Sunday, August 07, 2011
Gold vs speculation
One of the Money Talk shows featured a good long interview with economist Ken Rogoff, who has a timely book "This Time is Different", showing how bubbles keep happening over and over and over, and how governments never learn.
The show took some calls, and predictably most were from gold bugs claiming that the gold standard would prevent bubbles. Rogoff didn't bother to slap these callers down, so the argument still needs a slap!
I don't know all the bubbles, but I know a few.
Tulip bubble 1630s: Europe solidly on gold and silver.
South Sea bubble 1720s: England on gold, with some pound notes in use. Walpole ended the bubble with hard-ass laws, then jailed the speculators and the MPs who had deregulated to enable the bubble. Thereafter, England had no more bubbles for a long time.
Railroad bubble 1880s: America on gold and silver, with bank notes in use but not yet popular.
Agriculture and stock bubble 1920s: America mostly using paper, but still tied to gold.
1934: FDR did two things at once: took gold out of circulation and clamped down hard on speculators. IF the gold bug argument had any validity, this should have been the START of bubbles. Instead, it was the END of bubbles for a long time.
1971: Nixon officially cut all ties to gold. IF the gold bug argument had any validity, this would have roused up even more bubbles, along with the bubbles we would already have as a result of FDR's gold confiscation. In fact we still had no bubbles, and no new bubbles began, because FDR's regulations were still in effect.
Late 1980's: Under Wendy Gramm, SEC stopped enforcing FDR's rules. No change in gold. 1990's: Dot-com bubble.
1999: Under Phil Gramm, Congress eliminated ALL laws on speculation. No change in gold. Bingo! 2000-present: Housing bubble, stock bubble, agricultural bubble, derivatives bubble. All the world's a bubble.
= = = = =
In short, changes in gold vs paper had no effect either way on the tendency to bubble. During these 400 years currency evolved from all-gold to mostly-gold to mostly-paper to gold-in-name-only to pure 'fiat'. Bubbles occurred during each mode of money.
Changes in laws on speculators had TOTAL effect on the tendency to bubble. With strict laws, no bubbles. With loose laws, bubbles. With no laws, all bubble.
= = = = =
Nov 2011 update: Here's a graph that proves the same point. Wonder why financial crimes are common under Bush The Son and Obama? Because Bush The Son and Obama have stopped prosecuting financial crimes. ¶ 4:20 PM
The show took some calls, and predictably most were from gold bugs claiming that the gold standard would prevent bubbles. Rogoff didn't bother to slap these callers down, so the argument still needs a slap!
I don't know all the bubbles, but I know a few.
Tulip bubble 1630s: Europe solidly on gold and silver.
South Sea bubble 1720s: England on gold, with some pound notes in use. Walpole ended the bubble with hard-ass laws, then jailed the speculators and the MPs who had deregulated to enable the bubble. Thereafter, England had no more bubbles for a long time.
Railroad bubble 1880s: America on gold and silver, with bank notes in use but not yet popular.
Agriculture and stock bubble 1920s: America mostly using paper, but still tied to gold.
1934: FDR did two things at once: took gold out of circulation and clamped down hard on speculators. IF the gold bug argument had any validity, this should have been the START of bubbles. Instead, it was the END of bubbles for a long time.
1971: Nixon officially cut all ties to gold. IF the gold bug argument had any validity, this would have roused up even more bubbles, along with the bubbles we would already have as a result of FDR's gold confiscation. In fact we still had no bubbles, and no new bubbles began, because FDR's regulations were still in effect.
Late 1980's: Under Wendy Gramm, SEC stopped enforcing FDR's rules. No change in gold. 1990's: Dot-com bubble.
1999: Under Phil Gramm, Congress eliminated ALL laws on speculation. No change in gold. Bingo! 2000-present: Housing bubble, stock bubble, agricultural bubble, derivatives bubble. All the world's a bubble.
= = = = =
In short, changes in gold vs paper had no effect either way on the tendency to bubble. During these 400 years currency evolved from all-gold to mostly-gold to mostly-paper to gold-in-name-only to pure 'fiat'. Bubbles occurred during each mode of money.
Changes in laws on speculators had TOTAL effect on the tendency to bubble. With strict laws, no bubbles. With loose laws, bubbles. With no laws, all bubble.
= = = = =
Nov 2011 update: Here's a graph that proves the same point. Wonder why financial crimes are common under Bush The Son and Obama? Because Bush The Son and Obama have stopped prosecuting financial crimes. ¶ 4:20 PM
