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Prophets of Gold – Part 6 – Economic fear mongering

Posted by Don McLenaghen on January 29, 2012

Okay, we have thrashed out all the arguments the prophets put forward to support their golden view…they seem lacking at best and fictional at worse; but what about the current economic meltdown?

There is a major problem with the world’s economy…the US economy. The US did not spend enough to get itself out of the recession. Most economists now think[1] if the US had doubled or more its stimulus spending, the economy would be back to a healthy state. You ask “what about the downgrade in the US’s credit rating?” Well that had NOTHING to do with the American debt; the US economy, dollar and treasury bill are still considered the safest investment on the planet (safer than gold?).  The downgrade occurred because of political manipulation of a political minority (the GOP)…S&P stated it was the political instability NOT economic that prompted it to downgrade. The prophets feed into this hysteria to capitalize on the public fear to promote their radical change (I would recommend reading “Shock Doctrine” by Naomi Klein). It has never been cheaper for the US to raise money that now.

Now, the debt is a long-term issue; I am not saying that it is not but I am also saying that it is not the time to worry about it. Reasonable and effective stimulus via spending is more important than debt reduction (and tax cuts do NOT effectively stimulate). Those who follow the prophets, SHOULD insist that when the economy has recovered the government must resist demand to cut taxes but should instead increase them and pay down the deficit when times are good and to place the nation in a position so as to be able to take on the next economic downturn.

“But what about THIS recession? Was it not caused by fiat money? By a high debt?” No!

The current troubles were not caused by government manipulation of the currency nor the debt. Almost every economist (left and right including the infamous Greenspan) blames lack of regulation for the current debacle. The prophets (when not praising gold) staunchly support the laissez faire approach to the economy… a completely free and unregulated market. They say this in spite of the fact that the current crash is directly the result of under-regulation…that in no point in history has unregulated markets led to stable economics. History has shown that deregulation always leads to short term instability and long term monopolistic markets (near absence of competition).

“What about Greece, Italy…they have fiat money and are about to default on their debt; explain that!”

Loss of options

None of the problems had anything to do with the type of (fiat) currency these countries had. In fact, the trouble they currently have is because they cannot just print money. The Euro is not in the control of Greece or Italy…it’s in the control of the European Central Bank. They do have a problem with ‘bonds’ and the need to secure new bonds to keep paying the bills and pay off old bonds that have come due. A countries credit rating is intended to provide lenders a guideline as to the likelihood a nation might default on its loans; this then determines the interest rate lenders can ask.

For a company, a lender would renegotiate the loan – better to take a small loss and let the company recover to repay then lose it all by forcing a bankruptcy. However, in the case of a nation…a nation with the backing of the Euro, there is no chance it will go bankrupt…or default (long term at least) on its debt; there is no incentive for the creditors to ‘work with Greece’ to help its economy recover. To make its bond payments, Greece is forced to reduce its spending because it cannot ‘print more money’…the Euro for Greece is like a fixed currency…the economy goes into recession leading to less tax income so less money to pay lenders and the cycle continues.

Huff and Puff!

The current holders of Greek debt are hedge funds which bought the Greek bonds from other less speculative lenders at a discount; they then turned around and purchased insurance on the debt. The speculators have no interest in helping Greece recover its economy but only to see how much money it can squeeze out of the Greeks. It is true Greece put itself into this bind but we are seeing that the interdependence of a fixed currency can cause financial repercussions over the whole global economy.  The speculators know eventually the European Central Bank or the International Monetary Fund will step in; make good on the loans and turn Greece into a third world country…they will then repeat the process in Spain, Portugal, Italy…if it takes the rest of

The dark side of finance.

Europe down, speculators can still invest in China. The main point in our context is none of this would have been avoided by the gold standard in fact because relative to Greece, the Euro is a fixed currency; it shows that the gold standard would have made no difference and caused the same economic crisis Greece et al are now experiencing in the Euro Zone. In fact it provided a counter-factual because if the Greek’s had their own fiat money, it may have provided Greece a way out of its bond crisis (although still at a price).

“Okay, but more than Greece has experienced a drop in its credit rating…admit it, it’s their debt that caused this problem!”

Now, Greece and more importantly France (among others) have experienced a downgrade in their borrowing grade NOT because they have too large a debt (although for Greece that is part of it) but because they are trying to reduce the debt through austerity measures. There has been a complete misstep that politicians around the globe (reflecting the neo-liberal/neo-conservative revolution that has occurred in the last couple of decades) have become obsessed with reducing the size of government, the deficit and a removal of government regulations on ‘the market’.  As mentioned earlier it was deregulation that was at the heart of the current financial crisis however those who have profited from this ‘unfettered capitalism’ do not want regulations to return so the blame for the economic debacle has been laid at the feet of the debt. The only way the pro-corporate right wing governments[2] see to reduce the debt is to reduce government size and government spending. So, countries like Britain and France have been imposing austerity measures in the false hope they will ‘stimulate the economy’ from the current recession. This is like inflicting deeper cuts on a person who is bleeding to death; it will only hasten death.

"It shall collapsing under the weight of its own contradictions" Marx

In one of those twists, the rating agencies are beginning to acknowledge that government spending in times of recession is good…that failure to do so will make an nation a greater credit risk; thus France is downgraded. I say twist because it is those very same credit rating agencies that graded the toxic Credit Default Swaps from bad housing loans as Grade A that started this current bust cycle. The problems the current nations are experiencing are not universally safer because some nations are willing to spend more to (at least) reduce the decline into recession or attempt to recover. If all nations were locked into the gold standard then the global economy would not be teetering on the edge for a couple of years, it very well have slammed head into a decade’s long depression like we experience a century ago…while on the gold standard!

[2] Sadly, in the ‘new left’ which has replaced the ‘socialist left’ are corporate ponds. The Labour of the UK is not pro-union but pro-business as its actions have shown. This is seen in the US with the difference between the Dems and the GOP being how much and how far they are willing to go in lowering taxes and cutting spending.

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Prophets of Gold – Part 5 – Hyper-active over hyper-inflation

Posted by Don McLenaghen on January 27, 2012

Last time we discussed how fractional reserve banking can inflate the amount of money in an economy…the prophets hate inflated money.

Old fears renewed

The underlying premise of the previous planks of the prophet’s gilded construct is the idea of inflation. This actually has two parts, first is the inability to buy stuff because it becomes too expensive (classic inflation) and the devaluation of fixed assets (depreciation).

Now, it is true that fiat currency can experience hyper-inflation. It happened in Germany, Zimbabwe and other places…surprisingly a lot of ‘small’ nations have experienced hyper-inflations with little long-term detriments. The normal course of action is for a ‘revaluation’ of the currency. This has the harmful effect of wiping out ‘old money’; however for the majority of the populations (at least of these countries) poverty minimized this loss. Fixed assets are also safe for once a revaluation occurs these assets (property) are valued at the new stable currency maintaining an equivalent value prior to the hyper-inflation. That is why; those who fear hyper-inflation the most and thus preach the stability of the gold standard are those with large ‘savings’…the 1% types…those who have little real assets and thus must defend their (ironically) paper fortunes.

I am not saying hyper-inflation is always a minor and temporary event in people lives. We have all seen the wheel-barrows of money Germans needed to buy a loaf of bread.  In Germany’s case, we did have a major economy hitting the wall where simple revaluation did not seem to work. Of course Germany could not simply adopt a gold standard for most of its reserves were being paid out as reparations to ‘the victors of WW1’; it eventually recovered in small steps from 1923 to 1925. Germany did end up with a gold backed mark but this ‘saviour’ became the gate way to the depression for Germany less than 5 years later.

Why did it become the gate way to depression? The one thing the prophets of the gold standard mention the most is the one thing that is the biggest asset of ‘fiat money’ – the ability of the government to control the economy. Most prophets have an extreme fear of governments and thus see anything they do as innately wrong and to be eliminated or minimized. One of the realities of the capitalist system is the boom/bust cycle. The prophets believe that the gold standard will ensure stability by prevent the government from interfering in the ‘free market’; that historically gold has had a stable price and thus countries on the gold standard do not experience (large) boom or bust cycles. Historically this is pure fantasy.

Gold-flation, the instability of Gold

Whenever a government NEEDED money, it would just drop the gold standard, print what it needed and then return to the standard when it was convenient. The prophets have an existential fear of government and somehow think that the gold standard will miraculously prevent them from interfering in the national monetary system; this too has been proven to be pure fantasy. The USA alone has been effectively on and off the gold standard three times.

Using the USA, as an example, they have experienced dozens of recessions/depressions during the 19th century. Most were quite severe because under a fixed currency there is no way for the government to ‘push back’ against the economic tsunami that ‘bust’ begets. As everyone starts to suffer, spending goes down, leading to drops in demand, businesses close or go bankrupt leading to more suffering and even less spending…what is needed is ‘push back’ to restore economic equilibrium; this is when fiat money becomes a necessity. Let us remember that is was the USA’s attempt (and Germany and others) to maintain the gold standard that pushed a recession into the worst depression in modern times. That when a government was freed from the demands of the gold standard only then could they stimulate their economy by ‘printing money’; only then did the depression end. As mentioned earlier, a direct correlation between abandoning the gold standard and recovery can be found[1].

Governments can both stimulate economies, in a measured and controlled way, by increasing debt via the printing of money. This stimulus creates jobs, which creates demand, which creates more jobs. As the cost of goods rise, so too do wages. When an economy becomes ‘too hot’, the government reduces spending, pulls money out of the economy via increasing taxes (which should be used to reduce the debt incurred during the stimulus phase) there will be less money in the economy, meaning less will be bought, things will become more expensive, even less will be bought and the economy gently slows down. The role of the Bank of Canada, the Federal Reserve or any central bank is to balance the money supply to ensure limited and sustainable grown while avoiding boom or bust; for the last 80yrs it has worked well. Not perfect I admit but it has done well to smooth out the peaks and valleys of the capitalist system.

Now this does require some fiscal responsibility for governments to not go overboard, however it is in the long-term interest of governments to resist; the memory of Weimar Germany shows how quickly an undisciplined printing press can lead to ruin. Lessons learnt by the major economies as can be witnessed that since the 1930’s no major depression has occurred, no major currency had experienced hyper-inflation. One of the ways that has helped prevent ‘abuse’ by politicians is that in most (all?) modern governments, there is a separation between the government and the central bank. In Canada, the Bank of Canada is technically part of the government but is administered at arm’s length by an independent governor; the same is more evident in the USA were the Federal Reserve[2] is a private entity governed by presidential appointees

Now, you might say “what about now? The USA’s credit rating has been downgraded, Greece et al are about to default on loans, the Euro is about to crash! What about that?” Nothing to do with the gold standard but before we move on to these sexy issues lets deal with the other way inflation frightens the prophets of gold.

As mentioned there are two aspects to inflation; we have covered the supply/demand for currency and how it affects boom/bust cycles; the other is how long-term inflation can erode the value of fixed assets. In a world of ever increasing inequality, depreciation of assets is very important to the 1% (to single them out again). Inflation not only makes things more expensive but it also has the effect of eroding the value of fixed assets like property, savings, or overseas investments. If you buy a house for $100,000 at time X then sell it for 150,000 at time Y, you might think you have made 50,000; however if you factor in inflation of let’s say 10%, you only made 40,000…if its high inflation of 100% from time X to Y, you actually lost 50,000. That is why prophets of the gold standard, who constantly preach stability, have a vested interest in ensuring inflation is as close to zero as possible. The gold standard protects there ‘paper profits’ and zero inflation protects their luxury homes…their ‘comfort profits’. Now, I understand that a lot of the 99% have accepted the mantra put forward by the prophets; I am not saying that all those who want the gold standard are the 1%, but I would argue they have been duped by them. The myth of the gold standard is simple and convenient; the prophets promise in one simple move we can solve all our nation’s problems…who would not be tempted by that.

[1] Bernanke, Ben (March 2, 2004). “Remarks by Governor Ben S. Bernanke: Money, Gold and the Great Depression”. At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia

[2] The Fed, although governed by publicly appointed governors, is private banks. It’s in their vested interest to ensure the government does not induce major, let alone hyper, inflation. They would lose the value of their primary asset – money.

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Prophets of Gold – Part 4 – The ghost of fractional reserve

Posted by Don McLenaghen on January 26, 2012

Old fears not seen

Having discussed how the prophets of gold use government debt to promote their gilded dreams, we will now discuss a more bizarre idea that any currency that is not gold is simply debt.

Another issue regarding debt that is often brought up is the ‘fractional-reserve system’. This ‘multiplication’ of the amount of effective money in the economy is great. Now, so we don’t get confused, there are several KINDS of money. The kind we have been talking about so far is ‘hard money’, that is the actual currency in the system. In this part, we will be discussing ‘soft money’, this money is not real in the sense there are coins in your hands, but becomes the value in objects we buy. It is created via loans and the fractional reserve system.

So, when I deposit money in the bank; the bank keeps some of that money as reserve and then loans out the rest. The amount of money held in reserve varies from nation to nation; by law in Canada a bank doesn’t have to hold any money as reserve but other countries do like the USA, which has a sliding system with ledgers of assets more than 71 million having to hold 10% in reserve with the rest of the ‘major economies’ somewhere in between (Chinese banks must have 20% in reserves). Many banks, like Canadian ones, have ‘excess reserves’ (reserves beyond legal requirements) because it is financially prudent for the corporation to allow for market runs, bad loans and other vagaries of the financial system.

Note, this loaned money is not ‘real’ currency but electronic and as such it is used to buy stuff…like a car or a house (or in these times of inequality – food). Now the seller of the car takes that money and deposits it which becomes the base for the next round of loans. In this way an original $100 deposit generates $900 in economic activity. It is this (theoretical[1]) nine fold increase that the prophets of the gold standard flout as ‘money as debt’. It has nothing to do with government debt but a fundamental principle of the capitalist system and NOTHING to do with the gold standard. Fractional reserve banking has been used for a long time during periods[2] of fiat money and fixed money (i.e. gold back currency).

If this ‘soft-money’ could be eliminated by having a demand full-reserve banking; that is the bank keeps all the money people deposit there (regardless of its type – fait or fixed); this would instantly remove 90% of the economy of our country…compared to a 37% drop during the Great Depression.

OF course, there are ways to ‘fake’ it; some Chicago school advocate thought of having 2 kinds of banks[3], the full-reserve bank and another that would be seen more as an ‘investment’ company[4]. The investment company would be like a bank in that you would give it your money not as a deposit…as savings, but you would be ‘loaning’ the money to the company who would pay you interest; the company would pool these loans and turn-around and lend them to others…at interest. The investment company would make its profit in the difference between the two interest rates.

How would the market react to this? One of the main aims of the prophets of the gold standard is to encourage savings. Yet, keeping your money at a bank under ‘full-reserve banking’ would cost you money; banks will still have to provide security, buildings, staff…etc…they will likely still provide some services like chequing; the only way to pay for this is through fees. This would create a disincentive for people to use banks and an incentive to use ‘investment companies’. Of course, choice is nice but I fail to see how this would improve things besides making more explicit the existing situation.

The problem of capitalism

Now, another part of this is the belief banks can make an infinite amount of money (thanks to 0% reserves) in that they unjustly earn profit on the interest of lending out this money. Well, that is true[5]. As just demonstrated I don’t see how returning to the gold standard would solve it, nor would the damage of getting rid of the fractional-reserve system make things better. If you really wanted to prevent them from profiting, you could either turn all lending banks into crown corporations (nationalize them) or set regulations such that they make only a ‘handlers’ fee and the ‘interest’ profits either go to the government (the root of all money) or the depositors.

Now, one possible reason the prophets fear fractional reserve is that it provides another way inflation can be created and if there is anything they hate worse than ‘fiat’ is ‘inflation’.

[1] In the real world, you never get a perfect cycle. Most expects hold only a six fold increase but that’s large enough to warrant further investigation into the prophets claims.

[2] This is why banks would fail in the old days. If people demanded currency for their bank deposits, the bank would not have enough to cover everyone because of fractional reserve system. Most times, the bank has enough money to cover the everyday withdrawals.

[3] Although i see this as separate entities, it’s the ‘kind’ of account that is different. These could, I guess, co-exist in the fame firm.

[4] Douglas, Paul H.; Hamilton, Earl J.; Fisher, Irving; King, Willford I.; Graham, Frank D.; Whittlesey, Charles R. (July 1939), A Program for Monetary Reform

[5] Some claim, that the Federal Reserve makes interest from the government bonds it distributed, however any money the Fed makes is rebated back to the US Treasury. The US government does not pay any net interest to the Fed.

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Prophets of Gold – Part 3 – The demons debt and deficit

Posted by Don McLenaghen on January 25, 2012

Having discussed that gold does not provide economic stability; the prophets of gold shift their focus to debt…gold doesn’t create stability but will prevent debt.

They literally demonize inflation

The prophets’ second fundamental plank is the idea of debt, both government debt and this idea of “money as debt”. It is held that thanks to the non-fixed nature of fiat money, a nation can just print dollars infinitely and that when it ‘sells’ this currency on the open market via bond sales, the debt of the nation increases. Well, that’s true. A nation, issues bonds to back its currency. It’s not limited because you can just issue more and more bonds (and more and more debt) and print more and more dollars.

Borrowing cost for the US has seldom been better. The lower the interest rate, the more confidence the market has in the economy and the government (longterm) will pay its debts.

I should stop here and explain how money gets its value. A national government, like USA, issues bonds and sells them in an open market, usually to banks. These bonds have an interest rate associated with them, the more desirable the currency the less the interest and visa-versa. This is the only point where the national government incurs a debt obligation. The value then of the bond, and not the currency, reflects the financial stability of a nation.

On the global stage, not all nations are equal. Proponents of the gold standard often point to the USA debt crisis or the current Euro crises as examples of why debt is bad. However, this is largely a fallacy. The USA crisis was PURELY political, in fact USA bonds were very desirable at reflecting confidence in the American economy. It was only when the GOP refused to honour American debt by holding up the increase in the debt ceiling did the rating agencies begin to question the USA…not its economy but its poor governance. Remarkably interest rate on USA debt is lower than it has been in decades.

The issue in the Euro zone is not debt par sa but the inability of smaller nations to ‘control’ their currency; a right they gave up when joining the Euro. Now initially Greece, Italy and others are in a hole of their own making thanks to bad management. But the Euro crisis is what one would expect when bad management meets an inflexible currency. In the past, Greece (for example) when confronted with debt obligations would inflate its currency and solve that problem. Smaller nations cannot abuse this mechanism because of the limitations of their tax base (more on the downside of this later).

Major nations, like the USA (and I think Canada) do not have the same risks smaller nations have. Many say the USA is bankrupt…this if of course not true. The government of the USA will (in the coming century) always have a sufficient tax base to cover its debts. The USA debt is huge…largest in history…however so is its economy. A simple small tax increase (10% of the top 1%, 2 % for the rest) would largely cover the deficit, a Tobin tax (tax on financial transactions of about 0.05%) could be used to reduce the debt by almost a trillion a year. So, in the USA debt it not a driving factor.

Okay, I have to add a caveat to the above. I am NOT advocating unlimited debt and am not one of those who say “the debt is really fictional and can be ignored”. The debt is, again for major economies, important in the amount of money spent to service the debt (that is the money spent on interest on the debt) because it is money that could be used to improve the country. The interest charged on the national debt is a reflection of the RELATIVE stability of that nation to another.  A great example of this is the USA and Euro are both in trouble; however bond investors have been flocking to the US Treasury bill because it is seen RELATIVELY the safest bet. Another example, Japan has a much greater deficit (gross, per capita and as a % of GDP) than Greece and yet it is not suffering largely because it has control of its currency and a sufficiently large tax base. The Euro’s issue is not based on its debt or fiat currency but on the unwieldy governance structure they have adopted; a structure that is proving to be almost completely unable to deal with the current issues. The Euro effectively acts as a fixed currency to Greece and is pushing into the abyss but more on the connection between the fixed currency and depression later.

Debt is cyclical. When an economy is struggling, it is the role of the government to stimulate it so as to minimize ‘busts’ and limit recessions; however the counter weight to that is during boom periods, the government redirects its efforts to bring down (or eliminate) the national debt. What tends to happen is during busts a government spends but during booms it cuts taxes. The current economic system does need reform but the gold standard will not only fail to help but exasperate issues.

Next we will discuss the idea that money is created out of debt.

 

For more info from a Nobel Prize Economist: Nobody understands debt

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Show notes for Episode 150

Posted by Ethan Clow on January 25, 2012

Radio Freethinker Episode 150 – Scorpions are big eye balls, Andrew Wakefield Strikes Back, Pro-Piracy Group a Religion, And Is Skepticism too Paternalistic?

Download the episode here!

Skeptical News:

Scorpions Can See with their Bodies

Andrew Wakefield Sues BMJ for claiming he’s a fraud

Pro-Piracy Group Says It’s Now A Recognized Religion In Sweden

Topics:

Is skepticism too paternalistic?

Skeptical Highlights

Fracking…its import and you should be informed
http://www.propublica.org/series/fracking
http://www.propublica.org/article/oh-canadas-become-a-home-for-record-fracking

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Prophets of Gold – Part 2 – Fallacy of the stability of a fixed currency.

Posted by Don McLenaghen on January 24, 2012

When I get into discussions with those Austrian[1] types who want a return to ‘the gold standard’ (TGS), they keep saying “it limits the amount of money a country can print…government can’t just keep printing an infinite amount of money, it will cause hyperinflation”. So let’s deconstruct this statement. First, the idea of a limited or fixed currency; what do they mean and why do they want it?

Now most people who believe in a fixed currency use the short hand “gold standard” although most are willing to accept that it’s not the ‘gold’ itself that is paramount but the fact it has a limited and fixed quantity. This physical limitation is conveyed to the currency it would, in theory, back. So, you could have oil backed, silver backed or any limited commodity as your ‘standard’; in fact you could have no ‘standard’ in the physical sense but instead have a legal limitation…a constitutional amendment; that would put a hard limit on the amount of money a government can print.

The current  ‘style’ of currency most of the world enjoys is referred to as Fiat money; that is money whose monetary value is dictated by government fiat…that is a dollar is worth a dollar because the government law says so. As such, it is claimed there is no external limiter on the amount of currency a government may print and this lack of ‘solidity’ is why the prophets believe in gold.

Why? There is a belief that if a country adopted a fixed currency it would not be able to, at will, print money infinitely…that the amount of PRINTED currency in a country would be limited to the value and AMOUNT of the ‘standard’ commodity that country held. Now there are some issues with the belief it would put the brakes on a government/central bank from ‘just printing money’.

The price of the currency would not be determined by the amount of money in the system but on the amount of the ‘standard commodity’ mined that year plus the commodities market value. Countries like China and Australia would love a global return to the gold standard as each has large deposits of gold to be mined.

The whole point of a fixed currency is stability; however unless the USA (for example) were to ban the private exchange of gold, the price of gold will itself be as unstable (more so for there is no mechanism beyond regulating extraction) as history has shown us[2].  Even when currency was based on gold, often there were several limitations on an individual’s ability to transform it into gold; governments did this to ensure their gold reserves. Although we tend to think our current economic situation unstable and dire, compared to historical precedent, we are in a far better place on average. If anyone takes a look at the frequency and severity of the ‘boom-bust’ cycle of the USA while on the gold standard vs. when it was off the standard, economist have shown[3] it aggravated the trend and fiat money has resulted in a ‘smoothing’ of the trend.

A note as well, the current value of all the gold in the world is about $8 trillion, the USA has about $1.5 trillion in ‘currency’ but it has over $8 trillion worth of ‘money’ in economy. A return to the gold standard would require a radical devaluation of everything as the ‘value’ of a dollar octupled overnight.

The driving forces for monetary instability are not fiat currency but unregulated speculation and political intransigence; this was most notable in the debt debacle in the US last year…and debt is perhaps the heart of the prophets of the gold standard argument and is one tangible way that the prophets are making a bad situation worse by demands to reduce spending to lower the deficit.

Next we will discuss how the prophets of gold use debt and deficit to forward their grand design

[1] Those who knowingly or not are proponents of part or all of the Neo-liberal agenda put forward by the Austrian (Von Miss/Rothbard) or Chicago (Hyack/Friedman) school of economics.

[2] Gold is more unstable than fiat or a ‘legal fixed currency’ because gold has (significant) uses outside of being used as a means of financial exchange

[3] Krugman, Paul. The Gold Bug Variations; Hamilton, James D., The Gold Standard and the Great Depression; Bernanke, Ben S., Essays on the Great Depression.

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Prophets of Gold – Part 1 – The problem with the prophets of the Gold Standard

Posted by Don McLenaghen on January 23, 2012

This blog post turned essay started from a conversation I had with a co-worker. He had mentioned that he thought the USA should return to the gold standard. I made some disparaging comments and debate ensued. Sadly for me, although I was sure of my conclusions I could not bring the reasons and arguments to mind to prove my point. This of course spurred me to write this.

At the heart of my trouble in attempting to explain why a return to the gold standard is at best a non sequitur and at worst a ticket to decade long global depression is the fact that those who propose the gold standard are using it as code for a set of radical changes. Each in their own sounds plausible to the armchair economist but fail under greater scrutiny. I have termed those proposing the return to the gold standard the Prophets because they preach of a holy land that we could have if only we were (economically) pure.

I think one of the reasons I spent such effort on this project is not so much to ‘prove a point’ but because thanks to prominent political figures, most notably GOP presidential hopeful Ron Paul, there is a growing chance the ideological powers will be given the chance to create this economic dystopia. Because of the length of this discourse, I have divided it into 6 segments and have also included in this first segment the bullet talking points. I go into greater detail on these in other following segments.

The Skinny on the discussion; what they say and my response

1)      Gold is thought to be stable…history has shown it is not, nor is a fixed currency economy.

2)      Gold prevents hyper-inflation…most countries that suffer hyper-inflation started with fixed currency. Easy on the gold standard, easy off.

3)      Gold limits government debt…governments get debt not by printing money but by issuing bonds.

4)      Fiat money leads to hyper-inflation…hyper-inflation is caused by other issues, confusing symptom for cause.

5)      Fiat money allows governments create infinite debt…no, it can only create as much debt as the market will buy.

6)      Fiat money is debt…its credit and its one of the foundations of capitalism. It’s not currency but capitalism.

7)      Full reserve banking is best…however it dries up investment capital

8)      Full reserve banking promotes saving…no, people would use investment companies

9)      Markets self-regulate, money supply regulation makes economics less stable…no, historically inaccurate

10)   Without the gold standard, boom/bust cycles have gotten worse…no, again historically inaccurate

11)   The US is suffering a debt crisis…no, it’s a political crisis

12)   Europe is suffering a debt crisis…yes, and the made worse by the fixed currency of the Euro

13)   Credit ratings are being lowered because of government debt…no, it’s austerity and political instability not deficit.

Okay, that’s the simplified view. In the next few posts I will expand, explain and pontificate on these points in greater detail.

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Science Sunday #31

Posted by Don McLenaghen on January 22, 2012

– and on the seventh day we learn.
Each week I hope to give a synopsis of the interesting science stories I have heard on my plethora of science podcasts I listen to each week plus anything I pick up scanning the inter-web. This week’s top stories:

This week’s top stories:

 

A home with multiple sunrises -

“Once again, we’re seeing science fact catching up with science fiction,” said co-author Josh Carter of the Harvard-Smithsonian Center for Astrophysics as he discussed new work published in the journal Nature about the discovery of two planters that orbit a binary star system.

NASA/JPL-Caltech/R. Hurt

The two new planets, named Kepler-34b and Kepler-35b, are both gaseous Saturn-size planets. Kepler-34b orbits its two Sun-like stars every 289 days, and the stars themselves orbit each other every 28 days. Kepler-35b revolves around a pair of smaller stars (80 and 89 percent of the Sun’s mass) every 131 days, and the stars orbit one another every 21 days. Both systems reside in the constellation Cygnus the Swan, with Kepler-34 located 4,900 light-years from Earth and Kepler-35 at a distance of 5,400 light-years.

In such a different system than our own, it’s interesting to know that the amount of energy the planets get via its stellar partners varies greatly throughout its orbit. “It would be like cycling through all four seasons many times per year, with huge temperature changes,” explained Welsh. “The effects of these climate swings on the atmospheric dynamics, and ultimately on the evolution of life on habitable circumbinary planets, is a fascinating topic that we are just beginning to explore.”

“It was once believed that the environment around a pair of stars would be too chaotic for a circumbinary planet to form, but now that we have confirmed three such planets, we know that it is possible, if not probable, that there are at least millions in the Galaxy,” said Welsh.

Science Daily

Planets with double suns are common

NASA’s Kepler mission and UF astronomer find 2 new planets orbiting double suns

Kepler discovery establishes new class of planetary systems

 Center for Astrophysics

Transiting circumbinary planets Kepler-34 b and Kepler-35 b

 

Questions raised about pandemic weapon of last resort -

As many way remember, during the SARs pandemic, countries began to stock up on Tamiflu. Tamiflu was the only know ‘antibiotic’ that worked on virus. Nations around the world have spent billions creating stockpiles of Tamiflu in preparation for the next virus pandemic. New research, published in  The Cochrane Library by Tom Jefferson et al, has raised some troubling questions as to its efficacy. After piecing together information from over 16,000 pages of clinical trial data and documents used in the process of licensing oseltamivir (Tamiflu) by national authorities, a team of researchers has raised critical questions about how well the drug works and about its reported safety profile.

The new analysis shows inconsistencies with published reports, and describes possible under-reporting of drug-related side-effects in some published trial reports. While the drug did reduce the time to first alleviation of symptoms by an average of 21 hours, it did not reduce the number of people who went on to need hospital treatment. Results from the reanalysis of data also raise questions about how the drug works as an influenza virus inhibitor.

In line with World Health Organization (WHO) recommendations made in 2002, governments around the world have spent billions of dollars stockpiling neuraminidase inhibitors such as oseltamivir and zanamivir (Relenza). The agents’ proposed mode of action is to limit the proliferation of viruses within an infected person, which in turn reduce the duration of a person’s symptoms, and consequently reduce the chances of passing the disease to another person.

“We identified that a large number of studies, including data from 60% of the people who have been involved in randomized, placebo-controlled phase III treatment trials of oseltamivir have never been published. This includes the biggest treatment trial ever undertaken on oseltamivir that on its own included just over 1,400 people of all ages,” says Jefferson. “We are concerned that these data remain unavailable for scrutiny by the scientific community.”

When the team compared published data with the more complete unpublished trial records, they found inconsistencies in the published record of the trials. For example, while unpublished trial reports mentioned serious adverse events (some even classified as possibly related to oseltamivir), one of the two most cited publications makes no mention of such effects, and the other states .” .. there were no drug-related serious adverse events”.

The researchers conclude that there is an urgent need for independent research on both of these drugs. There is continuing uncertainty about their effects beyond the initial reduction in symptoms, mainly because full access to the data needed has still not been provided. Until this information is available and these studies performed, officials and medical professionals should review their use of Tamilflu.

Science Daily

Eureka Alert

Continuing Uncertainties Surround Anti-Influenza Drug

Neuraminidase inhibitors for preventing and treating influenza in healthy adults and children

 Generation of Chimeric Rhesus Monkeys

OHSU research demonstrates not all embryonic stem cells are equal; produces the world’s first primate chimeric offspring

Mental maps point north -

“Our memory for our city of residence shows a map-like character,” says Tobias Meilinger, a research scientist at the institute. “And that map seems to be oriented towards the north”. A new study published in Psychological Science, a journal published by the Association for Psychological Science, which asked how do you the direction from one place to another yielded a surprising answer, one its authors (Julia Frankenstein, Betty J. Mohler, Heinrich H. Bülthoff, and Tobias Meilinger) did not expect.

The study does not support these theories. In it, 26 residents of Tübingen (who had lived there for at least two years) were put into a virtual-reality headset and seated in a chair that didn’t allow them to swivel. Participants found themselves in the virtual three-dimensional photorealistic model of their hometown, at locations familiar to them, surrounded by fog masking all but the near distance. Then they had to point to an invisible location — say, the main gate of the university or the fire station. The scenes changed, and so did the participant’s spatial orientation. After 60 three-location trials, participants were asked to draw a map of the town including all the locations they’d pointed to.

The results: Although participants drew differently oriented maps, everyone performed most accurately when facing north and got worse the further they deviated from north. The only explanation the researchers could figure was that they’d all seen, and internalized, a map of Tübingen at some point, and Western maps are all oriented the same way — north on top.

Meilinger conjectures that we rely on this mental map out of cognitive laziness. Frankenstein refines: “The memory of a map does not need to be updated by further experience, as it depicts all spatial relations undistorted within one reference frame. It therefore provides a very reliable source of spatial information

Science Daily

Eureka Alert

Which Direction Now? Just Ask the North-Facing Map in Your Head

 

Chinese tree extract could stops you getting drunk –

Extracts of a Chinese variety of the oriental raisin tree (Hovenia dulcis) could be the answer to help cure alcoholism and just last longer at the bar.  The extracts have been used for 500 years to treat hangovers in China. Now dihydromyricetin (DHM), a component of the extract, has proved its worth as an intoxication blocker in a series of experiments on boozing rats. It works by preventing alcohol from having its usual intoxicating effects on the brain, however much is in blood.

The drug has first been tested on rats. A drunk rat, like a drunk person has difficulties righting themselves when on their backs. After researchers injected rats’ abdomens with a dose of alcohol proportionate to the amount a human would get from downing 15 to 20 beers in 2 hours by a human, they took about 70 minutes, on average, to right themselves. However, when an injection of the same amount of booze included a milligram of DHM per kilogram of rat body weight, the animals recovered their composure within just 5 minutes.

DHM also stopped rats in a maze from behaving in ways resembling anxiety and hangovers. Rats given heavy doses of alcohol cowered away in corners of the maze, whereas those given the extract with their alcohol behaved normally and were as inquisitive as rats given no alcohol at all, exploring the more open corridors of the maze.

Finally, DHM appeared to discourage rats from boozing when they had a free choice between drinking a sweetened solution of alcohol or sweetened water. Over a period of three months, rats will normally get addicted to increasing volumes of the hard stuff. Rats given DHM, though, drank no more than about a quarter of the amount that the “boozers” eventually built up to. Moreover, boozy rats that had worked up to the higher levels suddenly dropped down to a moderate intake when given DHM after seven weeks.

All the benefits of DHM were lost instantly when pharmacologist Jing Liang (who did the rat study) also gave the rats a drug called flumazenil, which is known to block receptors in the brain for a neurotransmitter called gamma aminobutyric acid (GABA). According to Liang, this proved that DHM works by stopping alcohol from accessing the same receptors.

Preparation containing DHM will be tested for the first time in people. “I would give it to problem drinkers who can’t resist going to the pub and drinking,” says Liang. Some alcohol experts fear that the availability of a “sobriety pill” could encourage more, not less drinking. “There was a lot of philosophical worry that an ‘alcohol antidote’ would entice people to consume alcohol and then count on being able to terminate the intoxicating effects on demand,” said Markus Heilig, clinical director of the US National Institute on Alcohol Abuse and Alcoholism.

New Scientist

Dihydromyricetin As a Novel Anti-Alcohol Intoxication Medication

 

FBI crackdown on unproven stem cell therapies -

The US federal government is cracking down on clinics that charge desperately ill people thousands for unproven stem cell “cures”. One of the most notorious includes as a defendant a scientist at a leading research university.

Vincent Dammai, of the Medical University of South Carolina in Charleston, is named in a federal indictment as part of a team that allegedly received more than $1.5 million from people with cancer and neurodegenerative diseases.

Stowe was filmed, by a CBS investigative news crew, claiming that infusions of stem cells, given by his associate Francisco Morales at a clinic in Mexico, could reverse symptoms of amyotrophic lateral sclerosis – a fatal and incurable form of motor neuron disease. Dammia’s role was to extract the stem cells and supply then to Stowe. Demmia also provided the academic credentials that help make the operation seem legitimate.

Now there are two real stories here, first the FBI is beginning to crack down on quack medicine but there is also the call for scientist and researches to be careful how their expertise/work is used by others.

The case underlines concerns that some mainstream researchers could be abetting clinics offering unproven stem cell therapies. “I’m personally very happy that the FBI and the Food and Drug Administration has stepped in,” says Larry Goldstein, a stem cell biologist at the University of California, San Diego. “I hope that it serves as a warning signal.”

While Dammai is alleged to have been a knowing participant, other scientists may have been duped into supplying cells that are later used by rogue clinics. To avoid this, biologists should ask for credentials when responding to requests for stem cell samples, argued bioethicists Zubin Master. They should also make recipients sign contracts detailing how the cells will be used, the pair added.

Internet searches reveal several hundred clinics offering unproven stem cell treatments, says Douglas Sipp of the RIKEN Center for Developmental Biology in Kobe, Japan. How many, if any, have obtained cells from mainstream biologists remains a mystery. “By nature these clinics are opaque and secretive,” says Sipp. “We really don’t know what’s in the vials.”

New Scientist

New task force to tackle ‘stem-cell tourism’

Stem-cell tourism and scientific responsibility

Stem cell society to ‘smoke out the charlatans’

21st Century Snake Oil

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The Great Time Debate

Posted by Ethan Clow on January 16, 2012

Last week on the show we discussed time travel. I’ve always been rather fascinated with the concept of time travel. Where would you go? What would you do? And how would your time travel work? Would it be a car that’s been technologically enhanced? Perhaps an alien space ship that’s bigger on the inside than the outside? Or maybe you’d just fly a ship around the sun really fast?

“Were we able to navigate time as easily as we navigate space, our worldview would not just change, it would undergo the single most dramatic shift in the history of our species.” – Brian Green on Time Travel.

These are obviously questions that really can’t be answered. We can’t travel through time and its possible that time travel is simply against the laws of physics and can’t happen in our universe. So asking questions about time travel are sort of like debating what would happen if aliens existed. Not because aliens existing is a logical impossibility, but because since we only have a reference point of one (Earth) it’s really hard to theorize what aliens might be like.

There is no denying that the idea of time travel fascinates us humans. Modern science fiction is littered with stories of time travel. Everything from Back to the Future, the Terminator films, Doctor Who, Star Trek, and many others have used time travel to tell some pretty amazing stories.

And going further back in time…no pun intended, we have HG Well’s the Time Machine, Mark Twain’s A Connecticut Yankee in King Arthur’s Court, and even Charles Dickens’ A Christmas Carol.

And there are even references in ancient literature to characters traveling throughout time. This idea has clearly been with us for a long time.

But okay, that’s fiction. Is time travel possible? The answer seems to be “well….maybe….”

Stephen Hawking once suggested that the absence of tourists from the future is an argument against the existence of time travel.

According to General Relativity, time travel (of a sort) is possible. You just need to go at the speed of light and time from your perspective will remain the same, but time from some other perspective will progress. So if you went near the speed of light for a day, 1000 years will have passed on the earth. This isn’t quite the same as hopping in the Tardis and jumping ahead 1000 years. Going at or near the speed of light seems pretty much impractical for humans.

What about wormholes?

So imagine a tunnel in space-time that allows you connect two different points that are normally very far apart, but via the wormhole, only a short distance away. Could this in theory allow for time travel? Well not so fast. First, we’ve (and by ‘we’ I mean scientists) have never seen a wormhole, but general relativity doesn’t rule them out either. In order for time travel to occur, you would need the entrance of the wormhole to be progressing at one time while the exit is progressing at another speed. In actuality, it’s more like time-dilation.

Now time-dilation isn’t really what we mean by time travel. Most of us imagine that time travel essentially means the traveler steps “outside” of time and re-enters at a different space in time. For example I would step outside of 2012 and step back in at 1812. Time-dilation is where I would observe time passing at a certain speed (from my perspective) but someone at a different perspective would observe time passing at a different rate. So in theory I could experience time passing normally, but from someone else’s perspective time is passing much much slower.

Of course if the wormhole was actually connecting you to a different point in time or some other universe, that would change the rules slightly.

The problem with much of these ideas and theories is that; well, ideas and theories are one thing but practical testing is next to impossible. It seems that physics would say that travel to the future is conceivable. Travel to the past…well this is still a difficult question and most likely, will remain so until the singularity.

But like I said, when have we let physics get in the way of good conversation?

First, where would you go? – The past or the Future?

What would you do there? – Vacation? Sight see? or would you attempt to alter the cause and effect of time?

Would you say, go back in time and kill Hitler? Would you go to the future and see the winning lottery numbers and then come back to the present to win the lottery?

Would the risk of creating a universe ending paradox concern or limit your time travel? Consider for a moment you go back in time to see a famous historical event, return home only to discover you’ve accidently change history and now must keep going back in time to fix things only to change the timeline even more?

What about minor things? Would you go back in time and stop yourself from eating that shellfish that made you sick? or help yourself from failing that exam? Would you take the opportunity to right old wrongs or would you rather keep them, even if they are/were painful moments in your life?

What sort of time travel would you envision? We have many examples from fiction and a few ideas from science…

Given that my chosen field of study is history, it shouldn’t be a surprise that I would go to the past. I’m not sure exactly what I would do there. Probably take in some sights and answer some old questions. I would like to know how the Pyramids were built. Same with Stonehenge. I would also like to visit Shakespeare’s globe and take in a play or two.

I guess I would be like a time traveling tourist. I’d go visit the Hanging Gardens of Babylon, I’d like to try to figure out if the Clovis people were the first to colonize North America…

I don’t know if I would change history. I would certainly be tempted too. I guess it would depend on if I could undo my changes after the fact. As much as I’d like to right history’s wrongs, I think a certain argument can be made that learning from our past failures was and is an important step in our evolution as sentient beings.

The question of the dangers of time travel seem to be very convincing. Suppose I go back in time to see the Hanging Gardens and upon returning I discover I had inadvertently set off a chain reaction that resulted in the Nazis winning world war 2. I think at that point I’d just go back and kill Hitler… But nevertheless, time travel does suggest a certain amount of risk. Of course, so does space travel. Risk is part of the deal I suppose. And where would we be if we always turned away from something because of risk?

Now since time travel differs so much in our popular media, we should consider some of the ways time travel has been imagined.

1. There is a single fixed history, which is self-consistent and unchangeable. In this version, everything happens on a single timeline which does not contradict itself and cannot interact with anything potentially existing outside of it. Any actions taken by a time traveler were part of history all along, (so if you go back and kill Hitler, you’re not creating a paradox because, in essence, you were meant to kill Hitler.) Thus it’s impossible for the time traveler to “change” history in any way. The time traveler’s actions may be the cause of events in their own past though, which leads to the potential for circular causation and the predestination paradox; where the time traveler creates the event that caused them to travel in time…

There’s also the trend where history is fixed and depending on the creativity of the writer, something prevents the time traveler from interacting with the past…  a strange law of physics, or where the traveler is rendered a non-corporeal phantom unable to physically interact with the past

Or

2. History is flexible and is subject to change (Plastic Time)

Examples include Doctor Who and the Back to the Future trilogy. In some cases, any resulting paradoxes can be devastating, threatening the very existence of the universe. The extreme version of this (Chaotic Time) is that history is very sensitive to changes with even small changes having large impacts, i.e swatting a fly in the past causes the future to change drastically.

But there is also the version of this where History is change resistant in direct relationship to the importance of the event ie. small trivial events can be readily changed but large ones take great effort or simply cannot be changed or else they destroy the universe or something. Doctor Who seems to follow this line of thought.

In the Doctor Who episode The Waters of Mars, Captain Adelaide Brooke’s death on Mars is the most singular catalyst of human travel outside the solar system. At first, the Doctor realizes her death is a “fixed point in time” and does not intervene, but later defies this rule and transports her and her crew to Earth. Rather than allow human history to change, Captain Brooke commits suicide on Earth, leaving history mostly unchanged.

Or

3. Alternate timelines. In this version of time travel, there are multiple coexisting alternate histories, so that when the traveler goes back in time, he/she ends up in a new timeline where historical events can differ from the timeline he/she came from, but her original timeline does not cease to exist (this means the grandfather paradox can be avoided since even if the time traveler’s grandfather is killed at a young age in the new timeline, he still survived to have children in the original timeline, so there is still a causal explanation for the traveler’s existence). Time travel may actually create a new timeline that diverges from the original timeline at the moment the time traveler appears in the past.

One could think of this as if “of all the possibilities (say me having Jello or ice cream) instead of me choosing ice cream and that becoming the true “fixed historical event” in reality, both choices exist in seperate timelines. One where I take the ice cream and one where I take the Jello.

In the Star Trek The Next Generation episode “Parallels” had an example of what Data called “quantum realities.” His exact words on the matter were “But there is a theory in quantum physics that all possibilities that can happen do happen in alternate quantum realities,” suggesting the writers were thinking of the many-worlds interpretation of quantum mechanics.

I wish I had some concrete advice to end on, like if you ever travel back in time, don’t touch anything, even the slightest change could affect the future in ways you couldn’t possibly imagine. But, given the vast differences in opinion on what sort of time line we have, how time travel would work and also, how often do you get to travel in time?

Basically, use your best judgement. If you decide to change history use your critical thinking skills first and rationally weigh the consequences of your actions.

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Saturday Stub: CBC Marketplace What FX?

Posted by Ethan Clow on January 14, 2012

How is your Saturday going? Ready for some quick skeptical input? Great, because do I have a great Saturday Stub for you!

Remember that time we were on CBC Marketplace? Heh heh, of course you do! But our friends at Marketplace have kept up the good skeptical outreach of tackling bogus health products.

Recently CBC Marketplace did an episode exposing the product, Cold FX!

You can watch the whole episode here on Marketplace’s website.

It’s a pretty great episode and good skeptical review. They address some very key points when it comes to Cold FX, which for those of you who haven’t heard about it, is a Canadian product that claims to decrease the length and severity of the cold and flu.

Not surprisingly, with such claims being made, people were going to be skeptical that Cold FX could do what it actually claimed to do.

Marketplace investigated a number of scientific studies that were done on the drug, talked with several experts and tried to figure out why and Cold FX is allowed to put strong claims like that on their packaging. Doesn’t Health Canada have regulations about that sort of thing?

Of some of the shocking realities unearthed is that Cold FX isn’t manufactured in Canada, rather, its produced in China and then put in capsules in Canada. The factory in China where its produced has been questioned by authorities as being a poor choice for the production of medical supplies.

This might have led to the other revelation Marketplace uncovered, that Cold FX was contaminated with bacteria and then was sold regardless! Not great company ethics there.

A great moment was when host of Marketplace Erica Johnson interviewed Cold FX’s spokesperson Don Cherry:

Overall I was very impressed with the episode and I really hope that skeptics in Canada check it out and let the producers know that they love to see this kind of critical thinking on the air in Canada. The only thing I would have liked them to include was a mention about how and why people tend to think a product like Cold FX could work.

When you notice symptoms of a cold or flu, you might take some medication, but most people don’t take medication until the worst symptoms show up. After all, it’s when the symptoms are at their worst that you need relief from them. But it’s important to keep in mind that cold and flu’s have a predictable progression, right after you hit the worst symptoms, the cold and flu generally go down in severity and you get better. So what happens is that people take medication right when things are at their worst, they get better and attribute it to the medication and not the natural progression of the disease.

It’s hard to explain without a graph or something so I can understand why Marketplace didn’t go into it. Nevertheless, another great skeptical win!

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