Was Dropping The Gold Standard A Mistake? | Economics Explained
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- เผยแพร่เมื่อ 24 พ.ค. 2022
- Is returning to the gold standard something that could fix the economic issues we are facing today?
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“Fungible” - a word almost no one would have understood 18 months ago and now everyone watching this nodded at that moment and thought “Yes, I know what that means”
I guess I can feel proud, since I understood that word in the 1980's when I worked in oil refining. A unit of gasoline that met certain specs was fungible with any other unit of gasoline. Conoco would stick gasoline into a pipeline and pull out any particular equivalent quantity of gasoline from that pipeline half a continent away, add its magic stuff into a tanker truck, and sell it as Conoco gasoline, even if that oil had actually been refined by Citgo or Mobile or Exxon
I would argue most people learned what “non-fungible” was before they found out what fungible meant.
Every Bitcoiner have understood what ‘fungibility’ and other properties of money is, for over a decade. Everyone called Bitcoin a scam. Maybe people will finally realize they don’t understand what money is. And Satoshi is decades ahead of some of the self proclaimed ‘smartest’
This comment deserves all the likes
@@richdobbs6595 same thing with the energy market and who's pushing the electrons through my computer
Abandoning the gold standard was the beginning of the stagnation for lower and middle class citizens and the beginning of massive riches for the already wealthy.
Are you sure about that?
@@InfiniteDeckhand you just born today or something? Look around
@@spacepeing9936 Most worthless comment I've seen in a long time, lol.
@@InfiniteDeckhand Then why did you type it?
@@connorpetray424 Why did I type what?
The issue people have with FIAT currency is not that they don’t have faith in the FIAT system. It’s that they look at their leaders and have no faith in them due to their utter incompetence and corruption. That’s why people want to go back to a gold standard.
well said. However, it has always been so. People have been "shaving" the currency for thousands of years.
@@Saratogan FIAT currency just made "shaving" easier and faster!
@@Saratogan
no they haven't. the reeded edge removes the possibility of "shaving".
@@tallswede80 That is a relatively recent invention. However, what have they (governments) done since then? Metal debasement. US silver coins have gone from 90% to 40% to zero after 1964. Today's coinage is every bit as much fiat currency as the paper. Same in the UK. Sterling has not been sterling since WW2. It too has zero silver in it. To get real silver and gold coinage you have to go to the mints directly and they will sell you a real silver or gold coin at the current market price plus a premium. What I was trying to explain was that "shaving" was an ancient means of money debasement. The point seems to have been lost on you.
@@drscopeify
Claiming that the gold standard is "price fixing" is a disingenuous statement. Under a gold standard, the "price" of an ounce of gold, is the quantity of goods and services you can buy with it. When the gold standard ended, the "price" of gold, was the amount of paper fiat currency required in order to purchase it. The value of gold never really changes, only the quantity of paper fiat currency required to obtain it.
" in 1920 milk was $0.60 which today would be $9.38"
Not an argument. Claiming that something "would be" something, is not an argument.
"Also, the inflation in the USA was higher during the gold standard"
Wrong. Inflation is not the increase in prices. Inflation is the increase in the amount of currency in circulation. Under the gold standard, the amount of currency in circulation was limited by the amount of gold bullion held by the government. After the gold standard, the government has been printing money without restriction. The money supply since 1971 has exploded.
"More examples, the price of bread in 1920 was $0.12 which today would be $1.88"
More examples of what? Your intellectual deficiency? Claiming that something "would be" something, is not an argument.
I think the most frustrating part for me when discussing finances and the current trends is that I am not smart enough to come up with a solution but smart enough to see that the current way of doing things is absolutely broken. Any solution outside the fantastical would require those that benefit the most from the current system to suddenly become altruistic and that is not something I see happening
Maybe have a look at bitcoin it's a system where altruism from the rich isn't necessary in order to redistribute wealth. And it also does so in a non forcefull manner.
@@jannik6748bitcoin is too volatile though to replace a national currency
Or any other similar ecurrency
Bitcoin is only solution
I have heard a fractional reserve Gold standard as 'being able to exchange your money for gold, as long as you never actually try to do so'.
Which is exactly how fiat fractional systems work now, so not really that different.
Yes, it’s not a real gold standard, but for the moments in time the U.S. was actually on one, productivity, and hence living standards, soared and inflation disappeared.
btw- this video totally misrepresents the so-called disadvantages of the gold standard through arguments that are easily refuted.
Ye
That's why you should hold physical gold/silver. No such exchange is required. The problem is with the word "fractional". If all that a gold banker did was "store" your gold and charged you for that storage everything would be fine.
US dollar is neither backed by gold nor oil.
US dollar is backed by military might of US Armed Force.
If people of the world believe US Armed Force can invade another country, and take the wealth of that country by force,
then US dollar will retain it's value.
7:47 This point is a staple in Argentina. Many of us decide to buy things like cellphones through a one or two year payment plan because, even if there is a price mark up compared to paying the full price, inflation will eventually make the monthly fees cheaper over time.
Does the math actually work out for this ?
@@eck0hcobra15 it does if interest rates are lower than the inflation
don't the argentines convert their money to the American dollar, British pound or Euro too?
@@spicychad55 We try to, whenever we can. But due to currency controls, this limits how much we can convert to say USD at a traditional bank, so a black market has sprung up where you can exchange with others whenever you want for a higher rate.
This rate is called "Dolar Blue"
wouldn't the prices just be higher so that even with inflation you are still paying the highest price the market will yield
I wish you had mentioned the much longer history of the gold standard in America instead of just starting with the Bretton-Woods system in 1944. It seemed like there was a lot of oppertunity for some good history there that might have informed some of the decisions that were made. It would have also been interesting to examine some of the options like fractional gold/silver systems, as we literally used to mint our coins in 90% silver up until 1964 anyway.
Which depression, recession, wars, political issues where prevented during the so called "Gold Standard" era - zilch. Look if you want to buy Gold go ahead, but make sure it's the physical one not the paper one. Moreover, be prepared to pay for its storage and try to buy a Coke with it at 7 - eleven.
I agree with this. Actually, this topic should go waaaay back. Even before North America became the USA. The fungibility of gold not only across countries but also across time, a gram of gold in Egypt at 1550 BC is still a gram of gold in the US today is what makes it an ideal currency.
@@James-uk6hs An interesting thought. It wasn't until the very recent discovery of Tungsten, but the ability to mass produce it, that it even became possible to "fake" any significant quantity of gold.
It's an unfortunate coincidence that their densities are nearly identical, with Au being 19.32G/cm3 and W being 19.28G/cm3. This is only really a problem for large volumes of material and can be accounted for, but is still an issue to consider on handheld XRF machines, since they can misread the materials in either direction.
@@sqeeye3102 a chemist has a go at economics. lol i loved what you wrote
@@sqeeye3102today is an era of modernity. Testing metal not only by weight. By it's radiation, reaction to soundwave/shockwave, temperature, electric current test, and many more to proof a coin is fake or not.
I always thought leaving the gold standard was a big mistake. No one had really explained to me the imperfections of the gold standard and why it was REALLY ditched. You have explained that very well.
Amen.
There’s a bunch of goldbugs who insist gold is the only way to keep money to this day. To them I say, China and Russia produces 28% of the gold today.
The reason it was ditched was not the benefits of inflation system.
It was ditched because of the corruptions and they had to use the inflation system to solve the economy and the financial crisis.
Yes, the economy would have been slower with gold standard but the middle class and lower class people (overall) would have had a better life quality than they have today.
Everything has advantages and disadvantages and the inflation system just happened to benefits the economic growths but not everyone benefits from it. If you are a business owner , small or big, you can always increase your product price to follow the inflation but if you work for salary , you are doomed because you can't just go ahead and increase your salary so.
So the the faster pace of the economy doesn't mean it makes the majority of people's life better.
Gold is limited, it would be hordes by the rich and boom no more gold
How is that good for average person anyway
@@abdiganiadenthe current value of the US FIAT dollar is through the government's own word. The value of dollar on a gold standard is set in stone the government would have to purposely try to increase inflation for it to be felt on a personal level. In other words the complete gold standard is not that great in it's entirety but inflation would not be so widespread.
Really, GDP growth graphs should be in inflation adjusted real terms to compare post and pre leaving gold standard
@@a.k8069 its pretty comprehendible if you ask me
@@a.k8069 graphs showing Gross Domestic Product growth over time should be adjusted for inflation to accurately compare post and pre leaving the gold standard
US Real GDP in the 25 years before and after the end of the Gold Standard was around $2.1 Trillion in 1946 and around $5 Trillion in 1971 and $10.7 Trillion in 1996. 2.38x before and 2.14x after. So maybe neither of you are right.
rGDP is measured, and is used very frequently
I think he is trying to correlate whether inflation was allowed to growth irresponsibly because we left the gold standard. Our GDP can grow but that doesn't necessarily mean we are better set off than before because if the rate of inflation is faster than the rate of GDP growth as a consequence of an irresponsible printing of money then we might have a good point of debate.
Edit: This is just a comment. I'm not saying that my interpretation of the previous comment is applicable and financially correct. There are more complex things to understand starting with whether or not that comparison can be made. Yet, it's good to have everyone question the way our economic is handled. Regardless of how technically correct or possible the opinion is.
You cannot argue that money supply needs to grow at the same rate as GDP when your GDP isn't even inflation adjusted. And by inflation, I'm not talking about CPI. Add rent and home prices to that too.
16:10 gold also has a rarity factor that contributes to people thinking it valuable. One of the reasons a gold standard works is because there is a limited supply of gold so it's a lot harder to print money at unsustainable rates
Just wait until asteroid mining becomes a thing
@@xxxBradTxxx it's going to be a long time before mining gold from an asteroid becomes economically viable.
Just wait until you seem to stimulate or destimulate the economy the trust me won’t be praise gold standards
There are plenty of metals that are also rare, so why is only gold ever discussed? Because of belief, which means gold does little to differentiate itself from fiat currency.
@@pllatypusmeamo2388 those metals are also considered valuable, have you seen the prices of lithium and cobalt? The rarity of those metals is part of the reason EV's tend to be more expensive even though they're vastly simpler machines than their ICE counterparts.
As a coin collector, I can tell you it was a friggin' disaster.
Then you were not a collector. You were an investor. I am a collector and I will NEVER part with my metal.
@@ThomasJScharmannnstead of trying to kill the op with a snip let’s acknowledge his point. No one wants worthless universal coins as a collector. The first thing anyone who publicly discusses a coin collection speaks of is it’s worth.
There's a reason they still mint coins colored silver and gold, even though they're not as valuable. People subconciously find those color codes valuable.
How was it a disaster exactly? Genuinely curious.
@@dianapennepacker6854 cause he can’t get rich off his collection😂
Are you going to address the fact the CPI formula changed in 1981? And if measured just like the 70’s, that second chart would look quite volatile?
Ain't that something
Multiple changes for sure both in CPI basket weightings and the definition of unemployment (see Obama era changes) but that being said consumption habits have changed, if you look at the GDP deflator for inflationary measure seems to be at least somewhat more reliable imo.
If you're referencing that graphic by shadowstats; that's not really true.
Firstly because shadowstat's chart actually has quite a low volatility, it's just inflation is consistently high in his chart.
Secondly because shadowstats's entire graph is based on an error where he used the cumulative change in CPI rather than the change in year-on-year inflation.
The difference between the two methodologies is quite small if you don't make this glaring mistake.
fullstackeconomics has a good article about this (scroll towards the bottom to get to the maths error).
@@IamGrimalkin very good read! Looks like the author of fullstackeconomics supports the idea of adjust price per quality, which I disagree personally.. But good points were made.. In fact, it's hard to use a single measure of inflation for everytthing.. Say, rents in my area (Sydney) had gone up by 4% per year since 1990, according to my own research, and some food items had gone down.. Some people say the CPI is "rigged". House prices definetely don't reflect the CPI. The measure they use "owner's equivalent rent" is nothing close to my reality. Australian property is close to 7% purchasing price for the last 40 years, anyways. I don't envy the BLS job
@@gersonadr2 Agreed on owner's equivalent rent.
Or rather, I think they should deduce owner's equivalent rent from actual rents rather than relying on surveys.
But I'm not sure how much difference it would make.
Also, I doubt house prices/rent rises have much to do with the gold standard; housebuilding regulations and a lack of state housebuilding are much more likely culprits in my opinion.
In many ways, people believe their currency has the value it has because they have no other choice. Even in a hyperinflation situation people have to go on using their hyper inflating currency because they probably have very little access to foreign currencies or gold/silver coinage.
If you look at Germans during their hyperinflation you would see that it was more common to use goods as a currency than it is today.
Taxes ensure a demand on a nations currency. Get some of the fiat every year, or go to jail.
I complete agree, but it’s very inefficient. People can barter to stay alive, but they need a usable currency to run an economy.
The funny thing about bartering is it was, until very recently, a small but normal part of our economy. I actually encourage it because, if nothing else, it forces and strengthens social bonds.
I wouldn't also describe use of currencies as a believe. in one way or the other, you are forced to do so...
My most immediate answer is that there is no real measurable societal value in gold bars sitting in a safe other than literally just keeping track of money. Machines do that for us now.
It puts a tangible cap on wealth & prevents inflation.
The only thing it does it minimize the impact of government incompetency (fairly unlimited), at the expense of what is essentially a tax on unproductive assets (one of the better methods of taxation imo).
@@commogurudoes it? Because part of the reason why the Spanish empires economy declined was because they were extracting so much gold that it devalued the gold.
If we went to space found and mined asteroids made entirely of gold it would render the value of gold near worthless.
Money at the end of the day is a representative of value whether it's fiat , gold or cattle.
@@gaffgarion7049 Gold wouldn't become worthless, it's still a limited resource. Spain declined for many reasons, it wasn't because of too much gold. In the early 1900's you could buy a new suit for a $20 gold coin, you still can today essentially. Diamonds are the most abundant gemstone on earth but are outrageously expensive.
@@commoguru they're outrageously expensive because the monopolies that own them limit their sale. It's still entirely arbitrary and you argued against my claim about Spain without actually saying anything.
"Spain declined for many reasons"
Ok? And ? I'm talking about their economy where their currency was in fact devalued because they imported so much gold from their colonies.
The point is gold alone is not an assurance on economic stability because it isn't.
An economy can grow regardless of being pegged to gold in that the gold standard’s restriction on quantity of dollars will in this case act as a deflationary force, increasing currency value versus requiring an increased production of that currency. The only disadvantage of a gold standard is that it restricts the ability of a government to borrow and spend recklessly.
Mate, your gold price chart is wrong in the y axis, gold was convertible at 35$/oz. It went more than 20x that price.
The initial peg was at 20$/oz from 1834 to 1933 when the US govt seized it's citizens gold and devalued the peg to 35$/oz until 1971, then the free market took it to 800$/oz in january '80
Oh, that's just inconvenient history, we can skip that.
Adjusted for inflation maybe?
@@CodeineRadick Nothing else in this video was.
I think he just looked at the move until 1975 and omitted the second leg of the bull market from 1975-80
@tdf123 emcee i have no idea about converions rates but the man has been talking in grams and is Australian.
My issue with all the talk of inflation is that no one mentions the trillions of dollars of deficient spending in the preceding decade of economic growth. Yeah we spent a lot of money during the pandemic, but something had to keep the economy moving. My question is why did we cut taxes and continue spending when we were in a boom cycle?
It's because people are short sighted but real economists know that covid spending is not the cause of inflation. The primary cause of inflation is global supply chain disruptions but you make a good point. Entering into this era with low interest rates and low taxes doesn't help. We didn't really have a strong foundation to weather this storm.
Because any monetary contraction would cause an instant recession. Overall debt levels are high enough that they must be controlled through inflation/monetary expansion or through mass bankruptcies. The former is of course much more popular especially in the 2-6 year election cycle while the latter, though painful, would clear bad debt and ultimately lead to long term prosperity.
Asking the REAL questions of our time
@@ericg4915What is a 'real economist', an adherent of crackpot 'modern monetary theory'?
Nothing about any economy is 'real'. Yes, production produces needed products, but with very little efficiency. Money is the lubricant of the inefficiency, and stops efficiency from causing the economy to grind to a good and proper halt. Money hides the inefficiency by inflation.
And money is constantly being inflated, through loans.
However, price inflation is stopped by wage stagnation, barring lose monetary policy.
Perhaps we should look at pegging our currency to the beer standard. I’ve always found that I can get more willing help/labor/effort from people by offering a carton of the humble amber fluid versus $ per hour. Not sure if that is because of immediate reward or perceived value. Would be happy to discuss further over a carton of said amber fluid.
As of April 2023, perhaps not from Anheuser-Busch (Budweiser)
Peter Griffin, is that you?
I hope nobody is getting pegged
So, so good. Fantastic explanation and well put together.
The argument about returning to the gold standard us not about the intrinsic value, is about having a fix supply of money that gold has it. Money is not about the intrinsic value is about the 3 functions of money and how good the money is at them : unit of account, medium of exchange and reserve of value
Austrian Economics FTW
Precisely. And a gold standard is different from a gold-backed standard(which is what we are actually talking about).
1. Gold standard in essence freezes or slows the economy when there's no more gold to to around and expand the economy which causes a perpetual recession until more gold can be mined. Also, gold is "difficult" to transfer and store.
2. A gold backed standard leads to where the gold custodian(US) will have their gold reserves run dry when if (and when) countries choose to redeem their USD for gold(France 1959,1963) thus losing reserve currency status. As well as currency manipulation by borrowing USD through foreign banks(Italy 1963)
I find it easier to understand when you make the distinction between MONEY and CURRENCY
Money has three functions unit of account, medium of exchange and reserve of value
Currency, critically, only has TWO: unit of account and medium of exchange. You cannot "store" value in currency because it will be stolen by inflation.
What we have today is merely currency. Hardly different than mining company tokens (scrips) .
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@@athirstyguy well as we know from more than 100 years ago any quantity of money is optimal. Since is autoregulated by demand and offer, if there is no more offer of gold, the price of gold will go up.
Please be careful, in monetary terms deflation is the reduce of the supply of money. In mainstream economics deflation is use for saying that prices are falling down which it can be good to the economy. I recommend you reading the article in defense of deflation of Philip Bacus (there is also a conference in TH-cam by mises institute) he speaks about deflation and the lies about it
No bro you just like trAiNiNg WhEelZ.
No economy can really zoom if it has training wheelz bro. What's wrong with you why don't you just trust the Fed bro?
In much of the English speaking world, currency used to have/state 'Will pay to the bearer on demand" because one could go to the central bank and receive a set amount of gold or silver in exchange for the note.
Currency now says something like "Is legal settlement for all debts" confirming its' fiat note status.
The UK £20 notes still says it (the issuer of the note) "promises to pay the bearer the sum of twenty pounds". The note is issued by the Bank of England, so it can still honor that promise by letting you redeem the note for say, £20 worth of coins as that is produced by a separate entity, the Royal Mint.
In the UK outside of England (in Scotland and Northern Ireland), banknotes are also issued by commercial banks (e.g. Royal Bank of Scotland) so this promise bears weight.
Favours nations that have gold as a natural resource, or as a colonial outpost. No gold = poverty.
In other words, if you don't like your Federal reserve note, you can take it to the bank and they will...give you another one just like it.
@@shiulaing5513 The UK stopped backing its' currency with precious metals just after the second world war ended. The promise as you say is that you can redeem them for coinage which is now made of base metals.
@@SLow-fb3qm Not really. Canada is the 5th largest gold producer on the planet, and keeps none of it for financial reserves.
8:39 being from venezuela, love that you used that you used our currency as example. People usually don’t even begin to understand how devaluated the Bolivar is
This is probably one of your best videos yet. It's so refreshing to watch media that is open-minded, thoughtful and that presents a conclusion based on an actual tangible analysis... Good work, really.
The whole point of the "reserve currency" scheme is that instead of coming to bother you about gold, when a foreign bank piles up dollars they now have more reserves to inflate their currency and make their exports nice and cheap for dollar holders.
?
This guy just spoke pure new speak what the f*** are you an MPC are you a robot are you so brainwashed you believe what you're saying I mean what are you even saying b******* thing is worse b******* because b******* people said so at the end of the day it's f****** paper how is it worth anything what can I do with paper gold is used in all of the technology the satellite beaming the signal down to you the s*** in your phone the computer cigarettes on your computer and wealthy people since the beginning of time have been stupid enough to want it and it's using medical procedures and actually as health benefits in the human body what can paper do be burned for heat I guess
Exactly, the foreign dollar market exchange subsidizes the American lifestyle along with having outsourced all manufacturing abroad including china leading to their rise but we've done this for too long and seeing effect now
@@loubirch4179 so finally inflation is coming home to US too, when reagan made it only happen in those producing countries exporting a lot... TIK explained it works roughly like that, export a lot -> your inflation,price hikes shows as money flows to your local economy while importing economy enjoys cheaper prices than normal coz amount of goods is higher + excess money flows out of that economy.
@@effexon Yeah economies like everything else in the universe; quantum mechanics, general relativity, logic and metamathematics etc. are built off of information and thus subject to information theory and the concept of entropy the basis of the second law of thermodynamics. In a world with finite resources what goes up must come down as t6he system rebalances itself. Our current economic system is still based on the falsified notion that economies can grow infinitely via eternal exponential growth but that is only true for an open system that is far from equilibrium. In a globalized economy you no longer have an open system so it must come to an end. Any form of regulation in effect exists to balance out resource entropy with computational entropy i.e. it is an exchange of information as seen in the Maxwell's demon thought experiment.
It'd be important to remember that most people advocating for a gold standard believe in Austrian economics, which don't consider deflation bad.
Is a little deflation worse than the constant (theoretical and often missed) 2% inflation? The only valid goal is ZERO inflation. But then government wouldn't like that.
@@EdA-bb5gp really depends, for Austrians deflation isn't bad because it just means that the economy is bigger (but because they are against fiat currency there isn't more money to go around and thus the existing money rises in value). Keynesians think deflation is bad because it causes people to put money away from the economy and into their savings accounts, which would slow its growth down according to them.
If you're a consumer you'd prefer deflation because it means your savings grow, if you're a politician (that doesn't believe in Modern Monetary theory) you want people to spend more so you can tax them the same and get more money for public projects that increase your popularity.
@@EdA-bb5gp Neither inflation or deflation are inherently bad. Iflation can be good if it means your wages are going up, but hurts if prices are going up while wages remain stagnant. With deflation each dollar you have will have more buying power, but if deflation goes too far than your money becomes to valuable to spend.
The government prefers inflation because it's taxable. Wages go up? So does your income tax liability.
Wages stay the same but all other prices fall? You have more purchasing power but the same tax liability.
@@Dramatic_Gaming would peoples unwillingness to part with their money not bring down prices to target that change in behavior?
If it’s more valuable would you not offer far better deals to incentivize them to part with it?
Although I suppose the patient consumer need only wait long enough and they get what they want for pennies.
This was an excellent video. I especially liked the metaphor to training wheels. ❤️
I learned a lot from this video, keep up the great work
As a semi gold bug, I generally agree with everything you've said, id just point out that while fiat shouldn't be a problem as long as no one does anything dumb, based on the history of virtually every nation state the world has ever seen, something dumb happening seems to be eventual,
Assuming competence on the part of politician's seems as a whole an extremely optimistic bet.
Let's be cautious, slow economic growth, but never a crisis
@@virathdealwis5312 there was a crisis, multiple of them during gold standard. This is just an illusion that something like gold would prevent economic crisis from happening. The truth is that modern economy is very complicated. More complex systems are, more prone to errors they are. It has nothing to do with gold or fiat. Its not even about slower growth. There just isnt enough gold to back every single transaction that is happening. So we would have to shrink the economy in order to make it happen, or have it covered just partially. Both of these are pretty undesirable. Why would we shrink our economies, making people worse off? Just to have an illusion of safety with something like gold? Politicians should not meddle with monetary policy, this is why most national banks run as separate institutions, where their only job is price stability.
That's a pretty good summary.
I think gold standard can limit growth and incentivizes bad behavior (invasions, exploitation), but it's clear the weakness of fiat is "someone can do something really dumb"
@@geekobgaming5647 In short, there is enough gold, it's just not valued correctly. Based on the value of the global economy gold may need to go up from $2000 to say $100000 per ounce.
Gold can also be a problem when people do something dumb though.
The depression of 1873 is widely thought to have been at least partially caused by a mishandling of the gold standard.
"...Gold is just shiny, soft dense metal..." but it can't be printed, needs effort to mine and it's not infinite, that's why it's valuable.
for what little use we have for gold... It is practically infinite within reach of humanity.
No, not only. It also has unique physical properties. It is the best conductor of electricity, for eg. It is indestructible. It has many industrial and commercial applications. It is valuable because it is intrinsically valuable.
and this is true of other metals.
only cause its rare doesnt make it valuable. its needs to provide value to individuals to be valuable, and the only value it provides is as stated: in niche industrial applications and cause it looks pretty. Thats not enough value to be able to run an economy off. Its very little value actually.
Haven't we created gold in a laboratory before? Even if it costs much more to do so than the amount of gold was worth, we proved it's possible, and energy will get cheaper with innovation.
The problem with the gold standard is, that there is not enough gold on the whole planet to equal the money supply. There is always much, much more money in circulation than there is gold. So there may always be a bankrun. No central bank could ever cover all their issued money supply with gold.
Bitcoin works fine.
@@suntzu6122 For what? It has the same problem as gold without its perks, what are you talking about??
@@suntzu6122laughs in SBF
You're assuming some astronomically ridiculous exchange rate between the dollar and gold
@@basedbulgarian511 No one is assuming this, it is how it would end up. There is already a big demand on gold in industrial sectors, electronics, luxury etc. An entire government suddenly needing lots of gold would put a giant strain on the market, and anyone with a decent mind and understanding of the market would start hoarding gold, knowing its value will grow. This would lead to a continuous inflation of the price of gold, leading to astronomically ridiculous price for gold, and as such, astronomically ridiculous exchange rate between the dollar and gold.
Here me out "the oil standard"
🤔📝
They focus on growth in a finite world is misplaced. What good is a higher GDP for the middle class if both parents now work, their house is more expensive and their savings are being eaten away by inflation.
Gold standard reigns in growth which is a feature, not a bug.
Growth for the sake of growth is the ideology of cancer
So true, the people who vouch for the federal reserve are the true idealists that can’t see the long term effects and are blind to the effects we are already feeling today
EE: Training wheels prevent you from going fast
FED: Racing with a unicycle
Criminally under-whelming video title - dude, I'm sharing this because it's*SO* much more than your title suggests!!!
Only channel on YT not telling absolute BS. God, there is SOOOO much misinformation on this topic out there. Thanks for doing this!
Nixon announced on 15 August 1971 that the convertibility of USD to gold would been temporarily suspended,
"temporarily" is the key word
51 years
There is nothing more permanent than a temporary solution.
I thought the whole point of the gold standard was to transition to the new paper currency: "Here use this new currency, and if you don't quite trust it yet you can turn it in for gold anytime!" Back then gold was used as currency because it was scarce enough and easy to verify by weight.
Correct. It was a receipt. Paper was easier to move around then a big sack with a dollar sign on it filled with gold. Then one day the government decided they just weren't going to give it back.
Gold was stolen from everyday citizen..for the government debt..the government was paying national debt with gold and would have run out of gold..so the paper scheme
@@Scylon1 For some reason, i haven't been able to understand the concept of why paper money is bad and why printing more money is bad.
I know its bad, but i don't completely grasp the information.
@@Scylon1 Thanks for the recommendation, will check it out.
@@patricksachs3655
I think i understood a little bit in what u said, that if there is Gold standard the Government has to rely on people.
I understood it as this,
In case of Gold Standard if the government is overspending the state wealth, they would eventually have to turn to its people at some point.
They have two option,
either
1)Cut down the spendings, make foreign countries pay them more, etc...
or
2)Become the evil guy by increasing taxes, etc...
(Which is not good in a democracy)
Rather than being a silent killer and printing more notes to continue their overspendings
(in case of paper currency)
Is that correct?
who else here after the adin x top G stream
top G
No, but I’m not surprised that Adin or Top G himself would be interested in Economic talk.
@@MissPopuriyou are supposed Top G is interested in economic talk?
Money and Making money is all he talks about. He’s trying to wake everyone up
@@vaonase7333 I said I’m not surprised which is not supposing. A supposition is similar to an assumption based on no evidence. Having comments about Top G and Adin Ross are pleasant to see because it means I know what I can generally talk to them about if I got the chance.
Would be interesting to hear an update on this topic since Zimbabwe has introduced a gold backed currency. Seems like the right thing for Zimbabwe to do.
Another great video! The biggest advantage of gold for the individual is that it preserves buying power. Habsburg Emperor Franz Joseph made such beautiful gold coins. He is gone, his empire is gone, his army is no more, his family is without political power, his banknotes, bonds and letters of credit have value only as collectables. But just one of his 100 Korona gold coins will still fill your car with groceries in 2022 just as it would fill your wagon with groceries in 1908. That is the power of gold.
And was it easy to get this 100 Korona gold coins?
@@hendrasutrisno4191 You can still buy Hungarian and Austrian 100 Korona restrikes which have .98 troy oz.of pure gold in each coin.Original coins have a premium.
Until the shopkeeper decides that he doesn't want your metal coin, in which case you starve.
@@colinhobbs7265 At what point in history has gold not been completely convertible into currency? When has that ever happened?
Inflation is a disaster. This CPI report is a disaster. The FED is going to have to pull all their punches to stop the housing market. The sad thing is other markets are getting destroyed. Now you gotta rely on a pretty good diversification if you must stay green. Currently up 14% and being cautious. Still better deal than letting it sit in savings or checking earning near 0-1% interest.
In many ways, people believe their currency has the value it has because they have no other choice. Even in a hyperinflation situation people have to go on using their hyper inflating currency because they probably have very little access to foreign currencies or gold/silver coinage.
@Zahair O'Brian This is why being informed pays off. I see any market condition as an opportunity, so far i just dollar cost average. I am still in profits even if i decide to sell today as my average is way lower. Kudos to my Portfolio Manager 'Eileen Ruth Sparks' . I don't pay attention to the day to day movements & Returns have been good. Not retiring any time soon so who cares what happens today?
@@shu-quinnliao7688 She is quite the genius in portfolio diversification. You can look her up on the web as she is SEC regulated.
In savings or checking a, you are losing ~20% purchasing power... Not earning a percent... 🤔
You aren't even up at 14% guy. You need to subtract inflation first. Real inflation... Anyways, housing crash will be only good part for me I hope, because I need a home. Fingers crossed for 90% housing market crash, 🤣
Apparently even pre-WW2 people had issues with the gold standard, wanting to add silver to it as well
Surprising how long we have been arguing about it in one form or another
Lol, you think this is long? Silver standard was in use in some form since the Sumerians 3000 BC until 1873 when the US abandoned bimetallism and switched to the gold standard instead.
Interesting video, I'm glad to have learned about this today.
On another note, it would be interesting to see a conceptual video on a different type of currency: Energy. Granted, power storage would have to be greatly expanded and energy generation drastically changed and regulated for this to work, but I think it would make for an interesting video based on how many sci-fi universes use energy as currency.
He goes into it actually in one of their videos on Eve Online, I believe
th-cam.com/video/dcIQdlud88c/w-d-xo.html
Already covered on the video of china’s energy crisis I believe
This! I would love to see a more detailed video on an energy backed currency. I find the idea absolutely fascinating!
I think that would be interesting, or basically low entropy as a currency
I agree with almost every part of this but there is a major difference between the belief that gold has value and the belief that the dollar has value: Scarcity
You should watch someone who actually know economics not some man with some fancy editing.
Tellurium, paladium, platinum, and osmium are all rare metals as well. Why is only gold didcussed?
@@Toodyslexicforyouhe also shouldn't listen to what some random idiot on the internet says
@@pllatypusmeamo2388 Some people don’t want a degree in economics just to understand why gold standard is BS, people have lives, If don’t have a degree In politics then we’ll don’t bother voting as reading the newspapers is same as a random idiot, there are some actual PHD geezers on this platform, than an Aussie who think we’re gonna go into hyperinflation🤣
USD is scarce enough to be considered money. Sure, you can print more dollars, but the scenario that every believers of gold standard of the Fed printing "too much, too fast" won't happen.
Congrats on the first academic use of the word "pillaging" I've ever encountered.
The training wheels analogy is terrific!
Also the bit about how the value of Gold itself is set by belief/the market.
The exact same mechanism that sets the price of a currency.
For why deflation is bad go look at last week's video
*Goes to look at last week's video
Deflation is unsustainable. See our video from last month to see why.
I feel like every time someone tells me deflation is bad there's slight of hand. If a paint factory gets a new machine that doubles paint output, cool. I can paint my fence twice as often. We live in a better world. For economic leavers to then be pulled to double the cost of paint so I'm back where I'm started makes the whole exercise seem pointless. Also the productivity exists so if I'm not seeing the benefit then who is? I'm starting to suspect that only the rich would be worse off with deflation and that's why it's becoming the prevailing wisdom, but you're never going to have a janitor appointed to a central bank.
👍
Exactly man. I wanted to buy a new gpu last year and because of the supply issues price had gone up loads. I held off my purchase because I expected it to go down. Eventually it fell enough that I was happy with the price. If i thought they were going to go up I wouldn't have bothered ever buying it as I didn't see the value. So someone now gets my money and I get a gpu rather than nobody, win win.
We hear all the time over history that the rich could only afford windows, cars, curtains etc. The greatest example I always think of is food. If we had central banks and modern monetary policy 1000 years ago we'd probably still be spending all our income on eating and nothing else.
The problem with the criticisms of deflation is that people always eventually have to buy. If I hold off a car purchase my current car will eventually stop working and I will have to buy, regardless if I think it will be cheaper next year. The same can be said for pretty much all the items you own. Eventually you will have to buy the things you value.
Shoes were expensive when they were made by hand. Factories made them cheap. Now most can afford multiple pairs. That’s deflation. Deflation is bad?
Just as a warning, this is pretty long-winded so it'd probably be good to put on some reading glasses or something.
This example seems to make sense, but you should keep in mind supply / demand would reset that price of paint back to the 1/2 that it would have been without a change in the amount of money in circulation. But it still is twice as expensive as it would have been RELATIVE to your savings. In this example (in which inflation occurs), you would be best off to try to spend your money from your savings before it lost much of its value. And on a macroeconomic scale, this faster rate of money expenditure leads to a more productive economy.
But now let's say that rather than inflating, the value of money actually increases. Now, you can buy twice as much paint as before! Great! Or twice as much gold. Or silver. Or stocks. Or real estate. All things that would be great. But if you expect that this trend will continue, it would be even more wise just to keep that money saved up. In another month, maybe you can double your purchasing power again. In this scenario, you would spend much less of your money from your savings account, keeping that money away from the larger economy. This leads to less productivity on a larger scale, as people are much less willing to purchase goods or services.
And, by the way, deflation would actually be by far the most helpful to the richest people in a nation, as they have a lot more money that's free to be saved. The rich have the ability to spend a much smaller portion of their savings every year due to their immense overall wealth. Over time, that money would grow in value. This means that in reality the ultra rich would have the most to gain by creating deflation.
This type of macroeconomics, like quantum mechanics, goes completely at odds with what we experience on a day to day, personal basis. That's why almost everything is counterintuitive. But in reality, deflation would likely spell disaster for the economy as a whole. If you'd like, I've linked some additional resources below.
th-cam.com/video/a9YrwaKhNjg/w-d-xo.html
th-cam.com/video/ZLLDyoKsR8k/w-d-xo.html (skip to ~2:35 for the deflation question)
A person who lives in a society is never just a consumer, they are either themselves a producer or living off of a producer. Everyone needs to either earn money or need someone to earn money for them if they want to live in civilization today. When depression happens the producers earn less i.e. after a 2x depresion you need to work twice as hard as before to earn what you earned before. Its not just the rich that suffer in a depression, everyone does.
I have been a long-standing opponent of the departure from the gold standard, but this is the first explanation I’ve heard that’s convinced me it wouldn’t have been the best idea to stay. My only caveat here is that the geniuses they continue to put in charge of the Fed don’t seem like they can get very far without those training wheels provided by currency backing.
Fed is not the main problem, but irresponsible governments that have no breaks to stop doing stupidities. Central banks only act accordingly.
It was impossible to "stay" at that $ to Au-oz rate ... the $-creation abuse had occurred long before, so there wasn't enough Au-oz to cover the likely redemptions/ run on the US Treasury. Undiscussed is whether a revaluation to a higher level, and commensurate disciplining of the US banking & gov't systems to cease $-creation beyond Au-oz backing, may have avoided the Crony Corporate Creditism that now reigns under the old moniker "Capitalism".
The fed does what big money wants so they shoukd have been slowly raising during the 10 years of economic growth we just saw.
A lot of financially illiterate people oppose fiat currency, and promote the gold standard. It’s the mount stupid economics.
I've heard it said that the Fed's goal is too narrow: they're only tasked with getting the perfect rate of inflation, and they don't have the authority to do anything outside that.
Well you can have goldbacks as a volunteer currency based on the partial portion of an ounce of gold embedded in it which can actually be used in tandem with the us dollar as it will not in reality go against the dollar but in a way to help counter inflation. And with goldbacks in circulation within communities with local business could help keep the goldbacks currency recycled within their own community and towns several times.
Really great analogy with the bikes/training wheels!
The GDP chart at 15:00 is not adjusted for CPI or any other inflation metric, so obviously the previous period holding the record for high inflation would have higher nominal GDP growth than the period of relatively mild inflation before it. Not a very convincing argument. When adjusted properly for inflation, the period 1951-1971 saw a real GDP growth of 210%, while the 1971-1991 period saw a real GDP growth of 183% (source: FRED). Pretty lazy to totally ignore inflation in a video about the gold standard, and it's disingenuous to then argue that the fiat standard was better given that it wasn't in real terms.
The thing is though up until 1970, productivity and wages rose hand in hand and then wages have largely been flat. Also the calculation of CPI has been tweaked to make inflation look more favorable.
Coming off the gold standard didn't lower or flat line wages that was due to poor union advocacy and the federal government refusing to increase the minimum wage because they were paid off by lobbyists.
@@BiigiieCheeese and why did the corporations and lobbyists and banksters and billionaires gain so much wealth and power after the end of the gold standard? Because the fiat standard is designed to advantage them over everyone else.
@@k98killer Kinda convenient that tou ignore the wave of neo conservatism that led to lower taxes on the wealthy across the board in this time period and instead attribute it all to fiat. As if the gold standard didn't also have an absurd wealth disparity growth to begin with.
@@stephenjenkins7971 The saying in politics is "follow the money". So when we follow the money that supported the rise of the neocons, what do we find? A corporate cartel led by international bankers. Gold used to provide a check and balance against the power of the banksters and their political pawns, but it ceased to do so starting in the 1950s with the growth of the eurodollar system. It isn't fiat currency per se that is at fault -- it is unchecked ledger money creation controlled by banks that is the root issue. Gold lacked the divisibility and velocity to service a global economy, so ledgers were built that used gold for periodic settlement; the emergence of our current system was theoretically inevitable, as were the political ramifications.
13:20 Even tho its called the "gold standard" it doesn't mean that gold standard advocates mean only gold. Silver can be used as well. To pay for everyday goods. Not everyone can have a kilo of gold but most people can have a kilo of silver. We have enough silver for every human.
No we don't.
There isn't enough precious minerals on the planet to back even the economy of the United States, much less the world. Nevermind the fact we actually need things like gold and silver for the production of goods (particularly electronics) and not being used as currency.
And what makes silver valuable? At the end of the day precious metal currencies rely on the belief that the currency has more value than their productive output. If this belief collapses then the gold standard collapses, which is identical to what could happen with fiat currency. Any reserve currency (whether fiat or gold standard) has to have more value than it’s productive output. Otherwise having the currency (or material) on hand will cause it to devalue creating hyperinflation, and shortages will cause deflation and economic contraction.
Most of Gold's "value" is a collective belief that gold is pretty and thus worth more than any other metal that has far more utility and thus true commodity value.
Short answer to your thumbnail question: Yes.
I would counter the “pro QE” chart and argument shown in the moments following 10:58 with the fact that inflation was hidden by excluding housing and through the ever increasing use of cheap plastic products in place of real proper furniture like closet organizers.
Financial repression is evil, it reduces the motivation to work. It’s easier to just speculate on assets instead of working.
@Julio Altamiranda I would caution you not to be too fixated on gold. Inflation can happen even in a scenario with no money supply growth including gold standard scenarios. A simple example is if a lot of gold is mined out of the ground. The more scary scenario is if the supply and production of other goods and services gets drastically reduced. Even solid bars of gold can experience “inflation” if an exceptional volcanic eruption goes off and food crops fail worldwide from a terrible season or terrible several years. The price of food would make gold feel “worthless”. Now that’s obviously a very dystopian and unlikely scenario but the purpose of this is to run you through some thought experiments and to point out that inflation can actually occur without money printing.
It would be so much more simplistic and clear if we define inflation purely as the inflation of money, not the change of prices which can be affected by thousands of factors, production, logistics, natural disasters, things that shouldn’t be the job for economists. But no. How about we mix up everything and just say nonsense words like “supply chain caused inflation” so that people forget we just printed 40% of money this year? Brilliant.
@@moonshadow7057 Why is supply chain caused inflation nonsense? People were in lockdown and didn't work, therefore shortages, therefore prices go up. Pretty simple.
@@cstrouts because price increase is nit inflation, just like during pandemic every experts were promoting “social distance” when they actually meant “physical distance”, people weren’t and shouldn’t socially distance themselves, there were Zoom, Instagram and so on. The problem is the corruption of language, they’ve redefined inflation is a synonym of price increase, that’s nonsense
@@moonshadow7057 The term is “Money Supply Growth” often referred to as M1 M2 etc. It is completely separate from inflation. It is possible for money supply to grow without causing inflation, as long as the supply of “stuff” we buy also goes up in lockstep. So if new factories, farms, bakeries, etc. are opening making stuff we want, money supply growth balances it out and actually prevents deflation.
I agree with the rest of what you’re saying in your last reply though, they printed a mountain with no fundamentals, no increase in productivity and now it shows.
Gold wasn't the only valuable metal we used as an exchange . You haven't even spoken about the removal of silver from coined currency & the knock on effect that might have had with the value of money.
It wasn't abandoned. It was "temporarily suspended"
"The idea does seem worth exploring."
Every idea is worth exploring.
legalizing ped0phelia?
I love your channel so much. The way you frame everything is so well thought out and helpful. Interesting and easy to understand. Can't stop watching
Too bad he’s wrong on everything
Something I always wondered; why return to gold as a standard?
It's too valuable for its practical use in electronics and semi-conductors, so why is it being put into vaults as a pegging system?
Is there any other alternative material, mineral, or physical metric that currencies could perhaps be pegged to?
Exactly, I was thinking maybe and index of finite materials
@@catsanddogs5728 The largest cache of the world's gold still sits in vaults at the Federal Reserve Bank in New York.
I don't think we should peg it to something other than the value of the economy as a whole.
bitcoin
Monkey NFTs
What gives gold value is not the mere belief that it has value. The value of gold comes from basic economic theory - people want it but it's hard to get by, i.e., a supply-demand issue. The same cannot be said for print money, as it's a gazillion times easier to increase the supply of money on a whim. Its value truly hinges on only one thing and that is our belief that it has value.
As an elder millennial, one of the few advantages is having lived through the Great Recession. My advice. Reduce unnecessary expenses, increase your savings by investing in financial markets and do not sell. One thing I know for sure is that diversifying your income can help insulate you from much of the craziness going on in the world.
True..... I'm thinking of investing in stocks or digital assets to grow my money for the first time, but I lack the in-depth knowledge and mental toughness to deal with these recurring market conditions. please any advice or pointer on how to outperform the market producing good returns
the wild idea that the economy can't grow if we don't have enough spare paper lying around.
Totally quantity of gold is limited on this planet. Therefore it's a hedge against inflation. Limited quantity of something means it can have real value as opposed to infinite printing of currency that's happening today.
In the Great Depression, buyers were willing and able to work for food, and farmers has food and we're willing and able to sell it to the workers.
A gold backed dollar made it impossible for the two to exchange their work for the food.
That's insanity. You think inflation is bad? Try mass unemployment and starvation because of a gold standard.
The answer simply has to be governments neither in a gold standard nor printing too much money.
@@jeffreysanders7334 need explanation for why gold standard made it impossible to exchange work for food
@@SiisKolkytEuroo In that specific instance, many people put a lot of money in the stock market, and the sellers of the stocks had that very good limited supply of money in a vault.
When the market crashed, a deflationary cycle happened. As most people don't have enough money, businesses started laying off people because most people could not afford to buy goods and services. The value of money increases as it becomes more scarce / out of circulation, and as it continues to be worth more and more, so too does it pay the people holding it in vaults not to spend it.
So regular people are willing and able to work, the farmer is willing and able to sell his food to the workers, but both cannot because there is not enough yellow metal to print more money to expedite the exchange.
The only option is bartering which is completely impractical and inefficient compared to money.
When money is worth too much, the gold standard needs to be abandoned. This is what happened in the Great Depression.
@@jeffreysanders7334 Yeah but this is appears to be under the assumption that the money is literally gold.
It isn’t, it was paper tender that could be exchanged for gold, they still could have had access to currency, but a lack of “money” (gold) would make it practically worthless lest they were willing to wait until the banks, and by extension US government loaded up on more gold.
However, the alternative of an increasingly devalued currency, that contributes to economic volatility (which they hide with cherry picked stats) and inequality, as opposed to a currency that actually has value due to its intrinsic value and limited supply is absurd.
Also the depression was made was worse with government intervention, the United States had multiple smaller scale downturns that DIDN’T spiral out of control due to misguided state intervention, conveniently these NOT DEPRESSIONS, occurred before the fed, and not after...
@@sulimanthemagnificent4893 Some of the things the US government did made the depression worse, yes. But the vast majority of economists say that too few people have too much money stored away in a vault, devaluing the currency to get the rich to spend it is good, and not doing so is terrible.
And this isn't subjective because we have a perfect case study. England did exactly this prescription and got out of its Great Depression very quickly.
Deflation is best cured by devaluing money. You are telling the rich, "tomorrow your money will be worse less goods, so buy today.". You can't do that on a gold standard, thus people starve to death because they don't have enough yellow metal in a vault or enough green pieces of paper, even though the economy has all the means of production still available.
Again, what is your prescription for what the government should do if a few people end up with a ton of money stored away, won't spend it, and there isn't enough liquidity to exchange labor, goods, and services of you're on a gold standard?
You seem to have a very odd misunderstanding of how gold backed money works. In a gold standard, you can only print as much as is pegged to the amount of gold you have. You can't print more or you're just not on the gold standard any more.
I've a feeling gold would've actually induced huge deflation. With how stupidly useful gold is, and how low the supply is, any currency directly backed by gold would deflate over time, as supply of gold would not be able to keep up usage.
@@writeme-zl4ju no
Or gold would become arbitrarily expensive since it has to back more and more money.
Okay I know gold is way overvalued because we blindly say it is, but lets not pretend gold is significantly better than copper for electrical applications
I’d prefer a world in which inflation was stagnant, but the tick of inflation is how people can use debt to gain wealth. My 100,000 cash house loan is worth -6% this year and my house is worth +10% more without me doing anything. Inflation is tax on people who save money and boon to those who borrow it.
Wealth creation through debt is unsustainable in the long term as it requires exponentially more debt over time to generate less and less real growth. Not to mention that rewarding debtors and punishing savers is an immoral system that encourages frivolous and wasteful consumption and discourages long term planning.
@@slop123456789 It's been happening for....well over a hundred years no issue though. And real global growth has not been shown to slow
@@goldfinger0303 Closer to fifty years actually. The world officially transitioned from a system based on hard money (gold) to a credit based fiat money system in 1971. Since then, levels of debt across the world have grown exponentially in a self fulfilling prophecy: increased national debt loads lead to increased interest payments, which cause bigger deficits, which in turn increase the national debt load (etc). Such a system can only function for so long - hence why I said it is unsustainable in the *long* *term* .
@@slop123456789 The Breton Woods system isn't exactly the same as the gold standard, which died in...1933 or so? And "wealth creation through debt" is more an accusation against the modern capitalist system than a currency system, which is where my hundred+ years comment comes from
@@goldfinger0303 To be fair he (initially) did say “hard money”, not necessarily the system by which it was kept/administered.
Though I suppose I shouldn’t be speaking for others.
Question from a total amateur-- What is the basis for the total devotion to GDP to measure "health" of an economy? If I, as an individual, spend every dollar I earn, then go into debt and spend far more than I earn, is that an aspect of economic health? By this logic, I'm hurting my economy if I save money for a rainy day, live frugally, and match my lifestyle to the realities of my economic situation?
I'm trying to think of an analogy. If I have healthy cells that grow, divide, die, and respond to natural needs, that's good. What's it called when my cells divide and grow completely uncontrollably? Super Health?
I love this comment, thanks for the analogy. Gave me a chuckle
I think going off of the gold standard was inevitable. I know our current system has issues, but the gold standard allowed for very little financial flexibility and can’t really accommodate the level of economic growth that we’ve had.
For the graph at 15:15 does that 6x increase take into account inflation? Are those real dollars or nominal dollars.
I think he forgot about the gold standard that happened before the bretton wood system. The reason why the US went off the Gold Standard was because it restricted the Federal Government from market intervention. From the Great depression Hoover and Roosevelt both intervened in markets to try and encourage spending for economic output. Government started printing money which forced them to go onto a fractional reserve gold standard in the 1930s. Then in the 1960s, the government was printing more money which triggered foreign central banks to redeem US dollars for gold.
On the point of currency stability. The average inflaion under a gold standard for the US from 1790 to 1913 (which was when the Fed was founded) was 0.5%. Yes, average inflation which means that there was deflation. However somehow modern-keysian economics say that deflation is somehow evil and bad for the economy as potential price spirals may occur. But haven't prices decreased overtime due to technological developments and economies of scale (even with inflation). Or what about sales at the mall, people don't wait for more sales they buy before prices increase.
Now onto the point of central banks setting interest rates with a gold standard. The central bank should not be able to set interest rates. If interest rates are meant to stimulate spending and investment, or decrease spending and investment isn't this the same as a central planned economy determining the output of goods; and don't we know the hisotry of central planned economies.
My final point is that there is no such thing as a responsible government. Politicians are voted in who have been "sponsored" by special interest and corporations who want something in return. The Politicians don't have to raise taxes, they can just print more money to pay their special interests and sponsors. There will be a time when the US will not be able to pay off it's debt. As interest rates increase - as we can see at the moment - the interest will soon surpass national GDP (this is excluding current spending), then what happens default?
I usually don't post comments under TH-cam videos, but I feel the need to show you my appreciation sir.
@@marconapolitano2821 I don't usually post under youtube videos either but I feel that we are at a time in history where something has to be said. Thank you very much I really appreciate it!
I get your points, but how would a non-central bank system work?
@@sulimanthemagnificent4893 Great question. To start I want to establish the so called role of the Fed and other central banks. The main roles of the Fed include: transfering funds between banks, issuing currency, bank regulation, lender of last resort and most popular is monetary policy.
Before the Fed, clearing houses were used to clear transactions of cheques and other monetary transfers between banks. Some contemporary clearing houses include Mastercard and Visa.
Issuing paper currency. Central banks, most notably the Fed just print trillions out of thin air. It does this buy digitally buying Treasury Bonds. When the Fed was founded it was not allowed to buy T-Bonds. Up to the 1930s individual banks would issue paper currency redeemable for gold, this restricted government and provided greater freedom and property rights to the American people.
Bank regulation and lender of last resort. Previously, Clearning houses would audit and qualify banks for membership. If banks did not meet requirements they would not be allowed membership. Also, these same clearing houses provided the lender of last resort facility.
Now onto Monetary policy. Central banks conduct monetary policy to control inflation. They try to achieve this by raising and lowering interest rates. As mentioned before, inflation was well under control with a gold standard. Interst rates should be set by the free market on the amount of deposits to loans. Meaning that when there is more demand for loans interest rates rise.
When interest rates are set artificially low by the Fed, there is a high demand for loans. This is why there are constant bubbles in the real estate and stock markets. Then when the Fed raise rates they pop the bubble (The 2008 financial crisis was a typical example of this). That is why interest rates have continually gone down over the years as politicans and central banks want to kick the can down the road.
One more point, fractional reserve banking destabilises economis very quickly and should be abolished. Yes, it restricts banks from lending to an extent, but that is for a reason. The Amercian people had to bail out the banks as they had no reserves.
This guy gets it. I couldn't have said it better myself.
The severing from the gold standard was actually supposed to be temporary…. In politics this means permanently 🤡
Income taxes were supposed to be temporary too.
@@mariusvanc America is a ponzi scheme/ tax farm
@@mariusvanc First I've heard that. It was literally added to the constitution, so how could it ever have been temporary?
@@protox4 In other points in our history it was utilized temporarily as in 1861, for war taxes essentially.
In 1895 the supreme court decision of Pollock v. Farmers' Loan & Trust Company deemed it unconstitutional.
“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration” -16th
The 16th amendment overruled the supreme court decision, which is an argument in itself whether something deemed unconstitutional should ever be overruled by legislation after the fact.
Key word here in the quote is shall have power, which today is permanent, but I see it as congress having the power to impose income taxes when needed not necessarily that it has to be permanently imposed.
However since Congress is granted that power, the interpretation of it is unfortunately at their discretion.
If you are not in the financial market space right now, you are making a huge mistake. I understand that it could be due to ignorance, but if you want to make your money work for you, prevent inflation from eroding your savings, build generational wealth, and cultivate good habits and financial knowledge, you must be in the market.
You are right.!
14:12 graph shows the gdp growth. This graph is almost like a carbon copy of inflation. All fiat currency goes to 0 eventually. Gold has been around a lot longer than any fiat.
One of the central fallacies here is that “not enough cold exist.”
The amount of gold does not matter, prices adjust to the amount of gold.
Money supply does not need to grow for an economy to grow!
That's not what the book says, dude.
Thinking is dangerous.
Consume.
Obviously, the guy has some ulterior motives, with this one.
My thoughts exacly! Can you please point to sources to read more?
To maintain price stability, the amount of money should be proportional to the amount of goods and services
Ever heard of the “Medieval Bullion Famine?”
Gold coins cannot be broken down indefinitely.
This is why generally, most people actually used silver, copper, bronze, etc. coins for day-to-day transactions.
As for a gold *standard* , **theoretically** you could raise the exchange rate to any insane number.
The issue afterwards, however, is that the growth in global gold supply is actually lower (about half) than average global GDP growth globally when accounting for the half or so of gold that gets diverted for jewelry and industrial uses.
To maintain price stability, you either have to massively increase gold production (which happened in the 19th century, being one of the primary reasons for imperialism) or change the exchange rate constantly (which basically leaves you with a fiat system *de facto* ).
Note however, Russia was/is one of the largest gold producers as well.
Usually, governments end up being forced to abandon the gold peg due to some crisis anyways (eg. Heracleus in the 6th century, basically all governments during the world wars).
"The amount of gold does not matter, prices adjust to amount of gold"?
How? If there are changes in prices... isnt gold required to do the exchange also change? And if we talked with unit(how many coin required to buy x)... the money supply need to be changed too...
I've always loved that argument that "we should return to the gold standard because money has no instrinsic value". Right, cause the price of gold is a naturally occurring phenomenom.
It actually is. For some reason people in any culture on this planet wanted to own gold.
At least gold is tangible.
It is tho
The argument about returning to the gold standard us not about the intrinsic value, is about having a fix supply of money that gold has it. Money is not about the intrinsic value is about the 3 functions of money and how good the money is at them : unit of account, medium of exchange and reserve of value
@@apokaluptisch5678 It's actually not. There have been many cultures that didn't use gold for monetary purposes.
“Mistake?!” It was, and remains, a crime.
Since 1971 prices of commodities (like real estate) grew significantly, comparing to growth of average incomes. Dropping of gold standard caused growth of inequality instead of growth of economy
That's not at all what caused wealth inequality.... That was caused by changing of the tax code which benefitted the wealthy and continues to this day.
That is correlational thinking, unless you can provide direct causational evidence why should anyone believe you?
Alchemists would be very offended. They saw gold not just as a valuable metal but as perfection itself.
Oh look, a video that mentions the gold standard. I look forward to the comments being full of thoughtful, well-reasoned people who understand the issue and watched the video.
Preach. The amount of "I haven't thought this through" is just as expected for average TH-cam comment sections.
I see your familiar with the internet, a fountain of logical and well reasoned discussion
it just gets worse the more you scroll
Comment first watch later
@@spamlogs2701 Comment first, watch maybe.
Like the videos and channel.
Thanks.
I always remind myself that the move away from gold was temporary, or so Nixon said at the time.
We're still waiting.
Very insightful!
there was also a massive crop failure in the 1930's, kinda like the supply chain failure...
This is such a simple, yet ridiculous flaw that has led to the current world:
If there is a limited ammount, it needs to flow.
Basing the economy on speculation and credits left everyone and everything at the whims of the very few who control those flows, and being Human, they cluster it to their own spheres.
Fractional reserve systems are the biggest ponzi schemes ever allowed to exist.
I'd push back a little on what makes gold valuable. One thing I didn't hear you say that makes anything more valuable is it's scarcity. It has real world applications but it's also uncommon which makes it valuable.
There are far more rarer metals that don't have more value than Gold (platinum for example) scarcity doesn't equal value. The universal belief that this yellow metal is valuable makes it a currency.
@@ghassankhan7728Of course scarcity alone doesn't make it valuable, that wasn't what I was saying. Gold has a lot of uses, not only a form of currency so that impacts it's value but something being rare, does typically make it more valuable. This is true for most things not just gold, even think of just currency. A rare coin can go for a lot more then a common coin.
Your point about the economy growing faster in the post Bretton Woods era is measured in dollar growth. The inflation difference between these two eras ate up the difference in that growth, so they were basically the same
Thanks for the work EE!
Money being backed by gold was always an illusion. Money is a device for storing time. The monetary cost of a thing is an estimate of how much time it would take to replace that thing if you gave it away.
A bottle of water at Costco, has the same intrinsic value as a bottle on a desert island. Either way it will allow you to continue living a certain length of time if you drink it. One costs $0.25 while the other would not be parted with for any amount of money. The cost is determined by the time comparison between the time needed to replace the item relative to the amount for money one can earn in a similar amount of time.
you dont need to eat gold to survive. It's just a token like seashells or glass beads. It got popular as value storage because it's hard to easly create vast amounts of it.
@@BeHappyTo Maybe we should peg the currency to aggregate land or house + land prices because it seems like everyone is so intent on those prices matching some sort of purchasing power tendency and its impossible to create more land.
@@randomyoutubebrowser5217 i dont think we can peg anymore. They have created so many schemes of stealing purchasing power from others that nothing involving current establishment and money systems will work for the people.
Money is the measure of your worth, by time worked. To the person you work for. If the money you work for can be manipulated by others do you have the right to ask for more, or obligation to refund some to the person you work for. IF the money changes value up or down?
Money makes it possible for many to produce one thing. Yet still purchase what their lives need to carry on.
Without money you have to either grow everything you need, plus the land to grow it on. Then find a way to store it until it is needed. Or barter what you have got, for what you haven't got. Better a country with a gold back currency at a set value. Than a fluctuating one that is at the whim of those who can manipulate it. Just look at a chart and ask yourself why does it look like a sinewave?
Great argument. I will remember it. Thanks!
Makes me remember the book "Making Money" by Terry Pratchett where a city in the fantasy world of Discworld comes off the gold standard.
Great value. To your last argument, yes gold has value, similarly to fiat currency, because it is "believed in." However, in the case of gold, the belief is not reliant on the stability or continued existence of one nation; it is universal. In this regard, it has stronger belief value.
The whole "gold is valuable because people believe it is" statement pretty much put an exclamation point on the whole argument 👏
True. The opposite is the U.S. Dollar is the defacto Global Exchange Currency because people (Nations) are _Forced_ to believe ... it at the business end of a weapon.
Just read 'Making money' by Terry Pratchett :)
Correction gold is valuable for two reasons one is electronics and computers. Also gold fision when we are able to. And gold is still one the rarest minerals on earth. That's the value in it. Witch is a more practical value then a piece of paper.
It's a precious material which has actual uses. Pieces of linen do not
Value is a function of people valuing something, so I'm not sure why you seem so surprised. The point of the gold standard is to protect people from the state, because the state can't that easily devalue people's savings.
“Get in the way and slow you down.” Why would we want that for our economy? You always want to crash at full speed.
Abandoning the gold standard encourages unlimited spending.
The issue with gold is that gold is too rare to allow economic growth. The problem with fiat is that it's too easy to print infinite amounts. The only actual answer is tying money supply limits directly to total economic activity. You fix the velocity of money to a range and forget about the specific quantity but add or remove it to control velocity. In that scenario inflation should be net zero.
Great video! Being from Sweden 🇸🇪 I would like to point out that Sweden was also industrialized and not bombed during the second World War. :-) I think Sweden also benefitted heavily economically from this up until the end of the 60's.
To your last statement: The value of gold is derived from its difficulty of being created. This is a very basic property of money, but very important. Money must be scarce. This is the reason why so many people are fanatics for bitcoin or gold. There IS a difference between a blind trust in fiat money, and the value of having a currency that cannot be easily devalued by those in power. I am not a gold enthusiast, but surely you must know this.
How does bitcoin have any inherent value? How does gold have value beyond as a commodity (and note that it’s current price is higher than that).
@@TheTaquitoProject Scarcity... That's what he said (I would argue that Bitcoin being traded through IOU's on centralized exchanges with margin and derivatives removes it's supposed value)
@@TheTaquitoProject Nothing has inherent value. All value is at least relative, and most value is purely subjective.
May humbly ask, what I hope is not an irrelevant question, what percentage of the US economy is financial services (Wall Street?) and when did it become so predominant?
Perhaps, a video on the rise of /impact of financial services on the economy.
Keep this in mind, no currency throughout history has ever survived! Good and silver will save you
Can you perhaps talk about the fact (or maybe theory) that the amount of money in the hands of very few grew immensely since the abandonment of the gold standard whilst the wealth of the rest mostly kept up with inflation.
Well said.