Would a Gold Standard Brighten Economic Outcomes?

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. John 1025 commented on Jan 26

    Unfortunately this is wrong. The Fed of course does spend by adding reserves to bank reserve accounts at the Fed. And reserves are referred to as base money. But reserves do not add to the money supply, at least the money that people and firms use to buy things in the economy. Banks use reserves to buy government debt, buy cash from the Treasury, settle transactions between banks, or loan reserves to banks who may need reserves. Banks do not lend reserves to people or firms. The total amount of reserves in the banking system is reduced or increased only by the government. But agent or entity can use reserves if they do not have an account at the Fed. The nation’s money supply almost all comes from credit formation such as bank lending. So the fed controls the price of money by setting interest rates but the people control the money supply by how much they borrow. That is why the Fed try to cool off the economy (by slowing don lending) by raising rates and to spur the economy (increased lending) by lowering rates.

  2. VennData commented on Jan 26

    The oil standard is working well for our friends in Moscow, not.

    • LiberTea commented on Jan 26

      Gold supply would not be as volatile as petroleum.

  3. willid3 commented on Jan 26

    wasn’t Germany’s problem the debt it owed to other countries after WW1?

  4. LiberTea commented on Jan 26

    “A gold standard ties the value of money to a country’s stock of gold reserves. While some argue that a gold standard can effectively maintain price stability over long periods, governments still have the ability to change their money supply and price level simply by changing the official gold-to-money ratio.”

    —–Since governments (fed reserve) have the ability to devalue currency WITHOUT a standard, I don’t see this as a criticism.

    “Moreover, a gold standard can be problematic because of sudden gold inflows and outflows that cause the supply of money, and therefore prices, to fluctuate.”
    ——And Quantitative easing doesn’t do this?

    “In the end, a gold standard is not needed to preserve price stability as long as a country’s central bank is independent and has a clear mandate to achieve price stability.”
    ——Is this a joke?

    • Iamthe50percent commented on Jan 27

      No, not a joke. Reality. Your handle, however, is a joke, indicating that you are a modern day Know-Nothing.

  5. odnalro zeraus commented on Jan 26

    John,
    I understood that the banks set their own reserves, but the Fed sets the minimum. Reserves are set by the banks to cover their potential losses on loans on their portfolio that have become risky. The reserved amounts are charged to expenses, against income, and are tax deductible; therefore banks will maximize the deduction as long as the auditors wink, the IRS swallows, and more importantly if it does not hurt the income needed to meet forecast and good management performance.
    What will happen to US world dominance, when China produces about double the amount of gold and Russia and Australia about the same amount, and Peru together with South Africa 50% more? Will the US$ dollar continue to be the world’s reserve currency? At current prices; how many dollars will be need to be printed to buy gold? How high was inflation in Spain as gold and silver from the colonies filled its coffers?

  6. odnalro zeraus commented on Jan 26

    liber tea,
    – – – If you were to read more slowly you will note that the point is well taken, as you can manage money the same way; whether you have a gold standard or not.; so what is the need of the standard?

    – – – One can assume that it will be considerably easier, and under one’s control, to decide both the amount and the timing of the Quantitive Easing, as compared to controlling the in and out the flow of gold. Paper printing is easier than gold trading.

    – – – It would be as much a joke if the central bank was not independent to set the US$/gold parity.

    – – – Must keep in mind that just five, not all very friendly countries, produce about 4.5 times the amount of gold as the US. Easy to form a Gold OPEC to control the price and flow of gold. The US gold production amounts to about only 15% of world total gold production.

  7. odnalro zeraus commented on Jan 26

    Liver Tea,
    — The criticism is that with or without a gold standard you can change the price level or money supply;
    so what is the need for a gold standard?
    – – – Quantitive easing does that, but is easier to control a opposed to gold. Simply put, it is easier to print money than to trade in gold. China produces twice, Russia and Australia the same, and Peru and South Africa together 1.5 times the gold produced in the U.S. Not hard to form a GPEC, similar to OPEC to control price and quantity of gold. The US produces only about 15% of the world gold production. We should note that not all of those countries are particularly friendly. Will the US$ dollar dominance as a reserve currency survive ? Specially, if GPEC countries went to a gold standard?
    — It would be a bigger joke if the central bank was not independent to set the US$ price of an oz.of gold.

  8. Willy2 commented on Jan 27

    In the 1920s the US was on the gold standard but in those days there was a credit bubble as well. But don’t tell the Austrians, because that’s something that doesn’t go down too well with the “Austrian School”.

Read this next.

Posted Under