Monday, December 20, 2010

And What of Gold?

Here, Manuel Hinds writes about the absurdity of 150 currencies around the world.  Mr. Hinds hints that a gold standard makes sense.

The biggest problem with a gold standard is that even if the world had one, the world would still have 150 currencies and most of them would still be manipulated by central banks and governments.

The Bretton-Woods system was an attempt at a gold standard.  It failed because in the end, people in power do what they want.  Central banks want to inflate the money supply, regardless of whether the money is supposed to be tied to gold or not. Just as in Jurassic Park life always finds a way, in this world central banks always find a way.

Mr. Hinds' assessment of the current mess we have with 150 floating currencies is correct.  But sadly enough, return to a gold standard isn't the answer.  The real answer is a banking system of 100% reserves.  Gold doesn't have to be reserve money, but something does.

Whatever is reserve money, it must not be susceptible to manipulation by central banks or the government for which they operate.  In the end, what that really means is no central banks.

How likely is that proposal?  Dead on arrival.  But make no mistake about it; central banks and governments that can create money at will are the bane of economic prosperity.  It's simple really.  You can't borrow what hasn't already been produced and saved by someone.  I know, I know; you've heard me say that before.

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