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The US has been in a risky economic situation since it went off the gold standard. Possibly since it created the Federal Reserve Act. Slow-moving train wrecks
by kodyo 3y ago
The US has been in a risky economic situation since it went off the gold standard. Possibly since it created the Federal Reserve Act.
Slow-moving train wrecks are still train wrecks.
- codersfocus 3y agoExplain why you think the monetary supply should in any way be tied to the ability to process gold ore?
- dmpk2k 3y agoIt limits the rate of monetary inflation. It is much harder to dig a shiny metal out of the ground than adding more zeros in a computer. If you're not worried about the long-term consequences of both the fiscal and monetary policy of the United States, I don't know what to say. M2 to the moon.
- kube-system 3y agoIt is possible to have too much of a good thing. If you limit inflation too much, you grind the economy to a halt and people starve.
- dmpk2k 3y agoAt this point you are probably correct. That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US? Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.
- kube-system 3y ago2% is a healthy level, which is why it's the Fed's target. The problem is that pegging a currency to gold does not peg inflation. Inflation will still move around based on other economic factors. You will have just eliminated your best tool for influencing it. If you needed to adjust a currency pegged to gold, you'd have to get more people working in the mines. Which is either not possible, or a human rights violation.
- carlosjobim 3y agoThere's no reason for that. As production improves in efficiency it is natural for things and services to become cheaper. That also means you get more for your money, instead of getting more money. That concept is not too strange for the population to accept.
- kube-system 3y agoFor a few items in your CPI basket, that's fine. If you have significant deflation across your economy on average, people will start losing their jobs en masse, and zero dollars doesn't buy anything.
- carlosjobim 3y agoWhy should that be the case? As I said, if you can buy more for less you won't need a raise.
- kube-system 3y agoLikewise, business revenues will be going down but the investments in capital have already been allocated. Businesses start laying off employees to try to balance the books. Those newly unemployed workers, in turn, now have less money to spend. More businesses find themselves in the red, and it leads to more layoffs. This is called a deflationary spiral. Basically every period of significant deflation in the past has led to dire economic consequences. You really do not want people to stop spending money.
- carlosjobim 3y agoThis sounds like a myth. If the value of your currency is increasing, staying at 0 means you're actually turning a profit, just as making a 10% profit when the inflation is 50% means you're losing money. Inflation is a tax and redistribution of wealth, it's really not more complicated.
- 3y ago
- nickpeterson 3y agoI don’t really think it does. They could just say this dollar is now worth less gold? Or they could put lengthy restrictions in place for exchanging dollars for gold until it nearly guarantees they’ll never need to produce most of the gold. Shipping gold is expensive and risky, eventually they’ll start saying, “you own this amount of the gold we have stored safely”. The abstractions find a way…
- dmpk2k 3y agoFair point. Leaders have been debasing currencies since forever.
- cheeseomlit 3y agoIt makes more sense to me that money should have intrinsic value in and of itself rather than exist as some nebulous digit in a computer that represents nothing but a unit of debt, which is easily and inevitably abused by those with the power to create it from thin air. I don't know if precious metals are the best answer, but money as a commodity makes more sense to me than money as an infinitely dupe-able fiat token with no intrinsic value
- HDThoreaun 3y agoMonetary policy is one of the biggest reasons for the success of the world economy over the last century. Without fiat currency it would be impossible and loans would immediately get much more expensive, instantly destroying tech investment for starters.
- cheeseomlit 3y agoA century is not a very long time, all things considered- we're all still high on the rush from this constant infusion of free cash, these are the good times. But I wouldn't base my entire outlook on how nice the good times are, there are massive risks involved with setting up a house of cards like this. There's a reason the constitution grants congress the sole authority to coin money, and implies quite clearly that money is to be silver/gold or backed by such. Nobody can be trusted with the authority to expand the money supply at will, unrestrained by the physical constraints of a commodity-based currency, free to print trillions upon trillions with no real oversight. That's how you end up with these ungodly banking cartels with disgusting amounts of political power (and all the corruption and cronyism that entails) while the middle class bears the burden of the feds inflationary practices, which is basically just an insidious form of hidden taxation. I'm not so sure that free money for tech startups is worth all that in the long run.
- HDThoreaun 3y agoI'll just say that the rich and powerful existed far before fiat currency. The middle class has never been stronger than it is under fiat.