UpTheKhyber

Not so much getting out as ensuring they have enough collateral in case the borrower defaults. It's just the reverse of 125% loans now we're going down the otherside of the rollercoaster. But scumbags they are.

Interesting. Removing silver as a medium of exchange thus halving liquidity pretty overnight is going to result in a pretty bad credit crunch for sure. Seems more like another example bad/corrupt government policy to me than anything else though. I don't buy that. There are many possible monetary systems. 'Full reserve metal with 0 credit' and 'fractional reserve with shed-loads of credit' are two extreme opposites. There is plenty of space to explore in the middle. One thing I would however require of a replacement system is that bankers are not treated any differently than any other business with regards to fraud. It would also be extremely nice if such an alternative could be phased in in an orderly manner. I'd be interested in your thoughts on Fekete's proposal for example.... http://www.gold-eagle.com/editorials_05/hultberg020105.html, although maybe the what is money thread is a more appropriate place to continue such a discussion.

My understanding is that during that period land prices increased dramatically due to access by railroad construction. Financing this were the banks who lent money (through fractional reserve banking). The boom then inevitably collapsed, demand for farm producd reduced and the farmers were crippled by mortgages they couldn't afford to repay. Sound familiar?

This is true if you look at one curve in isolation. The key point I am making however is that a nation's currency is not an isolated system. If you inflate faster than your trading partners then all kinds of international monetary imbalances occur, and the imbalances increase exponentially. Initially it's hardly noticeable, but when it gets out of control it does so catastrophically quickly. I'll be interested to read that. I've seen the same stats as drminky re: the US since it went off the gold standard. Can't remember were now, but a quick google should find it. Again, I don't really buy that fractional reserve or fiat has made people richer, or improved investment in productive enterprise in real-terms. Going back to you point about the Industrial Revolution, I would argue that by far the main growth factors involved in the industrial revolution were a combination of the agricultural revolution (mechanisation of farming, making millions of people available for work in factories), stealing things of value from the natives as european countries built their empires, forced inequitable trading (get the natives to sell you raw materials and sell them back value-added finished goods), and engineering breakthroughs such as efficient steam engines, spinning machines, and iron making processes. As I outlined earlier, i believe fractional-reserve banking is extremely poor at targeting capital at productive activities, instead undermining such investment by inflating the cost of goods of services and therefore reducing the payback of any investment which is made in productive activities. That the average person became richer is down to efficiencies in production, investment in which was IMO not aided, but taxed by the banks and government through fractional-reserve and fiat.

Now that's a prompt reply . To explore this further... This is just referring to the exponential nature of inflation if you increase the supply of high-powered money each cycle. Exponential rises are bad in the long run if the rest of the system (e.g. other economies you trade with) don't inflate at the same rate as you. As an example of how the can be bad for a country: with gold as the international reserve currency, the unsustainable nature of US inflation was so obvious that in the 70's they had to move off the gold standard. This led to the US$ being used as the defacto replacement gold standard, with the resultant pathological effects on international money supply (as described in item 3 onwards in this link - http://www.goldmau.com/content/contributor...lf/08-04-11.php). The resultant effect of this has been that the US been drained of much of its wealth. Doesn't seem like very sound monetary policy to me. The other problem is that because banks know they will get bailed out, there is a moral hazard introduced. Banks will supply far more credit than they would otherwise dare, and the credit expansion and contraction caused by money-as-debt/fractional-reserve banking works as an even more effective money pump towards the very rich. Assets/commodities get inflated in price, eventually most people become asset rich and cash poor (assuming they don't MEW it all to hell in which case they end up asset-poor and cash-poor) and have to sell those assets, usually after the assets have crashed in price. The rich, who have been able to retain lots of liquidity then scoop up those assets at bargain prices. The resulting polarisation of society into super-rich and poor is usually pretty bad for everyone but the super-rich. IMO it's regressive taxation. Effectively it acts as a flat rate tax. This hits those with the lowest disposable income the hardest. The current monetary system is definitely corrupt; it's far more biased in favour of the bank than even a casino would dare. At least casinos are fairly up-front about relieving you of your money, and you're not forced to play. Gold as money at least has no in-built bias. Yes coinage is still open to abuse through debasement, but that's not a problem with gold per-see.

Sorry, a long weekend got in the way of replying to you on this. Hopefully nobody minds my revisiting these philosophical discussions... I'd certainly agree with you that mechanisms for efficient and effective lending of capital for productive purposes are necessary, but I don't see that much evidence however that fractional reserve banking has achieved this in practice. The deliberate confusion of money with IOU's, as encouraged by bankers for centuries, has resulted in an efficient system of exchange of goods and services (money) being hijacked by banks for investment purposes (as capital for usurious lending), much to their benefit and to the detriment of everyone else. This was recognised by the Glass-Steagall Act, requiring separation between investment and commercial banking activities, which was unsurprisingly repealed after much lobbying by banks. By advertising checking accounts as being a form of bailment (where the account holder has legal possession) by using such words as 'deposit' and 'banknote', but actually entering the account holder into an investment contract (where the bank has legal possession), the banks are committing fraud IMO (at least morally). This is only further confirmed by governments then 'guaranteeing' that such depositors won't lose their money in the event of a bank run. Easy access to such a flood of capital then results in inappropriate investment decisions, especially when coupled with the lack of care taken if one can lend it out on usurious terms. Instead of concentrating investment in productive activities it hugely dilutes it with massive asset speculation, and resulting misery for the general population. Even worse, since the introduction of central banks, every business cycle the banks are bailed out by the central banks printing more money (with the banks' dodgy overpriced assets as collateral), and every cycle this effect gets bigger. As for governments/central banks curbing the excesses of the banking industry, well that's a laugh as they are the worst offenders of the lot . Central banking allows the state easy access to money, through legalised counterfeiting, to invest in non-productive activities such as bureaucracy and warfare. By raising money by printing yet more of it (with our future taxes as collateral) the state can hide its profligate ways because as it no longer has to raise taxes (always unpopular) but can instead hide behind inflation, and blame the whole thing on 'those nasty speculators and producers restricting supply and raising prices'. It's just an evolution of the old trick of currency debasement practiced by countless governments, except these days they don't even need to pay for the lead to mix in with the gold (too expensive now!), and with PFI they've even stolen a trick or two from the bankers ('off-balance sheet malarkey'). I'm not saying that gold as money is the solution to all this, but IMHO the problem is not one of too little capital available to invest but too much. The main effect of the banking system as it is set up at the moment is to rob the poor to pay the rich, without the poor noticing.

FYI, opening a GoldMoney account is slightly more of a pain than opening a BullionVault account because GoldMoney require the proof of identity documentation you supply to be certified by a lawyer / some other types of professional. I use both; they each have their pros and cons. GoldMoney enables you to buy silver as well, pays interest on cash deposits and offers a choice of fiat currencies to hold your cash in. BullionVault have an interesting 'internal market' which as i understand it (in theory) allows you achieve a lower spread between buy and sell prices, should be interesting in trading gold rather than following a buy&hold strategy. Both have vaults in UK and CH.

I'd agree usury is certainly a core part of the issues, not because making a profit from lending is a problem in itself, but because charging a predetermined fixed rate of return decouples the lender's interests from the borrower's. On the other hand, if the lender's return is based on an equitable share of the success of the borrower's enterprise then the lender is incentivised to invest more wisely and also to take a longer term view regarding financing, rather than the current situation of handing out umbrellas like there's no tomorrow when it's sunny and taking them all back when it rains. Fractional reserve banking just compounds the problems with interest (vs equity) based lending, because the banks then hardly need to use any of their own capital and this gearing encourages short term, high-risk investing, which is further compounded by the 'privatise-the-profit's, socialise the losses' nature of fiat/central banking. If interest is a financial hand grenade, then fractional reserve banking amplifies its destructive power to that of a thermobaric bomb, and the addition of fiat and central banking takes whole mess to thermonuclear proportions.

I'm sure you already appreciate this, but 'store' and 'invest' are different things. 'Confusion' between these terms is what led us to fractional reserve banking (aka legalised forgery) in the first place . I agree sticking a load of fiat paper under the mattress isn't a fair comparison with sticking gold under a floorboard. Mind you, I'd place a bet that gold is a better long-term preserver of wealth than your average savings account.

I'd say that's proof it's been a pretty good preserver of wealth over the very long term. Considering we're supposed to be 8 years into a 15 year upward cycle it looks like gold has pretty much kept parity over the long term. It does however show that physical gold isn't a wealth creator in the long term, which is what one would expect: you've got to speculate to accumulate