Explain to an idiot the benefits of going back to the Gold standard

[Felz]

[ QUOTE ]
How so

[/ QUOTE ]

M * v = Y * p

thus

^M + ^v = ^Y + ^p

thus

^p = ^M + ^v - ^Y

thus

^p = ^M only if ^v = ^Y

quantity theory of money

[4 High]

Do we know how much gold the US GOVT currently has? What would happen if we just switched tomorrow and for arguments sake we had 100 Trillion in paper money but only 1 Trillion in gold.

[QuadsOverQuads]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

It is also an article of near-religious faith among the far-right-wing, so expect the usual firestorm of spam and pre-cooked talking points.


q/q

[theseus51]

[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

It is also an article of near-religious faith among the far-right-wing, so expect the usual firestorm of spam and pre-cooked talking points.


q/q

[/ QUOTE ]

Yeah exactly. Cause historically, before 1913, there was like no economic growth. Once we started printing that money out of thin air though, there was no stopping the economic growth, no stopping the inflation, and no stopping the slow road to eventual collapse of our currency due to the worthlessness of the dollar.

Money is just a way to facilitate a transaction. It's just hard to think of having converting all the money we have, into gold. I can't blame them, because the federal reserve prints out hundreds of billions of dollars out of thin air, so yeah, that'd be hard to imagine.

If you're a saver, you have to save and earn like 3-5% a year, just to break even, since your dollars are getting more and more worthless. If someone really wanted gold, they could offer a higher return on investment, but if they can't, why should your money and savings lose 3-5% value a year, every year? By printing money out of thin air to "stimulate the economy", you hurt a lot of people, savers, fixed income people and retirees.

And as far as I know, no country or society has lasted long under a system of paper money, created out of thin air, with nothing to back it. But there are a lot of places that lasted under sound money, backed by hard assets.

[superleeds]

Can you tell me why gold has value?

[John Kilduff]

[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

q/q

[/ QUOTE ]

At this point I think I'd probably rather see deflation than inflation for a while. Why is deflation more evil than inflation?

[vulturesrow]

[ QUOTE ]
[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

q/q

[/ QUOTE ]

At this point I think I'd probably rather see deflation than inflation for a while. Why is deflation more evil than inflation?

[/ QUOTE ]

John,

Check the link I posted earlier on in this thread, it addresses this issue.

[John Kilduff]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

q/q

[/ QUOTE ]

At this point I think I'd probably rather see deflation than inflation for a while. Why is deflation more evil than inflation?

[/ QUOTE ]

John,

Check the link I posted earlier on in this thread, it addresses this issue.

[/ QUOTE ]

OK, thank you. I've excerpted the statements that article makes about deflation (since my question was about deflation specifically, not about the overall concept of a gold standard):

"The third is that deflation is also bad, and at the lower percentage values, often even worse than inflation. "

The author is saying that most economists have "settled" or agreed on this. I can't quite be convinced by that because a "majority consensus" among economists used to be trumpeted as reason to support Keynesianism. I don't find appeal to authority or expert status fully convincing and especially not in Economics.

"This surprises/offends/meets with the frank disbelief of many "sound money" types, who think that, barring local shortage, in an ideal world everything ought to cost the same or less than it did when Grandpa was a boy. (These sorts of opinions are cemented further by the fact that Grandpa, who is often the source of them, is usually living on a fixed income, and therefore feels that he would make out better in a deflationary economy.) The problem is, deflation does rather devastating things to anyone who has debt, since they now have to repay what they borrowed in more expensive dollars."

So deflation is bad for those in debt. It also must be conversely good in the same sense sense for those who are debt-free and holding money. Is debt a thing to be encouraged? Generally speaking I would think probably not. Rather, savings and investment are the basis of future prosperity, so if anything should be encouraged I would think that those things should be encouraged rather than debt.

Deflation means that, thanks to the abovementioned sticky wages, the economy has to deal with demand shocks by lowering output.

The operative effect of supply and demand. That's the way it works and no amount of tinkering is going to change that; the effect can only be artificially mitigated to some extent and the mitigation must carry its own cost as well.

"Deflation can result in what's known as a liquidity trap, a concept pioneered by liberal economist John Maynard Keynes and best elucidated by liberal economist Paul Krugman back before he left economics writing to focus on his hatred of George W. Bush. Deflation is what made the Great Depression so memorable. Deflation is so bad that almost everyone agrees that moderate inflation, in the range of 1-2%, is better than risking even a small amount of deflation."

Again an appeal to authority/expert status/"consensus".

So while the article touches on the subject of deflation it doesn't do much to truly explain or convince why deflation is bad.

Thanks for reading and for any responses.

[adanthar]

[ QUOTE ]
So deflation is bad for those in debt. It also must be conversely good in the same sense sense for those who are debt-free and holding money. Is debt a thing to be encouraged? Generally speaking I would think probably not. Rather, savings and investment are the basis of future prosperity, so if anything should be encouraged I would think that those things should be encouraged rather than debt.

[/ QUOTE ]

You'd certainly get your wish in a deflationary economy, because one of the first and surest outcomes of a prolonged period of deflation is that the entire lending cycle would completely collapse. Forget the wave of both personal and business bankruptcies crashing into everyone above the consumer on the food chain and let's just focus on the basic economics. If the future value of money becomes *greater* than the present value of money, why would you ever make a loan - especially at a low interest rate - when you could hang onto the cash instead? Even if you were willing to make that loan, what kind of sucker would it take to accept it?

The real issue with your statement is that

[ QUOTE ]
Is debt a thing to be encouraged? Generally speaking I would think probably not.

[/ QUOTE ]

this simply isn't true. Properly leveraged debt in an economy with free lending is an asset, not a liability, and results in far greater economic growth than the same amount of money sitting in a mattress. Further, what do you think 'investment' means, other than some individuals lending money to others in exchange for some kind of asset? And why would you assume that a deflationary economy would encourage investment?

[MidGe]

[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

It is also an article of near-religious faith among the far-right-wing, so expect the usual firestorm of spam and pre-cooked talking points.


q/q

[/ QUOTE ]

Pragmatic and correct. The gold standard, or rather its re-introduction is silly and impossible.

To the OP I would say, think twice! Maybe Ron Paul isn't as intelligent as "some" on 2+2 think he is! [img]/images/graemlins/smile.gif[/img]