The United States’ debt is higher than it has ever been before and some people have started to blame the fact that the United States is no longer on the gold standard. In 1971, the United States took its currency off the gold standard and instead said it was based on the full faith and credit of the United States and allowed our currency to float on the exchange markets. Basically this means that our money does not really have anything backing it. Now, we have an overwhelming amount of debt and we cannot really seem to get our economy back on its own feet and in full swing again. Therefore, some politicians including Ron Paul and some Libertarians have advocated that we return to the gold standard as a way to add value to our currency and to control our spending. This is because if the US dollar was on the gold standard, we would not have control over monetary policy.
Now this seems like a great idea in theory but the practicality of it is just not there. The reason why we left the Gold Standard is that even back in 1971 there was not enough gold to back up the amount of currency we printed. After WWII, the US made all other countries tie their currencies to the US dollar, and then the US dollar would be tied to the gold standard. This way the US could help rebuild Europe and Asia without having to go through meaningless transfers. The US promised that any country who wanted to trade in US dollars could get the gold value of it. However, the rebuilding of the world took much more money than anyone had anticipated and the US printed trillions of dollars and gave it to countries. Charles De Gaulle, the leader of France, thought this was the US trying to influence every country so in 1971 he collected all the US currency in France and wanted to trade it in. The US in no way had enough gold to give Charles De Gaulle and that is when we left the gold standard. Therefore, think about it if we did not have enough gold back then to cover our checkbooks it would be impossible for us to cover what we now have spent. If we force ourselves to go back on the gold standard then we would really weaken the American dollar. Plus right now America only has $405 billion worth of gold in our reserve and therefore it is impossible for us to use this to cover our debt. Also another problem with the gold standard is that the value of the US dollar would be tied to the supply and demand of Gold and in the stock market gold is not as stable as one might assume. Also, if there is a shortage of gold than prices plummet hurting everyone and sending the country into another recession. This could happen if confidence in the American economy is shaken and too many people try to transfer their assets into gold at one time.
Now there are some reasons why this is a good idea. First this would make it so the treasury could not just print trillions of dollars, or a trillion dollar Obama coin (let’s not forget that was actually an idea), which some argue would force Congress to rein in spending. However, as we saw with the Fiscal Cliff, Congress does not seem to do well when they have a time limit. Another argument is that this will make US currency more attractive on global markets because it would be tied to an actual commodity. However, this does not make sense because the US dollar is the basis for all commodities in the world and it would not really increase the want for US dollars. Also most economist agree that transferring back to the gold standard would be foolish and holds no real widespread benefits. So overall, while the United States does need to control its spending, we are too far gone to even think about going back on the gold standard.