The Choice With Currencies Today: Fixed Or Floating? Fooling with currencies is always destructive

Forbes ^ | 06/03/2011 | Nathan Lewis

[SeekAndFind]

Technically, pegging a currency to gold--via some automatic mechanism like a currency board--is no different than pegging it to the euro or dollar. There's nothing inherently difficult about it. Eventually, one might conclude that gold is a better thing to peg to than the euro or dollar. Just read the newspapers and see what Ben Bernanke or the ECB are doing with their floating fiat currencies. Who wants to be a part of that?

The Keynesians, at first, will typically try to insist that this is not possible at all. They insinuate that currencies are naturally free-floating, and that to manage them amounts to "market manipulation," which is inevitably doomed to failure.

This is nonsense, of course, so when the Keynesians are pressed on the matter--when they see that they aren't going to get by so easily with these sorts of rhetorical tricks--they admit that fixing a currency is entirely possible. However, you would have to give up "sovereign monetary policy." This the Keynesians would never do, because it is the core of their entire soft-money religion.

For example, here's Paul Krugman explaining the "impossible trinity."

Actually, there isn't a "trilemma" as some describe. One of the combinations--sovereign monetary policy, fixed exchange rate and controlled capital flows--is not inherently stable. The controlled capital flows would allow a government to maintain this unstable condition for longer than it would otherwise, but eventually something would give.

[Tublecane]

“Technically, pegging a currency to gold—via some automatic mechanism like a currency board—is no different than pegging it to the euro or dollar.”

That “technically” has a lot of explaining to do. It most certainly is different.

[allmost]

Common sense hands on vs fiat. There is a reason commodities are high despite the depression.

[apillar]

I took several courses in economics and monetary policy in college and I still barely have a clue how it works in the real world. I can only imagine what the average man or women on the street thinks about it.

[allmost]

It boils down to division. Which is why porkulous 1,2,now 3(they call it QE now) seems to work for inflation lovers. All values are divided by the denominating unit, in theory. People 'on the street' seem to think the government can just print money and 'it's all good'. People en masse have always been stupid. It's axiomatic historically.

[Socon-Econ]

Milton Freedman stated the case for flexible exchange rates many decades ago. The problem with fixed rates, whether via “pegs,” currency boards, or the gold standard, is that no government is wise enough to fix exchange rates at the “right” level. Nations have varying rates of inflation, and the terms of trade change as international consumption patterns change. As these factors change, the exchange rates will have to change change along with them in order to avoid economic problems.

[SunkenCiv]

Thanks SeekAndFind.

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Gold : prices, facts, figures & research

Commodity Numbers FAQs

How much gold is there?

In the world there are currently somewhere between 120,000 and 140,000 tonnes of gold ‘above ground’. To visualise this imagine a single solid gold cube with edges of about 19 metres (about three metres short of the length of a tennis court). That’s all that has ever been produced.

Divided amongst the population of the world there are about 23 grams per person, about 1.2 cubic centimetres each. This equates to about $250 - $350 worth per person on Earth, depending on the current price.