Replies

I have some honest questions:

1. Is enough gold avaiable in the world to back the total amount of currency now in circulation?

2. Wouldn’t going to a gold standard produce deflation?

3. What would happen to the $10T national debt under a gold standard?

1. Is enough gold avaiable in the world to back the total amount of currency now

Hi BC ! I've read about this, and though I can't recall the source, I think the answer is no, there isn't. It's one of the less nefarious reasons they went off the gold standard. I don't claim to have anywhere near a good grasp of this, but that's what I've heard.

A few opinions for what they are worth.

1. Is enough gold avaiable in the world to back the total amount of currency now in circulation?/i>

Yes, because the currencies are fiat and not tied to any commodity directly except thru price. So, at anytime, we could re-peg the dollar to gold. Right now the price of gold is ~1300 dollars to one gold dollar. To re-peg, we would have to calculate all US government obligations before you could back the currency with gold. There is approximately 113 trillion in US Fed obligations. You would have to seriously devalue the dollar in order to meet those obligations thru gold. That means tax hikes or serious cutting of those obligations.

2. The question is not really answered through deflation or inflation but thru a severe decline in our standard of living. This is because the political decisions about our debt and how it would be affected when we brought our gold currency back would still have to be made. In other words, do we raise taxes, cut spending, or devalue the dollar even more relative to gold. Here is the real answer, revaluing our currency will wipe out our standard of living, because current dollars would be worth only fractions of a penny compared to gold dollars. Your purchasing power and wealth that are tied in fiat dollars will also get re-pegged.

3. We would have to repay in gold dollars, which means would take a severe hit in our standard of living. It would mean paying off the debt with real money and not through inflation. If you devalue the dollar even more, it does not change the amount of gold you would still need to pay back.

Does any of this make sense?

Gold is not the solution in the end. It is still a commodity, and they will fluctuate in price. The Spanish Empire had massive inflation using gold currency, and up till the Spanish Civil War they still had very large gold reserved even though they had a low standard of living.

The advantage of gold is that it is a finite thing. There is only so much to go around, and I can't just make some with a printing press. Now, that would destroy our system of finance as it now sits (credit would dry up and credit fueled expansions would die off).