Where the banks got the money...

[Kensington]

Ellen Brown explains the problem of the Gold-Standard and its dangers of deflation very well in her book 'Web of Debt':

Shipwrecked with a Chest of Gold Coins
You and nine of your mates wash ashore with a treasure chest containing 100 gold coins. You decide to divide the coins and the essential tasks equally among you. Your task is making the baskets used for collecting fruit. You are new to the task and manage to turn out only ten baskets the first month. You keep one and sell the others to your friends for one coin each, using your own coins to purchase the wares of the others. So far so good. By the second month, your baskets have worn out but you have gotten much more proficient at making them. You manage to make twenty. Your mates admire your baskets and say they would like to have two each; but alas, they have only one coin to allot to basket purchase. You must either cut your sales price in half or cut back on production. The other islanders face the same problem with their production potential. The net result is price deflation and depression. You have no incentive to increase your production, and you have no way to earn extra coins so that you can better your standard of living. The situation gets worse over the years, as the islanders multiply but the gold coins don’t. You can’t afford to feed your young children on the meager income you get from your baskets. If you make more baskets, their price just gets depressed and you are left with the number of coins you had to start with. You try borrowing from a friend, but he too needs his coins and will agree only if you will agree to pay him interest. Where is this interest to come from? There are not enough coins in the community to cover this new cost.

Then, miraculously, another ship washes ashore, containing a chest with 50 more gold coins. The lone survivor from this ship agrees to lend 40 of his coins at 20 percent interest. The islanders consider this a great blessing, until the time comes to pay the debt back, when they realize there are no extra coins on the island to cover the interest. The creditor demands lifetime servitude instead. The system degenerates into debt and bankruptcy, just as the gold-based system did historically in the outside world.

[youngdan]

Ellen Brown explains the problem of the Gold-Standard and its dangers of deflation very well in her book 'Web of Debt':

Shipwrecked with a Chest of Gold Coins
You and nine of your mates wash ashore with a treasure chest containing 100 gold coins. You decide to divide the coins and the essential tasks equally among you. Your task is making the baskets used for collecting fruit. You are new to the task and manage to turn out only ten baskets the first month. You keep one and sell the others to your friends for one coin each, using your own coins to purchase the wares of the others. So far so good. By the second month, your baskets have worn out but you have gotten much more proficient at making them. You manage to make twenty. Your mates admire your baskets and say they would like to have two each; but alas, they have only one coin to allot to basket purchase. You must either cut your sales price in half or cut back on production. The other islanders face the same problem with their production potential. The net result is price deflation and depression. You have no incentive to increase your production, and you have no way to earn extra coins so that you can better your standard of living. The situation gets worse over the years, as the islanders multiply but the gold coins don’t. You can’t afford to feed your young children on the meager income you get from your baskets. If you make more baskets, their price just gets depressed and you are left with the number of coins you had to start with. You try borrowing from a friend, but he too needs his coins and will agree only if you will agree to pay him interest. Where is this interest to come from? There are not enough coins in the community to cover this new cost.

Then, miraculously, another ship washes ashore, containing a chest with 50 more gold coins. The lone survivor from this ship agrees to lend 40 of his coins at 20 percent interest. The islanders consider this a great blessing, until the time comes to pay the debt back, when they realize there are no extra coins on the island to cover the interest. The creditor demands lifetime servitude instead. The system degenerates into debt and bankruptcy, just as the gold-based system did historically in the outside world.

This is the worst rameish I ever read about baskets. You obviousely never heard of the term

"basketcase."

The problem with this tale is that this does not happen in real life.

In real life if the effort in producing "baskets" drops then the price of the basket drops. Happens all the time with computers electonics cars etc. Therefore the number of man hours drops. In real life it takes fewer workers to build a car and on the island the basketcase works 2 weeks to satisfy the demand at the origonal price. He had better do some fruit picking for the other two weeks. Meanwhile the other 9 are happy because there is no shortage of baskets.

Instead of taking simplistic scenarios why not see what happened in real life for hundreds of years.


Now it was only a few weeks ago that I was reading an article by Ellen Brown that made sense as far as it goes.

Web of Debt - TIME TO GET OUT THE WHEELBARROWS? ANOTHER LOOK AT THE WEIMAR HYPERINFLATION


However Gary North came back with an article that cut her a new arswhole. Mentions Zarlenga as well. Digest those 2 articles if you have time.

False Flag Infiltrators: Gold-Hating Fiat Money Inflationists Inside the Libertarian-Conservative Movement


I already know what Brown thinks but I would like you to tell me why you think that in a system where the state issues the money which you desire, and in a system with 100% reserves which you seem to desire that there would be massive deflation if the currency was fixed to gold

[Kensington]

In real life if the effort in producing "baskets" drops then the price of the basket drops. Happens all the time with computers electonics cars etc. Therefore the number of man hours drops. In real life it takes fewer workers to build a car and on the island the basketcase works 2 weeks to satisfy the demand at the origonal price. He had better do some fruit picking for the other two weeks. Meanwhile the other 9 are happy because there is no shortage of baskets

But there are only 100 gold coins. how can there not be deflation, if you increase the supply of goods and services, but do not increase the money supply?

Of course, we know what happened in the past. The coins were shaved and debased. Silver was minted and wars were carried out to steal the gold of others. Then, of course, the banks started their fractional reserve banking, increasing the money supply even more. So, in real terms, we did not have a gold-standard for hundreads of years; we had a fake gold-standard.

I do not think that a Government-issued currency would lead to deflation. i do think that a gold-standard would lead to deflation as the money supply could not increase along with production. The Government would have to, as they always have done, debase the currency or fiddle with the reserve requirments.

Also, i'm afraid that i am prejudiced against Gary north. I am not a big fan of American religulous right.

[20000miles]

Increasing the money supply will lead to inflation if there is not a subsequent increase in the supply of goods and services. For an economy to grow, there has to be an increasing supply of money. If there is a falling supply of money, there is an economic recession.

If a gold-standard was introduces, there would be massive deflation. This would lead to economic disaster. There is no way that our complex economy could survive on the money supply that would be afforded by a full Gold-Standard system. Less money in an economy is a bad thing. It can be a very bad thing indeed.

Whatever about the United States during the Great Deflation, it is clear that things are very different today. It is clear that the economies of the US and Europe would have collapsed if deflation had been left to occur. There would have been devastation if the Government had not propped up the money supply.

I think my point still stands. Any quantity of money will do the trick - there isn't "too little" gold for it to be used as money. New gold is mined at about 2% per year, so we can also presume that the money supply would also be increasing.

Ellen Brown explains the problem of the Gold-Standard and its dangers of deflation very well in her book 'Web of Debt':

Shipwrecked with a Chest of Gold Coins
You and nine of your mates wash ashore with a treasure chest containing 100 gold coins. You decide to divide the coins and the essential tasks equally among you. Your task is making the baskets used for collecting fruit. You are new to the task and manage to turn out only ten baskets the first month. You keep one and sell the others to your friends for one coin each, using your own coins to purchase the wares of the others. So far so good. By the second month, your baskets have worn out but you have gotten much more proficient at making them. You manage to make twenty. Your mates admire your baskets and say they would like to have two each; but alas, they have only one coin to allot to basket purchase. You must either cut your sales price in half or cut back on production. The other islanders face the same problem with their production potential. The net result is price deflation and depression. You have no incentive to increase your production, and you have no way to earn extra coins so that you can better your standard of living. The situation gets worse over the years, as the islanders multiply but the gold coins don’t. You can’t afford to feed your young children on the meager income you get from your baskets. If you make more baskets, their price just gets depressed and you are left with the number of coins you had to start with. You try borrowing from a friend, but he too needs his coins and will agree only if you will agree to pay him interest. Where is this interest to come from? There are not enough coins in the community to cover this new cost.

Why is this income meagre? If money has a greater purchasing power, then surely the same wage can afford you more goods and services. The biggest problem the islanders would face is breaking up the 100 coins into smaller units. Anyway, under a gold standard regime, the money supply is still increasing, not decreasing. There would probably be falling prices, but I'm of the opinion that this is a good thing - periods of growth occured where the "price level" fell in places such as US and Germany in the 19th century, and recentl Hong Kong.

[youngdan]

But there are only 100 gold coins. how can there not be deflation, if you increase the supply of goods and services, but do not increase the money supply?

Of course, we know what happened in the past. The coins were shaved and debased. Silver was minted and wars were carried out to steal the gold of others. Then, of course, the banks started their fractional reserve banking, increasing the money supply even more. So, in real terms, we did not have a gold-standard for hundreads of years; we had a fake gold-standard.

I do not think that a Government-issued currency would lead to deflation. i do think that a gold-standard would lead to deflation as the money supply could not increase along with production. The Government would have to, as they always have done, debase the currency or fiddle with the reserve requirments.

Also, i'm afraid that i am prejudiced against Gary north. I am not a big fan of American religulous right.

If the basketcase has taken a stupid pill then there will be a deflation of basket prices all right. However the other 9 are not stupid so he will be left with the surplus. That is simple supply and demand.

Instead of facing common sense socialists will try to be King Canute. They will demand that the other 9 buy the baskets regardless. They call this price controls but it is really price fixing. It always leads to shortages

I prefer common sense. The market for horse buggies and trabants appear to have dried up.

Command economies have been tried but the Russians and Chinese wised up. The American insist now on learning the lesson the hard way.


As regards North, I don't care if he is a pagan, he showed Brown as what she is and you appear to be a follower of her thinking. You do not want the Central bank to steal and you have figured it out. You want the state to do the stealing instead as it is easy loot. Is that not correct