So I have been posting some things about US Economics for some time now in other threads, and I finally just decided to take the time and make a new thread about it so I wouldn't just be spamming other topics with my tangents about this
Starting out (because I am a tad bit lazy) I am going to mostly quote myself from other threads.
The Federal Reserve Act of 1913 created what is most often referred to as "The Fed". An overseeing power over the banking systems in America.
The Fed has the power to coin money, which was delegated to it by Congress (as the Constitution strictly dictates that only Congress has this power,) and it was given the power by Congress to print money (A.K.A. printing a fiat currency, the paper currency most in use today, as well as the emerging electronic currency.)
Notice, I made a distinction between coining and printing money. Nowhere in the Constitution does it say that money may be printed. In fact, I do believe it limits the creation of money to be only coining, but at the moment I am too lazy to find where it says that...
Furthermore, The Fed, as well as every other centralized bank that has been created in the US's past, has participated in Fractional Banking; the act of lending out more money than you have physical means to cover. In other words, when you put money into the bank, the bank lends it out and asks for interest, but they lend out more money than they actually have on reserve... this is what caused the Banking crisis in the Great Depression, as the People withdrew all of their money from the banks, but the banks didn't have enough money to pay everyone back.
Bad joo-joo there.
As Fractional Reserve Banking is conducted, money is created, until it is returned to the bank after a loan. What happens when people cant pay back the loan? The Fed must cover this loss of money in the Banks, so they print it up. That is why in periods such as the one we are in now, when a large number of people default on loans, the inflation rate tends to increase.
No, I am not talking about the CPI (Consumer Price Index) but rather, the actual inflation rate. The CPI is a measurement of inflation which has been flawed by politics (it no longer measures food or oil products... umm, no, consumers don't buy those at all...)
To explain what true inflation is...
Inflation is all about the supply and demand of money.
How much money is there in the system, what is the supply of it? (The M3 money supply, which is no longer reported by The Fed, but is reported by 3rd party sources, check below - my belief is that they know people will figure out how screwy they are being with the system if it is reported.)
How much do people spend the money, what is the demand for it? (This is consumption, just look at the GDP, Gross Domestic Product, for this measurement.)
So basically, as more money is created (like right now with defaults on loans, trillion dollar stimulus packages, etc.) and less money is demanded (GDP goes down, people spend less, there are less jobs, etc.) the inflation rate goes up. Costs increase. This is because the equilibrium price (or more accurately, value) of money drops significantly. Money just isn't worth as much.
Now hows about this thing called the "Gold Standard".
The gold standard was a restriction of the dollar, how much can be printed (A barrier to the supply of money.) The value of money was based upon a predetermined value of an ounce of gold. I believe the value was in the range of $23 and a few cents, but its been a long time since I've seen the actual number. As soon as I find that again, I will try to post it for you.
Now for me to reference some really cool data...http://oregonstate.edu/cla/polisci/faculty-research/sahr/sumprice.pdfhttp://www.shadowstats.com/alternate_data
Please take a look at those graphs, they are extremely accurate (and there are many sources to back them up... I'm just too lazy to put them all up here) and they tell the story that the political system won't show you.
As for how the data ties into inflation and the gold standard... take a look the first graph of the .pdf, where the turn upwards (hockey stick!!! I SEE A HOCKEY STICK!!!) occurs.
Wait a minute... isn't that the year that the Gold Standard was "loosened" by FDR? Oh my golly gee gosh (Im going to use that one as an acronym from now on... OMGGG!!!) It is!
The physical restriction on how much money can be made was removed, which means there was no more barrier to the supply of money. Supply curve shifts to the right, equilibrium value of the dollar drops, that means inflation increases, which means you have to pay more for what you buy.
Just a quick tangent though... isn't it funny how things get screwy when the government removes the barriers that were set up against itself? Are you guys beginning to see why I love the Constitution so much? ANYWAYS!
I want to point out something else about those graphs.
War time spikes of inflation rates.
Now I am no expert on these, but I do know that during war times, the government tends to spend more money than it has on hand (defecit spending... hmm... doesn't that sound familiar??) which as I mentioned earlier causes a creation of money, which increases supply. Also during war time, there tends to be less production of consumer goods, and more focus on military goods (goods made to destroy, and be destroyed... basically the opposite of good economic policy) at a time when there are less people in the country (troops are overseas.) These things coupled together mean less overall consumption, in other words... inflation.
The reason why there is deflation afterwards though is because consumption returns to normal, and the government was once held accountable to repay their loans, and/or to destroy any money that was printed up during that time (because there was no physical value backing it up.)
Also note that during the Great Depression, until the "New Deal" was started (defecit spending, huge taxations on the People, etc.) there was huge amounts of deflation. I'm not saying that deflation is good, just that it happened naturally in recessions. That meant that prices went down, so more people could afford to live in their time of need, so long as they had any money saved up. Nowadays inflation tends to move with recessions, thus making the recessions worse than they were before, money doesn't stretch as far.
Now I want to get to one other point... many people criticize the gold standard for creating "huge fluxuations" in the money system. As you will note, the graphs do somewhat support this. (check page 5 of the oregon state reference) Here is something else I see though... the fluxuations become less and less pronounced as time goes on in that graph. That is the working free market... equilibrium is being found (although it is disturbed by things such as war, note the Civil War near the end.) Also note that this is much better than the alternative (what we have now) where the inflation rate is constantly in the positive. (Check page 4 of the same reference.) I.E. Hockey Stick Graph.
Other than that though, I have not heard any complaints about the Gold Standard that have any true merit...
So, I have rambled long enough, I would like for you all to comment on this, attack it all you want, whatever... Just make sure that you have good reasoning behind your criticisms, because for the most part, this is something that I know quite well.
 I also just wanted to point out that I put some of this together in a rush, so there may be a few things that I go back to correct. When I do this, I will put a notice in the following post (unless it would be double posting... then I will just edit the last one/edit this one)[/edit]