Wednesday, September 29, 2010


Discount everything until you get to the present value of today.

Wednesday, September 15, 2010

The Gold Standard

[In response to a WSJ article by Michael S. Derby:]

Greenspan states that the current fiscal stimulus efforts by the US government haven't worked because we are still on the gold standard, and that "you’d be far better off to allow the normal market forces to operate." But is it really as simple as that? If the gold standard's entire premise is based on an agreement by participating countries, where the long-run price of gold is determined by the market (and not by governments and central banks), then what happens to the effectiveness of one country's economic policy (i.e. the United States') if other countries are no longer truly following the standard (i.e. the EU's use of the euro)?

Economies on the gold standard seem less resilient to offsetting real or monetary shocks, an observation generally supported by what occurred during the Great Depression. It also puts the burden on countries with "weaker currencies" to ultimately force higher unemployment. To a large degree, such confounding factors cloud Greenspan's rationale here. Perhaps this is why policymakers are struggling with bringing us out of the current recession.