If we revert back to the gold standard, what will happen to all the credit pump encouraged by the banks to provide debt funding for all the various asset class that is driving up the markets?
A redefinition of how credit markets operate from bonds to bank lending will cease and the mortgage market will have to curtail their activity to extend liquidity. How will banks raise capital to fund their lending? What will happen to the property markets immediately as we revert? A big massive haircut on valuation as we have experienced here in Oz post Royal commission on the banks last year. If you remember at the time, credit tightened from macro prudential to raising of bank's credit standards almost cause a crash in the housing sector on a 15% haircut.
If you are looking for a trigger for global volatility then a gold standard will enhance that effect if you hear commentary on one reasons why CBs were providing cheap credit by initiating the wealth effect to try to overcome nervous consumer sentiments in order to stoke more spending among consumers to try to stop the rot.
