Gold Currency

[Fulanito de Tal]

Why are people wanting to return gold as a currency? I was at Ale House yesterday and some guy was talking about how that would help out the economy.

What are possible consequences?

Where is this push for gold currency coming from?

[Widerstand]

I think the argument is that a non-resource bound currency is essentially just virtual money with an infinite potential for inflation.

[Comrade Wolfie's Very Nearly Banned Adventures]

I think the argument is that a non-resource bound currency is essentially just virtual money with an infinite potential for inflation.

Which has been largely proven true. However a resource based currency is just as probematic.

[Red Commissar]

It's become more "fashionable" to argue for gold standards or at least pegging currency to some form of a commodity. There was a time when most of the world was on this, but many of them abandoned the Gold Standard due to how it restricted their ability to respond to economic problems. Gold Standard severely restricts the ability for a government to control the money supply in their nation and interest rates. It's not favorable for banking really, particularly centralized ones which are a corner stone of the way things work today.

There are people reading simplistic interpretations of this and unsurprisingly it tends to appeal to right-wing types, particularly ones with hard-ons for their vision of what a "free-market" capitalism entails, as libertarians, AnCaps, and objectivists see it. To them this will allow for a more stable value of currency that the government won't have as much of an impact on to influence markets, as it does right now.

Fiat Currency has its issues with inflation, but going back to Gold Standards won't necessarily solve anything.

[pastradamus]

Why are people wanting to return gold as a currency? I was at Ale House yesterday and some guy was talking about how that would help out the economy.

What are possible consequences?

Where is this push for gold currency coming from?

When a recession hits, gold usually increases in value as its value is based on its worth. The dollar,Euro, Sterling currency are based on absolutely nothing so they can become hit with inflation quite easily - gold on the otherhand cant really be hit with this as it is a precious metal. Thats why people such as "cash for your gold" are in full marketing mode right now.

[Fulanito de Tal]

Thats why people such as "cash for your gold" are in full marketing mode right now.

So this is screwing you over as much as a cash advance does?

[Mike Russell]

there isnt enough actual gold to equate the amount of fictitious, constant, and human capital in the world. going back to the gold standard is silly.

[#FF0000]

Yeah it's really as simple as MR said.

What someone thinks of the Gold Standard is a good way to figure out whether they've been in Econ 101

[Fulanito de Tal]

there isnt enough actual gold to equate the amount of fictitious, constant, and human capital in the world. going back to the gold standard is silly.

I haven't taken Econ 101 or its vocabulary, so how does this work in layman's terms?

[Magón]

Sad thing is, lots of working people have put some of their life, if not all of it, into Gold. So once/if ever, the economy actually picks up in the US and is like it was before the downfall, the Gold value will drop and people will be on the streets... so maybe the economy won't pick up, and will only level/rise for like a day before everyone with Gold goes bankrupt? :confused:

[Red Commissar]

I haven't taken Econ 101 or its vocabulary, so how does this work in layman's terms?

In modern times most governments have two faces of public policy- fiscal and monetary. Fiscal policy refers to the way the government is able to support itself and carrying out its duties- spending, raising funds (taxation, tariffs, service fees, etc), and debt management. The second, monetary policy, refers to how the government manages its currency.

Fiat currency allows for more flexible monetary policy. When recessions or other economic issues come up, they take steps to increase the amount of money in circulation, particularly if its a matter of restarting the economy and boosting it. We usually see this manifest itself in the Federal Reserve cutting its interest rates and buying back bonds, lowering the reserve requirements in banks (how much money banks have to have on hand at all time) In the event where inflation is the primary concern, steps are taken to remove money from circulation. Some ways of doing this is for the Fed to raise interest rates, for the government to sell bonds, raise the reserve requirements in banks, selling bonds, and so on.

This is flexible mainly due to the fiat nature of currency. Done carelessly and this will cause crazy inflation. Most nations tend to have a way of preventing this, but it is usually at the cost of the citizenry.

The United States was on a somewhat gold standard with the Bretton-Woods system that was disbanded during the Nixon administration, but no country had really been on a genuine gold standard since the Great Depression. This is mainly due to the inflexibility that gold standards provided with money supply.

This caused two problems. First when the economy was growing it retarded the potential of how much it could grow due to the monetary supply being limited by the amount of gold on hand. Petit-bougousie that was in William Jennings Bryan's platform against the Gold Standard went along this line arguing that the gold standard was making it harder for the small businesses to grow and prosper when the large businesses were growing and prospering.

Secondly, as the Great Depression showed, it severely restricted what action the government could do to deal with the problem. Additionally it had to deal with Gold being bought and sold from the government's treasuries, which could happen wholesale at some points.

Going back to gold standard right now would actually hurt these petit-bourgeois types who tend to be swoon by the allure of stability and no big bad central gubmint bank, but will see that in a few years time they will have very little currency to work with and everything will be concentrated again in even smaller circles than it is now. Amusingly enough the same type of people who might want gold standard right now were those who wanted it gone a century ago.

Ultimately what you have to keep in mind with economies is that they are complicated and interlinked between many interests and people. Something that affects one area positively may affect another negatively. Something that seemed to work well at first may grow and destroy the system. There is no easy solution, and gold standard is far from ideal.

Ideally when people see these problems with currency and economy they should see the problem with capitalism as a system, but they just see it as an error that needs to be readjusted...