Gold Standard vs Fiat Currency

[Seraph]

In talks of the impending financial apocalypse, a complaint that comes up often (particularly among the Ron Paul crowd) is that currency is no longer backed by a tangible substance like gold and is completely fiat (backed by human faith and legal declaration), making currencies vulnerable to inflation over time which could potentially lead to hyperinflation and the complete destruction of a currency, like what happened with Zimbabwe. However, many economists say that it was necessary to ditch the gold standard in the 1930s (in practice at least, the US formally left the gold standard during the Nixon Shock) and returning to a metal standard would be disastrous, and that metal standards result in horrible deflation over time, part of what happened during the Great Depression.

What say the people of G&S? What is the ideal form of currency? If there is a massive currency collapse around the corner, what can be done to save it?
Personally, I think the value of gold is just as "imaginary" as paper money backed by nothing, as gold has no value unless people assign it value. I can see the value of having a currency where the quantity is determined by nature rather than the will of a central bank, but at the same time a component of a healthy economy is the ability to introduce more money into society over time as population and economies grow.

[Stu]

The difference is that Gold and Silver have always been money (not currency) throughout much of human history.
And in times of crisis the value thereof always increases, and what passes for money.

Just look at the amount of gold China is buying right now. As soon as they realised they had been conned into buying worthless US treasuries, as soon as their eyes opened to the reality, they started buying gold and silver at a fast and furious pace and have never looked back. Now they are selling off their worthless treasuries, just enough every month so as not to spook the market.

Gold and silver have always represented true wealth and money and will remain that way, especially in times of crisis or upheaval.

[Seraph]

Perhaps they make a safe short term investment then, but as money they don't really work in the long run. What happens when the population and economy have expanded to a point to where there's just not enough money to go around anymore?

In a total state of panic, what real practical value do soft precious metals have? If the system breaks down and people no longer have reason to acknowledge gold and silver as valuable anymore, they're no better than dirt. Before gold and silver were used as money, salt and aluminum were very valuable substances to possess, even used as money. Today, they're not considered nearly as precious.

[PeteSinCA]

Regardless of the form, money is always dependent on its acceptance. The hyper-inflation experience in 1920s Germany and modern Zimbabwe came of government printing so many Marks or Dollars that the acceptance value of the note came close to (or became) the value of scrap paper. As Larry Norman pointed out is one of his songs, the value of gold or silver is not absolute or intrinsic: "A piece of bread could buy a bag of gold."

Speaking more practically, the problem with paper currency and coins made of common metals is that governments frequently cannot resist the temptation to pint or coin lots more "money" without any corresponding value in the relevant nation's economy (aka "inflation"). Metals such as gold and silver are relatively scarce and desired by people ("acceptance"), and cannot be created in mass quantity from paper and printing presses.

Any large and sudden economic change entails large-scale change/disruption.

[Stu]

Perhaps they make a safe short term investment then, but as money they don't really work in the long run. What happens when the population and economy have expanded to a point to where there's just not enough money to go around anymore?

In a total state of panic, what real practical value do soft precious metals have? If the system breaks down and people no longer have reason to acknowledge gold and silver as valuable anymore, they're no better than dirt. Before gold and silver were used as money, salt and aluminum were very valuable substances to possess, even used as money. Today, they're not considered nearly as precious.

Obviously you can't eat gold or silver so for the average person it would be wise to stock up on food, ammo, water and so on.
But there is only so much you can buy or store, so practically if you want to ensure total wealth preservation you need to then trade up your fiat for gold/silver.

Also I can understand for the individual gold and silver might not seem to be worth much practically but in terms of governments precious metals will be crucial in setting up any kind of worthwhile system.

[Seraph]

I can see both of your points. Great posts guys

[Furstentum Liechtenstein]

OK. I will send you a kilo of bread for every kilo of gold or silver you send me. You need not pay shipping costs: you may send your precious metals on my UPS account!

I also accept diamonds and certain semi-precious stones. PM me for full details.

FL

[Jac3510]

OK. I will send you a kilo of bread for every kilo of gold or silver you send me. You need not pay shipping costs: you may send your precious metals on my UPS account!

I also accept diamonds and certain semi-precious stones. PM me for full details.

FL

I'll take the fiat money. The shipping cost is less.

[PeteSinCA]

OK. I will send you a kilo of bread for every kilo of gold or silver you send me. You need not pay shipping costs: you may send your precious metals on my UPS account!

I also accept diamonds and certain semi-precious stones. PM me for full details.

FL

You probably know this, but Larry Norman's song was speaking of a future time - according to his understanding of Biblical prophecy - so very extreme that even gold would lose its value. A time such as the few centuries of chaos after the Roman Empire might be analogous, in the sense that gold had no value unless the possessor had the power to protect it in times of retention and at times of use; in those times and specific circumstances gold could be a burden or a danger to the possessor. Obviously an extreme circumstance, but will an economic collapse be less chaotic?

[Stu]

What is money? Why does Gold and Silver retain it's value? Found an interesting vid people might be interested in.


[youtube]http://www.youtube.com/watch?v=OQWMd_NPSBA#t=647[/youtube]


And of course the ever-popular The American Dream. If you haven't seen this one yet, it's well worth a watch.


[youtube]http://www.youtube.com/watch?v=tGk5ioEXlIM[/youtube]