Every year the United States national debt continues to swell to ever-expanding historic heights. This drives fears amongst economists, as well as people paying bills at their kitchen table, that it could lead to hyperinflation, and other types of economic distress.
There are many experts who have weighed in on this concern and the overarching question of how we once again instill fiscal responsibility into not only our own economy but throughout the global economy that influences lives around the world. One of the more common theories that pop up is whether-or-not we should return to the Gold Standard.
What Is The Gold Standard?
When the United States started using a standardized central currency, every dollar was backed by an equivalent portion of gold, that was held by the government in one way or another. During much of this long span of time gold’s price per ounce was modest, if not low!
As time went on, the evolution of the modern economy led to changes in the policies behind the gold standard. At one point only 40% of the United States total dollar value was backed by physical gold. This policy was also popular with other western powers who also used their own version of the gold standard to back their currency.
Yet even this modified version of the traditional gold standard had cracks in its armor, that many economists of that era debating its merits. In 1971 President Richard Nixon signed a bill releasing the United States from the last vestiges of the gold standard.
Since that time our national debt has started to skyrocket, inflation issues continue to pop up, which also has an impact on things like the cost of living. It also makes it easier for markets to be massaged in value, and for economic “Bubbles” to swell, only to “Burst” and shake the bedrock of our economy.
Does The United States Hold Enough Gold To Back Its National Debt?
The bulk of gold held by the United States Government is secured in Fort Knox in Kentucky. Technically, the US has the largest gold reserve in the world, measuring in at an estimated 8,133.5 tons. This is much more than other countries around the globe, including the German Government at 3,395.5 tons as well as the IMF at 2,814 tons, which stand as second and third respectively.
Even if we were to liquidate all that gold through a variety of international markets it would still only yield around half a trillion dollars. This is just a drop in the bucket for a US national debt that continues to climb above $16-trillion.
What If We Revalued Gold?
In the past, there have been Government-driven and market-driven economic events which lead to a massive increase in gold’s price per ounce. This inspires some financial experts to wonder if we could do something similar to revalue gold at a higher price per ounce, to resolve the massive United States National Debt. There are some who think gold could be revalued at anywhere between $10,000 an ounce, too has high as 40,000 per ounce. In these scenarios, it could theoretically become possible for the United States to reinstate a new version of the gold standard.
What Are The Benefits And Risks To Returning To The Gold Standard?
Taken in a certain light there can be some significant pros and cons to reinstating the gold standard or some modified version of it.
Gold Standard Benefits
One of the major political debates fired off in every election cycle is how do we force the Federal Government to be fiscally responsible. While the gold standard would certainly do this, it would also impact every aspect of our economy, including the enforced fiscal discipline for business, as well as individuals and families.
We would have rock-solid faith that every dollar in your pocket, in your checking account, and in our national budgets would be backed by something physical, which could be liquidated when needed.
There are also other governments around the world who debate the concept of returning to the gold standard. If the United States took the lead, many others would likely follow.
Gold Standard Risks
Potentially slowed economic growth is largely seen as the looming concern related to returning to the gold standard. Most experts note that this would go beyond just the markets and the US economy at large. Things like jobs, individual incomes, and most other real-life factors would also experience slowed growth potential. This would include short-term growth as well as long-term.
This is largely connected to a decrease in the total amount of money in active circulation in the economy as a whole. Modern-day economic practices rely on the ability to grow the money supply to feed economic growth, which has held relatively consistent at 2 to 3-percent since the dawn of the industrial age.
Gold mining operations around the world would need to operate at a historic pace in order to sustain growth at that same level under the gold standard. This expectation simply isn’t realistically possible. At the same time, the gold standard would make it harder for governments around the world to manage times of economic recession, and the chances of experiencing another great depression.
It’s also worth bearing in mind that even if the United States did find a way to shoehorn its economy onto some version of the gold standard, there is no guarantee that other countries around the world would follow suit. Indeed, there’s a real risk that other governments who might take an adversarial stance toward current US economic policy might see a return to a gold standard as an opportunity to exploit it.
On a more personal level, altering the value of gold, or returning to some form of the gold standard would also have an immediate impact on your buying power, the value of your home/mortgage, and the availability of credit.
Is The Gold Standard Possible Anymore?
When we take all these aspects as well as others, and we factor them in, it ultimately means that there is no realistic way to return to the United States Economy to the gold standard. However, that still doesn’t mean that gold is useless financially.
Historically, gold has long stood as a wealth insulator, and an effective way to make significant gains as an investment. There are many people who go so far as to purchase gold to provide them with a means of instant liquidity should an unforeseen economic disaster strike in the future.