To return, or not to return to the Gold Standard: that is the US question
After a 32-year hiatus, the U.S. Republicans are calling for a commission to look at the possible return of the gold standard.
For analysts, such as Matthew O’Brien, the idea of backing up the dollar with gold is as simple as it is wrong:
Why would anyone want to go back to the bad old days? The gold standard limited central banks from printing money when economies needed central banks to print money, and limited governments from running deficits when economies needed governments to run deficits. It was a devilish device for turning recessions into depressions. The answer is that some people aren’t worried about depressions. Some people are worried about inflation. Even when none exists. To them, these fetters are the feature, not a bug.
He adds the ultimate trick Republican candidate Ron Paul ever pulled was persuading investors that the gold standard leads to stable prices. And that whether it’s 1896 or 2012, “it doesn’t make sense to crucify our economy on a cross of gold.”
“It is horribly unjust to force the American people to do business with a dollar that is continuously debased by the Federal Reserve,” Paul said at a recent hearing on monetary policy.
Standard supporters like him point to the creation of a Federal Gold Commission shortly after Ronald Reagan took office in 1981, when double-digit inflation was crippling the U.S. economy. The worry today is that substantial government spending and more than $1 trillion in monetary expansion by the Fed will trigger a new inflation era.
According to data from the World Gold Council, a trade group funded by gold mining companies to promote the many uses of bullion, the U.S. holds 8,133 metric tons of gold reserves, or nearly 261 million ounces. At current market prices of roughly $1,667 an ounce, those reserves are about $435 billion.
That, warn economists, would cover less than 3% of the $15.9 trillion in Treasury debt outstanding.
“To back its entire debt, the U.S. would somehow have to acquire pretty much all of the worlds’ reserves — estimated at 31,353 tons, or just over a billion ounces,” writes John W. Schoen at NBC News.
The World Gold Council, reports Reuters, has deemed such a move “unlikely,” quoting international differences over the converting price and the fact that annual growth in gold stock may not match the monetary base.