Don’t believe everything you read, everything you feel. Forget all the mad talk about moving to a new gold standard. It isn’t going to happen.
It limits monetary policy, causing longer, harder and deeper recessions with lower employment. It constrains prices in growing economies. Sticky prices, particularly wages, come to the fore and cause havoc with the real cost of labour.
Most importantly, it won’t do what people hope it will do – prevent governments printing money when they want to. A gold standard is only as strong as the government’s conviction to stay on a gold standard. Look around! Nobody is on the gold standard at the moment. That happened for a reason. This government may stick with it, maybe for a few years. What about the next? Unless there is a way to promise, eternally, to stay on the gold standard, it’s a mirage.
And thank goodness for that because gold standard or gold backed currency is a bad idea.
I see Paul Krugman and Brad de Long both heard Zoellick’s (he’s the World Bank president mentioned above) inane comments. De Long describes him as the Stupidest Man Alive. I’m going to steal borrow Krugman’s chart to show exactly how dire the deflation risks are (yes, not inflation).