Originally posted by: SleepWalkerX
There's nothing that says our fiat system will invariably lead to economic disaster because in some cases it can work. However, if its managed incorrectly and government ineptitude increases then it can fail (for proof see Great Depression) and cause plenty of economic problems to go with it. Its pretty much non-disputed that the Fed caused the Great Depression (even Bernanke and Greenspan share this view). So this proves that central banking can potentially cause a massive recession.
Free market advocates state that there could be a system where money can be much harder to inflate by the government, where if a bank is poorly run then it fails, and if a bank fails then it wouldn't be as dramatic for the economy as if a central bank with a single currency were to fail (see Great Depression).
Frederick von Hayek is a well respected economist (won a Nobel Prize in economics) who made the argument for competing currencies. Check out some of his work.
http://en.wikipedia.org/wiki/Friedrich_Hayek
But there are dozens upon dozens of professors that view economics through an Austrian-economics perspective and contribute to the idea of free banking over central banking.
What was it that caused the Great Depression?
Essentially, when liquidity in the market dried up, because credit losses relating to stock margin accounts, the Fed was too worried about raising inflation. Thus, they contracted liquidity by raising rates and reserve requirements. Sure, they squashed inflation, but causes an even greater amount of monetary crisis, causing waves of defaults.
This all happened under a gold base system that had undergone several problems before, such as the 1907 crisis and several bank runs before.
One must remember that it wasn't the Central Bank system that caused the problem of 1932, it was the relative adolescence of economic theory and central banking. Economics is certainly not the perfect system and is more art than science, since you cannot always predict what decision will cause what problem.
It wasn't CB that caused the GD, per se, it was the imperfect prediction of future events based upon historical knowledge and gut feeling. This is nothing more than the reality of the situation and is something that would have happened whether we had the gold system or not, whether we had a CB, or not.
You see, without a CB, the same event would have happened, credit would have further contracted, and things would have collapsed all the same. What's funny is that goldists decry the Fed trying to curb the exact same problem, using that as an excuse to denounce the Fed. It's a ridiculous claim and one that only highlights their inability to understand the problem.
This is where people cannot quite figure out what to do. They fail to recognize what would have happened in the presence of absence of variables and they fail to recognize that no system is perfect.
Gold idolators would have you think that everything would be hunky dory under a gold system. However, the fail to separate that the problem isn't the fiat system, but the people who control it. If we, as Americans, decried deficits, then the problem wouldn't exist.
Even further hilarity ensues when they bring out Austrian economics, when Austrians don't even follow their own touted theories.
As far as multiple currencies, that didn't help prevent depressions before. Go back and read the economic happenings of the 1800s and the runs on banks, currencies, the virtual bankruptcy of this country, and the problems "competing currencies" caused.
Denouncement of the present system and advocation of the gold standard without knowledge of the downsides of both is false and blind.
One funny thing is this whole outrage against the "inflation tax" by goldists, but they have no idea who it affects and how. You have one huge gold idolator here, Bamacre, claiming it affects millions and robs old people, yet fails to understand bond investing, inflation, and using proceeds in retirement. It's laughable that these people elevate themselves to enlightened status to educate the masses, yet know nothing about what they speak of.
RPBs/goldists/gold idolators, in total, are ignorant of history, economics, and finance, and only advocate an unbalanced and unwise position. They will never come up with an empirical study advocating gold that has solid data supporting it, because there are none. It's a joke played on the unwise and ignorant. Yet the whole world uses fiat and has been pretty successful doing so.
But of course, they know more than the whole world and know history (HAH).
