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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: JMK1 who wrote (23445)	2/12/2005 7:35:54 PM
From: Elroy Jetson	Read Replies (2) \| Respond to of 116555

Let me respond to these referenced comments which suggest a fixed money supply using a gold backing would lead to huge inflation. investorshub.com This is a hilariously misinformed opinion, typical of someone whose world view has been unhealthily influenced by economic quacks like Milton Friedman and John Law and their school of Monetarism. In short we shall soon see how wrong this comment is. A classic capitalist economy, where the money supply is fixed, is different from our everyday world in some important aspects. Let's say the Capitalist economy becomes wealthier by 3%. Since the amount of money remains the same, money can buy 3% more than it did in the preceding year - or put another way, most prices fall by 3%. Wages usually remain the same, as do the price of real estate. Monetarist economists would call this deflation, not inflation. What happens when our Monetarist economy becomes wealthier by 3%? First, the Central Bank spends into existence an amount of money equal to 3% of the economy. Monetartists and the Fed call this Price Stability Operations. Others call this the Monetarist Tax. This immense tax pushes inflation through the system to the extent that wages and real estate rise by 3% while the price of most other things remain the same. The Monetarist tax subsidizes the banking sector which can lend too much money at highly subsidized rates typically leading to exaggerated economic cycles or a debt level which rises far faster than GDP - leading ultimately to collapse when debt levels can no longer be supported. home.pacbell.net When the Central Bank creates money even faster than the growth of the economy, then the monetary inflation pushed through the economy causes the price of ordinary goods to rise as they devalue money ever more quickly. In recent years our Fed has levied a Monetarist Tax of 8%, which is even more than the 7% of GDP raised by the Income Tax. People complain loudly about visible taxes, but few are educated enough to even know about less visible ones like the Monetarist Tax. Now does gold need to be part of this equation? If people were honest, no. In 1969 gold was replaced by SDRs (Special Drawing Rights) for international settlements. The problem is that Monetarists are more inclined to large taxes than small ones and false money quickly replaces good. Either the currency much be devalued relative to SDRs or the amount of SDRs must be increased to keep up with the fiction of the rapidly devaluing currency. So people being people, they increase the number of SDRs - which can be done by the stroke of a pen. Thus Monetarists rightly claim that the supply of new gold will never be able to keep up with their creation of new money introduced through the Monetarist Tax. While this is true, it also misses the point completely. In a Capitalist economy the money supply is fixed. What they are really saying is that gold as money is not compatible with a Monetarist economy - and this is true. This is one of the most compelling arguments in favour of gold. Back to Zeev's point. He suggests that using gold backed money would create a huge industry mining gold at uneconomic prices. It should be obvious on it's face how absurd this argument is. During the long, long history of using gold backed money, there has never been any urge to mine gold at uneconomic prices. Just as people don't produce crops for long at uneconomic prices. What Zeev is really say, without having any conscious awareness of it, is that gold backed money would quickly point out the lie of the Monetarist system and people would object to the Fed declaring each year that their money now represents less gold than the year before, in order to accommodate their rapid expansion of the money supply through th Monetarist Tax. .

To: JMK1 who wrote (23445)	2/13/2005 8:26:44 AM
From: Tommaso	Read Replies (1) \| Respond to of 116555

>>>as I have sated a number of time, gold as a currency will create most probably a state of constant inflation, or stagnation of world economies, or both, rather than the desired discipline.<<< That's an extraordinarily ignorant and misguided statement. The return to the gold standard in the United States following the Civil War, which took decades to retire the "greenbacks," produced an era of constant deflation, and eventually the Great Depression. I have been reading Zeev Hed's pronouncements for years. The best thing that can be said for them is that they are definite. He also, however, seems to have a short memory for all those (about 50%, or a random chance) that have turned out to be incorrect.

To: JMK1 who wrote (23445)	2/13/2005 7:30:58 PM
From: mishedlo	Respond to of 116555

I was away from Friday until just a bit ago and am just now getting caught up. I think the first post of the three is not correct. A gold standard would not be inflationary, at least to the US, in fact it might be depressionary. I fail to see how it possibly could be inflationary. As for GATA, I am not a big believer in most of their conspiracy theories. As to whether or not we can ever get back on a gold standard or not... it is likely doubtful. However if it did happen one would have to see an enormous jump in the price of gold, which would then cause some of the problems that he mentions. That there will be a huge financial crisis at some point in the future almost seems a given. I do not know what the outcome of that might be. It is probably quite some time from now. Mish