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>And they're only able to pull it off by having a high trade surplus. Needless to say, not everyone can have a high trade surplus, so it's unclear how this is a

>And they're only able to pull it off by having a high trade surplus. Needless to say, not everyone can have a high trade surplus, so it's unclear how this is a policy that can generalize. Governments with a gold-backed currency could maintain high (government) reserves even with a high trade deficit. Imagine a king with literal gold currency, a huge pile of gold in his throne-room. No matter how large the private economy's trade deficit, he's still going to have the same amount of gold in his pile. >If the pandemic is anything to go by, if there's a surplus the money would get plowed into tax cuts, not reserves. If governments couldn't print money they'd be forced to be more economically cautious, because they couldn't just print themselves out of trouble, instead they'd need a tax, which would face more resistance.

gruez 3y ago
>Imagine a king with literal gold currency, a huge pile of gold in his throne-room. No matter how large the private economy's trade deficit, he's still going to have the same amount of gold in his pile. Isn't that just quantitative easing/tightening by another name? During good times you're taking gold out of circulation to build reserves, and during bad times you're releasing gold out of reserves to stimulate the economy. >because they couldn't just print themselves out of trouble, instead they'd need a tax, which would face more resistance. The above example involves US states, which can't print their own money.
- logicchains 3y ago
  >Isn't that just quantitative easing/tightening by another name? During good times you're taking gold out of circulation to build reserves, and during bad times you're releasing gold out of reserves to stimulate the economy. Yes, exactly. But in this scenario the gold's being taken out of circulation by taxation rather than by inflation, which makes it more visible and constrained. Similarly the release is constrained by the amount of physical gold reserves, so you couldn't realistically have e.g. a few years of 100%+ inflation rates. And the process of transferring the wealth is less lossy; 100% goes to the government, none to intermediaries in the financial system. >The above example involves US states, which can't print their own money. They can't, but they can try to get the federal government, which can, to bail them out.
  - gruez 3y ago
    >which makes it more visible and constrained It comes at a heavy cost though: you need to keep tons of the yellow stuff around, rely on the past administrations being prudent to actually keep a sufficient reserve. In the end you're still relying on people to act prudently. >They can't, but they can try to get the federal government, which can, to bail them out. I mean if you're going to invoke extraordinary measures like this, then I can also invoke up extraordinary measures like the government debasing the currency, which was still done even when countries were on the gold standard.
    - logicchains 3y ago
      >It comes at a heavy cost though: you need to keep tons of the yellow stuff around A cost to the government, but much less of a cost to the lower classes, who pay low taxes thanks to progressive taxation so inflation represents the biggest drain on their wealth (especially since most don't have access to financial instruments or the education to use them). >I mean if you're going to invoke extraordinary measures like this It's not necessarily extraordinary; we haven't seen the Federal government bail out a state yet but we also haven't yet seen a state undergo a complete financial collapse, so it's quite possible there'd be a bailout if things got bad enough. The WSJ predicts a bailout of the states is upcoming: https://www.wsj.com/articles/the-coming-biden-bailout-of-blue-states-and-cities-rhode-island-california-pension-liability-underwater-rates-svb-5033c1e5 https://www.wsj.com/articles/the-coming-biden-bailout-of-blu... >like the government debasing the currency, which was still done even when countries were on the gold standard They did that by essentially turning their currency into a fiat currency: saying it was worth X, when the actual precious metal it consisted of was only worth e.g. half of X. But yes you're right that in theory nothing prevents a government with 100% gold standard from debasing it like that, however doing so would be more visible to citizens than inflation since it'd require centralising how the currency was priced.
- Geisterde 3y ago
  I dont know whether being able to call it quantitative easing matters at that point. If the government has a pile of gold it deploys during an economic downturn, say they get it right and actually help, people will be less dissatisfied with the subsequent taxation. If they get it wrong though, and cause problems or fail to help the situation, people will be more resistant to that taxation; in the next cycle the government will be more careful about their allocations, pressured both by resource constraints and political pressure. Wouldnt that be a healthier cycle than one where we just paper over everything?

gruez 3y ago

>Imagine a king with literal gold currency, a huge pile of gold in his throne-room. No matter how large the private economy's trade deficit, he's still going to have the same amount of gold in his pile. Isn't that just quantitative easing/tightening by another name? During good times you're taking gold out of circulation to build reserves, and during bad times you're releasing gold out of reserves to stimulate the economy. >because they couldn't just print themselves out of trouble, instead they'd need a tax, which would face more resistance. The above example involves US states, which can't print their own money.

logicchains 3y ago
>Isn't that just quantitative easing/tightening by another name? During good times you're taking gold out of circulation to build reserves, and during bad times you're releasing gold out of reserves to stimulate the economy. Yes, exactly. But in this scenario the gold's being taken out of circulation by taxation rather than by inflation, which makes it more visible and constrained. Similarly the release is constrained by the amount of physical gold reserves, so you couldn't realistically have e.g. a few years of 100%+ inflation rates. And the process of transferring the wealth is less lossy; 100% goes to the government, none to intermediaries in the financial system. >The above example involves US states, which can't print their own money. They can't, but they can try to get the federal government, which can, to bail them out.
- gruez 3y ago
  >which makes it more visible and constrained It comes at a heavy cost though: you need to keep tons of the yellow stuff around, rely on the past administrations being prudent to actually keep a sufficient reserve. In the end you're still relying on people to act prudently. >They can't, but they can try to get the federal government, which can, to bail them out. I mean if you're going to invoke extraordinary measures like this, then I can also invoke up extraordinary measures like the government debasing the currency, which was still done even when countries were on the gold standard.
  - logicchains 3y ago
    >It comes at a heavy cost though: you need to keep tons of the yellow stuff around A cost to the government, but much less of a cost to the lower classes, who pay low taxes thanks to progressive taxation so inflation represents the biggest drain on their wealth (especially since most don't have access to financial instruments or the education to use them). >I mean if you're going to invoke extraordinary measures like this It's not necessarily extraordinary; we haven't seen the Federal government bail out a state yet but we also haven't yet seen a state undergo a complete financial collapse, so it's quite possible there'd be a bailout if things got bad enough. The WSJ predicts a bailout of the states is upcoming: https://www.wsj.com/articles/the-coming-biden-bailout-of-blue-states-and-cities-rhode-island-california-pension-liability-underwater-rates-svb-5033c1e5 https://www.wsj.com/articles/the-coming-biden-bailout-of-blu... >like the government debasing the currency, which was still done even when countries were on the gold standard They did that by essentially turning their currency into a fiat currency: saying it was worth X, when the actual precious metal it consisted of was only worth e.g. half of X. But yes you're right that in theory nothing prevents a government with 100% gold standard from debasing it like that, however doing so would be more visible to citizens than inflation since it'd require centralising how the currency was priced.
Geisterde 3y ago
I dont know whether being able to call it quantitative easing matters at that point. If the government has a pile of gold it deploys during an economic downturn, say they get it right and actually help, people will be less dissatisfied with the subsequent taxation. If they get it wrong though, and cause problems or fail to help the situation, people will be more resistant to that taxation; in the next cycle the government will be more careful about their allocations, pressured both by resource constraints and political pressure. Wouldnt that be a healthier cycle than one where we just paper over everything?