RoR: Forum

Jim,

What you said about Obama not being here for the mess he created... I think that's normal. The bad presidents often ride in when things have been made solid by the people before them, the sometimes catch a real break (like Clinton did with the Internet and computer boom). Clinton also gets credit for changes that were forced through by the Republican congress under Newt Gingrich.

And when a fiscally responsible president comes in after a mess they get blamed for those time bombs going off. Sometimes a good president gets blamed for things a bad congress did (Reagan's biggest tax package was repealed by congress and the tax increases were passed only by overriding his veto. There was also a publicly made promise that congress would reduce spending by a set amount, but they changed their little minds.

Just another reason to separate economics and state.

Post 61

Monday, March 7, 2011 - 7:34am

I think that after all this discussion that we've agreed that The Bernank is full of hot patooti when he says that "there's not enough gold in the world to effectively support the U.S. money supply."

Sam

Post 62

Monday, March 7, 2011 - 8:00am

I think that after all this discussion that we've agreed that The Bernank is full of hot patooti when he says that "there's not enough gold in the world to effectively support the U.S. money supply."

The claim as given makes no sense. However, if it said:
1. there's not enough gold in Fort Knox to effectively support the U.S. money supply, or
2. there's not enough gold in the world to effectively support the world money supply,
then I would agree.

Post 63

Monday, March 7, 2011 - 9:34am

If a commodity reserve currency were seriously considered, crude oil should be a candidate component of it in my opinion. Regardless, the value of the U.S. government's strategic oil reserve is worth less than one-half of M1 and less than one-half of the gold in Fort Knox.

Post 64

Monday, March 7, 2011 - 2:23pm

Is there still gold in Fort Knox? Has anyone recently viewed these alleged reserves?

Post 65

Monday, March 7, 2011 - 2:25pm

Steve -- I agree with you that the electorate can be pretty bad at sorting out who is responsible for causing a particular mess.

Post 66

Monday, March 7, 2011 - 3:10pm

The electorate is bad at sorting out cause and effect. The electorate AND the politicians could use a better understanding of economics, the politicians (of all stripes) have become practiced at abusing statistics, telling lies, and claiming to have fixing anything that they can convince others was broken, while denying anything they are being blamed with is even a problem, and if it were a problem, they say, the guy before me did it.

Post 67

Monday, March 7, 2011 - 5:17pm

In Post 39, I wrote, "Just to be clear, Gresham's law operates only in the presence of legal tender laws."

In Post 52, Merlin replied,

I disagree. First, let's be clearer about what "legal tender" means. "Legal tender is a medium of payment allowed by law or recognized by a legal system to be valid for meeting a financial obligation" (Wikipedia). It usually does not mean payments made other than by legal tender are forbidden. Even if some means of payment are forbidden, such payments may still occur. Personal cheques, credit cards, debit cards and similar non-cash methods of payment are not usually legal tender. Also, U.S. dollars circulate extensively outside the U.S., and U.S. legal tender laws don't apply there.

So legal tender laws have little or no bearing on Gresham's law broadly stated, which concerns what money will be hoarded and what money will be spent and thus circulate more.

Observe that I did not say that Gresham's law always operates in the presence of legal tender laws. I said that it operates only in the presence of legal tender laws.

Question: Why does bad money drive out good? It doesn't if the full value of the good money is permitted free expression. Legal tender laws inhibit that expression if they require the bad money to be valued preferentially or even equally to the good money. If the legal tender laws don't prevent the full value of the good money from being expressed, then the bad money won't drive out the good.

I think there are far better reasons the Canadian Gold Maple Leaf hasn't replaced the U.S. dollar as a circulating currency than the existence of U.S. legal tender laws.

Well, Americans are not legally required to accept foreign coins in payment of debts. That does not, of course, mean that these coins would be used if they were legally permitted.

(Edited by William Dwyer on 3/07, 5:20pm)

Post 68

Monday, March 7, 2011 - 6:29pm

Observe that I did not say that Gresham's law always operates in the presence of legal tender laws. I said that it operates only in the presence of legal tender laws.

So what? It was the latter that I disagreed with. Legal tender laws and the government trying to control the value of money are two vastly different phenomena. Gresham's law is about the latter.

(Edited by Merlin Jetton on 3/07, 7:40pm)

Post 69

Monday, March 7, 2011 - 8:51pm

The electorate AND the politicians could use a better understanding of economics

The problem is that most politicians are experts at a very narrow niche of economics -- political economics -- which is the field of coercing as much money as possible into one's control and then turning that money into as many votes as possible. Being good at this niche of economics requires that the politician either be ignorant of the larger field of general economics, or else understand those economic principles but put them aside and feign ignorance so as to allow doing something that harms the economy but gains them votes. Thus, the burgeoning welfare state.

Post 70

Monday, March 7, 2011 - 10:16pm

In Post 68, Merlin wrote:

Legal tender laws and the government trying to control the value of money are two vastly different phenomena.

Not true. Legal tender laws can involve and have involved controlling the value of money. As Rothbard notes, "[T]he triumph of "bad" money is the result, not of perverse free-market competition, but of government using the compulsory legal tender power to privilege one money above another.

"In seventeenth- and eighteenth-century Britain, the government maintained a mint ratio between gold and silver that consistently overvalued gold and undervalued silver in relation to world market prices, with the resultant disappearance and outflow of full-bodied silver coins, and an influx of gold, and the maintenance in circulation of only eroded and 'lightweight' silver coins." (A History of Money and Banking in the United States, p. 48)

Post 71

Tuesday, March 8, 2011 - 5:43am

Bill wrote:

"In seventeenth- and eighteenth-century Britain, the government maintained a mint ratio between gold and silver that consistently overvalued gold and undervalued silver in relation to world market prices, with the resultant disappearance and outflow of full-bodied silver coins, and an influx of gold, and the maintenance in circulation of only eroded and 'lightweight' silver coins." (A History of Money and Banking in the United States, p. 48)

Also, when the U.S. reduced the silver content of coins in 1965, the pre-1965 versions started being hoarded.

Both are instances of Gresham's law, and legal tender is not the issue. The issue is how people value the different monies.

As Rothbard notes, "[T]he triumph of "bad" money is the result, not of perverse free-market competition, but of government using the compulsory legal tender power to privilege one money above another.

Rothbard exaggerates. A government wanting to control what money people use could do a lot more than legal tender laws as the term is explained in Wkipedia.
(Edited by Merlin Jetton on 3/08, 6:01am)

Post 72

Tuesday, March 8, 2011 - 11:04am