This was a good post about why the gold standard stinks:
http://www.pragcap.com/why-no-one-should-support-the-gold-standard/
I’ve always emotionally thought the gold standard was stupid, but don’t really have much data to back up that opinion. Inflation certainly seems like a much better alternative to serious deflation that the gold standard can bring, but I’m curious what the forum thinks.
I think the only main rebuttle to this is to point out that all Fiat currencies have failed throughout history - most of them started out off a gold standard and bleed out value until the point where IOU notes were issued that represented just a promise from government. Government fails, your IOU goes into the toliet.
IMO It’s the fractional reserve nature of banking that makes a gold standard worthless not the gold standard itself.
Look at GDP during the recession, and look at which date the U.S. came off the gold standard.
It may be true that all fiat currencies have failed in history (except for the ones that exist today, so I guess that’s not all of them).
But it seems that it may be true that all gold standard currencies have failed too (or at least the underlying economies did).
Are there any currencies that are hooked to the gold standard today?? Certainly none of the major currencies are.
You could argue the dollar is the new gold standard and there are plenty of currencies pegged to that. Fiat backed by fiat. What could possibly go wrong?
Most modern libertarians don’t support the old gold standard model anyway. The concept is still the same. Back your currency up with something physical. But it wouldn’t be just gold, could be anything. Still would be primarily gold and silver, but could include oil, timber, etc.
That article is pretty easy to debunk too, but I’m not going to waste my time. People either see the value of gold or they don’t. It’s more of a religion than an investment.
Edit: As to who uses gold/silver as currency today? Ask anyone in-or-around ISIS. It’s either USD, gold, silver, and even bitcoin to a lesser extent. When shit falls apart, people still use - as they have for about 5,000 years - precious metals as a medium of exchange.
whether a fiat currency can survive is dependent on central bank mandate and behaviour. you can’t really compare fiat currency today, with clear and fairly objective CB goals, versus fiat currency of the past when there either was no central bank or if there was a central bank, it didn’t really have a mandate.
it’s always a confidence game. there is more confidence in an economy with a fiat system with a trustworthy central bank (i’m not saying the current CBs are purely trustworthy but they do stick to their mandate quite well) than an asset backed system that is subject to mining cycles. gold or silver standards are retarded because they ensure that a large percentage of the population is active/employed in the business of mining a virtually useless resource and due these mining cycles, inflation is not all that tame as some gold standard proponents believe. the stable inflation that came with the gold standard in the late stages of gold standard history probably would’ve occured with fiat currencies anyway. we moved to fiat because the structure of the world economy works better with fiat than metal. because of the vast accumulation and dispersion of assets compared tot he past, changes in inflation should naturally be less violent than in the past, so long as CBs stick to their mandates and those mandates are revised to promote economic activity.
fiat currencies help push workers to more productive means like writing for TeenBop or filming pornography.
I hope you realize how poor this logic holds in a real market place
Ah ISIS. Now there’s a society whose greatness we seek to emulate! Go gold!!!
More seriously, my point is to say that all societies with fiat currencies have failed is either false (because there are fiat currencies in existence today), or unfair to say without also saying that the gold standard have failed. Those arguments are useless, because both gold standards and fiat standards have failed in the past, and except for failed states, there are no major areas that use the gold standard today (although people do still trade gold, but they can do that in most fiat currency zones, too.)
Sure, when shift falls apart, people use anything of value, precious metals, gems, food, arms. What makes gold nice is that it’s rare, relatively portable, and people are willing to accept it, but that doesn’t mean it’s therefore the best thing to build an economy on.
People who like gold are those who feel that a central bank can’t be trusted not to inflate the currency, people who like fiat are those who either think gold will create deflation because it can’t expand in proportion to GDP, or because they feel that a central bank authority can add value by managing the money supply within limits.
It’s not that gold is inherently more valuable than fiat currency - it’s all relative. Gold (or precious metals in general) has just been around the longest and hasn’t had it’s valued wittled away by governments, but if there were some outrageous mining boom where gold supply was multiplied by 1000x, it’d have the same effect as printing fiat - it’s just a much less likely scenario. Although the libertarian or Austrian view favors gold, the “best” monetary system is one which allows competition. Let gold, silver, fiat, bitcoin, etc. duke it out. You’ll have survivors and losers, but the market has always proven to be better than some central authority.
Did the gold standard fail or did the country fail the gold standard?
If that’s how you look at it, then the conclusion is that having a gold standard or not makes little difference to whether the country fails or not. At best, it may shape how it fails.
It is how I look at it, thanks for the thought provoking response.
Every once in awhile there’s an article theorizing China is secretly accumulating even more gold than we already know they are, to create a gold-backed RMB for when things go to hell (and things will go to hell eventually, the sovereign debt crisis is going to hurt bad).
looks like RMB is going to be added to the basket, although at a lower weight
Isn’t it fair to say that the dollar is indirectly backed by gold? After all those mountains of gold that the Federal Reserve holds are a way of backstopping the value of the dollar. If public were to lose confidence in the dollar (hyperinflation), Fed could sell that gold on the open market and absorb excess money.
It’s backed by reserves, of which some is Gold, but if the Fed creates more credit and there’s no increase in the amount of gold or any other physical thing of value, then why would you say it’s “backed by gold” (or anything else tangible) if that backing can be diluted simply by choosing to print more.
When you say “backed by X”, it implies that you can change your currency for X at a predictable rate.
So I’d say no to the above, based on this.
Realistically there’s nothing in the world that the USD could be backed by – the NPV of forecasted USG cashflows per the government’s own numbers is -$210T , while the value of all household and corporate wealth is only $85T. So even if the US liquidated everything, they still couldn’t close even half the shortfall.
They’ll have to 1) print hundreds of trillions, or 2) default. By the way did anyone see the movie the Forecaster about Martin Armstrong? I’ve been saying this stuff forever, but it was interesting to hear an expert cashflow forecaster/analyzer say the same thing. Martin actually listed three outcomes 1) inflation, 2) default, 3) restructure…which is fair, but I just classify “restructure” as a strategic default.