I am a little confused. First off, from my understanding there are three ways to go back to the gold standard: 1. At an artificially high rate 2. At an artificially low rate 3. At the current market rate I think #1 is out of the question, seeing what happened to the British the couple of times they tried this and because we just don't have enough gold. Similarly, option #3 does not seem feasible because we just don't have the gold reserves to exchange all dollars in circulation for gold. As I understand Rothbard advocated the second choice, going back at an artificially low rate. This would cause a sudden inflation, but banks would have 100% gold reserves for their outstanding deposits. This option seems the most feasible to me, due to the fact that there is just not enough gold to go route number 1 and 3. Could someone elaborate on the other pros and cons option #2 would have and if it is indeed a viable route to go? How would we fix those "cons" that we would inevitably encounter? Also, if you can make an argument for any of the other two choices and have the time to write them out, I would greatly appreciate it. I love the idea of going back to a gold standard, but need good, convincing information to back myself up with when arguing for the cause. Thank you and all responses are greatly appreciated!
I am a little confused. First off, from my understanding there are three ways to go back to the gold standard:
1. At an artificially high rate
2. At an artificially low rate
3. At the current market rate
I think #1 is out of the question, seeing what happened to the British the couple of times they tried this and because we just don't have enough gold. Similarly, option #3 does not seem feasible because we just don't have the gold reserves to exchange all dollars in circulation for gold.
As I understand Rothbard advocated the second choice, going back at an artificially low rate. This would cause a sudden inflation, but banks would have 100% gold reserves for their outstanding deposits. This option seems the most feasible to me, due to the fact that there is just not enough gold to go route number 1 and 3. Could someone elaborate on the other pros and cons option #2 would have and if it is indeed a viable route to go? How would we fix those "cons" that we would inevitably encounter? Also, if you can make an argument for any of the other two choices and have the time to write them out, I would greatly appreciate it.
I love the idea of going back to a gold standard, but need good, convincing information to back myself up with when arguing for the cause. Thank you and all responses are greatly appreciated!
Hizaki: So is then gold, as a medium of exchange, feasible?
So is then gold, as a medium of exchange, feasible?
Please note that, as much as they try to hide it, central banks and other international banks still do use gold as a medium of exchange. Central banks try to hide it by only leasing the gold and playing other sorts of paper games with the gold. But, at the end of the day, there are physical transfers of gold and silver that occur between central banks and other international banks every day for settlement of balance of payments. What do you think they're doing with all that gold in the NY Fed vault? It's not just sitting there doing nothing, as Warren Buffet seems to think.
Clayton -