The feasibility of the converting back to the Gold Standard

When discussing whether it could ever be possible for the US to go back to the Gold Standard, some have argued that there does not exist enough gold in the entire world to back all the dollars in the economy with.

The following is a closer examination of that claim.

The current amount of gold bullion that exists in the world is worth about 5 trillion US dollars.

Since US dollars are so ubiquitous in the world, we might suppose it could be realistic for the US to hold up to 20 percent of that.

There is about 2 trillion US dollars (specifically issued by the Federal Reserve) in circulation.

That means it could theoretically be possible to back all US dollars with gold, but it would be a very big stretch. The US would need to have 40 percent of all gold bullion that exists in the world. This would be very problematic for a variety of reasons.

(Another idea could be some sort of arrangement to partially back the currency with gold)

Here is some insight though. One major problem is that the Federal Reserve owns over $2.5 trillion in US debt. What this means is that the US dollar is in large part backed by government debt (artificially contrived as that may seem). I think that is one major reason why it is impossible to back the dollar with gold, because the Federal Reserve has created so much money buying government debt.
Obviously it's hard to back a huge amount of money that doesn't even really "actually exist" with gold, since this is money the government is promising to pay back in the future.

I think though if the government were able to greatly reduce its debt (not at all an easy task), then going back to a gold standard would not be too unrealistic.


We also have to consider that if a country like the US converted to the Gold Standard, the price of gold might go up, and so it might end up taking less gold to back the current number of dollars that are in existence.

 

Render unto Caesar what is Caesar's.

If you want a gold backed currency, buy some gold (or silver). If you want something thats been made more convenient for you to trade, use the fed's dollars. Sure it'd be nice if there was something thats both, but clearly neither the govt nor the fed are interested in providing that service for free. Asset diversification is beneficial anyway.

 

The argument that there is not enough gold to back all the money that is in existence is, paradoxically, kind of an argument in favor of the Gold Standard.
If the country were on the Gold Standard, it would have been impossible to create all that money, since most of that money has been "created" out of government debt. It might have prevented the country from so needlessly going into all that debt. (It's far harder to get into debt when the country can't sell their debt to their Central Bank, "The Fed", for money)

When we realize that much more than half the "assets" on the Fed's balance sheets are just government debt, that isn't proper or "normal". That's not how a Central Bank should operate.

Most of the money (US dollars) that exist should not have been made.

 

If you want to commit suicide, could you do it somewhere else?

 

I guess we could ask why the Progressive Left hates the idea of the Gold Standard so much. A discussion for another thread.