PTI should announce Pakistan is returning to the GOLD STANDARD

[hawaskapujari]

well the traditional logic behind fractional banking is that as long as the money upscaling is matched by equivalent amount in underwritten assets. its not as though the bank is increasing money without taking something of equivalent value from the borrower as collateral (well nowdays banks are doing that, but its illegal and the justice department just want follow the law and prosecute). otherwise fractional banking is a fine system. It does make a recession every few years inevitable, because the interests on money created exponentially grow while the economy grows linearly.

Asif you have to understand that while the gold standard has many advantages, it has many severe disadvantages. it is a very inflexible system which will expose an economy to severe shocks (though the shocks will be short term, if they are forced every year). the gold standard played a major role in deepening the great depression(till before FDR came in), because it made the financial system very rigid.global trade collapsed, severe deflation followed. most modern economies with very diverse sectors of industry are totally unsuitable to gold standard.

let me give a simple example.if tomorrow GE goes bankrupt, and if you apply gold standard like rigidity, will you let the company go bust and loose thousands of jobs and loose technology? or will you give them some low interest loans, or allow them to restructure loans etc and save the jobs and the technology. it takes decades to create a company like GE and there is no point letting it down the drain. now replace GE with soverign governments and think how gold standards rigidity will constrain the government in case of crisis.tomorrow hurricane kartina 2 comes, government has no money as its gold is already pledges into the money supply.what will government do?

Greetings to the Land of Lincoln resident!

I know I am odd-ball. You listen to someone and he will either talk like Keynes or Hayek or Friedman or Adam Smith. I talk like myself.

Here's the core of the problem. A classical example of Bubble is when money is counted by BOTH parties in the trade as their profit. A Bust is when 1 of those parties takes a loss. Theek? Nothing to disagree about there... right?

The problem starts with Fractional Lending. 90% of the deposit of A is lent out to a borrower - B, which he uses to go out and buy land from C. The C accepts that 90% of A's deposit as payment for the land. Notice that now A counts his 100% money in the economy and C also counts his money in the economy. This double counting of the same money in the economy is the CORE of the BOOM business cycle. Ofcourse once freemarket forces force pricing to settle, 1 party is FORCED to realize the losses. Thats the Bust cycle.
You understand this simple mechanism and you understand the cause of the great depression, the cause of "bank runs" .

For you to have an Interest free Banking, you gotta fix the monetary system 1st. Without that, its all rhetorical. Its simply not possible.

I am not a marxists. Keynesianism is like marrying one's sister.. sick, disgusting and ends in a retarded result!

I'll write more on debt and Banking later. Till then, go thru my article http://tinyurl.com/pakgoldstandard and you will get the idea where I am coming from

 

[AsifAmeer]

Tell me, what's your profession? I feel you did go to school to learn all this. Atleast thats exactly what they taught me when I was in the Uni.

Fact is, most of it has twists. Great depression didnt happen b/w of the Gold Standard. This is a lie. There was Gold pouring into the FEDS vault from foreign, but the FED simply locked it up! It issued no receipts (dollar bills) into the economy! Ofcourse, if you contract a INTACT pool of money, economic activity will slow down. You can look it up. FED reduced the money supply against the newly received gold. That extended the depression.

Also, during the Gold Standard from 1850s to 1960s.. the world was on a gold standard. Look up international trade deficits. Look up capital flights. They were all in equilibrium. With the fancy smancy high tech black-scholastic equations, we have huge global trade gaps magnifying the financial crisis. That wouldnt have been possible under the gold standard. America wouldnt have lost its manufacturing base if we were on the gold standard. Look up the correlation b/w trade deficit and job loss
https://www.google.com/search?rlz=1....,cf.osb&fp=76147c48b2eb760f&biw=1280&bih=675


I am telling you. These American Universities have taught us crap!

And why did the depression happen at the 1st place? Banks were blowing asset bubbles in American farm lands and the stock market. Remember Margin calls? yup! thats what happens when you lend something you dont own. You see its not just fractional lending. Now you got Short positions. You got the Nake positions in derivatives.

Sure, sometimes there is a need to spend, during a disaster. No one would stop the govt to devalue its currency against Gold and spend that money for reconstruction.

Problem with the GE example is that GE and all major corporations are built around this "rent-seeking" system. If this system is altered, GE would struggle but a new company would take hold. Free Market worried about itself better than u and I. hena? You gotta believe in the free-market.

well the traditional logic behind fractional banking is that as long as the money upscaling is matched by equivalent amount in underwritten assets. its not as though the bank is increasing money without taking something of equivalent value from the borrower as collateral (well nowdays banks are doing that, but its illegal and the justice department just want follow the law and prosecute). otherwise fractional banking is a fine system. It does make a recession every few years inevitable, because the interests on money created exponentially grow while the economy grows linearly.

Asif you have to understand that while the gold standard has many advantages, it has many severe disadvantages. it is a very inflexible system which will expose an economy to severe shocks (though the shocks will be short term, if they are forced every year). the gold standard played a major role in deepening the great depression(till before FDR came in), because it made the financial system very rigid.global trade collapsed, severe deflation followed. most modern economies with very diverse sectors of industry are totally unsuitable to gold standard.

let me give a simple example.if tomorrow GE goes bankrupt, and if you apply gold standard like rigidity, will you let the company go bust and loose thousands of jobs and loose technology? or will you give them some low interest loans, or allow them to restructure loans etc and save the jobs and the technology. it takes decades to create a company like GE and there is no point letting it down the drain. now replace GE with soverign governments and think how gold standards rigidity will constrain the government in case of crisis.tomorrow hurricane kartina 2 comes, government has no money as its gold is already pledges into the money supply.what will government do?

 

[hawaskapujari]

no no, i am not an economist. just an avid reader of books on economics including classical works like general theory (kaynes), wealth of nations(smith) and ricardo. i am a software dude from benares. not educated in any amrikan univ. however i think some points i wrote, you have read wrongly. Great Depr. was not caused by gold sandard, but people understood why a gold standard limits the possible policy tools to deal with such a situation greatly.so it was extended by gold standard because of the liquidity traps it cause, and trade tightening it causes, if all parties/countries involved start demanding accounts be settled in gold.

also you have to realize that while before the 2nd world war, gold standard was the norm, a modern economy of today is a phenomenally more diverse and organized system than anything we ever had. for e.g. you cannot stop crude oil production for an hour, you cannot shut down a single power plant for a few minutes without devastating the world economy.if one server at NYSE collapses for a few minutes, the world markets will go in a tailspin.so comparing todays systems with anything before 1920-30s is very hard. a gold standard simply will not work in todays complex system. what you need is not gold standard but proper underwriting of all money supply (especially secured money supply) and proper and easy mechanisms of debt write off when a default occurs.

dont get me wrong, i am a muslim and pledge some basic alleigence to the quran and the hadith. but i am also educated enough to understand what the quran says and in what context. the idea behind banning interest(riba system) for e.g. was always because of the problems of debt bondage, usury, and the fact that in those societies debts were inherited father to son.so 1 man makes a mistake, and generations of his pay the price.muslims of today unfortunately (i must say in india muslims are way more practical) read everything so literally and start berating interest.it is totally silly as we no longer (except in some arab $#$-holes like saudi) dont have debt prisons and debt inheritance and mostly strong laws against usury.

Tell me, what's your profession? I feel you did go to school to learn all this. Atleast thats exactly what they taught me when I was in the Uni.

Fact is, most of it has twists. Great depression didnt happen b/w of the Gold Standard. This is a lie. There was Gold pouring into the FEDS vault from foreign, but the FED simply locked it up! It issued no receipts (dollar bills) into the economy! Ofcourse, if you contract a INTACT pool of money, economic activity will slow down. You can look it up. FED reduced the money supply against the newly received gold. That extended the depression.

Also, during the Gold Standard from 1850s to 1960s.. the world was on a gold standard. Look up international trade deficits. Look up capital flights. They were all in equilibrium. With the fancy smancy high tech black-scholastic equations, we have huge global trade gaps magnifying the financial crisis. That wouldnt have been possible under the gold standard. America wouldnt have lost its manufacturing base if we were on the gold standard. Look up the correlation b/w trade deficit and job loss
https://www.google.com/search?rlz=1....,cf.osb&fp=76147c48b2eb760f&biw=1280&bih=675


I am telling you. These American Universities have taught us crap!

And why did the depression happen at the 1st place? Banks were blowing asset bubbles in American farm lands and the stock market. Remember Margin calls? yup! thats what happens when you lend something you dont own. You see its not just fractional lending. Now you got Short positions. You got the Nake positions in derivatives.

Sure, sometimes there is a need to spend, during a disaster. No one would stop the govt to devalue its currency against Gold and spend that money for reconstruction.

Problem with the GE example is that GE and all major corporations are built around this "rent-seeking" system. If this system is altered, GE would struggle but a new company would take hold. Free Market worried about itself better than u and I. hena? You gotta believe in the free-market.

 

[hawaskapujari]

as far as the free market is concerned, there is a strong argument to be made that when adam smith said "the hand of god", he clearly said that "under conditions of perfect equality, a free market would lead to the best outcomes". one other exconomist from whom I have learnt a lot, says the smith, ricardo amd mill etc coined the phrase free market to mean a system free of rent-seekers. so there is in my opinion still some doubts as to what the term free market should mean in the sense of adam smith. i have no idea whether a free market will work, but i do think it is impossible to create the "conditions of perfect equality" to check whether free market works.

 

[AsifAmeer]

Even though I differ with your views on Economics and free market. I can honestly say you are the 3rd most well-informed user I have bumped into.

About religion. If I were an Athiest, and if I had bumped into the Islamic concept of partnership, I would have advocated for that! This isnt out of religion. My conviction to this idea is because of its fairness. And dont just think of debt from a consumer's point of view. Look at it from a Monetary point of view.

With all the recent innovations, I think gold makes more sense. Again, I will repeat that when banks lend out money, they create this phony economy based on that fake saving. Because that money is being counted in the economy twice. Its the banks that are creating this rent-seeking system. And you're right. This isnt a free market. Its something that looks like a free market. Lets cover the basic rights 1st.
1. I have the right to be free i.e. I cant be anyone's property (banning slavery)
2. I have the right to my fruits of labor.

With this said, lets make sure these very basic rights are protected. When we had a gold standard, the Govt had a sort of check on them and it stopped them from violating the 2nd right I mentioned above. What you called the rigidity of the Gold Standard, is what I call market discipline. If you dont have the money to buy that Ferrari, why should that car be given to you? Same goes for the Govt. Govt is nothing different that a group of ppl agreeing on some common laws/agreements. Why should the Govt be any different? I understand the urge to let Govts have a free lunch because "they can fix the economy". No they cant. They never have. And besides, diluting the currency to stimulate the economy steals from my fruits of labor (and the rest of the world, since dollar is a global reserve) Read my article
http://www.siasat.pk/forum/showthre...91Mighty%92-Dollar-My-Article-at-TheNews-Blog

Look at me dude.. Do I look like some hard-liner mulla to you? I am talking merely from an Economics point of view. About the debt slavery, did you know that in Islam, the financier takes the financial loss and not the borrower? So much for the fortress of Islam..

no no, i am not an economist. just an avid reader of books on economics including classical works like general theory (kaynes), wealth of nations(smith) and ricardo. i am a software dude from benares. not educated in any amrikan univ. however i think some points i wrote, you have read wrongly. Great Depr. was not caused by gold sandard, but people understood why a gold standard limits the possible policy tools to deal with such a situation greatly.so it was extended by gold standard because of the liquidity traps it cause, and trade tightening it causes, if all parties/countries involved start demanding accounts be settled in gold.

also you have to realize that while before the 2nd world war, gold standard was the norm, a modern economy of today is a phenomenally more diverse and organized system than anything we ever had. for e.g. you cannot stop crude oil production for an hour, you cannot shut down a single power plant for a few minutes without devastating the world economy.if one server at NYSE collapses for a few minutes, the world markets will go in a tailspin.so comparing todays systems with anything before 1920-30s is very hard. a gold standard simply will not work in todays complex system. what you need is not gold standard but proper underwriting of all money supply (especially secured money supply) and proper and easy mechanisms of debt write off when a default occurs.

dont get me wrong, i am a muslim and pledge some basic alleigence to the quran and the hadith. but i am also educated enough to understand what the quran says and in what context. the idea behind banning interest(riba system) for e.g. was always because of the problems of debt bondage, usury, and the fact that in those societies debts were inherited father to son.so 1 man makes a mistake, and generations of his pay the price.muslims of today unfortunately (i must say in india muslims are way more practical) read everything so literally and start berating interest.it is totally silly as we no longer (except in some arab $#$-holes like saudi) dont have debt prisons and debt inheritance and mostly strong laws against usury.