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Old 06-05-2009, 10:28 AM
 
Location: NC
10,005 posts, read 8,993,200 times
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Quote:
Originally Posted by ViewFromThePeak View Post
well, from what "reserve" is the Fed extracting these funds from especially when they purchase Treasuries directly? They are handing money, whether digital or physical, to entities who have sold the bonds to them. That money is created, increasing the money supply and causing all dollars to fall in value, and indirectly causing fixed supply sources like gold/silver to increase in value. Gold hasn't stayed nearly 1K, even with all of the reduced jewelry consumption, by chance, has it?
Here is how it works. The federal reserve holds large quantities of cash and bonds in reserve. When the economy is weak and capital is tight, the release cash into the economy from their reserve by buying bonds and making cash available for use. During times of relative prosperity they do the opposite to try to slow down excessive lending and speculation. That money is generally and has not been created, except occasionally in the normal growth of the money, it much of it was already in their holdings they just released it into the economy through an open market operation.

As to setting up a gold standard, that will not solve the problem only make it worse, essentially for a flexible currency some floating needs to be allowed otherwise one's economy is extremely vulenerable to speculation and external shocks. Most countries with commmodity fixed currencies only experiance stagnant grow and are dependent on new production of that commodity for growth and vulenable to their reserve being drained and painc. This has happend all throughout the history of gold based economies from renaissaince Europe to Qing China and it is liable to be much worse for us since most of the worlds gold sources have been tapped. Fixing our currency can only limit grow, imho though they are right on some things the Austrians are completely wrong here.
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Old 06-05-2009, 10:29 AM
 
Location: Raleigh, NC
9,043 posts, read 11,567,954 times
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Quote:
Originally Posted by Randomstudent View Post
Here is how it works. The federal reserve holds large quantities of cash and bonds in reserve. When the economy is weak and capital is tight, the release cash into the economy from their reserve by buying bonds and making cash available for use. During times of relative prosperity they do the opposite to try to slow down excessive lending and speculation. That money is generally and has not been created, except occasionally in the normal growth of the money, it much of it was already in their holdings they just released it into the economy through an open market operation.

As to setting up a gold standard, that will not solve the problem only make it worse, essentially for a flexible currency some floating needs to be allowed otherwise one's economy is extremely vulenerable to speculation and external shocks. Most countries with commmodity fixed currencies only experiance stagnant grow and are dependent on new production of that commodity for growth and vulenable to their reserve being drained and painc. This has happend all throughout the history of gold based economies from renaissaince Europe to Qing China and it is liable to be much worse for us since most of the worlds gold sources have been tapped. Fixing our currency can only limit grow, imho though they are right on some things the Austrians are completely wrong here.
Look, we had deflation throughout the 19th century and it was the largest growth cycle percentagewise in our nation's history. Deflation = good.
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Old 06-05-2009, 10:42 AM
 
Location: NC
10,005 posts, read 8,993,200 times
Reputation: 3073
Quote:
Originally Posted by ViewFromThePeak View Post
Look, we had deflation throughout the 19th century and it was the largest growth cycle percentagewise in our nation's history. Deflation = good.
In the 19th century there was still a lot of gold and silver to be mined in addition to the fact the resources of the world flowed to the US and Europe because of colonization. A large part of the growth during this period came from the bleeding away of wealth from the prosperous Asian nations of India, and China as well as the vast resources being brought in from colonial Africa and un-industrialized Latin America. Things do not work that way anymore these countries not produce things and are not simply markets for goods and sources of raw materials as they were then. Also the nineteen century was characterized by constant boom bust cycles that ravaged the country every 10-20 years.

Not to mention the recovery of the West from the chaos of the wars and revolutions of the 18th century. imho growth occured despite deflation not because of it.
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