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This makes so much sense. The gold standard didn't work in the first place.
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To have a gold standard, you have to go dig up gold in South Africa and put it in a basement in New York. It's nonsensical.
The gold standard ends up linking everyone's currencies, causing policy in one country to transmit to another country (sort of how U.S. policy now transmits to China, because they've fixed the yuan price to the dollar). So for example, if the U.K. fixes the number of pounds to an ounce of gold, and the U.S. fixes the number of dollars to an ounce of gold, then the pound and the U.S. dollar inadvertently become linked.
It creates deflation, as William Jennings Bryan noted. The meaning of the "cross of gold" speech: Because farmers had debts fixed in gold, loss of pricing power in commodities killed them.
The gold standard tends to cause interest rates to rise during downturns and interest rates to fall during good times, the exact opposite of what monetary policy should be doing.
The economy was far more volatile under the gold standard (all the depressions and recessions back in the pre-Fed days).
The only way the gold standard works is if people are convinced that the central bank ONLY cares about maintaining the gold standard. The moment there's a hint of another priority (leaking falling unemployment) it all falls apart.
Gold standards leave central banks open to speculative runs, since they usually don't hold all the gold.
I am big on monetary policy reform. Our current system is corrupt.
That said, Bernanke is spot on, here. A gold standard is not the answer.
There's nothing wrong with fiat currency. The problem is giving all the new currency to the bankers, and praying that they lend, and that those borrowers hire. That whole process is a fantasy, especially when combined with such a highly distorted fiscal and tax environment.
I am big on monetary policy reform. Our current system is corrupt.
That said, Bernanke is spot on, here. A gold standard is not the answer.
There's nothing wrong with fiat currency. The problem is giving all the new currency to the bankers, and praying that they lend, and that those borrowers hire. That whole process is a fantasy, especially when combined with such a highly distorted fiscal and tax environment.
Wrong....giving it to the bankers under the fractional reserve system is an EXTRA horrible idea because they can lend it out at a ratio of 9:1....So, any 5th grader can tell you what THAT is a bad idea....But fiat money is WAY worse than the gold standard.
Deflation is GOOD...
Artificially keeping the dollar strong so it remains the worlds reserve currency is disastrous.
Wrong....giving it to the bankers under the fractional reserve system is an EXTRA horrible idea because they can lend it out at a ratio of 9:1....So, any 5th grader can tell you what THAT is a bad idea....But fiat money is WAY worse than the gold standard.
Deflation is GOOD...
Artificially keeping the dollar strong so it remains the worlds reserve currency is disastrous.
How would a business owner pay his debt if prices of his commodities are low?
How would a business owner pay his debt if prices of his commodities are low?
BTW, there is inflation under the gold standard.
It's totally negligible...And Bernanke is stupid because, NO, you DON'T have to start digging up gold... Why the hell would you need to do that???
Any amount of resource will do....
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