Topic: What if a Country go back to Gold (bitcoin) standard? - page 3. (Read 3911 times)

That country will be forced to store large amounts of unproductive gold.
Don't you think it would be better off selling its gold and using that to build its infrastructure?

Milton Friedman is better than me at explaining why importing stuff is better than exporting.
http://doc.cat-v.org/economics/milton_friedman/the_case_for_free_trade


This talk on Youtube from Friedman : https://www.youtube.com/watch?v=c9STBcacDIM

This post makes no sense.  Why would you compare a household to GDP?  Households don't import export.  They usually work for salary and buy things.  If they need furniture they work and save to buy

I'm a self taught person. Look at my previous post for understanding what I mean by that.
The point is that I do not measure goods with money, the so called "trade balance".

My point is not to run into deficit by importing more than exporting.
The point is having more good imported than you export. This is very different.


For comparison. As a family you don't want to run into debt.
However you want a furnished house, not an empty one where you had to sell all your furnitures to survive.
You don't want to export the furnitures, you want to import them.
But this is not the same as saying that you want to be in deficit.

Yes, I define it like that also the key point is "measured in money/gold".

But imagine you import 2 car for 1000$ each + some raw material for 100$.
You upgrade one of these car with the raw material, and manage to sell the upgraded car for 2100$.
In term of trade balance, you are balanced => 2100 import and 2100 export.

In term of goods though, you are better off.
Since you imported 2 car + raw material, but only consumed the raw material + exported one car.
Your wealth has improved of 1 car, the added value of your work is 1 car. Even if the trade balance, is at equilibrium.

This is what I mean by "importing more than exporting", but only in term of goods, not in term of trade balance.
As you said, the trade balance will always tend to go into equilibrium.

The root of this incomprehension is that people tends to measure good's value objectively in money/gold.
When as you said, Mises clearly point out that value is subjective and always created when 2 actors exchange without coercion.

I agree that even if your position in the above example would not be improved by 1 car, the exchanges would have created value based on the subjective theory of value.

My point is that exchange of good should not be measured with money.
What you really do when you measure export and import in term of money is only looking the export/import of money itself. Not the export/import of goods.

Please, go back to school. It's the other way around. Germany and Japan got rich because they have been successful exporters for decades, and China's getting richer and richer because it's selling its goods all over the planet.

We must define what is a "balanced trade balance".
I define it as exporting as much goods and service measured in money/gold as we import goods and services measured in money/gold.
If you do not use a common denominator you can not have a total balance, just individual balances you can not compare with each other.
If you export peas and  apples and import cars how do you balance them? You can not. But if you price them in gold or fiat you can.

Agree the balance of imports and exports and the quantity of imports and exports are not solid measures of wealth for a country.

But you miss the point, I think, because the act of importing and exporting happen not in a vacuum.
We import what we want more and export what we want less.
What we export is always less valuable to ourselves than what we import, because the exchange happen only when what we give is worth less for us than what we receive.
If the balance is always zero, but the input and output are not zero, both are increasing their subjective wealth because both are giving out what they value less in exchange of what they value more.

A dynamic equilibrium in the trade balance is beneficial for both parties, so both should prefer a hard currency.
In fact, really hard currencies will force all parties to have a balanced trade balance, like it or not

between bitcoin and gold have similarities and differences, similarities among other
1. To get it together through the mining process, albeit in a manner different mining
2. The value of investment is quite capable to benefit more
3. have a tendency to rise in the exchange rate against the US dollar

whereas the difference among others:
1. The different physical form, gold has a physical form, and bitcoin is cryptocurrency
2. The gold can be directly used for trading, bitcoin can be used when there is an internet connection
3. The release of funds to the higher gold compared to bitcoin

so I think if a country back to the gold, it is a very good for the economy of a country, because gold is very unaffected against currencies of other countries, and according to the experience of countries which use gold as a currency, the country's economy is relatively more stable ... 

This is true if you speak of import and export of money. (the so called, trade balance)
But for goods, this is false. You want import, not export. You want more goods coming into the house not less, and not equivalent.

Having a balanced trade balance while importing more good than exporting is what should be aimed for.
The only possible way of doing that is to add value to imported product before exporting less of them for the same amount of money.

The trap is we should not measure export and import in money terms to deduce if the country is wealthy.
A variable is missing, a variable that should not be measured in money. Goods. Accumulation of good, not accumulation of money.

You got nearly all right.
A country and a family want to import exactly as much as it export.
If you export more than you import, you depend on the solvability of the debtors.
If you import more than you export, you depend on your creditors not needing their money back all together earlier than you foresight.

When West Germany had his currency (hardest fiat around for a long time), all other countries needed to buy Marks to buy stuff from West German industries and West Germans found incredibly cheap to go and spend their Marks in countries with weaker currencies like Italy or Greece. In the end, the Import/Export balance of West Germany was always balanced. Do not appear they had any economic problem from having the strongest currency around. A lot of people went to work in Germany from other countries, because they had full employment and needed workers.

The interest rate would raise (a lot higher than the zero or 2% of today) and only very profitable enterprises would be able to get financed. Work intensive sectors (usually in cheap productions) usually have lower margins, so they would receive less investments or none at all where capital intensive sectors would receive more investments. People would save a lot and savers would receive very interesting returns if the lend part of their savings. So you would have people working in highly productive jobs, making more money, saving a lot more and being paid back for their saving loaned.

Bubbles would not form or would be one or two orders of magnitude smaller and rarer. Even better, with more savings, when these bubble would burst, people would not be so severely affected as today (because they would have a lot larger cushion). The economy would grow at a faster rate than today and would have no long recessions.

The only "problem" would be debtors and carefree lenders. The government would not be able to spend so much as it would like (as the politicians and bureaucrats would like). Higher rates of interest would force them to not be indebted and would turn the market against them when the indebtment would go over 20-30% and not 80-100% of the GDP. There would not be enough gold to lend the government so much money at all, in fact. The government would need to revert to taxation, but taxation make people angry and restive. Government would be forced to balance the budget, like it or not. Because it would be forced to pay people in gold coins and it would need to raise them first.

What does it mean "not enough gold" ?
Does it mean that the smallest gold coin price is too high to buy a cup of coffee ?

If that's your point, the problem is with divisibility.
So the question is : if that's the true problem, then does BTC is protected about that ?

I think yes, a Satoshi will never cost more than the price of a cup of coffee.
And if it was not the case, a protocol change with "MilliSatoshi" (or through a side chain), would permit unlimited divisibility.

This idea is moot. There is not enough gold to sustain a gold standard at current economic output.

Having more import than export is the path to wealth.

If you replace "the country" by "a familly", and "the resources of the country" by "house's furnitures".
Then, as a family, you would prefer a well furnished house (in other words goods imported in it), than an empty house.
Why is it not the same for a country ?

The goal is to have more import than export, without indebt ourselves.

Putting that aside.
The domestic industries also profit of strong currency, since they can buy more productive capacity cheaper.
If they can't sell it, the price of their good will drop until it does (that and the fact that supply goes up). Then buyer aboard will buy the goods, which will lower the value of the currency until equilibrium.

Just look at the size of the market that deals with commodities trading. Every single investor in the world would want a piece of the pie, and he will buy currency from that country. After only a few weeks, value of the currency would have tripled, or more, causing every company which was successfully exporting goods to go bankrupt, causing mass unemployment. The good part being that the people who had money in the bank would enjoy unprecedented purchasing power of cheap imported goods.

Still, in a very small country which would ban currency convertibility, I guess it could work.

In theory yes. Nobody would use gold, but gold certificate instead. However, it would be difficult to get your gold back for very little amounts

Why you say so? You can divide 1g.of gold indefinitely, just as btc!

England returned to the gold standard with the same exchange rate the pound had BEFORE the war. Unfortunately, to pay the costs of the war, England printed four times that quantity of notes.
This caused inflation and, obviously, who understand the situation converted as many notes as he could in gold and waited the endgame.

Countries went off the Gold Standard because there was not enough Gold to back the government expenditures and promises.
So, instead of cutting expenses, they printed fiat money. Easier, someone else would pay the costs of their decision a few years or decades down the road. Who care?

Had they allowed the Great Depression to go unchecked, it would have ended by 1931. They had just to compensate for the easy money and inflation of credit of the Roaring '20s (thank you Federal Reserve).
Instead the socialist government of FDR (he told his secretary they were doing the same thing they were doing in Italy, Russia and Germany, but without bloodshed and chaos) decided to manage the economy and fix it. And instead of being a Depression it become the Great Depression. And today we have the Greater Depression because the US government (and all government of the world) think they can fix the economy (and have it doing their bidding).

What's the reason to use gold standard?  Historically, countries went off gold standard because there wasn't enough gold to back the monetary demand.

What would probably happen is that boom & bust cycles would be extreme and you get things like Great Depression

I'd like to see that happen...

Russia and China already accumulated a lot of gold. Any deal between these two countries will probably be backed by gold.