Gold Standard | Purchasing Power of USD

Economics Economics Questions
1

  1. Is it possible to go back on the gold standard even though we got off it during Nixon?

  2. Assuming the Fed stopped printing money tomorrow, is investing the only way to gain back the USD purchasing power since it will acquire more capital for the same amount of paper money?

2

Yes, the country can go back on the gold standard at any time. It won’t be, though, at $35 per ounce of gold - but rather closer to the current price. Reason being: There is no way to make all the dollars created since 1970 disappear. (Dollars would be hoarded if any attempt to do so.)

  1. I don’t think there’s any way to ever gain back the purchasing power loss of the dollar. Once loss it’s gone forever. You can only hope to stop the bleeding, sotospeak.
3

So, once the dollar is inflated, it’s inflated forever because we can’t reasonably expect everyone to give up 50% of their dollar bills or whatever?

Pretend we found an island, and we could set up a stateless society with a capitalist economy. What would be the best way of doing it? Would we simply take everything we own as capital, exchange every USD we have in for even the smallest amount of gold, and then invest from there? Someone should really write a fiction book about the scenario.

4

Well, dollars would definitely be worthless on the new island - assuming it was isolated completely and forever from the United States - and let’s assume also the island had enough natural resources to support the new inhabitants - so there’d be no reason to take hoards of water and food - then I’d say gold or other precious materials would be better than dollars. But ready-made tools would be best of all.

Although, I think that fiction book would end just the same as any new land.

You’d take gold (or whatever ) - someone else would have guns and a bunch of friends (let’s call this gang the gov’t for fun) and they would try to take whatever you possessed. Unless you were bigger, stronger, and smarter. That’s the main reason I don’t think a stateless society can really work. I think whoever is strongest will invariably become the state.

5

I’d hope the person would end the book right after the transition process so it’d be less depressing.

I know that’s how it’s worked in history, but I have faith it will work one day. There are only so many big weapons you can use without wiping out the people and resources on the island, so everyone on the island would be armed like crazy. Plus, I feel like it would be mostly anarcho-capitalists who would move there.

6

of course we can go back to the gold standard… TheNcredibleEgg is saying that it is unlikely because of the price of gold but I think that is missing the point because The Fed has the largest reserve of gold already, so the price of gold wouldn’t be an issue. Also if the USD suddenly got on the gold standard, the price of gold would drop because the only reason the price of gold is so high is because of the weak dollar and the expectations of the dollar aren’t that high…

7

I didn’t say it would be unlikely because of the price of gold. The price of gold would be inconsequential to whether or not a country used the gold standard. The price is already the price based on what the fiat standard is worth. So a country just goes on the standard at whatever the price.

As fas as gold dropping though - I don’t think it would. Once the standard was locked in - the price of gold would not change in nominal terms (assuming the currency was not devalued.) Just like a dollar is always worth a dollar (in nominal terms.)

Now, if you are thinking the price of gold would drop in expectation of the gold standard being implemented - I seriously doubt it. The gov’t would be out printing money and buying up as much gold as possible before that date - so gold would soar. Probably a gold standard would have to be implemented at much higher prices (who knows exactly what price - too many variables.) And, whatever that final price, then that’s where it’d stay.

(Or very likely - the gov’t would seize all private gold - at let’s say $1,000 or so - then implement the gold standard a little later at a much higher rate.)

8

“We” don’t need to “go back” to anything by fiat (force). Just repeal legal tender laws and capital gains taxes (hopefully globally) and observe what the market decides are the relative exchange rates between the various media of exchange (currencies, paper, commodities, gold, etc.). Whether the Fed stops printing or not, I’d venture a bet that in such a scenario 1oz of gold would trade much closer to $10k than $1k.

Z.

9

@TheNcrediable

The price of gold is only high because of the lack of the expectations for the USD. Who cares if the nominal would not change, it is the ‘‘Real’’ change that should be considered, not ‘‘nominal’’

10

Izzy:

I don’t think you are taking into account that the United States would have to devalue the dollar (likely heavily) before implementing the gold standard - or else the country would have to actually default the old debts later. I imagine the gov’t would choose the former. Because there is no realistic way for the United States to pay back 14T ++ in debt based on $1,400 gold.

That’s why I don’t think the price of gold would drop on word of a gold standard. Sure, after the gold standard was introduced, the dollar would have real gains. But there would have to be a substantial devaluation of the dollar in order to (in effect) default on past debts.

11

I don’t think there’s any way to ever gain back the purchasing power loss of the dollar.

This is not strictly true. If they stopped the expansion of credit and ceased intervening in the economy the dollar would rise relative to goods and foreign currencies.