Comment by daedrdev
2 months ago
No, physically backed currencies will not return because physical goods do not correlate with the size of an economy, especially the amount of gold
2 months ago
No, physically backed currencies will not return because physical goods do not correlate with the size of an economy, especially the amount of gold
Gold-backed currencies, and even Bitcoin, are really good if you want your economy to be only this big, and never grow bigger. Eventually, a crisis will happen, and you'll say "actually, its now 1.3 yuan to the gram, because we need to build tanks", or "actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines", or "its now illegal for citizens to own gold, turn it in at your nearest party headquarters" (even the US participated in that one!)
If the government not sticking to a backed currency is one of the biggest concerns, then that's quite high praise of the concept in and of itself! In any case the amount of currency does not determine the size of an economy. Rather the size of the economy determines the value of the currency. As economies grow in a system with relatively finite amounts of currency, the currency simply becomes worth more - people become overall wealthier and things become overall cheaper.
This is how you get things like the elderly generation thinking people are just lazy - when they were young, you could fully fund university and have enough for a down-payment on your first home through a part time job. The dollar just went much further. They don't really understand that's not the way things are anymore, especially as most are largely detached from the broader economy.
Also the 'crisis point' you mention is similarly an issue with fiat currencies. Look we're going to print a billion dollars just this once... then 10 billion... then 100 billion.. then they're printing money by the trillions and insisting that the inflation will just be 'transitory', because it always has been, until the one time it isn't. It's akin to somebody arguing that you can always put a bit more air in the balloon - after all it hasn't popped before, so why would it now?
> the size of the economy determines the value of the currency.
Economies do not grow if their currency is deflationary. If currency gains value over time, actors in the economy are disincentivized from transferring their money to other actors. Less spending means less economic activity; fewer businesses; less investment in high-risk technology research; loans get more expensive; we get stagnation and wealth inequality as individuals with money continue to accumulate it without any incentive to spend it with those who do not have as much.
"But we're in an inflationary environment right now, and there's still extreme wealth inequality" -> That's because our glorious leaders (sarcasm) found a non-currency thing they could subject to deflationary forces: Assets, like stocks and real estate. This was the effect of post-2008 monetary policy; all that extra money had to go somewhere in such a way where it would not cause significant inflation of the monetary supply, so it flooded into assets, which caused a deflationary effect there. Sure, Jeff Bezos has a few tens/hundreds of millions of actual-dollars; but his true wealth is his tens of billions in Amazon stock, which has jumped from ~$4 to ~$250 in the past 20 years.
I don't need to be convinced that printing too much currency is a bad thing and can cause too much inflation; its a matter of degree, not direction. Some might say that we printed way too much money during COVID; but others might argue that the situation would be much, much worse if we hadn't (remember: unemployment hit almost 15% during COVID; the highest number in recorded US history). Currency inflation and asset deflation are good things; but we're experiencing too much of both right now.
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"actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines"
You cant do that with bitcoin
Sure you can. "No you can't look" is the key. All those blocks which hasn't moved in many years? They're all ours. Pinky promise.
They correlate with the size of production, which is a much better measurement than the amount of trading back-and-forth.
I know you mean it as in governments won't return to a system that doesn't let them inflate the money supply, but that doesn't mean it's a bad thing...
Being able to conduct monetary policy is valuable, even if it can be misused. Otherwise all other countries would just be using USD.
Useful to facilitate a massive transfer of wealth from the working class to the asset class perhaps.
Conduct monetary policy? I prefer the phrase “tax without consent” instead of that euphemism.
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The amount of currency does not have to correlate with the size of an economy. When the economy grows while the amount of currency stays the same then your money simply becomes worth more. For the overwhelming majority of history this was taken to be a good thing. The argument for inflation is that if money become worth more over time then it would discourage investment and encourage money hoarding.
That's probably not untrue, but that critique doesn't simply make the alternative better. Money becoming worth less, inflation, creates an arguably worse scenario where now wealthy individuals are motivated to hoard things instead of currency. For instance Bill Gates is currently the largest private landowner of farmland in the US. This issue is where you get the WEF also publishing their 'You will own nothing, and be happy.' goal. I find this more unpleasant, and even dystopic, than Scrooge nosediving into his stash of ever more valuable dollars.
Another major issue here is that lower classes are the most unable to deal with inflation. They can squirrel away some money, but in an inflationary system that's the last thing you want to do. For instance stuff like bank CDs are basically just exploiting economically illiterate individuals. Nobody wants money in an inflationary system, but lower classes need immediate access to their money for the next time e.g. their car breaks down, and they are extremely risk averse. The net result of this is a system that not only perpetuates but directly drives ever greater extremes of wealth inequality.
If you want to see how much a deflationary currency fails as a currency, just look at bitcoin. The wild value swings are caused by more people hoarding it than using it as a currency, which is caused by it being deflationary. Now look at monero, which is inflationary, is largely used for day to day purchases (of mostly illegal items) and has a much more stable value, which is one of the key attributes of a good currency.
The USD was metal based, in one way or another, from 1792-1971, with two brief interludes after the Civil War and Great Depression. That's a really good pedigree.
So our current inflationary system only really kicked off in 1971 and is already looking somewhat clearly unsustainable. But what makes this particularly relevant is that 1971 was also right when major breakthroughs in computing were about to unlock a huge economic leap. That helped briefly enable the infinite exponential growth that this inflationary system requires. Without that, I doubt this system would have seen its 50th birthday.
On the topic of stability, the Fed worked to calculate inflation levels from 1800 onward here. [1] You'll notice that from 1800 to 1950 prices never shifted by more than 50% relative to the initial baseline of 51. That's pretty wild if you think about it because it includes the Civil War, both world wars, Great Depression, Spanish Flu, and all of these sort of things. Then in just the relatively calm ~50 years from 1971 to to today, prices increased around 800%.
[1] - https://www.minneapolisfed.org/about-us/monetary-policy/infl...
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