Why Asia Owns America
The Forgotten Benefits of the Gold Standard
One of the benefits of the gold standard,
long forgotten, was that it acted to regulate imbalances
in trade. Under the gold standard, trade imbalances
between countries were unsustainable because they
would self correct over time. Here is an example of
how that worked: When a country would export more
than it imported, it would accumulated more gold.
That is because it could take the surplus foreign
currency received in trade and convert it to gold.
As you have learned, when gold entered
a country from outside its borders, it always caused
inflation. That is because the surplus of gold (money)
relative to the goods and services available for purchase
always bids up those prices. When a country's goods
become more expensive, they also become less attractive
to its trading partners. As a result, the country
cannot export as much as it once could.
Back in the days of the gold standard,
more gold would then flow out of the country than
would come in, because imports would exceed exports.
Because of less gold in the country, prices would
eventually decline to where they had been originally.
World War I began in 1914, although
the United States did not enter the war until 1917.
In the early years of the war, England and France
depended heavily on the United States to provide them
with arms. As a result, gold flowed into the Unites
States, while arms flowed out. The incoming gold allowed
the banks to loan more money, causing the money supply
in the U.S. to increase by nearly 50 percent during
the period 1914 -1917.
When the U.S. entered the war in 1917,
England and France had all but exhausted their supplies
of gold. As a favor to England and France, the U.S.
suspended the gold standard and began providing armaments
on credit. Additionally, the U.S. printed money to
provide for its own troops. During the next three
years, the money supply again increased by almost
50 percent. When the war was over, the Allies looted
Germany. With the spoils, England and France paid
back their loans to the United States. As a result,
even more gold flowed into the United States.
Curtis Arnold is the country's leading
authority on inflation and a best-selling financial
author. His latest book, HONEY, WHO SHRUNK OUR MONEY?
is due out in 2006. Please visit http://www
.curtisarnoldreport.com for continuing coverage
of the perfect financial storm and investment updates.
The author is also available for speaking engagements.
Contact: curtisarno
ld@hotmail.com
