[LoneSnark]

Tyler_JC, you are forgetting the money multiplier thanks to the existance of banks. Last I heard, the current multiplier was 52, which meant that every physical dollar was spent 52 times a year. As such, a $12 trillion economy would only require $211 billion in gold.

I recently heard a lecture on the economics of Somalia which existed without any government for a decade or so. When the state collapsed, there was no longer anyone to track down and arrest counterfitters. As a result, a rash of counterfiting broke out and the inflation rate shot up. However, the people were accustomed to using the Somali shilling and kept accepting it, just at higher prices. However, merchants refused to accept larger denominations than existed at the time of collapse, as there was no government to make them, and since it costs money to import paper and ink to print new bills, the system became basically a commodity currency as each bill is absolutely worth the paper its printed on. Once it devalued to about 4 cents per note, what it costs to produce them, the counterfitters quit counterfitting, and now the inflation rate is about zero. As notes wear out, deflation sets in, until someone claims the penny or so of seniorage to produce new notes (costs 4 cents to produce notes worth 5 cents) until the money supply is restabilized (costs 4 cents to produce notes worth 4 cents).

This works fine for small transactions, and as a unit of measure for bank accounts and electronic transactions, but for large transactions the locals use dollars.

[cube]

welcome back LoneSnark!

I haven't seen you around here in awhile.
The last time you were here I explicitly remember you *trying* to give us a lecture about how:
1) food inflation prices was benign
2) banks were making good profits
3) the stock market was a good investment

I always did enjoy your posts for its entertainment value.

[LoneSnark]

1) Food inflation is benign, as the prices have already peaked:

2) banks are making good profits. You are suffering from a fallacy of composition: just because some banks are in trouble does not prove that all banks are in trouble. Afterall, many times more banks went bust in 1990 than did in 2007.
3) The stock market is always a good investment. The question is over how long a period. Buying stock in 1929 still paid off if you kept your investments long enough, such as saving for retirement.

That you don't already know these facts, which should be common knowledge on such a forum, makes your posts something other than entertaining.

[cube]

You haven't changed one bit LoneSnark --> you're just as delusional as I Iast remembered.

I explicitly remembered you coming onto to this board with an arrogant "snarky" attitude believing you were going to give us a lecture with your *supposedly superior* knowledge in economics.
Unfortunately most of your analysis was dead wrong.
So much so you had to leave this board to save yourself the embarrassment from being so ridiculously wrong.
BTW I notice you are twisting some of my words around.....a typical tactic of a desperate person.
So it seems you are both delusional and have a severe case of "selective memory".

Welcome back LoneSnark.......(allow me to refreshen your memory, how's that $10 oil going for you?)

[MrBill]

LoneSnark wrote:
$this->bbcode_second_pass_quote('', 'T')yler_JC, you are forgetting the money multiplier thanks to the existance of banks. Last I heard, the current multiplier was 52, which meant that every physical dollar was spent 52 times a year. As such, a $12 trillion economy would only require $211 billion in gold.

[LoneSnark]

That's right, cube! Now I remember you! You're that guy that never actually addresses what people say, choosing instead to mock their audacity to believe anything but doom and gloom.

Just to refresh your memory, $10 oil was great fun and occured 29 years after the last great oil peak of 1979.

But whatever. I quit the board when it quit working for a friggin' week. Did anyone else experience that? It was many months ago.

Mr Bill, the only mechanism for what is considered money to affect relative prices in an economy is a process called stickiness. Labor markets are considered sticky because workers tend to turn down work at lower wages, bidding up unemployment during periods of deflation, while product markets tend to be far less sticky.

But, again, this has nothing to do with what is money and everything to do with whether or not there is constant deflation, which is not a rule even under a gold standard.

Under a gold standard, deflation would occur only if the government imposed a gold price that was too low. If, instead, they set the gold price too high people would flee from gold to cash, as cash was artificially undervalued. In effect, an absurdly high gold price would be a lot like no gold standard at all, as the floating market price found on exchanges would exceed the government rate, so no one would dare exchange cash for gold with the treasury, although they would happily exchange gold for cash with the treasury, leading to cash creation and therefore inflation in the near term.

For example, if a government chose an adjusting gold standard, such as China has done with its dollar standard, where the gold price is made to rise slowely overtime, then cash will always be available to prevent deflation. This would also give the government a share of seniorage every year as the dollar value of the gold in its vault rises.

If merchants would prefer payment in dollars than the exchange rated Shillings, that is either a minority preference or the exchange rate is artificially low. As there is no one with guns to keep the exchange rate artificially low, then we must conclude it is not too low in the long run. Otherwise people would be running back and forth between the merchants and the money changers to pocket the difference. As for your historical example of people paying in gold, they are probably from a time when gold was overvalued by the government, which was commonly the case, causing the official gold price to be higher than the market price, thus getting someone to pay in gold at the official price was a windfall, as you could then go trade it on black markets at the market price to pocket the difference.

[MrBill]

I had no idea you were refering to a gold-backed currency as your comment was that a $12 trillion economy could be run with $211 billion in gold based on a money velocity of 52 times per year. Your last post implies a central bank converting back and forth between currency and gold based on which was more attractive. Therefore, we are not even on the same page as I was specifically talking about gold as money. Sorry.

[LoneSnark]

Oh, my bad.

So, you were really addressing a gold standard that has not been in use since the spanish empire?

But my assertions remain; if society insisted on a gold as money system it is unclear that deflation would result, as people would quickly refuse to carry gold, as it would be insufficiently divisible for small transactions (gold sand comes to mind), opting instead for electronic means. But, if that is the case, then after a rough switch where all dollar accounts are relabelled in terms of gold grams, the system would go right back to the way it is now. Afterall, with fiddling it appears as if the monetary base of physical dollars has not changed much since the 80s, all the inflation since then being due to increased use of electronic forms of currency. Assuming this trend continues then even a gold-fixed monetary supply would result in continued inflation (this is, of course, only true in the long term, as in the short term changes in the demand for gold in the form of jewelry and industry would cause bouts of extreme deflation and inflation to the detriment of all, including those holding gold).

[cube]

$this->bbcode_second_pass_quote('LoneSnark', 'T')hat's right, cube! Now I remember you! You're that guy that never actually addresses what people say, choosing instead to mock their audacity to believe anything but doom and gloom.

[Tyler_JC]

Good Lord! No wonder the British Empire fell apart.

Talk about unnecessary complexity...