Ahh
You are referring to east and west Germany.
:eek: 
It may be worth noting that only a tiny percentage of the nation’s dollars are in the form of bills. Certificates that can be presented for precious metals would mean little in our electronic age. One would need to convert their wealth from little bits of memory in the bank’s computers into paper currency and then present those bills to the fed to actually get the ore. Of course, banks only keep relatively small amounts of paper cash on hand.
Which is great for people who owe money, like most Americans do. Inflation means the real value of your debt is decreasing over time. Inflation is most hated by creditors, usually banks. My point being, reducing inflation wouldn’t make it any easier to get a job or pay your bills or anything else that really matters, economically speaking. It would increase the real value produced by our economy. All it would do is make it more difficult to pay down existing debts (which are tied to money owed, not value owed) and make it even harder for us to compete economically with the rest of the world.
(Countries with a strong currency have a harder time in the world markets because they expect more of the local currency in exchange for their goods and services.)
So he isn’t making economic arguments, he’s making emotional ones. He’s trying to say that inflation is picking our pockets by reducing the real value of the dollar, ignoring the fact that our debt burdens are all being reduced at the same rate and that we can sell our products to the world at competitive prices. This seems to be a common failing of goldbug arguments.
Wouldn’t! Would NOT!
:smack:
I have to ask why reducing debt via inflation is a good idea for an economy. You appear to argue that inflation is good because it makes debt easier to pay off (and most Americans are in debt). Doesn’t this encourage taking on debt that one knows they will never need to pay off? Granted, there is no shortage of lenders, but where does it end?
True. The reason countries went off the gold standard in the first place. Doesn’t work nearly so well when everyone (or mostly everyone) went off. Also, China pegging their currency to the dollar makes it pretty hard to compete with them.
A weak dollar sure is helping that trade deficit, isn’t it?
Again, I fail to see how rewarding debtors helps an economy.
As Spectre pointed out, I dropped a set of zeroes in my previous post. The market value of the US gold reserve is less than $100,000,000,000 not $100,000,000. The other figures in my post was based on the billions figure and remains unchanged.
The alternative is a deflationary economy, which favors lenders and punishes people for taking on debt. This makes it more difficult for anyone to buy a house or invest in businesses or do anything that takes any more money than they already have, making people more likely to sit on money, reducing the economy as a whole. Inflation is a symptom of a growing economy, and is only a bad thing (you guessed it) in excess.
And of course, you will need to pay off the paper value of the debt, plus the interest the lender is charging. If the interest doesn’t outpace inflation, well, that’s the lender’s problem.
How long was the United States on the gold standard? From 1789 until 1933? It seems to me that the United States grew quite a bit during those years, and with no inflation. Even if you count 1970 as the end of the gold standard, who was the most powerful and richest people on earth during that time? Who had the industrial and military strength? Who had the highest standard of living in the world?
I am all for going back on the gold standard, and I think we should stop deficit spending also. Inflation would be limited to the increase in the gold supply, very marginal at this point in time.
Gold was a reasonable proxy for economic growth during the Industrial Revolution but it would be relatively useless for an information age economy. If you wanted to prevent the government from monetizing debt, you could target money supply to an basket of commodities and services.
This is my take on it. IANA economist; I’d like to hear if any of this is off base.
(Oh yeah, this is my first post. Uncle Cecil says don’t gush, so I won’t, but I genuflect in his general direction.)
We’d like for our economy to keep growing. Well, there are more of us all the time, and we’re getting more productive all the time, and we’re inventing new stuff all the time, and, well, a growing economy is a Good Thing. As I make it, the amount of gold in the world is relatively fixed. Some added, some used up, but relatively fixed.
To go on the gold standard, we’d be using a fixed-size measurement to measure something that’s growing. It’s like saying that a child is only 24 inches tall, no matter the actual size of the child, because, say, we aren’t able to count past 24. The situation would at least be horribly confused, and as others have said, implementation would be disastrous.
Cervaise asks, “So why does Badnarik want to do it?” Answer: He hasn’t thought it out all the way, maybe.
[slight hijack] A little inflation is a good thing. In a dynamic economy, things are shifting in relative value all the time. Inflation provides a way for this to happen somewhat less painfully than otherwise. Things that are dropping in relative value simply don’t rise in price as fast as the average, and other things rise in price faster than the average. Deflation is a lot more painful; some things cost less, but at the same time, a lot of people in unlucky industries are at risk of pay cuts and layoffs - because the value of their labor is effectively deflating; their company is on the books as loosing money. …Does this sound right, you who know what you’re talking about? [/hijack]
So the lender should charge higher interest rates, which will increase the amount that the debtor will have to pay, making loans unattractive to people who will then sit on their money, reducing the economy and all those nice new homes and condos will go to waste?
In some ways I think you guys are missing the point. Gold has been traditionally used as a store of wealth because it is essentially immutable, at least as a practical matter. Nobody is out plumbing the ocean’s depths looking for a long lost monarch’s checkbook. Gold is not easily counterfeit.
Consider that the US is currently enjoying a certain level of counterfeit currency.
Why is this a problem? For the sake of argument, what makes your pieces of green paper with dead presidents on them any less “real” than the official, sanctioned pieces of green paper? Partially, the reason is that the FED also extinguishes money as necessary, through open market operations and federal reserve member bank operations. It is a misnomer to say the “government prints up money”; they merely provide currency or money as required. In one sense, money is an abstraction, and increasingly so in the age of electronic bytes and bits.
Still, some standard - whether gold, or some other mechanism, provides a check and balance against the citizenry having a stable store of wealth and exchange over time. To day, notes at the grocery store are checked for validity by the use of counterfeit detection pens. Well, who makes the pens? In a way, we are now on a Pen Standard, then. Or a Byte standard, since the bytes and bits flowing are only as secure as the software and hardware containing and accountinng same.
Gold has always been a bulwark against such nonsense as inflation or deflation, etc. Investors have wisely squirreled away a nominal percentage of their assets
in hard currency for a rainy day, as a form of insurance - hopefully never needed but there “just in case.” Money need not be gold or silver, but some sort of objective standard needs to be in place or nearly so. How would you feel if the government “re-evaluated” the Yard or Meter or Acre? We could read that the meter lost several centimeters in heavy trading against the yard yesterday, or that your 40 acre farm is still nominally 40 acres on paper, with equivalent or increased taxes, but the physical size has decreased by half. This is why inflation is known as a “hidden tax”, robs savers of wealth, and is an absolute necessity for expansion of the state, etc. etc. .02c
As Civil Guy pointed out, a gold standard creates a situation where there’s a permanently fixed amount of money in existence that’s being chased after by a growing population. That’s just as much a hidden tax as inflation.
Maybe we should convert to the human standard. Everytime someone is born the government prints up $100,000 and everytime someone dies they take $100,000 out of circulation. That way there always be a fixed ratio of money to people and wealth would be based on what proportion each individual owned.
This isn’t an either-or proposition, as you can easily see by examining the history of inflation and economics growth:
1970s - Lots of inflation, little growth.
1990s - Lots of growth, little inflation.
Inflation in the 1970s went as high as 13 percent per year, but the economy was stagnant. In the 1990s inflation dropped to 2 or 3 percent a year but the economy did quite well. (I’m using U.S. figures of course.)
A small amount of inflation is a natural byproduct of debt and growth. A LARGE amount of inflation is bad, however, because it’s a de facto tax on prudency. One of the advantages to a small amount of inflation is that it motivates people and companies to invest money rather than sitting on it; if your money is losing 2% a year, you’re better off investing in your business or other businesses than just letting it slowly lose value. However, high levels of inflation will tend to discourage even some forms of productive investment. Inflation also has some other disadvantages:
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There’s cost and inefficiently in constantly updating prices (“Menu prices”.) One advantage, however, to a small amount of inflation is that it allows for some prices to be adjusted downwards without reducing the actual dollar value, which would be difficult for some things otherwise. For instance, if a particular type of labour becomes less valuable it’s easier to let people’s salaries drop against inflation than it is to actually reduce the raw number salary. Salaries are “sticky” prices.
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Inflation is a de facto tax of anyone who saves money, so high inflation can drive investors out of the market, or motivate them to invest overseas, and
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Inflation is a tax on people on fixed incomes.