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The Gold Standard
Transcript of The Gold Standard
2006 - Present Alan Greenspan
1987 - 2006 A political economic philosophy that believes that government fiscal and monetary policy can help close any output (GDP) gap in the economy An institution that manages a nation's currency, money supply, and interest rates. Possesses a monopoly on increasing the nation's monetary base, and usually also prints the national currency, which usually serves as the nation's legal tender. Commercial Bank (Local Bank) Provides transactional, savings, and money market accounts and that accepts time deposits. High rates set by "The Fed" cause banks to borrow less, tightening the money supply and driving up interest rates for businesses and consumers. Commercial banks set their prime lending rates off a spread tied to the rates set by their central banks Landmark
Bank It's a Barbarous Relic! 1834 - 1932: The Gold Standard 1933 - 1970: The Gold Exchange Standard 1971 - Present: The Fiat Money Era Phase I - The Gold Standard U.S. fixed the price of gold to $20.67 per ounce U.S. dollars and gold were interchangeable according to the fixed price Average annual inflation rate was 1.43% Phase II - The Gold Exchange Standard Private ownership of gold by U.S. citizens was outlawed by President Roosevelt. Only foreigners could demand U.S. government to exchange gold for dollars Average annual inflation rate was 2.97% 1834 - 1932 1933 - 1970 Phase III - Fiat Money System Nixon declared U.S. dollars could no longer be exchanged for gold by anyone, foreign or domestic Since 1971, gold and dollar prices have fluctuated wildly Average annual inflation rate was 4.47% 1971 - Present Roosevelt's "Contributions" Elected in '32, during the Great Depression Runs on the Banks U.S. Government control over all gold in the country In 1933, made it illegal for U.S. citizens to possess gold coins, or to exchange dollars for gold. Arbitrarily raised price of gold from $21/oz. to $35/oz., devaluing the currency by $14 Nixon Shock!! In 1972, inherited the Vietnam War and ultra-expensive social programs. Unilaterally canceled the direct convertibility of the U.S. dollar to gold; ended the existing Bretton Woods system. Imposed a 10% import surcharge. By 1976, the WORLD's major currencies were floating - very few followed a gold standard anymore. To be continued... Now that we're using fiat money, what does this mean for us? How is the current system affecting our economy? How is fiat money affecting the global economy? Why do we even care? Sources http://seekingalpha.com/article/127585-the-gold-standard-and-inflation