Yes, but the incentive not to purchase more real goods increases as the currency appreciates because every unit of currency not spent now will be able to purchase even more real goods in the future. Hence, people avoiding spending now except for essential goods.
This inevitably results in massive deflation and eventually destroys the economy, rendering the accumulated appreciation worthless.
China's economy has seen its currency appreciate for the last decade, while they simultaneously get far richer. The same principle was demonstrated by the last manufacturing powerhouse: the USA.
Yes, and in both cases this happened after the countries stopped fixing the supply of money. In the US, this was moving off the gold standard, in China, this was moving off of the USD standard.
and yet countries have gone on the gold standard before and maintained it for hundreds of years.
many countries have also accepted having the value of their currency set to a standard beyond their control. China's was pegged to the dollar for a long time, despite its long term debasement by the US, which has lost a lot of its value since it became the reserve currency at Bretton Woods.
It turns out that gold doesn't screw you over as much as relying upon the US dollar.
The gold standard worked in the US for about 170 years, which is part of why the US became the wealthiest nation in history: it had an extraordinarily trusted currency (green back = good as gold). Gold was worth $19 to $35 for 100+ years, and it worked, America had no problem growing dramatically.
The US economy also had no problem growing fast during the 1990s, when the US Dollar was strong and had appreciated extremely strongly against gold over a 20 year period ($600 in 1980, to $270 in 2001).
China also dramatically counters this notion. The Yuan has appreciated significantly (for a currency) over the last decade, while they've simultaneously gotten far wealthier.
The disaster has been what has happened to our money since 1971 (specifically the 1970s and since 2001). The real cost of goods has gone parabolic.
1964, 5 silver quarters (90% silver, 10% copper) for a $1.25 minimum wage, now worth $25.90 ($5.18 each). That's pure destruction via inflation.
And that's not even getting into how the Fed + Congress funds insanity like endless war because there is no gold standard restricting their spending habits.
The dollar has lost 95% of its value since the creation of the Federal Reserve.
Inflation with gold based currency is rare. The California Gold Rush is the big example of inflation with a gold currency.
No, I don't.
Firstly, the periods when the US had no national reserve bank showed either severe inflation or a depression / panic cycle that only ended with a private reserve bank being set up as lender of last resort - hardly ideal. In both cases the lack of reserve banking made the financial system volatile and unstable.
Secondly, the Federal Reserve was created 99 years ago. A 95% drop in value (your numbers, I've no idea of their accuracy) is equivalent to inflation compounded for 99 years at just 3%. While I agree hyperinflation is bad, 3% is a long way from hyperinflation and a cursory examination of the Japanese economy in the 1990s shows why deflation is a bad thing. Some small inflation is good because it promotes market liquidity rather than hoarding and provides incentives to investment.
Thirdly, China are being asked to revalue the Yuan because its value is being artificially manipulated down to make both Chinese exports into world markets cheaper and foriegn imports more expensive, both to the benefit of China but the detriment of global free trade and free markets. It also has the side-effect of exacerbating China's balance of payments surplus and leading to it stockpiling both resources and currency (thus artificially boosting its international buying power), which is directly parallel to the mid-19th century 'silver grave' situation that led to the Opium Wars. Revaluing the Yuan is emphatically not an indication that the dollar is inherently weak, it's an indication that China is trying to use the openness of western markets and restriction of their own to its own advantage.
Fourthly, the California gold rush and resultant inflation is an example of what happens in a commodity-backed economy when that commodity suddenly becomes more abundant, a factor that is now out of state control unlike the Dollar money supply which is currently able to be tightly controlled. Commodity-backed currencies in the past have also caused severe deflation, and we're back in Japan in the 1990s. Now, the bulk of world gold mining assets are in Australia and China, and China is agressively buying up Australian mining assets - well, mining assets in general, particularly across Africa, using up its balance of payments surplus created by their artificial suppression of the value of the Yuan. A gold-backed US economy would have its money supply (and by extension both credit availability and rates of inflation / deflation) largely out of national control and primarily in the hands of China. I don't think this is a good idea.
All of which is why I think Ron Paul's understanding of economics is dangerously flawed and (reluctantly) I'd regard him as the least preferable Republican presidential nominee.
I think the gold standard ended because of globalization. After all gold wasn't widely distributed enough to allow a global economy to develop so the USD had to decouple from gold.
Ok, "moving from fiat currency to gold-backed currency" is crazy. "Disbanding the federal reserve" is crazy. It would involve massively reducing the money supply and liquidity for the overall economy, and destroy the current counter-cyclical levers we have to lower/raise interests rates when we want to either stimulate the economy or cool down inflation. Take a look at the extreme boom/bust cycle from the late 19th century if you want to see what happens without those levers. There's a reason they went to fiat currency in the first place, and it wasn't, "I'm a liberal caricature and I want to do this to increase government control". It's because the gold standard wasn't adequate to the job. Let alone that there's no way to get from here to there in the modern world where the entire G20 has fiat currencies.
The gold standard is a position of "I don't care what's been proven to work in the real world or what's possible to actually accomplish, I care about what I find emotionally satisfying".
EDIT: Regarding civil discussions, you might consider chilling out on the ad hom attacks yourself. You've called me uninformed multiple times while misinterpreting my comments to mean something that I don't see any possible way to construe from what I said. Bringing Chinese actions from the 1950s and 60s into a discussion of "modern china's" propensity for militarism above, as if anyone would consider maoist China the same thing as the current regime, and implying that I had no idea such events happened.
Do you even know why the US went off the gold standard? If gold is such a panacea, then why did the US get off it? You should really understand history before you start spouting nonsense.
This is incorrect. The gold standard was abolished in the US because it was too hard for the US to control macroeconomic policy [1] (especially import/export rates) through gold. The US already had elaborate ways to manage reserves to help in keeping the dollar steady. It was also a matter of dwindling gold reserves for the US.
Whatever your thoughts are about the gold standard, it was not instability that did it in.
haha.... in 1971 when the US Gov. defaulted on gold, they stopped other countries from redeeming dollars for gold. Thus removing the FIXED exchange rate with a commodity that has been used for centurys as MONEY. Ever since 1971 all currencies are just floating and thus are NOT stable. Imagine being a saver and thinking "what will my cash savings be worth in the future? What about inflation?" The US Dollar is FIAT, which means its only money because the government says so. Gold has been chosen BY the people for THOUSANDS OF YEARS! The US Gov. AND the Fed have screwed this country for decades and all the crap is finally coming out in the open. I could go on and on about about these problems but would rather you just goto mises.org and learn some real economics. The standard of living here in the US will be going down HUGE so prepare yourself.
Oh, btw, why don't you check the "value" of gold against ALL currencies and see what it tells you. Hint... Gold measured in ALL currencies has passed its all time highs, the only currency that hasn't (minus the 1980's high) is the USD, but that is because the USD is the reserve currency.
This article is just another indicator of how our currency is going to crap...
I always find it interesting that one of the first arguments used against a gold standard is that people who argue for it are idiots -- something economists in the US magically discovered when, contrary to previous agreements, we moved off the gold standard in 1968.
The argument for gold (or a fixed peg to a basket of commodities, also suggested by intelligent economists) is not for the commodities themselves, but against a centralized banking authority that cannot be trusted not to spend into a huge deficit and then print money. The fact that the dollar post-Bretton Woods II is the de facto world currency amplifies all of these problems -- meaning that other national banks (e.g. Korea, Japan and China) have to put massive amounts of their money into dollars.
This also means that any devaluation in the dollar will have catastrophic impact on their economies -- basically meaning that many other governments (and, of course, individuals) are subject to the whim of the Fed and Executive Branch of the US Government.
There is no very obvious solution to this given the substantial inertia in the system and the fact that not everyone plays nicely with each other. For example, even if it were certain that an alternative currency like BitCoin were entirely legal, this wouldn't prevent the powers that be finding some excuse to shut it down.
One of the main reasons we got off the gold standard is in fact the scarcity of it was a shackle. Imagine if, say China decided to hoard gold, how much of an influence that artificial scarcity would have on all the other economies that could only value things in gold?
Also, there is finite value in the total amount of gold available, so at a point, there is no room for growth. If there is say 1 billion worth of gold on Earth, the value per weight of gold would go through the roof. buying everyday items would be valued in specs of gold (or 18ths of specs). It's probably really easy to lose a spec of gold.
Finally, without inflation, it doesn't make financial sense to buy anything. Why buy a truck for 1oz of gold today when I could buy two for the same amount next year?
The gold standard gets abandoned because countries want to manipulate their currency independently of the impact of other countries' currency manipulation. This is sometimes because they want to pay for costly wars via currency manipulation, but that's not the only reason.
This inevitably results in massive deflation and eventually destroys the economy, rendering the accumulated appreciation worthless.
China's economy has seen its currency appreciate for the last decade, while they simultaneously get far richer. The same principle was demonstrated by the last manufacturing powerhouse: the USA.
Yes, and in both cases this happened after the countries stopped fixing the supply of money. In the US, this was moving off the gold standard, in China, this was moving off of the USD standard.
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