To see viable numbers for maintaining a gold standard look at 1960. Gold reserves were 15,821 tons and M3 was less than $100 billion. At $35/oz that was $18 billion gold reserves for total money supply (M3) of $100 billion or 18%.*****
Most banks, today, operate on a fractional reserve of 5% or less. It is a matter of confidence.
***With today’s $10,000 billion of M3, 18% would be $1,800 billion dollars of gold reserve. At $735/oz that’s 76,530 tons of gold reserve. And yet today our 8,200 ton gold reserve is even less than even 1971 - when Nixon was forced to abandon the gold standard.****
Nixon closed the gold window because several nations, mainly France, were trading in paper dollars for gold. LBJ and the Federal Reserve had a guns and butter policy during the 60’s, and we were flooding Europe with “Euro Dollars.”
****How could the U.S. open the gold window without a further depletion of the reserve forcing it to either close it again or make massive purchases of gold and causing an extreme increase in the price of gold and an extreme devaluation of the dollar?*****
You just have to look at the civil war period when we went off the gold standard. The US just printed enough dollars to get what they wanted and inflation was very high for the times. After the civil war, the US went back to the gold standard and there was a period of deflation. If there are too many dollars in circulation, people will turn them in for gold. If there are too few dollars in circulation, then people will turn in gold to get more dollars.
****As for the stupidity of questioning Ron Paul’s personal motives and financial ambitions... His investments in gold while advocating a return to the gold standard is either dishonest, if he expect gold to benefit from his position, OR stupid, if he expects it to suffer from that position.
For you to believe this conflict of interest should not be questioned is beyond stupidity.****
When people invest in stocks, it is because they expect the value of the stock to increase in future years. If we would return to a gold standard, the value of gold would be exactly the same 10 years from now as it is today. E.g. the value of gold, in US dollars, was the same from the early 1800’s until the early 1930’s.
We could also do a quasi gold standard, by just targeting our money supply to the price of gold. If the price of gold is increasing, we would print fewer dollars or take more dollars out of circulation. If the price of gold was decreasing, we would print more dollars. Using the price of gold to regulate our money supply would take the value of our currency out of the hands of whims of the head of the federal reserve.
The gold standard is not used in any other country – so nowhere is it a “matter of confidence.” [Even still, if you do the math, you will find that the US’s 8,200 tons of gold reserves (@735/oz.) = $193 billion of gold reserve for an M3 of $10,000 billion = only 1.93%.]
They traded dollars for gold only because they knew our reserves were depleted and that the money supply was so great in relation to that gold reserve they could maintain a run that would force the abandonment of the gold standard and the subsequent appreciation of the price of the gold they were accumulating. If the reserve was a higher percentage of M3 they could only expect that the U.S. would continue to meet the demand and a subsequent depreciation or stagnation of the price of the gold they were accumulating.
ONLY if the world believed we had a gold reserve sufficient to meet all demands and to defeat any protracted (dollars-for-gold) redemption scheme designed to force us to abandon that standard and drive the price of gold up again.
"We could also do a quasi gold standard.... If the price of gold is increasing, we would print fewer dollars or take more dollars out of circulation."
After the Civil War, dollars in circulation constituted almost the entire money supply. Even in 1960, dollars in circulation (including checking accounts) was about 50% of the money supply and today it’s below 15%. (See bottom chart in my Post #310.) All money being fungible, merely reducing dollars in circulation - without a reduction in the overall money supply - during a rise in the price of gold, would be insufficient to defeat dollars-for-gold redemption demand/schemes.
In short, the confidence that a currency was “as good as gold” never existed when gold reserves were such a low percent of the total money supply (not just dollars in circulation). You must raise one or lower the other.
If gold reserves can’t be increased sufficiently, do you really want a 3rd world style government devaluation of the dollar to reduce the entire money supply?
If you insist on dealing only with dollars in circulation, do you suggest outlawing withdrawals from none M1 accounts (such as savings, money markets, CDs, etc.) to prevent using that money to make dollar-for-gold redemptions?