A new banking system.

[dusred]

As we all know the economy is in the toilet right now. I was surfing another blog and ran across this article:

Quote »The best way to fix the system is simple, and John F Kennedy attempted to start the process shortly before he was assassinated. Executive Order 11110 authorized the Treasury to issue Silver Certificates against the Silver that was in the governments “reserve”. The government can issue silver backed dollars, gold backed dollars, oil backed dollars, coal backed dollars, storable wheat backed dollars, and even real estate backed dollars; money that represents real tangible assets and not debt, stored to secure the value of the money. Just imagine the power Congress really has. I call it the “Storehouse” money system, REAL “supply side” economics. I would not doubt that it would end most inflation. They could even keep the Federal “Reserve” Bank, and make that bank be a storehouse.

A presidential candidate in 18xx proposed that we should make a Central Bank that was owned by the Government, with branches in each state and territory, each raising their own money and lending it at interest to private banks. Interest would be income for the government replacing most taxation.[/quote]This, I believe, is discussion worthy material. Why isn't our Government using this system? As we all know the big banks have been creating money and loaning it at interest (which is another discussion).

Discuss.

[themadscientist]

The currency was taken off the gold standard a long time ago, "floated". I disagree with that. I think pounds sterling over in England is stall backed by silver.

[Urabus GodofTraction]

The currency was taken off the gold standard a long time ago, "floated". I disagree with that. I think pounds sterling over in England is stall backed by silver.

To my knowledge, no 1st world country uses a backed currency. Actually, you'd be hard pressed to find ANY country using one.

There is a reason for it. Fiat currencies (what we use now), promote gradual changes and allow for easy(ish) manipulation. Also, there's not really enough gold/oil/whatever available to make a standard practical.

[themadscientist]

I think you are right. I found this interesting

http://www.kwaves.com/fiat.htm

[Urabus GodofTraction]

I think you are right. I found this interesting

http://www.kwaves.com/fiat.htm

Missed a time period. For 3 months or so in 73 the dollar was back to gold. Disaster. Early 73 spelled the end for pegged currency.

<5 credits away from a BA in Economics.

[themadscientist]

taking econ 203 right now, final is on thursday. BS in business and management in progress on this end, many more credits to go.

[Cold_Zero]

If our currency is backed by Gold or Silver, or any commodity, then the Federal Government will have a harder time raising money in a pinch. This 750 billion dollar bailout package wouldn't exist because the US Government would have to come up with 750 billion dollars worth of Gold or Silver to back the money that was printed to bail out our banks.

During FDR's administration, in order to obtain more gold in order to print more paper money he had to pass an Executive Order requiring US Citizens to turn in their gold and effectively making it illegal to own gold. I think the idea of Oil, Coal and Wheat backed dollars is a bit silly for a few reasons:1. The US Government does not own the tangible asset typically in the first place. So it is not their asset backing the currency. 2. Certain commodities do not hold the same universal worth that Gold and Silver do. Because these two commodities have always been linked with currency and finance through out history, they will always be view has having some worth.3. Where does it stop? A Golden Gate Bridge backed dollar or a USS Eisenhower (CVN-69) backed dollar? Isn't that really what a dollar is really backed by, the stuff that makes up this great nation? If it makes you feel better, on the next 4.5 billion US dollars that pass through my hands I will write "1/4,500,000,000.00 of the USS Eisenhower CVN-69" on the top of each dollar. After that I will start with the Carriers, work my way down through the Guided Missile Cruisers and then on down. I might need help from you guys inventorying the US Army, Marine and Air Force possessions for this project. That way we can feel like we own a portion of something, with our money.Bud

[Cold_Zero]

Also, shouldn't the title of this thread be "A New Currency System?"

[dusred]

If our currency is backed by Gold or Silver, or any commodity, then the Federal Government will have a harder time raising money in a pinch. This 750 billion dollar bailout package wouldn't exist because the US Government would have to come up with 750 billion dollars worth of Gold or Silver to back the money that was printed to bail out our banks.

You are right; however it would also make the Gov't think twice before they go spend money recklessly.

I'm not an eco nerd or anything and I don't fully understand how our currency system works, but this does make sense to me having all currency backed by SOMETHING.

[Cold_Zero]

I have a lot of faith that our Federal Government that even with the restriction of our currency being tied to some sort of asset, they would continue to spend money like drunken sailors. The only way the spending will stop is if a Constitutional Amendment was established to require a balanced budget each year and prevent a deficit. Either that or the American People rise up to keep their politicians accountable for spending. Here in Indiana we had a Property Tax balloon problem that was resolved pretty quickly because every politician running in last year's election had his/her head on the chopping block. People who were faced with 400%-800% property tax increases were in the street burning mayors and politicians in effigy. Needless to say Indiana got a cap on property tax growth and short term relief from their taxes.

Our currency is backed by Good Faith in the United States of America. But I am sure there are formulas and indices for figuring exchange rates, inflation and values of currency.

[HashiriyaS14]

Bud hit it.

A modern first-world nation NEEDS a fiat currency.

Besides, why would anyone have such faith in asset-backed securities in this day and age, lol. Silver-backed dollars are essentially just an ABS.

[Cold_Zero]

That is the thing about this bail out. The US Treasury and Federal Reserve System are bailing out the Investment Banks on Wall Street. The stock market plunged on Friday, yet Treasury sales sky rocketed on Friday.

So investors think that it is safe to invest in the United States Government, yet it is risky to invest in a market being bailed out by the US Government. What's the difference?

[smockers83]

Ah, the study of currency. If the two of you who are taking econ right now, if you have the opportunity, take a money and banking class.

Anywho, the Gold Standard. The gold standard created a fixed exchange rate system in that people could bring in their money and exchange it for gold. An American could bring in $20 for an ounce, a Brit could bring in 5 pounds sterling (not silver, but the money) for the same ounce, therefore creating a fixed exchange rate in which would be $5 to the pound. The problem with backing currency is that money supply is directly affected by whatever it is backed by. In the 1870s, gold production was low and new discoveries were few. This meant that the supply of money couldn't keep up with the growth of the economy, which lead to deflation. Gold discoveries in 1890s lead to money supplies to increase rapidly, leading to inflation. So you can also see that production and supply of a commodity directly affects monetary policy.

By not backing a currency, monetary policy can be easily implemented to react to daily market conditions, allowing for greater control. The American dollar isn't backed by anything, but it is essentially backed by its economy. A fiat currency works because there is trust in the system. If there isn't trust in the system, you'll have a serious situation in terms of inflation/deflation.

The three functions of money are that it serves as a medium of exchange, a unit of account, and a store of value. It doesn't have to be backed by anything. When rum used to be used as a currency, to prove the value of the rum there had to be a way to determine its alcohol content, which is where we get "proof" from in alcohol. In WWII in concentration camps, cigarettes became a currency. Really, anything can become a currency as long as those who trade with it agree that it fulfills all three functions.

[smockers83]

That is the thing about this bail out. The US Treasury and Federal Reserve System are bailing out the Investment Banks on Wall Street. The stock market plunged on Friday, yet Treasury sales sky rocketed on Friday.

So investors think that it is safe to invest in the United States Government, yet it is risky to invest in a market being bailed out by the US Government. What's the difference?

The difference is that while the bailout plan sat in limbo with no real plan until yesterday, there was a lot of uncertainty in the market and when you have a lot of uncertainty, the market will plunge. On the flip side, when people pull out of the market they begin to put money into safe investments like T bills. The main reason the market skyrocketed yesterday is because certainty was restored. There were a lot of stocks that got hammered for no reason and put a lot of companies on sale. I think its funny that investors, especially younger ones who don't need more stable investments, think they should only buy when the market is going up. In fact, that's when you really should be selling and then buying when the market is down. For example, if you go to a store and they have a TV for $1000 and next weekend is the big holiday sale and you know it'll be cheaper, say $750, when are you going to go buy it? Same thing with stocks for people who are going to be in the market long-term, but also don't pull out your money when the market falls like it has if you're in for long-term. If you're older and nearing retirement, you should have a portfolio made up of more stable investments such as bonds.

Sorry for the rambling investment crap.

[dusred]

For example, if you go to a store and they have a TV for $1000 and next weekend is the big holiday sale and you know it'll be cheaper, say $750, when are you going to go buy it?

First off, I enjoy your rambling about investment crap . Keep it coming.

Your Analogy doesn't quite work because you will be selling the TV eventually and you aren't going to want to buy it for profit if the value is going down. . . . but I get your point .

[smockers83]

Your Analogy doesn't quite work because you will be selling the TV eventually and you aren't going to want to buy it for profit if the value is going down. . . . but I get your point .

True, I was just trying to get the point across that people want to buy stuff on sale rather than paying more money for the same thing. The paradox is that when the stock market goes on sale, those same people don't want to buy in as they are fearful and let emotion take over and don't base their decision on valuation. But I'm glad you got the point.
Modified by smockers83 at 12:05 PM 10/14/2008

[Jesda]

It would be SO AWESOME if the government ran everything, and if all our money was based on how much we love and trust that beautifully-operated corruption-free government!

What could possibly go wrong...