One of the few economists to accurately predict the 2008 financial collapse says US financial problems can be traced to the abandonment of the gold standard in the 1960s.
When the US dropped the gold standard in the 1960s, writes former World Bank economist Richard Duncan, it created massive credit and drove up inflation. The move also empowered politicians and bankers to back policy through printing money in a centralized bank. This made the US federal government drive demand growth, rather than private consumption or business investment.
But Duncan also argues that returning to the gold standard isn't an option - doing so would only destroy the economy - and fiscal austerity "means collapse." One hope, Duncan writes, is to continue quantitative easing to keep the economy pumping, if only temporarily, while having the government invest trillions in technology like solar energy and nanotechnology.
More accurately, the removal of the gold standard allowed (and continues to allow) well intentioned, smart people to meddle in the free market in ways that are contrary to the stability of the free market. For instance, the free market establishes that oil is worth $100 per barrel. The Fed prints an additional 50% of available currency requiring the free market to respond to the adjustment by recalibrating the value of oil (in $) up. People with money socked in bank accounts effectively lose value while people who are overextended with loans are rewarded. All this because the Fed wants to try to stabilize the market. Almost like creating a fire wall to stop a forest fire. It sometimes works.
More accurately, the removal of the gold standard allowed (and continues to allow) well intentioned, smart people to meddle in the free market in ways that are contrary to the stability of the free market.
@CanisCanemEdit the only thing i worry about is all the patriot community sinking its resources into gold and silver,what if thats what the powers that be want?they could confiscate or tax the hell out of it,there by effectively bankrupting conservative American,s.maybe i think toooo much
@MongoAPillager. You know, they can only tax what they can find. I paid my taxes on the income. I paid my taxes on the purchase. I'll be damned if I'll pay just to spend it. Gold, in hard assets, is survival currency.
In regards to the devaluation of the dollar over the last 100 years, I like to provide this example to my friends: In 1957 it took one quarter to buy a gallon of gas. Today you can still buy a gallon of gas with that SAME quarter as it is worth over $5.00 because it was 90% silver. I am very glad that I got into precious metals years ago. There are not many sure bets when it comes to investments, but with our deficit spending and trillion dollar deficits as far as the eye can see and 10,000 boomer retiring daily, I cannot imagine precious metals to go anywhere but higher in the long term.
@DerivePI being rich has nothing to do with investing in say,silver,I started buying it when it was 7 dollars an ounce,you know,when only lunetic fringe militia types bought precious metals.it only has to with not having an economic sheep mentality
"By the early 1970s, as the costs of the Vietnam War and increased domestic spending accelerated inflation, the U.S. was running a balance-of-payments deficit and a trade deficit, the first in the 20th century. The year 1970 was the crucial turning point, because foreign arbitrage of the U.S. dollar caused governmental gold coverage of the paper dollar to decline from 55% to 22%. That, in the view of neoclassical economics and the Austrian School, represented the point where holders of the U.S. dollar lost faith in the U.S. government's ability to cut its budget and trade deficits." http://en.wikipedia.org/wiki/Nixon_Shock
So basically, our government debt and trade deficit was undermining confidence in our paper currency because the amount of gold our government actually held as a percentage of the value of the currency in circulation had dropped from 55 to 22%.
So what did Nixon do? He kicked the Gold out from under our currency. Nixon was an economic Nitwit.
So now we have a monetary system that is based on nothing more than "confidence" and a system that has been slanted towards government intervention in the form of adrenaline shots that they call stimuli, bailouts, jobs bills, or programs like the CRA or government "guaranteeing" student loans that do nothing but distort the free market and lead to bubbles. Bubbles like the one the Fed is inflating every time they "ease the quantity."
This Economist is an idiot. If solar energy was made a viable alternative for fossil fuels today, the World Economy would collapse tomorrow. That is because the US Dollar (petro-dollar) is the only 'Money' other countries may use to buy oil from the International Oil Market.
If the World no longer needed oil to create energy, the World would no longer need US Dollars - then all the excess US Dollars floating around the globe with no oil to chase would immediately throw the US Economy into a state of Hyper-Inflation. And the whole World would follow because all the various economies are interdependent.
Sadam Hussein had threatened to stop taking US Dollars for his Oil, and that is when the US Government said he had Weapons of Mass Destruction. Sadam did have WMDs, but they were not Chemical Weapons. Rather, the WMDs were his threats against the US Dollars.
Wasn't the reason the United States went off the gold standard because the economy outgrew the amount of physical gold needed to cover the whole economy. I posted on the internet many times my idea about Americans citizens lending their personal gold holdings to the Federal Reserve on the promise of return upon request. If the Federal Reserve was able to collect enough gold the value of the dollar skyrocket. So the person who is making minimum wage their purchasing power would go up with this surge in dollar value. Before giving the Federal Reserve anything the national debt should be payed way down. If the Federal Reserve has gold debtors could request their payment in gold (assests). By increasing tariffs (import taxes) domestic production would go up which creates more employed tax payers. This dramatically increased tax revenue would put the United States federal government back towards the black. After the Federal debt is payed way down ask American citizens to lend their personal golds holding to the Federal Reserve in order to make their dollar value increase. This would help themselves and everyone else.
Yeah,we abandoned the gold standard but i guess we can take comfort in knowing that U.S. currency is the fiat oil currency.
Our money is in demand if only for oil purchases.
Word is that there is at least 3 to 4 TRILLION in U.S. money held in reserve just for oil purchases all over the planet.
These "petrodollars" can be printed anytime the need hits us and if there are any surplus dollars,we just wait until we want to buy some foreign piece of junk car or clothes and put those petrodollars into circulation.
No, there isn't enough gold in the world to have money backed by gold. Adam Smith in the 18th century pointed to the folly of countries that try to accumulate gold. Buying gold is the same as investing in a hole in the ground that that the gold came out of. The US should sell its gold stockpile, but do it slowly as to not collapse its price. The purpose of money is just to set prices so that bartering isn't needed.
The gold standard was bound to be a failed policy in an economy that is not based on gold mining. Just look at the market value of diamonds. They are actually very plentiful and can be produced artificially. However, ownership of diamond mines is owned or controlled by a small group of people. Therefore distribution is controlled.Therefore the price of diamonds is kept artificially high. The same exact thing would happen with a gold standard. If the gold standard had been kept, the value of our currency would be dictated by the people who own the production of gold. Instead, our currency is valued based on the overall productivity of the country which has its disadvantages but is still better than basing it on one commodity.