Friday, March 14, 2008

Gold finger

Follow up from here.

According to the BBC, Gold has now hit $1,000 an ounce.

Now, mark you, this is a significant sign of recession. The beeb points out people are fleeing the dollar, looking for secure investments - gold is the ultimate safe commodity.

Imagine, as my previous post did, that we had gold backed currencies. If that were the case, what we'd be seeing now, would be massive deflation, as the value of money rose and rose, and more things could be bought. Prices would tumble, left and right. That is a classic part of a crisis.

The effect of a massive down push on nominal prices would be that firms would be harder pressed to make the nominal price of their debts. Many would go under.

The fact that we are under a fiat money system means such massive deflation doesn't occur. Instead, we have bankers behaving as if inflation is still the problem (and we have official government inflation targets).

Inflation in a time of economic slow down, I believe, is called stagflation.

Labels: , , , ,


Post a Comment

<< Home