<<If the world's stock of gold fails to grow as fast as the world economy, however, a gold standard will have a pronounced deflationary bias>>
>>... rubbish.
>>The stock of gold can stay constant, and the price of goods can instead drop, rewarding the savers, and charging the spenders, biasing the world towards deflation, i.e. increase in living standard for the savers.
As a saver, I am emotionally inclined to agree with you.
However, the problem with a deflationary environment, as I see it, is in borrowing capital for business investment. In deflation, the money that you pay back is worth more than the money that you borrowed. Much harder to pay back.
Also, if deflation is severe enough, it makes sense as a saver to just sit on your funds and watch their purchasing power increase. There is no incentive to invest or take risk.
This is why I believe the CB's are so anti deflation. It is bad for growth funded by debt or risk.
No growth ==> no increase in living standards, ==> recession, depression.
As a saver I don't like the above logic, and I especially don't like the currency depreciation of an inflationary environment... but CB's fear of deflation does make sense after a fashion. |
