The gold standard is a monetary system in which a country’s currency is directly linked to a fixed quantity of gold. Under the gold standard, the value of a currency is determined by the amount of gold that can be exchanged for it. For example, if a country’s currency is linked to gold at a rate of $1 for 1/10 of an ounce of gold, then the value of the currency would be determined by the amount of gold that could be obtained in exchange for $1. The US dollar used to be on a gold standard. The US dollar today is not backed by any gold. America’s gold reserves have not been audited in over 60 years.
Historically, the gold standard was widely used by many countries around the world, particularly in the 19th and early 20th centuries. However, in the mid-20th century, most countries moved away from the gold standard and adopted more flexible monetary systems that allowed for greater control over their currencies. President Roosevelt in 1933 through Executive Order 6102 lowered the gold backing of the US dollar and outlawed the ownership of gold by US citizens. This gold ownership ban stayed in effect until President Gerald Ford changed it in 1974. The fiat currency system we have today was officially started in 1971 when President Nixon eliminated the gold standard. Some countries have attempted to return to a currency backed by gold. This is still in motion. The US is not one of these countries.
A currency on the gold standard has some advantages
Today, the gold standard is not widely used, but it remains an important concept in economics and monetary policy. The gold standard is a monetary system in which the value of a country’s currency is directly linked to a fixed amount of gold. Under this system, a currency’s value is determined by the amount of gold that can be exchanged for it. There are several advantages to having our money on the gold standard which include stability, predictability, and trust. A currency that is backed by gold also can protect against government intervention.
One of the biggest advantages of a currency on the gold standard is the lack of currency devaluation that occurs. So in essence the currency that is backed by a certain amount of gold cannot be printed into oblivion in a short period. American citizens then have a currency they can trust and one that holds its purchasing power. It is becoming more obvious every day that we do not have this type of currency. Our “Federal Reserve Notes” continue to lose buying power. Fiat currencies inevitably have a track record of losing tremendous purchasing power over time. This is a very important disadvantage for American citizens like you and me. Our purchasing power also is getting much worse.
There are also disadvantages of being on a gold standard
There are also some disadvantages to the gold standard. For example, it can limit a country’s ability to respond to economic downturns by restricting the amount of money that can be printed or circulated. It can also be difficult to maintain the supply of gold, which can limit economic growth. Limited money supply, lack of flexibility, dependence on the gold supply, and vulnerability to speculation are all disadvantages of having a currency on the gold standard. A gold standard can also make it difficult to manage international trade.
The government used these reasons to limit the gold standard in 1933 and ultimately dissolve the US dollar gold standard entirely in 1971. This was done on a temporary
basis for the benefit of the dollar
. This temporary adjustment is still in effect 52 years later. Since 1971, fiat currencies on average have lost 97–99% of their purchasing power when compared to the only form of real money which is physical gold. As debt spirals out of control globally, it can be argued that we are seeing the end of the fiat currency experiment which started in 1971. It remains to be seen how ugly the financial system will get. By the look of it, it ultimately seems that it will get very ugly when it comes to our money and the financial system as a whole.
There are very few currencies today that are backed by gold. The gold standard has largely been abandoned by most countries. Today, the only major currency that is partially backed by gold is the Swiss franc. The Swiss National Bank (SNB) holds a significant amount of gold as part of its foreign currency reserves, which provides some level of backing to the Swiss franc.
However, the amount of gold backing the Swiss franc is relatively small compared to the total value of the currency in circulation. Some countries, such as Russia and China, have been increasing their gold reserves in recent years, but their currencies are not directly backed by gold. Russia has done energy deals recently that have settled in gold, not US dollars. Overall, most currencies today are fiat currencies, which means that their value is not backed by any physical commodity but rather by the faith and credit of the issuing government.
President Biden imposed new sanctions on Russia in April 2021 over the ongoing conflict in Ukraine. These sanctions were meant to hold Russia accountable for its aggressive actions towards Ukraine, including the annexation of Crimea in 2014 and its continued support for separatist rebels in eastern Ukraine. The sanctions targeted several Russian individuals and entities, including companies involved in the production and export of technology used by the Russian intelligence services.
The United States also expelled several Russian diplomats and imposed restrictions on US financial institutions dealing with Russian sovereign debt. President Biden has emphasized that the sanctions are not meant to escalate tensions with Russia, but rather to send a clear message that the United States will stand with its allies and partners in defense of Ukraine’s sovereignty and territorial integrity. These sanctions against Russia showed the world that our government weaponized the dollar. Countries and individuals will ultimately look for different ways to hold their assets outside of US dollars or Treasury Notes. In most instances, physical gold fits this bill.
Fiat currencies can lose their buying power over time due to inflation. Inflation occurs when the supply of money increases faster than the supply of goods and services in the economy, leading to a decrease in the purchasing power of each unit of currency. Central banks, which are responsible for managing the money supply and controlling inflation, often try to maintain a low and stable rate of inflation by adjusting interest rates and other monetary policy tools. However, even with these efforts, the value of a fiat currency can still be eroded over time, especially in periods of high inflation or economic instability. Americans are seeing this more today than ever.
This is one of the reasons why some people turn to alternative stores of value such as gold to protect their wealth against the potential erosion of fiat currencies. The amount of US dollars in circulation has been increasing in recent years, in large part due to the actions of the Federal Reserve in response to the economic impacts of the COVID-19 pandemic. The Fed has engaged in a variety of measures to support the economy, including lowering interest rates and purchasing large amounts of government bonds and other securities, which effectively increases the money supply. While some critics have expressed concern that these actions could lead to higher inflation or other economic challenges down the road, others argue that they are necessary to support the recovery and prevent a more severe economic downturn.
We would argue that the Fed is wrong. These are just reasons to print more money for a system addicted to spending and debt. We would argue that the politicians and central bankers have made a mockery of the financial system and the banking system. Wall Street has continued to turn out paper products to generate fees. We would argue that this bubble will end very badly and the financial system is propped up and supported by fake money printed out of thin air. We would argue the debt situation globally is dire. We would suggest surviving financially as it all comes apart.
The elimination of the gold standard in 1971 was the start of this mess. The politicians and bankers of today will make sure the wreckage is completed with their greed and manipulation. We would recommend getting as many ounces and grams of gold and silver as you can. Gold will be there when you need it. JPMorgan Chase isn’t going to bail us all out. Diversify now into some gold before the gig is up. We are getting close!
May 16, 2023
