Essay Example on The Golden Rule or Fool's

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The Golden Rule or Fool's Gold Fort Knox the world's most secure vault It holds over 161 million ounces of gold for the US Government Status Report of But what is the purpose of this gold Back in the 1930s when it was built and the US followed a gold standard it was used for exactly that the money backing the dollar Before 1971 all the paper cash in circulation in the US was backed by gold thus meaning that for every dollar you had in your wallet you could go to the government and exchange it for one dollar worth of gold Any country following this system of handling printing and acquiring cash and gold its currency is said to be following or on a gold standard If not following a gold standard then the government has the ability to print and distribute cash without it having anything to back the cash up with Up until 1971 the US followed a gold standard but ever since then US currency has been a fiat currency that is not backed by gold or any physical asset

No one wants the economy to go into recession or even fail and returning to a gold standard is one of the best ways to prevent this Although many nations are deciding to turn away from a gold standard it has been proven to keep inflation under control prevent government overspending and decrease the US s trade deficits and national debt This debate has been going on for centuries but why It is because it has so much of an impact on everything we do as Americans The cost of goods government spending inflation and just about everything else is affected by the gold standard or the lack thereof Of course there are many other arguments for and against the gold standard including concerns of the government being able to address unemployment national defense and economic crises Bernanke Every economist would tell you that the kryptonite to a stable economy is inflation The ideal inflation rate range that many economists agree upon is 7 1 4 Billi Kahn Under a gold standard inflation has been proven to stay at about 1 6 opposed to the 9 17 it averaged under a fiat money system Rolnik Weber It is quite obvious to see that the average inflation rate under the gold standard is much closer to the ideal range compared to that of the fiat currency Since abandoning the gold standard in 1971 the national government has accumulated over 20 trillion dollars in national debt REPORTS Before then the national debt was just under 400 billion REPORTS In just 46 years the government increased the national debt by 50 fold

Without any restrictions on the government's ability to print cash they can print unlimited sums to pay for whatever they want to Under a gold standard the value of cash depends on the value of gold that the government holds Just like everything else the value of gold is controlled by the economic forces of the international market Thus meaning that while usually the value will increase over time causing some inflation its value could also decrease causing deflation Deflation unlike inflation is when a currency is buying power increases Although this sounds good over time prices can become unstable Moreover deflation has been involved in all the economic crises in America Returning to a gold standard could put the US at risk for deflation Although returning to a gold standard would put the US at risk for deflation it is not very likely to deflate enough to cause a major recession Also slight periods of deflation are better for the economy than long periods of increased inflation According to the most recent reports on the value of gold it has had stable growth in the past few years Gold Price Chart Although both are undesired in a stable economy a low rate of deflation is preferable to a high inflation rate because high inflation causes people to want to spend all their money now instead of saving it and face it losing value over time Although returning to a gold standard would be a lot of work and a significant change it would be worth it in the long run 



The main reasons the US needs to return to a gold standard are that it will reduce inflation over time limit government spending and help to decrease the US's trade deficits and national debt Currencies following a gold standard have been proven to have lower inflation rates The governments overspending can be reduced by having a currency that follows a gold standard by limiting the cash it can print This will also help reduce the national debt Although it might seem impossible to convert to a gold standard system steps can be taken to ease the US into it and reduce the immediate side effects Works Cited Status Report of U S Government Gold Reserve Status Report of U S Treasury Owned Gold www fiscal treasury gov fsreports rpt goldRpt current_report htm Bernanke Ben Origins and Mission of the Federal Reserve Lecture 1 Board of Governors of the Federal Reserve System www federalreserve gov aboutthefed educational tools lecture series origins and mission htm Arthur J Rolnik and Warren E Weber Money Inflation and Output Under Fiat and Commodity Standards www minneapolisfed org Spring 1998 Billi Roberto M and George A Kahn What Is the Optimal Inflation Rate www kansascityfed org QcdXg PUBLICAT ECONREV PDF 2q08billi_kahn pdf REPORTS Government Debt Position and Activity Report www treasurydirect gov govt reports pd pd_debtposactrpt htm Gold Price Chart Gold Price goldprice org gold price chart html


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