Do you honestly believe that Russia, China or any other country can increase they supply 50 times to seriously change existing gold reserves?
Why have not they done it yet?
You can compare changes in gold supply with changes in dollar supply. Especially recent changes... Two trillions magically appeared from magician's hat.
It doesn't take that big of a change to cause serious trouble. Remember that a lot of gold is used industrially.
Take a look at a map of China. Just South of the city called Wulumuqi a lot of geological exploration is just now starting. There is a huge area there.
Finding gold is hard. It is very conductive but not magnetic. It isn't found in large chunks so the conductivity is hidden. Basically you have to poke around until you find it.
The money supply grew rapidly from about 2001 to the end of 2008 It was the result of government policy. At the end of 2008 it decreased suddenly. The 2 trillion you speak of is less than the up and down swing that happened. It was the governments attempt to hold the quantity steady.
A lot of the economy works in parallel. Keeping the dollars exactly matched to the gold would force it to work serially. A bank would have to wait for a dollar to be received and accounted for in their books before they could lend it out. Today banks consider good debts to them as assets that they can lend on the basis of. To have a strict gold standard economy, this would not be allowed. The current credit problems would look small in comparison to how much this would dry up credit.
As goods and services are produced and gold doesn't happen to be found, the value of the dollar would increase. In a good economy this would mean that the lender would have to charge 5% or so just to break even on the money. As a result interest rates would be up near 9 or
10%. When the economy stalls, the value of the dollar stops increasing suddenly. Suddenly you have businesses with a 10% interest on debt going into a bad economy. Any credit dependent business, like small farms etc would be completely screwed (technical term).
One relevant question would relate to the reliability of the stuff it's replacing.
I used to work on miltary software projects in the UK. What I saw there would not reassure anyone that what the software would do, and what it was meant to do, would have much in common.
Gold reserve number I gave is a monetary gold reserve.
Exactly. Gold has a stalble low yearly supply, making it very good for currency backup on one side and very hard for the goverment to inflate money suply on the other side. The second is the main reason we are not using it now.
You simply cannot predict someone's future income with any real certainty. Technological advances can render qualifications and experience worthless. Natural disasters can leave someone's customer base penniless.
Predicting the future value of the security (the property) is even harder. And there's likely to be a strong correlation between an increase in defaults and sudden drops in property values.
The only way to guarantee repayment would be to require escrow of the loan's value, which defeats the point of a loan.
The concept of "only make credit available to those can repay it" has a lot to do with predicting someONE's future income.
That's what credit rating agencies are for, and they got it wrong.
The front-line mortgage companies didn't have much reason to care: they're just selling the loans on, so they'll make any loan which someone is willing to buy. The banks bought the loans on the strength of the credit ratings. So S&P screws up and the global economy goes down the pan.
Bullshit! You obviously know nothing of probability, insurance, or economics.
Think for a minute.
That much is true (you forgot the part where Barney Frank and Chucky Schumer bought the loans with our money), but has nothing to do with your above silliness.
Sure. Banks have been in the business of making loans since time immemorial; it's their entire business to know who'll pay, to take carefully calculated risks.
Or that was their entire business, anyway, until recent times.
And, as you say, in the olden days, #1 and #2 quickly killed those who weren't any good at it.
Nowadays we just nationalize them, set their pay, and dictate to whom they should loan.
Right. And you can stack the odds farther in your favor by carefully choosing those someONEs. That's something that local banks do, and giant megaliths didn't.
They certainly rely upon it, but they don't necessarily do that well; on both counts, see AIG, BoA, Lehman Bros, Bear Stearns, ...
This works when the noise is random (i.e. noise). It doesn't work for a systemic bias, e.g. when 95% of your loans are underperforming the estimates for both income and asset value (i.e. a recession).
When the entire economy is running on over-extended credit, it's not as if the entire banking industry can simply stop doing business until the country as a whole starts living within its means.
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