First, if the currency were mere notes representing gold, as currency ethically ought to, and once did, then there would never be a "liquidity crisis." Of course I am talking free markets here, and these problems come from managed economies.
Second, as spooner pointed out, the amount of gold and silver as money is always pitch perfect. What gold that is dug up enters the market as bullion, and the market is constantly converting bullion into jewelry, plate and decoration as the price drops, and converting jewelry, plate and decoration into bullion as the price rises. The newly dug-up bullion joins in on one trend or the other, but normally at lower prices the gold stays in the ground.
Third, it is credit, not currency, that matters. Rich men use gold to settle debts and liquidate relationships, poor men use silver. Currency representing gold and silver is ethical. Ex nihilo credit based currency is evil and has the problems India is experiencing, but the traders with relationships and authentic credit will see this problem through.
I don't know about India, but I hear people say "I can buy things with dollars that I cannot with gold. Gold is useless." Well.
1. Why are Indians trying to exchange those doomed rupee notes for gold?
2. You certainly can, for now, take gold anything into a dealer and get USA Fed Res Notes (ex nihilo credit items.)
3. Fed Res ex nihilo credit notes are legal tender, meaning they must be accepted for "all debts, public and private" says so one each bill. Further, there is a monopoly issued to private banks by the government on these notes. The Secret Service protects the notes. Talk about privatizing profits, socializing losses!
4. If you had gold, and a store of ex nihilo credit notes from commerce, which would you use to buy a house? Or anything for that matter... you'd obviously get rid off the ex nihilo credit notes, the Fed Res Notes. As Gresham repeated Copernicus's observation, "bad money drives out the good." Certainly in India it is clear people are using notes to buy property, not their gold. You'd use up fed res notes to buy a coffee before you'd use a silver dime.
Credit is unitive and creative. People cooperate, trust, support and introduce solutions in a credit economy. The barter economy upon which economics insist gave rise to money is an unlikely step in history. Credit solved the problem of needful double coincidence. Money (gold and silver) has existed to use when relationships will be extinguished, when you trade, but may never see each other again, as at at an Oasis on the Silk Road,
Ex nihilo credit destroys a credit economy sowing un-cooperation and distrust, calling forth goods and services no authentic economy would support. It looks like credit, acts like credit, but it is demonic, a lie. There is nothing behind it.
There is never a "liquidity crisis" with credit, since it originates between two market actors who trust each other to see a project through, from paying for a hamburger today by Tuesday, or building a smartphone factory. They create credit based on assets and extinguish credit on an as agreed basis. no need for regulation.
Ex nihilo credit distorts the entire economy by allowing people who have produced nothing to call forth goods and services attractive to people who produce nothing. Where do they get the means to "pay" for it? Tallies of ex nihilo credit issued. There is still an authentic market too, but is wanes as the ex nihilo credit part of the economy waxes, the boom. The damage is done during the boom generated by the issuance of ex nihilo credit. The bust is where the losses are assigned to those participating.
What is new in USA is the combination of the size of the issuance, the universality (both Boeing and the fellow buying a corndog at a gas station with his EBT card depend on it), and that it bears usury. Fantastic!
Next, here Mish goes again, with the internal contradiction.
Negative Interest Rates Logically ImpossibleNegative interest rates and currency bans are nothing more than government sponsored financial repression.Logically impossible, but exist? Twelve trilliion in Euros at this point? That is an internal contradiction
Negative interest rates imply logical absurdities such as one would rather have $90 in ten years than $100 today.Obviously people do in reality, to the tune of $12 trill. When you know the stock market is going down 50-90% within those ten years, and will say down for at least 25, then the hit is preferable.
Negative interest rates do not occur naturally. Rather, the must be imposed on savers by repressive forces.Correct. The Hegemon can and does, as we see in reality.
There can never be negative time preference.Maybe this is where Mish goes off... negative interest rates do not establish negative time preferences but a bet that this investment is the least risky. (But many a fortune was made or lost when bonds drop to pennies on the dollar.)
Note that I am talking about interest rates, not storage fees, a completely different thing.The Church allowed a storage fee, under the term was interesse, denoting a loss, from which we get the word "interest." The word has been twisted from meaning an unavoidable loss to meaning a necessary gain on a loan. A Savings and Loan was once an example of charging only the processing costs of loans, etc, as a mutual aid society, in the sense of loans as charity work.
(There is another aspect to loans as charity forming in my mind, and that has to do with loans as strictly charitable events being among peers only. To lend to an inferior status individual implies the inferior status individual "owes" more than the loan to his benefactor. Whatever the "owes" constitutes is in effect usury. Something there, have to develop this. Islam is good on this, so I must, as much of Western Civ has done before me, depend on Islamic sources for elucidation.)
Free Market in CurrencyI am in favor of a free market in currency. Whatever consumers decided would be fine by me. Gold and silver would be the logical choices, as they have been for thousands of years.
Ungh... gold and silver were never currency, currency is a note backed by gold or silver or both. What he means is he'd like to see a free market in currency, as we have in Hong Kong today, with various private companies issuing their own currency, on agreed denomination notes (to remain within the confines of cash register design.) USA had this until 1913. No more.
To have a free market in currency, with which I agree wholeheartedly, we need to deregulate banking, get rid of their monopolies and regulations (the result of regulatory capture), watch ex nihilo credit and its currency die, and then have a renaissance in the unitive and creative aspects of a credit based economy.
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