Sunday, July 21st, 2019 MST

Why a gold standard is not a good idea

Herbert Hoover’s name is generally held with derision because he is blamed for the Great Depression.  However, here’s one HH statement that all should agree with: “We have gold because we cannot trust governments.”  Basically, a gold standard fails as a monetary system because the government is involved.

Under a gold standard, the value of a currency is based on gold.  Governments are required (sic) to redeem in gold their paper money on presentation to the Treasury or a bank.  Prior to 1933, a $20 bill could be redeemed for a $20 gold coin that contained 0.9675 oz. of gold.

With FDR’s Proclamation 6102, April 5, 1933, Americans could no longer turn in paper currency for physical gold.  In fact, they were prohibited from continuing to hold gold coins.  They had to turn them over to the government in exchange for paper currency.  With Nixon’s “closing the gold window” August 15, 1971, governments could no longer redeem their dollar holdings in gold.

Our monetary system became fiat.  The government (actually its apparatchik the Federal Reserve) could print however many dollars it wanted.  Gold has seen three huge bull markets since 1971 because of reckless monetary policies made possible by our fiat monetary system. This is why the Fed could print $4 trillion to bail out the banks and insurance companies whose bad investments surfaced in 2008.

There is no reason to believe that reckless monetary policies will stop.  In fact, there are reasons to believe that they will continue.  Consider the discussion about Modern Monetary Theory and “debt doesn’t matter.”

Stocks have risen recently in anticipation that the Fed will lower rates in their July FOMC meeting or at least make a “dovish” statement about future interest rate decisions.  And, gold is at $1350 for the same reasons.

A fiat monetary system is the worst, under which governments can print however many dollars they want.  Don’t look for any serious talk about returning to gold anytime in the near future.  It will take a crisis far worse than 2008.  If any such talk is about a gold standard, remember Herbert Hoover’s admonition.

5 Responses to “Why a gold standard is not a good idea”

  1. James Hahn

    Truth is patient ans waits in ambush for both the lie and the liar. If Trump lowers the value of the Dollar again to make our markets more competitive internationally, then what would happen if he moved to back the Dollar with GOLD?

    Reply
    • Bill Haynes

      There is much speculation about what the price of gold would have to be to back the dollar, undoubtedly in the thousands of dollars, some estimates over $10,000.

      Reply
  2. Silagy Ken

    So is this based on pre crash spending or post crash spending. or both. With FDR’s Proclamation 6102, April 5, 1933, Americans could no longer turn in paper currency for physical gold. In fact, they were prohibited from continuing to hold gold coins. Where does the defining line start and end. What is this saying? With Nixon’s “closing the gold window” August 15, 1971, governments could no longer redeem their dollar holdings in gold. Is this still the government chasing gold?

    Reply
    • Bill Haynes

      This is not governments chasing gold. Based on the Bretton Woods Agreement (1944), only the United States redeemed its currency in gold. When Nixon “closed the gold window” in 1971, no government was redeeming its paper currency in gold. The world was then on a “paper money standard,” which is where it stands today. “Where does the defining line start and end?” We don’t know where it will end, but it started in 1971.

      Reply
  3. Troy Jarvis

    I have presented the President with a plan to go to the Gold Standard. Precipitated by China, Russia & India increasing their gold holdings in preparation for there own monetary system. How much do they need? Not sure. But just the fact that they are in the works for over a decade now.
    The case I was making to the President, is we should go to the Gold Standard first. This keeps us in control of the financial systems. Since China has all our cash & we have all the debt. I also suggested China be penalized for debasing their currency for over 20 years. And their dollars should be redeemed at $.20/dollar.
    I suggested regional Gold Banks be setup to update Murray Rothbard’s plan. And the current calculation for dollar value per ounce of gold.
    (M2 money supply/ounces of gold available.) (Currently $50,854.78)
    Doing this will keep economic shocks to a minimum.
    Because Gold will be money from then on. I also suggested he tackle the debt bubble!
    Because we would have to stay on budget from then on.
    Still would have government bonds! Which mean we would still have a potential debt problem.
    But boom/ bust economic cycles would be eliminated!
    Waiting for the tri-nations will cause the US to loose it’s pre-eminence in the financial markets.
    So this gives us a motivator to get the job done!

    Troy Jarvis
    Godly Candidate for Florida Governor (Nov2018)(write-in)
    Lake City, Fla 32055

    Reply

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