Thursday, November 1, 2012


Let It Be Known That No Financial Crisis Was Ever Caused by Stable Money

Nathan Lewis

There aren’t many blanket statements you can make about economics. But there’s one thing that can be said with a high degree of confidence: No economic crisis was ever caused by stable money.
The purpose of a gold standard system is to produce stable money. Nobody has found a better way to do so. For the most part, it works. A gold-based, stable money doesn’t cause crises.
Of course, many crises happened during the gold standard era before floating currencies appeared in 1971. In the two centuries before 1971, people got into financial trouble for all kinds of reasons, none of which were caused by money that was too stable.
Since 1971, there have been plenty of crises caused by unstable money: a world inflation during the 1970s; a Latin America currency crisis in the 1980s; Japan’s lost decade; the Soviet sphere's hyperinflation. Mexico blew up again in 1995. In 1997-98, another round of currency disasters swept through Asia, and knocked out Brazil and Russia. Argentina blew up in 2001. Since then, the world has undergone another round of currency depreciation, with the dollar’s value sinking as gold rose from $350 to around $1,700 per ounce. This will not end happily either.
The characteristic crisis of the post-1971 floating currency era is that of unstable currencies. Eventually, people will tire of these completely avoidable events. They will stop searching for a way to solve nonmonetary problems with funny-money solutions. They will return to the principle of keeping the currency as stable and reliable as possible.
Why? Because no economic crisis was ever caused by stable money. When you finally decide that’s what you want, gold is your answer.
source: forbes

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