Summary
The opacity of U.S. gold reserves and the historical abandonment of the gold standard raise concerns about the dollar’s value, government debt, and the potential benefits of transitioning back to a gold-backed currency to enhance economic stability and prevent inflation.
Economic Implications
The US government’s $750 billion gold reserve at Fort Knox is insufficient to address the $34 trillion national debt, highlighting the scale of fiscal challenges.
The 1933 gold confiscation and revaluation from $20 to $35 per ounce represented a partial default on the government’s promise to redeem dollars for gold.
Abandoning the gold standard in 1971 removed a key mechanism for maintaining a stable store of value and medium of exchange in the US economy.
Government Power and Strategy
The gold reserve serves as a “war chest” for potential existential threats or highly destructive wars, providing a salable good in extreme circumstances.
Maintaining a gold reserve symbolizes state power and independence, offering a backup plan in case of economic collapse or loss of confidence in the dollar.
The ability to “inflate away debt” through currency manipulation is a key factor in the government’s reluctance to return to a gold standard.
Potential Reforms and Consequences
Privatizing the gold reserve by defining the dollar as a fraction of gold (e.g., 1/1,000,000th ounce) could limit government’s ability to print money and inflate debt.
Reintroducing dollar-gold redeemability could lead to a hyperinflationary situation as people abandon paper currency for physical gold.
Balanced budgets could potentially stabilize the money supply, but are challenging due to high government spending and unpopular taxation.
Controversies and Criticisms
The lack of a recent audit of Fort Knox’s gold reserves has fueled controversy about the existence and amount of gold actually held.
Some critics view the gold reserve as a “slush fund for elites” to be used for weapons and mercenaries in case of civil unrest or regime collapse.