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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: tshane who wrote (35842)	6/24/1999 5:45:00 PM
From: Hawkmoon	Respond to of 116770

As they sequestered gold, Federal Reserve policy prevented some of the gold from becoming the basis for more money and instead they used it for reducing member banks debts. In essence this removed money from circulation during a time of bank failures and economic contraction. Geez, Ron, just maybe that contributed to the Great Depression as they did just the opposite of what they should have done. The question is why did they have to make a choice?? Why couldn't they do both?? The Fed Reserve today lowers the discount and Fed Funds rate in order to inject liquidity into shaky banks and sells debt, or IOW, prints money to prevent credit crunches from seizing up the system. Apparently under the gold standard, they couldn't do both, so they opted to save their own hides (they meaning the bankers), and ultimately failed anyway. During that period, a depositor had the right to redeem his dollars into gold. The very fact that gold had to be physically stored near-by in sufficient quanties to meet unanticipated redemptions as a result of bank panics, were merely one more coffin nail that sealed the fate of 1/2 of all US banks during the great depression. Prices fell through the floor as business contracted, debts were defaulted on, "money" destroyed by those defaults, and people laid off enmasse as a result. Those who had money or held gold which was artificially priced at $35/ounce found themselves in the enviable position of seeing their purchasing power increased as prices fell, while those without cash were thrust into incredible poverty. What you called mismanagement by the "gods of money" is certainly possible today, just as it was yesterday. But many lessons were painfully learned, the most important of which was that the value of money was less important than maintaining the "velocity" of financial transactions which constitute actual GDP. The dollar was massively devalued by the New Deal policies of Roosevelt in an attempt to escape the liquidity trap the US economy was in, and it wasn't until WWII created an inflationary expansion that confidence was fully restored (it helped that we were the only major power left economically standing at its end). But Richard, the gold standard is worse than that. If it is considered an alternative to paper notes, it will lead people to choose it as an alternative to paper, thus pepetuating the agony of financial recovery. Since there is so little gold available in comparison to actual global GDP, the competition for it would create a buble similar to what ocurred in 1980. If gold is demonetized, people are forced to maintain their confidence in paper, which after all is a reflection of the economic strength of the economy that issues it. And while some may find this immoral, an equivalent would be Brazilians selling Reals in order to buy dollars. It weakens their currency, subverts their consumer and investor confidence while forcing its Central Bank to focus on defending their currency instead of undertaking the steps necessary to restart the economic engine to its formal financial velocity. Money is money, Richard. Money is psychological just like gold is for you and others. So long as it is the only game in town, people will accept it as a means to do business. If they don't feel confidence in it, they will charge more dollars for the goods they sell. But the key is that they will still be engaging in business and buying and selling would continue. When people focus more on saving than spending the economy contracts and people become unemployed meaning they have less money to spend or save. It becomes an endless cycle similar to Japan's current situation, and will eventually require DRASTIC steps to reverse. In sum, if gold is to be currency, then its means of production should be nationalized and an all out effort made to harness the nation's resources to discover and exploit all known deposits. Only through this method will there be enough money available to further economic growth to man's capacity. Leaving gold mines in private hands under a gold standard is tantamount to permitting private banks to print money according to their ability to find gold and extract it. Gold mines would become the banks, and they could decide who they would provide their gold to and at what price. IMO though, there is something un-natural about basing the pace of the planets economic growth solely on its ability to mine a certain precious metal. That means that when gold deposits are exhausted, the economy will stagnate. It may happen in ten years, twenty years or 100 years. But eventually, the gold will run out and that will spell the end of man's pursuit of happiness, regardless of his ability to take on and service debt. Regards, Ron