An article for free for all my Substack subscribers. It gives context to the problems we face as the fiat currency era destroys itself and we struggle towards a replacement monetary system.
Wonderful piece, thank you. One question troubles me. What's to stop the governments of the world seizing gold from their citizens to save themselves once they've finally broken their financial systems beyond repair?
The inexorable growth of the state, as an employer and in its reach & power is impossible to gently roll back. Most citizens can’t stomach the necessary changes, & the politicians all know this. They will willingly drive society over the cliff into their ‘new world order’ of penury, social discord & servitude. Not a happy prospect.
Creating a historical context of a gold standard is helpful for unsophisticated people like myself to to see what needs to be done for the future Turk's work is sentinel to the discussion What I see in skeptic's thinking is how such a transition from fiat to a gold standard is even possible with the degree of debt/credit.....seen by them to be insurmountable
Wow. Alasdair has done it again, presenting a coherent explanation of the role of banks, currency, gold, etc. over a relevant period of history, particularly in the West. How I wish politicians could understand our position, but I think the "will to power" overrides objective thinking. God help us all.
Another great statement relating to credit and banking history and how governments revert to the same scenario of monetary/credit disaster by disregarding historical fact. You have another Chapter in a GREAT book on economic/monetary reality, Alasdair. Thank you!
This part is important (I quote from above) "Following Waterloo, Liverpool’s government set in motion an economy which expanded in real terms on the basis of non-intervention, allowing the government’s debt to fall from 172% of estimated 1819 GDP to 21% in 1914. According to the Bank of England’s own research, this debt declined from a total of £893 million to £706 million between those dates, the rest of its statistical decline being from economic progression."
During this period of government monetary discipline, much of it neatly fitting between
1) the 1832 Great Reform Act, which abolished "rotten boroughs" where Lords controlled who got elected to parliament and the beginnings of one man one vote, and
2) the 1880s when 'the two party system' became formalised (i.e. the "Lords" worked out how to control the politicians),
A period known in British Parliamentary history as "The golden age of the independent member [of Parliament]", Britain became one of the most inventive and economically powerful countries in the world. A coincidence?
PS a good read is " The Party System" by Hillaire Belloc and Cecil Chesterton. You can find it on the way back machine.
The diagnosis that central banks now face a credibility problem after years of QE-related losses is sound. However, the prescription – a total and instant return to gold-based banking – is only theoretically consistent and practically hard to perform:
It would demand either sharp deflation or a step-change in the gold price to cover today’s money stock. It offers no crisis back-stop for deposits or payments and it underestimates the historical costs of gold-era deflations.
I think we do need stronger market discipline and a clearer price tag on state-driven credit expansion but any transition must confront real-world pain, modern financial plumbing, and political feasibility.
Hence, perhaps a hybrid path transition during say 10 years would be more realistic where a gold unit would exist in parallell to fiat? Then in time it will show which is preferred. Also, some shock absorber should be maintained while market discipline is increased and banks are forced to compete more with each other rather than fearing regulators, making shareholders taking the losses rather than the taxpayers. Gradually the role of central banks should transform from the lender-of-last-resort into a predictable liquidity back-stop rather than a solvency saviour.
Of course, if a financial collapse occur, the time frame for the transition would have to be radically shortened.
The reality is that the can has been kicked down the road for so long there is only one option. A lot of pain.
The question is, on the other side of that pain do we demand and get the safety of a gold standard or do we allow the perpetrators of what we now face to do their usual problem (what we now face, created by them), reaction (the pain, created by them) only to allow them to impose their chosen solution (digital programmable money in whatever form, linked to a digital ID - also known as slavery - created by them)?
I'm hoping they lose "control" and the system crashes sooner than they want so that the digital money and ID they want aren't ready in time for 'their solution"
"Today, government spending is far higher and rising, even exceeding half their economies in some European nations. Unless these excesses are dramatically reduced, there is no chance of a gold standard lasting".-- Alasdair this is a fascinating statement, so are you saying that unless governments cut spending, there is no way a gold standard can last? Do you have a solution?
Steve Hanke argues that if the increase in money supply is kept around 5%, inflation will remain around 2%. Might that work?
You quote only part of his fascinating statement. You missed out they key part "In 1820, once war-time spending had ended government spending was just 13% of GDP, leaving businesses and individuals with 87% of their own money with which to go about their business."
Government spending has to be cut, the vast majority of it is wasteful. Or do you disagree with that statement about how wasteful it is? Cutting it will involve pain but as they say "no pain, no gain'.
Even in the Bible the slavery of the tribes of Israel only involved a tax of 20%.
Despite being controlled himself Ronald Reagan gave us all a clue when he said 'The nine most terrifying words in the English language are " I'm from the government and I'm here to help."
Rob, you are correct. However, the process of splitting out the "wasteful" spending is not going to be easy. What one taxpayer thinks is wasteful is considered necessary by another. Government has gotten so large because they granted the taxpayers everything they wanted. How one rolls that back is hard to determine.
Thank you Alasdair.
Wonderful piece, thank you. One question troubles me. What's to stop the governments of the world seizing gold from their citizens to save themselves once they've finally broken their financial systems beyond repair?
Who would pay attention
The inexorable growth of the state, as an employer and in its reach & power is impossible to gently roll back. Most citizens can’t stomach the necessary changes, & the politicians all know this. They will willingly drive society over the cliff into their ‘new world order’ of penury, social discord & servitude. Not a happy prospect.
Creating a historical context of a gold standard is helpful for unsophisticated people like myself to to see what needs to be done for the future Turk's work is sentinel to the discussion What I see in skeptic's thinking is how such a transition from fiat to a gold standard is even possible with the degree of debt/credit.....seen by them to be insurmountable
Wow. Alasdair has done it again, presenting a coherent explanation of the role of banks, currency, gold, etc. over a relevant period of history, particularly in the West. How I wish politicians could understand our position, but I think the "will to power" overrides objective thinking. God help us all.
That was a "brief history"? I would have said it was comprehensive but then that's just me. Certainly a keeper for future references. Thank you
Magnificent. Saved to my permanent Alasdair Macleod folder.
Another great statement relating to credit and banking history and how governments revert to the same scenario of monetary/credit disaster by disregarding historical fact. You have another Chapter in a GREAT book on economic/monetary reality, Alasdair. Thank you!
This part is important (I quote from above) "Following Waterloo, Liverpool’s government set in motion an economy which expanded in real terms on the basis of non-intervention, allowing the government’s debt to fall from 172% of estimated 1819 GDP to 21% in 1914. According to the Bank of England’s own research, this debt declined from a total of £893 million to £706 million between those dates, the rest of its statistical decline being from economic progression."
During this period of government monetary discipline, much of it neatly fitting between
1) the 1832 Great Reform Act, which abolished "rotten boroughs" where Lords controlled who got elected to parliament and the beginnings of one man one vote, and
2) the 1880s when 'the two party system' became formalised (i.e. the "Lords" worked out how to control the politicians),
A period known in British Parliamentary history as "The golden age of the independent member [of Parliament]", Britain became one of the most inventive and economically powerful countries in the world. A coincidence?
PS a good read is " The Party System" by Hillaire Belloc and Cecil Chesterton. You can find it on the way back machine.
The diagnosis that central banks now face a credibility problem after years of QE-related losses is sound. However, the prescription – a total and instant return to gold-based banking – is only theoretically consistent and practically hard to perform:
It would demand either sharp deflation or a step-change in the gold price to cover today’s money stock. It offers no crisis back-stop for deposits or payments and it underestimates the historical costs of gold-era deflations.
I think we do need stronger market discipline and a clearer price tag on state-driven credit expansion but any transition must confront real-world pain, modern financial plumbing, and political feasibility.
Hence, perhaps a hybrid path transition during say 10 years would be more realistic where a gold unit would exist in parallell to fiat? Then in time it will show which is preferred. Also, some shock absorber should be maintained while market discipline is increased and banks are forced to compete more with each other rather than fearing regulators, making shareholders taking the losses rather than the taxpayers. Gradually the role of central banks should transform from the lender-of-last-resort into a predictable liquidity back-stop rather than a solvency saviour.
Of course, if a financial collapse occur, the time frame for the transition would have to be radically shortened.
The reality is that the can has been kicked down the road for so long there is only one option. A lot of pain.
The question is, on the other side of that pain do we demand and get the safety of a gold standard or do we allow the perpetrators of what we now face to do their usual problem (what we now face, created by them), reaction (the pain, created by them) only to allow them to impose their chosen solution (digital programmable money in whatever form, linked to a digital ID - also known as slavery - created by them)?
I'm hoping they lose "control" and the system crashes sooner than they want so that the digital money and ID they want aren't ready in time for 'their solution"
A financial collapse WILL occur. The statists would rather see mass misery than admit their incompetence.
An exelant explanation, tank you Sir.
"Today, government spending is far higher and rising, even exceeding half their economies in some European nations. Unless these excesses are dramatically reduced, there is no chance of a gold standard lasting".-- Alasdair this is a fascinating statement, so are you saying that unless governments cut spending, there is no way a gold standard can last? Do you have a solution?
Steve Hanke argues that if the increase in money supply is kept around 5%, inflation will remain around 2%. Might that work?
You quote only part of his fascinating statement. You missed out they key part "In 1820, once war-time spending had ended government spending was just 13% of GDP, leaving businesses and individuals with 87% of their own money with which to go about their business."
Government spending has to be cut, the vast majority of it is wasteful. Or do you disagree with that statement about how wasteful it is? Cutting it will involve pain but as they say "no pain, no gain'.
Even in the Bible the slavery of the tribes of Israel only involved a tax of 20%.
Despite being controlled himself Ronald Reagan gave us all a clue when he said 'The nine most terrifying words in the English language are " I'm from the government and I'm here to help."
Rob, you are correct. However, the process of splitting out the "wasteful" spending is not going to be easy. What one taxpayer thinks is wasteful is considered necessary by another. Government has gotten so large because they granted the taxpayers everything they wanted. How one rolls that back is hard to determine.
It can’t be rolled back. Collapse is inevitable, I’m afraid.