US should of stuck with the gold standard

[echo2]

UGH...US should of stuck with the gold standard
they have tons of gold in fort nox and the currency price would be a lot higher and stabler
but nooo they had to change it back then

[Raize]

The US closed the gold window not because they ran out of gold, but because it was propping up Britain's crappy currency. So people were buying pounds and then converting to USD and then subsequently to Gold via a loophole in the British system. Instead of opening the window again, though, Nixon left it shut, and no other president reopened it, meaning the US was free to float its currency against gold. Since there was still this huge demand for USD, it slowly replaced the British pound as the world's reserve currency. Over time, politicians used the status of being the world's reserve currency to go deeper into debt. As long as the rest of the world needed USD to buy their oil, agriculture, and other products, it was still in need. But recently that has been changing, and the world doesn't need the dollar anymore. But the US is still spending as if the world does, and the latest agreement by politicians to cut back on spending isn't enough to remedy the situation.

I can't tell you much about what is going to happen in the future, but I can tell you this: If anyone says "Oh, the US always bounces back, just you wait and see..." then you need to ignore what that person has to say. The US is become less and less free economically, there are a myriad of local, state, and federal regulations that hamper small businesses from thriving, in fact, increasingly the larger corporations use regulatory capture and iron triangle politics to keep competition out of their respective industries. I could go on, but I think I've put enough information in this message you guys can wiki most of the stuff you don't already know. It's pretty easy to see what is happening right now if you take the time to learn it all.

[hugolp]

The US closed the gold window not because they ran out of gold, but because it was propping up Britain's crappy currency. So people were buying pounds and then converting to USD and then subsequently to Gold via a loophole in the British system. Instead of opening the window again, though, Nixon left it shut, and no other president reopened it, meaning the US was free to float its currency against gold. Since there was still this huge demand for USD, it slowly replaced the British pound as the world's reserve currency. Over time, politicians used the status of being the world's reserve currency to go deeper into debt. As long as the rest of the world needed USD to buy their oil, agriculture, and other products, it was still in need. But recently that has been changing, and the world doesn't need the dollar anymore. But the US is still spending as if the world does, and the latest agreement by politicians to cut back on spending isn't enough to remedy the situation.

I can't tell you much about what is going to happen in the future, but I can tell you this: If anyone says "Oh, the US always bounces back, just you wait and see..." then you need to ignore what that person has to say. The US is become less and less free economically, there are a myriad of local, state, and federal regulations that hamper small businesses from thriving, in fact, increasingly the larger corporations use regulatory capture and iron triangle politics to keep competition out of their respective industries. I could go on, but I think I've put enough information in this message you guys can wiki most of the stuff you don't already know. It's pretty easy to see what is happening right now if you take the time to learn it all.

There were issues with the pound but the USA was running out of gold. You just have to check the decreasing level of gold reserves through the 50's and 60's. And how at different times during that period the USA was unable to keep the dollar pegged to $40/oz, and the price shut up to almost $50. Then you have the deal with the rest of the world to stabilize the price of gold and latter on the fight with South Africa, until the USA gov could not find more tricks and was forced to default, breaking the gold conversion.

Btw, the relation between the USA central bank, the Fed, and the pound go way beyond the 70's. In the 20's they were already playing along.

[Man From The Future]

have*

[foggyb]

Was the US running out of gold because of overspending or mismanagement?

[hugolp]

Was the US running out of gold because of overspending or mismanagement?

It was kind of how Raize put it.  The dollar was promised to pay at a certain ratio to gold, when nixon "shut the window" what was going on is that the dollar could be bought cheaper than the gold it promised to back so that is what countries and large entities started to do, buy cheaper dollars and then cash out for gold at the promised higher value... naturally this could not sustain itself and the U.S. lost much of it's gold reserve very quickly so Nixon said enough is enough and shut it off instead of re pegging the currency to the true value of Gold and that opened up the option to limitless inflation.

What you are not saying is that this situation was happening because the USA was printing more dollars than the gold it had. If you promise to pay gold for each dollar you print, and then start printing dollars... well, you are going to run out of gold. The printing to pay for the Vietnam war and getting Nixon re-elected was the final nail in the coffin.

[hugolp]

What you are not saying is that this situation was happening because the USA was printing more dollars than the gold it had. If you promise to pay gold for each dollar you print, and then start printing dollars... well, you are going to run out of gold. The printing to pay for the Vietnam war and getting Nixon re-elected was the final nail in the coffin.

I did say it, just not as explicit as you had stated it, granted my statement could be left open to other options but that was not the intent.
[/quote]

I stand corrected then.

[niemivh]

UGH...US should of stuck with the gold standard
they have tons of gold in fort nox and the currency price would be a lot higher and stabler
but nooo they had to change it back then

Please elaborate.  Please read on the real negatives of a gold standard (and positives) prior to posting stuff like this.  It's Fort Knox by the way, named after Henry Knox... remember him?  You should if you knew your history.

[kjj]

Since there was still this huge demand for USD, it slowly replaced the British pound as the world's reserve currency. Over time, politicians used the status of being the world's reserve currency to go deeper into debt. As long as the rest of the world needed USD to buy their oil, agriculture, and other products, it was still in need. But recently that has been changing, and the world doesn't need the dollar anymore. But the US is still spending as if the world does, and the latest agreement by politicians to cut back on spending isn't enough to remedy the situation.

This is a very simple view of things, and it is based on the popular current misrepresentation that the United States is evil.

The truth is that the United States has been able, and willing, to invest heavily in other parts of the world, at great cost, and with uncertain rewards, and to do so when no one else would.  You can see the same major cycle working at least 3 times since World War II.

First, the United States was the only industrial country still intact after the war, so the rebuilding of Europe was financed on the backs of American workers.  I don't mean to diminish the part that Europeans played in rebuilding their own countries, they certainly did a lot too.  But the miracle came from across the Atlantic.

Next, the US attempted to do the same thing with a whole bunch of Asian countries in the 70s and 80s.  The mechanism was different, but it was essentially the same plan.  The results were spectacular again, but short lived.  This was mostly because Asia is not Europe.  Japan was the standout, apparently possessing more of whatever it was that made Europe work, but demographics caught up with them.

You can see the same thing playing out in China over the last 20 years or so.  Almost by itself, the United States has made it possible for the typical Chinese to aspire to be a factory worker, rather than the peasant his father was.  This may not seem like a great deal.  After all, no one in developed countries wants to be a factory worker.  But apparently it is to them, because they have thousands of applicants for each factory position.

The popular narrative is that the United States is trading worthless dollars to the rest of the world, in exchange for useful, valuable products.  The part that is always left out is that the United States is bleeding out productive capital, the real wealth, to places around the world in hopes that some day both sides will be better off for it.

So, until someone else has the capacity, the foresight, and the determination to step up and make those investments, the world still does very much need the United States, and the US Dollar.

[Raize]

This is a very simple view of things, and it is based on the popular current misrepresentation that the United States is evil.

I don't think the US is evil, in fact, I love the country and (most) of the people because I live and was born here. I just think the US Federal government has been incompetent in handling finances. It has pretty much abused its status as the world's reserve currency and now its citizens (including myself and much of my family) are going to suffer similar to what has happened to Japan (and London in the 70s) with decreased opportunity.

The truth is that the United States has been able, and willing, to invest heavily in other parts of the world, at great cost, and with uncertain rewards, and to do so when no one else would.  You can see the same major cycle working at least 3 times since World War II.

First, the United States was the only industrial country still intact after the war, so the rebuilding of Europe was financed on the backs of American workers.  I don't mean to diminish the part that Europeans played in rebuilding their own countries, they certainly did a lot too.  But the miracle came from across the Atlantic.

Next, the US attempted to do the same thing with a whole bunch of Asian countries in the 70s and 80s.  The mechanism was different, but it was essentially the same plan.  The results were spectacular again, but short lived.  This was mostly because Asia is not Europe.  Japan was the standout, apparently possessing more of whatever it was that made Europe work, but demographics caught up with them.

I don't disagree with any of this.

You can see the same thing playing out in China over the last 20 years or so.  Almost by itself, the United States has made it possible for the typical Chinese to aspire to be a factory worker, rather than the peasant his father was.  This may not seem like a great deal.  After all, no one in developed countries wants to be a factory worker.  But apparently it is to them, because they have thousands of applicants for each factory position.

The only thing I'd want to make sure is pointed out is that while we actively labored to rebuild Europe and Japan, we have not labored to put China into it's Industrial Revolution. The only thing the US has done here is "spend". We buy products, but the hard work and ingenuity has been on China's end. Yes, they are having growing problems and there are certainly some quality issues that need to be worked out, but China is definitely improving every day, and the standard of living for Asian countries around them is increasing by leaps and bounds as well.

Put simply, China and SE Asia is where it is at right now.

The popular narrative is that the United States is trading worthless dollars to the rest of the world, in exchange for useful, valuable products.  The part that is always left out is that the United States is bleeding out productive capital, the real wealth, to places around the world in hopes that some day both sides will be better off for it.

This is the part I don't understand. If wealth is leaving the US, then why are we printing more dollars?

Hugo is right, there were already issues in the 50s and 60s, but I do think the closing of the gold window was clearly the point when this turned from "Why are they doing this?" into "Oh god, they are really doing this..." with regards to a monetarist-like outlook on a government-run economy. I don't know if I could ever say the Federal Reserve has ever adopted a strictly Keynesian or Austrian policy with regards to the Federal Reserve, because I think both would reject a lot of the fundamental reasons why we need a Federal Reserve to begin with.

[kjj]

This is a very simple view of things, and it is based on the popular current misrepresentation that the United States is evil.

I don't think the US is evil, in fact, I love the country and (most) of the people because I live and was born here. I just think the US Federal government has been incompetent in handling finances. It has pretty much abused its status as the world's reserve currency and now its citizens (including myself and much of my family) are going to suffer similar to what has happened to Japan (and London in the 70s) with decreased opportunity.

See how deep the myth goes?

Nothing has been abused.  The trade imbalance is an accounting identity.  Production + Imports = Consumption + Exports.  China doesn't have the capacity for consumption, so they must export.  That means that someone must consume.  Being that consumer has some benefits, but it also has some huge costs.  Unfortunately, the benefits are obvious to everyone, while the costs are subtle and hidden.  Triffin wrote about this problem, and we now know it as The Triffin Dilemma.  Others have expanded on it since then.

Also, I think you are mistaken about the United States' involvement in China.  There has certainly been spending, which is a very real transfer of wealth.  But there was more too.  China has learned in 20 years what the rest of the world worked on for centuries.  That influx of skill and industry wasn't simply a matter of the Chinese people getting their shit together, finally, after thousands of years.  It was a gift.

[FlipPro]

  Lol learn some economics folks .

[netrin]

Nixon, 15 August 1971

2008 cds on mbs

[HappyFunnyFoo]

LOL it's stupid posts like this that make me come here when I'm slightly boozed for a great laugh!

[stevendobbs]

the gold standard would have killed the US economy?

the US currency in this depression would become suddenly over valued, which it probably has been for a long time anyway because it is linked well to oil. Oil is actually needed by everybody and so everybody needs $ to buy oil which has uplifted the US currency for many decades.

This over valuing of the $ would be nothing compared to problem if the US $ was backed in gold.

During hard times, 'investors' park their money in commodity bubbles such as gold, which would push up the value of the $ eliminating the USA's option to grow its export capability for as long as the depression endured.

The problem with the US political economy is not so much a currency problem, but an economic and social policy error of colossal proportion. Never in the history of human kind has a nation got it so wrong and dragged the rest of us with it. Europe too has danced to the US tune largely - in particularly the United Kingdom.

Under the washington consensus, a trade imbalance is ok. Under this view, a trade imbalance is okay if it is matched by inward investment. And that inward investment has been focused on credit markets and real estate. But under the economic policy that perhaps still persists, this is fine and dandy. We all need to get real and look towards reducing our trade imbalances to longterm 0.

Trade is a good thing, and almost the more the better - but it must be balanced. A gold standard right now, would have made matters a lot worse?

[kjj]

the US currency in this depression would become suddenly over valued, which it probably has been for a long time anyway because it is linked well to oil. Oil is actually needed by everybody and so everybody needs $ to buy oil which has uplifted the US currency for many decades.

I see this argument very often.  It is wrong.

Global currency markets are very, very liquid.  The value of the dollar comes from people wanting to hold dollars, not spend them.  Most oil bourses are priced in dollars, and settlement usually happens in dollars, but that doesn't increase net demand for dollars.  If the buyer doesn't have dollars, they sell whatever they have into Forex to get dollars, and if the seller doesn't want to hold dollars, they turn around and sell the dollars into Forex.  The net effect is zero.  If the buyer already had dollars, or if the seller wants to hold them, that represents a net change in the desire to hold dollars, which is independent of the oil transaction.

[harm]

Hi,
I am not that deep into this, so I have got some questions

Backing up a currency by gold means you can change your money into a specific amount of gold.

The USD is not backed up by gold anymore. But as we NEED the USD to buy oil, it actually has a kind of backup - still (I am from Europe).
But how about other currencies like the euro or yen? Is the euro backed up by gold? If not, where does its value come from? Does the value of the euro depend on the USD as it is the worlds leading currency???

[MatthewLM]

All fiat currencies rely on the fact that people accept it already in exchange. If you tried making a private sector fiat currency, it would fail. No one would find value in pieces of paper unless they were backed by something which gave it value. Bitcoin is backed by security,  anonymity and freedom from central control. It would have picked up momentum through curious interest at one point but things begin to get serious.

[harm]

Well, I know what you mean.
But the exchange rate to buy in foreign currency is probably the most important factor why to backup the own currency.
I have to live with my own currency, though, when buying local. No matter what it is backed up with...

[Gabi]

euro and dollars and other currencies are fiat money, backed up by NOTHING