Bob,
I have been perusing some of my various tomes for examples of where there has been economic inflation under a gold standard.
The general examples I have found relate to periods of conflict when gov'ts were forced to deficit spend to finance, or periods of excess production of gold/silver from conquests.
There have been periods where silver actually has gained against gold and vice-versa, depending on the amount that was available.
The one example that I cited previously was the inflation during the civil war when the US gov't (north..:0) borrowed $2.6 Billion and issued $500 million in Fiat money in order to finance the war.
Much of this money went to N.Eastern industrialists and financiers who, after the war, demanded that the US return to the pre-war exchange rate for gold ($20/ounce) rather than taking into account the now inflated currency and the economic growth that had resulted from manufacturing the necessary material of war.
The result was "the great deflation" which lasted 30 years, and basically resulted in the "rich getting richer" (as their already accumulated wealth increased in purchasing power as prices fell), and the "poor getting poorer" as the economy contracted and people were laid off enmasse or paid severly depressed wage scales. This is an example of where hard money "discipline" was forced upon the nation without taking into account the long-term repercussion of forcing the nation to again back dollars with gold, especially at a pre-inflationary exchange rate.
I think this is a good example to compare the current situation to. If goldbugs were successful in forcing their discipline upon the dollar, the result would be that the economy would have to substantially contract, or the supply of gold drastically expand, in order for the available amount of gold to properly back up money supply in circulation.
The only other alternative would be that the price of gold be raised to a price level where it is divided into current money supply nad the restrictions that would follow where money supply could only grow as fast as gold is mined and stored.
To suggest that there is some happy medium where CB's should retain more gold as reserves as backing for gold is nothing more than smoke and mirrors unless there is the ability to exchange notes for gold upon demand. Forcing nations to buy gold would force the spending of national resources, as well as available capital and tying it up in a non-interest bearing commodity.
It would in essence be a scheme to "prop" up a commodity that competes directly with the global reserve currencies, while not really possessing the true rights and obligations of a fully gold-backed currency.
So how do you propose we revert back to a gold-backed currency? Can it be done without destroying the lives of Billions of people worlwide and not enriching those who are already wealthey and stand to increase that wealth (with regard to purchasing power) in any deflation that would have to eventually accompany a currency pegged to gold??
Regards,
Ron
PS: Advice on getting along with people from the Church of the Sub-Genius:
"If you'll act like a idiot, everyone will treat you as an equal". |
