Excess government debt causes deflation, government default causes hyperinflation

While governments never have to entirely pay off debt, there are debt levels that investors might perceive as unsustainable. A solution some countries with high levels of unsustainable debt have tried is printing money. In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money. History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.”

From a central bank research paper 

SchiffGold and the gold bugs skip one step in their analysis. The Nixon shock caused pricing chaos, mainly as the government exits the gold market, suddenly, in a large defualt in 1972. And gold spiked.

Goldbugs need to include the intermediate step.  Excess debt is deflationary on the consumer because it is a transfer of liquidity from the consumer to government, acting like a shadow income tax. Consumers have less, government gets more; the whole point is that liquidity is a conserved quantity, it cannot be conjured up.

The irony of a gold standard is that government can default easily by repricing gold which is what FDR and Nixon both did. A debt based, central banker solves the liquidity crunch differently, and we are just discovering how to do that. Clues are entering the heads of central bankers as we speak, but a partial default is on its way.