In the wake of the news that Utah has officially made gold and silver into currencies, Bloomberg TV hosted some heavy hitters on to ask them point blank: what’s the case for bringing back the gold standard in the U.S.?
[Check out our post It’s law: Gold and silver approved as currency in Utah for more on the gold standard.]
“It’s the ultimate currency,” Rob McEwen, CEO of McEwen Mining, says in the interview. “It can’t be replicated quickly, and it’s a store of value that’s crossed the millenium. Right now, we’re seeing the purchasing power decrease, and they’re taking away from everybody that puts money in the bank.”
“The horse is already out of the barn,” Michael Crofton, CEO of Philadelphia Trust, retorts. “I don’t think (a gold standard) could ever work given the amount of financing we have to do; both deficit financing and just operational financing.”
If there’s enough will for a new economic model, though, politicians could make it happen. It just wouldn’t come for free. There are a number of pros and cons to a gold standard. We’ve outlined several of the biggest here based on the interview with McEwen and Crofton and our own research.
Pros of bringing back the gold standard in the U.S.
- Reducing the likelihood of another black swan event (hyperinflation, the collapse of financial institutions, etc.) that could cripple the global economy
- Bringing back fiscal discipline in Washington – forcing politicians to clean up programs like Medicare and social security
- It can be done. There’s precedent for it, with many nations – including the U.S. – operating with gold-backed currency for more than 100 years
- Price stability
- A reduction in the number of economic booms and busts
- A system that rewards savers rather than debtors
Cons of bringing back the gold standard in the U.S.
- Switching to a gold standard would shift the power from debtor nations (like the U.S. and Europe) to creditor nations (like China).
- The gold standard would eliminate the need for a reserve currency – stripping yet more power away from the U.S.
- Limits would be imposed on how much governments can borrow during crises/li>
- Gold prices would need to be set by governments, and that could potentially give governments the power to manipulate currencies
- Less ability for governments to stimulate growth in their economies
A different approach to the gold standard
While I do think there needs to be a return to fiscal responsibility, I’m not sure a single sovereign government could make the transition alone. A more likely solution? A federation of countries or global financial institutions that align to back a fee-based debit card system that lets buyers and sellers convert credits into physical gold or silver.
This electronic system could take deposits in any number of currencies. That cash could then be spent like cash in a normal debit account or redeemed for metal.
Individuals could use the system to protect themselves from inflation or as a shelter during tough economic times. The global binge on cheap credit has to come to an end at some point, and the solution just might be a mix of fiat and gold-backed money.
UNCOVER THE NEXT MINING GIANT
LULLING THE MASSES TO SLEEP
THE NEXT BIG THING
THE NUMBER 1 RETAILER IN THE WORLD?