Before you start the kudos you and
@Bigun should really research the facts.
The gold standard suits a political moment. Tying the dollar to an arbitrary quantity of shiny metal binds policy makers’ hands, robbing them of their discretion to act: The central bank can’t adjust the money supply to counteract crises or prevent them. These limits, for many Republicans, are good things. The gold standard is essentially the monetary equivalent of a government shutdown.
When the central bank fixes the dollar price of gold, rather than the price of goods we consume, fluctuations in the dollar price of goods replace fluctuations in the market price of gold.
Since prices are tied to the amount of money in the economy, which is linked to the supply of gold, inflation depends on the rate that gold is mined.
When the gold standard is used at home and abroad, it is an exchange rate policy in which international transactions must be settled in gold.
Digging gold out of one hole in the ground (a mine) to put it into another hole in the ground (a vault) wastes resources.
<snip>
More broadly, a gold standard suffers from some of the same problems as any fixed-exchange rate system. Not only can’t the exchange rate adjust to buffer external shocks, but the commitment invites speculative attacks because it lacks time consistency. Under a gold standard, the scale of the central bank’s liabilities—currency plus reserves—is determined by the gold it has in its vault. Imagine that, as a consequence of an extended downturn, people come to fear a currency devaluation. That is, they worry that the central bank will raise the dollar price of gold. In such a circumstance, it will be natural for investors to take their dollars to the central bank and exchange them for gold. The doubts that motivate such a run can be self-fulfilling: once the central bank starts to lose gold reserves, it can quickly be compelled to raise its dollar price, or to suspend redemption entirely. This is what happened in 1931 to the Bank of England, when it was driven off the gold standard. It happened again in 1992 (albeit with foreign currency reserves rather than gold) when Britain was compelled to abandon its fixed exchange rate.
<snip>
the gold standard helped spread the Great Depression from the United States to the rest of the world. The gold standard was a global arrangement that formed the basis for a virtually universal fixed-exchange rate regime in which international transactions were settled in gold. This meant that a country with an external deficit—one whose imports exceed its exports—was required to pay the difference by transferring gold to countries with external surpluses. The loss of gold forced the deficit country’s central bank to shrink its balance sheet, reducing the quantity of money and credit in the economy, and driving domestic prices down. Put differently, under a gold standard, countries running external deficits face deflationary pressure. A surplus country’s central bank faced no such pressure, as it could choose whether to convert higher gold stocks into money or not. Put another way, a central bank can have too little gold, but it can never have too much.
This policy asymmetry helped transmit financial shocks in the United States abroad. By the late 1920s, the major economies had restored the pre-World War I gold standard. At the time, both the United States and France were running external surpluses, absorbing the world’s gold into their central bank vaults. But, instead of allowing the gold inflows to expand the quantity of money in their financial systems, authorities in both countries tightened monetary policy to resist booming asset prices and other signs of overheating. The result was catastrophic, compelling deficit countries with gold outflows to tighten their monetary policies even more. As the quantity of money available worldwide shrank, so did the price level, adding to the real burden of debt, and prompting defaults and bank failures virtually around the world.
Countries around the world have their economies tied to the value of the dollar. If you want to drag down the global economy into chaos and ruin...return the U.S. to the Gold standard.
It's a fiscal policy that might have worked in the 19th and early 20th Centuries but it would be an utter failure in the 21st Century. It's revisionist and would ruin our economy since we are not dealing on a global economic state and not just within the confines of our own borders.
But hey if you want to drag the country back to the economic stability of the 1920's sure...go ahead and cheerlead for a return to the gold standard.
