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The Gold Solution Davon Long Rowan-Cabarrus Community College


The Gold Solution Gold monetary policies are policies that establish a relationship between gold and a countries currency (Kenwood & Loughead, 2002). In the United States, several gold monetary policies were utilized from 1792 until 1971 (Paul, 2011). One specific form of gold monetary policy utilized in America was the gold standard, which connected the value of the nations currency supply to the exact weight and value of gold. Under this policy gold could be used directly or indirectly to purchase goods and services. The American economy under various forms of gold monetary policies experienced the lowest annual inflation and cost of living rates in history due to the long-term price stability that gold provided (White, 2008). The fact that gold is a limited resource means that it cannot be printed in mass quantities, which in turn keeps the demand for gold high and prevents the worldwide value of gold from decreasing dramatically. This characteristic of gold monetary policy restricts the rise of inflation, which is simply the reduction in the purchasing power of currency due to the rise in the price of goods and services. In 1971, all of the wonderful benefits of gold monetary policies were eliminated under the Nixon administration. President Nixons monetary policies severed all ties with gold and moved on to the current fiat monetary system, which regulates all American currency today. Under fiat monetary policies, all of the cash money or treasury notes in circulation are secured by the full faith and credit of the federal government (Elwell, 2011). Fiat money has no relationship to anything of extrinsic value and it can be printed at will. Forty-two years after the elimination of gold monetary polices the economy has deteriorated greatly. Gas prices have increased from 36 cents per gallon in 1971 to the current average of $3.63 cents per gallon.


National public debt has risen to over sixteen trillion dollars and the real unemployment rate is at 14.3% (Diamond, 2013). Treasury notes or greenbacks have lost 80% of their value. The overall price of goods and services has skyrocketed by 1.4% over the past year. Everyday consumers like you and me are suffering from excess government spending and an inflated dollar. Based on this information and the historical records from the past it is very clear to me that the United States government must utilize gold monetary policies to contain the national debt and improve the economy. Implementing gold monetary policies can reduce the current inflation rates and disrupt the rise in consumer pricing. Analyzing inflation is one of the best ways to find out how weak or strong a nations economy is because it affects multiple economic elements such as the stock market, consumer goods, currency, unemployment, interest, and tax rates. In an extensive study, involving 15 countries financial experts at the Federal Reserve Bank of Minneapolis found that inflation rates where lower under gold monetary policies than under fiat monetary policies (Rolnick & Weber, 1998). The study revealed that annual inflation rates rose from 1.75 percent to 9.717 percent under the fiat money system. One reason for this is that gold monetary policies add extrinsic value to the dollar due to the fact the real price of gold remains steady worldwide (Paul, 2011). Connecting the value of gold to the value of the dollar prevents the long-term inflation of American currency because the purchasing power of gold cannot be manipulated by one country or government entity. Gold policies also reduce inflation by limiting the governments currency production to the percentage of all its gold reserves. Arthur J. Rolnick, former vice president of the Minneapolis Federal Reserve bank stated, that the correlation of currency growth to inflation under the fiat monetary system can only be attributed to the more liberal currency printing atmosphere that exist under this policy.

THE GOLD SOLUTION Utilizing gold monetary policies in America can strengthen the economy and reduce the real unemployment rate. Economic growth is defined as the increase in productivity of a

countries goods and services over time (Paul, 2011). Long-term economic growth is measured by a countrys gross domestic product, which is the total market value of all complete goods and services produced under a countries economic system. The Gross domestic product measurement tool is the king of all economic measurement strategies and has been in use by the federal government for over 69 years. Last year Charles Kadlec, a 30-year senior investment manager and former economic advisor to late Senator Jack Kemp conducted research on economic growth under the fiat and gold monetary systems. Statistics from the research revealed that the economy grew at a rate of 3.9% annually during the 179-year era of Americas gold monetary policies. Forty years under the fiat system has slowed economic growth to just 2.8% annually (Benko & Kadlec, 2012). This information is very significant because it reveals that the American economy is 8 trillion dollars smaller due to the negative effects of the fiat monetary system. Eight trillion dollars would have reduced the national debt by almost half. Economic experts also estimate that 8 trillion dollar would increase the median family income from fifty thousand dollars annually to seventy thousand dollars annually (Benko& Kadlec, 2012). The long-term price stability that gold monetary policies provide creates an environment where investors and companies feel relaxed and optimistic. Increased investment equates to increased employment. Former Presidential Candidate and Republican Senator Ron Paul conducted a study on unemployment in 1981 ten years after the end of gold monetary policies. In the study, it was found that the unemployment rate increased from 5.5% in 1971 to 8.9% in 1981 (Paul, 2011). High annual inflation and interest rates that are associated with credit-based currency creates an

THE GOLD SOLUTION environment where business executives feel they have to cut back on spending because of the decreased purchasing power of their capital. Returning to Gold monetary policies can stabilize the national debt and limit the federal governments ability to increase it. National debt is defined as the total amount of financial obligations owed by the federal government (Kenwood & Loughead, 2002). The financial obligations are created when the government sales interest bearing products such as bonds, treasury notes and treasury bills. The money raised from the sale of these instruments finances the government after it goes over any predetermined budget (Paul, 2011). Generally, the money raised is classified as nothing more than a huge loan that must be paid back with interest. Currently the government owes over sixteen trillion dollars in loans. From 1971 to 2003, financial experts found that the national debt increased from 406 billion dollars to 6.8 trillion dollars under the fiat monetary system. (Paul, 2011). Under certain gold monetary policies, the federal government currency printing would be limited to a percentage of gold reserves held in repositories nationwide. The restraints placed on currency printing would reduce the amount of treasury products sold due to the fact that American dollar is the primary means of purchasing government debt (Benko & Kadlec 2012) . A reduction in treasury products sold translates into the containment of the national debt. Critics of gold monetary policies believe that a well-managed fiat monetary system can restrain inflation better than a gold monetary system. This belief is based on the fiat monetary policy decisions of former Federal Reserve Chairman Paul Volker who reduced inflation from 13.5 % to 3.2% in 1983 (Makin, 2012). However, information discrediting this claim was disclosed earlier when a study revealed that inflation rates never increased more than 1.75% under gold monetary policies (Rolnick & Weber, 1998). Critics also say that under gold

THE GOLD SOLUTION monetary policies economic growth can outpace the currency supply since money cannot be

created and circulated until more gold is obtained to secure it. However, this can be countered by implementing gold monetary policies that only restrict government spending to a percentage of gold reserves instead of policies that require gold to determine the value of currency. The multitude of benefits that gold monetary policies have contributed to the American economy in the past cannot be denied. Historical records are full of evidence suggesting that gold monetary policies can fix the current strained economy and contain the national debt. It is clear that the current credit based monetary system in place is a product of greedy politicians and bankers who have no regard for the welfare of average working class citizens. Gold monetary policies must be implemented so that the American economy can experience strong economic growth, low inflation rates, reduced unemployment and reduced federal government debt.

THE GOLD SOLUTION References Benko, R ., & Kadlec , C . (2012). The 21st Century Gold Standard: For Prosperity, Security, and Liberty. Diamond, D. (2013). Why The Real Unemployment Rate Is Higher Than You Think. Forbes.Retreived from http://www.forbes.com/sites/dandiamond/2013/07/05/why-thereal-unemployment-rate-is-higher-than-you-think/ Elwell, K. (2011). Brief History of the Gold Standard in the United States. Congressional Research Service 2-18. Retrieved from http://gold-standard.procon.org/sourcefiles/crsbrief-history-of-gold-standard-in-us.pdf Kenwood, A. G., & Lougheed, A. L. (2002). The Growth of the International Economy 18202000: An Introductory Text. London: Routlege Makin, H., M. (2012). All That Glitters: A Primer on the Gold Standard. American Enterprise Institute for Public Policy Research 1-6. Retrieved from http://goldstandard.procon.org/sourcefiles/all-that-glitters-a-primer-on-the-gold-standard.pdf Paul, R. (2011). The Case for Gold A minority Report of the U.S. Gold Commission (2and ed.). Auburn, AL. Ludwig von Mises Institute Rolnick, J., A. & Weber, E., W. (1998). Money, Inflation, and Output Under Fiat and

Commodity Standards. Federal Reserve Bank of Minneapolis Quarterly Review. 22 (2) 28. Retrieved from http://goldstandard.procon.org/sourcefiles/money_inflation_output_fiat_commodity_rolnick.pdf White, H., W. (2008). Is the Gold Standard Still the Gold Standard among Monetary Systems? Cato institute 100, 2-8. Retrieved from http://goldstandard.procon.org/sourcefiles/gold_standard_still_gold_standard_white.pdf