Authored by Mike Maharrey via Money Metals,
Could the world be creeping closer to a monetary gold standard? Steve Forbes sees signs that it is.
In a recent article published by Forbes Magazine, Steve Forbes wrote that it may seem hard to believe, but the world is “beginning to lurch toward a gold-based monetary system.”
“This, despite the fact that the historical gold standard is held in almost universal contempt by economists and financial officials.”
Forbes argued that this disdain for a gold standard is misplaced, pointing out that during the 180 years that the dollar was tied to gold, the U.S. enjoyed the greatest long-term growth in human history without the ravages of price inflation.
“Since the greenback’s link to gold was severed, our average historic growth rates have fallen by about a third. Median household income today would be at least $40,000 higher if our traditional pattern of growth for those 180 years had been maintained. Nonetheless, the contumely and scorn for a gold-based monetary system is universal.”
That’s because government people and their support system in academia and media hate gold.
Why Is There Such Disdain for a Gold Standard?
Because it limits the growth of government.
In fact, you could argue that by rejecting the gold standard, the U.S. traded economic growth that benefits the average person for government growth that benefits the political class.
Franklin D. Roosevelt took the first steps to abandon the gold standard in the 1930s.
With the dollar tied to gold, the Federal Reserve was unable to significantly increase the money supply during the Great Depression. It couldn’t simply fire up the printing press as it can today. The Federal Reserve Act required the central bank to hold enough gold to back at least 40 percent of the currency notes in circulation.
But the central bank was low on gold and up against the limit.
To solve this “problem,” FDR nationalized gold, removing it from public hands with a confiscation order. He then arbitrarily increased the fixed price of gold to $35 an ounce. This effectively boosted the value of gold on the Federal Reserve’s balance sheet by 69 percent.
By increasing its gold stores through the transfer of private gold to the Fed, and declaring a higher exchange rate, the Fed could circulate more paper money. In effect, the hoarding of gold by the government allowed it to inflate the money supply.
President Richard Nixon severed the last link to the gold standard in 1972 when he closed the “gold window.”
While Americans were legally prohibited from redeeming dollars for gold by FDR’s moves in the 1930s, foreign governments retained that privilege. In the 1960s, the Federal Reserve initiated an inflationary monetary policy to support government spending for the Vietnam War and President LBJ’s “Great Society.” These inflationary policies rapidly devalued the dollar. Foreign governments responded by redeeming dollars for gold. As gold flowed out of the U.S. Treasury, officials worried it could completely deplete the country’s gold reserves.
This is exactly how a gold standard is supposed to work. It limits the amount the money supply can grow and constrains government spending.
Instead of insisting on fiscal and monetary discipline, Nixon simply cut the dollar’s last ties to gold. Since then, the Fed has been able to print money with virtually no restraints.
Is a Gold Standard Coming Back?
This monetary malfeasance has consequences. It incentivizes debt. It devalues the currency. It drives malinvestments in the economy and boom-bust cycles. The negative impacts of a fiat currency system could push the world back into the arms of gold.
As Forbes put it, “Events … have a peculiar way of forcing things once unthinkable into the forefront of consideration, and then into reality.”
Forbes points out four signs that point to a return to some kind of monetary gold standard.
1. Central Bank Gold Buying
Central banks have been gobbling up gold at a record pace. Last year, central bank gold buying fell just 45 tons short of 2022’s multi-decade record.
According to the World Gold Council, central banks’ net gold purchases totaled 1,037 tons in 2023. It was the second straight year central banks added more than 1,000 tons to their total reserves.
Central bank gold buying in 2023 built on the prior record year. Total central bank go…
Additional Insight: In times of economic uncertainty and excessive money printing, the idea of returning to a gold standard gains traction as governments and central banks seek stability and a hedge against currency devaluation. The recent increase in central bank gold purchases, coupled with rising debt levels and the emergence of alternative economic blocs, are all pointing towards a potential shift back to gold as a monetary anchor. As history has shown, the discipline imposed by a gold standard can help prevent unchecked inflation and excessive government spending. The ongoing developments in global economics suggest that the debate over a return to sound money principles, such as a gold standard, is far from over.
Authored by Mike Maharrey via Money Metals,
Could the world be creeping closer to a monetary gold standard? Steve Forbes sees signs that it is.
In a recent article published by Forbes Magazine, Steve Forbes wrote that it may seem hard to believe, but the world is “beginning to lurch toward a gold-based monetary system.”
“This, despite the fact that the historical gold standard is held in almost universal contempt by economists and financial officials.”
Forbes argued that this disdain for a gold standard is misplaced, pointing out that during the 180 years that the dollar was tied to gold, the U.S. enjoyed the greatest long-term growth in human history without the ravages of price inflation.
“Since the greenback’s link to gold was severed, our average historic growth rates have fallen by about a third. Median household income today would be at least $40,000 higher if our traditional pattern of growth for those 180 years had been maintained. Nonetheless, the contumely and scorn for a gold-based monetary system is universal.”
That’s because government people and their support system in academia and media hate gold.
Why Is There Such Disdain for a Gold Standard?
Because it limits the growth of government.
In fact, you could argue that by rejecting the gold standard, the U.S. traded economic growth that benefits the average person for government growth that benefits the political class.
Franklin D. Roosevelt took the first steps to abandon the gold standard in the 1930s.
With the dollar tied to gold, the Federal Reserve was unable to significantly increase the money supply during the Great Depression. It couldn’t simply fire up the printing press as it can today. The Federal Reserve Act required the central bank to hold enough gold to back at least 40 percent of the currency notes in circulation.
But the central bank was low on gold and up against the limit.
To solve this “problem,” FDR nationalized gold, removing it from public hands with a confiscation order. He then arbitrarily increased the fixed price of gold to $35 an ounce. This effectively boosted the value of gold on the Federal Reserve’s balance sheet by 69 percent.
By increasing its gold stores through the transfer of private gold to the Fed, and declaring a higher exchange rate, the Fed could circulate more paper money. In effect, the hoarding of gold by the government allowed it to inflate the money supply.
President Richard Nixon severed the last link to the gold standard in 1972 when he closed the “gold window.”
While Americans were legally prohibited from redeeming dollars for gold by FDR’s moves in the 1930s, foreign governments retained that privilege. In the 1960s, the Federal Reserve initiated an inflationary monetary policy to support government spending for the Vietnam War and President LBJ’s “Great Society.” These inflationary policies rapidly devalued the dollar. Foreign governments responded by redeeming dollars for gold. As gold flowed out of the U.S. Treasury, officials worried it could completely deplete the country’s gold reserves.
This is exactly how a gold standard is supposed to work. It limits the amount the money supply can grow and constrains government spending.
Instead of insisting on fiscal and monetary discipline, Nixon simply cut the dollar’s last ties to gold. Since then, the Fed has been able to print money with virtually no restraints.
Is a Gold Standard Coming Back?
This monetary malfeasance has consequences. It incentivizes debt. It devalues the currency. It drives malinvestments in the economy and boom-bust cycles. The negative impacts of a fiat currency system could push the world back into the arms of gold.
As Forbes put it, “Events … have a peculiar way of forcing things once unthinkable into the forefront of consideration, and then into reality.”
Forbes points out four signs that point to a return to some kind of monetary gold standard.
1. Central Bank Gold Buying
Central banks have been gobbling up gold at a record pace. Last year, central bank gold buying fell just 45 tons short of 2022’s multi-decade record.
According to the World Gold Council, central banks’ net gold purchases totaled 1,037 tons in 2023. It was the second straight year central banks added more than 1,000 tons to their total reserves.
Central bank gold buying in 2023 built on the prior record year. Total central bank go…
Additional Insight: In times of economic uncertainty and excessive money printing, the idea of returning to a gold standard gains traction as governments and central banks seek stability and a hedge against currency devaluation. The recent increase in central bank gold purchases, coupled with rising debt levels and the emergence of alternative economic blocs, are all pointing towards a potential shift back to gold as a monetary anchor. As history has shown, the discipline imposed by a gold standard can help prevent unchecked inflation and excessive government spending. The ongoing developments in global economics suggest that the debate over a return to sound money principles, such as a gold standard, is far from over.
