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catoismymotor (46.33)

Bank Of Canada: 75 Years of Funny Money

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March 11, 2010 – Comments (11)

National Post

75 Years of Funny Money

Posted: March 10, 2010, 8:55 PM

By Martin Masse

A good start to understanding the real nature of central banking is the libertarian bumper sticker saying “Don’t steal! The government hates competition.” The whole purpose of the bureaucratic machine called central bank is indeed to steal from us.

How does it do this? By constantly printing money (or, nowadays, creating it out of electronic bits on computers) and increasing the money supply, thereby creating inflation.

When you get to the Bank of Canada’s Web site, it says “We are Canada’s central bank. We work to preserve the value of money by keeping inflation low and stable.” Do a little search on the same Web site, however, and you discover that since the Bank started its operations in 1935, the dollar has lost about 94% of its value. A basket of goods and services that cost $100 in 1935 would cost $1600 today. That’s some preservation!

Counterfeiting is understandably illegal and punishable by law. But central bankers do it all the time, the only difference being that they have a legal stick — their dollars are the only permitted legal tender — and they deploy a huge propaganda machine to force us to accept their funny money.

There are big stakes involved. Inflation is a way for governments to spend more without having to directly impose taxes. A central bank is an essential part of big government.

Central banking operations also serve as a permanent bailout for debtors. Interest rates are usually kept lower than they would be in a free financial market. And by reducing the value of the money being owed, they make life easier for debtors. So the modern era of central banking is one where debt, public and private, inexorably grows, to the point where the whole monetary edifice now threatens to collapse.

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11 Comments – Post Your Own

#1) On March 11, 2010 at 5:47 PM, chk999 (99.97) wrote:

Money has three purposes. They are medium of exchange, unit of account and store of purchasing power. What would you use that would satisfy these three needs and have reasonably stable prices? Gold is not an option, there isn't nearly enough to back the amount of money necessary to make the world economy work.

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#2) On March 11, 2010 at 5:54 PM, whereaminow (20.31) wrote:

Gold is not an option, there isn't nearly enough to back the amount of money necessary to make the world economy work.

That fallacy and others are refuted here.

David in Qatar

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#3) On March 11, 2010 at 7:59 PM, chk999 (99.97) wrote:

whereaminow - the blog you link to makes arguments that might be persuasive for a relatively small economy with mostly local trade, like we had in the 1860's or so. For a modern world economy, it is like trying to run a 747 with horses. Since I have no urge whatsoever to return to the 1860's, I ain't buying it.

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#4) On March 11, 2010 at 8:13 PM, tkell31 (24.85) wrote:

"A basket of goods and services that cost $100 in 1935 would cost $1600 today. That’s some preservation!"

I'm curious about what you think the "right" number should be.  4% inflation would make the 100 grow into 1600 over that time frame (actually a little less would but I dont feel like doing the math).  What should it have been? 3%, 2%, nothing?  Context would be nice when trying to make a point.

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#5) On March 12, 2010 at 10:16 AM, whereaminow (20.31) wrote:

chk999,

You need to make an argument if you are going to argue.  Saying something like "There's not enough gold!!!" is not an argument. It's a repeat of someone else's opinion.  I've made the argument against this idea. You have to either refute what I said without resorting to perjoratives, admit you are wrong, or construct an argument that explains why you are right.

David in Qatar

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#6) On March 12, 2010 at 10:34 AM, BMFPitt (73.26) wrote:

Gold is just shiny fiat money.

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#7) On March 12, 2010 at 10:53 AM, catoismymotor (46.33) wrote:

I thought you could pay with euros for a Fiat. Silly me.

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#8) On March 12, 2010 at 11:05 AM, chk999 (99.97) wrote:

whereaminow - Ok here is a quote from wikipedia about total gold

"A total of 161,000 tonnes of gold have been mined in human history, as of 2009. This is roughly equivalent to 5.175 billion troy ounces or, in terms of volume, about 8,333 cubic metres, and could be valued at just under six trillion United States dollars at early March 2010 prices."

Eyeballing the CIA world factbook, it looks like the total world money supply is about 17 trillion.  So we could imagine that we could create a new gold backed currency and replace all the money with it. But we are near peak gold. The world economy will grow at about 3% indefinitely. This means that the world economy will have doubled in 24 years. But the gold supply will have only added a few percent. So price level will be cut in half. And this will continue. Things like long dated bonds and mortgages will be a thing of the past as paying off a 30 year bond will cost twice as much effort as the amount you borrowed. The world economic system is really too complicated to try to run it with 1860's thinking. The total bond market is about 82 trillion. How do you plan to run this? (Saying it should go away means you advocate a primitive economic system that would have consequences unacceptable to most people on earth. This is not going to get any traction.)

Frankly, I'm coming to the conclusion that gold is a religious issue for some people and no argument will suffice. These people are going to be disappointed, we won't be going to a metallic backed currency. Gold will continue to underperfom the stock market over long periods of time. I am currently long gold and silver, but only as a shortish term hedge.

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#9) On March 12, 2010 at 11:16 AM, whereaminow (20.31) wrote:

chk999,

You didn't read the blog I linked to or you have horrible reading comprehension skills.  Why do I bother? 

In every market in history, lower valued coins were introduced to satisfy this need. The monetary supply market has always adjusted and there is no reason to think it won't continue. Silver became the most prevelant money for precisely this reason. No government intervention was ever necessary. Furthermore, silver or gold backed paper (or electronic) money has also fulfilled this need. - David in Qatar

David in Qatar

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#10) On March 12, 2010 at 12:29 PM, chk999 (99.97) wrote:

I did read it. It just didn't convince me of anything. Howsomever, since a metallic standard won't happen, this argument is moot.

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#11) On March 12, 2010 at 1:47 PM, whereaminow (20.31) wrote:

chk999,

Well it won't happen by government decree, but it may also be beyond their control.  Fiat currencies have a finite life span.

David in Qatar

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