Wednesday, December 15, 2010

Gold, Silver, Ron Paul and the Fed

Karl Denninger put out a rebuttal to some of his criticism toward the gold standard... And it was complete crap. He posits that under the gold standard there were periods of extreme inflation and deflation. He is absolutely right if the numbers posted in his chart were right. See below:

Unfortunately, the rather intelligent Denninger completely disregarded the causes of the periods of inflation and deflation. In a capitalistic economy, there should be a consistent trend towards deflation. Overall, this is the case during the years leading up to the creation of the Federal Reserve. The time periods of high inflation can nearly always be explained by the excesses of a reckless and warmongering government.

Take the first spike while under Britain's rule circa 1740: King George's war with Spain

The second spike: The American Revolution

The Third spike: The War of 1812

The Fourth spike: The Civil War

The Fifth spike: World War I

The Sixth spike: World War II

The Seventh spike: The Vietnam War, end of the gold standard, and the beginning of the great American Financial Manipulation

Karl's disregard of the causes of currency manipulation and the subsequent inflation/deflation cycles is surprising considering that he generally does an excellent job of connecting the dots. I am not necessarily a fervent gold standard supporter. I am a strong supporter of free markets. The existence of a monopoly currency controlled by a central bank is totally against free markets. The market, if allowed, would choose the currency to transact with. If there were competition in currencies with a credit system backed by gold and silver, I am guessing the market would prefer that currency since is backed by something tangible and hard to manipulate. I am also not against credit. Credit makes transactions quicker and smoother and spreads risk. Without it we would be stuck in the days of gold transfers, which is insane.

So please Mr. Denninger, revisit your thoughts on the inflation/deflation cycles. You admit that in a capitalistic society, prices should fall, which is exactly what happened during the gold standard when you exclude times of government excess and stupidity.

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