Hutchinson on the Dollar and SDRs

Martin Hutchinson (MH) attacks China's notion SDRs should replace the dollar, 30 March 2009 at Prudent Bear, link: http://www.prudentbear.com/index.php/commentary/bearslair?art_id=10210. MH notes, "There is thus no good reason to believe that the dollar represents a sound store of value, the principal function of a reserve currency. ... Other major world currencies don't look any more solid than the dollar. ... In an ideal world, we would satisfy Zhou's requirements by a simple return to the Gold Standard, at a parity of perhaps $1,000 per ounce that was high enough not to be excessively deflationary. ... 2008's gold mine production of 2,407 tons, higher than in recent years because of high gold prices, was only 1.4% of the gold stock of 170,000 tons. If velocity were constant, that would not be sufficent to accommodate 1% population growth and desired global economic growth of 3% without an unpleasant annual deflation of 2.6%".

Why would "deflation" be unpleasant? It's gold holders being paid 2.6% annual 'interest" in terms of other goods. While agreeing with most of MH wrote, and seeing he referrred to the "stock-flow ratio", I conclude MH does not understand the gold standard. $1,000 an ounce is far too low for a stable parity price. See my 24 December 2007 post: http://skepticaltexascpa.blogspot.com/2007/12/fed-and-four-letter-word-gold.html.