Ron Paul: Texan of the Year

Too many Bushtards with an internet connection. Gold-standards prevent the government from inflating out the currency. If we had a gold standard, then we simply wouldn't be able to bail out all these bad banks that have made bad investments. We also couldn't have raised the debt level to pay for legacy wars or Bush's prescription drug program. I am not surprised that Bushtards sucking off the public teat support fiscal mischief because who else would pay for your life-style.

Your help in discrediting the idea as one of non-thinkers is well appreciated.

If the quantity of goods and services rises faster than the hard-money supply, the hard-money becomes more valuable (it buys more). Because it becomes more valuable, the incentive to go dig it up increases. This incentive persists until the two supplies (the goods supply and the money supply) are in balance.

LOL! We have virtually banned all mining in this country, and you think we are going "go dig it up"??? Since the days we left the gold standard, the economic expansion has been how many times? 10, 20? Do you REALLY think that much gold can be found, enough that it will matter in the slightest? If so, I have a red painted bridge in California to sell you ( only Gold accepted, no checks, please).

Again, the problem is not "relieved" by "digging up more gold" as it generally costs currency and labor to do that. It isn't "free", and the currency increase barely covers the economic expansion to do that. Nope, what happens is precisely what I explained... DEBT. Unsecured debt becomes fiat currency and it gets traded until faith is lost in the originator of the debt and then the whole house of cards collapses, deflation occurs, and the debtors fail, which takes a decade or two to recover from, before we go out and do it again.

I'm not sure you people fully understand pre-depression era debt. IT WAS COMMON PLACE TO TRADE IOU NOTES AS IF IT WERE MONEY. Seriously, you need to go look into the everyday business of grocers, farmers, tradesmen, you name it - of the era. You ran a tab at the grocer, the farmer had one at the hardware store, the wealthy people in town continued to trade these notes around, using financing and interest to collect hard currency. While those notes were generally backed up by real production of real things, when the credit collapse occurred, extreme deflation killed off just about everyone, and made the debt worthless. Cash became hoarded by those who had been financing others, compounding the lack of it.

You CANNOT DEFEAT THAT by going prospecting. What happens, is that the value of gold becomes less than the effort to find it, and then the level of gold becomes, for all intents and purposes...fixed. While slow and incremental growth of the gold supply may occur, in no way is that anywhere near sufficient to solve the problem.

This brings the value of the hard-money down and prevents the deflationary spiral. What the hard-money does that the paper can't do is require the expenditure of effort to create it.

You're still not there. No matter what "price" you set gold to, it either immediately, or eventually, becomes static, since the level of effort and investment required to obtain it continues to rise, reaching a stasis point and then you're right back to a fixed quantity. (bangs head on monitor...) Please go look back and find out if gold production soared during the Depression... (Hint, you could not raise the capital to mount the operation to get it) Since capital formation was all but impossible for speculative things like gold mining, what little was produced was done with manual labor at existing and decling production sites, at ever declining wages - deflation...

It paid less to produce food, gold, cars, machinery, to own land... EVEN SOLID COMMODITIES SAW DEFLATION. Whether you backed the currency with gold, iron, silver, wheat, eggs, concrete, rock, or pablum, the same problems exist and they are intractable.

Ok, I was kidding about the wheat and eggs, just seeing if you're awake...

Easy deflation of the Gilded Age 1870-1907 was extremely good for the average American because of the rapid capitalization of railroads, factories, and other economic investments. It was also a period of low taxes.

It's easier to forecast prices with a cash based society because the threat of inflation through mining or flow of gold stock from one part of the world to another is easier to figure out. It leads to price expectations with lower ranges of fluctuation (usually downward.) That gives entrepreneurs a better idea on where and when to make capital investments.

It's also hard to say that deflation is a detrimental phenomenon when the money supply stays constant or grows slowly or that expectation of deflation is a bad thing. Severe price deflation in personal computers over the last two decades haven't stopped semiconductor companies from pouring hundreds of billions of dollars into R&D and foundry construction. Severe price deflation hasn't stopped consumers from purchasing lots and lots of computers over the same period. The degree of price deflation rather sends a necessary and beneficial signal to entrepreneurs and consumers to buy or invest.

There is the possibility that gold may be come too scarce that a gold standard to overvalue it even when accounting for its storage and anti-inflationary characteristics. At that point, it'd probably be a good idea to use something else as a medium of exchange as money. The market will probably agree on some commodity rather than paper money without a tangible promise behind it.

Easy deflation of the Gilded Age 1870-1907 was extremely good for the average American because of the rapid capitalization of railroads, factories, and other economic investments. It was also a period of low taxes.

This is an interesting statement, since 1907 was marked by a bank panic, and the previous years were a recession... The panic of 07 and assorted ripples eventually dropped the stock market 50%.

JP Morgan and friends "bailed out" the banks that year. But repeated bank runs did not end.

This is hardly a defense of the gold standard. It REALLY is not some kind of praise of "gradual deflation", either.

Really, think about why there were "trust busters", why it was possible to create monopolies in that era... The reason was not that anyone could or would own all the oil or all the steel or anything else. What they could do, is hoard cash - restricting capital to raise competition to the established producers.

The Panic of 1907 was set in motion by... Get this... Investors and Banks attempting to fund the takeover of a COPPER PRODUCER, and then failing. And when they failed, the banks lost the confidence of their depositors and... The rest is easy to imagine.

Your fundamental premise is that slight deflation helped the people be prosperous. Nonsense! The prosperity was entirely due to dramatic gains in productivity, brought about by mechanization. Attempts to capitalize on these productivity gains resulted in economic expansion that dramatically outstripped the available currency, resulting in the slow shift to debt based expansion which created fiat "money". One slight wobble in the economy cause government to engage in protectionism, raising taxes, and then borrowing and spending. This borrowing further exacerbated the lack of currency and hurried up the crash, and then deepened it.

FDR's short sighted policies of borrowing and spending would have prevented any future recovery... Except for the onset of WWII, going off the Gold Standard, and huge productivity gains invented during and post WWII.