As I understand it, here's why (or at least one reason why) the gold standard doesn't work.
An economy needs money to operate. The larger the economy the more money it needs -- and that's more in an absolute sense. An economy of 100 people needs more money than an economy of 10 people. The amount of gold doesn't grow -- or at least not fast enough to make much of a difference. So since a growing economy requires more money and the amount of gold is relatively fixed, each unit of gold becomes more and more valuable. Another word for that is deflation: each unit of money buys more and more stuff. But deflation is an economy killer. During deflationary times one puts off spending money because the money you spend today would have been worth more tomorrow if you hadn't spent it. So the bottom line is that using gold as the unit of value in an economy brings the economy to a standstill.
On Thu, Oct 7, 2010 at 7:01 PM, Sarbajit Roy
<[hidden email]> wrote:
>He is correct, with one unspoken addition: You can't go broke if
you can print your own money AND the creditor will accept it.
>If you
have a bookie who accepts RopellaBucks and pays in green backs, you will be
good forever! If Greece can borrow dollars and pay in their own currency, same
deal.
1) This is a compelling argument for a return to the Gold Standard.
2) Substitute "UncleSam" for "Ropella" and add the following "walk softly and carry a big stick to beat up weak nations and then compel them to buy little sticks to 'defend' themselves which they must pay for in Ropella (sorry US) bucks".
On Fri, Oct 8, 2010 at 1:20 AM, ERIC P. CHARLES
<[hidden email]> wrote:
Glen,
He is correct, with one unspoken addition: You can't go broke if
you can print your own money AND the creditor will accept it.
If you
have a bookie who accepts RopellaBucks and pays in green backs, you will be
good forever! If Greece can borrow dollars and pay in their own currency, same
deal.
I'm not sure how international borrowing works, but eventually
someone will stop accepting your currency if it has devalued too much. At some
point after that, other people will stop trading for it too, so you won't even
be able to convert your RopellaBucks into usable currency. Then, in the long
run, you might be even more screwed than the semi-screwed you are in the short
run from being stuck on the Euro, with no ability to escalate printing.
Eric
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