The end of an empire

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A gold standard inflates the price of gold.

From what I can tell, that's not a good idea either, again because of the Great Depression.

But if the supply of the backing commodity cannot grow as quickly as the economy, then the automatic result is deflation--with the resulting withdrawal of capital from investment markets.

Commoditized currencies are a recipe for stagnation. The trick is to have a fiat currency in which the currency issuer is not the same entity that is dealing with fiscal policy. That way the legislature can't print its way out of deficit.

What kind of disaster would the United States be in right now with a commoditized currency? You are still stuck in a trade deficit, and with a stronger dollar, that would be even more exacerbated.

Last edited by visagrunt on 23 Jan 2013, 2:12 pm, edited 1 time in total.

I love the way the economy is discussed by 'experts' on tv, seems like 'men making money' bollocks to me

Commodities is an appropriate bypass if and only if people are willing to take a pretty big hit just for the sake of taking responsibility out of the hands of the politicians and tightening what the Fed can do.

It could be okay as an intermediate step to restoring checks and balances of the states against federal government and just generally finding ways to hold federal gov't accountable for flops rather than blowing the same dirt around by different party names and new dirt brought by the same political machines.

It could never be a long-term solution though and if anything the problems that come with it should compound a sense of urgency regarding the work that would need to be done in the interim so that fiat can be set back up again but with much better controls on the people who'd bring it to trouble.

Remember, the money supply is not a matter of fiscal policy--it's a matter of monetary policy.

I am deeply suspicious of the idea that this could occur as any kind of an intermediate step. A commodity that backs a currency needs a few features:

1) It must be intrinsically valuable. We could underwrite a currency on quartz, but we'd need so much of it that we could never store it. Commodities that are rare, and hard to extract are best, because they tend to have high, and stable values.
2) It must have few industrial uses. If we were to underwrite a currency on oil, we would need to put that oil somewhere, and keep it segregated from oil for industrial use. (It is fungible, though, so you could take a barrel out of the currency reserve and replace it with a new barrel in order to keep the inventory "fresh.")
3) It must be held in specie. It is not enough to tie the value of the currency to a predetermined amount of the commidity, a currency issuer must either possess the commidity, or have an enforceable claim to receive the commodity on demand from the holder.

Gold presents itself as a viable commodity. But to underwrite the US dollar ($1.16 tn in circulation) at current prices ($1685.72) would require 688,000,000 ounces, or one-eighth of all of the gold that has ever been mined in human history.

Taking that much gold out of the market will, of course, distort the market, so the actual requirement will be somewhat less, but nonetheless, acquiring that amount of gold (or, indeed any other basket of commodities of comparable value) would not be a simple exercise.

5.5bn

The best simple thing one can do to prepare for potential economic calamity is learn to grow potatoes. A potato contains so many nutrients that a person can live solely on them if necessary. Large crops of potatoes can be grown in a small area, and they can be stored for months in the proper conditions.
(provided no Irish-style potato fungus wipes out your crop, of course)

Potatoes!

Now perhaps I don't understand economics in the slightest, but that's mainly because I think the system that the USA currently uses is a crock, but would the value of money increase if printing stopped for a bit? Not permanently, but long enough to freshen the dollar up with color and spice?

I would be too. My main thought though is we need to do something about how much public outcry there is on the spending and how it barely looses a bit of steam. We've got a locomotive engineer driving the thing who's blind and deaf

The USA wants a cheap dollar to boost manufacturing ( cheap exports ).
Australia has a high currency and its hurting thier exporting manufacturers.
A low dollar helps employment, especially in manufacturing where a lot of new jobs come from.
A low dollar is the closest thing to a tariff on imported goods and a subsidy for exported goods that a developed economy can have.
For employment and the economy, a lower dollar is generally better than a higher valued dollar.