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Bob Kneisley

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In 1970 President R. Nixon "temporarily" suspended the U.S. Gold Standard. In order to control inflation should we consider that system now?

President Nixon was embroiled in the Watergate scandal that stole the media headlines... so most Americans did not notice the abandonment of the Gold Standard. Since the standard was suspended, as now, inflation has risen each year.
Obviously, the rise of inflation is like a "tax" that siphons buying power from our citizens on a daily basis. Congress' spending was curtailed by the Gold Standard. Spending needs to be controlled today. Your thoughts?


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    Apr 25 2013: my opinion is: we don't want the gold standard. we want free market money. let people decide what kind of money they want to use. there might be many good solutions, and different people in different situation might prefer one or another. if someone wants gold, he can use gold. if someone wants to use bitcoin, he can use bitcoin. if someone wants to use government issued dollars, he can use dollars. if someone wants to use chinese yuans, he can do just that.

    in order to achieve that, all laws taxing, prohibiting or controlling the use of alternate money forms should be repealed. there should be no tax on exchange rate gains. there should be no limit or any red tape associated with alternate moneys. there should be no legal tender laws.
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      Apr 26 2013: Thanks Krisztian:

      Very well thought out comments. How would "free market money" limit Congressional spending and minimize inflation?

      My best,

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        Apr 26 2013: inflation is easy: if people suspect inflation in the future, they might simply opt for another money that does not inflate. there are debates about the causes of inflation. but simple logic tells that there can be no long term inflation if you use a money that has a fixed stock, like gold.

        congressional spending is a more complex issue. again, opinions differ, so hereafter i'm presenting the school of thought which i'm subscribing to. governments use 3 main sources to cover their expenditures. tax, inflation and debt. tax is straightforward, and not our concern now. the other two is interconnected. debt is expensive, and quickly spirals out of hand if interest rates are considerable. for that reason, governments (via central banks) create new money, and buy their own bonds. in effect, they push interest rates down. this eventually causes price inflation, as the money supply increases, according to the law of supply and demand (more money, less value). but at the same time money creation also directly supports government spending, since a great part of government bonds are not really represent debt, but just imaginary debt bought using new money. this new money ends up in the treasury, and the government can spend it. so in brief, new money ends up in the government's hands, plus it pushes down interest rates on bonds, making them more affordable for the government, so they can issue more.

        this entire process is based on money creation. if people don't trust the government money, they will simply not accept it, and the above described shenanigans come to a grinding halt, and the budget has to be balanced. if people are okay with that scheme, and trust it with their own savings, everything is hunky dory, and the government can go on.

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