Manufacturing a Gold Standard

[agrippa1]

Tim Geithner is proposing to the G-20 that rather than just fiddling with exchange rates, they should agree on a limit on current accounts (trade surpluses or deficits) to within some percentage of GDP.

This is exactly the type of mechanism that the gold standard creates, when it forces the flow of gold from deficit nations to surplus nations, driving down prices in the deficit nations, due to decrease in the money/gold supply, and driving up prices in the surplus nations, due to money/gold supply increases.

Of course, if there were a gold standard, nations could choose to import goods in order to invest in capital so they could enhance future production, and counter near term trade deficits with long-term trade surpluses, both of which the percentage limit would effectively outlaw.

Geithner's "solution?" -- an exemption for “structurally large exporters of raw materials”. That's great for nations that have already invested heavily in their industries and are looking to rebalance their international accounts.

But what about nations that want to get foreign investment today for increased production tomorrow? Oh, that's right, this administration [sic] doesn't believe in expanding production.

This is a statist's attempt to manufacture a gold standard without having to subject governments to the restrictions that such a standard imposes on their whims. A sort of half-assed economic alchemy.

Sorry Timmy, it won't work.