Hard Truths About Hard Money

Steve Forbes predicts the US will be back on the gold standard within five years. It’s a fine idea, and I’m all for it — but how do we get there?

Well, there’s all that gold in Fort Knox.

OK, stop laughing.

Tasty, tasty gold. According to Wikipedia, we have a little over $200 billion stored away in Kentucky, at the current-ish rate of $1,400 an ounce. That’s enough to pay this year’s interest on our existing debt.

So how much gold is there in the whole world? Let’s go to Seeking Alpha:

If there are 5.3 billion Troy ounces of gold above ground, and if there are 6.9 billion people, then there are 0.77 ounces of gold per capita globally, which at the current price of gold means there is enough “money” for about $1,050 per capita globally.

If we get greedy and take all the gold in the world — hey, what’s an army for? — that’s enough for 17.3 ounces per American. That’s about $26,000 for each an every one of us. Nifty.

But we run into another problem. The total supply of dollars out in the wild is about $10,000,000,000,000. That’s ten trillion-with-a-t. Divvy up that figure, and it comes to $32,500 per person. Gold is undervalued, even at $1,500 an ounce.

Of course, we will never have all the gold in the world — that $26k figure is wildly optimistic. China has been buying up gold like crazy. And Beijing has foreign reserves of about $2.6 trillion to go shopping with, if they ever got really serious about it. We have about 5% of that figure.

So if the Treasury were to start buying gold again to get us back on the gold standard, what would be the price? Would it be a genuine, convertible gold standard? If so, what would stop China from buying out our reserves and walking off with them, like France did with its dollars back in the ’60s? Would the necessary deflation of going back on gold be politically feasible, with government and homeowners both in hock up to their earlobes? There are more questions, none with easy answers.

I’d love to see us back on the gold standard. But doing so is like asking for directions in Maine: You can’t get there from here.