continue to grow.

 

[EdwardBaiamonte]

How about the fact that Friedman never said that and it's a bogus quote.

if so I'll pay you $10,000 Bet???

 

[expat_panama]

...how can the farmers pay back what they owe + interest unless the amount of money in the economy grows? It has nothing to do with how productive they are or how much they expand; they owe money, not wheat or soybeans. In fact, the more productive they are the worse it is - the prices they get for what they grow fall that much faster. The debt, however, only increases.

Sundial got it. That is exactly what happened to the farmers in the 1920s. Their productivity increased dramatically just as the market for their goods was collapsing.

No that's not what happened and no he didn't. First, prices in the '20's were about 50% over prices in the decades before and after --

--and the problem of income falling below borrowing payments came with gold's deflation in the '30's.

None of this changes the fact --rather it supports the fact that fractional reserve banking creates money when people borrow and destroys money when loans are paid back, and that's with or without the gold standard. The difference being that the gold standard is what got us into that crippling deflation of the '30's.

 

[expat_panama]

How about the fact that Friedman never said that and it's a bogus quote.

if so I'll pay you $10,000 Bet???

Yeah right.

Look, you can provide a link to back your post or not. Either way the fact remains that the "FED did not shrink the monetary base in 1930-31. It kept it flat. The FED increased it in 1932. In 1933, it rose even faster. The money supply fell, 1929-33, because of bankrupted banks. This ended in 1934, because of the FDIC. The money supply then rose."

So even if Friedman had said the FED shrank the monetary base, he'd have been wrong.

 

[EdwardBaiamonte]

From A Bogus Quotation from Milton Friedman on the Federal Reservee]

that link is about whether Friedman said the Fed deliberately caused the Depression. Friedman and Bernanke believe they caused it out of stupidity, not deliberation. In fact Bernanke promised Friedman that they would not make that mistake again.

 

[EdwardBaiamonte]

So even if Friedman had said the FED shrank the monetary base, he'd have been wrong.

THe man was perhaps the greatest genius of the 20th Century. He did not say the Fed shrank the monetary base, he said they shrank the money supply. This appears to be the green line on your chart.

 

[EdwardBaiamonte]

So even if Friedman had said the FED shrank the monetary base, he'd have been wrong.

http://www.sjsu.edu/faculty/watkins/depmon.htm

The money multiplier was decreasing in the early 1930's because of increased cash holding by the general public and retention of increased excess reserves by the banking system. Both of these could have arisen from fear concerning the stability of the banking system. There were notable cases of bank failures in the news and the Fed did little or nothing to allay the fears generated within the banking system or among the general public. The end result was a decrease in the money supply due to a decrease in the magnitude of the money multiple such that the money supply was decreasing despite an increasing trend for the monetary base figures, the statistics that the Fed was monitoring. The monetary base is the sum of the currency in circulation and the reserves held in the Federal Reserve banks.

 

[EdwardBaiamonte]

A law that is not enforced probably isn't a very good law.... if it was they'd probably enforce it.

idiotic and liberal. THe laws against drugs or murder, for example, are enforced with vastly different degrees of enthusiam that have nothing to do with whether they are "good" law, what ever that means. Of course you forgot to tell us

Probably why your notion of a strict gold standard is never followed. It's just a bad idea that doesn't make any sense and when politicians pursue bad ideas that don't make any sense they tend to lose their jobs.

of course if it is a bad idea you would not be so afraid to say exaclty why

 

[EdwardBaiamonte]

None of this changes the fact --rather it supports the fact that fractional reserve banking creates money when people borrow and destroys money when loans are paid back, and that's with or without the gold standard. The difference being that the gold standard is what got us into that crippling deflation of the '30's.

you've contradicted yourself. First you said it happens with or without a gold standard; then you said the gold standard is responsible????

How can gold be responsible if it happens with or without a gold standard.

 

[samjones]

A law that is not enforced probably isn't a very good law.... if it was they'd probably enforce it.

idiotic and liberal. THe laws against drugs or murder, for example, are enforced with vastly different degrees of enthusiam that have nothing to do with whether they are "good" law, what ever that means. Of course you forgot to tell us

Probably why your notion of a strict gold standard is never followed. It's just a bad idea that doesn't make any sense and when politicians pursue bad ideas that don't make any sense they tend to lose their jobs.

of course if it is a bad idea you would not be so afraid to say exaclty why

I'm saying it over and over again. You're simply afraid to comprehend and let it sink in. A strict gold standard is a bad idea because it limits the ability of the Fed to control the money supply in a reparative fashion and it ties the purchasing power of accumulated money to a volatile metal. That's bad for finance and bad for an economy.

Glad I was able to help you finally grasp this concept. I'm sure it will greatly alter your political outlook.

 

[EdwardBaiamonte]

A strict gold standard is a bad idea because it limits the ability of the Fed to control the money supply in a reparative fashion

if true why so afraid to explain why they cant control money supply????

 

[samjones]

A strict gold standard is a bad idea because it limits the ability of the Fed to control the money supply in a reparative fashion

if true why so afraid to explain why they cant control money supply????

"why so afraid to explain".... you say that alot - you know that? Nobody posting to this thread has been "afraid" to "explain" anything.

Perhaps you could take the time to outline what you think a gold standard should look like so that I can hear you state, in your own words, how you and Ron Paul and Ayn Rand are going to save our country....

.... unless you're afraid to.

 

[expat_panama]

...he said they shrank the money supply...

I can believe the money supply shrank, and the argument that it shrank because of something the Fed did was in your post # 313 (from this link):

The chain of causes of the Great Depression thus leads back to the restrictive monetary policies of the Federal Reserve System. Those policies led to fear of bank collapses which caused the money multiplier to decline thus leading to a decrease in the money supply. This decrease in the money supply led to deflation which raised the real interest rate to extraordinary levels. This drastically discouraged investment purchases causing the level to decline by about 90 percent. ​

--but that contradicts this quote:

Milton Friedman... "Gold in the US was supposed to control the amount of money issued by the Federal Reserve....In 1930 the Fed didn't play by the rules...

--with the idea that the Fed had in fact been playing by the rules but the rules were wrong, and also that the rules had nothing to do with gold. So we don't have a link showing where Friedman said the Fed that shrank the money supply between '29 and 33 by breaking the gold rules. Another made up quote? What I've found is when quotes are posted without sources they usually turn out to be fabricated.

 

[expat_panama]

...you said it happens with or without a gold standard; then you said the gold standard is responsible????

You need to understand that you're not only misreading the post, but you're also losing control of your "?" key. Sometimes these symptoms can be controlled by soaking one's head in ice water.