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

[Taso]

Well, the subject line basically has it all. I keep hearing Ron Paul say we need to go back to the gold standard, and I really like him, and don't put a lot of trust in the Fed, but can anyone break it down; how would it benefit us, or hurt us, as a nation and individually?

This would also be a good time for people who disagree with this to stand up and say why. Copernicus? lol (Slightly joking, but you seem to disagree with a lot of what Ron Paul says)

[theseus51]

Using gold as money prevents government from spending too much. And it also prevents the loss of purchasing power over time. In the United States, Constitutionally, we are supposed to only have gold and silver as currency, because it's tangible. The founding fathers knew the dangers of paper money, and tried their best to help out future generations, but I guess we didn't listen to them. =(

With paper, you can always print more money out of thin air, which weakens the currency. In ancient times, and even today, wars or government overspending weaken a country's currency. How? Back then, they would have to clip coins, or physically chop off a part, thereby weakening their currency. If the country's normal tax is 100,000 coins, and normal spending is 100,000 coins, it works out. But when you have a war (especially a long one), you take in less money, with less people working, cause they are at war. Also you are spending a LOT more. You might take in 80,000 coins and spend 300,000 coins. Same idea for government overspending, and you have to make up the difference somehow.

How to make up the difference? Cut spending, or raise taxes, but those are politically unpopular, so maybe chop off a part of the coins in circulation to mint new coins. But doing that, you devalue the currency.

With paper money, it's much easier. You just print more money out of thin air. That also devalues the existing money. And that's what politicians do today, when they have shortfalls, rather than cut spending or raising taxes, they print money to make up the short fall.

With gold, the government can't just print more of it. That prevents overspending, because the books have to balance. Government is forced to raise taxes, cut spending, or clip coins, which are all very obvious to the people, who will revolt if it causes too much of a burdeon. With paper, and printing of money, it is much more devious, as the people don't know their money is losing value. This is also known as the "inflation tax", by printing money out of thin air.

Another benefit of gold is that it doesn't lose value, but paper does. If you kept $5,000 in paper money under your bed for years, it would lose value, and lose purchasing power. If you have like 10 ounces of gold, that gold is still going to be worth the same amount in 5 years or 500 years. It has real value, so it won't lose value over time.

If gold was our currency, you could invest your gold in stocks or put it in the bank and get back more gold later, that way you can grow your money. But if you don't want to take any risks and would rather just hold onto it, it won't LOSE value year after year, like paper will. Paper loses value year after year, because the government keeps printing more of it to make up budget shortfalls.

This is just my understanding of it. I'm not an expert, so if it sounded like I was rambling, I apologize. Anyway, I'll let Dr. Ron Paul explain it to you himself. =)

http://www.youtube.com/watch?v=5hMeNnbSqkk
http://www.youtube.com/watch?v=TzLidmu_UpY

[tomdemaine]

http://www.googlesyndicatedsearch.com/u/...gold%20standard

[Felz]

The USA can't unilaterally "return" to the Gold Standard and Europe doesn't have any incentive nor need to do so.

[adios]

[ QUOTE ]
Well, the subject line basically has it all. I keep hearing Ron Paul say we need to go back to the gold standard, and I really like him, and don't put a lot of trust in the Fed, but can anyone break it down; how would it benefit us, or hurt us, as a nation and individually?

This would also be a good time for people who disagree with this to stand up and say why. Copernicus? lol (Slightly joking, but you seem to disagree with a lot of what Ron Paul says)

[/ QUOTE ]

I don't think we need to go back to the gold standard the way it was implemented. However, there's a very obvious virtue in adopting what basically the ACist's want in a gold standard i.e. a full reserve system where the value of the currency is derived from gold. The obvious virtue is that power over the currency is taken out of the governments hands more or less. Societies have been wrecked by government policies that destroyed the value of the currency. Granting governmental control of the currency is an incredibly huge power that governments have mismanged time after time. We had a big thread about the Federal Reserve (actually several) awhile back that was good. Don't know if you took the time to read it.

[pvn]

[ QUOTE ]
The USA can't unilaterally "return" to the Gold Standard

[/ QUOTE ]

Why not?

[ QUOTE ]
and Europe doesn't have any incentive nor need to do so.

[/ QUOTE ]

Define "europe"

Obviously, the current governments in the US and Europe have no incentive to return to gold. The US Government can't return to gold AND keep it's current monetary policies. But that's not what the question was asking.

[lehighguy]

http://www.federalreserve.gov/releases/h6/

M2

2007 Aug. p 7333.8
2006 Aug. p 6874.4
2005 Aug. p 6573.9
2004 Aug. p 6317.1
2003 Aug. p 6104.6
2002 Aug. p 5656
2001 Aug. p 5262
2000 Aug. p 4834.4
1999 Aug. p 4557.5
1998 Aug. p 4243

2007-1998 72.84%
Annualized 6.27%

M3

2006 Jan 10238.6
2005 Jan 9487.2
2004 Jan 8942.5
2003 Jan 8589.2
2002 Jan 8032.7
2001 Jan 7196.1
2000 Jan 6573
1999 Jan 6026.2
1998 Jan 5450.7

2006-1998 87.84%
Annualized 8.20% (your money loses this much value a year)

I would continue with M3, but they refuse to publish that now.

Looking at the individual years can be fun (in a sadistic way), including the whopping 9.8% M3 annualized from 1998-2000.

[vulturesrow]

Here is a pretty good link summarizing the downside of a gold standard.

There's gold in them thar standards!

[PLOlover]

[ QUOTE ]
There's a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.

[/ QUOTE ]

I think this sums it up by this mischaracterization. there's fiscal policy (how much governments borrow/spend/tax), and monetary policy (how much governments inflate money/give credit.)

I think it's widely acknowldged that the great depression was created/deepened by the fed's tightening of credit (monetary policy).

it seems to me that you really can't have fractional reserve banking without a fiat money system.

I mean, what does a run on the bank meant in 1930's when US was on gold standard? basically the banks lent out money they didn't have, and so people lost faith that the banks would pay them back.

[theseus51]

Ron Paul wrote a book, "The case for gold" which I heard was quite good.

Here's also an essay by some obscure economist in 1966, stating the case for gold.

http://www.321gold.com/fed/greenspan/1966.html