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

To: Mark Bartlett who wrote (26865)	1/23/1999 1:59:00 PM
From: ali	Read Replies (1) \| Respond to of 116871

Mark, <When people run out of money and credit, they stop consuming ... we are very close to that now ... GOLD HAS BEEN A SILENT WITNESS TO THIS WHOLE PROCESS.> In other words, when most of the money is in relatively few hands or controlled by very few people problems arise.Has been true in the twenties and is the problem now!

To: Mark Bartlett who wrote (26865)	1/23/1999 4:00:00 PM
From: Hawkmoon	Read Replies (2) \| Respond to of 116871

When people default on their debts, the money that was "created" through those loans is "destroyed". Whether credit is incurred under a Fiat or gold-backed system, that debt is only has good as the credit and ability of the person taking the loan to repay it, as well as the collateral provided to guarantee it. Part of the problem that occurred in either system is that sufficient collateral has not been required to secure these loans in the knowledge that there will always be a percentage of defaults and bankruptcies and those risks are factored into the interest rates. Or that collateral may be of such an inflated or dubious value, as was the case with Real Estate in Japan and Hong Kong, as well as to a lesser extent in the US Savings and Loan debacle, that the risks of these loans are made even more dangerous. So who is responsible for bad loans?? If you take out bankruptcy, your credit will be shattered and your extraneous assets liquidated and the proceeds applied to remainder of the debt. From there, the institution that granted the loan will find its revenues and earnings impacted, in essence it's liquidity. To reconstitute its liquidity and earnings and operational potential, the Federal Reserve can lower the Fed Funds and Discount rates permitting banks to borrow from the Fed at lower rates than they offer to their custormers. And we all know where the Fed gets the money so no need to go into that... :0) Bringing a gold based "discipline" back to Fiat currency would be highly deflationary unless the price of the gold/dollar exchange rate was set extraoridinarily high to handle the amount of dollars in circulation. In a deflation (after refreshing my recollection on the Great Deflation of 1865-1890), returning to a "hard" currency set at either the current or approximate price of gold or whatever reasonable price, would cause prices to fall. Loans taken out to produce a given good and based upon a set pricing structure, would likely find the price of those goods depressed by the time they reached the shelves. Thus profit margins decline, and in the case of farmers, they are often required to borrow more money to maintain their operations, AS WELL AS overproducing in order to compensate for reduced prices. This overproduction boomerangs and depresses prices even more, reducing that borrowers ability to service their debt obtained for working capital. And in the end, you will see a huge number of smaller producers and manufacturers forced into bankruptcy, sale, or merger in order to get out from under these debts. Money will be destroyed by these defaults, people unemployed, and consumer demand markedly reduced. All in the name of tying paper to a shiny metal. There won't just be a market meltdown, Mark. It will be a meltdown of everything you are currently enjoying from this lifestyle should the Fiat money system be destroying a foolish attempt to restore gold to its former prominence. Again, the Great Deflation after the Civl War occurred because eastern financiers (who already had great wealth obtained from financing the inflationary war) were calling for a return to hard money set at the pre-war rate of $20/ounce. This, in effect made their current holding worth more, while making it EXCEPTIONALLY difficult, if not impossible for small businesses and farmers to obtain credit and sell their goods as a stable price. That is why the Farmer's Alliance was so instrumental in demanding economic and credit policies that granted ALL classes equal access to credit. This led to the populist movement, and ultimately to the Federal Reserve act. So it will great for those of current means to have deflation by backing Fiat with a gold standard. The alternative is to force the Fed to hold more gold to back their currency, WHILE NOT REQUIRING THEM TO CONVERT ON DEMAND dollars for gold at any banks. Requiring the fed to sell/print dollars to buy gold would be inflationary as it would raise the worth of gold to the detriment of dollars when there is no current crisis. It would place gold in competition with dollars and create a false impression of inflation at a time when dis/deflationary pressures are more evident. I'm going to have to start picking and choosing which posts I respond to. While I thoroughly enjoy the debate and its assists me in formulating my understanding of the variable involved, I logged on and found 9 messages waiting for me on SI. So if I don't happen to respond to a post, I hope it is not considered to be rudeness on my part... It's not... but merely my Carpal Tunnel acting up again.... <VBG> Regards, Ron