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Discussion: (4 comments)

  1. LadyLiberty

    Bankster Reaction to a Return to the Gold Standard

    snip

    In actuality, his comments were ‘nonsensical’, since he said there wasn’t enough gold to back up US debt. Well, he’s wrong here. Since this is simply a math problem. If you want to derive a relationship between gold and US debt, you take the dollar amount of US debt and divide it by the number of ounces of gold and you get debt per ounce of gold.

    in full
    http://www.economicpolicyjournal.com/2012/08/bankster-reaction-to-return-to-gold.html

    1. Ladyliberty,

      I’m a little confused by you’re comment. Are you saying we should take the us debt and divide it by all the ounces of gold in the world?

      You don’t see a problem with gold all of a sudden being 10X what it was worth the day before?

  2. Author’s Postulate:
    New gold standard = nominal GDP targeting
    Reader’s Conclusion:
    The author of this article = Complete and total economic ignoramus

    Wow… where to even start. From talk praising sound money to a suggestion calling for NGDP targeting all in the same article. That was such a surprising twist at the end that it’s difficult to even find my bearings…

    How the comparison could be made is baffling….

    There is absolutely no possible way to say that NGDP targeting is like the new gold standard. NGDP targeting presumes massive monetary intervention while a gold standard presumes no monetary intervention. They are the complete opposite in almost every regard.

    First off NGDP targeting assumes that the fed can force the economy to grow. The fed might be able to cause NGDP to go up, but is that growth?… I mean, the fed can always finance gov’t spending through purchase of bonds. And they can keep on doing this until the variables defining NGDP do indeed add up to 1.05xCurrent GDP.

    GDP = private consumption + gross investment + government spending + (exports − imports), or
    GDP = C+I+G+(X-M)

    So if, thanks to the fed, variable G goes up then voila! NGDP has risen! But is the economy really stronger?

    It begs the question – what actually happens when all that money is printed and handed out to the politically privileged? Economists like Hayek or Mises would argue that such expansions of the money supply cause malinvestment to occur. Interest rates lose their ability to coordinate the structure of production through time. And the economy is set off into an unsustainable trajectory which is unrealizable due to the scarcity of real resources and so will always inevitably collapse in textbook 2008 fashion. (Please I beg of you, if you at all interested in the gold standard, read about the Austrian business cycle theory. Watch videos by Bob Murphy or Thomas Woods and visit mises . org.)

    The gold standard is the exact opposite. The gold standard forces interest rates to reflect the amount of real savings in the economy. Gold cannot be printed, and might be deflationary over time, but so what!? Would it really be so bad that your savings appreciated purchasing power over time? That things got cheaper instead of more expensive? Entire sectors of the economy are deflationary – look at electronics – this does nothing to the ability of entrepreneurs to calculate.

  3. Jake – your’s is a really good response.
    I am curious whether the author has modeled this idea as I suspect there is sufficient economic data over the last 100 years to do so.
    I would rather experiment with something already known to work – it is just not popular with free spending politicians!
    Gold Standard has worked fairly well for centuries; every fiat currency has failed or is failing. At what point is USD so worthless you consider it to have failed, even if you do not suffer hyper-inflation?

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