Quote from: gabbo876 on February 04, 2014, 08:50:13 PM

Don't mean to bash anyone, but some of you are misinformed.

The world used to operate based on a Gold Standard, it actually was an excellent alternative currency - but only when things were "good". The reason for its failure, was because the standard performed/performs poorly during a crisis. Firstly, physical gold wasn't transferred between persons. Gold certificates were used as paper currency in the United States from 1882 to 1933. These certificates were freely convertible into gold coins. So you could "carry gold around and pay for stuff". Now it failed after World War II and is often blamed for prolonging the depression because during a crisis, persons HOARD their certificates/physical gold (of limited supply) which would halt the interchange of money. Production prices would rise, wages would fall, and no one could afford a thing. Adherence to the gold standard prevented the Federal Reserve from expanding the money supply to stimulate the economy, in comes fiat. So stimulation here was a good thing (whenever is it not? :-p).

False.

The significant hoarding occurred not because of gold but because of the Federal reserve which changed the US dollar into an inflationary currency from 1913.

http://www.westegg.com/inflation/infl.cgi

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What cost $100 in 1913 would cost $172.72 in 1929.

The creation of the Federal Reserve in 1913 gave the US an inflationary currency. This created a decrease in the personal savings rate and a loss of purchasing power. It also lead to the funding of many unsustainable and uncompetitive business models. (The roaring twenties.)

So when a crisis occurred - 1929

Many many people from unsustainable and uncompetitive businesses found themselves unemployed.
The unemployed and employed alike had little savings so they couldn't benefit from the increase in purchasing power deflation brings.
As a result the unemployed starved and the employed hoarded their income to spend only on necessities.

Had they had a mildly deflationary currency leading up to 1929... There would have been an increase in purchasing power & the personal savings rate. Only more competitive and sustainable businesses would have been funded.

So when a crisis occurred - 1929

Because of more prudent investment, existing businesses would be far more sturdy and the initial crisis would be less severe, leaving fewer unemployed. Those that were unemployed would have had savings which would increase in purchasing power allowing them to sustain themselves. The employed would have savings too, in addition to their income, both of which would increase in purchasing power, quickly giving them excess. This would cause them to spend & invest more and re-stimulate the economy, perhaps culling a few unhealthy business in the process.

Looking at the short history of Bitcoin, the early savers now have excess purchasing power. This excess purchasing power has been used to invest in hundreds of interesting start-ups & further develop the crypto-currency economy as well as being used to make purchases with the thousands of merchants that have been attracted to Bitcoin too. The growth in purchasing power also continually attracts new savers, speculators and investors alike into the economy. Of course there will still be a few excesses, but a few Shiba Inus being periodically culled is healthy.