Things didn’t turn out well then either: the panic of 1837 wiped out hundreds of banks, sinking the country into a brutal depression. Another speculative bubble 20 years later ended on a similarly catastrophic note.
And the author fails to note that during the 1830's each bank was able to print it own money, with very little centralized regulatory control over the amount of reserves they should keep in place.
Furthermore, much of the panic of 1837 resulted from Jackson dessolution of the 2nd Bank of America and demanding hard currency (gold and silver) as payment for land that the US government was arbitrarily selling from the Louisiana Purchase. This was AFTER the government had been accepting paper money for such land sales previously.
Thus, the panic of both 1837, and 1907 occurred while the US was officially on the gold standard.
It's very similar to what happened after WWI when Churchill (exchequer) decided to return Britain to the gold standard and created a run on paper currency in exchange for gold and silver.
The problem is that there is only so much gold and silver in the world. And basing economic growth on the amount of a natural resource a country possesses can either be inflationary, or deflationary; depending on how "blessed" your country is with such natural resources.
Look at the "con job" that occurred during the Gold Rush.. Or what happens when many of these poverty stricken nations suddenly discover a wealth of oil (or some other natural resource) within their boundaries.. Instant wealth without the economic or social "environment" to properly absorb or invest it. And often unbridled corruption results, just as the author claims occurs with "fiat" money.
Bottom line.. all economies are, to some extent, based upon "asset backed securities". If the monetary system is based upon Gold, and suddenly someone finds a HUGE vein of it that doubles the known reserves of Gold specie.. you have inflation and you've just devalued your existing currency by 50%.
Just ask the Spanish conquistadors, if anyone doubts that. And then ask them which country became more powerful..
Spain, flush with instant influxes of "hard currency", or England, with it's mercantile economy?
Hawk |
