If a nation's currency was backed by Gold, it would hold value as long as the gold held out. Once you run out of Gold, all hell could break loose.
Be very weary of anybody claiming that we should go on the Gold Standard when there isn't enough gold in the entire world to back the dollar, much less the Japanese Yen and the British pound. It simply is not even possible and totally unnecessary.
I see a lot of people on various forums who say that as long as a nation has a balanced budget, its money will hold value.
Those same people (well meaning, even if oblivious to the reality in the world standing right before them) tell you that if a country runs deficits that the money of the country will decrease in value. Some (foolish though they may be) will tell you that their money will decrease in value in proportion to their deficit spending over time.
I am here to tell you that THAT THEORY is total Bolshoi under modern circumstances.
The reality is that deficits do not matter for the producing countries of the world. Both Japan and the United States have run up tremendous deficits in Federal Government Spending. The Japanese individual is more in debt than the American, but both are technically over their heads in debt because of their government's liberal spending.
Most of you will agree to that reality.
Now, agree to this. The value of the Yen has been going up along with the Japanese deficit spending for the past third of a century as opposed to the currencies of the less productive nations. Ditto the Dollar for the past century.
Our currencies go up in value against the Mexican Peso or the Venezuelan or Argentinian or whatever currencies as long as we are a more productive nation per capita.
The reality is that it is the productivity of a nation that makes its money have value. The United States is the leading manufacturing country in the world. The value of our products for export help hold the dollar up. That also includes natural resources. The United States exports oil, coal, nuclear fuel, trees, minerals, agricultural produce and so on. We have a balance of trade deficit but our money still holds value against the nations of the world.
We are not backed by Gold, but we are backed by CORN. (Corn and Wheat and Oats and Wood and 737's and weapons of war and so on....) As long as we keep on exporting CORN we are on the CORN standard. The hell with gold, as it is just another commodity like wheat and oats and pork bellies (We export a lot of them, too.)
The CORN standard works fine and a dollar bill can be exchanged for CORN at most any store. You do not even have to go to a Federal Bank like you used to have to do before the Great Depression. The Hell with gold. Some people horde it, but you can not eat it, and with the world's overpopulation problem getting totally out of control, I strongly recommend stockpiling corn on your shelves for your family. Let the idiots try to eat their gold.
The United States in producing all of this product is in competition with the other industrialized nations of the world. It is to their advantage to keep the value of their currencies low, to their products (their CORN) sells for a lower price than our products. Communist China has artificially pegged their YUAN to a very low value against the Dollar so the Chinese products can sell for less in the world's market place. The limit to lowering their Yuan is determined by their bottom line. They want to make money and lately the Chinese have been raising their profit margin from two percent to three percent to five percent and higher. If they go any higher, their prices will be up there with ours.
Since the other industrialized nations are keeping their currencies low as opposed to the Dollar, they are effectively determining the value of the Dollar (Our deficit spending has absolutely no effect. Even though our deficits have grown over the past half century, our Dollar keeps on going up against most of the world's currencies) The same holds true for Japan and they have a higher per capita deficit debt than the United States. At they have gone even further in debt, their currency has consistently gone up in value.
Quick, somebody go out and tell Ron Paul how the system really works.
Deficits? They do not matter! The Deficit can be totally make believe. Consider this reality. When the Fed buys our Treasury Bonds (effectively financing our national deficit spending) the Fed is a bond holder just like the Bank of Japan or the Communist Government of China. There is one difference and that is that the Fed takes our interest payments and deposits them in the US Treasury. (That is right, From the US Treasury to the Fed and then right back to the US Treasury after operating expenses are deducted.) When the Fed holds our bonds and notes it is as if we do not have to pay interest on it.
Tell this to Ron Paul who keeps on talking about the massive interest payments we will have to pay on the Federal Debt. Ah, Ron? They put it back in the US Treasury at the end of the year. Honest!
If the Fed purchases all of our bonds and notes outstanding, the US government would have no real interest payments to make. WOW! That is Right!
If you are not paying interest on a debt, what is that debt? That is right, it is just a ledger entry saying that you owe money. All of our national debt can be converted to a ledger entry that we can carry forward for eternity and never have to repay. Granted, it would be nice if we paid it back, but it is not absolutely necessary, especially right now since we are in an economic crisis.
That is right! Just carry it forward from year to year as a ledger entry. Either that or simply forget about it because it does not matter, as it is just ink on paper in the ledger that you can throw away of you want to.
No interest payments means effectively no debt. Exporting "CORN" means the other countries of the world force the value of the dollar up.
Hell, we are in fine shape. It would be nice if we could improve the economy a little, but Obama being a conservative (Compared to Romney) does not want to make Artificial Jobs to put people back to work. The Liberals expected him to do that like FDR did during the Great Depression, but Obama does not believe in Civilian Conservation Core or Works Progress Administration type jobs. The Private Sector is slowly recreating jobs and we are in recovery.
People need to learn how to look at the world standing right in front of them. Everything I write about is true. The United States is very healthy.