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Do you have the backwards? The dollar has lost 95% of its value since the creation of the Federal Reserve. Inflation with gold based currency is rare. The Cal

Do you have the backwards? The dollar has lost 95% of its value since the creation of the Federal Reserve. Inflation with gold based currency is rare. The California Gold Rush is the big example of inflation with a gold currency. No, I don't. Firstly, the periods when the US had no national reserve bank showed either severe inflation or a depression / panic cycle that only ended with a private reserve bank being set up as lender of last resort - hardly ideal. In both cases the lack of reserve banking made the financial system volatile and unstable. Secondly, the Federal Reserve was created 99 years ago. A 95% drop in value (your numbers, I've no idea of their accuracy) is equivalent to inflation compounded for 99 years at just 3%. While I agree hyperinflation is bad, 3% is a long way from hyperinflation and a cursory examination of the Japanese economy in the 1990s shows why deflation is a bad thing. Some small inflation is good because it promotes market liquidity rather than hoarding and provides incentives to investment. Thirdly, China are being asked to revalue the Yuan because its value is being artificially manipulated down to make both Chinese exports into world markets cheaper and foriegn imports more expensive, both to the benefit of China but the detriment of global free trade and free markets. It also has the side-effect of exacerbating China's balance of payments surplus and leading to it stockpiling both resources and currency (thus artificially boosting its international buying power), which is directly parallel to the mid-19th century 'silver grave' situation that led to the Opium Wars. Revaluing the Yuan is emphatically not an indication that the dollar is inherently weak, it's an indication that China is trying to use the openness of western markets and restriction of their own to its own advantage. Fourthly, the California gold rush and resultant inflation is an example of what happens in a commodity-backed economy when that commodity suddenly becomes more abundant, a factor that is now out of state control unlike the Dollar money supply which is currently able to be tightly controlled. Commodity-backed currencies in the past have also caused severe deflation, and we're back in Japan in the 1990s. Now, the bulk of world gold mining assets are in Australia and China, and China is agressively buying up Australian mining assets - well, mining assets in general, particularly across Africa, using up its balance of payments surplus created by their artificial suppression of the value of the Yuan. A gold-backed US economy would have its money supply (and by extension both credit availability and rates of inflation / deflation) largely out of national control and primarily in the hands of China. I don't think this is a good idea. All of which is why I think Ron Paul's understanding of economics is dangerously flawed and (reluctantly) I'd regard him as the least preferable Republican presidential nominee.

BarkMore 15y ago
Rather than refuting all of the points above, I'd like to take the discussion in a different direction. You are against allowing people to use gold as money. Is it because you are trying to save people from themselves? Perhaps it's because you are concerned about what it might do to the dollar. If that's your concern, is that not an admission that the dollar is fragile? Is it wise to run the economy with the Federal Reserve as a single point of failure? We are suffering greatly from the failures of the Federal Reserve now. They will make mistakes in the future. Edit because site will not let me comment on reply below: The Federal Reserve failed us by stoking the housing boom with low interest rates. The subsequent bust has caused many people to suffer through lost jobs, lost homes and ruined credit ratings. The Federal Reserve is a single point of failure because it controls the one currency that we are forced to use under the boot of the government. Because the dollar is used as the world's reserve currency, the Federal Reserve is in some sense a single point of failure for the entire world economy.
- eftpotrm 15y ago
  That's a straw man version of my argument. My concern is that the observed history shows that commodity-backed currencies lead to economic problems. I'm not in the least against people choosing to operate their personal economies around barter based on commodities, but the data is clear; it's not good for any of us to use commodities as the primary means of store and exchange of value. Just as the invention of the limited company allowed entrepreneurs to start companies that benefit us all at less risk to themselves, fiat currency's greater flexibility allows us to better control both the money supply and inflation to our collective benefit. Besides, calling the Federal Reserve a single point of failure is at best over-dramatic. Should we also have a free market in governments? It's not really a single point of failure by any realistic definition though. The world economy is significantly interlinked and managed by the co-ordinated action of several central banks. The dollar's value is as much backed by its use as the primary international trading currency as anything, so short of Ron Paul's proposed disowning of the dollar its value is guaranteed by a large network of individual actors, all of whom have sufficient dollar holdings that they have no interest in seeing its value collapse; while it retains its status as the only payment means for the world's single largest economy, it's fine. I'm curious what mistakes you think the Federal Reserve is making now that are causing you to suffer greatly. Inflation? Low, and (while it remains low and somewhat controlled) A Good Thing as I said before. General economic malaise? No, the FR's action on quantitative easing ensured any degree of market liquidity remained in a situation where it would otherwise have dried up almost entirely through fear of unknown and unknwable liabilities. Why would the ideal remedy to a crisis caused significantly by a loss of market liquidity be to move to a medium of exchange with little or no liquidity and what there was being outside of your control? It's madness.

BarkMore 15y ago

Rather than refuting all of the points above, I'd like to take the discussion in a different direction. You are against allowing people to use gold as money. Is it because you are trying to save people from themselves? Perhaps it's because you are concerned about what it might do to the dollar. If that's your concern, is that not an admission that the dollar is fragile? Is it wise to run the economy with the Federal Reserve as a single point of failure? We are suffering greatly from the failures of the Federal Reserve now. They will make mistakes in the future. Edit because site will not let me comment on reply below: The Federal Reserve failed us by stoking the housing boom with low interest rates. The subsequent bust has caused many people to suffer through lost jobs, lost homes and ruined credit ratings. The Federal Reserve is a single point of failure because it controls the one currency that we are forced to use under the boot of the government. Because the dollar is used as the world's reserve currency, the Federal Reserve is in some sense a single point of failure for the entire world economy.

eftpotrm 15y ago
That's a straw man version of my argument. My concern is that the observed history shows that commodity-backed currencies lead to economic problems. I'm not in the least against people choosing to operate their personal economies around barter based on commodities, but the data is clear; it's not good for any of us to use commodities as the primary means of store and exchange of value. Just as the invention of the limited company allowed entrepreneurs to start companies that benefit us all at less risk to themselves, fiat currency's greater flexibility allows us to better control both the money supply and inflation to our collective benefit. Besides, calling the Federal Reserve a single point of failure is at best over-dramatic. Should we also have a free market in governments? It's not really a single point of failure by any realistic definition though. The world economy is significantly interlinked and managed by the co-ordinated action of several central banks. The dollar's value is as much backed by its use as the primary international trading currency as anything, so short of Ron Paul's proposed disowning of the dollar its value is guaranteed by a large network of individual actors, all of whom have sufficient dollar holdings that they have no interest in seeing its value collapse; while it retains its status as the only payment means for the world's single largest economy, it's fine. I'm curious what mistakes you think the Federal Reserve is making now that are causing you to suffer greatly. Inflation? Low, and (while it remains low and somewhat controlled) A Good Thing as I said before. General economic malaise? No, the FR's action on quantitative easing ensured any degree of market liquidity remained in a situation where it would otherwise have dried up almost entirely through fear of unknown and unknwable liabilities. Why would the ideal remedy to a crisis caused significantly by a loss of market liquidity be to move to a medium of exchange with little or no liquidity and what there was being outside of your control? It's madness.