Quote from palenimbus:
I never said a Gold standard would not work.
My point is fiat currency best caters to the inherent tendency of wanting to consume more.
Besides a bunch of people on the fringe. It's agreed that inflation has stayed low in recent years despite rapidly expanding money supply. It is agreed that Americans in aggregate have never been richer, lived longer and have never worked less. So what is the problem that Ron Paul is supposed to solve?
Why is there such a strong grassroots support for RP? In my opinion, there are no real pressing problems facing americans, the iraq war has no direct financial consequences and excuse my callousness but the human cost of the war is low as well, not enough to have a direct impact on the everyday person. I think that support for RP in a product of peoples fantasies of gaining more control over the government, wanting to feel special but not actually accomplish anything. RP feeds that.
The main problems resulting from fiat money are asset price bubbles and busts as a result of intervening in the interest rate markets on massive scale, and serious erosion of the purchasing power of savings via inflation. We had a dot.com bust of historic proportions a few years ago, the Asia crisis before that, and now one of the biggest credit bubbles in human history is bursting, with damaging consequences for millions of citizens. There is also an incipient dollar crisis which if action is not taken, will also have serious effects (you can already see some in the rising price of gasoline, for example).
Yes, a reasonably free economy can still grow steadily, but it will not grow as fast overall as an economy which does not distort its interest rates (since the distorted economy will have more malinvestment resulting in boom/bust greater than normal). Furthermore, inflation means that the growth will disproportionately benefit the financially sophisticated, and penalise the poor and working class (the least able to hedge vs inflation).
It is clearly false to say that asset-backed currency is "impossible".' It may be difficult to persuade people to support it, but it is obviously not impossible, any more than invading a foreign country, or introducing socialised healthcare in the US is "impossible".
I take issue with your presumption that government spending is cheap as long as interest rates on bonds are low. There are massive costs to government spending in addition to that. Firstly, huge portions of it are wasteful. Private capital on aggregate turns a profit on each dollar, maybe 5% real return on capital (or better) or the entrepreneurs and investors go out of business. Government on average turns a loss (probably quite a large one) on each dollar spent. Just look at any state run industry versus the results after privatisation. So every $1 reduced from government spending will result in a 1cent to 100 cent loss becoming a 5+ cent profit. That is a HUGE gain. 1/3 of the US economy is government spending. A 10% swing in value creation by getting marginal dollars from government to private hands would mean $150 billion in extra value creation per year - 3% of GDP. Compound that over 30 years and you have a giant effect - enough extra capital to increase average life expectancy several years, massively reduce infant mortality, and increase real wages dramatically higher for example. Capital is simply vastly more productive and efficient in the private sector, that is the pressing need for reducing taxes as much as is feasible whilst still maintaining law & order and national security, and keeping whatever social safety net society deems to be morally imperative.
That is leaving aside the moral argument for lower taxation.
Fiat currency has nothing to do with foreign policy. Genghis Khan did not have a central bank, nor did the Romans. The US in the 1930s was the most isolationist society in the western world, yet it had a central bank & fiat currency, and went off the gold standard.
Switzerland until fairly recently had a gold-backed currency. They became one of the richest countries on earth (and still are).
Liquidity is not remotely adversely affected by having a fixed or stable money supply. In fact, high inflation discourages liquidity because it raises the cost of holding cash balances. See how much cash people hold in Zimbabwe, or how easy it is to buy things there.
Countries do not have fiat currency because of globalisation. Globalisation did not exist until 1990, yet fiat currencies were in place way before then. International trade in the 19th century was far higher as a % of world GDP than in the 1930s to 1970s period, yet the former was dominated by a gold standard and the latter was dominated by fiat currency.
All your main points are contradicted by both theory and empirical evidence.
