5 ms·
It limits the rate of monetary inflation. It is much harder to dig a shiny metal out of the ground than adding more zeros in a computer. If you're not worried
by dmpk2k 4y ago
It limits the rate of monetary inflation. It is much harder to dig a shiny metal out of the ground than adding more zeros in a computer.
If you're not worried about the long-term consequences of both the fiscal and monetary policy of the United States, I don't know what to say. M2 to the moon.
- kube-system 4y agoIt is possible to have too much of a good thing. If you limit inflation too much, you grind the economy to a halt and people starve.
- dmpk2k 4y agoAt this point you are probably correct. That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US? Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.
- kube-system 4y ago2% is a healthy level, which is why it's the Fed's target. The problem is that pegging a currency to gold does not peg inflation. Inflation will still move around based on other economic factors. You will have just eliminated your best tool for influencing it. If you needed to adjust a currency pegged to gold, you'd have to get more people working in the mines. Which is either not possible, or a human rights violation.
- carlosjobim 4y agoThere's no reason for that. As production improves in efficiency it is natural for things and services to become cheaper. That also means you get more for your money, instead of getting more money. That concept is not too strange for the population to accept.
- kube-system 4y agoFor a few items in your CPI basket, that's fine. If you have significant deflation across your economy on average, people will start losing their jobs en masse, and zero dollars doesn't buy anything.
- carlosjobim 4y agoWhy should that be the case? As I said, if you can buy more for less you won't need a raise.
- kube-system 4y agoLikewise, business revenues will be going down but the investments in capital have already been allocated. Businesses start laying off employees to try to balance the books. Those newly unemployed workers, in turn, now have less money to spend. More businesses find themselves in the red, and it leads to more layoffs. This is called a deflationary spiral. Basically every period of significant deflation in the past has led to dire economic consequences. You really do not want people to stop spending money.
- carlosjobim 4y agoThis sounds like a myth. If the value of your currency is increasing, staying at 0 means you're actually turning a profit, just as making a 10% profit when the inflation is 50% means you're losing money. Inflation is a tax and redistribution of wealth, it's really not more complicated.
- kube-system 4y agoZero isn’t bad. I was explicitly talking about deflation above. The effects of deflation I explained above is not a myth, it is introductory macroeconomics. https://www.khanacademy.org/economics-finance-domain/macroeconomics/macro-economic-indicators-and-the-business-cycle/macro-price-indices-and-inflation/v/deflationary-spiral https://www.khanacademy.org/economics-finance-domain/macroec... Deflationary spirals have happened in the past, but they have stopped since we moved away from the gold standard and we can now intentionally inflate our currency to prevent deflation.
- nickpeterson 4y agoI don’t really think it does. They could just say this dollar is now worth less gold? Or they could put lengthy restrictions in place for exchanging dollars for gold until it nearly guarantees they’ll never need to produce most of the gold. Shipping gold is expensive and risky, eventually they’ll start saying, “you own this amount of the gold we have stored safely”. The abstractions find a way…
- dmpk2k 4y agoFair point. Leaders have been debasing currencies since forever.