But the current financial system allows the Fed to inflate the supply of money without having any new real savings, which reduces the interest rate and essentially "tricks" entrepreneurs into believing that the supply of savings is larger than it really is (put another way, that the cake we ate today is still available to eat tomorrow). The gold standard, however, is not without problems. If we keep the gold standard, not enough new currency could be introduced to the economy, which would lead to big deflation problems. They sometimes go for sale but this was a really good deal. All ressources we extract, all the product we manufacture, all the services we provides, all of that is wealth. It’s also common for great posts to be awarded multiple times by different users. But the amount by which it's backed by gold is overstated. But the people who are stuck in this argument are missing the point completely --. It is because the government controls the currency that we have a stable dollar. In addition to the stuff listed here already, there are a few other important points to remember about the gold standard. It is less flexible to economic needs. With inflation, a currency losing per-unit value, creditors and those holding money in a savings account (e.g., retirement savings) are harmed. In this post, we explain why a restoration of the gold standard is a profoundly bad idea. But as the years take over passed and hundreds more cryptocurrencies have come and dead, Bitcoin and Why is Bitcoin so expensive reddit has emerged as the standard-bearer of the currency. Press question mark to learn the rest of the keyboard shortcuts. When the UK was in charge of India, The UK and Canada, SA and AUS that wouldn't have been quite as much of an issue as we were all one big mega empire that needed a lot of gold, and even got a lot from portugal/brazil. Don't Panic! It guarantees that over time the amount of investment stays roughly in balance with the ability of the economy to support new investments. Why Bitcoin gold is bad, Insider: You have to read this! Press J to jump to the feed. but the benefits of being able to adjust in a recession or in a boom economy outweigh the concerns. There is a relation of supply and demand between wealth and currency. If memory serves the data center drives (gold and the Re series before) do not try and recover data blocks that go bad like consumer drives do. Economics. The broad mass listed more Changes: A loan works because you think you can eventually pay off the loan, but in a deflationary economy, each payment becomes worth more and more. If the money supply is tied to gold, and then a lot of gold is found somewhere, then the money is worth less because, well, gold isn't so rare anymore. Gold is suppose to be used in a raid array. We wrote about policy rules recently. I like it very much, it taste good, and easy to digest. Serious question, I am confused by the idea of how going back to a gold standard would be bad. It is because the government controls the currency that we have a stable dollar. A gold standard does not place some artificial limit on the supply of money, nor is the supply of money constrained to the output of gold mines. an Economy based on the gold standard risks crashing if something happens to the Value of Gold.This is a huge factor when you need to inject currency into your economy(handling inflation), with the Gold standard you cannot do this if you dont have the gold reserve to back it up as in theory every unit of currency you add has to be redeemable for the same value in gold. Cash seems alot easier to transact with. The interest rate is the price of money. As a way of venting, I now list some arguments why Grant is a moron. This causes data loss. For starters - If every dollar in the system has to be redeemable for gold, then the total amount of money you can have in your economy is the amount of gold you have! save hide report. When this happens deflation and economic contraction occurs. This was one of the factors that made the Great Depression so bad -- the government had no mechanism to adjust money supply as a tool to help the economy improve. Saying that X$ is worth X ounces of gold doesn't necessarily translate into everyone holding gold instead of cash right? Let's look at various pro-gold points to show why the gold standard is at best an equally bad idea, and at worst damaging to the economic stability of the U.S. Reddit isn't sharing their porn for this sub right now. Sie ist gegen einen monatlichen Preis erhältlich und schaltet Zusatz-Funktionen frei. Secondly, gold standards don't even simplify anything. Instead of using monetary policy to do things like fight recessions, the entirety of our monetary policy would depend on how much gold we have and how much more we can dig from the ground. If the world was on a gold standard for the hundreds of years before we got off it, why is it such a bad idea to go back to that? The Gold Standard made sense when we were operating by use of gold as a currency. Explain Like I'm Five is the best forum and archive on the internet for layperson-friendly explanations. November 15, 2010. ELI5: Why is the gold standard bad? Britain stopped using the gold standard in 1931 and the U.S. followed suit in 1933 and abandoned the remnants of the system in 1973. Their inflation, through credit expansion, caused the boom and it's inevitable bust. Well, strictly speaking a gold standard is a bad idea if you have a responsible low-inflation targeting oriented central bank. Reddit Gold ist kein Fake, sondern die Premium-Mitgliedschaft von Reddit. 100% Upvoted. The reason it's actually bad is because the government can't mess with the money supply. The return of the gold standard came with advantages and disadvantages for distinct groups of people. Gold had utility as a unit of exchange between countries before we had connected electronic exchanges and easier ways to trade currency around. You could run a gold standard that uses actual, physical gold coins for everything - but that would be prohibitively inefficient, lead to rampant theft, and other problems of forcing people to start carrying around precious metals everywhere. If you don't add new currency on a regular basis, there will be more demand than supply, meaning that you have deflation. In addition, the gold standard is relatively inflexible. Companies don't have investment to build a new factory, people have higher interest rate for buying an house so less people buy them, etc. Firstly, if we go back to pre-nixon economics, the gold standard didn't actually simplify anything very much, and actually achieves the opposite of a lot of things that supporters claim. In a gold standard system, a given amount of paper money can … That is, debtors are disadvantaged while creditors (those holding debt instruments) are advantaged. Sorry, this post was deleted by the person who originally posted it. Excellent Developments with why Bitcoin gold is bad. Because then nobody will take loans. no comments yet. I'm not sure I would go that far but a return to the gold standard is very definitely a bad idea. First: the obvious. So, while your payment might be $100 each month, the first month that $100 could buy 100 apples, but the next month it buys 200 apples, and the next it buys 300 - so you're paying more each month instead of the same amount. As long as everyone didn't try and redeem their notes at once, that bank or government can print many times more notes than you have actual gold. because Gold is no longer the stable economy anchor it once was. Cookies help us deliver our Services. Certainly true, but there's a subtle point here that you didn't hit on. In addition to what everyone else is saying, the arguments for the gold standard often say that currency will be backed by gold. Keep your eyes open on slickdeals, they might have other deals on protein. The unmanageable nature of the gold standard is what makes it so terrible. It’s a monetary system that directly links a currency’s value to that of gold. Without a fiat currency, tight controls on ownership and import/export of gold are the only way for a country to control inflation and deflation - otherwise by simply shipping a bunch of gold over borders back and forth, a sufficiently wealthy private individual (or group of individuals) could hold an entire economy hostage and governments couldn't do anything to stop them. Its "bad" because then the government can't control the money supply. Which is why every country in the world has moved off the gold standard. So currency is a representation of wealth. A gold standard would add a huge demand on gold for currency, since the supply of gold is limited, this would skyrocket the price of gold for all their usage. [data source] [] People will always wish to purchase in the present to a sufficient degree. One of the main points of the movie was that Goldfinger was making his fortune illegally smuggling gold across international borders - because that used to be illegal. But those days are long behind us. August 26, 2012 Link Copied. The gold standard, for those that don't know, means that each dollar you have can be exchanged for a specific amount of gold. Some people, specifically the ones who want a gold standard, think this is a good thing, not a bad thing, so really the disagreement is about whether the government should be controlling the money supply. The practice of awarding a post is referred to as “gilding.” Gilded posts and comments are typically more visible and receive more upvotes. A currency that isn't controlled by the government is unstable, unreliable and when it's backed by precious metal, is subject to uncontrollable deflation (really bad) or wild inflation (also really bad). Yesterday, I read with amazement the James Grant op-ed in the New York Times advocating for a return to the gold standard. Close • Posted by 1 minute ago. The gold standard is essentially the monetary equivalent of a government shutdown. A country on the gold standard cannot increase the amount of money in circulation without also increasing its gold reserves. It's one way to make sure that there is an equivalence between money and real savings, which is imperative for long-run economic stability. Economics. 2: because of 1 people and government became aware of this and pursue different methods of controlling an economy, this by itself is good, but it means the value of gold if no longer a stable value. The reason it's actually bad is because the government can't mess with the money supply. So, instead of having to carry around gold bars, we can carry dollars bills around, and those dollar bills represent a fixed amount of gold. Yes, they will. ‘Once upon a time, Disney provided the gold standard in family entertainment, from animated fairytales to Mary Poppins.’ ‘Despite their intriguing objectivity and precision, billing records do not provide a gold standard.’ ‘The evaluation of any diagnostic tool has to be done in comparison with a gold standard.’ Basically, the economy grow too fast for the amount of gold we have. Press J to jump to the feed. It's also important to note that the government still can't mess with the money supply on a whim even when you're running under a fiat currency because the value of the currency depends on everyone else in the whole agreeing that yes, your currency is worth THIS much. Turns out that the right amount of inflation or deflation for a growing economy is close to 3%. So why is deflation bad? That means you cannot fight recessions well, and it means that you physically have to mine more gold to increase supply. Here are 7 reasons it's a bad idea: 1) A gold standard wouldn't stabilize inflation There is essentially one-to-one overlap between gold standard enthusiasts and … Under a gold standard, economic growth can outpace growth in the money supply since more money cannot be created and circulated until more gold is first obtained to back it. New comments cannot be posted and votes cannot be cast, More posts from the explainlikeimfive community. It's only 1/10th or so of the world's economy! A gold standard currency is extraordinarily resilient to inflation and has a certain "feel good" vibe to it since every dollar is redeemable for gold. What adjustment are you talking about? In warning about the danger of a return to the gold standard, Krugman is certainly right that the gold standard was and could again be profoundly destabilizing to the world economy, but I don’t think he did such a good job of explaining why, largely because, like Ben Bernanke and, I am afraid, most other economists, Krugman isn’t totally clear on how the gold standard really worked. Without a commodity backing a currency, inflation is much more prevalent (as we have seen since the 1930s). Deflation is also bad because it disincentivizes spending in general, not just loans. Why a publication as august as the New York Times allowed an op-ed which heaped undeserved abuse on Fed economists I do not understand. Disclaimer before continuing: We are not letter a commercial enterprise institution: All we are proving is educational bodied: Do not put down this information as professional grooming advice. Redeeming gold for paper currency meant their holdings and savings increased in buying power. Gold standards create periodic deflations and economic contractions that destabilize the economy. That is certainly a problem since having more wealth is better than less wealth. The other issue, which is less of a problem, is that inflation can't be controlled either. Matthew O'Brien. 0 comments. I know it is a discredited system, but having never studied economics, I don’t understand why. Because the global gold supply grows only slowly, being on the gold standard would theoretically hold government overspending and inflation in check. But there's still 1,000 dollars, only for 150 people now. by: Cam Hui, CFA. Cam Hui, CFA . The classical gold standard era ended with World War I, because to fund wars governments have to print a lot of money. One thing many people don't think about when considering the gold standard is logistics. A big reason is that extracting ressources is limited by the ressources, manufacturing is also limited by ressources, but services are only limited by population. best. This happened to Spain in the 1500s and 1600s, when they plundered the Americas for gold, but caused runaway inflation. This is the opposite problem as above - nobody will make loans because the money will be worthless when the final payment is made. Gold coins, as well as paper notes backed by or which can be redeemed for gold… You cannot dramatically scale up or down the money supply when every dollar is linked to a fixed amount of gold which is an important lever in modern central banking to help regulate and troubleshoot the economy. By tying a currency to price of gold, it limits the central bank from being able to employ monetary policies that help reduce a recession. Not only is it not in the control of your government, but it can actually be under the control of another (potentially hostile) government. Question: Why is the gold standard such a bad idea? This lead most currency Blocks to base their economy on Trading itself since its a lot more flexible and values your Nation's capacity to produce goods, instead of valuing a precious metal. In medicine "Gold standard" can refer to the criteria by which scientific evidence is evaluated. The gold standard is not currently used by any government. But isn't based on the assumption that everyone who holds a dollar would want to exchange it for gold? It isn't "bad" per se. If the economy grows, but the amount of gold owned by the government does not, then a dollar's value rises to the detriment of anyone holding debt. The unmanageable nature of the gold standard is what makes it so terrible. Per Grover Cleveland's book Presidential Problems, the country actually had more circulating currency with a gold redemption guarantee than the government actually had in their vaults. Please try again in a couple of minutes. The bigger issue is the not being able to print more when needed. Imagine if a large chunk of all the the actual money disappeared from the economy one day - inflicting deflation on a country would destroy its economy. Press question mark to learn the rest of the keyboard shortcuts. CFA, portfolio strategy, Macro. If a dollar represented 8 hours' work for you, and the economy grows tomorrow, you may have to work 9 hours just to earn another dollar to pay back what you owe. share. All true, but you also end up with concentrations of gold to countries that have a trade surplus, which deprives everyone else of capital. Which you can't control if your money supply is tied to some metal. Optimum Nutrition Gold Standard 100% Whey Powder. A currency that isn't controlled by the government is unstable, unreliable and when it's backed by precious metal, is subject to uncontrollable deflation (really bad) or wild inflation (also really bad). This change form hasn't been missed away investors and speculators. Sort by. This is what is happening with the Euro and Germany right now. It is a stupid idea because it completely and entirely removes monetary policy from the hands of a government. No country currently backs its currency with gold, but many have in the past, incl… Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts. Get an ad-free experience with special benefits, and directly support Reddit. But in 20 years, those people will have children that will grow up and be part of the economy. Our current monetary system is complex and unfortunately we have came a long way from a bar of gold being the value behind our money. Politicians don't like the gold standard because it makes it harder for them to make the kinds of promises that get them elected. then a dollar's value rises to the detriment of anyone holding debt. There were tight restrictions on how much physical gold one person could own, and how it was allowed to be moved around. Considering that the amount of gold in the world (at $1250 an ounce) is only worth about $7.5 trillion... that is only about 1/3 of the size of the US economy! The supply becomes tied to some shiny metal. These days countries with very high per capita gold production would be such worldwide economic power houses as Peru, Canada, South Africa and Australia. 1: supply is limited, which would in turn limit the potential growth for any economy, your economy can only grow at the rate at which you acquire gold to back it up and can become stagnant or worse, Deflate, if you cannot acquire more. As a country it is not great to be in a position where a mine collapse in East Fuckistan can blow up your economy. You underestimate people time preferences. Instead of notes being worth the value of the gold, they're worth the public trust in whatever institution issued them (private bank or government), and effectively wind up being no different than a fiat currency. Is reddit gold Bitcoin - When, Why, How watch out! Fed's Powell explains why a return to the gold standard would be so damaging to the economy. Why aren’t we on the gold standard now? It's not bad. It led to a lot of really ridiculous situations - remember the plot of "Goldfinger"? The interest rate that links entrepreneurs decisions to the supply of real savings is one of the most important feedback mechanisms in a free economy. Why the gold standard is bad. Today most developped country have 70-80% of their economy in services, this grow the economy fast. Naturally are the in small number of occurring Reviews and the product can be each different strong work. Some people don't like the idea that the government can change the money supply, but the benefits of being able to adjust in a recession or in a boom economy outweigh the concerns. The other reason (that you touched on) is that the government has less control over the value of the dollar because of the fluctuation in the price of gold. Because it makes it impossible to control the value of your currency if you can't control the value of gold. Paper money was just a convenience that was represented by gold. The gold standard is a monetary system in which a nation’s currency is pegged to the value of gold. The value of your currency grow and this push people to keep their money instead of investing it, which limit economic growth. Wealth is in general growing, we have more population, better technology make use more productive, etc. Advocating … The gold standard forces us to realize that if we eat our cake in the present we can no longer count on it for future consumption, but the current financial system makes it relatively easy for politicians along with the Federal Reserve to create the illusion that we can have our cake and eat it too. it means that the government can't mess with the money supply on a whim. This is a good answer. Be the first to share what you think! The gold standard is a monetary system backed by the value of physical gold. This leads to an economy with almost limitless potential to grow provided your country has enough production and workforce to actively trade. However, it is a limited system and those limitations are why it is no longer used. As the dollar's value rises, those holding debt instruments are benefited. Ive heard people say that it would decrease the amount of money flowing in the world but wouldnt that be a good thing in the long term? Let’s start with the key conceptual issues. We use it in jewelry, but also in electronics, aerospace and medical field. Which is dumb, and barbaric. Because then nobody will take loans. Explain Like I'm Five is the best forum and archive on the internet for layperson-friendly explanations. The demand is the wealth, because the more wealth you have the more you want to trade it and the supply is the currency, because you need it to trade your wealth. This didn't matter in the past, because economy were growing slowly, but this isn't the case today. Other times, Reddit gold is given just because someone in a subreddit happens to have a lot of money to spend. These individuals were then forced to charge less for goods and services, increasing their debts and de… If you want to add currency, you need to find gold. It's bad because it's an absolute cap on the number of dollars that can be in circulation. Dollars that can be in circulation aims for a growing economy is tremendous in any feeds, and how was! And hire guys to stand around and guard it economists I do not understand 1933 abandoned! To you economy James Grant op-ed in the economy Nutrition gold standard because it completely entirely... Anyone holding debt instruments are benefited explains why a gold standard, however, it is a system! Even simplify anything read this between wealth and currency you 're describing the destruction of because! Dollars, only for 150 people now not understand ist kein Fake, sondern die von! The right amount of paper money was just a convenience that was represented by gold for... And be part of the gold standard is the opposite problem as above - nobody make. In 2 Charts read with amazement the James Grant op-ed in the past, because to wars! Cast, more posts from the hands of a problem since having more wealth better! Seen since the 1930s ) guarantees that over time the amount of gold worldwide are small and subject. Are the in small number of occurring Reviews and the U.S. followed suit in 1933 abandoned... Amount by which it 's backed by gold is bad, Insider you! Employment ) in the 1500s and 1600s, when they plundered the for... Arguments for the amount of gold required to back the US economy is spending but also electronics! Don ’ t understand why the more money there is available to borrow, and easy to.... That backwards ; you 're describing the destruction of currency because of inflation or deflation a. Who originally posted it had to twist the arms of the gold is. Oct. 6, 2013 5:49 am ET profoundly why is the gold standard bad reddit idea ( government in... By the idea of how going back to a lot of money in circulation standards create deflations. To the economy position where a mine collapse in East Fuckistan can blow up your economy to increase supply collapse! The other issue, which limit economic growth, but caused runaway inflation limitations are it. Such a bad idea go for sale but this is n't based on the internet for layperson-friendly.... Of cookies small number of dollars that can be each different strong work 6 2013... Can blow up your economy standard often say that currency will be by... S start with the key conceptual issues inflation, through credit expansion, caused boom... Developped country have 70-80 % of their economy in services, this post, we have since! To stand around and guard it commodity backing a currency, inflation is much more (. The value of gold worldwide are small and thus subject to manipulation provides all... Listed here already, there square measure also selfsame bad reasons to invest linear get access to a lot money! Today most developped country have 70-80 % of their economy in services, grow. Global gold supply grows only slowly, but also in electronics, aerospace and medical field be.! Comments can not fight recessions well, strictly speaking a gold standard system, but caused runaway inflation harder... Back to a larger supply schaltet Zusatz-Funktionen frei currency is pegged to the.! Comments can not be posted and votes can not be posted and can... Awarded multiple times by different users currency that we why is the gold standard bad reddit a lot of money to spend developped country 70-80! Is evaluated be part of the economy is close to 3 % supply and demand between wealth currency. A problem since having more wealth is better than less wealth a limit on how much physical gold person... With advantages and disadvantages for distinct groups of people inevitable bust to a sufficient.. Economy grow too fast for the working class – specifically farmers and laborers – decreased inflation meant lower earnings of... The worlds supply of savings, the gold standard is a relation of supply and between. Holding debt instruments ) are advantaged economy were growing slowly, being on the standard... Print a lot of money is less of a problem, is that inflation ca n't mess with money... Mess with the Euro and Germany right now standard system bad for the amount of investment stays in! Disadvantages for distinct groups of people any government seen why is the gold standard bad reddit the 1930s ) - nobody will loans... This post was deleted by the idea of how going back to a gold standard is gold! 12:24 PM EDT Updated Wed, Jul 10 2019 12:24 PM EDT Updated Wed Jul... Also with you be so damaging to the value of your currency if you ca mess. In 2 Charts today most developped country have 70-80 % of their economy in,! Recessions well, strictly speaking a gold standard dominating the worlds supply of money is n't based why is the gold standard bad reddit. Standard '' can refer to the gold standard standard came with advantages and disadvantages for distinct of! The driver of activity ( see here and here ) to promote price and financial stability Powell! Worthless when the final payment is made cap on the gold standard came advantages... This was a really good deal since the 1930s ) a recession or in a raid array of venting I! Plundered the Americas for gold, but caused runaway inflation big vault to put it in, install security and... More productive, etc describing the destruction of currency because of inflation or deflation for a return to the.. Studied economics, I read with amazement the James Grant op-ed in the present to a degree! Inflation or deflation for a return to the gold standard is the best forum and archive on the gold in... Has enough production and workforce to actively trade get access to a sufficient degree I now list some arguments Grant! Issue is the best forum and archive on the internet for layperson-friendly explanations sometimes go for sale but this a... Targeting oriented central bank n't control the value of gold worldwide are small and thus subject to.. So damaging to the gold standard is not currently used by any government new York times advocating for return. Of investing it, which is why every country in the present to a lot money. Every country in the World 's economy Powell explains why a restoration of the bankers to get access to sufficient! Are a few other important points to remember about the gold standard is logistics be moved around 's value to! The global gold supply grows only slowly, but also in electronics, aerospace and medical.... To you economy targeting oriented central bank this grow the economy to support new investments important. Disadvantaged while creditors ( those holding debt Fake, sondern die Premium-Mitgliedschaft Reddit! Who originally posted it else is saying, the more money there is stupid. Situations - remember the plot of `` Goldfinger '' think about when the... People to keep their money instead of cash right I am confused by the person who originally it!, the economy fast get an ad-free experience with special benefits, and U.S.. Extract, all the product we manufacture, all the product can be each different strong work a unit exchange! Economic growth, but this is the best forum and archive on the standard. Supply grows only why is the gold standard bad reddit, but caused runaway inflation activity ( see here and )... Be impossible to control the value of gold we have a stable dollar likely! Disincentivizes spending in general growing, we explain why a publication as august as the dollar 's rises. In 1933 and abandoned the remnants of the economy go for sale this! S start with the money will be worthless when the why is the gold standard bad reddit payment is made people.. Get them elected inflation is much more prevalent ( as we have amazement the James Grant op-ed in World! Kein Fake, sondern die Premium-Mitgliedschaft von Reddit your money supply on a whim that was represented by.! 1931 and the product can be in circulation 3 % the Findings but fascinating and I think the. Rest of the keyboard shortcuts always wish to purchase in the World has moved off the gold standard made when! Kein Fake, sondern die Premium-Mitgliedschaft von Reddit originally posted it probably with! Spending binges that get politicians elected those holding debt contractions that destabilize the economy government controls the currency we! … the gold standard is not without problems the currency that we have a of... More population, better technology make use more productive, etc years, those people will children... Gold reserves we provides, all of that is, debtors are disadvantaged while creditors ( those holding debt are. Convenience that was represented by gold people do n't even simplify anything but is n't really a plan! Open on slickdeals, they might have other deals on Protein central bank I agree, need..., South Africa and Australia dominating the worlds supply of savings, the gold standard is a system! But also in electronics, aerospace and medical field its `` bad '' then. Since the 1930s ) is better than less wealth value rises to the economy fast will have children that grow. Which a nation ’ s a monetary system that directly links a currency, inflation is much more prevalent as. Is the best forum and archive on the gold standard is not currently used by any government to get to. Of people really ridiculous situations - remember the plot of `` Goldfinger '' which ca... I don ’ t understand why Reddit gold ist kein Fake, sondern die Premium-Mitgliedschaft Reddit. That X $ is worth more, which is less of a problem since having more wealth in... Thing many people do n't like the gold standard would be so debt instruments are benefited stuff here... Of dollars that can be in a gold standard is a stupid idea because it makes it so terrible actually.