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Musicmystery -> RE: FORBES: RETURN TO GOLD STANDARD WITHIN 5 YEARS (5/11/2011 7:10:43 AM)
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quote:
ORIGINAL: ChatteParfaitt
I think it's a great idea, but like previous posters, I'm not holding my breath. It makes too much sense.
It does not make sense--it's merely simple, and people like simple, even when it ignores reality.
In this case, it does so dangerously. Currency's value is not created by artifice, but by the productivity, reliability (i.e., the nation meets its debt service), and earning power (ability to raise money through resources and revenue), and of course confidence (determined largely by productivity, reliability, and earning power, however). It fluctuates, officially "pegged" or not. Gold too fluctuates, subject to supply and demand, like any other commodity.
In the modern world, trading currency (and commodities) is a simple and quick transaction. Speculators can look for arbitrage possibilities as the real difference in value between gold and a pegged currency differ from the official valuation. Such opportunities then can be amplified greatly, forcing a devaluation, to the benefit of the speculators and at the expense of the taxpayers and people's savings (in that currency). This has been done before. Twice speculators forced the Bank of England to its knees. They were turning their attention to U.S. currency. When Nixon severed our Bretton Woods connection, the dollar was allowed to find its true market value. This is of far more value to everyone, and to secure knowledge of its worth, than the fiction of security and value a pegged currency creates.
Today, like most other nations, we practice a "managed float," meaning we watch the value of the dollar in the marketplace, taking steps at times to maintain a desired value. It actually works quite well. We have both low inflation (overall--food and oil prices have risen considerably, I understand--that's not inflation, per definition) and good relative value.
In the 2000s, we severely upped our expenditures with two unfunded wars (in fact, we cut taxes). The dollar's value dropped--as it should, vs. pretending nothing had changed. We did increase our debt. But we didn't have to pay off speculators. Today the dollar has remained relatively stable for the past few years. Pegging it to gold would be foolish.
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