Does the following statement make sense?
As the value of the Canadian currency depends largely on the performance of the economy it can deceive investors as inflation over the long term raises equity prices and therefore equity indices. Normalizing the Canadian dollar to the price of an ounce of gold eliminates a portion of currency specific noise by comparing the composite to a global estimate of value. This is assuming that gold is considered to be the most accurate representation of wealth.
…..
Related posts:
- Could anyone ever get these Palin quotes to make sense? 1. "As Putin rears his head and comes into the air space of the United States of America, where– where do they go? It’s Alaska. It’s just right over the...
- Bush /Obama opposite sides of the same counterfeit coin. do you agree with this statement? old bush/clinton same situation, its time for a 3rd party....
- What is the best Canadian bank to use when withdrawing from European ATMs? Debit cards are apparently the way to go when traveling in Europe these days as the exchange rates from the bank appear to be unbeatable. So I’m trying to figure...
Unfortunately, it does not.
For some bizarre reason the myth of the currency pegged to the gold price just refuses to die, although there is no rational economic argument to support the gold or any other commodity backed currency! (Why does it have to be gold, anyway? Why not diamonds, orange juice or pork bellies?)
The fundamental problem with the gold standard is the Liquidity Problem: there has to be an increase of the money supply as the economy grows. The money supply should roughly grow at the same pace as the general economy grows. The Bretton Woods currency system, which was the last remnant of the gold standard, collapsed in the 1970s because there was simply no reliable mechanism to increase the available gold reserves to keep pace with the growing world economy.
Even before most countries abandoned the gold standard before the World War II, the monetary policy was highly dependent of the discovery and the mining of new gold reserves, resulting in out of control monetary policies and contributing to the Great Depression in 1937.
A return to the gold standard, advocated by some kitchen table economists left behind by time and reality, would throw the economy into cardiac arrest, into deflation and a recession far worse than what the world has seen so far.