[besson3c]

Ron Paul almost always gets me to think more than most other politicians.

I've been thinking about the stuff he has been saying about what we ought to do with the economy, namely stuff about the government not having constitutional authority to do the things we are doing now, but also to return to "sound money". He seems to believe that government regulation should really only exist to prevent fraud.

I've been stuck on the idea of just how we return to sound money. I would be much more comfortable with lauding the virtues of the free market if there was much less monkey business in the form of bad mortgages, all of this credit default swap stuff, using TARP money to pay out big bonuses to Wall St. execs, and various other forms of stuff that comes across as pure greed and bullshit to me without fully understanding how all of this works specifically. To me it just doesn't seem like a good time in the history of our market to be extolling the virtues of the free market as a cure all for all that ails us.

Where I'm stuck is on the question of how one prevents this sort of monkey business from going on? What comes to mind is regulation to keep things at bay, but I'm starting to wonder if the classic polarizing issue of what needs regulation, how much, etc. is the wrong way to go about this? Creating more rules and structures in place may help up to a point (or it may hinder the free market too), but in a way it doesn't really get to the heart of the problem, which I'm starting to believe is essentially a matter of fraud. The idea of fraud obviously connotes a sense of legality, but what I mean by "fraud" is essentially stuff that is fraudulent in its nature, not literal sense. In other words, legalized fraud.

This is the part where the conservatives in here jump in with rants about how various government programs are legalized fraud. However, I wonder if our efforts would be better spent examining the legal definition of fraud in our economy from a legal standpoint rather than purely a policy/philosophical standpoint? Let's leave the government's programs out of the picture for the purpose of this thread, this gets into a whole other area of philosophy and stuff which warrants a whole other discussion which we've already had several times. If it were far more difficult for private individuals to commit acts of what might be argued as being legalized fraud, wouldn't we be in a much different place now? I haven't seen Michael Moore's movie yet, but it sounds like he spends time pointing out much of the same as far as what he considers to be legalized fraud.

Ron Paul would say, I believe, that it is the government's job to define what fraud is in our economy. In a way, I'd rather the government devote their energies to this looking forward, rather than ways to oversee and regulate the operations of the various companies that have collapsed in order to prevent another crash. I tend to think that these companies didn't crash solely because of mismanagement or bad decisions, but what is essentially fraud at its core. If the government were to minimize or prevent this form of legal fraud and enforce these laws quite strongly, would they be more productive and come closer to reaching bipartisan support? If nothing more, this might deter people from sort of going down that rabbit hole of finding creative and sketchy ways to make money at the expense of others and this growing until it becomes a big problem.

Thoughts?

[Lint Police]

Allow poorly run businesses to fail, and stop regulating the crap out of things on the notion of "getting the bad guy". The market will fix it self if it simply were allowed to and not manipulated by the idiot lawyers in congress with no economic smarts.

Regulation leads to more power for the few that control the rules. It does nothing to catch those that skirt the law.

[Dork.]

You realize that when Ron Paul talks about "sound money", he means a return to the Gold Standard, right?

[finboy]

Originally Posted by Dork. 

You realize that when Ron Paul talks about "sound money", he means a return to the Gold Standard, right?

Ron Paul is a fine man, and my Congressman, but when it comes to this stuff he has no frickin' clue. There is no better way to do it other than the way we have it, regardless of what George Soros wants you to think. I wish there was, because Bernanke is a real tool, and gunshy, and Geithner is widely recognized in the profession as a moron. But putting more of our monetary system in the hands of Congress would be a real bad thing, and the markets will reflect it.

We're losing value internationally because there is an active campaign against the dollar, and against oil prices, etc. It probably has nothing to do with the huge deficit spending, because almost none of that has taken place yet, although it may be the discounted value of all the socialist entitlements that are being brought into the system lately. Who knows?

Ron Paul doesn't.

[besson3c]

I'm not terribly privy to the very specific details of Ron Paul's ideas, I must admit, he usually just stimulates my own thinking...

[besson3c]

Originally Posted by Lint Police 

Allow poorly run businesses to fail, and stop regulating the crap out of things on the notion of "getting the bad guy". The market will fix it self if it simply were allowed to and not manipulated by the idiot lawyers in congress with no economic smarts.

Regulation leads to more power for the few that control the rules. It does nothing to catch those that skirt the law.

No offense, but this is incredibly naive sounding and simplistic to me. Greed exists, plain and simple, and unchecked it will cause problems when combined with power. Making money the old fashioned way by actually inventing or doing something is fine, but greed that leads to legal or illegal fraud isn't.

I don't buy the notion at all that the market will just correct every problem associated with greed and corruption, and that there will be ponies and rainbows everywhere if we were to just let the market do its thing. It definitely needs limits, but like I said, I'm wondering whether those limits would be best implemented if politicians were to focus on fraud more so than trying to flip switches and dials on the economic machine in the form of revising/enacting new regulation and waging that whole battle that comes with the territory.

We actually should have both some amount of regulation and stronger anti-fraud laws, I think, but we never seem to hear about measures to stamp out forms of legalized fraud.

[Lint Police]

Nice, it took you all day to get a reply from whatever liberal coin machine you get your ideas form. Oh well.

Simple solutions ftw. Maybe that is our whole problem. We regulate just cause it makes us feel all warm and fuzzy inside to protect us from those bad, bad men. Simpler times.

[Wiskedjak]

Originally Posted by Lint Police 

Nice, it took you all day to get a reply from whatever liberal coin machine you get your ideas form. Oh well.

Simple solutions ftw. Maybe that is our whole problem. We regulate just cause it makes us feel all warm and fuzzy inside to protect us from those bad, bad men. Simpler times.

Conservatives: "bad, bad men" = government corruption. Corruption in business is OK.
Liberals: "bad, bad men" = corrupt business leaders. Corruption in government is OK.

Both sides have their boogymen. Both sides have blind spots to corruption.

[besson3c]

Lint: shut up, you're a coin machine!

How did I do guys?

[LegendaryPinkOx]

We'll call you.

[turtle777]

Originally Posted by finboy 

Ron Paul is a fine man, and my Congressman, but when it comes to this stuff he has no frickin' clue.

Huh ?

What's wrong with a Gold Standard ?

Originally Posted by finboy 

There is no better way to do it other than the way we have it...

Huh ?

The clusterfu<k that we have today (fiat money, co-dependent Fed and Treasury, financial terrorism by big, government-controlled banks) is the worst economic and political situation that America has ever had since its conception.

What part of that sh!t can NOT be improved ?

-t

[el chupacabra]

Originally Posted by besson3c 

He seems to believe that government regulation should really only exist to prevent fraud.

believe it or not back when government was much smaller, say after the depression we had more regulation for the financial sector than we do now. It's not always a simple matter of "less government regulation" =good, and more regulation = bad or vise versa.

I dont think we need to make things more complicated, just use common sense. People are going to try to be fraudulent no matter what. Changing the way we do business to be less like a casino lessens the amount of fraud and resulting damage that people can cause.

Some things to consider:

-Individuals can make bad decisions in a company and hide behind corporations (leaving the company to take the legal hit) and not have to take responsibility for their actions.

-Mortgages used to take only 3-5 years to pay off.....not 20-30 (gambling in my opinion). If government would let things happen more naturally, with some simple rules in place, this is how it would be even today. Also people should expect their house to be a depreciating asset.

-Ron Paul although a genius, believes in reverting to the gold standard; which is illogical for a number of reasons. The real solution is to abolish the federal reserve; the government should create its own currency so we aren't paying trillions of our tax dollars in interest to the federal reserve bank. Few presidents will touch this subject since every president who has tried has been assassinated. But then again what do you expect when trying to take out the most powerful organization in the world.

[turtle777]

Originally Posted by el chupacabra 

-Ron Paul although a genius, believes in reverting to the gold standard; which is illogical for a number of reasons.

Why illogical ?

-t

[Big Mac]

Wow, besson, you're entertaining ideas from Ron Paul? Maybe there's a fiscal conservative trapped somewhere in the dark recesses of your psyche, screaming to get out!

Anything we use for money has the potential to fluctuate in value. We used to use valued materials as money or as a backup for government fiat currency, but in modern times countries use fiat currencies only. Fiat money can be used to promote economic policy that is beneficial, or they can undertake policies that harm the value of money. A lot of libertarian thinkers consider the Fed to be a monster that always screws up - they say its actions worsened the Depression, and they seem to blame it for every economic problem. Some of their theories become conspiratorial. But even conservative economists credit the Fed (and other independent central banks around the world) with doing a lot of good to regulate the economy. It's a mixed bag.

Gold is good as an element of a monetary system because it's a precious metal that governments can't just make out of thin air like fiat currency. If people want to live on a gold standard, they can put the majority of their earnings and savings in gold. That would have been a good idea in the last five years, when the dollar price of gold doubled or the last ten years when it tripled. Gold, however, is not guaranteed to go up endlessly. Also, in the colonial period economies experienced periodic money shortages because people were melting their gold coins to make jewelry.

I believe there is a role for the Fed and fiat currency, but I wish we still had some link to a precious metal standard. I think it was wrongheaded when we completely abolished any link between the dollar and the gold or silver standards. Presidents and policy makers had their reasons for doing so, but that means the value of the dollar is wholly dependent on international faith and demand for it and thereby faith in the US federal government. Murmurs about switching to a different reserve currency are probably being heard in large part due to poor federal monetary (endless quantitative easing) and fiscal policies (like vastly expanding the welfare/entitlement state as health care "reform" promises to do). I don't think it was ever conclusively shown that having a link to a precious metal for the fiat currency was worth dispensing with permanently. On the other hand, I wouldn't want to switch directly to gold because gold too can easily be manipulated, and I think the Fed is a net positive (although it's probably being way too soft right now to fight this recession).

While I like a lot of what RP says, it sounds like his view of the monetary system is a bit too simplistic, myopic, and too trusting of his fellow Congressman, most of whom are economic retards at best. Yet, I do agree with him in part, as outlined above.

[besson3c]

Maybe I'm spinning my tires here. Maybe heightening anti-fraud is just a game of semantics and it really is virtually identical to increasing regulation.

[el chupacabra]

Originally Posted by turtle777 

Why illogical ?

-t

well what do you do when you need more money printed, mine more gold?

on top of that the value of gold is as psychological as the value of paper.

in the event of an economic down turn in which there are food shortages.... having gold to back up currency isnt going to get your soup any faster.

[Big Mac]

The major virtue of a physical basis to the money supply is that gold can't be fabricated by fiat to suit policy dictates. But you're right to the extent that gold is still valued subjectively. It also isn't a resource that gets used in industrial production so it doesn't get value in that way, either. And speaking of downturns, when the economic crisis hit last year gold traded down not up against the dollar as there was a flight to the relative safety of greenback.

[Wiskedjak]

Originally Posted by el chupacabra 

well what do you do when you need more money printed, mine more gold?

But, I think this is *exactly* the problem with paper money. Simply printing more money when you need it creates more problems than it solves. Being reliant on something that can't be fabricated out of thin air might force governments to be more responsible with our money.

[Doofy]

Originally Posted by Wiskedjak 

But, I think this is *exactly* the problem with paper money. Simply printing more money when you need it creates more problems than it solves.

Spot on.

No gold standard = inflation, which is the main cause of problems. The reason the dollar's headed for a major fall is that pretty soon my belly button lint will be worth more than it - because there's only a limited supply of my belly button lint. Maybe I should talk to the Chinese about that if they're looking for something new to use as a reserve currency.

Print more money = everyone seemingly richer. But only on paper.

[SpaceMonkey]

Originally Posted by Wiskedjak 

But, I think this is *exactly* the problem with paper money. Simply printing more money when you need it creates more problems than it solves. Being reliant on something that can't be fabricated out of thin air might force governments to be more responsible with our money.

On the other hand, when you can't produce more gold, you have absolutely no monetary policy whatsoever. Pick your poison.

[finboy]

Originally Posted by SpaceMonkey 

On the other hand, when you can't produce more gold, you have absolutely no monetary policy whatsoever. Pick your poison.

Money is a shared idea, regardless of what Ayn Rand thought. Without a reliable contract system, gold standard or not, money doesn't work. We have to know that once we've put forth the effort, there isn't going to be some government hack to come along and devalue what we've done. It doesn't take printing more money to devalue our currency -- bailing out GM and Chrysler and sucking up to unions does it, killing home value by institutionalizing bad loans does it, too big to fail does it, and inconsistent foreign policy from one admin to the next does it. Printing more money doesn't help, but note that CONGRESS prints more money, the Fed just distributes it. Our system rides on the shared confidence in our system, and as such suffers when that shared confidence falls. The stock market as a leading indicator works the same way, although it's really noisy and herdy these days.

Going back to a gold standard is stupid without everyone playing the same game. We know already that Russia and China are actively working to undermine our economy, as is most of Europe. A gold standard won't fix any of that.

[olePigeon]

Originally Posted by Lint Police 

Simple solutions ftw. Maybe that is our whole problem. We regulate just cause it makes us feel all warm and fuzzy inside to protect us from those bad, bad men. Simpler times.

How long did worker exploitation last during the industrial revolution?

I don't want to have to wait for the market to fix itself because that means a lifetime of exploitation for many people.

[turtle777]

Originally Posted by el chupacabra 

well what do you do when you need more money printed, mine more gold?

Yes, exactly. Every $ you print needs to be backed by gold reserves.

Do you guys know that Fort Knox is most likely empty, since it hasn't been audited since the 60s ?
Also, the government and other enteties "lent" their gold to miners, which pay an annual interest, but used all that gold for production. It's basically gone.
So the US thinks it has gold, because theoretically, the lent gold could be called back. Problem is, the world's total gold loan is more than one full year's production. No way it can be returned in a short period of time.

Short squeeze, anyone ?

-t

[turtle777]

Originally Posted by SpaceMonkey 

On the other hand, when you can't produce more gold, you have absolutely no monetary policy whatsoever. Pick your poison.

Not a problem, can be solved with deflation. It's not as big of a problem as all the economists and politicians make you believe.

The only reason why they scared everybody with deflation is because it enabled them to create inflation. Deflation scare is a useful tool to them.

-t

[SpaceMonkey]

Originally Posted by turtle777 

Not a problem, can be solved with deflation. It's not as big of a problem as all the economists and politicians make you believe.

The only reason why they scared everybody with deflation is because it enabled them to create inflation. Deflation scare is a useful tool to them.

-t

Solve what? Whether deflation is a welcome thing or not depends on what the actual problem is.

[turtle777]

Originally Posted by SpaceMonkey 

Solve what?

Solve the problem that there might be a gold production shortage.

-t

[SpaceMonkey]

Originally Posted by turtle777 

Solve the problem that there might be a gold production shortage.

-t

That's an effect of the supply of money going down. It's not a "solution" if other circumstances in the economy are also telling you at the same time that deflation would be an unwelcome change at that moment. It is a fundamental disadvantage of the gold standard. Fiat currencies also have fundamental disadvantages. That's why I said, "pick your poison."

Ultimately, policymakers have equal opportunity to be completely batsh!t f*cking irresponsible no matter what your currency is backed by.

[CreepDogg]

To me, adherence to a gold (or any) standard also flies in the face of the concept of wealth creation. On a gold standard, wealth is really a zero-sum game -- the US only has so much gold, so there's only so much wealth to go around. For me to 'win', someone else has to 'lose'.

With fiat currency, if someone starts a business and that business adds value, that added value creates wealth. A responsible monetary policy would actually be to print money equal to that value-add. It would be irresponsible to print too much, causing inflation, etc., and it's difficult to 'get right', but the point is it can be managed responsibly.

A gold standard creates a barrier to inflation, but that barrier is artificial in that it relies on some intrinsic value in gold. Sure it's rare, but there are lots of things that are rare that have no intrinsic value. Locks of my hair are rare, but hold little value (now, Elvis's hair, on the other hand...). In order to allow for the creation of wealth on a gold standard, monetary policy would have to either find more gold or allow for 'splits' in its value, which would have the same inflationary effect as printing fiat currency. Again, as others have pointed out, either way, policy can be managed responsibly or irresponsibly. Pick your poison.

[turtle777]

Originally Posted by CreepDogg 

To me, adherence to a gold (or any) standard also flies in the face of the concept of wealth creation. On a gold standard, wealth is really a zero-sum game -- the US only has so much gold, so there's only so much wealth to go around. For me to 'win', someone else has to 'lose'.

No, wrong.

If the US creates wealth through efficient use of resources and innovation, they can trade that for more Gold.

Wealth creation is not limited by gold. Limited gold only limits the amount of currency floating around.
If there is a limited supply of currency, it makes the currency more desirable, and raises its value. This is NOT a limiting factor on the wealth of a nation and its people.

-t

[CreepDogg]

Originally Posted by turtle777 

No, wrong.

If the US creates wealth through efficient use of resources and innovation, they can trade that for more Gold.

With who? If gold is pegged at, say, $400 an ounce, if someone didn't want to trade at that price yesterday, why would they today? What if the wealth that's created only benefits the US?

Either way - for me to build wealth, that gold has to come from somewhere. So someone is 'losing' unless enough gold is created to account for the additional wealth created by my innovation.

Wealth creation is not limited by gold. Limited gold only limits the amount of currency floating around.
If there is a limited supply of currency, it makes the currency more desirable, and raises its value. This is NOT a limiting factor on the wealth of a nation and its people.

-t

That implies that any wealth creation relies on constant and rampant deflation. Which is no better than constant and rampant inflation. If there's only x amount of currency, already accounting for all the wealth of the nation, if I create more wealth but can't realize it because there's no currency to account for it, how have I created wealth? The only way is if the intrinsic value of that gold (currency) increases -- deflation.