[sleavey]

> The petro dollar is enforced by might and invasions. Nixon created it when he decided to leave the gold standard after France demanded physical gold as payments.

This aspect was not clear to me until I read The Bitcoin Standard by Saifedean Ammous, the first two thirds of which is more of a history of money than pro-Bitcoin propaganda. There he argues that moving off the gold standard was a bad idea in many ways apparently unrelated to money.

And of course there's this famous website: https://wtfhappenedin1971.com/. For reference, 1971 was when Nixon decoupled the US dollar from gold.

[throw0101a]

> There he argues that moving off the gold standard was a bad idea in many ways apparently unrelated to money.

See Money: The True Story of a Made-Up Thing by Jacob Goldstein (of NPR's Planet Money):

* https://bookshop.org/books/money-the-true-story-of-a-made-up...

* https://en.wikipedia.org/wiki/Jacob_Goldstein

From what I've read on the topic, gold (and 'hard money' in general) is generally not a good in most circumstances. Yes, if your mint/central bank takes orders from the government to create more money it can lead to bad things, but generally that disaster only needs to happen once before everyone realizes how bad an idea it is and probably never does it again.

Recommend the book. Debt: The First 5,000 Years is also worth checking out:

* https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

[logicchains]

Did you read the link the person you're replying to posted? The empirical evidence there suggests that moving away from hard money has been terrible for the average American, and the shrinking middle class is exactly what's predicted by proponents of sound money.

>but generally that disaster only needs to happen once before everyone realizes how bad an idea it is and probably never does it again.

That clearly isn't the case or else no country would have experienced hyperinflation after the fall of Rome.

[simias]

It's one of these situations where the correlation seems obvious, but the causation seems very hard to establish. How world changed so drastically over the past century that it always seems a bit strange to pin our current woes on one single factor, "empirical evidence" be damned.

[sleavey]

It's good to keep an open mind, but just look at the sheer number of different metrics on that website that show some kind of change at or soon after 1971. With enough correlation you can make a hypothesis, hopefully a testable one. Unfortunately there are no countries that use a gold-backed currency left where you could perform an experiment.

[chii]

> moving away from hard money has been terrible for the average American

i think outsourcing is the cause, not moving off the gold standard.

[throw0101a]

> The empirical evidence there suggests that moving away from hard money has been terrible for the average American, and the shrinking middle class is exactly what's predicted by proponents of sound money.

The shrinking middle class, especially in the US, has mostly occurred post-1980s (see Reagan and Thatcher). This can be stopped and probably reversed with redistributive tax policy. See Piketty:

* https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

> That clearly isn't the case or else no country would have experienced hyperinflation after the fall of Rome.

How may countries have actually experienced this?

> Re-arranging the Hanke-Krus list highlights something however: barring three outliers (France, 1795-1796, North Korea 2012, and Venezuela 2016-) there have actually been only five hyperinflation “events”, each associated with particular large, long-term global processes (involving war, decolonization, regime change, foreign denominated debt/currency pegs). The spatial and temporal clustering of these events is perhaps best expressed visually (Chile and Zimbabwe are temporal outliers within their cluster)

* https://clintballinger.wordpress.com/2019/05/24/the-autocorr...

Hyperinflation is generally not caused by printing money, rather the printing of money is the effect of something else:

> In this paper I will argue why the common misconception that “inflation is always and everywhere a monetary phenomenon” cannot be used to explain most historical hyperinflations. I will argue that “money printing” is often the response to exogenous and unusual events and not the direct cause of the hyperinflation.

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102

* https://www.pragcap.com/hyperinflation-its-more-than-just-a-...

China ran on paper for a century or two without issues, and only went back to hard money because the Imperial Court wanted more centralized control; this is covered in a chapter of Goldstein's Money.

[inshadows]

What's so great about Debt: The first 5000 Years? I've tried to read it but had to abandon it after first two chapters as it seemed way too emotionally pushy for my tastes. It gives many examples of poor indebted countries and demonizes money lenders, but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place. OK, I get it that lenders impose harsh conditions, but why is it in any way OK to not repay the debt, and in turn not receive any credit offer in future as it becomes clear that you won't repay? People keeps recommending the book but I found its arguments overly populist and ignoring obvious counterarguments.

[throw0101a]

> but nowhere in these lines does author elaborate how would those countries fare if they weren't offered credit in first place.

For one, in many/most economics textbooks you have the story (fairy tale?) of cultures going from barter to currency (special rocks, shells, etc). There is no sociological or historical record of a culture doing this. The point is reiterated in Money.

[vlovich123]

My impression is that usury actually inhibits economic development because you’re stuck paying the interest instead of investing in your future. Lower interest rates encourages more risk taking economic activities. Sometimes those risks don’t pan out, but, if you believe that overall your economy will prosper, lower interest rates ensure that proceeds from risks stay more with those generating the activity rather than the lenders themselves. Liquidity is important but not as much value creating (if everyone loans the other person $5, there’s a lot of “economic activity”, but nothing of value has been created in that fake scenario). That’s simplistic of course and liquidity itself can be value-generating if there’s intention behind it (ie vetting that the liquidity generated is going to an enterprise that will likely yield net returns overall for some reason).

That’s also why there’s bankruptcy protection. Sucks for the lenders that their gamble didn’t pay off but generally they’re able to take a loss and their other investments can balance them out. Plus bankruptcy protections apply to them to if they overextended themselves or didn’t manage the investments.

The point is that anyone can suffer an economic hardship but that doesn’t mean society should strive to create punishing conditions if you are unlucky (or, in most payday scenarios, just start off poor). Of course some people will abuse the system. There are abuses happening by lenders too. Economic policies around this though can only work at the macro scale, so you find other ways to mitigate the problems through legal structures.

I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly. Sure they should be allowed some attempt at recollection but there need to be strong usury protections too (if you want to allow high interest rates in your economic region, then high usury rates should be pared with much easier ability to limit recovery after some limit is collected. If you think about it, in payday scenarios, the successful “investments” on the part of the lenders (ie the people actually making good on the payments) are subsidizing the lenders loans to those that can’t pay. It’s a vicious cycle frequently for those involved because the loans aren’t actually generating economic value and are really being used just to help people get by. High interest loans really need to be restricted to risky economic investments (starting a business of some kind) or those with the resources that they could pay it back and just have a short liquidity issue. This $500 @ 30% interest to fix your car that’s your only mode of transportation to/from work or $1000 to go to the doctor seems seems like not a useful application. It’s a non-economic need that person has and there’s not really any likely realistic scenario where those loans would have a net positive impact on the economy. Forcing the area to invest in useful public transportation solutions and safety net for medical care would return far more value to the economic prosperity and social stability/welfare of the area.

[inshadows]

Thanks for long reply. But you mostly just summarized what I felt about the first 2 chapters in your own words.

You say

> I think there’s this unhealthy association between lendees not paying and it somehow being a moral failing on their part. No. It’s the fault of the lender for not vetting their investment properly.

You know what? If that's how I'm going to be treated as money lender then screw it, I'm not lending anybody. They need money to jump start their economy? Screw them. If I'm supposed to invest in detailed research with zero return, I'll be at loss in the end even if the huge risk turns out in my favor. I'm keeping my money safe, let them starve! Now obviously I'm not seriously that evil, but you get the point. When there's no protection for money lenders, when society treats them as evil (as this book does), they're not going to lend anybody, and poor economy won't have the capital to build from in first place. And then money owners will be vilified for hoarding money! You can't really win this game unless you give away money for free, can you?

EIDT: I agree that usury is evil. Obviously investor protection should go only so far, but shifting all blame for failed projects on money lenders is just wrong. Contracts should be obeyed.

[vlovich123]

Then don’t lend? I’m not sure why you’re getting so triggered. Why are you treating it as a moral obligation that you have to lend? Sure there can be positive social results to certain kinds of lending. If you’re investing for that purpose though (to improve someone’s situation), why are you looking to be punitive and enforce that you get a return? Now maybe you’re not seeing efficacy or maybe you’re primarily motivated by your personal returns. Then invest accordingly. It seems though like you want to hold power over people as a result of lending out money & that to me seems like an unhealthy motivation for everyone involved.

And as for contracts being obeyed, I’m not sure where you ever got that. Contracts can be broken for all sorts of reasons.

As a counter to your “bitch better have my money” perspective. I invest money in startups and they fail. Is it a moral failing on their part or mine that that happened? Sometimes they don’t fail. Is that due to our morals? It’s a bet on an outcome and people. Sometimes the bet doesn’t go my way. Sometimes it does. Why read morals into what is in a lot of ways a game of chance? I’ve also been a landlord & had people try to screw me out of rent checks. Sure that’s shitty of them to do and it frustrates me but everyone has their struggles.

EDIT: And I didn’t shift all blame on lenders. I just said that usury like payday loans should be way more regulated than it is in the US.

[inshadows]

I'm not triggered. Sorry, that's just my (bad) habit of employing ridicule and irony in discussions. I didn't try to imply that it's my obligation to lend. I'm very risk averse in fact. I'm also not 100% evil, but I'm not very charitable (yet). I donated several times and that's it.

> Sure there can be positive social results to certain kinds of lending. If you’re investing for that purpose though (to improve someone’s situation), why are you looking to be punitive and enforce that you get a return?

Certainly there are people and organization that invest with aim to help the other party. But aren't most people investing to make profit? And isn't this kind of investing (for profit) beneficial for society as well? You provide capital early to others, and since you can't use it now for your consumption you get interest in return.

I don't think why you imply that I want to hold power over people. All I'm saying is that if I don't get any protection, then likely I won't invest at all. And who would if there's no protection?

> Is it a moral failing on their part or mine that that happened? Sometimes they don’t fail. Is that due to our morals?

If a company defaults on obligations then by the law it's going to be liquidated, and both bond holders and stock owners will be paid from that. That's the risk I'm willing to bear. But if the company would have the choice to renege on its obligations and keep on existing, would you invest? Would anybody?

[discreteevent]

In "The Economics of Belonging" Martin Sandbu makes the argument that it should be more like venture capitalism. You provide a loan and get some of the upside if it works out but if it doesn't then you share the loss. It would at least keep people more honest.

[vlovich123]

I don’t think one approach or the other works. Interest-based loans are the equivalent of hedging your risk in a financial investment. That’s like saying you should remove financial instruments that allow for that when you make stock investments. That is a position one could take, but I feel like allowing for hedging is smart (& besides there’s all sorts of ways people can create contracts to hedge risks that are impossible to regulate anyway).

For many investments, interest-based investments seem to make more sense to me. For example, investing in a restaurant is not an investment that works out in favor of the VC model unless you want to be inundated with low-cost generic options that can scale to every market even more than we are today. That’s also why you have collateral in such investments so that the lender has ways to recoup their investment even with uncooperative lendees. I think the world is complex & we have different investment models to account for that complexity. I’m skeptical that any one hammer will somehow solve all problems. It’s all trade offs in the end, no?

[PKop]

What gold is good for is a neutral settlement asset between nations with imbalanced trade. But not at a fixed currency price by weight, rather floating in fiat price, which forces nations to re-balance to more consumption or more production depending on if they have large trade surpluses or large trade deficits. Thus the pitfalls of either extreme can be re-balanced by covering trade imbalances with gold reserves which also devalue currencies and force domestic production, or increase them and force consumption.

Keynes's Bancor[1] was essentially this idea, but Bretton Woods conference rejected this proposal. Oil exporting and general surplus nations, like Russia and China, have been moving in this direction by reserving more gold in recent years (look up various European nation increasing gold purchases since 2008) likely to move towards a more multilateral system of settling trade imbalances with a neutral settlement asset, rather than stockpiling fiat currency or fiat currency debt "assets" created in unrestricted supply by one nation, who forces world to then use this inflating currency to purchase energy... which equals future inflation for these nations that can't print it themselves.

It is also useful as a personal "store of value" to avoid "saving" in a depreciating fiat currency, along with other "hard" assets.

But gold or hard money cannot be the unit of account or medium of exchange for national commerce. Credit/fiat is better for this.

This is why some have argued that there's always been and probably always will be a need for "two monies". Bimetallism was an embodiment of this principle. Here is a very thorough discussion of this concept[0]. Ctrl+F "two monies" for specifics, but the whole article is insightful.

This dynamic also presents itself in debates about crypto currencies purpose to function as a high throughput transaction currency or a more inert store of value. Because of the inefficiencies of blockchain and Bitcoin's finite quantity, it cannot function as a unit of account or high volume transactions currency; fiat and fiat derivative platforms (Cash App, Paypal, credit cards, etc) are much better at serving this function. Trying to shoe-horn hard money into soft money use cases (or vice versa, saving in fiat) doesn't work. One form of "money" can't satisfy these two distinct functions.

[0] http://fofoa.blogspot.com/2011/05/return-to-honest-money.htm...

[1] https://en.wikipedia.org/wiki/Bancor

[lifty]

This is a very astute point and it's how I've always thought about Bitcoin and other crypto assets. I never understood why people have to debate whether it will take over currencies like the USD or EUR, which it will probably never do. Crypto assets can have utily for trading among enemies or situations where normal fiat currency cannot be used. Think about places with dysfunctional institutions, escaping inflation in places like Venezuela or fleeing war. And then there's the programability aspect which is a totally novel use case which I'm not going to go into.

[throw0101a]

> Crypto assets can have utily for trading among enemies or situations where normal fiat currency cannot be used.

Maybe crypto will get there eventually, like tech crashed in 2000-2001 (AMZN down 90%) and things have 'stabilized' now, but it's been over ten years already since Satoshi published and this is where we are:

> So. Bitcoin fell 53% in five weeks, and then it rallied 35% in four hours. Two observations for now: 1) Nobody in their [right] mind would enter into a transaction denominated in bitcoin; 2) It's too early to say the bubble's burst (or to say this is a new bull market).

* https://twitter.com/johnauthers/status/1395067576334655489

When your currency (?) is more volatile than the goods/services you're using to it buy, I'm not sure how useful of a 'currency' it is. Or a store of value, or a unit of account.

Is Bitcoin or other crypto more or less volatile than the price of a barrel of oil or frozen concentrated orange juice futures?

[robk]

This feels like how Cuba had their own two currency market with the CUP and CUC.

[ItsMonkk]

Gold is not good because it is naturally deflationary. Our current system is not good because it is inflationary.

What you want is for the increase in the money supply to match the increase in productivity. What we care about is a stable M2V.

[notduncansmith]

For reference, 1971 was when Nixon first coined the term “war on drugs” (after passing the Controlled Substances Act and related legislation a year prior). People love to bring up that website when the gold standard is mentioned, but it’s actually showing a broader trend of the government apparatus being weaponized against the middle and lower classes.

Here’s a quote that summarizes the effect of the time period nicely:

“The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I'm saying? We knew we couldn't make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.”

— John Ehrlichman, to Dan Baum for Harper's Magazine in 1994, about President Richard Nixon's war on drugs, declared in 1971.

That’s what the fuck happened in 1971. Then, notice how many graphs actually show an inflection point around 1981 when Reagan started as president, employing Nixon’s Southern Strategy to get elected and then serving those voters with policies that attacked the lower and middle classes (slashing spending on federal aid programs, raising income taxes while lowering capital gains taxes, freezing the minimum wage, raising military spending which is essentially a cash transfer to rich arms dealers, etc). Then throw the Cold War in there, and you have a US government that is in an adversarial position with everyone but the 1%.

[lifty]

Indeed, the petro dollar has had all kinds of side effects, good and bad. Like any imperial rule, some get crushed by it, but peace and prosperity can be a direct outcome of it as well, and I think this was the case with the American "empire" after the WW2. You can google for "Pax Americana" for more info about the concept.

ps: I say this as a non-American.