Re: Gold

[christian11@xxxxxxxxxxxxxx]

David wrote:

>I specifically said that the money supply will fluctuate under a gold
>standard in respond to liquidity demands.  The point is that the
>decision of increasing/decreasing the money supply will be made by the market, not the idiosyncracies of the Fed governors.

In theory, this is supposed to work counter-cyclically--which was your complaint about Greenspan in a previous post. Only in this case, the countercycle is boom-and-bust rather than incremental restraint.

But the point is that you overestimate AG's ability to control money supply. Assuming that we did return to a gold standard, there is still nothing to stop financial innovation--indeed, as market enthusiasts so frequently boast, efforts to restrain credit are often the source of new financial inventions. Why would you want to try and restrain that?

Christian