Thursday, March 03, 2011

Gold Bugs

A gold standard. Thats what Ron Paul wants. And thats why he is a nutter. A writer tries to explain the depths of Ron Paul's question to Bernanke.
Bernanke says: My definition of the dollar is what it can buy. Consumers don't want to buy gold; they want to buy food, and gasoline, and clothes and all the other things that are in the consumer basket. It is the buying power of the dollar in terms of those goods and services that is what is important, and that's what I call price stability.

The writer says: Compare that to a gold standard. Let's say at the beginning of the year, the price of gold is $1,000 per ounce. That's the same as saying that a dollar is worth one one-thousandth (1/1000) of an ounce of gold. At year's end, you can still buy the same amount of gold with your dollar, unless the definition has been changed by policymakers. It is possible, however, that you may be able to buy additional or fewer goods and services with that dollar, depending on how other factors in the economy have changed.

So Bernanke's definition of a dollar is constantly moving, while Paul's would be static. Which framework is better is a far more complicated and controversial question. We'll leave that for another time, but both methodologies have pros and cons.

That dude is either intentionally misleading people or is an idiot. Just because the state says 1 dollar is worth 1/1000 an oz does not make it true, nor does it make it fixed (other than in some nominal meaningless way). For proof look at every fixed exchange rate ever...just because the govt declared their currency to equal something, doesn't mean the market agrees. A gold standard is no different. Its just a fixed exchange rate, that may equal the market rate (ie the relative supplies) or it may not.

The fundamental difference between a gold standard and a fiat standard is who controls the supply of money. In a fiat world, the Fed does. In a gold standard, miners do. Who do think is better suited to run our economic lives?

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