Top Pro & Con Arguments
A gold standard would limit the ability of the Federal Reserve to help the economy out of recessions and depressions, and to address unemployment.
Under the current fiat money system (money not backed by a physicial commodity such as gold) the Federal Reserve can use monetary policy to respond to financial crises by lowering interest rates during a recession, raising them during a period of inflation, and injecting money into the economy when necessary. A gold standard would severely hamper the Federal Reserve from performing these functions.
After the 2008 financial crash, the Federal Reserve’s TARP (Troubled Asset Relief Program) created $700 billion to bail out financial institutions and stabilize the economy. According to Nobel Prize-winning economist Paul Krugman, without that intervention a “powerful deflationary forc[e]” would have been created. Without the Federal Reserve’s intervention, the 2008 crash could have led to another Great Depression.
Former Federal Reserve Chairman Ben Bernanke stated a gold standard “means swearing that no matter how bad unemployment gets you are not going to do anything about it using monetary policy.”
Under our current fiat money system, the Federal Reserve can expand the US money supply by purchasing treasury bonds and the government can use this money to help put the unemployed to work through public spending as the Obama administration did with the $787 billion fiscal stimulus. The 2009 Obama stimulus prevented the loss of an estimated three million jobs.
During the COVID-19 pandemic, the Federal Reserve took similar measures: lowering interest rates to near zero, supported financial market functioning, corporations, and small businesses, and cushioning money markets. Under a gold standard these stimulus actions could not have occurred.Read More