The US dollar has lost its value every day since 1971 when the Gold Standard was abolished. Right now Federal Reserve creates money out of thin air, loans to goverment, banks on interest. They tempt people to spend money that they do not have. In other words, people live beyond their means and they work their asses off to pay all the interests. They also pay taxes which the goverment uses to pay off its interest. The goverment pays about $600 Billion a year in interest. So this way wealth gets transfered from the middle class to the rich.
Will this change if US dollar is backed by Gold?
2007-09-23 19:01:08 · 5 answers · asked by jflsdkjflsad 2 in Social Science ➔ Economics
No. The price of gold would go up so that each dollar would need less to back it.
2007-09-24 01:03:56 · answer #1 · answered by jemhasb 7 · 0⤊ 0⤋
You're mixing a bunch of different thoughts in that paragraph, but the simple answer is that, no, switching back to the gold standard (or silver or any other standard for that matter), won't eliminate inflation.
Inflation is simply an inescapable component of economic activity.
First, it's important to understand what inflation really is. Simply, inflation is when it costs more to buy the same thing. Generally, there are 3 reasons why inflation goes up:
(1) The money supply goes up. In other words, there are literally more dollars in circulation. Money is a commodity like any other good -- be it a loaf of bread or a McDonald's hamburger. Therefore, money also obeys the laws of Supply and Demand. When the supply goes up, the value goes down. The more currency there is in the system, the less it is worth. That's one reason why a hamburger that used to cost 5 cents in 1950 now costs $3 -- there are simply many more actual dollars in circulation.
(2) Demand-push inflation. More people are trying to buy the same good, therefore the cost goes up.
(3) Cost-push inflation. The cost of producing a good goes up. For example, say that it costs McDonald's more to buy their hamburger patties. In order to stay profitable, they will raise the price of their hamburgers to absorb that cost.
As you can see, none of those reasons has anything to do with the standard on which currency is based. The closest tie-in would be the money supply, but even that is not directly related to gold since the Fed could easily manipulate the value of the currency by buying or selling its gold reserves, increasing or decreasing the amount of paper currency it prints, or raising or lowering interest rates. The gold standard would only affect inflation if we actually traded in gold ingots instead of currency.
2007-09-24 02:13:50 · answer #2 · answered by Chris D 2 · 1⤊ 0⤋
If the economy would grow faster than the increase in gold, there would be inflation. Money is just there to facilitate transactions, and if more transactions take place, more money is needed. Using the gold standard could therefore be very bad if supply of gold does not keep up. This is the reason the gold standard has been abolished and central banks should be independent from politics, because they are the guardians of inflation. It is their job to keep money supply in balance in such a way that inflation is minimal. Any standard based on a physical good like gold would make this kind of sound principles impossible.
2007-09-24 09:58:40 · answer #3 · answered by Cheanea 3 · 0⤊ 0⤋
No, althought the rule of investing have changed, the Great Depression money was backed by gold. People over speculated on the Markets causing inflation that burst causing the Depression.
Inflation is too often caused by buying on extended credit, not the backing of the monies.
2007-09-23 19:10:59 · answer #4 · answered by Carl P 7 · 1⤊ 0⤋
maybe yes and maybe no.
2007-09-23 23:09:01 · answer #5 · answered by Shizuka M 2 · 0⤊ 0⤋