The U.S. should return to a gold standard

Thanks to my opponent. I'll start by addressing the plan. 1. The Fed The Fed's job is to manage the nation's money supply. Pro advocates for removing that body and artificially restricting the money supply. He doesn't replace the Fed. This makes it impossible to combat persistent inflation or deflation, as well as unemployment. If our growth is quick, as he claims, then our economy "overheats", which means "inflation and the potential for asset bubbles." If it grows more slowly, "there would be a tendency toward deflationary pressure and recession. So, instead of having a central bank with the capacity to successfully counter-balance these tendencies, an economy with a fixed exchange rate regime [e.g. the gold standard (GS)] would continue to reinforce the existing negative trends in the business cycle."[1] 2. Using Gold/Silver As the economy grows, we would need more gold and silver. Without that, price levels, including wages and values of commodities, will fall. Much as Pro's really anti-inflation, he doesn't ever explicate any harms caused by inflation. Harms exist, but so do benefits, like reduced trade deficits, more affordable goods, and improved 401(k)'s.[7] Deflation has a similar give and take. What causes devastating harms is dramatic shifts in inflation and deflation. In the case of deflation, it deters consumption spending and investment, mainly because people think prices will decrease. It's happened before: between 1870 and 1900, when Pro asserts US growth was at its highest. Prices were forced down, workers suffered hugely reduced wages, and almost half of this time is considered to have been in recession.[8] 3. Overvaluing Gold and Silver Both gold and silver are already overvalued [2, 3], and they aren't stable. Gold, in particular, "can have very large movements within a day," which means the price of our dollar would fluctuate rapidly.[4] Unilaterally setting the price of gold and silver doesn't alter the realities international markets. 4. Replacing Currency First, printing 2 trillion in new notes is not trivial. Ignoring different denominations, the costs of disposing of every coin and dollar, and the costs of new engravings, even if we assume that the costs of production remain around the average of 10 cents per bill, that's still huge.[5] That's tens to hundreds of billions in costs just for production. Second, there will be discrepancies. The government will do an imperfect job of matching funds, especially with regards to overseas accounts and money kept out of banks. Even if we assume perfect matching, people are very likely to contest what they get on the grounds that they can get more if they sue the government. If we're just talking about adults, that's over 240,000,000 potential lawsuits. The costs would be staggering. Third, merely replacing these notes isn't enough. What Pro suggests would and could not cover outstanding US debt, as it stands at $19.5 trillion. That loss of control over our ability to pay the debt can lead to Great Depression-like collapse.[6] 5. Fractional Reserve Ratio What Pro is talking about is distributing an amount of gold and silver necessary for banks to be able to meet their deposit liabilities, i.e. the amount of these metals required to redeem the fraction of those 2 trillion notes that are deposited in banks. Pro's plan requires that roughly half of the gold and silver in the nation will have to be distributed to individual banks. But 20% is not enough. There's a reason the Great Depression was a huge economic crisis: the banks could not possibly exchange the notes they were receiving for precious metals. That could very well happen during a future crisis as well. But even if we're not considering crises, bank robberies become very costly under Pro's plan, and they happen roughly 5000 times a year.[9] Pro doesn't say what would happen if banks don't meet his standard, but chances are that this loss would force banks to close, whether by regulation or loss of consumer trust. Onto Pro's advantages. Capping the money supply is harmful. When we hit a debt ceiling (which we are going to do in approx. 5 months [10]), we won't be able to print the money required to increase our borrowing limit. So, if we implement Pro's plan, we are guaranteed to default. This means dramatic increases in interest rates for US treasuries, risk of insolvency, immediate across-the-board spending cuts effecting every government program, a stock-market downturn, plunging consumer spending, and a massive loss of confidence in the dollar.[11] Pro argues that people in other nations will bring their gold to the US to exchange and spend. I'd say this depends on pricing within the US, but assuming it's accurate, the reverse is also true: no one will spend on or in other countries with US dollars. Other countries are likely to respond unfavorably to that, as well as to spending within their countries shifting to ours. Our trade deals would massively suffer, and they're likely to implement tarriffs to ensure internal spending. It's unclear how the money supply can fluctuate under this system unless the government can dramatically alter the value of gold vs. the number of USNs. Pro doesn't explain how that's possible, or which body of government would do it. If they somehow are able to do this, though, then Pro is essentially treating this the same as a fiat currency, raising and lowering the values on the basis of internal requirements. All that does is allow a different kind of fiat in our currency. 1. Inflation Pro presents weak correlative data without any causative links. He doesn't explain any effects on the middle class, and his minimum wage graph doesn't help. It's not clear that the loss of the GS caused anything beyond more stability in these wages, given that his graph shows increases after 1971 and far more volatility beforehand, including several large dips. On workers wages, Pro's numbers appear to use raw dollars rather than purchasing power. The latter is more important because it represents actual value. I'm not sure where his graph is coming from, but the Bureau of Labor Statistics shows that purchasing power has stagnated since long before the GS was abolished.[12] These arguments have nothing to do with inflation. Let's look at inflation directly.[13] The highest inflation spikes are during the 1910's and late 1940's. Short-term instability is much higher during our history on the GS than our time off of it, staying high throughout the late 1800's and early to mid 1900's before going down over the same period of time that the GS was abolished.[14] So if inflation is the problem, Pro is engendering more of it more rapidly. Switzerland and Venezuela have completely different economies as compared to ours, and they are not under a GS. They add nothing to his case. 2. Economic Growth Pro doesn't source his data, but it's generally unclear what he's getting from this. Economics were very different 100+ years ago, and the situation has clearly changed, mainly because of the amount of deficits we have run up since then, but also because of the general size of the economy and a generally globalized world.[6] But let's be clear: the 1880's were not good for the US economy, as it was more prone to financial crisis. This is because gold doesn't flow into the US consistently " its flow changes based on interest rates, government pressure, financial or political emergencies and demand for non-monetary uses of gold. When this flow goes away from the US, it raises interest rates and cuts off credit. When it goes toward us, we have excessive liquidity, causing banks to take more risks and substantial rises in prices. Gold production is also important to this, as it dramatically affects prices by raising the supply.[3] Since we don't mine gold in the US anymore, we're at the mercy of any country that does. That means China.[5] Under a GS, they would control our currency and, thus, our economy. 3. Ponzi Scheme Pro talks about a ponzi scheme, pretends it's the same as fiat currency, and equates the two. Ponzi schemes are designed to resemble reasonable investments in order to trick people. Fiat money gives you a bunch of other useful properties in exchange for holding onto your things of value. People know that the value of that money will decrease " they're not being told that it will increase. It's honestly unclear how the two relate. If this system is somehow doomed to fail, then it's unclear how that would happen, and Pro doesn't explain. 4. Honesty and Morality Pro's metaphor is tortured: no one's being threatened with guns to take less money than what their product is worth, and store owners can charge what they wish for their goods. The government is using notes as a form of legal tender to ensure that people can actually set that value and have it met precisely instead of having to randomly ascribe value to goods and services. And yes, there is worth to this paper, mainly because we all accept that it has worth, not because the concept of worth is forced on us.[15] But why does this matter? Even if Pro's right that this sytem is being forced on us, he is just shifting to another forced system where the government ascribes value to notes based on what their overvaluation of two precious metals. Why is gold/silver any less fiat? Pro's just shifting to a different system that we also ascribe value to by popular opinion, except this one is limited by how much we pull out of the ground. That's not beneficial, it's just arbitrary. 1. http://cnb.cx... 2. http://cnb.cx... 3. http://bit.ly... 4. http://bit.ly... 5. http://bit.ly... 6. http://nbcnews.to... 7. http://nyti.ms... 8. http://bit.ly... 9. http://bit.ly... 10. http://on.mktw.net... 11. http://bit.ly... 12. http://pewrsr.ch... 13. http://bit.ly... 14. http://abt.cm... 15. http://ti.me... Back over to Pro.