Dec 11, 2008

Jason Hommel: What if They Returned to the Gold Standard?

(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.

The government tells us this is:

That's 10.6 trillion dollars.

Second number: The U.S. Gold stock.

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.


Jason Hommel

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