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To: Ilaine who wrote (129)	3/30/2001 1:51:43 PM
From: Thomas M.	Read Replies (1) \| Respond to of 443

I was trying to explain to the gold bugs that at some point the fraction of reserves of gold will be so low that even on the gold standard the money will be essentially unbacked. I don't see how that is relevant to the debate of gold vs. fiat. This pertains only to fractional reserve vs. non-fractional reserve issue. My perception is that by 1929 the flaws in the gold standard were patently obvious. Please explain them to me, because I don't see them. It looks to me like the gold standard made stock markets go down and interest rates go up in hard times, which is how it should be. If you visit the microfilm room of your public library and start reading the July 1, 1929 New York times and go on from there, you'll see what I mean. I wouldn't consider this a reliable source. If you read the NY Times today, they would have you believe that we are suffering under an oppressive monetary regime courtesy of Alan Greenspan. Tom

To: Ilaine who wrote (129)	3/30/2001 9:32:07 PM
From: JF Quinnelly	Read Replies (2) \| Respond to of 443

The gold standard probably didn't help the Depression any, but it didn't cause it. Under a gold standard you don't have to have large quantities of specie to back the currrency, you just have to agree to exchange currency for it at a fixed rate. As long as the financial system doesn't believe there has been an excessive increase in the quantity of money there's no incentive to ask for gold; gold requires storing, and bank balances are much more convenient. The French suspected we had overissued dollars back in the 50s and 60s, we were getting away with it because the dollar had become the world's reserve currency, and so the French began demanding gold for dollars. Our response, in order to "defend the dollar", should have been to stop increasing the supply of dollars. But since that would have slowed the domestic economy we chose instead to continue to inflate, removing silver from our coinage and creating a bizarre two tiered gold market which failed during the Nixon Administration. Then came the demise of the Breton Woods gold standard and the much greater dollar inflation of the '70s. The German hyperinflation was the result of deliberate actions taken by the German government in response to being pressured to make reparations. Hyperinflations are not inevitable. This isn't true. The Germans were put into an impossible situation, with mutually contradictory demands. In order to pay reparations they would have had to export fantastic quantities of goods in order to earn the money to pay what was demanded of them. This is raw economic fact. The victors weren't going to allow the Germans to flood them with export items, so what gave next was the value of the Mark. The Versaille Treaty made German economic disaster inevitable. It was completely devoid of economic logic. Keynes wrote a book about this right after the War, warning that the Treaty would end in disaster. The physical gold had to be shifted from country to country and they were always squabbling over it. Except that they don't always move gold from country to country. In America they simply change the nameplates on the bars in Ft Knox. Smoot-Hawley, the big bugaboo, didn't go into effect until after the stock market collapsed. It may have exacerbated the Depression in some export dependent countries, but it didn't cause the depression in America.