Dickybird, it's the inability of fixed currencies to react in real time that forces their eventual catastrophic reaction.

Foxconn is a computer and consumer electronics assembler. There are several such companies but Foxconn is by far the biggest, and works for many manufacturers. In Apple's case they assemble components made by Apple and by many other manufacturers around the world (with Japan the biggest source country).

Trying to keep a currency above market value for the best part of a year is something that risks bankrupting governments. To attempt to do it at all is to design it wrongly!

The existing free market system can survive and works much better than any centrally planned system would be able to. Sure there's some corruption but it only has a short term effect on prices.

150 years ago, as the article you link to says, a trade imbalance would've caused a big recession. Nowadays with real time currency value adjustments, a trade imbalance is self correcting without a recession. Surely that's better?

Aidan. Yes both systems react to crises. The Gold Standard had innumerable small “reactions” in the 19th century and just because Bernanke/Yellen think they can control everything we are inevitably building up for the biggest crises the world has ever seen.

Apple/Foxconn. You asked, I thought, which created the most wealth, the designer or the manufacturer. It is always the manufacturer. Ask any architect, artist, inventor of most things. When it comes to making and selling millions of anything the creative mind gets bored and gives up. The humble manufacturer takes over and creates the wealth the designer made possible.

Next –Gold Standard would tend to bankrupt errant Govts, especially those that print $ just like a counterfeiter. It is supposed to bring them to heel before they have let the whole thing blow up completely. Your system means that there is no penalty for some people to arrange for countfeit/fiat money to be given to their friends in need. The present system IS a centrally planned system. Of course it won’t work – just like the USSR.

In the 19th century a trade imbalance did cause LITTLE recessions – all the time. Now by creating enormous quantities of fiat currency a trade imbalance is being ignored. This seems to be by fooling enough people that there is no trade imbalance. Apple/Foxconn again. How do you imagine the US can design everything and then get China to make it and sell it back to them, be paid in fiat currency and think this can continue for ever ? Mind you the sudden appearance of fracking will mean that the crisis is postponed for several years. But that alone will not be able to fix the basic imbalance

This is where your argument gets difficult to maintain, Dickybird.

>>Thank you Pericles for the comment but you are really only pointing out that in the terms of a fiat currency in vogue Gold is very cheap and a laborers wage is vastly overvalued. Or possibly in Elizabethan times labor was very cheap and Gold very expensive.<<

You seem to be making the argument here that value of gold, on the one hand, and the value of a labourer's work on the other, act independently of each other.

Which is sadly in direct contradiction to your previous statement that

>>Gold has always bought the same amount of basic services that it always has<<

Dickybird,
<<Yes both systems react to crises.>>
Not exactly. Fixed exchange rates force governments to react to crises in a way that disadvantages the people. Floating exchange rates usually enable crises to be avoided completely.

<<and just because Bernanke/Yellen think they can control everything we are inevitably building up for the biggest crises the world has ever seen.>>
On the contrary, because control has been handed to the market, there is no longer the opportunity for a crisis to occur. There's certainly not the opportunity for the biggest crisis the world has ever seen!

The present system is a FREE MARKET system. Markets, not central planners set the value of most currencies. You want to replace all that with centrally planned exchange rates that would send us all bankrupt like the USSR. Indeed the centrally planned exchange rate, held way above market value for decades, was the main cause of the USSR's demise!

The current penalty for printing too much money, whether to serve your own country's need or help a friend, is that the market is likely to devalue your currency. Which will increase the price of imports and commodities, but it will make your exports more competitive (solving the trade imbalance problem that you're so paranoid about). You seem to think there should be an additional penalty, with you rather than the market as the arbiter. Why?

<<How do you imagine the US can design everything and then get China to make it and sell it back to them, be paid in fiat currency and think this can continue for ever ?>>
I don't think it can continue for ever, but it won't all stop at once and the market will enable adjustments to be made when changes occur.

Right now, the USA is good at designing things, which according to market value tends to be worth much more than fabricating things. Both are needed, but design increasingly accounts for a higher proportion of the total price because few can do it well.

Aidan. We started with you being a delightful optimist and you are really rubbing it in now if you think we are operating in a free market. The Fed even declares its policy is to create credit as needed by printing $s and none of those $s will be backed by any assets. Basic economic laws inevitably mean that the asset backing of all $s has to shrink to match. Each $ will buy less “goods”. i.e. By this law inflation must be coming.

Why hasn’t it arrived yet ? Could it be that the Market is so manipulated that at present it cannot react properly and we are getting deflation instead. We do seem to be getting deflation and with it job destruction. And it would seem that Yellen/Draghi will try to fix it again by printing. Let us hope Angela Merkel will say no and mean it.

Anyway you say “The current penalty for printing too much money, ......., is that the market is likely to devalue your currency.” The U.S. has been printing enough to wear out the press but the US$ buys more and more other currencies and most commodities. Except of course Gold and we are seeing less and less Gold for your $ . Perhaps Gold is starting to behave like it should, after being suppressed for some years.

Lastly on the US/China trade imbalance “I don't think it can continue for ever, but it won't all stop at once and the market will enable adjustments to be made when changes occur. “ is the best example of your lovely optimistic outlook. I just hope you are right. But at present we are in a terrible mess and to go back on a reliable Gold Standard of some sort is essential.

Dickybird,
However much you say putting your head in a noose is essential, there is no real reason to do so.

It is a free market, and the Fed is merely one of the participants.

You are under the delusion that the Fed is creating too much credit. Deflation proves otherwise. In reality it's creating TOO LITTLE credit – for though it created far more than before, there are two other effects that it now has to compensate for: firstly the private sector isn't creating enough credit, and secondly there's more private saving than there used to be before the GFC. Money that's being saved isn't being spent, and spending is what the economy depends on. Variations in spending are what drive inflation and deflation. Asset backing is irrelevant.

Other central banks are doing likewise, but the real problem is governments refusing to borrow more. Or in the Eurozone, governments being unable to borrow more (for which Angela Merkel must take much of the blame).

'Tis not optimism that enables me to confidently predict that the Chinese fabrication of goods for American companies won't all stop at once, it's the fact that (unless there's a war) there will be no reason for the trade to abruptly stop. As for the market's ability to make adjustments when those changes occur, have you not noticed the rise of the Second BRICK countries? Bangladesh, RSA, Indonesia, Cambodia and Kenya will all be great alternatives to manufacturing in China.