First, I am not sure what charts, Karl, you are looking at outside of the charts of gold priced in terms of the dollar and other currencies. Wouldn't it make more sense to think it was the paper currency fluctuating around gold, since the supply of gold rarely in all of history has increased dramatically.
Which has nothing to do with the point under discussion.
What Robert Wenzel apparently was upset about was my calling out Ron Paul.
Robert, of course, only counts inflation (and deflation) rates post-Fed. But that's dishonest. It's like saying "This is the fastest horse that has ever run the Belmont!" - but only looking at years after Secretariat ran away from the field - and all previous records.
Dishonesty*****es me off.
Especially when it takes only minutes to discover that in fact data on currency valuation - that is, inflation and deflation measured in prices - does exist going back to the 1600s for the territory known as The United States!
What I said in that response is that a "gold standard" (or any other hard money) has a known historical correlation with extremely violent swings in the value of the currency.
Extreme, violent, and impossible-to-plan-for swings in valuation and prices that in some cases have reached as high as 40% within the space of a couple of years - swings that did and always will produce ridiculous levels of economic suffering.
You have to be a sadistic bastard to argue for that sort of economic outcome.
While it is true that over long periods of time hard currency maintains purchasing power against the reference (whatever that reference is) that's a tautology and irrelevant. A currency that is convertible against a gallon of***** will always have the value of a gallon of*****. The real question is what is the underlying "asset" that backs the currency worth in utility terms. Gold, in that realm, has only somewhat-more utility value than said gallon of***** - other than incidental dental and industrial use it's primary "value" is that people like it.
People liked Tulip Bulbs too.
The problem with such a tautology-based argument is that it's immaterial when you're the one who buys something on credit and then 40% deflation in purchasing power occurs over the space of a year or two, forcing you into bankruptcy since your debt burden goes up by that same 40% compared to your wages and accumulated savings!
The other nasty lie behind these swings is that they're "natural" or "unavoidable." They are in fact anything but. These swings are engineered by the banksters - precious metal production and distribution is in fact controlled by a cartel much smaller than private credit grantors (in fact, a tiny fraction) which is a monstrous problem for those who find themselves in its maw. These people have a several-hundred year history of intentionally manipulating the production of said metals to cause both inflation and deflation, thereby literally stealing all of the hard assets by intentionally bankrupting the people.
In point of fact it is a matter of historical record that post-Revolution the British Banking Interests attempted to bribe the new Congress, with their goal being to get them to agree to a single monetary standard - gold. Their goal was singular and clear - they intended to win by subterfuge and bribery that which they had just lost through the business end of muskets!
The British Bankers failed, incidentally, but not for lack of trying.
Wenzel seems to believe that somehow gold-backed currency "fixes" this. He's full of crap. The proof of this is found in the historical inflation/deflation chart above, along with the fact that there were horrifying deflationary depressions and inflationary races during the period of time that this land was on "hard money." Nor is this history confined to the United States - the number of boom/bust credit cycles exacerbated by hard-money supplies that are manipulated by a tiny cartel is a matter of historical fact worldwide - from the South Seas bubble to TulipMania and more. Indeed, the fact that such credit bubbles have been a constant throughout written history while for what is arguably a majority of that history monetary theory was tied to gold and other precious metals is solid evidence, if not hard proof, that the existence or absence of a hard monetary standard has nothing whatsoever to do with that which ails said monetary systems.
How long would you like to try to fight this?
That spread, incidentally (3%) is approximately that between output and credit since the 1950s - under The Fed. You choose only when you'd like the reversions to the mean to occur - not whether they will. This is 30 years worth (roughly 1980 forward) which is bad news, but this is what happens if you keep trying to deny reality no matter whether your economic system is based on a hard currency or not:
When did you say you'd prefer to take your pain again?
As I have repeatedly asserted the problem is not the currency base, it is the unbacked issuance of credit - that is, the issuance of credit unbacked by an asset of any sort.
Since it is a mathematical certainty that the lending of capital will always result in two exponential functions (credit/money supply and economic growth) which have different exponents, and since the profit motive guarantees that the interest rate charged to lend capital will always be positive in real terms since nobody intentionally lends at a loss it is thus a mathematical certainty that these two functions will, over time, diverge and "run away" from one another.
The above two charts are mathematical facts and no amount of hand-waving or attempted obfuscation with so-called "hard money" nonsense changes them.
This mathematical fact in turn makes recessions mandatory to restore balance during which imprudent lenders and borrowers both go bankrupt. We choose only whether we allow the free market to act in this fashion or whether we distort that market and make the inevitable swings worse than they would otherwise be.
Wenzel, along with others, believe that "if we only had hard money" we'd avoid bubble dynamics and thus avoid the inevitable pain. He and others who similarly believe this crap are dead wrong and the history of economics proves it. That he and others (including people like Bernanke) refuse to extract their head from their ass long enough to recognize that fifth grade mathematics controls the inevitable economic cyclicality that must occur in any monetary system where one can lend capital - no matter the monetary base - is alarming.
These facts are both so obvious and so easy to understand with just a few minutes with a calculator or Excel that it leaves me with no option but to conclude that those who refuse to publicly accept and propound this fact are doing so for some ulterior purpose or motive. We then are left only with an attempt to discern what that ulterior purpose is.
The Fed's mandate to regulate credit and monetary aggregates along with the mandate to maintain stable (dictionary: unchanging, constant) prices, both of which are black-letter law, if followed, results in a pricing environment with modest swings above and below the "zero line" in inflation.
This in turn results in both stable long-term currency value and avoids the monstrous "boom/bust" swings between inflation and deflation that are inevitable when one has hard-backed money with the monetary base under cartel control.
That The Fed has not done it's legally-mandated job does not mean that the propounded alternative that these people look toward would work better. It would in fact be worse and the proof of this is found in the historical record - it was done their way for an extended period of time and it was worse.
Yes, we have a major problem with The Fed. Yes, The Fed is broken. No, the solution is not "hard-backed" currency where the backing is controlled by a cartel, thus giving the cartel holders - the big banks - the ability to perform even more theft than they're performing now!
Pull it out Mr. Wenzel - there's light out here, and it's found in the historical record and the basics of arithmetic - a basic understanding of which should be a prerequisite for propounding on economics and monetary theory on the web - or anywhere else.
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