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<p>[QUOTE=&quot;Cloudsweeper99, post: 1180056, member: 3011&quot;]Under a gold standard that limits the ability of the Federal Government to create new money, they will NOT be able to go out and borrow whatever they need as they do now.&nbsp; The position of the Federal Government becomes more like that of the 50 states where borrowing capacity is tied to the ability to service the debt and not the need for unlimited debt.&nbsp; Lenders will have to analyze the debt service capacity of the Federal Government, recognizing that there could be a default if they lend too much - something not possible today.&nbsp; And Congress will have to limit spending, whether they like it or not, to what they can raise thorugh taxes and a much more limited borrowing capacity.&nbsp; On the one hand, this will lower interest rates to the Federal Government [without Fed intervention] because of lower inflation expectations, and will raise interest rates faster if the Federal Government borrows too much [since the Fed won&#039;t be able to monetize it].</p><p><br /></p><p>Consider history:</p><p><br /></p><p>Step 1: Kings could only spend what they had available in gold and silver plus what they could tax or steal.&nbsp; Maybe some bank will lend him a bit more, but they expect to get paid back relatively quickly - in gold.&nbsp; This obviously wasn&#039;t good enough for the average King.</p><p><br /></p><p>Step 2: Create a central bank to lend money to the King by having the central bank create the money - backed by gold.&nbsp; Throw in fractional reserve banking for good measure so the bankers can make money.&nbsp; This is better, but Kings have unlimited ambition after all, and the debt still has to be serviced by paying interest in the form of gold to the banks even if the debt itself is rolled over perpetually.&nbsp; So the King has to tax people to raise the gold to pay the interest, and people might eventually revolt.&nbsp; The King can borrow more than before, but is still limited by that nagging debt service requirement that limits what the banks will lend.</p><p><br /></p><p>Step 3: Get rid of the gold standard and just issue paper.&nbsp; Make it a law that everyone has to pretend the paper is as good as gold.&nbsp; Now the King is happy because he never runs out of money.&nbsp; Just borrow more and let the resulting inflation reduce the loan burden.&nbsp; No need to tax [except as a control mechanism over the people], so the people don&#039;t get angry.&nbsp; And even though they get upset about the value of the money going down over time, they don&#039;t really understand it.&nbsp; Just give them some more paper and they stay relatively quiet.&nbsp; Perfect.</p><p><br /></p><p>What a return to some form of gold standard will do is move us from Step 3 back to Step 2.[/QUOTE]</p><p><br /></p>

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