What Happens After QE2 Ends?

I read your article and I want to say that there are a few issues when it comes to the distribution of goods. Most people overlook a very vital aspect of prices. Not only does it denote the "value" of a good, but it is a signal of its demand and supply. Prices go up and down, not just because of corporate whim, but in response to supply and demand. An economy that is based on the lack of prices will find that demand is unlimited, and will lead to shortages and mass scarcity. Additionally, a "as needed" basis of distribution fails to look at the incentive of the supplier to actually supply goods. If a "supplier" exists, why should I invest in the enterprise of supplying things if I can be an "as needed" consumer.

What is honestly wrong with the monetary system is that we ascribe value to sheets of paper that are monopolized by a single printer (namely the Federal Reserve). When people stated that gold standard had problem, it wasn't due to the nature of gold itself, but to the printing of the dollar representation of gold.

Bretton woods broke down not because it was flawed, but because it was too strict. The influx of printed dollars to fund activities that gold alone could not pay for lead to a bubble that collasped. The bubble is created by the artificial tampering of the marketplace by raising and lowering interest rates and the supply of dollars without acknowledgement of the scarcity of the goods (gold or silver) that were to back the dollar.

Honestly, the price of gold in recent times is a reflection of this. Although it is no longer currency for the us and most of the world, its reaction to inflation is still the same (in general rises with inflation, falls with deflation -- a store of value through time when adjusted).

I'm not a blind advocate of the gold standard, but what is needed is stable currency. Gold standard was not stable due to the greed of those who needed to wage wars, create social welfare programs, and finally corporate welfare programs.

Under a gold standard, it would be impossible to spend beyond your means except by deception, but bubbles would still erupt. Now under fiat currency, we can fund everything we want, but at expense to the political stability of a country, and the mis-allocations of the market place.

Using Money is better than relying on ad hoc supply and distribution controls (emphasis on control). It leads to the use of force to create prosperity which means tyranny. Monetary systems work when you remove coercive facets from the economy (gov't structures that dictate rather than create transparent marketplaces, etc.)

Matthew Blackmon of NC 4:16PM August 19, 2011