I shouldn't be surprised that people still believe that the global economy can be 'managed'.
You shouldn't be. It has been going for centuries, but certainly over the history of the United States. Before the Fed was established, it was JP Morgan and other extremely powerful banking magnates.
Again, gold is merely a crutch that people use in which they tie paper proxies to a certain quantity of the metal at an established rate. The Fed issues a certain amount of paper currency, physical or digital, and so long as the overall financial system maintains its faith that outstanding debt has not outpaced expected economic growth and wealth creation. All that a gold standard would accomplish is to put a further layer under the perception(deception?) of inate value of paper.
But we all know that gold backed currency is worthless if the govt or Federal Reserve suddenly refuses to exchange its gold on demand for its paper currency.
And we know that the inflexibility with gold is its rarity and limited availability. Gold production cannot keep pace with the potential for global economic expansion and wealth creation. And even if it could, it would require and extraordinary percentage of economic output in order to obtain sufficient quantities of the metal.
Don.. basically the fundamental problem we see here is a socio-economic battle between those with wealth and those without it. Those who possess wealth would love to see prices decline in assets THEY DON'T HOLD (assuming they are holding only cash) so that they could buy these assets up cheaper later on when prices have bottomed.
You would think that those who don't possess wealth would also desire lower prices. However, given that most of these people live their lives with mortgages and debt, thus owing money that must be paid back in stronger dollars, they find themselves seeing more of their purchasing power expended on repaying debts. They also find themselves with reduced market opportunities for their products and the inability to secure credit as banks tighten money supply in response to the scarcity of available gold (paper issued must be backed by specific quantities of gold, right?).
Deflation clearly benefits those who hold their wealth in interest bearing CDs and bonds, relatively non-performing assets. It permitted the banks in the latter half of the 1800s to foreclose on enormous number of American farmers, selling these assets to who had cash (or credit connections) available. It sent droves of disenfranchised rural Americans to the cities to seek any form available in the urban sweat shops, while making wealthy individuals even wealthier.
The gold standard didn't help those people Don.
And those people (and others in Europe) went on to help form the basic foundation for socialist and Marxist ideology, all because capitalist ideology was unable to find a happy medium between business owners and the working class.
The working class (those who understand what's at stake) have little desire to see the gold standard restored and the balance of power once again placed into the hands of wealthy bondholders, or those with enourmous cash reserves.
Sorry for the length Don, but it is so very easy to gloss over the human impact over such radical changes in the global financial structure.
Regards,
Ron |
