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Is Facebook Becoming a Central Bank?
wasimkadak sends this quote from an article at Forbes:
"Facebook's 27-year-old founder, Mark Zuckerberg, isn't usually mentioned in the same breath as Ben Bernanke, the 58-year-old head of the Federal Reserve. But Facebook's early adventures in the money-creating business are going well enough that the central-bank comparison gets tempting. ... Initially, the Credits-based economy was confined to the virtual world’s trifles. Credits could be spent to buy imaginary gold bars for aficionados of Mafia Wars, or bouquets of virtual flowers for birthday postings on friends’ Facebook accounts. This new form of digital money was cute but essentially useless for mainstream activities. Lately Credits have become more intriguing. Warner Brothers this summer offered movie-goers a chance to watch Harry Potter and The Dark Knight for 30 Credits apiece. Miramax and Paramount countered with film-viewing offers, too. In a provocative post this week on Inside Facebook, guest blogger Peter Vogel argues that Credits in the next few years will become more of a true currency. Facebook's 800 million worldwide users represent a lot of buying power. He figures Credits could evolve into commercial mainstays for digital movies and music."
The history of the web is filled with play-online games for points that could be used for other things... but all crash in an inflationary spiral. Points are free, but the prizes offered are not and eventually the value falls below the "par value" the site originally had. Has anybody recently cashed out with GSN Oodles or Moola.com's Moola points?
Interesting point that the main cost of music or movie is the "first copy"... duplication costs very little in the digital world. Seems like the movie industry are offering sequels to drive up interest in future movies.
The mark of a true currency is that it can be used to pay U.S tax liabilities. For Americans at least, anything else is just, at best, a commodity subject to capital gains taxes. For example, if you buy gold coins, or facebook credits, and then sell them after their value has doubled you'll have to pay capital gains tax on the amount they appreciated against the dollar. if you barter the gold coins, or facebook credits, for services or goods you will have to pay taxes on that barter transaction in dollars. If the dollar appreciates in value against other currencies though, there is no capital gains tax to pay, even though your dollar might buy more.
Can I trade my Bitcoins for Credits? I also have some vintage CueCat rewards points?
Flexible bare-metal recovery for Linux/UNIX
Except it has more confidence in it, and it's more stable.
Predicted all of this, and explained very clearly why as soon as there's some traction, and the ability to move/take cash out, the existing banks/authorities will be down on their heads like a weight of very heavy things.
Why Bitcoin was so scary for a time.
These things offer wonderful room for money laundering.
Waiting for an amusing sig.
From the article:
Peter Vogel is co-founder of Plink, a Facebook Credits-based loyalty program that rewards Facebook members for dining and making purchases at their favorite restaurants and stores.
"Facebook credits" are just another gift card scheme. You can't cash them out. You can't invest them. You can't convert them to another currency. You can't transfer them to another individual. And Facebook takes a 30% cut off the top.
The only virtual currency that comes close to behaving like a currency is Linden Dollars, the monetary unit of Second Life. Those, you can transfer and convert.
Bitcoin had potential, but it turned into a pyramid scheme.
When they discover they can get stuff for free. Same way the US government has done.
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If Facebook told me to buy something then I'd be more skeptical than ever about it. Could be a good thing or bad thing, but I don't see Facebook as my consumer advocate or advisor.
More like an idiotic social networking site which constantly nags me about things and notices and I try adblocking the pop-ups, which invariably makes it all worse, but I don't really care.
A feeling of having made the same mistake before: Deja Foobar
Facebook will have to send a 1099 to everyone who earned credits this year and we'll have to pay taxes. My bank sent me one saying I earned $17 in interest. If I earned enough credits to buy 2 movies they'd probably be worth more than that and I'm sure the IRS would want their cut.
Also, WHY would another private company be willing to trade goods/services in exchange for your faerie's gold?
Same reason that any other company is willing to trade good/services for pieces of green paper-there's an implied idea that there is some wealth behind that paper that makes it worth taking. Facebook credits, AFAIK, are backed by real money (the money that the user spent to acquire them), and I imagine if a user spends them on a game or something the developer of said game pockets some money for that transaction.
You use money that is a number in a database to buy more fake money that is another number in a database, then use that fake money to buy items that are simply more items in a database. Ironic that none of this is even real but the labor we put into earning that money in the first place. (This paragraph has nothing to do with the rest of the comment, just something that I thought while writing it).
All the world's a CPU, and all the men and women merely AI agents
Betteridge's Law of Headlines is an adage that states, "Any headline which ends in a question mark can be answered by the word 'no'".
There's no -1 for "I don't get it."
If it's anything like a Zynga game, then you'll have a certain amount of energy. When you watch the movie you use up energy, and when its gone you have to wait until the next day to watch more of the movie. But you can buy more energy for a cheap price.
It's not realistic to expect us to be able to BUY movies with facebook credits. They'd make much more money by charging a lower "per view" fee.
All the world's a CPU, and all the men and women merely AI agents
We all use faerie gold already, the reason it works is not because it's worth anything, it's because enough people believe it's worth something. Money hasn't been worth anything since the gold standard was dropped. While I don't believe that FB money will ever take off in a meaningful way I also thought the Spice Girls were going to be a one hit wonder. There's no accounting for taste.
In a cybernetic fit of rage she pissed off to another age...
slashcode is free
Someone should start something anew. Run it themselves, like Taco used to do.
I don't have the energy or time or personality to run the thing, but I'd be a happy viewer and contributor.
There's enough of a market for it it to pay for the running costs. Someone just has to step up.
Is someone paying tax on these transactions?
Lately Credits have become more intriguing. Warner Brothers this summer offered movie-goers a chance to watch Harry Potter and The Dark Knight for 30 Credits apiece. Miramax and Paramount countered with film-viewing offers, too
This sounds like a barter transaction:
http://www.irs.gov/businesses/small/article/0,,id=215975,00.html
Exchanges occurring through a barter exchange are reported to IRS on Form 1099-B and show the value of cash, property, services, credits or scrip added to your account by the barter exchange.
You're half right. Money hasn't been worth anything since before the gold standard was dropped. Even gold is fiat currency. Money, including precious metal coinage, is just tokens meant to simplify complex barter arrangements. It only has value based on people's faith in its value.
If it works for you, that's fine, I won't tell you not to use it. However that your tiny game (one I've never heard of, and I'm rather in to games) uses it means jack and shit. I can buy -nothing- I want with bitcoins, not a single thing. Anything I can think of that I'd desire which is sold by someone who takes bitcoins as payment.
Also are your players really using it as a currency? I doubt it, they are using it as chips just like at any other casino. As in they buy them as needed, play with them, and then cash out when they are done. That isn't what you do with a currency. A currency is something used for general transactions, and something you hold on to. When people talking about "having savings" they mean "having currency held in reserve".
I clicked through to TFA. I know, what was I thinking...
So, a co-founder of a business based on Facebook Credits thinks they're super-important and could be equivalent to actual money. Right. Next ridiculous story, please.
I expect more stories inflating Facebook's perceived worth to be pushed to the mainstream media in the coming months as Facebook's IPO is imminent.
Uhm, Hot grits and the horse you road in on, you Emac on windows viewing AOL using poopy pants!
Is that better?
Unfortunately I only troll at a 2nd grade level.
Well.. maybe. Or Maybe not. But Definitely not sort of.
I trust facebook even less than I trust the U.S. government, and I don't trust government at all.
God forbid facebook ever becomes a central bank!
That $10 in 1998 invested in HANS (the Hansens natural soda company, at the IPO) turned into over $2,000 before it was bought by MNST (Monster Bev co.) and tripled from there.
Cool - your $10 in cybergold could be about 6 grand now, if you played your cards right!
Of course, if you left that tenner in your coat pocket, you can only get about $7.50 1998 equivalent worth of stuff...
This issue is a bit more complicated than you think.
Warner Brothers this summer offered movie-goers a chance to watch Harry Potter and The Dark Knight for 30 Credits apiece.
is it just me or does it seem like Facebook was wooed by Warner Brothers here
I hate to break it to you, but privately owned banks do this in almost every country in the world, every single minute of every single day.
All banks are licensed, by government, to create credit out of thin air. This is subject to very loose restrictions about reserves, but in reality, frat-house rules apply across the board and you can do almost anything you like as long as you've got enough chuzpah to back it up.
And if you think I'm making this up, or exaggerating in any way, do yourself a favour and never, ever read up about the "shadow" banking system of repos, securitization , CDOs, CDSs, and good old fashioned fraud.
The reality of today's banking system is worse than any nightmare.
May the Maths Be with you!
Or, more precisely, by their willingness to accept it as payment. Recursively. Acceptance all the way down.
Analogies don't equal equalities, they are merely somewhat analogous.
...where idiots are stored for years.
Silence is a state of mime.
Before I get into a a snark-guffaw endless loop, this is so? Zuckerberg is printing funny money at will and separating douchebags from real money in exchange?
Surely no one is that stupid.
What happened? Taking a rest from hyping up stale BitCoin stories in order to sell us glorified corporate loyalty program points instead?
When people start accepting Facebook dollars as part of their salary then it will be a real currency. Until then it will be a promotional gimmick, just a bit more complicated than Marlboro boxes.
I think you underestimate just how much I just dont care.
I suppose it doesn't make sense to keep an offer going indefinitely, the US government did give plenty of warning before they stopped redeeming them, and many people did redeem them towards the end.
That and any other old US currency is still legal tender at face value
Of course, the metal coins kept value in the collector/bullion market in a way that paper certificates didn't.
I listen to both RIAA and non-RIAA stuff if I like the music, tangential business/politics nonwithstanding.
I would NOT trust with my money, it would be Facebook.
That's a pretty good way of putting it.
law covering currency / gift cards / scrip / truck may apply to this.
And facebook trying to act like paypal may end up badly + there may be some irs audits / back taxes as well.
One day someone is going to figure out a good way to create and manage a non-sovereign digital currency, and it's going to be a big deal.
If only they'd call them Quatloos, I'd grab some for sure.
Lemmings are silly; dinosaurs are extinct.
Mark can print up as many credits as he wants for himelf and friends = inflation
The government isn't going to allow that crap, they want people using dollars (which are taxed). They don't like competition.
Actually, gold has real value. It has valuable chemical properties, and is used in catalysis, electronics, and medicine among other things. Even if the world lost its "faith" in gold, electronics manufacturers would be willing to trade goods for it.
However, gold is currently overpriced, compared to, for example, platinum. A small amount of platinum can replace a large amount of gold in many catalysis applications. So "faith" probably accounts for a part of the price of gold, but not all of it.
Gold is not fiat. Gold is jewelry, and jewelry has intrinsic value. Intrinsic value doesn't mean you can eat it btw, you can't eat an iPhone but no one would argue that it doesn't have intrinsic value.
Gold at the moment, and throughout history, is a valuable commodity. At the moment people would probably accept gold bullion because the value is going up. It's gone up ridiculously in the last few years, even compared to other precious metals. At the moment, I believe it's higher than rhodium. Anyone who has paid any attention to the price history of gold can see that there's currently a gold bubble. When the price of gold breaks, the only people who will want to be paid in gold will be people operating in black markets and they'll expect to be paid well above the market value.
After a failure of the US, gold will have value, just like steel, copper, silver, lithium and partially hydrogenated soybean oil will hold value. Metals, when used as a currency have always had the advantage of being worth something just about everywhere, but that doesn't mean that you could ever just spend your gold coins everywhere. For one thing, it's almost always been illegal just about everywhere to spend foreign minted money locally. You had to take your money to a money changer and pay what amounted to a service fee and/or a tax. Black market transactions were all over the place, but counterfeiting was rife in such transactions and very few people actually have the expertise to identify counterfeit gold coins. As for the value of just a given amount of gold, it was all over the place. The massively wealthy Mali empire prospered as a gateway for gold from more southern parts of Africa to Europe where it was worth many times as much. Laws were necessary all over the place to stabilize precious metal values. For example all the laws setting the value of silver at 1/16 the value of gold.
Given all this, it's hard to see gold as anything special. I find it almost funny that a lot of people investing in gold right now because they think the country is going to completely break down aren't actually directly buying gold. Instead they're buying shares in a market. A market that, if the reasons they think they need gold pan out, will just collapse and vanish.
Yes it's valuable as a commodity. That always confounds these discussions. Copper has value as a commodity too and has a long history of use in currencies as well, but people don't obsess over it they way they do over gold. The point I was making is just that there's nothing special about gold that requires that currency be backed by stacks of it sitting in a vault somewhere. If currency has to be backed by a commodity, then it can be backed by any precious metal, or by non-metallic elements, or by land, or by any mineral rights, or by any other resource a nation may possess.
Historically, it has tended to be the commodity with the best combination of
1) Fungiblity
2) Ease of transfer
3) Ease of storage
4) Durability
5) Right combination of divisibility and rarity
6) Few alternative uses
So, as a currency, tobacco is preferable to cattle, paper is preferable to tobacco (until the entity creating the paper messes up #5, which it seems is inevitable). I think it is all an attempt to objectively quantify social capital.
Gold certificates are clearly a scam. If there is a collapse of the USD, big investors who have friends with guns will get the real gold while average person #3,004,390 will be left with nothing. There are good reasons people have defaulted to using gold as a currency in the past though.
Why do you think laws setting the value of gold vs silver were necessary? I didn't really follow your reasoning. Shouldn't the value of gold vs silver vary according to supply and demand? If not, why not?
Businesses I think will start doing things like using credits because they can hide the cost difference between nations or hide price increases. Something can cost 10 credits forever but what it costs to get those 10 credits will change and what we pay in the UK may be different to what Americans pay.
That is why I don't like credits, MS points, etc. I wish people would avoid them.
Copper has more uses than gold...therefore it would be a poorer choice.
"Intrinsic value" isn't intrinsic, it is subjective and dependent on context.
I was expecting a link to some scammy website like the ones that advertise on CNN/BBC World.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Once you start looking into it you realize you are staring into the void and see the evidence all around you.
I will never trust Facebook with my money. They have shown over the years that they have no respect for the privacy of their users.
Pretty much every element in the periodic table does.
They'd have to do the same for all their inputs if they wanted to stay in business.
In any case, the electronics industry only uses a tiny proportion of gold produced.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
Why?
So what does it mean?
That's redundant, you already mentioned jewelry.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
""Facebook's 27-year-old founder, Mark Zuckerberg, isn't usually mentioned in the same breath as Ben Bernanke, the 58-year-old head of the Federal Reserve" -- And that might be because there is a reason the US (at least, among others) Use Gold to back their currency. It helps to stabilize inflation, deflation, basically it means the dollar won't be worth 10 cents overnight. Read about it some time.
"Computers are a lot like Air Conditioners" "They both work great until you start opening Windows"
Doesn't every major currency issuer need the explicit backing of a large and expensive army? The USD in many ways would be a joke if it wasn't for the fact we've got the biggest hammer.
How does an industry get away with pushing a maximum copyright agenda for a product they'll "give" away.....?
When the king heard the words of the Book of the Law he tore his robes.2Kings22:11
Unless people are also being paid for work in "credits" the comparison is worthless. The credit is still pegged to the dollar and you still 'buy' them.
A central bank is a State sanctioned central planning monopoly, artificially adjusting the monetary supply and rate of interest; this is not Facebook.
Slashdot: Playing Favorites Since 1997
Can anyone recommend a new slashdot-type site, hopefully one run by individuals (like slashdot used to be in the CmdrTaco and Hemos days), and dealing with tech, rather than social media froth and global warming bullshit?
I've been on this site since before my 100k level account was registered and have a special place in my heart for it, but looking at the homepage, 8/10 of the stories are shite I don't care about. Maybe I'm getting old, but I don't think that's it.
I miss the trolls.. GNAA, Trollaxor, OOG THE CAVEMAN...
These days, all you can hope for is the odd story about something interesting, with ernest or intentionally-funny comments. None of the pizzaz of the olde days.
So, recommendations? Comments? Questions?
Fire away.
This guy has a point.
Now mod me to hell.
Well, if you say so.
Why? Because it's a waste to lock up useful copper doing nothing but not a waste to lock up useless gold? Nations have plenty of other commodities that they can back their currencies with and not need to lock them in heavily armed vaults. That can include things such as the land it holds and the productive output of its workforce.
I wasn't advocating laws fixing the value of one precious metal against another, I was just pointing those out as a common example of how precious metal coinage was actually largely still a fiat currency with a value set by law. Such laws were deemed necessary because some people would take their 10 gold coins, cross a border and trade them for 170 silver coins, cross back over the border and trade them for 11 gold coins until they were filthy rich. So, nations needed all kinds of internal laws and treaties with one another to synchronize the value of their currencies. If precious metals had some sort of specific intrinsic value, that sort of thing wouldn't be necessary, but they don't, so nations had to craft laws like that so that people wouldn't lose faith in the currency. Now, gold and silver and so forth would still have had value even if they stopped basing the currency on them (like they have now), but the value would have been subject to supply and demand just like any other commodity.
Basically, in currency, you want to avoid the situation where something relatively small happens (like a mine discovers a huge new vein, or a cargo ship sinks, etc.) and suddenly everyone's life savings can only buy half of what it could before. Modern fiat currencies (and the system of "saving" your money in the stock market) don't actually provide that sort of security sadly, but precious metals don't either.
I agree that coinage or specie or whatever has often been a form of fiat. I also agree that laws setting the exchange ratio were deemed necessary by governments. However, I think you have mixed up cause and effect. The reason people could profit off arbitrage by going from one country to another was because the exchange ratio was set by governments in the first place. To deal with this problem (created by government intervention in the first place), laws and treaties were necessary to stabilize prices. This was seen as beneficial because it facilitates trade in the context of government issued coinage.
The reason governments attempt to set the gold/silver ratio is because they wish to inflate the value of their coinage, for obvious reasons. This is a losing battle against Gresham's law, which is why they eventually turned to issuing pure fiat.
With regards to goldrushes, etc; in the long run, these pretty much random events are far less harmful to an economy than giving politicians or bankers control over the value of currency.
But I may be wrong, I am still new to this field. I welcome any opposing argument.
But are these other commodities you mention as easily quantified, divisible, storable, transferable, etc?
The popping of the Treasury bubble is pretty much the event which will cause both stocks and more particularly commodities to increase. The bond market is several times that of the stock market and the stock market is many times larger than the commodity market. The result will be inflation as the money bids up raw materials.
For example the USG inability to roll existing debt due to the debt ceiling. Inability to roll due to China selling. Inability to roll the debt simply due to the realisation that a 10% of GDP deficit is never going to change.
Deleted
My understanding of intrinsic value is that it's the value you get from something even if you're forbidden to trade or exchange it. If I gave you an iPhone with the condition that you never sell it to anyone, you could still use it as a phone. If I gave you a $100 bill with the condition that you never give it to anyone else, there's not much use for it.
I agree. If you think about it though, the value of an iPhone is dependent on how good the cell network functions, how many other people have smartphones and/or the internet, how expensive it is to charge it, etc. Some people may prefer to keep to themselves and reflect on their life without external input, making the phone relatively less valuable (to that person). So, it seems to me, the value of an iPhone is subjective and dependent upon context, just like anything else.
Of course. That's why some people buy iPhones and a lot more don't. A price in an idealized marketplace is the subjective value people attach to something when averaged out. Or, more precisely, it is the meeting point where the number of sellers willing to sell at that price equals the number of buyers willing to buy at that price (in a simplified case where each seller has exactly 1 item on stock, and each buyer wants to purchase exactly 1 item).
No, the reason that people could go from one place to another and trade their gold and other precious metals at different rates wasn't because governments set the values. It could happen if local government set the values in ignorance of how other countries were setting them, certainly. It didn't matter whether the value was set by local government or not, however, the simple fact is that the precious metals were worth differing amounts in different places. In some places a particular metal was worth more because it was more scarce and in others it was worth less because it was less scarce and in yet others, it was worth more even though it was less scarce and in others it was worth less even though it was more scarce. Heck, in some places gold was worth pretty much nothing because, ok, sure it's shiny, but nowhere near as shiny and pretty as this polished shell! Without governments setting prices, the values of precious metals were essentially arbitrary. I'm not saying that there isn't a lot of power in cultural inertia. There is. Thousands of years of something being precious "just because" is virtually a tangible thing as things go. It's not going to convince me that money backed by gold is any less of a fiat currency than any other. To look at it from another point of view, money based on assets that are actually out for the public to see doesn't require much faith whereas money based on a gold in a vault that barely anyone gets to enter... Well, I think it takes a lot of faith to believe it's not just lead bars with thin electroplating.
Many of them are as easily quantified, divided, stored and transferred. Some of them more easily.
Consider quantification of gold: Currently worth about $52 per gram. Great. How accurate is your scale? Not perfect? Then you're going to be off by a few dollars. I won't even go into the purity here.
Divisible: I'll grant you, easily divisible. Of course, then you run into the quantification problem.
Storable: Stores easy, have to give it that Not a lot of corrosion happening wherever you put it.
Transferable: Yeah, in heavily armored trucks. Or do you just mean carried around in your pocket? Sure, but it's so soft that, if everyone does that, in a few years your gold coin will be missing a few dollars worth (and laundromats will be making a killing on the gold dust they filter out of the water people wash their pants in). Use an alloy. Great. How can you tell that it's really 18k and not 16k? Oh, it's stamped on the coin so you can just take it on faith.
So, do we agree there is not really a such thing as intrinsic value?
I think the situation you described almost certainly existed to some extent, mostly during transitional periods. Do you have any sources for how much the value of gold has varied from place to place historically?
Ok... now consider land and productive output then compare the results with gold. I think gold comes out superior.
Ok. A square kilometer of land receives an average of 250 MegaWatts of solar energy and about 715 millimeters of rain per year. Even if it's not particularly arable land, with work it can typically feed at least a thousand people. It contains all kinds of things that can be harvested and mined and used. Actually, the top hundred meters of soil and rock will contain something like 750 kg of gold, which, at current prices, is about $37.5 million dollars, which is the value of the land if it sells at $150,000 an acre. So... that just confuses things comparing something that contains gold to just plain gold...
Anyway, you wanted to compare productive output of the land and the lump of gold. So, the land has all of the above going for it and more, and the equivalent value 750 kg of gold... sits there. Or, it does if you want to back your currency with it. Otherwise, you can use it productively to make things. It does have some useful properties (almost always useful in extremely small amounts and extremely thin films, of course), so you can do that. But, if your going to back your currency with commodities you're actively using, why can't you also use all of the other commodities you're actively using?
Well, the Mali empire is a great example. They were wealthy and powerful for centuries because they were a chokepoint for gold from more southern parts of Africa to Europe, but they didn't really have all that much of their own gold production. Once traders started cutting out the middle man and sailing around them, their empire lost all that wealth and power.
There really are plenty of examples, but it's silly to expect me to provide them. It's dead obvious that gold will generally be worth less in places that are actively exploiting the gold resources they have and worth more in places without such resources or where they're not exploited. It's also obvious that a lot of the value gold beyond its rarity and shininess is cultural, so different cultures will have different values for it. Frankly it's amazing that anyone could think that the value of gold wouldn't vary widely from place to place without modern automated markets and instant communications.
Bleh. "your" to "you're". Can't believe I did that.
So to flesh out this concept:
If the USD was backed by land, and the government needed to pay back a loan, would the creditor be able to claim land rather than the currency? Who would be responsible for appraising the total value of the land?
I think this quote from the gold wikipedia page illustrates the point I was making:
The Mali Empire in Africa was famed throughout the old world for its large amounts of gold. Mansa Musa, ruler of the empire (1312â"1337) became famous throughout the old world for his great hajj to Mecca in 1324. When he passed through Cairo in July 1324, he was reportedly accompanied by a camel train that included thousands of people and nearly a hundred camels. He gave away so much gold that it depressed the price in Egypt for over a decade.[36] A contemporary Arab historian remarked:
Gold was at a high price in Egypt until they came in that year. The mithqal did not go below 25 dirhams and was generally above, but from that time its value fell and it cheapened in price and has remained cheap till now. The mithqal does not exceed 22 dirhams or less. This has been the state of affairs for about twelve years until this day by reason of the large amount of gold which they brought into Egypt and spent there [...]
â"Chihab Al-Umari[37]
Yes, arbitrage would occur, but as the volume of trade increased between multiple cultures, the value would become equal. This is true for any easily trade-able commodity. It is not an issue in terms of trade. Once governments began minting coins and setting the exchange rate, it became a problem due to loss of gold or silver or whatever was undervalued. At least that's my understanding.
So, to answer a question with paraphrasing of the question:
If the USD was backed by gold, and the government needed to pay back a loan, would the creditor be able to claim gold rather than the currency? Who would be responsible for appraising the total value of the gold?
The same essential answers apply. When US dollars were backed by gold, there wasn't exactly a counter at Fort Knox you could walk up to with some cash and walk away with a gold bar. Also, I never said that the currency is backed by land, I said it's backed by every asset of the government and its people, which includes land, but includes the people and their labor and everything that a country is. That even includes the gold.
Still depends a lot on where the trade routes actually are and turnaround times, etc. But, as you say, it's just like any other commodity. Which, to my understanding means no special intrinsic value which makes it a magic one true currency.
I wasn't alive at the time, but here is a picture of a 5 dollar note from 1928:
It reads: "Redeemable in gold on demand at the United States Treasury or in gold or lawful money at any Federal Reserve Bank"
http://www.deerrunmercantile.com/friedberg1952-cfivedollarfederalreservenotepmg66gem.aspx
"The terms 'lawful money' or 'lawful money of the United States' shall be construed to mean gold and silver coin of the United States.
- Title 12, U.S. Code, Section 152 [12 USC 152]
The value of the dollar was set equal to a certain weight of gold. The value of the gold was determined by the market (how much you could sell it for).
I don't think it does has a special magic value. I think it is relatively divisible, rare, easy to transfer, store, and very durable, etc. Making it a good currency, but not as good as paper (due to storage, etc). So it is logical to use something like gold as a store of value, and use paper notes that someone you trust promises to take in exchange for gold to transfer value around. It's not magic, it is just convenient. Also, I agree that the term intrinsic value is BS.
The act you mention defining lawful money was from after the Civil war when the US returned to the gold standard. What you're quoting was about requiring banks to recognize each others financial instruments and setting reserve levels. That capital T in your quoted sentence should be lower case and the period at the end should be a semicolon because you're not quoting a sentence, you're quoting a sentence fragment as a full sentence. That's also referred to as quoting out of context. The whole thing is:
"Every association organized under section 151 of this title shall at all times keep on hand not less than 25 per centum of its outstanding circulation, in gold or silver coin of the United States; and shall receive at par in the payment of debts the gold notes of every other such association which at the time of such payment is redeeming its circulating notes in gold coin of the United States, and shall be subject to all the provisions of title 62 of the Revised Statutes: Provided, that, in applying the same to associations organized for issuing gold notes, the terms ''lawful money'' and ''lawful money of the United States'' shall be construed to mean gold or silver coin of the United States; and the circulation of such associations shall not be within the limitation of circulation mentioned in title 62 of the Revised Statutes."
Note that there's only one period in the whole thing. That's just the way lawyers roll. Anyway, you'll not that, in context, it doesn't define what constitutes "lawful money" for the purposes of individual citizens redeeming their notes. Actually, it just seems to confuse the whole matter. Also, it doesn't define what it means by coin. "gold and silver coin of the United States" has no need to actually mean physical coins of gold or silver, it can be anything the US coins as gold and silver "coin", which can include things like treasury bonds and, in fact, dollar bills.
Anyway, with the reserve set at 25% (and that not necessarily in physical gold and silver) only a small percentage of people would actually be able to go the the bank and get gold. They certainly couldn't go to Fort Knox to do it. You should also note that the 5 dollar bill says "gold or lawful money", not "gold or silver", which would be shorter. In this day and age, anyone who has managed to avoid sending their life savings to a Nigerian prince should recognize that as weaselspeak for: "gold or whatever we deem to be lawful money, at our option".
Also, the value of the dollar was set equal to a certain weight of gold as you say. What you didn't say is that the weight of gold that the dollar was equal to could be arbitrarily changed by the government and was.
Just face it, the gold standard wasn't some paradise. It never really worked very well. There just wasn't enough gold, for one thing. And if you had piles of the stuff backing the paper currency, you had to spend money like crazy on security to protect it. Now, it's true that people whose savings were in gold in nations that have economically collapsed have managed to make out better than their fellow countrymen. But the same would be true if their money were in foreign investments, or other precious metals, sometimes in land (other times, the land may be seized by the government or by mob rule, but then again, they can do the same thing to the gold), or in valuable art, etc.
The point is, there's nothing special about gold. The gold standard has been de facto defunct in the US for about a century since shortly after it went back on it. There's nothing magical or special about gold that makes it the king of metals, or the only proper basis for currency. It's just a shiny, relatively rare, heavy metal that some people fetishize unduly. I would like a giant pile of gold coins to swim around in like Scrooge McDuck as much as the next guy, but I think it's silly to base a system of economics on it. When you consider that a high estimate of all the gold the human race has ever produced (and most of which has probably been lost by now) doesn't even equal a quarter of the world GDP even at the current hyperinflated gold prices, how could you even consider a gold standard?
The thing is though, at the moment it's not a good idea to use gold as a store of value because gold prices are experiencing a bubble right now. Sometime in the next few years they're going to drop down by half at the very least. Right now, gold is only a good store of value if you can manage to short it.
After reading that, I agree with you on the weasel wording of the coin thing. It still says on the bill you could go to the treasury to redeem it for gold though. I don't really have any idea how common it was for a normal person to do that in practice, probably not very. On the other hand, governments could and would decide to change the weight of gold the currency was defined as, as you say.
The more I think about it the root problem seems to be a lack of competition in issuing money. There must be a market for paranoid people who want to keep their money in a full-reserve bank, backed by whatever, just look at everyone buying gold certificates. It would be basically the same thing.
The US currently spend about 1/3rd of it's budget protecting its people, land, and other investments. I would say this is pretty much equivalent to protecting the value of the dollar.
I think he reasons for that are political more than a failure of gold to store wealth. And, as described by you above, the gold standard wasn't really "pure" anyway, so it may not be the best example. I think decentralized cryptocurrencies are a great idea by the way. Widespread adoption of those would get rid of the expensive storage and fractional banking issues altogether, but we will see what happens with the bitcoin project.
I currently think it will turn out to be a bubble as well. This is not a sure thing though. If things come to a head hyperinflation of the dollar will be the last resort. What will people turn to? Gold may be chosen for almost superstitious reasons, but we shouldn't ignore that public perception will play a role what happens.
For that situation though, it seems even better to stock up on other tangible goods like canned food. Sure, you might be able to buy them with gold afterwards, but who knows at what exchange rate. You can buy about 100 $0.50 cans of beans right now for the value of a gram of gold. If the economic disaster you posit actually happens, chances are pretty good that gram of gold, in hand, isn't going to buy you anywhere near as much food.
As far as the competition in issuing money, I sort of see the point. The trouble is, the massive abuse of workers by companies paying in their own scrip back in the 19th and 20th centuries, and the continued practices of abuse of users of gift cards and all kinds of "point" systems right up to the current day leaves me a bit shy on the idea. We still do have barter of goods and services (with the attendant confusion on taxation of such) to fall back on, the problem is, whenever anyone tries to think up a good system to facilitate barter, they always end up right back at currency and the need for a central authority to back it. Bitcoin tries to use fundamental laws of math (unproven ones, of course, and many of us are actually hoping that they're not fundamental laws) as the central authority, but I don't quite think that system is going to make it in the long run.
As for full reserve banks, those exist now as part of some bank branches in the form of safety deposit boxes. If the banks can't loan out your savings, however, the only way they can stay in business is to charge you fees for holding your stuff for you (of course, banks currently can loan out more money than they have deposited with which is a bit disturbing).
The US does spend a lot on guarding its assets, but I don't think they'd spend less on guarding the rest of it if they also had to guard huge piles of gold, they would just spend extra on guarding the gold. Of course, since the US doesn't have all the money they're spending on the military at the moment, they're actually putting everything at risk. The lesson the US apparently didn't learn from the economic meltdown of the USSR is that the same think could happen to the US as well.
If the US decided to go back on the gold standard right now, it would have to either buy up a lot of gold, which would drive up the price even more, so it would be much better for the us to wait until it drops back down again if it were to do so (which it just isn't ever going to do unless some really fringe politicians manage to take over Congress), or it could start a massive gold mining program which would drive the price of gold way down. Anyway, a system backed with a fractional reserve of gold wouldn't be truly gold backed (the realities of which are why the US went off the gold standard in the first place). For bank fractional reserves (which are ridiculously low even if the federal reserve didn't itself only use a fractional reserve), the rest of the deposits are backed by debt to the bank and most of those debts are backed by collateral in the form of real assets like vehicles, land, etc. So a fractional reserve gold backed system would really be backed by other assets and would be pretty much the system the US has now (after all, the US does still have some gold) with a different official name.
I don't think that would be totally rational. That supply (I know it is just an arbitrary example) would last about 3 months for each mouth to feed, and really $500 isn't that much, it would be easy to do both for the type of person who has money to invest in gold. If you think the chaos is going to last longer than 3 months I think it would be time to diversify into guns/ammo, medical supplies, etc.
Sorry, 50 bucks.
I don't really see a difference between scrip and "debt bondage" or whatever you want to call it. Today, people think they "own" a house because they agree to paying a bank for 30 years to have the right to it. The use of credit cards is rampant, it is an extra tax on every purchase you make, no matter where. The whole scheme has just added in one more layer of complexity. In fact I think the new thing is going to be to phase out cash, and only allow use of credit and debit in the name of preventing money laundering and tax evasion.
What do you mean here? You could be referring to many things and I am not an expert. Do these rules of math you refer to also apply to our current system (e.g. password encryption)?
I would add escrow fees and probably "processing fees" for exchanging bank notes to whatever is backing it. Also I saw an article awhile back that banks did start charging large depositors to store dollars due to high insurance costs. I couldn't find it with a quick google, so I don't have the details.
Any more than is spent on Area 51? For all we know places like that are where the secret stash of gold is already held. That is getting "speculative", but I imagine if we totaled the amount spent on black projects it would set an upper bound on what it would cost to defend a huge gold stash. It may be a drop in the bucket.
Haha, yea only the insiders would know beforehand.... more conspiracy theory leading to your second possibility, etc.
On scrip and other exploitive "private money", I agree that it has never really gone away. Also agree somewhat on the disturbing money tracking trend.
As for bitcoin, a number of facets of the bitcoin system depend on the fairly predictable difficulty of cryptographic computer problems. As computing power increases, the actual amount of computing power available to everyone presumably increases at the same rate. Someone might develop some sort of amazing new computing technology that's a thousand times faster than what anyone else has for the same price, but only supervillains use super-advanced technology they've developed in crazy schemes to manipulate currency. Sane people get rich by selling the technology (well, then there's all those so called "quants" working for brokerages, but their "technology" isn't really good for anything except cynically manipulating markets). Hardness of problems in computer science is a difficult thing to prove, however. Until someone proves how hard they really are, most of the problems in cryptography are believed to be very hard, but not absolutely proven to be so. The crypotgraphic problems that prevent double spending and quick mining of bitcoins may some day fall to some sort of cryptoanalysis. To compare to the gold standard, it would be like someone suddenly finding an entire mountain of gold. In some cases, someone solving that sort of problem would render a lot of password and encryption systems virtually useless.
As for banks, they'll find any way they can to double or triple dip with fees, certainly. The fundamental model of banks though is still that people deposit money in them, then they loan out that money to earn interest. In a lot of ways, depositors are like investors in the bank. Banks these days clearly don't see their depositors that way, however.
Safeguarding the nations gold store certainly wouldn't be the largest expense the US government has. It's just that simply owning it would be an expense, so if the currency were backed only by gold, it would require a constant stream of money, backed by gold to keep it.
As for insiders, technically congresspersons and other politicians aren't considered insiders for the purposes of SEC rules. They just manage to get really amazing returns on their investments. They must just be really smart investors.
In the end, whatever it's backed by, currency is basically just something we made up. Sort of a shared dream like civilization, justice, truth and all that stuff. It works because the majority of us believe in it and go about our lives treating it as real. Government is another such thing we just made up to make civilization possible. Regulating money is one of the things it exists to do and is one of its proper functions and, at present, I don't think it would be better any other way. I do, however, think that the US government (and other governments) are doing a really, really terrible job at it and have been for a very long time. I would really like to see the people in charge actually doing their jobs for once, as a matter of fact.
But if only rich people can afford to store value in gold anyway, why do the rest of us care if it's a good store of value or not? If you're storing value for a complete collapse, the best store of value is always going to be the things you're actually going to need, if you can store them. If I think that there's going to be a home heating oil crisis, I don't stock up on gold to buy home heating oil, I stock up on home heating oil. If I think there's going to be a crisis that makes it near impossible to buy food, I'm not going to stock up on gold to buy food, I'm just going to stock up on non-perishable food items.
I'd say first of all it is likely to remain a good store of value, whether due to superstition or prettiness, or whatever. Although this value may drop during times of chaos, it will be deemed likely by many people to recover once stability is restored (a self-fulfilling prophecy?) Although gold is more difficult to store than paper, it is much easier to store than the other two examples you give, and is non-perishable. It also has the added advantage of being difficult to generate, thus limiting the extent to which the supply can be manipulated by the powerful. This is the primary advantage of gold over fiat or a complex basket of goods. While people may accept altering the value of a dollar in terms of the wieght of gold, they are unlikely to accept altering the definition of a gram or ounce.
I agree that it is a relatively useless substance. The lack of alternative uses contributes to its usefulness in storing value. However, I would not count on it to be valuable in times of chaos.
I think we have found the crux of the matter. I disagree. This is certainly a role government's have seen fit to take upon themselves, especially in times requiring large deficit spending (i.e. war), and also to inflate indicators of economic activity (to increase the popularity of politicians). However, I do not see this as a proper function of government. I guess I see the government's ideal role as promoting the general welfare of a society. It is possible that a government could manage the currency supply in a way that promotes the general welfare, but this is a powerful tool that can be used for good or bad. There are also many ways a government can mismanage the currency supply leading to various negative outcomes. A few examples I see in the US today include: income inequality, debt-fueled bubbles in various sectors of the economy, artificially causing people to consume at an unsustainable rate, etc. In practice the latter appears to be much more common, so I think it is better for a government to not have this tool.
I would note that, central banking or not, as soon as banks are treated differently than other businesses (e.g., government sanctioned bank holidays), this tool has been handed over and the value of the currency is now partially backed by military and police power.