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Forum - Gold standard criticism

Tags: Peter Schiff, Austrian Economics, Gold Standard [ Add Tags ]

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The Real RoxettePosted: Jan 04, 2012 - 05:56

There ARE more sluts in public schools. Shut up and let me explain.

Level: 8
CS Original
I know there are some people on this site that are in favor of a gold standard, but I'd like to discuss the overall problems with it. So, post what you think.

1) There isn't enough gold in the world to back up the value of money in circulation. Response tends to be to devalue the currency. I think this is a poor decisions. One of the claims by gold standard believers is that not being on the standard makes people have less buying power, which is an interesting claim because if you devalue the hell out of the money they already have you're punishing them far more, far faster than inflation would. If the buying power of a dollar or euro dropped 1,000%, most people would be in real trouble.

2) It would lead to hoarding gold. Gold was once pretty useless other than to make things pretty, but recently it's started to develop a technological use, and it's on the rise. If we hoard the gold like a bunch of superstitious neanderthals, how can we put it to actual use?

3) As more value in the world is created (e.g. a constructed house is worth more than the materials that built it) how do we expand the currency with it if the mining of gold is extremely slow? Do we simply devalue our currency even more? How is deflation any less psychotic than hyperinflation?

4) Peak gold.
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Wolf BirdPosted: Jan 04, 2012 - 05:59

I shoot you dead.

Level: 9
CS Original
Because...because...they used the gold standard in the past, so that means it worked, right?!

Oops, nope.
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CyborgJesusPosted: Jan 04, 2012 - 07:01

Level: 6
CS Original
I haven't looked into this, but it doesn't make sense to me on some very basic levels.

When we reintroduce the gold standard, currency becomes inherently deflationary, as with the growth of the economy need for capital increases, but the amount of capital stays fixed. Two things happen:
One, we start dividing gold up into increasingly smaller amounts to back the same amount of currency. This corrodes the original purpose of the measure, as gold just continues to build an inescapable bubble and you're left with your dollar bill backed by 1g*10^-X of gold.
Two, the fixed amount of capital available inhibits the growth of the economy, as holding on to your money tends to be a preferable choice to investing or lending it. Also, if the small government makes a mistake and gets into debt, the value of debt will increase over time, reducing the confidence in the government (and its currency) and eventually leading to hyperinflation.
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