More Gold Standard Pummeling

Marketwatch:

Look, let’s acknowledge what adopting a gold standard would do:

• It would guard against inflation by linking currency to something in fixed supply.

• In doing so, it would lessen government’s ability, through the Fed, to manage wealth. That’s because inflation effectively shifts wealth from citizens, who can’t print money, to the government, which can.

• It would effectively fix international exchange rates — something that could potentially help us in our imbalance with China and other countries that have gamed the foreign exchange system to their advantage. (China would suffer inflation, U.S. deflation making our goods more competitive.)

It all sounds wonderful, of course, until you consider the downside:

• Deflation is a necessary part of a currency on the gold standard. It absolutely crushes debtors. That’s why politicians talked about the standard nailing people to a “cross of gold.” When you owe money and your wages fall, you may be able to buy the same things at lower prices and maintain a quality of life, but your debt gets bigger.

• As a result, it would have a dampening effect on the credit markets.

• The government would have little power to do any managing of the economy. It couldn’t set the price of gold, or pump money into the economy by expanding the money supply as the Fed does today.

Now, I don’t want to entirely discount the benefits of the gold standard. The system would do much to solve the problem of debt bubbles and trade imbalances. Nor is the current fiat system perfect. We all know its limitations. If you think all of this so called “managed economy” stuff is working then you probably think we have full employment, a balanced budget and a chicken, or iPhone or its Samsung copy, in every home.

A big problem is that the gold standard never works. It’s like getting back together with that old girlfriend. Your memories of how good it used to be are tainted by your current pain of loneliness. I get it. The pull is very, very tempting. But haven’t we gone down that road enough already? See related commentary on gold as an investment .

Yes, it's not going to happen, whatever the freaks in the Republican platform committee do.