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Source link: http://archive.mises.org/7377/go-for-gold/

Go for Gold

November 1, 2007 by

Why, after years of the market’s neglect of gold, is the paper money price of gold now on the rise? Would it be too far-fetched to assume that it could reflect market agents’ growing concern about a forthcoming great inflation of government controlled paper money?

Tensions in credit markets might indeed provoke fears that central banks could, by way of lowering interest rates, pump even more credit and money into the economies, in an attempt to fend off a credit crisis and potential losses in output and employment.

Mainstream economists may be relaxed about such a policy provided “inflation” — typically defined as a change in the consumer price index — remains “low.” Austrians, in contrast, not only consider an increase in credit and money supply inflationary; they would also point out that the very process of a relentless increase in government-sponsored credit and money supply is a recipe for disaster, that it will ultimately end in the destruction of the currency. FULL ARTICLE

{ 55 comments }

George Gaskell November 6, 2007 at 1:19 pm

Yes, it is much easier to avoid a default when you do not have to give full value back to your depositors … er, lenders.

Say, will you “deposit” some major cash with me? I have all kinds of “assets” to back up the notes I’ll give you in return. I can have any kind of assets you want (so long as they’re all paper).

quincunx November 6, 2007 at 1:55 pm

Crankmeister Sproul will you please stop advocating John Law’s doctrine?

Person November 6, 2007 at 4:09 pm

Believe it or not, that’s actually one of quincunx’s more intellectual comments.

DickF November 6, 2007 at 4:52 pm

Mike Sproul,

You need to study your history a little more. Up until Nixon broke with gold the government always dangled the expectation that we would return to a sound more before us. Nixon took all that away. Those in government have not expressed returning to gold.

When the UK suspended 1797-1821 it was always with the expectation they would return to gold. Had they made the same decision as Nixon the pound would have crashed.

And incidentally because the UK returned to gold and cut taxes they became the dominant economic power in the 19th Century.

Mike Sproul November 7, 2007 at 12:08 am

DickF

That only means that people attached differing probabilities to the return of physical convertibility. Both the pound and the dollar stayed financially convertible throughout the suspension, which made physical convertibility much less relevant.

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