someone please help explain something to me in lamens terms?

Question

in 1986, our economy suffered a deflation or depression, and there was debate about gold and silver coinage. Sticking more toward economic explanations instead of political, can anyone explain to me what went on? What happened to make the fuss about gold and silver coins start? Who wanted to have gold currency? Who wanted silver? Why?
My research has been confusing me...can someone please just explain this to me because I am an idiot! Thanks =]

Answer 1

I assume you mean 1896. At the time the official money was created by the mint turning gold into coins. Since the economy grew faster than the rate of discovery of gold, there was a long term deflationary trend in the economy, where every year a gold coin could purchase more than the year before. The coinage of silver would have increase the rate of money (coins) minted, so would have greatly reduced or reversed the deflationary trends. Creditors and holders of financial assets profit from deflation and debtors lose, because debts are repaid with money that is more valuable that it was when the loan was made. Farmers who were mostly in the west/Midwest borrowed to put in crops, so they supported the free silver movement. Bankers and business mostly in the east were creditors, so opposed it. I was a major issue for the Democrats in the the elections of 1896, 1900 and 1908. They finally won the election in 1912 and made the argument over silver moot when the Federal Reserve was created in 1913 The fed printed paper money that was backed by percentage gold until the 1930, when the paper could not longer be redeem in gold domestically, but was still used to determine international exchange rates. In 1973 even this was abandoned, and gold became just another commodity.

Economists now believe that deflation slows economic growth even more than inflation, so Central banks create new money at a rate that produces a small rate of inflation. Not since the 1930's has the US had a year of deflation.

Answer 2

By 1986, Reagan and Volcker's (Paul Volcker, the Chairman of the Federal Reserve Board) policies had succeeded in "wringing inflation out of the economy," and we were in the beginning of a long boom that has lasted, with only a couple of short interruptions, until this day.

It was in 1979-80 that we were suffering what was called "stagflation," or a stagnant economy with very high inflation rates. Home loans went as high as 21%. During those times gold and silver hit all-time record prices because confidence in the dollar was low and many thought that money based on gold and/or silver would be steadier than dollars that lost value every day.

Unemployment was high, and the economy seemed to be stuck in a trap forever. President Jimmy Carter was unable to insitute any policies that would bring the country out of its slump, and Ronald Reagan was elected President in a landslide in 1980.