Rebel Without a Pause

Drunken observations left, right and centre

Central Banking Yes; Gold Standard No.

Lately I’ve been getting spammed a lot of Ron Paul campaign material/general right wing libertarian stupidity, but I feel as proponent of Central banking, a critic of the US federal reserve and fractional reserve banking as it exists I feel that I should weigh in. This is just going to be brief and I’ll write at length about the subject later.

The Federal Reserve is in essence a private bank.

Now that I’ve gotten that out of the way, I’m going to just briefly touch on why adopting the gold standard would be disastrous for America. Moving from a flexible currency to an inflexible one, regardless of its valuation isn’t a good idea. The value of a nations currency is supposed to reflect its economic performance— act as an indicator of sorts. The USA has thousands of banks, all lending out to each other, essentially “creating new money”. 

This is true.

The idea of fractional reserve banking is obvious, avoid bank runs, avoid individual insolvency issues in general. However, the main reason why it should be reformed lies not with this “measure of protection”, but rather with the fact that there exist MULTIPLE, INDIVIDUAL banks lending to one another. As the graph above demonstrates it does not take long for the original “real currency” issued by the central bank to be diminished and depleted. If there were a SINGLE GOVERNMENT BANK, this would NOT OCCUR.

The idea of letting banks lend out money in this fashion is at its core, fundamentally stupid. However, if there was a single government bank, the same bank which issued currency, rather than multiple, competing private banks these different deposits and transfers would exist simply as instances of “debit” and “credit” between individual “accounts”. No new money would be created.

Short answer as to why the gold standard is foolish.

  • We don’t live in a mercantile economy; the US isn’t a mercantile empire.
  • The US is in a trade deficit, each purchase of a foreign commodity would depreciate the gold supply hurting the dollar. Each dollar spent sends that much in gold overseas.
  • It delivers America COMPLETELY into the hands of the Chinese.
  • Choosing gold would give Americans a short-term BURST in purchasing power, soon to be followed by unemployment booms and complete lack of domestic production.
  • Choosing the gold standard has more to do with the chauvinistic “America is number One!” attitude than anything else. If you simply want an unbelievably robust currency, why not pin the dollar to the price of a rolls royce?
  • It would make government borrowing( and re-paying what you borrow) impossible; which is ESSENTIAL for long-term economic growth at the macro level. 
  • There hasn’t been enough gold mined EVER to cover the amount of currency circulating the US domestically, let along globally; or to be used for all currencies.
  • It’s completely arbitrary and based on mankind’s obsession with a useless, shiny and weak metal.
  • The US would now have to repay it’s debt in more expensive dollars.
  • It’s completely inflexible.
  • A strong dollar, not to mention an unbelievably “strong” dollar causes unemployment.
  • Governments will not take measures to mitigate or avoid hard-hitting recessions and depressions…. simply because they don’t want to compromise their gold supply.

I do have many more points, as well as explanations for the points above but I think you get the picture. Adopting the gold standard is not the answer for any nation in today’s world, let alone one in such precarious a position as the United States.

Printing money like you’re running a newspaper press isn’t the answer, Zimbabwe is a good testament to that, but neither is regressing 250+ years in economic thought. They both come from the same impulse, which is based on emotion, instead of reason and lack any real careful analysis as to ascertain the ROOT of the problem in the first place.

But I do hope they abolish the fed and adopt the gold standard, now that I think of it. It would only bring American Imperial Capital and this system of aggressive, inhumane capitalist globalization to its end that much sooner.

  1. jtylerevans posted this