Why can't our government return our currency to the gold standard?

Question

Lets call a do over. Cancel all our national debt. China sorry you bought all the bonds but we decided not to honor them. Hey we'll still buy the stuff you make. And oh yeah our dollars are worth real gold now.

Sure it would cause some serious problems in the short term but in the long term the economy (while probably not as high flying) would be much more stable.

This is just my half baked spur of the moment question. I'm not an economist and have no idea about the real ramifications such an action would have. Enlighten me!!!

Answer 1

I strongly suggest you read a book written in 1969 called "The Jacksonian Economy." It would eliminate any desire to be on gold. The other good book would be "Lessons from the Great Depression," or the painful to read "A Monetary History of the United States 1865-1960"

Your dollar is worth what other people will take it for, why add the additional demand that it be exchangeable in gold.

Trust me, there wouldn't be any such thing as an iPod if we were on gold because we could not have progressed to that technological point.

Further, gold is inherently deflationary. As population increases, gold per capita decreases. Imagine living in a world where everything got cheaper with each baby. What business would want to operate in a world where the price you could charge fell with each birth? Who would produce anything when demand increased but prices fell? Could you imagine the population explosion if you could make money by having babies? Have you noticed the ratcheting down of the birth rate globally since Bretton Woods collapsed? Part of that is from improved global economies but I suspect part of that is from the separation of gold from the monetary system.

Answer 2

First of all, what's your complaint? The only perceived threat of not being on the gold standard is inflation, and inflation hasn't been a problem in 20 years. It's practically non-existent now.

In any case you're dead wrong to say a gold standard would make the economy more stable. When the US was on the gold standard, the economy lurched into brutal depressions on a regular basis, ending with the Great Depression. Much of the US history you learned in school revolved around the depressions and poverty and economic chaos caused by being on the Gold Standard.

All due largely to the unsophisticated management of money as a result of arbitrarily tying it to some commodity metal. With gold the constant threat is DEFLATION, which is a lot worse than inflation -- because when cash is the best "investment" around, the economy collapses. BTW, the price of gold has gone up a lot in recent years since 1998. If we were on the gold standard we'd be 7 or 8 years into a vicious depression right now. Instead of the unemployment rate being 4.5% as it is, it would maybe be 15% or 25%.

And canceling the national debt is a really bad idea. The "national debt" in the form of US treasury bonds and notes and US Savings Bonds serve as investments for many Americans. The vast majority of the US debt is held by Americans. Corporations and banks use them to manage their funds, individuals buy them and invest in bond mutual funds. And, oh yeah, about 40% of the national "debt" is the Social Security Trust Fund, which is in treasury bonds. So you'd like to make all this wealth belonging to your neighbors just disappear? You think they might have a problem with that?

Answer 3

Before 1929 the USA had different standards (gold, gold & silver). A strictly gold standard meant that there couldn't be any more money in circulation there was gold in the government's vaults. A gold and silver standard meant that the money supply was tied to the supply of both metals. Since silver was more plentiful a two metal standard meant more money in circulation. More money meant more rapid inflation. Farmers and small businesses prefered inflation because it meant that they could pay off their debts with money that was less valuable than when it was borrowed. Big business and the banks favored a tight money supply (gold only) because they were doing the lending and they wanted their loans repaid in money that held its value.

When Franklin D Roosevelt came to power after the start of depression he moved to take the country off of the gold standard. All gold coins, bullion, and certificates were recalled. This was done in part to prevent people from hoarding it or moving it out of the country. New paper money was based on silver or the "credit of the US". Today no paper money is backed directly by any metal and all coins are made of base metal which is not nearly worth the value they represent.

By taking the country off the gold standard the government was able to regulate the supply of money as it chose. By issuing more money than it could have under a gold standard it attempted to stimulate the economy and get it out the depression.

As for canceling the national debt. It not just foreign nations that have loaned us money. Local banks and investment companies hold a lot of US bonds. Canceling the debt could cause the collapse of these institutions.

At the same time our government has loaned money to many developing nations. If we don't honor our debt would those countries have any incentive to honor their's?

My guess is that if any nation were to take such action that there would be a world wide financial panic leading to a major depression. The last time that happened it led to World War II.

Answer 4

There will be a time when we return to gold. But now's not the time. When the New World Government arrive, gold will come back. Currently, the World Bank holds the largest amount of gold. If we change to gold now, many will lose out, but there will still be winners. The New World Government doesn't want any survivors. So gold will only return when there's no longer anyone that own gold, but worthless paper money.

Answer 5

Although the last vestiges of the gold standard disappeared in 1971, its appeal is still strong. Those who oppose giving discretionary powers to the central bank are attracted by the simplicity of its basic rule. Others view it as an effective anchor for the world price level. Still others look back longingly to the fixity of exchange rates. However, despite its appeal, many of the conditions which made the gold standard so successful vanished in 1914. In particular, the importance that governments attach to full employment means that they are unlikely to make maintaining the gold standard link and its corollary, long-run price stability, the primary goal of economic policy.

Answer 6

it relatively is nonetheless "voodoo economics" no rely what you're reason is... i don't care what Ron Paul says... Republicans could desire to evaluation which you won't be in a position to easily bypass changing the numbers once you do unlike what they're telling you... we are broke... take care of it.

Answer 7

Because there's simply not enough gold in the world.

Answer 8

right.....
why did we leave it?