What if the Government went back on a Gold
Standard?
Do do that, they would need to use their gold to pay off all their
debt.
That would give a price of gold if the U.S. Government backed the
dollar with gold.
We only need to know two numbers, and do a simple problem of
division.
First number: The national debt.
http://www.treasurydirect.gov/NP/BPDLogin?application=np
The government tells us this is:
$10,656,119,227,403
That's 10.6 trillion dollars.
Second number: The U.S. Gold stock.
http://www.fms.treas.gov/gold/current.html
The government tells us this is:
261,498,899 ounces of gold
That's 261 million ounces of gold.
So $10,656,119,227,403 divided by 261,498,899 = $40,750/oz. of
gold.
In theory, if the U.S. government had the restraint to stop issuing any
kind of new debt, and if there was a runaway hyperinflation, the
government could credibly stop any sort of runaway gold price by offering
gold at a price of $40,750/oz.
That's the price that could cap the gold market if the U.S. government
sold all their gold to all their bond holders. At that point, all
new taxes would have to be levied in gold, not dollars.
It's important to realize that any effort by the government to sell
gold below that price will ultimately fail, and will eventually cause the
gold price to go even higher than that price, as that would only deplete
their limited stock of gold at inappropriate price levels.
The main point is that T-Bills, which are perceived as the safest haven
around, are not safe. They are only backed up by gold at a rate of
$40,750 per oz. With gold trading today at around $800/oz., the U.S.
gold backs less than 2% of the value of the issued bonds, or stated
another way, $800 is 2% of the price of $40,750. Gold, at today's
prices, is clearly a far superior safe haven.
And silver, which is in short supply, due to relentless industrial
demand that has consumed nearly all world silver supplies, is even
safer.
Clearly, the government cannot offer gold at $40,750 per oz.
today. There would be no buyers. But, over time, the gold
price may rise to such levels, and beyond, as a generation of people
slowly wake up to the monetary fraud of the last 29 to 95 years,
depending on whether you count from 1980 or 1913.
I am not an advocate of a return to a gold standard, where gold backs
up paper money. I'm in favor of a return to using silver and gold
coins and bars as money, as measured by weight, and traded at their
intrinsic value according to the price in an open and free market
place.