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Originally Posted by Von Tonner
Skybird, economics is not a forte of mine but I have a question. Would not the reintroduction of the gold standard help to bring some sanity and what would this do for SA if this happened?
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Ou, never thought on that, but in principle it makes sense not to print money freely, but to link it on real values and economical posseions in any way. The hidden inflation started to explode in the years after Bretton Woods was abandoned. This system allowed the US almost unlimited autonomy concerning its financial policies, but the Fed hat to base every dollar on gold reserves. All other nations had to adapt and run around to keep up with the system, so it was of great comfort for America, but did not treat others as equals. For corrections eventually needed if the system lost too much balance, there was the ICF founded (so one may ask why the ICF is still there when Bretton Woods has no meaning anymore, and judging by its questionable acts and influence this is a very valid question indeed, to me it was kept alive since it prooved to be a valuable tool for manipulation of the finance markets, and especially foreign economies of perceoved weaker nations, to bring them in line with the needs and demands of the first world industry, and keep them weak). Bretton Woods was abandoned when Vietnam became simply too expensive as that the US could afford it anymore without changing the way it raised it's funds. The price was costly, even more so since the dollar also is linked to oil sales, whioch gives America a constant revenue from every drop of oil being sold anywhere i the world (at least when it is OPEC oil). The ammount of money circulating increased dramatical in the following years and decades. Most people think of inflation in terms of price raises concerning every day goods and food and such things, and think the inflation is around 1-2%. That is wrong, the so-called "hidden" inflation which is measured by the increase of money and values that are circulating, compared to the time period before, is clearly in the tw-digit range, and you will get very different values from different sources: it varies between 10-20% (per year!), depending on what source and what method to count you choose.
When people tell me we have a stable currency, I can only laugh out loud. What we have instead is a gallopping inflation. This u nhealthy trend has seen a sharp increase in the past 10-15 years, when stockmarket deals suddenly became en vogue in Europe, too, and every little john smith and Hans Schmidt suddenly thinks he must own shares. an immense ammount of money (and value) was created that way - that has no solid "grounding" by real values in terms of goods, properties, material items. These fictional values were used to create new and other fictional values, via the stockmarket. see, this is how the immense bubbles and overratings were created.
Without need, I may add.
So, yes, at first glance I tend to think that linking currencies back to gold reserves may be a reasonable thing. but the opposition to such a move would be overwheliming. It is all those private people and companies and bankers that have a lot to loose once the bubble becomes apparent, or bursts. Currently I see no chance that going back to that system has even a slight chance. Also, the Chinese with their monumental reserves would not participate, and global economy design without china is a useless effort in the future. they would loose immense values, and the strategic option to threaten America (and the West, btw.) by releasing their dollars to the market. Why should they wish for that? It is not in their interest, and would slow their growth.