Since fiat in the US, we have the two worst economic crashes (great depression and great recession). Under gold standard, recessions were more common and smaller in impact. To my layman eyes, it looks like we are just smaller, more frequent adjustments for fewer, bigger adjustments.
the fiat system allows the central bank to 'kick the can down the road' and hold off economic re-alignment for awhile, but it hasn't shown that it can completely eliminate boom/bust cycle.
The US -- and most of the world -- was still on the gold standard at the time of the Great Depression, and in fact some economists have blamed the length and depth of the depression on the gold standard.
Well, explain how fiat currency is better for the median income family? Standard of living, wages, purchasing power, debt load, etc have all been terrible for the middle and lower class since 1972 (relative to the periods before).
I'd choose instability over a system that transfer wealth from lower to upper class (which debt based inflation does).
Who cares if the economy is more stable if it is not increasing the standard of living for the lower and middle class?
All as a fairly direct result of fiscal (and, more specifically, tax) policy. But nice post hoc ergo propter hoc there.
> I'd choose instability over a system that transfer wealth from lower to upper class (which debt based inflation does).
Deflationary currency transfers from debtors to creditors, whereas inflation transfers wealth from creditors to debtors. I think you've got which currency system represents an upward transfer of wealth backwards.
> Who cares if the economy is more stable if it is not increasing the standard of living for the lower and middle class?
The problem is that transferring from the current currency system to a deflationary one based on Bitcoin would not only make stability worse, but it would also increase the upward transfer of wealth.
Inflation does not impact all people in the economy evenly. When new debt money is created it has its full purchasing power. As it works it way through the economy, it loses purchasing power and raises price levels. When the fed creates new money in its accounts, it transfers wealth from all currency holders to the receiver of the new funds.
The other mechanism that fiat credit currency increases inequality is fractional reserve lending. With fiat and a central bank (lender of last resort), fractional reserve banks lend a lot more than without fiat money (lower reserve ratio). Increased debt loads (especially debt for consumption) transfer wealth from debtor to creditor. Also, increased debt levels overall benefit creditors in general. See total consumer debt, it started accelerating after 1972. http://www.mybudget360.com/wp-content/uploads/2009/02/debt.p...
I contend that the wealth equality gap increasing from 1972 to current is better explained as the direct result of fiscal policy, particularly tax policy changes which both reduced the (higher with increasing income) income tax and increased the regressive in part and flat in part payroll tax, and has nothing to do with change from the mostly fiat dollar of the late "gold standard" period to the pure fiat dollar of the post "gold standard" period.
> Inflation does not impact all people in the economy evenly.
Right, it transfers wealth from net creditors to net debtors through decrease in the value of assets denominated in the inflationary currency.
False. We we on the gold standard during and before the great depression. Bank runs, panics, and depressions were of the gold standard era and have been virtually eliminated by the introduction of fiat currency.
> Under gold standard, recessions were more common and smaller in impact.
Also false. They were more common and bigger in impact. Since fiat money has been introduced, recessions have been smaller and shorter.
> Bank runs, panics...have been virtually eliminated by the introduction of fiat currency.
How many financial institutions failed in 2007 - 2008? How much panic selling happened? I don't call that virtually eliminated.
> How many financial institutions failed in 2007 - 2008? How much panic selling happened? I don't call that virtually eliminated.
Then you're not looking at the big picture. I didn't say eliminated, I said virtually eliminated, which means you look at total bank runs and panics while on the gold standard vs those while on fiat. Please stop this logic by anecdote argument style, it's fallacious and intellectually dishonest. Look at the history of recessions http://en.wikipedia.org/wiki/List_of_recessions_in_the_Unite...
http://en.wikipedia.org/wiki/Gold_Reserve_Act
I agree it was not a complete debt based fiat currency, but it's not accurate to call it gold standard. As soon as you create a central bank, you are not on a gold standard.
He didn't say that. He said we were on the gold standard during the great depression, which is true.
> The gold reserve act of 1935[1] devalued the currency by 40% and outlawed the private possession of gold.
Which happened near the end of the great depression.
Nothing you've said disputes anything he said. What's your point?
One defining feature of representational currency (which is what the currency based on a X standard, as opposed to direct use of commodity X as currency is) is that the currency is redeemable (possibly generally, possibly only for some defined set of holders) for the commodity it represents, which carries the risk that the issuer will alter the redemption rate. (This risk is somewhat mitigated -- but not eliminated -- in a full-reserve gold standard, where all the representational currency is fully backed by gold, but the fact that the issuing entity must have the theoretical capacity to redeem all currency doesn't mean that it will do so.)
You seem to be confusing the features of a currency baed on a particular commodity as a standard with the features of using that commodity directly as currency. They are related and overlapping (both are subject to volatility caused by supply shortages or gluts in the backing commodity, for instance), and often coexist (its not uncommon for a system with a gold or silver standard representational currency to also use gold or silver specie as currency with equivalent nominal value, though the effective market value may differ between representational notes and specie based on the factors of convenience and perceived risk associated with the government backing the representational currency.)
> As soon as you create a central bank, you are not on a gold standard.
The existence of a central bank is orthogonal to currency standards, though obviously a central bank has more tools at its disposal in a fiat system than in a gold standard system.