What's the big deal about the gold standard?

[Natorgator]

Ron Paul has gained a lot of popularity by advocating the demise of the Fed and a return to the Gold Standard, among other things.

All other libertarian beliefs he has aside, what kind of effects would this actually have? Don't most first world countries need a central bank to control the money supply?

[Admiral Valdemar]

Gold is only making a comeback now because of the freefalling dollar. The current state of the US economy thanks to Greenspan and Bernanke's policies along with an administration that has completely lost all control of spending, means people holding significant dollar denominated notes or T-bills are trying to offload them and buy commodities. This makes sense in light of the record lows in dollar value we're now seeing along with record highs in various precious metals and, of course, oil.

So you see, with China being a major holder of dollar valued currency, they are helping the speculators boost the "gold standard" and other non-abstract sources of value. No one wants to be left holding billions of worthless greenbacks while everyone else jumped ship first and put what they had into tangible assets that are booming until a new chief fiat currency or basket of currencies takes the centre stage.

It is academic, anyway. There is not enough gold, silver or similar commonly used resources to back the current amount of accumulated wealth in the world markets today. Oil, being the foundation of our very existence, is rising at an alarming rate due in part to this speculation, but also because demand is finally outstripping supply and the value of the dollar is tanking as this happens. Soon, people will simply be priced out of the game as they find they cannot afford to move from a worthless fiat currency into something of practical use and, therefore, real world value. In a world overflowing with liquidity, the last thing anyone wants is lower interest rates and more overuse of credit functions. The transition, as we are seeing now, to a less stable, more grounded in reality economy is going to be very uncomfortable as people finally realise that noughts and ones in a computer or pieces of paper with numerical values printed on do not wealth make.

[Xisiqomelir]

All other libertarian beliefs he has aside, what kind of effects would this actually have? Don't most first world countries need a central bank to control the money supply?

Liquidity would dry up very quickly, because gold is naturally non-infinite. This would curb government spending very rapidly, and probably cause some hefty deflation too.