Making this worse apart from the effect of austerity policies, the global supply of gold puts a ceiling on growth. If trade demand increases faster than the money supply, and the money supply is limited by the gold supply, interest rates will rise and the economy will slump in response. The gold standard had, then, an inbuilt contractionary bias. It could solve the problem of inflation, but only at the price of creating deflation. Deflation is a particularly pernicious problem because in a deflation everyone's first best guess about what to do to protect themselves—for example, workers taking a pay cut to price themselves into a job—has the aggregate effect of cutting consumption, which shrinks the economy and makes everyone's unemployment all the more likely. States with large trade or budget deficits going into a recession fare especially badly in such situations because it becomes almost impossible to grow out of the problem as recession and deflation compound each other. Taking on more loans and more debt to gain temporary relief will not help in the long run because you cannot grow out of it.

Mark Blyth, Austerity, loc. 493