the insane business cycles we see today with exaggerated boom and bust periods actually help the well informed (i.e. the rich) and hurt the middle class, lower class, and casual investor. why? the low guys on the totem pole are usually the last ones to join the bandwagon on the way up and the last ones to jump off on the way down. then again, games are usually easier when you know the rules that the winners are playing by. anyway, the creation of the federal reserve probably led to the great depression and by no means helped save anything.
the point is that these exaggerated booms and busts don't typically occur on the gold standard. why? the government can't just print money when they need to. banks can't afford to loan away 9/10ths of their deposits. the dollars actually mean something and business and individuals aren't as risky with their money. hence the value of money actually stays in line with productivity. the government can't finance endless wars, engage in nation building, send foreign aid to whoever, give in to lobbyists or turn tricks for corporate donations.
wouldn't it be cool if you knew your cash money was actually worth something that the bank held? under the current system, for every $10 you have in your savings account, the bank is loaning out $9 (to other banks who continue the process or to borrowers who use the funds for projects) and keeps $1 on reserve. you can see this is not a very stable system. if enough borrowers default or enough savers withdraw, what happens to that money that the bank lost? well, no problem, they can go and borrow it from the federal reserve or from another bank. too many defaults and withdrawals at the same time? hmmm, well that's what the FDIC is for. the fed shuts down the bank, you get your deposit back and all is well...right? well, wait, where is this FDIC money coming from? and what happened to that $9? well, the federal reserve will print more money to cover that loss. that is, it will debase the current money supply (think how your beer would taste if i added water to it to keep it 'full') which is actually just a sneaky way (or immoral) of taxing the american people.
but wait, there's more! why all of these defaults in the first place? well, there are a myriad of reasons, but one big one is that borrowers are borrowing money under false assumptions about the economy and the purchasing power of people. home buyers and buyers of goods think they can buy more than they actually can afford because their stocks are up, up, up and credit is cheap and loose! besides, saving rates are next to nothing, may as well spend it! entrepreneurs take note of the increased 'spending' (actually a loosening of credit or increase in money supply) and build homes, start businesses, partake in R&D only to find that people can't actually afford to buy. see where this is headed?
all that happened last year was that the market was trying to correct itself. most wealth that was lost was illusory. but who got screwed? the little guy. then the government comes in and says, hey don't cry, we'll make it all better. they print all this money and spread it around. sure most of it is going to fund the growing tentacles of Leviathan, infringe further on our personal liberties, and spread the reaches of our military...but, hey, if we do nothing for long enough, we'll even get crappy medical services out of the deal! then we can deepen our dependence on the federal government! yay for the welfare state! where is the money coming from?
