North Korea Changes Currency

Re:North Korea Changes Currency by sethg on Wednesday December 02, 2009 @09:07PM (#973499)

I am just barely old enough to remember the late 1970s, when US inflation went over 15% per year. People certainly noticed the inflation; it is one of the major reasons that Jimmy Carter was voted out of office. The chairman of the Federal Reserve dealt with the problem not by returning the country to the gold standard, but with the orthodox Keynesian technique of hiking interest rates, and it worked.

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Re:North Korea Changes Currency by dpatru on Thursday December 03, 2009 @07:08AM (#974196)

The reason banks can lend money at low interest even when nobody is saving is because they can create new money. A hike in interest rates means a reduction in the production of new money. If you define inflation as the increase of the money supply, then obviously a hike in interest rate, or equivalently, a reduction in the production of new money solves the problem of inflation.

A gold standard also solves inflation, but fundamentally and non-policically, by limiting money to the supply of gold.

The purpose of the Fed is to inflate the money supply for the benefit of the government, the banks, and borrowers who want artificially low interest rates at the expense of everyone else who uses money. If the Fed did not inflate, it would be no different from a gold standard, and in fact, when the Fed corrects inflation, it does so by reducing the production of new money as under a gold standard.

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Re:North Korea Changes Currency by sethg on Thursday December 03, 2009 @09:11AM (#974339)

If you define inflation as the increase of the money supply, then obviously a hike in interest rate, or equivalently, a reduction in the production of new money solves the problem of inflation.

That’s not how I define inflation, and I don’t think it’s how most people (even economists) define it. I define inflation as stuff getting more expensive.

If you define “inflation” as “increase in the money supply” and “value” as “value denominated in the mass of shiny rocks”, then yes, a gold standard prevents inflation and stabilizes the value of money. But this is a tautology, not an argument.

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