No Plan B on Bailout

[vinoveri]

Re: No Plan B on Bailout

[quote=ASH;49625]

Okay -- now that my tinfoil hat is properly seated on my head, I can think of one other scenario in which gold might be confiscated: a complete collapse of the dollar. If the government needs a hard basis for either (a) booting a new money system, or (b) vital international trade, then perhaps gold would be confiscated "for the public good". However, I think that either of these could be accomplished without confiscating gold. For instance, if the dollar is no longer accepted as a medium of international trade, then we are more likely to export for other fiat currencies and trade in those currencies than we are to go back to a gold-based system. Internally, a "new dollar" doesn't necessarily have to be based on gold.

The government has a large portion of the gold reserves now, and where did the gov get all the gold it has? - I don't know really but think at least a good chunk came from the FDR confiscation exercise.

Try this scenario out, the gov keeps gold from skyrocketing (and concurrently the dollar from plummetting) by selling off its gold in a controlled fashion- over years - and then when its exhausted all its gold reserves - then it decides to confiscate all the gold again, voila. For this to work, the gold would need to be sold domestically and prevented from leaving the country .... Is this plausible or paranoid?

[kingcopper]

Re: No Plan B on Bailout

Reminds me of Cheney telling senators that Saddam was a lot closer to nukes than we were telling the public. Nudge nudge, wink wink. This is all about saving the fat cats' asses and nothing about maximizing taxpayer returns. Why wouldn't he come out and say "When the market stabilizes and begins to go back up, the Treasury may sell some or all of the assets at a profit. That profit will be equally distributed to US citizens." Why? Because that's a lie even he hasn't thought of.

I agree. This entire event feels too orchestrated. Either way, I wish that our creditors would pull the plug because...we are one of the only countries that doesn't REALLY need outside inputs. We are natural resource rich ENOUGH to go on without world wide interaction. It would SUCK but we can do it and I believe for the sake of our future, it may very well be necessary. We do have enough cheap oil to overhaul our infrastruture and get to where we SHOULD be as of 2009-2010; a 21st century country with lots of nuclear power and electric cars, petro for plastics and airplanes, and natural gas for heat and trucking. I dare say...BRING IT ON BABY!

[ASH]

Re: No Plan B on Bailout

The government has a large portion of the gold reserves now, and where did the gov get all the gold it has? - I don't know really but think at least a good chunk came from the FDR confiscation exercise.

Try this scenario out, the gov keeps gold from skyrocketing (and concurrently the dollar from plummetting) by selling off its gold in a controlled fashion- over years - and then when its exhausted all its gold reserves - then it decides to confiscate all the gold again, voila. For this to work, the gold would need to be sold domestically and prevented from leaving the country .... Is this plausible or paranoid?

I rule out nothing, but my immediate thought is that if the government had enough gold to prevent the dollar from plummeting, then it seems like they'd have enough to back the dollar, and we'd be on the gold standard. I think they can temporarily affect the market price of gold, but they don't have enough to fight a currency shitstorm of this magnitude.

My second thought is that the government will try to avoid outright confiscation because of the furor that would ensue. Society as a whole is probably more tolerant of "economic management" and stealth confiscation (of the wealth of those who don't hold hard assets) than overt confiscation, so I still think we'll more likely see market controls, rationing, vouchers, etc. In fact, rather than confiscating the gold, the government might simply forbid trade in gold or other hard assets (i.e. outside its systems of rationing and vouchers). However, this would be phrased as the trade in vouchers for anything being outlawed, so that "everyone gets their fair share." Essentially, this would be an anti-black market law, and in a system of rationing and vouchers, that sort of law would likely be regarded as fair. (If economic goods are so scarce that rationing is required, then it doesn't make sense to allow the rich to buy more than their share, even if they have the financial resources to do so.) Not sure this distinction should make one feel much happier.

Also, please note that I'm reasoning from the basis of little experience and few facts. I throw this thought out there, and note that it possibly ties in with EJ's recent article on capital controls.

[c1ue]

Re: No Plan B on Bailout

Also, regarding your point about what gives fiat its value... What you say is ultimately true in extremity, but up until that point, I'm not sure it's the whole story.

ASH,

Money is money so long as people accept it as money.

As every past example of hyperinflation shows, it doesn't take much time to change people's perceptions.

A closer examination of Brazil, Argentina, and Weimar Germany quickly reveals that the cycle of spending rapidly depreciating money starts very quickly - as soon as an expected paycheck fails to bring home the bacon.

Once that happens, the fiat currency becomes a cumbersome step which everyone skips over as rapidly as possible.

In the case of Brazil, they didn't even have hyperinflation the whole time, merely very bad inflation.

It is these examples which I base my view on.

[ASH]

Re: No Plan B on Bailout

ASH,

Money is money so long as people accept it as money.

As every past example of hyperinflation shows, it doesn't take much time to change people's perceptions.

A closer examination of Brazil, Argentina, and Weimar Germany quickly reveals that the cycle of spending rapidly depreciating money starts very quickly - as soon as an expected paycheck fails to bring home the bacon.

Once that happens, the fiat currency becomes a cumbersome step which everyone skips over as rapidly as possible.

In the case of Brazil, they didn't even have hyperinflation the whole time, merely very bad inflation.

It is these examples which I base my view on.

Then I benefit from your view. However, bad money does seem to drive out good; as long as it is legal to pay with bad money, people do so. When the government wants you to use the bad money, there is much less motive to confiscate the good. That is more akin to this present case. An example of when the government wants you to use the good money was the introduction of milled coins in England, at the end of the 1600's. They had to confiscate all the bad hammered coins in order to get the good milled coins into circulation.

[c1ue]

Re: No Plan B on Bailout

Then I benefit from your view. However, bad money does seem to drive out good; as long as it is legal to pay with bad money, people do so. When the government wants you to use the bad money, there is much less motive to confiscate the good. That is more akin to this present case. An example of when the government wants you to use the good money was the introduction of milled coins in England, at the end of the 1600's. They had to confiscate all the bad hammered coins in order to get the good milled coins into circulation.

ASH,

My view is the extreme suspicious and 'dark cloud' view, but not Mad Max.

It is as you've paid for it: free.

I will note that in your example, the government at that stage was trying to bring back good money.

The stage we're in, the government is trying to bring in bad money to reduce debts.

Maybe sometime in the future, good money policies will return.

In fact, without even knowing anything about your specific example, I'd bet (temporarily) good money that the reason for the return to good money then was that no one would accept the bad money anymore, or at least would not accept it for face value.

As for no reason to confiscate good money - that's actually not true. After all, the government just like the people needs income: to buy stuff, pay salaries, etc. Just because governments can issue bad money does not mean governments can live on it.

Unlike interest from money markets, etc; PMs rising in relative value offer no taxes to the government. Even a straightforward shift of savings accounts into gold means a major income reduction in the form of reduced income taxes.

As I noted in the capital controls article: confiscation is probably less likely than greatly increased tax oversight and enforcement. But it has happened before.