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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Zeev Hed who wrote (75165)3/4/2001 9:53:02 AM
From: brightness00  Read Replies (2) of 436258
 
The very cyclical nature of the cost of gold extraction allows the cyclical change in interest rate to accommodate cyclical technology growth. Technology advancement comes in waves, affecting all sectors of the economy. Technology advancement is deflationary (duh! it's another way of saying productivity increase after all); not just deflationary to gold production, but also to the entire economy. During periods of rapid technology advancement, there will be a downward price pressure on gold, that's precisely when relatively easy money policy can be adopted to accommodate technology growth and simultaneously be free of inflation fear because of the deflationary effect of technology growth.

One may think that a basket of commodities would theoretically work even better than gold alone to serve as benchmark for controlling monetary growth. However, such baskets will invariably depend on periodic subjective re-balancing to account for the substitutional effect, lest there be undue monetary contraction thanks to overstated inflation (like we do with CPI and PPI in the past few decades). Gold is a good benchmark because it almost has no practical use; therefore there is little fear of substitutional effect.

Just my couple cents, well, couple milligrams of gold ;-)

Jim
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