At best returning to the gold standard is like putting a size 6 shoe on a basketball player with a size 13 foot. If the IMF's valuation of U.S. Gold reserves is accurate, they amount to approximately $390 billion dollars (8,133 tons at $1,500 per ounce) per the June 13, 2011 Moneycation post citing the World Gold Council data. There simply isn't enough gold to have a gold standard because global economies would be forced to stay unnaturally small due to the restriction of the natural resource's availability.
As Bloomberg-BusinessWeek points out in 'Ron Paul's Fort Knox Fever', alleged U.S. gold reserves are only a fraction of national debt; about 2.7 percent not including silver and other metals. If the gold price bubble is in fact a bubble and it bursts a decline in gold price would cause U.S. gold reserves could be worth as low as $78 billion at $300 per ounce. Even including the remaining 25 percent of non-gold U.S. reserves, $520 billion or so at current prices would only allow a fiat currency to be fractional to about 3 percent. This is much lower than it was before President Nixon let any use of gold standard go altogether.
If an economy is to be accountable to itself, which appears to be the theme of Congressman Paul's view, a different kind of standard seems to make more sense. These days, national Gross Domestic Product as a percentage of national debt is often used as a general metric. If that ratio were to be limited to 1 or higher, then national debt would not be allowed to exceed 100 percent of GDP ever. Pegging a standard in such a way does little to facilitate the ebb and flow of economic contractions and expansions however, and limits fiscal policy's ability to influence, hopefully in a good way, economic growth.
As Bloomberg-BusinessWeek points out in 'Ron Paul's Fort Knox Fever', alleged U.S. gold reserves are only a fraction of national debt; about 2.7 percent not including silver and other metals. If the gold price bubble is in fact a bubble and it bursts a decline in gold price would cause U.S. gold reserves could be worth as low as $78 billion at $300 per ounce. Even including the remaining 25 percent of non-gold U.S. reserves, $520 billion or so at current prices would only allow a fiat currency to be fractional to about 3 percent. This is much lower than it was before President Nixon let any use of gold standard go altogether.
If an economy is to be accountable to itself, which appears to be the theme of Congressman Paul's view, a different kind of standard seems to make more sense. These days, national Gross Domestic Product as a percentage of national debt is often used as a general metric. If that ratio were to be limited to 1 or higher, then national debt would not be allowed to exceed 100 percent of GDP ever. Pegging a standard in such a way does little to facilitate the ebb and flow of economic contractions and expansions however, and limits fiscal policy's ability to influence, hopefully in a good way, economic growth.
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