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The Effects Of The Gold Standard On The Economy

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It's relatively common for some individuals, often referred to as gold bugs, to argue that the United States should return to the gold standard. This means that the currency would be backed by gold, a specific tangible asset, and could be traded for gold. If you are interested in weighing in on the debate, it might be helpful to understand what the pros and cons are of the gold standard:

Curbs Inflation

Having gold backed by a tangible asset means that the treasury would be restricted on how much it would be able to print based on how much gold would be available. This would help curb inflation, which would slow down the price of goods and services that would result from the devaluation of the currency.

Prevents Gold from Being Used

One of the downsides of the gold standard is that the gold held in reserve is not put to use. For example, the gold would not be used to make gold jewelry or other products. Since gold is seen has having more utility than as simply a tool for lowering inflation.

Changes the Nature of the Economy

Another problem is that the country's economy depends on how much gold it has available and less on other factors, such as the creation and sale of valuable products and services. Also, governments have historically shown more interest in holding their gold rather than focusing on improving businesses. Efforts to control gold have caused fluctuations in the economy, which have led to recessions.

It may not be possible to return to the gold standard for countries like the US now that they are dependent on floating exchange rates. This could negatively affect the ability of the U.S. to conduct trade with other nations.

Makes It More Difficult to Control Inflation and Recessions

Going off the gold standard would remove the ability to control the money supply from the treasury because the money supply would be based on the availability of gold. Therefore, the Federal Reserve would not be able to raise interest rates to reduce the money supply and fight inflation.

The Federal Reserve couldn't print money either to increase the money supply during a recession. However, for many advocating a gold standard, this inability to print money is exactly what they believe would impose the discipline necessary to prevent the federal government from printing too much money and would instead impose discipline.

To learn more, contact a company like Certified Rarities with any questions or concerns you have.