Devil's Advocate

[PansPurse]

OK, I freely admit this is a flame-batey topic, so please be gentle:

I sometimes encounter the argument that, historically, all fiat currencies have failed. But, seeing as there are currently no countries operating on a gold standard, can;t the same thing be said of that, that historically, all gold standard currencies have failed?

[mr-dead]

Did the gold standard fail or did it do as designed and prevent printing to infinity and the mess we are in currently.

China and Russia are also potentially looking to re-introduce gold/silver backed currencies where as no other fiat has been resurrected.

 

 

[KDave]

I have heard an argument to say we never really left the gold standard and the last 50 years have been a wealth transfer that has yet to be realised. Gold is still in the vaults across the EU, in the US, across the major world powers. It is on the US reserve balance to this day, but is at the moment listed at double figures, think it's $43 per ounces(?) instead of the five figures that is required to cover the liabilities and balance the books. It wouldn't take much to revalue the gold, I think at the sovereign level this is understood hence why nations such as Russia and China are increasing their gold position.

I am not sure myself, but I am going to do as they do and not listen so much to what they say. 

[onlyroadtoheaven]

I find the whole "what is money and what is debt" really interesting. We are clearly living in warped times but it has lasted far longer than I expected.

I can only look at this at perceived value in the hand. 1oz of gold costs very roughly $600 to get out the ground and produce, 1oz of £50 notes (paper) probably costs a few cents to produce, so my brain is wired to convert my wages into gold. 

The question becomes even more of a head f$£* to me when money is digital.

[Martlet]

It would be more accurate to say gold standard currencies ended, rather than failed.  Though there is a real question over why they ended, was it not in some cases to avoid failure?

We cant really say that all fiat currencies have failed either, since there a few around, and many ended due to government failure not the currencies themselves.

[Bumble]

I agree with Martlet that a currency ending is not the same as a currency failing. Currencies fail when ordinary people are unable or unwilling to use them any more because their value has been inflated away. The German papiermark and the Zimbabwean dollar are currencies that failed. Sometimes a currency experiences a great deal of inflation but continues to exist at a much lower level of purchasing power: for example, the Indian rupee or the Turkish lira.

To say that all fiat currencies fail is a bit like saying all people are mortal. There are 7 billion people who have never died, but we're pretty sure they will because everyone in the past has, and we've no special reason to think the people alive today will be any different. We don't know for sure that the current fiat currencies will fail, but on past experience the outlook is not bright.

Gold and silver, on the other hand, never failed in this way. Currencies based on metals were brought to an end by government decisions. A common explanation is that having a currency based on a tangible asset that cannot be printed into existence imposes a discipline on governments. It prevents them from debasing the currency and effectively stealing from their citizens to fund deficit spending. Governments put an end to gold backing because they wish to rid themselves of this discipline, and they blame the standard as a pretext for whatever economic woes they are suffering.

It is not a historical accident that gold backing of currencies is typically suspended in order to pay for wars. The flip side of this is that if we had sound money there would be far fewer wars, for the simple reason that we would not be able to afford them.

[sixgun]

The US disbanded the gold standard b/c the government through the Fed was creating too many USD. There had been the Vietnam war designed to drawn the coffers and it had. The French injected reality and wanted the US gold not paper currency. The US was being called to account and so exited the Bretton Woods agreement. We then saw the runaway inflation of the early 1970's and the birth of the Petro-Dollar.

If currency is gold backed there must be gold to back it. A government cannot create limitless currency out of thin air. No gold = No currency. Reality kicks in and the incompetent criminals masquerading as helpful politicians are exposed.

If the cartel of central banks and 'High Street banks' issue currency out of thin air, there is huge profit to be made. So called governments addicted to endless cash (and war), work hand-in-hand with the banks in this monetary system. Governments like this system - it kicks the can of discipline and responsibility down the road as the debt burden on the people increases.

Currency is loaned into existence. Most of the currency in circulation is created by the High Street banks, not the central banks. The availability of loans used to be quite restricted, now every Tom, Dick and Harry have loans pushed on them. The banks actually lend nothing but that is another story.

So government and banks opt for fiat.

The other issue with a gold backed currency is a country must pay its way. The UK has for decades run a negative balance of trade. This would mean the gold reserves of the country would be drained and then the imports dry up. The destruction of indigenous industry is rapidly highlighted. When the food shelves are bare a government will find riots and rebellion follow closely behind.

 

[tbone]

The fact the world's central banks aren't using a gold standard (at least not for the citizens) is because central banks don't want pesky restrictions on how much debt they can create.  They don't want honest money in the hands of the people (they hoard it themselves though).  Also, getting everyone in debt or using debt based currencies is necessary for real control (and if some get their way, the eventual end game of 1 world government and monetary system ).  So...no, gold hasn't "failed" as a standard or as real money.  Just ask anyone in Venezuela right now if they'd prefer to be paid in gold or more fiat.  Hindsight is 20/20 I guess, but I do believe gold and silver will eventually come back in fashion during the next big financial crisis.  But right now, its much easier to print and pretend nothings wrong.