Re:Can the Oil Shock Alone Explain the Financial Crisis?
by anigbrowl on Thursday April 23, 2009 @02:52PM
(#576261)
There is no such thing as 'sound money'. Being on a gold standard is not a panacea: you're just exchanging one kind of debt marker for another. The US was on the gold standard in 1929 and other countries were on it much later. Booms and busts will still occur.
As soon as you move away from a barter system and give up trading bullets for beans, then whatever you substitute, whether it's gold, greenbacks, or cowrie shells, is someone's obligation to pay - with a bank or government treasury acting as their proxy. The Dutch Tulip mania in the 17th century is a case in point. No matter how treasury power is configured, it will be open to abuse.
This is not to dispute your valid points about moral hazard. However, the 'sound money' meme is nothing more than a fetish which appeals to people who have trouble dealing with the abstractions of economics. In the simplest possible therms: gold is only valuable because a lot of people believe it to be so. Blaming the Fed for everything is a rabbit-hole down which intelligent analysis goes to die. Countries with an independent central back are almost always more stable than those where the government has direct control of the money supply. Today's outstanding example of that is Zimbabwe.
As soon as you move away from a barter system and give up trading bullets for beans, then whatever you substitute, whether it's gold, greenbacks, or cowrie shells, is someone's obligation to pay - with a bank or government treasury acting as their proxy. The Dutch Tulip mania in the 17th century is a case in point. No matter how treasury power is configured, it will be open to abuse.
This is not to dispute your valid points about moral hazard. However, the 'sound money' meme is nothing more than a fetish which appeals to people who have trouble dealing with the abstractions of economics. In the simplest possible therms: gold is only valuable because a lot of people believe it to be so. Blaming the Fed for everything is a rabbit-hole down which intelligent analysis goes to die. Countries with an independent central back are almost always more stable than those where the government has direct control of the money supply. Today's outstanding example of that is Zimbabwe.