User:RandomP/Todo/Gold bugs

Fiat money and gold bugs
I'd like to get some personal remarks about those topics over, so it's perfectly clear to everyone that I do have a strong point of view on those issues.

Obviously, this is my personal point of view; my edits are, mostly, attempts to make articles adhere to the neutral point of view.

The current monetary system of fiat money and fractional-reserve banking is brilliant. It is based on economic theory that is virtually uncontestible (that is because it doesn't actually make very many assumptions about economic theory). It must work in theory and, interestingly, also works in pracitce. It is, though, a bit complicated.

One of the things that make it complicated is that at several points, the system does not make the assumption that the banking system is fully regulated. It only assumes that the banking system is regulated to an extent that would make it unprofitable to violate regulatory rules following which requires a very small penalty.

(In essence, this is why you do not need to get loans from the Mafia these days. While the Mafia rates could be slightly better (a normal bank just cannot threaten you as convincingly), hiding the whole thing from the police is what makes it unprofitable).

The current monetary system, excluding the two "holes" of physical security (counterfeiting, or breaking into the network) and monetary policy being changed from "outside" (such as by the US president, or a national government), is the best we've ever had. That's not a statement about the financial system, but we've worked out most of the issues money had.

In particular, there is no risk of hyperinflation (safe, as always, for the two holes mentioned above). If a central bank deems necessary, it is always fairly easy to withdraw currency from circulation at astonishing rates. As long as it is a monetary policy goal to have inflation at a certain level, this is achievable in all but the most wretched of circumstances.

(Yes, I know about deflation in Japan. It makes for interesting debates, but I have yet to hear a workable argument that it would have been impossible for the central bank to end the deflation.  Any number of creative methods to do so seem immediately obvious, though they all have drawbacks).

Gold is a yellow soft metal. It has some limited industrial use, some rather less limited use in art and architecture (it has the property, unusual among metals, of not being a "silvery" metal colour). It is also enormously valuable historically, and culturally.

Some "gold bugs" will argue that "gold is money". It's plainly not. You can't go to the supermarket to buy anything with physical gold; you cannot take out a loan in gold;  conversely, you can't receive interest on gold you own (large banks can do both of those things, but the gold loan market is fairly dysfunctional).

Some other gold bugs will argue that "gold is an investment". There is some ambiguity about that term, but just to be clear here, they're postulating that it's a great idea to buy gold, hoard it somewhere, and just hold on to it. For as long as it takes. I believe they are wrong, but the matter is much less clear. Even if they are right and the gold price is going to rise, why not just find someone who thinks the opposite, and make a bet with them? This would not even have to be a spread bet: under the usual economic assumptions, there is a unique price such that "gold will sell for more than that price a year hence" is a statement people will be willing to bet evenly on or against;  no capital required beyond something to make sure the bet is honoured, and even if you lose, you can keep that year's interest.

Clearly, those two views are, from a modern point of view, totally incompatible: if gold makes for good currency, then there should be something encouraging people to spend it. if gold is a good "investment", then there should be something encouraging people not to spend it. If it's both at the same time, we are in a liquidity trap situation.