That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US?
Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.
2% is a healthy level, which is why it's the Fed's target.
The problem is that pegging a currency to gold does not peg inflation. Inflation will still move around based on other economic factors. You will have just eliminated your best tool for influencing it.
If you needed to adjust a currency pegged to gold, you'd have to get more people working in the mines. Which is either not possible, or a human rights violation.
There's no reason for that. As production improves in efficiency it is natural for things and services to become cheaper. That also means you get more for your money, instead of getting more money. That concept is not too strange for the population to accept.
For a few items in your CPI basket, that's fine. If you have significant deflation across your economy on average, people will start losing their jobs en masse, and zero dollars doesn't buy anything.
Likewise, business revenues will be going down but the investments in capital have already been allocated. Businesses start laying off employees to try to balance the books. Those newly unemployed workers, in turn, now have less money to spend. More businesses find themselves in the red, and it leads to more layoffs.
This is called a deflationary spiral. Basically every period of significant deflation in the past has led to dire economic consequences. You really do not want people to stop spending money.
This sounds like a myth. If the value of your currency is increasing, staying at 0 means you're actually turning a profit, just as making a 10% profit when the inflation is 50% means you're losing money. Inflation is a tax and redistribution of wealth, it's really not more complicated.
Zero isn’t bad. I was explicitly talking about deflation above. The effects of deflation I explained above is not a myth, it is introductory macroeconomics.
Deflationary spirals have happened in the past, but they have stopped since we moved away from the gold standard and we can now intentionally inflate our currency to prevent deflation.
That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US?
Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.