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Comment by tzs | Hacker News Reader

From the "explain this in a paragraph" paragraph:

    Athens has run irresponsible deficits for a decade
    on top of an economy operating at a fraction of
    the productivity of Germany and France. If it were
    in control of its own currency, the solution today
    would be simpler. It would print more money to
    depreciate the currency until the value of goods
    fell relative to trading partners, which would
    grow exports. But Greece doesn't control its own
    currency. It's stuck with the euro, which bought
    ten years of low borrowing costs at the price of
    three years (and counting) of difficult, if not
    impossible, adjustments.

Interesting. Isn't this situation (not controlling your own currency) the same thing that happens if a country uses a commodity-based currency where there is a relatively fixed supply of the commodity? (E.g., gold). In other words, is what is happening in Greece a refutation to those who say we need to switch in the US to a gold-based currency?

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Basic macroeconomics is a refutation of the Gold Standard. The only people I've ever heard who promote it are those (usually libertarian) who object to the very existence of the Fed on ideological grounds. I've never heard a serious, mainstream economist propose it.

Interestingly, it's also a refutation of BitCoins as a currency. They actually make a very good commodity, but they're useless as a currency. The very scarcity that gave them perceived value in the beginning has led to the hyper-deflation that now makes them unsuitable for commerce. If they could be granularized (so you could pay 150 mBC), then they might be worthwhile. When the smallest transferable amount is $10, however, they kinda suck.

> I've never heard a serious, mainstream economist propose it.

Jim Grant has been calling for a return to the gold standard. He is the publisher of Grant's Interest Rate Observer, which is a very serious publication widely followed by professional investors.

http://online.barrons.com/article/SB500014240527023033924045...

Or maybe governments should just not take on ludicrous amounts of debt.

Debt isn't good or bad in itself. Whether a given debt is bad depends on some factors:

* What is the debt as a fraction of GDP?

* What is the interest rate on the debt?

* What is the growth rate of the economy?

* What was the debt incurred to finance?

If a large public debt finances critical public infrastructure that will promote rapid economic growth and interest rates are reasonably low, the country will be in a situation where the economy is growing faster than the debt and the debt-to-GDP ratio is going down. That's a good situation to be in.

Bitcoins are actually divisible, one bitcoin can be split into 100 000 000 pieces. I don't know how inflation would work though. You can't print more money. Maybe not having enough bitcoins would drive prices down.

I think you can make the case though that Greeks with savings in euro are quite glad that the government can't just devalue the currency when they see fit.

Also, the harsh measures which are necessary now could actually go some way to restoring the imbalances in the Greek public finances, whereas devaluation is just kicking the can down the road.

They will remain quite glad unless the Greek authorities decide to freeze all of their accounts and then summarily convert them into something (maybe "new Drachma") with considerably less value the way that Argentina did in 2001-2002.

I would personally be moving my money to a bank somewhere beyond the reach of the Greek government if I were them.

You just pointed out one of the many reasons that world economies have moved past gold-based currency. Commodity based currency also runs risk to sudden discovery of new quantities of commodity (like South American Silver mines), which lead to economic impacts for no reason at all.

To be fair, there should be economic impacts to the instant creation of valued resources.

I got downvoted here, so I thought I'd expand. If we replace "South American gold mine" with "the release of the iPhone" or "the creation of Google" perhaps my point is clearer - i.e. the creation of value should have economic impacts. Even in a fiat currency situation, the discovery of a massive South American gold mine would have an economic impact as someone now has access to more valuable resources than they did previously.

Now, if the currency was based on a commodity that has no value, then maybe your argument makes some sense, but precious metals were chosen specifically because they are valued irrespective of their role in currency. Besides, if an enormous amount of gold was discovered, sovereigns and governments still had control of the currency through debasement.

Cut it out with your rational arguments. This is a time for fear and panic. To gold! It's shiny, so you know it will protect you!

A gold based currency can still be devalued. Simply change the amount of gold it is backed by. For example:

"Congress passed the Gold Reserve Act on 30 January 1934;...The act also authorized the president to devalue the gold dollar so that it would have no more than 60 percent of its existing weight. Under this authority the president, on 31 January 1934, fixed the value of the gold dollar at 59.06 cents."

http://en.wikipedia.org/wiki/Gold_standard

debasement even happened when actual phisical coins made from precious metals were being used:

"Throughout history, governments have been known to create more coinage than their supply of precious metals would allow. By replacing some fraction of a coin's precious metal content with a base metal (often copper or nickel), the intrinsic value of each individual coin was reduced (thereby "debasing" their money), allowing the coining authority to produce more coins than would otherwise be possible. Debasement sometimes occurs in order to make the coin harder and therefore less likely to be worn down as quickly. Debasement of money almost always leads to price inflation unless price controls are also instituted by the governing authority, in which case a black market will often arise."

http://en.wikipedia.org/wiki/Coin#Coin_debasement

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