[HN Gopher] The Gold Standard and the Great Depression (1997)
___________________________________________________________________
The Gold Standard and the Great Depression (1997)
Author : VHRanger
Score : 49 points
Date : 2021-10-26 17:19 UTC (5 hours ago)
(HTM) web link (www.nber.org)
(TXT) w3m dump (www.nber.org)
| cletus wrote:
| I honestly don't understand the obsession some people have with
| the gold standard. Even when the US had the gold standard, the US
| never had gold reserves that matched the dollars in circulation.
| Not once. Ever. Also, the gold standard doesn't stop sovereign
| devaluation as happened by FDR in the 30s.
|
| Historically gold existed as a currency because it had some
| useful properties:
|
| 1. Unusual appearance;
|
| 2. Relatively scarce;
|
| 3. Inert;
|
| 4. Fungible; and
|
| 5. (This is a big one) Density. Up until the modern times it was
| the densest material someone could be expected to have (eg
| Iridium, which is denser, wasn't common in the Middle Ages). Why
| does this matter? Counterfeit currency, as was a problem with
| anything based on silver.
|
| Currencies only have value because people give them value.
|
| There's a lot here but this jumped out at me:
|
| > The Germans fell into a policy of financial excess, ending in
| hyperinflation. Their experience was considered one of the object
| lessons proving the value of the gold standard.
|
| No mention of the Treaty of Versailles here. Germany was forced
| to pay war reparations. Those were denominated in deutschmarks.
| Hyperinflation actually "solved" Germany's reparation debt
| problem. In a way, Germany was incentivized for hyperinflation.
| The importance of that cannot be overstated.
| rat87 wrote:
| I believe German reparations were shielded/unaffected from
| inflation. The allies were smarter then that. Germany did get a
| pause in reparations payments when hyperinflation drove their
| economy to possible collapse which led to reparations being
| paused then cancelled. They paid 16% of the reparations agreed
| to. Then after WW2 they agreed to pay half of the rest.
|
| German hyperinflation was useful for getting rid of internal
| debts that the government of Germany had borrowed from it's
| citizens during the war. It also led to collapse of pensions
| AniseAbyss wrote:
| Except pensions for the SS. They payed those until well into
| the 1990s.
| wahern wrote:
| > I believe German reparations were shielded/unaffected from
| inflation
|
| It was all much more complicated than that. Hyperinflation
| wasn't intended as a simplistic way to repay reparations. It
| had a number of motivations. For one thing, Germany also had
| alot of private debt outstanding. And from the perspective of
| the exacerbated Allies, the most important motivation behind
| hyperinflation was to drive the Allies back to the
| negotiating table; which it did. Except the renegotiations
| proved a mixed bag for Germany, giving them enough breathing
| space to standup their economy (not long after
| hyperinflation, Germany had a surfeit of foreign
| investments), but nonetheless leaving the political albatross
| of reparations in place.
|
| The basic point is that Germany didn't naively step into
| hyperinflation. For the most part it was strategic and
| temporary--it only lasted a few years, after all.
| andrewla wrote:
| > the US never had gold reserves that matched the dollars in
| circulation. Not once. Ever.
|
| This cuts both ways. Proponents of "sound money" and the gold
| standard ignore this unwinding of the relationship. So pointing
| to the roaring 20s or the economic booms of the late 19th
| century as evidence of the power of sound money really say
| nothing of the sort.
|
| Proponents of the "gold standard caused the Great Depression"
| also ignore that this relationship was tenuous at best. This
| article is typical of that mindset -- it wasn't the gold
| standard per se, but it was gold-standard-era-thinking that
| caused the Great Depression.
|
| The only people who are offering a coherent story here are the
| MMTers who really take a look at the role of the state (and,
| probably more importantly, the law) in the story of money.
| While I disagree with many of the policy proposals from MMT
| proponents, I think that view is descriptively accurate for the
| most part. Where I think they fall short (and I am working hard
| to challenge my own views here) is in their picture of
| inflation, which I feel is very incomplete.
| tehjoker wrote:
| It's worth noting that MMT is related to chartalism. I found
| Debt: The First 5000 Years very persuasive, though I only got
| about 1/4 the way though so far.
|
| https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
| andrepd wrote:
| Thanks, you have reminded me I need to finish that book
| ahaha.
| brazzy wrote:
| > Germany was forced to pay war reparations. Those were
| denominated in deutschmarks.
|
| This is not true. Reparations had to be paid in Goldmarks,
| foreign currencies, and commodities. But inflation was used to
| meet the state's other expenses, including paper mark-
| denominated war bonds.
| throw0101a wrote:
| > _In a way, Germany was incentivized for hyperinflation. The
| importance of that cannot be overstated._
|
| If you look at the major examples of hyperinflation, the
| majority fall into three buckets:
|
| * Losing a war that results in money printing to fund the
| effort.
|
| * Large foreign denominated debts that require domestic money
| printing.
|
| * Regime changes generally coinciding with civil war or social
| upheaval.
|
| See Roche (2011):
|
| * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102
| dnautics wrote:
| you forgot verifiable. you don't need advanced technology (not
| much more than a black rock) to get a good estimate of the
| purity of gold which can be used as a neutral negotiating point
| in an exchange. Due to its relativistic quantum mechanical
| properties, gold lowers the activation barrier of creating
| trust between two parties.
| truculent wrote:
| Isn't this just the density point restated?
| dnautics wrote:
| I suppose you could use archimedes principle in its
| original form to verify density of gold, sure, but I think
| GP was referring to transportability. If anything it's to
| do with #1. But calling it "unusual" makes it seem like
| it's just a human whim and human subjective standards of
| desire that make it valuable, where it's very important to
| be explicit that there is an intrinsic property of gold
| that gives it subjective utility beyond mere preferences.
| Kbelicius wrote:
| > I suppose you could use archimedes principle in its
| original form to verify density of gold, sure, but I
| think GP was referring to transportability.
|
| Under 5. point, the one about density, GP wrote: "(This
| is a big one) Density[...] Why does this matter?
| Counterfeit currency, as was a problem with anything
| based on silver.".
|
| What made you think that he was talking about
| transportability there?
| desine wrote:
| >Even when the US had the gold standard, the US never had gold
| reserves that matched the dollars in circulation.
|
| The US Dollar is/was originally defined as a measurement of
| silver, and based upon the Spanish Real - the same coin you
| hear in piratey accents as a "piece of eight" because it was
| usually cut into 8 pieces to make change. The US absolutely had
| metal to back every dollar in existence for about 100 years,
| though it wasn't gold. The real "gold standard" era was a
| stopover/band-aid effect of the growing disparity in value due
| to bimetallism, and came into effect after "The Crime of 1873".
| 1-6 wrote:
| Question: Has anyone ever been to or seen the gold at Fort
| Knox?
| jihadjihad wrote:
| Ben Bernanke has studied and written [0] extensively about this
| topic; a copy of a speech he delivered at Washington and Lee
| University in 2004 can be found at [1] for those interested.
|
| 0: https://www.nber.org/system/files/chapters/c11482/c11482.pdf
|
| 1: https://www.bis.org/review/r040305e.pdf
| nums wrote:
| "Helicopter" Ben famously said that the Great Depression could
| have been averted by throwing $100 bills from helicopters to
| pump liquidity into the economy.
|
| I believe the implementation of this concept via the Fed (bank
| of banks) is the real issue. Basically, liquidity goes to the
| banks. Anyone having a relationship with banks gets access to
| this liquidity and benefits. Of course, we plow these "gains"
| back into assets (hard or stock market), this drives up prices,
| and we get asset inflation. For the person renting an
| apartment, leasing a car, and with credit card debt ... well,
| they lose. The trickle down doesn't work. You can interpolate
| and extrapolate from this brief comment, and I believe that
| this is the fundamental source of the expanding rich/poor
| divide.
| shagmin wrote:
| I imagine that's more of an issue now than during the Great
| Depression. Back then you could easily put that money into
| large pools of labor, whether assembly lines at factories or
| agriculture or infrastructure projects and gave a pretty good
| return on investment. Now a large pool of labor at a company
| is treated more like a liability, and yeah just putting money
| into real properties may get you a better return than
| anything that directly benefits any meaningful number of
| people. Even if the money goes towards something like
| infrastructure - the cost of equipment is one thing, but I
| imagine there are plenty of instances where a handful of
| lawyers and beaurocrats involved in a project get paid more
| than some massive crews that do the actual labor combined.
| throw0101a wrote:
| The Fed cannot do helicopter money. It is not connected to
| the "real" economy directly, only through the banks as
| middle-men. Helicopter money comes via fiscal policy.
|
| As for so-called "asset inflation", I like Cullen Roche's
| take:
|
| > _In any case, I would argue that most of the asset price
| appreciation of the last 10+ years appears largely rational
| in the sense that it is supported by corporate fundamentals
| (record profits, record GDP, etc) and other robust economic
| data that is consistent with a growing economy. It isn't just
| a fictitious boom as many "asset price inflation" narratives
| like to imply._
|
| > _As for inequality - asset price inflation would tend to
| exacerbate inequality since it will disproportionately
| benefit those who own assets. This makes sense. But as I like
| to always point out, inequality is a policy failure, not a
| market failure. After all, a capitalist economy will always
| veer towards monopolistic behavior if we allow it to. The
| extent to which we allow that to happen is not a failure of
| capitalism, it is a failure of policy makers to contain
| capitalism._
|
| * https://www.pragcap.com/lets-talk-some-more-about-
| assflation...
| andrepd wrote:
| > Basically, liquidity goes to the banks. Anyone having a
| relationship with banks gets access to this liquidity and
| benefits.
|
| Ding ding ding. This is a key issue. If you want to bail out
| the economy, you need to do it to increase aggregate demand,
| and therefore the best way to do this is to give money
| directly to the people. The programs in place since 2008 (1)
| benefit people with capital (2) leave the poor and the
| working class in the dust, and (3) are paid for by milking
| the taxpayers directly, or indirectly through inflation.
|
| Banks are leacherous middleman in normal operation.
| Theoretically they are providing a valuable service of
| evaluating risk and allocating capitable to the most
| profitable ventures. But in practice the incentives are
| totally misaligned, since they do not get accurately
| punished/rewarded for doing a shit job. Not to mention old-
| fashioned corruption, understood as giving undue benefit to a
| party/parties due to their personal connections.
| graycat wrote:
| Compared with the OP and much of this thread, there is a simpler
| view:
|
| Here I outline _Asset Bubbles, Fractional Reserve Banking, and
| the Money Supply 101:_
|
| In the 1920s, the US blew a stock market bubble. Lots of people
| bought stocks _on margin_ , that is, with loans from commercial
| banks and using the stock as collateral. The banks got the money
| not from "the Gold Standard" with so much attention in the OP but
| from _fractional reserve banking_ , that is, loaning out deposits
| of savers, _demand_ deposits. Due to the crash of the stock
| market, suddenly at the end of Black Tuesday, 10 /29/1929, lots
| of the loans could not be paid back. The borrowers were broke.
| Then the banks were broke. Then savers were broke. Much of the
| money supply had been from the loans from the _fractional reserve
| banking_ , and with the stock market crash that money had in
| effect been destroyed. So, we suddenly had a huge reduction in
| the money supply.
|
| The people who suddenly were broke weren't spending much money,
| and, thus, their vendors had reduced revenue and fired their
| workers who then weren't spending much money, and we were in the
| Great Depression.
|
| The source of the bubble was fractional reserve banking, not
| really, directly the Gold Standard: With or without a Gold
| Standard, we can still use fractional reserve banking to blow
| asset bubbles that can pop and destroy much of the money supply
| -- we came close for the same song, second verse with the
| mortgage bond crash in 2008.
|
| So, after 10/29/1929 the US was buying less and, thus, England,
| Germany, etc. were selling less and also went into a Great
| Depression. Then also the US was not selling as much to England,
| Germany, etc. and went into a deeper Great Depression.
|
| On 12/7/1941, Japan attacked Pearl Harbor and, thus, got the US
| into WWII. As a result, using borrowed money, War Bonds, the US
| started massive war production so that everyone who was willing
| and able to work had 1-3 jobs. Then 90 days later, say, 3/7/1942,
| over 12 years since the stock market crash of Black Tuesday,
| 10/29/1929, we were out of the Great Depression. Slam, bam, thank
| you, Ma'am, in 90 days we were out of what we had been in for 12+
| years since 10/29/1929.
|
| Yes, we can suspect that with some real understanding of the
| economy we COULD have been out of the Great Depression in 90 days
| after, Black Tuesday, 10/29/1929, that is, on about 1/29/1930.
| The 12+ years in the Great Depression caused lots of serious harm
| just here in the US, some of which is still with us. For the
| world, one could argue that the Great Depression was the main
| cause of WWII that killed 50 million, maybe 100 million, people.
| Fumbling with the real causes of the Great Depression seems, say,
| _unfortunate_.
|
| The War Bonds in effect increased the money supply, and at the
| end of the war we stayed out of the Great Depression.
|
| Yes, we can control _fractional reserve banking_ via _reserve
| ratios, stress tests_ , etc.
|
| Lesson: Yes, sound money is important. What to do with gold as
| money is also important. But the key failure that caused the
| Great Depression was the pop of an asset bubble puffed up with
| borrowed money from irresponsible cases of fractional reserve
| banking while this and that about gold was essentially
| irrelevant. Simple, 101 level stuff.
| BenoitEssiambre wrote:
| I have an hypothesis that the same could happen with deflationary
| cryptocurrencies if they become used widely enough in financial
| institutions that central banks decide they should tie part of
| the monetary system to them.
|
| https://benoitessiambre.com/specter.html
| andrewmutz wrote:
| 100% Agree. From everything I've read, our being able to print
| money is an indispensable tool during financial crises. Fixing
| the great depression and the great recession depended on this
| ability.
|
| If the world transitions to cryptocurrencies whose supply is
| unmanaged or fixed, that will not be possible and presumably
| will be stuck during financial crises.
| ur-whale wrote:
| > From everything I've read, our being able to print money is
| an indispensable tool during financial crises.
|
| You might want to add to your reading list the history of the
| Roman empire.
| inglor_cz wrote:
| Not the OP, but this is a smug and not very helpful
| comment. The Roman empire era covered 1000 years in the
| West and 2000 years in the east. Can you be more concrete?
| ur-whale wrote:
| since we're apparently being smug:
|
| https://www.google.com/search?q=currency+debasement+roman
| +em...
| [deleted]
| Lifelarper wrote:
| Venezuela, once one of the richest coutries on Earth with
| more oil than Saudi Arabia thought this way too.
|
| Turned out great for them. By all metrics they should be
| Western Europe level rich and yet many young kids find it
| more profitable to mine coins in runescape 12 hours a day
| rather than actually get a job, strange how that happens hey,
| if only they printed more Bolivar this all could have been
| avoided?
| rovolo wrote:
| There isn't 1 kind of economic crisis. Monetary expansion
| works well when you're dealing with a credit crunch, but it
| doesn't work great when your issue is lack of supply.
| dnautics wrote:
| name a country that did monetary expansion during a
| credit crunch and also didn't do monetary expansion when
| there was a lack of supply. Note my bar is low: In
| "classical keynesian" theory, there should be monetary
| contraction during lack of supply, but I REALLY don't
| recall any country just "burning" reserves (deleting
| zeros off of ledgers at the biggest banks).
| colinmhayes wrote:
| Venezuela also nationalized every sector of the economy and
| handed the reins to Chavez/Maduro's corrupt buddies. Not
| sure why you think hyperinflation is a problem as opposed
| to a symptom of their failed institutions.
| louloulou wrote:
| All printing money does is transfer wealth from savers
| (people long the currency) to debtors (people short the
| currency) without their consent. Large financial crises occur
| _because_ this keeps happening. Bitcoin is a way out, as
| savers learn it 's foolish to be long fiat currency.
| VHRanger wrote:
| Any asset that isn't the currency is "a way out"
|
| When people specify Bitcoin or Gold as a particularly good
| "hedge for inflation" they betray the fact that they failed
| Macroeconomics 101.
|
| Everything that isn't the currency is a "hedge for
| inflation".
| louloulou wrote:
| Some things are better hedges than others. Bitcoin
| happens to have been the best over the past decade.
|
| Edit: I'd argue this is because it has better _monetary_
| properties than the alternatives.
| lottin wrote:
| Do you even know what a hedge is? The perfect hedge
| against inflation is a large basket of consumer goods and
| services, because it correlates perfectly with inflation.
| Anything else correlates less perfectly with inflation
| and therefore is a worse hedge against inflation compared
| to a basket of goods and services.
| louloulou wrote:
| You're talking about consumer price inflation, I'm
| talking about monetary supply inflation.
|
| A basket of consumer goods and services is a nonsensical
| way to hedge monetary inflation under anything but the
| most extreme conditions, since those things _should_ be
| getting cheaper as production processes
| /technology/understanding of the world improve.
| lottin wrote:
| Confirmed then, you have no clue what hedging is. A hedge
| is not an investment, you fool. A hedge is position that
| is intended to offset an exposure. A successful hedge can
| very well be a terrible investment.
| louloulou wrote:
| Yeah, in this case offsetting exposure to the inflating
| fiat monetary and banking system.
|
| No need for name calling.
| AnimalMuppet wrote:
| But, unless you're a central bank or something, why do
| you care about monetary inflation instead of consumer
| price inflation? How is it going to affect you? Consumer
| price inflation is the one that affects you.
| srean wrote:
| I need healthcare, real estate, educational services. I
| hear that they are not appropriately represented in CPI.
| Personal basket of goods and services can be quite
| different from the tracked CPI
| louloulou wrote:
| Uh, because they're stealing the purchasing power that I
| worked hard to obtain, and then using it to bail-out
| debtors without my consent.
|
| Also, I don't really care what the price of a "general
| basket of goods and services" is (whatever that means). I
| care about the prices of the specific things that _I_
| want now or will want in the future.
|
| Edit: And I would say my personal CPI seems to track
| money supply inflation pretty closely.
| AnimalMuppet wrote:
| > because they're stealing the purchasing power that I
| worked hard to obtain...
|
| "Purchasing power" is exactly CPI inflation, not monetary
| inflation.
|
| > And I would say my personal CPI seems to track money
| supply inflation pretty closely.
|
| This I can buy. If the CPI figures are wrong, then we
| need to get ones that are right. But CPI inflation is
| still the one we actually care about.
|
| Why should we not care about monetary inflation? Well,
| say the population doubles. Either the monetary supply
| has to double, or each dollar is worth twice as much. (In
| case you think "that sounds good": it stinks if, say, you
| owe a mortgage and each dollar you pay back is twice as
| valuable.)
|
| Yes, I know that's not why the monetary supply inflated
| over the last 15 years. The point stands: CPI inflation
| is the one that actually affects us.
| louloulou wrote:
| > The point stands: CPI inflation is the one that
| actually affects us.
|
| If your only purpose in life is to be a "consumer", sure.
| But changes in relative purchasing power between people
| also distort you're ability to affect the world.
| Increasing purchasing power of a bank or home owner
| _relative_ to a saver through policy decisions increases
| their power to affect the world _relative_ to the saver.
| This ability to arbitrarily choose winners and losers is
| not what you want in a monetary system IMO.
|
| Edit: ability to affect the world as well as freedom to
| act, since you can substitute money for your own time.
| lottin wrote:
| I'd argue that the only person stealing purchasing power
| from you is yourself. Read some books, get an education,
| have ambition, work hard, take care of yourself. If you
| did that, instead of blaming others for your failures,
| your purchasing power would be fine.
| louloulou wrote:
| My purchasing power is fine, because I became a
| bitcoiner. I was pretty angry during the financial crisis
| though, and am letting it come through in this thread.
| VHRanger wrote:
| Bitcoin doesnt have good monetary properties? Go back to
| your textbook:
|
| - Medium of exchange: bad. Caps out at a few transactions
| per second, transaction cost go up massively when
| actually used.
|
| - Unit of account: Terrible. Because of price volatility
| you denominate BTC in terms of USD - something priced in
| BTC has a different price depending on the minute you
| look at it
|
| - Store of value: Hilariously terrible. Storing value has
| to do with *low price volatility* something which Bitcoin
| does not have. The average price might be up over time,
| but this is *speculation*, not storing value! If you
| store value you want as close to what you put in as
| possible, not more (or less).
|
| People claiming Bitcoin is a "store of value" don't
| understand what the word "storing" means, nor the
| textbook definition.
| louloulou wrote:
| So condescending. That's because Bitcoin is not widely
| used as money _yet_. Those things don 't all happen at
| the same time, they happen sequentially.
|
| - collectable -> It's cool, I want some.
|
| - store of value -> it holds value better than any other
| money. (Bitcoin is here)
|
| - medium of exchange -> People request it in exchange for
| goods and services _because_ it holds its value over
| time.
|
| - unit of account -> People denominate prices in it
| _because_ it 's a widely used medium of exchange.
|
| Edit: My initial point was Bitcoin has properties that
| make it suitable for use as money: divisible, portable,
| easy to verify, doesn't degrade over time, etc.
| lottin wrote:
| This is not true. Printing money may or may not cause
| inflation. And inflation may or may not benefit debtors at
| the expense of creditors. Unexpected inflation usually
| does. Expected inflation usually doesn't.
| mohanmcgeek wrote:
| "printing" money does not cause inflation. Low interest
| rates can cause credit expansion, they don't necessarily
| cause inflation.
|
| Inflation rate higher than the deposit interest rate
| (negative real interest rate) is causes the wealth
| transfer.
|
| "Savers", in reality, lenders have always had a way out in
| this situation: investing.
|
| As in every investment boom, there are Ponzi schemes and
| during this one it happens to be Bitcoin.
| cheeseomlit wrote:
| I don't understand how printing money could not cause
| inflation, it sounds like mental gymnastics to me. Expand
| the money supply without expanding the value that money
| represents and the money now represents less value than
| it did before, I don't see how that could ever not be the
| case.
| dnautics wrote:
| > I don't understand how printing money could not cause
| inflation
|
| Suppose the government prints one dollar and shortly
| thereafter everyone goes bankrupt and collapses the money
| multiplier. This will definitely result in net deflation.
|
| OK, that's extreme, but it should prove a point _in
| extremis_. But it is possible that the government could
| print money and suddenly people stop... paying off their
| debts, or something. Maybe they start thinking that
| dollar-denominated-capitalism is pointless because it 's
| all cronies that get it anyways, and just exit the
| economy. Or like, screwing the poor through inflation
| triggers some sort of revolution and all the banks
| selectively are levelled by anarchist activists.
|
| So "printing money" could definitely cause deflation in
| some scenarios. You probably don't want to be
| participating in an economy that takes that turn.
| JumpCrisscross wrote:
| > _Expand the money supply without expanding the value
| that money represents and the money now represents less
| value than it did before_
|
| Prices are a function of money supply and velocity.
| Inflation can rage while no money is printed because
| velocity surges. Just as deflation can fester while
| central banks print as velocity toys with absolute zero.
| nonameiguess wrote:
| Not only this, but it's also a matter of whether money
| supply expansion outpaces the growth of goods and
| services in the economy or not. As long as the growth
| rates roughly match, even without velocity decreasing,
| you wouldn't necessarily get inflation. It's way more
| complex than just "print money == inflation."
|
| You want a little bit anyway. Simplistically, if all you
| have in your economy is 10 dollars and 10 hamburgers,
| then hamburgers will probably be worth something like a
| dollar each. If you go to 20 hamburgers but stay at 10
| dollars, now hamburgers are worth $0.50, which is great
| for dollar holders, not so great for hamburger makers. A
| healthy economy, however, is not one in which actors are
| incentivized to hoard currency. You want economic actors
| to be incentivized to produce goods and services. If you
| grow to 20 dollars and 20 hamburgers, that is price
| neutral, but you don't really want price neutrality. You
| want it to be more lucrative to produce goods and
| services than to hoard currency.
|
| There is some valid concern that this can harm retired
| savers, but we developed a solution to that a long time
| ago that doesn't require deflationary currencies. We
| split ownership shares of the companies that produce
| goods and services and trade them publicly so people can
| get a cut of the wealth growth without needing to become
| producers themselves. Retirees can own appreciating
| assets by buying stock in companies that make stuff,
| rather than holding their life savings as cash under a
| mattress.
| cheeseomlit wrote:
| > Inflation can rage while no money is printed because
| velocity surges. Just as deflation can fester while
| central banks print as velocity toys with absolute zero.
|
| What are some good examples of this? Historically it
| seems to me like major inflation issues usually coincide
| with an expanding money supply, not the other way around
| shagmin wrote:
| This is exactly Japan's lost decade - lots of government
| debt and only deflation - mainly in the 90s.
|
| I think the difference is Japan is a a country with all
| its needs met. People already had enough money to spend
| on basic needs (unlike post WW1 Germany or Zimbabwe
| recently) so additional money didn't change that but
| there was a housing bubble.
| [deleted]
| lottin wrote:
| It's much more complicated than that. For example,
| "printing money" doesn't necessarily expand the money
| supply [1], since the money supply isn't composed
| exclusively of central bank-issued money. And then there
| are other variables at play.
|
| [1] https://lazardfreresgestion-tribune.fr/wp-
| content/uploads/20...
| louloulou wrote:
| Who said anything about inflation. It's about central
| planners arbitrarily moving around purchasing power in
| the system.
|
| If I have $10 and you have $10, and then someone prints
| $10 and gives it to you. You went from having the same
| purchasing power as me to double mine, without any change
| to the available goods and services.
|
| > lenders have always had a way out in this situation:
| investing
|
| Yeah, that's why we're investing in a fairer monetary
| system, where this power to create money arbitrarily
| doesn't exist.
| BenoitEssiambre wrote:
| While printing money doesn't create value by itself, not
| printing enough really puts the economy into a gridlock. I
| tried to give an intuitive explanation here:
|
| "Imagine an isolated village where people farm for
| subsistence. This is a village disconnected from the world
| that has not had a currency up to now. People rely on
| barter instead. Every fall, villagers usually produce
| excess food to have something to eat in the winter, even
| if, the real returns on the investment is low. Because of
| spoilage, crops stored for the winter are only worth 90% of
| their usual real value. 10% rot away in storage. That is,
| these crops have a return of negative 10%.
|
| One day, this village mandates its government to create a
| currency that always keeps 98% of its real value on a
| yearly basis (2% inflation) even during times when private
| savings assets can't retain this much. The government puts
| money into circulation by buying part of farmer's crop
| during the summer (civil servants have to to eat). Most
| farmers produce enough food for the summer, sell some of
| their crop and keep their money to be able to buy something
| to eat in the winter. They do not produce a crop to store
| for the winter since it would only return -10% on their
| initial investment and the central bank promised money
| would keep value at a rate of at least -2% (plus maybe a
| bit of interests).
|
| What happens when winter comes? People have cash but few
| have anything to sell because they didn't reinvest in the
| production of a crop to be stored!
|
| In this situation, it's going to be very difficult for the
| government to control inflation because there will be too
| few goods for the amount of money people will want to
| spend. If the government does manage to control inflation,
| it will be through high taxes or by depressing the nominal
| value of the crops of the few farmers who did store
| something for the winter. The central bank might do this by
| giving high enough interests payments on cash to prevent
| people from wanting to spend it immediately.
|
| In any case, people won't eat much during the winter
| because the food will simply not exist.
|
| The point is, government money can easily jam markets and
| crowd out productive investment."
|
| https://medium.com/@b.essiambre/the-world-deserves-a-pay-
| rai...
| remarkEon wrote:
| I don't think you're the only one with this hypothesis. There's
| a couple bag holders I know who share that view. It's a
| confusing one, IMO, but it's interesting to think about.
| sleepysysadmin wrote:
| We are pre-great depression in many respects. Debt levels being
| at very high percentages. Income inequality out of control.
| Inflation out of control.
|
| Fundamentally as well it's the baby boomer's fault. Right before
| the great depression was when the boomers of the american civil
| war were retiring.
|
| The 1980s inflation and crashes were WW1 boomers and now is the
| WW2 baby boomers retiring.
|
| History repeats.
| mabub24 wrote:
| Not to say it _can 't_ happen, but there are quite a few new
| institutional and regulatory safeguards that (in spite of the
| attempts by some to neuter them) exist now that did not exist
| pre- and during the great depression that make such a thing
| happening again, or to the extent that it did, quite hard.
|
| The more interesting question is whether there is the political
| will, let alone ability, to accurately and quickly respond to
| events as they are happening, rather than with extreme delay.
| Covid-19 (granted as much a public health crisis as an economic
| one) showed that American domestic problem solving has grown
| rather fragile and inflexible.
| anonporridge wrote:
| The United States at least is actively in a great depression.
| It's just being papered over with currency debasement so rich
| people don't notice.
|
| But if you actually visit parts of this country that are
| outside of the wealthy, coastal bubbles, you'll see first hand
| the real world devastation that's happening to people. It's why
| there's a major opioid epidemic in the Midwest. It's why
| homelessness is exploding. It's why rampant, degenerate
| speculation in stocks and crypto is going crazy and rife with
| scams and conmen selling hope to the hopeless. It's why
| populists like Trump and Sanders have so much political energy
| behind them.
|
| And all of this is pre pandemic. I'm sure the past two years
| have added a new level of devastation.
|
| People are depressed and dying everywhere, but us winners in
| our gilded bubbles have the privilege of being able to look
| away and continue living in our illusory, drunken stupor.
| dnautics wrote:
| > It's just being papered over with currency debasement
|
| It's also papered over by things like Norman Borlaug's
| agricultural revolution and supply chain innovation. Even
| with crappy broken supply chain, americans are not starving
| in the streets at depression-levels. But a whole lot of other
| stats support your hypothesis. Like mass exoduses from state
| to state.
| anonporridge wrote:
| It's largely a crisis of meaning and purpose.
|
| As the machines churn out more and more of the essential
| things we need to live, and as we need fewer and fewer
| humans to keep the machines running, we're left with an
| overabundance of humans who don't know how to live without
| a job driving them.
|
| I think a lot of people miss that the Great Depression
| wasn't just about economic breakdown. People were literally
| depressed and society seemed aimless. It wasn't FDR's
| social programs that broke us out of that. It was kicking
| ass in WWII and emerging the victorious badasses ruling the
| world. THAT is what broke the spell of depression and
| injected vigor in American society.
| hirundo wrote:
| If there's a great depression and few people are noticing,
| then it isn't that great. The great ones aren't subtle. I
| live in the rural southwest. Business isn't booming here. But
| it isn't that bad either, yet. Maybe we're in the "so far so
| good" phase, but there's a big difference between the fall
| and arriving at the pavement.
| newsclues wrote:
| Great is an interesting term.
|
| Would it not be a Great Depression if it impacts millions
| of Americans for years or decades if the academic elite
| don't see it from their ivory towers to document it?
| rat87 wrote:
| So in other words it's not Great?
|
| The great depression effected a much larger percentage of
| the population in a much more negative manner
|
| You seem to be talking about local economic difficulties
| in some regions of the country. Which isn't a great thing
| but not nearly as terrible as the great depression.
| newsclues wrote:
| Great for who?
| mohanmcgeek wrote:
| The impression that I get from the media is that a lot of
| people have quit their jobs to become full time retail
| traders now that the market is booming. And there is a
| labour shortage affecting production and logistics
|
| And when the market crashes, as it always does, many of
| these people will be in the red and that would greatly
| affect consumption..
|
| How true is this?
| jjoonathan wrote:
| That's not the result of a hidden depression, it's the result
| of intentionally giving control of society to capital and
| then capital throwing labor under the bus through wage and
| environmental arbitrage. It's the system working as intended,
| a feature not a bug. If we enter an actual depression, it
| will compound on top of the inequality.
| aazaa wrote:
| The article begins with the idea that the causes of the Great
| Depression are not known or too numerous to pin down. It then
| continues by claiming that "recent scholarship has resulted in
| striking agreement on the reason for the crisis." The cause of
| the Great Depression was the gold standard, according to the
| article:
|
| > ... The constraints of the gold-standard system hamstrung
| countries as they struggled to adapt during the 1920s to changes
| in the world economy. ... Central bankers continued to kick the
| world economy while it was down until it lost consciousness.
|
| What this article ignores, like countless articles before and
| since, is the Roaring 20s. Articles like this treat the Great
| Depression as an event that hit the US economy out of the blue.
| But even superficial study of the ten years prior reveals
| something obvious: a massive, compounding, technology-fueled
| asset bubble.
|
| The article also ignores the event that kicked off the Roaring
| 20s: the depression of 1920-1921:
|
| https://en.wikipedia.org/wiki/Depression_of_1920-1921
|
| This depression resolved itself under a gold standard regime and
| with minimal intervention by the Federal Government and Federal
| Reserve.
|
| 50 years ago the US abandoned the last vestiges of the gold
| standard. Today we find ourselves in the middle of a technology-
| fueled asset bubble. The US president talks, without a hint of
| embarrassment, about the need to borrow to continue to service
| debts. This is, of course, the very definition of a Ponzi scheme.
|
| Whatever this comes to, we won't have the gold standard to kick
| around. It's been out of the picture for decades. What happens
| when the world's governments decide to outdo each other on how
| much currency they can conjure into being?
| vvoaterr wrote:
| Anybody is welcome to download the Robinhood app, and buy
| FAANG/FAGMAN stocks with all your disposable income. Then you,
| too, will be contributing to the leading cause of the next
| "Great Depression", plus, you'll come out of it having become
| quite Rich.
|
| You're welcome.
| mabub24 wrote:
| In many ways, the concept of "printing money" is too simplistic
| to describe how the banking system and monetary systems
| interact with each other, especially once you get your head
| around the fact that money is (almost always) "created"
| endogenously through the expansion of balance sheets.
|
| You can't just think like a customer going to the bank; you
| have to think of it like a number of actors in a complicated
| network of credits and debits _as well as_ global trade with
| imports and exports.
| praxulus wrote:
| > This is, of course, the very definition of a Ponzi scheme.
|
| Most Ponzi schemes don't have the authority to levy taxes on
| the largest economy the in world, nor are they backed by the
| most powerful military force humanity has ever seen.
| newsclues wrote:
| Does that mean modern monetary policy is not a Ponzi scheme
| because it has a nuclear military?
| kiba wrote:
| No society can outrun living beyond their means, no matter
| how deep their reserves are.
| JumpCrisscross wrote:
| > _No society can outrun living beyond their means, no
| matter how deep their reserves are_
|
| Which is why we have inflation. No reserves needed. The
| price levels incorporate the distance between the means and
| the living.
| VHRanger wrote:
| It's extremely HackerNews-ish of you to propose that the author
| of the article ignores your pet theory.
|
| The author of the linked article is Barry Eichengreen, widely
| recognized as the premier scholar of the Great Depression. The
| article references about 900 pages worth of other articles,
| believe me: your pet theory about the 1920's events is
| considered in the conclusion. They're not ignoring it because
| they read fewer books than you.
|
| > The US president talks, without a hint of embarrassment,
| about the need to borrow to continue to service debts.
|
| Governments don't work like a household. What matters is borrow
| costs and use of funds. If a government can borrow and the net
| growth generated is greater than the interest rate on the debt,
| it's a good thing to borrow. Like any business debt.
|
| A government can be in debt forever, the only thing that
| matters is borrowing costs and growth rate (and how the growth
| is generated see eg. Chinese real estate for malinvestment).
| aazaa wrote:
| > It's extremely HackerNews-ish of you to propose that the
| author of the article ignores your pet theory.
|
| What pet theory is that? All I did was to mention two
| historical episodes that preceded the event under discussion,
| and which the paper fails to mention.
|
| > The author of the linked article is Barry Eichengreen,
| widely recognized as the premier scholar of the Great
| Depression.
|
| So what? We're talking about the paper, not a person.
|
| > The article references about 900 pages worth of other
| articles, believe me: your pet theory about the 1920's events
| is considered in the conclusion.
|
| On what pages does the paper take up the issue of the
| speculative bubble leading up to the Great Depression?
|
| > Governments don't work like a household. What matters is
| borrow costs and use of funds. If a government can borrow and
| the net growth generated is greater than the interest rate on
| the debt, it's a good thing to borrow. Like any business
| debt.
|
| A main MMT talking point. Yes, I've read Kelton's book and
| yes, a government that prints its own currency is not like a
| household.
|
| MMT is an experiment. For all our sakes, I hope its
| proponents are right.
|
| > A government can be in debt forever, the only thing that
| matters is borrowing costs and growth rate (and how the
| growth is generated see eg. Chinese real estate for
| malinvestment).
|
| What if malinvestment looks like investment until it doesn't?
| dnautics wrote:
| > Governments don't work like a household.
|
| That's right. If a individual accumulates too much debt, then
| the individual can choose to discharge obligations through
| bankruptcy resulting in loss of credit, or death of the
| debtor, and ultimately the lessor is on the hook for the
| risk, and those two parties with agency over the debt
| contract are the only two who directly must suffer
| consequences. (yes there is tangential collateral damage,
| like if there are dependents, but it's not a whole lot).
|
| If a government goes into debt, it externalizes the
| consequences of the spending to the public. "well, we vote
| for our representatives who spend". But that's not true.
| Suppose you were 16 (or, even more extremely: -1 years old),
| and couldn't vote against representatives voting for
| something stupid, like, say the US government invading Iraq.
| You are still on the hook for paying off the costs of those
| decisions. Sovereign debt is an end-run around the principle
| of "no taxation without representation", and it's in a much
| more morally questionable place.
|
| Or, you can choose to reject the principle of "no taxation
| without representation", which if you are happy to do that
| explicitly and publically I will shut up.
|
| Finally, the burden of amortizing sovereign debt is often
| achieved through the printing press, which in the long run
| causes inflation. Households usually can't do this. This
| disproportionately hurts the poor, so that adds onto the
| moral objection to sovereign debt.
| handrous wrote:
| > Or, you can choose to reject the principle of "no
| taxation without representation", which if you are happy to
| do that explicitly and publically I will shut up.
|
| That "principle" covers some territory a lot broader than
| the specific way you're requesting it be interpreted. The
| idea that those born into a country cannot be held
| accountable for debts accrued before they were born--or
| anything relating to the situation of the budget before
| they have a say in government, I suppose--is, I think it's
| fair to say, not a _common_ interpretation of the slogan 's
| meaning, now or (most certainly) in the past.
|
| That's not even to say you're wrong, morally or whatever,
| but your tactic of trying to pin someone down with these
| words isn't a good one.
| nicoffeine wrote:
| The gold standard was abandoned because it is a terrible idea
| for civilizations that have technologies like accounting
| systems and currencies that are difficult to counterfeit. Tying
| economic expansion to the ability to mine and store one type of
| element doesn't make any sense.
|
| There are countless asteroids out there with quadrillions of
| dollars of precious metals. Does that mean the first private
| company to create a currency "backed" by a claim to one of them
| is worth more than the US economy? No, of course not. The US
| economy produces food, shelter, water, goods, services, etc
| etc. It's worth far more than a chunk of atoms. Even if you
| could magically spirit those atoms into a vault somewhere, what
| do you do with them at that point?
|
| Modern monetary theory is doing just fine, and so are all of
| the nations issuing fiat currency, selling bonds and notes,
| building infrastructure, and providing fertile ground for
| markets to do interesting things. Nostalgia for the gold
| standard is just way for people to claim the superiority of
| economic theories that are simply not useful anymore.
| loki49152 wrote:
| Modern monetary theory isn't doing fine and neither are the
| countries with fiat currencies. They're all in absolute
| crisis because their economies are built on ever-shifting
| quicksand.
|
| The "gold standard" isn't a theory of economics, it's an
| observation. Money is a medium of exchange - a mechanism for
| judging the relative value of unlike goods. That is literally
| impossible if the thing used as money is non-economic, like
| fiat currency. The money must be itself a tradeable
| commodity. Commodities that are useful as money have all the
| traditional traits you learn in elementary school, and gold
| is the traditional and current best fit for those traits.
|
| Belief in the viability of "monetary policy" and fiat
| currencies always comes from a belief that no one can really
| know how economics works, so whatever anyone does right now
| might not work in the future. Well, obviously that's going to
| be true of people who refuse to learn what economics as a
| field actually _is_.
| nicoffeine wrote:
| > Modern monetary theory isn't doing fine and neither are
| the countries with fiat currencies. They're all in absolute
| crisis because their economies are built on ever-shifting
| quicksand.
|
| Okay. What countries use representative currencies and how
| are they doing?
|
| > The "gold standard" isn't a theory of economics, it's an
| observation. Money is a medium of exchange - a mechanism
| for judging the relative value of unlike goods. That is
| literally impossible if the thing used as money is non-
| economic, like fiat currency.
|
| Are you saying the world economy is literally impossible?
|
| > The money must be itself a tradeable commodity.
| Commodities that are useful as money have all the
| traditional traits you learn in elementary school, and gold
| is the traditional and current best fit for those traits.
|
| You just said money a medium of exchange. As long as both
| parties agree to the transaction, and it wasn't a barter,
| whatever wasn't the good or service was the money.
|
| And you don't mean the money must be a trade-able
| commodity. No one is going to walk around with a set of
| weights and tubs of water to determine the purity of coins
| so they can buy or sell a sandwich. You're making the
| argument that if the currency could be exchanged for lumps
| of metal at a treasury office that it would somehow be an
| improvement.
|
| > Belief in the viability of "monetary policy" and fiat
| currencies always comes from a belief that no one can
| really know how economics works, so whatever anyone does
| right now might not work in the future.
|
| I honestly have no idea what you're saying here. Which
| economists claim that no one can know how economies work?
|
| > Well, obviously that's going to be true of people who
| refuse to learn what economics as a field actually is.
|
| So far the fiat currency system has been a part of the most
| rapid progression of technology and trade in recorded
| history. I'm not saying it was the driver behind it, but
| that has been the dominant currency system in place for the
| last 70ish years. It absolutely has flaws, and absolutely
| can be ruined by corruption and poor governance. It also
| works so well that people who hate fiat currencies still
| use them every day. I'd bet .225 ounces of 99% pure gold
| alloy that you bought your lunch with it.
|
| I wonder how much money that is.
| dnautics wrote:
| > Modern monetary theory is doing just fine,
|
| How's that gap between the rich and the poor going?
|
| Look, the US was on the gold standard between 1850 and early
| 1900s, and not only recovered from a civil war, but ALSO
| freed all of its slaves AND went from a backwater country to
| a world superpower, and reduced inequality all at the same
| time.
|
| https://voxeu.org/article/american-growth-and-
| inequality-170...
| AnimalMuppet wrote:
| > How's that gap between the rich and the poor going?
|
| It's quite high - as high as it was in 1850, when we were
| on the gold standard. So... what's your point?
| posix_me_less wrote:
| The gap is reported to be increasing, but is that actually
| regarded as a problem by the ruling class? They may
| actually prefer this, as it gives them greater chunk of
| power and secures their position.
|
| In other words, the gap may be increasing and we don't like
| it, but this may very well be the intended "how is it
| going".
|
| One case in point: in 1970's, instead of giving employees
| their share of profits from productivity increases, the
| system gave them an easy way to get into debt instead (the
| credit card).
| dnautics wrote:
| I'm not in the ruling class, so I would not say "monetary
| theory (modern or otherwise) is doing just fine". Perhaps
| nicoffeine is in the ruling class?
| nicoffeine wrote:
| The US was on the gold/silver standard from 1792-1850. Was
| that the reason it continued the genocide of millions of
| indigenous people, took their land, and then imported
| millions of slaves to farm that land? Maybe there are other
| possibilities for history other than the currency system
| during a given time period.
|
| I remembered there were a series of financial crises
| leading up to the Civil War, and sure enough, the first use
| of fiat currency in the US was to solve a financial crisis
| caused by the gold/silver standard:
|
| 'In 1853, the U.S. reduced the silver weight of coins to
| keep them in circulation and in 1857 removed legal tender
| status from foreign coinage. In 1857 the final crisis of
| the free banking era began as American banks suspended
| payment in silver, with ripples through the developing
| international financial system. Due to the inflationary
| finance measures undertaken to help pay for the U.S. Civil
| War, the government found it difficult to pay its
| obligations in gold or silver and suspended payments of
| obligations not legally specified in specie (gold bonds);
| this led banks to suspend the conversion of bank
| liabilities (bank notes and deposits) into specie. In 1862
| paper money was made legal tender. It was a fiat money (not
| convertible on demand at a fixed rate into specie). These
| notes came to be called "greenbacks".' [1]
|
| Technically Continental Dollars were zero interest bearer
| bonds, but they were also issued to help finance the
| Revolutionary War[2].
|
| So, your argument for the gold standard is not only
| logically incoherent, but even if it was, it's completely
| ignorant of the history of currencies in the United States.
|
| [1] https://en.wikipedia.org/wiki/Gold_standard
|
| [2] https://en.wikipedia.org/wiki/Early_American_currency#C
| ontin...
| slowhand09 wrote:
| I posted this yesterday.
|
| Food for thought. In 1964 you could take two silver dimes and
| purchase ~1 gallon of gas. Gas was ~20 cents per gallon.
| Dimes were 90% silver. Fast forward to 2021. You could take
| two silver dimes to a coin dealer, sell them for fiat
| currency, and purchase 1 gallon of gas. Gas is ~$3.50 per
| gallon, silver is ~$23 per oz, and 2 silver dimes from 1964
| contain ~5grams of silver.
|
| But using 2021 dimes, you need 35 dimes to purchase a gallon.
| Precious metals have kept their value. Fiat currency has lost
| nearly 90% of its value since moving off the gold standard.
| The government needs more money, they print it. Based on
| their promise to pay it back later, with cheaper inflated
| currency.
|
| Paper currency representing a given quantity of
| gold/silver/etc is a good idea. When you divorce it from that
| backing value is when governments print money to inflate. We
| all lose when that happens.
| tastyfreeze wrote:
| As I have said many times on HN, a gold standard protects
| the wealth of the people from government excess. That is
| also why the gold standard was ended by government.
| rat87 wrote:
| That seems like another way of saying that a gold
| standard is inflexible and impractical and can't
| represent the actual economy particularly well
| tastyfreeze wrote:
| The inflexibility of a gold standard is a benefit. More
| gold or an increase in gold value is required to
| represent greater wealth. The gold can be traded for or
| mined. However, the gold standard ensures that the dollar
| you earn today maintains purchasing power for as long as
| you care to keep it. Your gold backed dollar can't be
| made worthless in a generation by the excess of
| politicians seeking money, power, and control.
|
| Politicians are people subject to all the same emotions
| as you or I. Money and power are powerful motivations for
| corruption. There is access to a lot of both in
| government. The gold standard was a check on greed at the
| government level and in turn a restriction on the power
| government had to manipulate the economy for the benefit
| of a few.
| nicoffeine wrote:
| Gas is more expensive because fossil fuels are more
| difficult to extract, we have some environmental standards
| instead of none, consumption has skyrocketed, and there's
| an organization called OPEC that maximizes the price.
| Pretending that none of that would be true if dimes still
| had silver in them is ridiculous.
|
| If you had taken those same two 1964 dimes and put them in
| a DJIA index fund, you'd have $7. That's because storing
| shiny things in a vault does not contribute to economic
| activity. It doesn't invent anything, manufacture anything,
| provide any service, or create any new markets.
|
| No one thinks that their economy would be better off with a
| huge stockpile of gold instead of a huge stockpile of CPUs.
| No one thinks that a reduction in mining capacity should
| restrict the amount of currency available for business
| loans. Representative currency is a vestigial technology
| that is no longer useful.
| ogogmad wrote:
| What do people think of the thesis expressed in _The Bitcoin
| Standard_ that the replacement of the gold standard by fiat
| currency led to a short-termist mindset among people? In other
| words, we now have artificially high "time preference" as a
| result of our currency inflating and the resulting disincentive
| to save money.
|
| The book also argues that fiat currency encourages people to get
| into debt and risk bankruptcy as a result. In doing so, it
| increases demand, drives prices up, thereby further incentivising
| people to borrow money, creating a vicious spiral of debt and
| increasing prices.
|
| While the former sounds strange to me, I find the latter to be
| interesting. But I'm not an economist, so I don't know whether my
| summary is accurate.
| rat87 wrote:
| Seems pretty off
|
| Fiat currency encourages growth and stability
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