(They can’t, but we can.)
Silver Stock Report
by Jason Hommel, December 10th, 2008
What if the Government went back on a Gold Standard?
Do do that, they would need to use their gold to pay off all their debt.
That would give a price of gold if the U.S. Government backed the dollar with gold.
We only need to know two numbers, and do a simple problem of division.
First number: The national debt.
http://www.treasurydirect.gov/NP/BPDLogin?application=np
The government tells us this is:
$10,656,119,227,403
That’s 10.6 trillion dollars.
Second number: The U.S. Gold stock.
http://www.fms.treas.gov/gold/current.html
The government tells us this is:
261,498,899 ounces of gold
That’s 261 million ounces of gold.
So $10,656,119,227,403 divided by 261,498,899 = $40,750/oz. of gold.
In theory, if the U.S. government had the restraint to stop issuing any kind of new debt, and if there was a runaway hyperinflation, the government could credibly stop any sort of runaway gold price by offering gold at a price of $40,750/oz.
That’s the price that could cap the gold market if the U.S. government sold all their gold to all their bond holders. At that point, all new taxes would have to be levied in gold, not dollars.
It’s important to realize that any effort by the government to sell gold below that price will ultimately fail, and will eventually cause the gold price to go even higher than that price, as that would only deplete their limited stock of gold at inappropriate price levels.
The main point is that T-Bills, which are perceived as the safest haven around, are not safe. They are only backed up by gold at a rate of $40,750 per oz. With gold trading today at around $800/oz., the U.S. gold backs less than 2% of the value of the issued bonds, or stated another way, $800 is 2% of the price of $40,750. Gold, at today’s prices, is clearly a far superior safe haven.
And silver, which is in short supply, due to relentless industrial demand that has consumed nearly all world silver supplies, is even safer.
Clearly, the government cannot offer gold at $40,750 per oz. today. There would be no buyers. But, over time, the gold price may rise to such levels, and beyond, as a generation of people slowly wake up to the monetary fraud of the last 29 to 95 years, depending on whether you count from 1980 or 1913.
I am not an advocate of a return to a gold standard, where gold backs up paper money. I’m in favor of a return to using silver and gold coins and bars as money, as measured by weight, and traded at their intrinsic value according to the price in an open and free market place.
Sincerely,
Jason Hommel
www.seekbullion.com
www.silverstockreport.com
Brough to you by Alan’s Money Blog:
December 15th, 2008 at 11:15 pm
Alan, what do you think about using silver and gold coins and bars as money? It would require a huge reversal of our current way of doing business wouldn’t?
I’m in favor of a gold standard, but Jason’s position seems unrealistic.
December 16th, 2008 at 12:26 pm
Well Hal, we don’t necessarily have to go back to carrying around heavy gold and silver coins. We can have paper money backed by gold and silver. Even the digital money floating around in our bank accounts could be tied to something real and solid like gold and silver. Do some research on gold backed e-currencies. I believe that model to be a perfect way of monetizing gold and silver in a fashion that is suitable for our modern digitized world.
December 17th, 2008 at 11:48 pm
That’s the sort of method I envision too, Alan.
Was just a bit curious about what you felt after I read this bit from the article above:
You and I are on the same page. Now if we could just get the powers that be on that page too.
December 20th, 2008 at 12:39 am
I very much doubt we will get the powers that be on board simply for the fact that they profit and need the current system in order to maintain themselves in power. The present monetary system allows for easy manipulation and in a sense dilution and theft of our wealth. By “our” I mean the regular folk who are last on the pipeline to receive those freshly created out of nothing funny paper we call money.
With the stroke of a pen the federal reserve can easily wipe away your purchasing power. Of course the reverse is possible but the prevailing trend lately has been to erode the value of the dollar.