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Good point well made about the difficulty in moving from the current system to a gold standard, but the flaw you pointed out regarding a gold standard itself isn’t fair I don’t think, and you ignore the comparison with the now hopefully very apparent flaws in the present system.

If the currency is backed by gold, gold is acting as money not as a commodity. In this scenario, country A’s money supply has decreased (country B was making more useful stuff). This means within country A’s economy, yes there is less money in country A (reflecting the fact they spent it on country B’s tat, so country B is holding it). This scarcity then causes A’s economy to restructure, or save more, leading to an eventual correction of the imbalance (country B has more to spend). The value of the currency relative to consumables/services within economy A increases. The “crash” does not occur, rather it is a gradual braking process.

The money supply is acting as a steadying hand. The value of goods and services in each economy floats against the currency. If there is less money/gold in circulation, there will indeed be a deflation, but not relative to country B’s currency, meaning money will eventually flow the other way. It is a self-correcting system – sound money. What we currently have is a self-destructive system – fiat money (country A spends all its money on tat, and then borrows or prints more to spend on more tat devaluing the currency (e.g see dollar value relative to 30 years ago), distorting the economy (e.g Iceland and to be honest half the globe), impoverishing current and future generations (e.g. UK/US), with nothing but human conscience standing in the way (or not, e.g. Fed/Paulson)).

What if country B deliberately buys A’s currency to try and cause “deflation” ? Won’t work. As they buy more gold or currency A, the exchange rate will simply increase. Similarly, the value of goods relative to currency A in economy A will decrease, creating scope for gold/currency A to flow back the opposite way. They don’t simply “redeem” the currency. If free trade exists between the countries, the value of gold in terms of other things will be higher in country A – so thats where B will start spending it. The currency is backed by gold – ie its just representing gold. The point is not gold, simply that the money supply is finite. Since man has repeatedly proven himself incapable of maintaining a steady fiat supply (read any monetary history for thousands of examples), backing with a finite commodity that can’t be “printed” is the best means of achieving this. And its certainly many leagues ahead of creating money as a debt at source as happens now.

What if economy A grows in size? The value of money is increased, but its evenly increased. The idea this is a problem is a myth, and the money is simply divided into smaller units if required (for a good example see Roman currency in Britain after the collapse of the empire).

If country A spends all its money in country B, there is kickback. Yes they will suffer in the short term, but so they should – they just spent all their money. The big idiots. The system enforces sensible spending, and encourages a well-balanced and productive economy. Competition for a finite source of money, through the spending of our wealth (our labour), would be a powerful and positive force. Instead we all spend our time running against the treadmill of interest and devaluation to the benefit of few.

riverbird’s point only further enhance’s gold’s validity in this role. Yes, its relatively useless in industry and tastes rubbish on toast, hence it has a stable supply.

Um having just reread the last paragraph, you actually point out what I’m saying so we basically agree. So why is this post called “why gold is a bad idea” ? Are you saying the side-effects of that are worse than whats happening to us now?

That defense would be more believable if these views only appeared for a short time, and then stopped after those responsible were fired. It would be plausible if they didn’t consistently appear in 20 years of the newsletters (you can see actual scans from the 1990s to 2000s). So, really, those responsible were fired? You mean to argue that such comments just happen to slip out from a long chain of terrible subordinates? That Ron Paul really had no responsibility for letting such comments slip out on something written under his name?

Sounds like backpedaling to me.

http://www.cnn.com/2007/WORLD/asiapcf/12/24/japan.love/index.html#cnnSTCText