Lords of financeDepression is a severe and prolonged downturn in economic activity. The extreme recession that lasts two or more year has done the world a great deal of harm. We do have uncontrollable shocks like wars and natural disasters, but there are still policies we can use to prevent further depression.I believe that depression is compounded and caused by debts. ...view middle of the document...
However, even though gold standard doesn't exist anymore in U.S. I think returning to gold standard can help preventing further depression if we set up some new policy. The financial crisis that began in 2007 would never have happened if the Federal Reserve kept the value of the dollar stable. A housing bubble of the proportions that unfolded would not have been possible with a stable dollar. Hence it is important to relink the dollar to gold.However, a new gold standard is needed. We don't need piles of the yellow metal for a new standard. Instead, we should fix dollar to gold at a specific price. And Federal Reserve would sell bonds from its portfolio if gold's price were to above that. On the other hand, if the gold were below the set price, the fed would inject money into bank system by buying more bonds. We can maintain the economy at a certain level by removing dollars or adding dollar.
