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Was The Gold Standard Really A Credit Money Standard?

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Of course, Greenspan ignores his own role in the creation of the boom-bust cycle which has doomed the world to series of ever more destructive bubbles and ultimately, hyperinflation which will likely be unlashed once the helicopter money inevitably arrives. In retrospect, the 90-year-old, who clearly is looking forward not backward, has a simple solution: the gold standard.

If we went back on the gold standard and we adhered to the actual structure of the gold standard as it exited prior to 1913,
we'd be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we've had in the United States, and that was a golden period of the gold standard. I'm known as a gold bug and everyone laughs at me, but why do central banks own gold now

An interesting statement. However on closer inspection of the gold standard during this period there are some slightly contradictory statistics.

From Derek H Aldcroft: From Versailles to Wall Street 1919-1929

P158 Between 1850-early 1870's 2/3 of monetary expansion was credit money in major developing nations and no less than 95% in the years up to 1914.

By 1914 85% of world money was paper and bank money, 10% gold and 5% silver.

p159 Triffin views the period as the growing credit money standard rather than the gold standard.

p166 BoE gold reserves equated to about £40m or 2-3 of the country's money supply.

So perhaps extremely leveraged???

p164 for the system to work the periphery economies appear to have bore the brunt of any major adjustments.

A similar argument made today that poorer countries face the cost of economic adjustments from within the core economic countries.

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When a gold standard and fractional reserve banking come together, you get booms and massive deflationary busts all the time. That is what they had back in the days. The advantages of the deflationary busts are:

(1) Clears out the weeds.

(2) Prevents moral hazzard.

(3) Makes people think more about who they should entrust their money with.

(4) Gives newcomers a chance.

(5) Rates will be higher.

Edited by Silverfinger

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In the USA in 1873 the people were prevented from taking their silver to the mint to have it converted into coinage.

1896 was when Bryan made his 'cross of gold speech' in the run up to the presidential elections. It was the ending of the bimetallic standard that caused so much hardship for the farmers and industry workers at the time. The bankers had all the gold when silver was demonetised and then refused to lend it out causing a lovey contraction in the money supply.

Greenspan as an apparent historian of money should know much better - unless he is just another banker shrill ... he sounds like a total tosspot making comments like that as if those times were all champagne and roses.

You do raise an interesting point about it being a credit based system. I had always assumed that a gold standard would be debt free, but that does depend upon who owns the gold at the time, and how much they charge for its use.

Edited by doahh

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I had always assumed that a gold standard would be debt free, ...

Wrong assumption. 'Banking' usually means 'fractional reserve banking', means the banks gives you credit over an amount of gold they don't even have in the vault. So, not only is there debt, there also is money/credit that is not 100% backed by gold. Therefore the fantastic boom-bust rhythm.

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