## Wednesday, April 20, 2011

### Dreaming of returning to the Gold Standard.. What are you smoking..

Many people look for a panacea to fix modern economic woes. One of these dreams is to return to the gold standard. Doing a little arithmetic reveals some interesting results.

• First how much “money” is there in the world?
• In US deposits (M3), its around 10 trillion dollars, 10,000,000,000,000
• The world total is about 70 trillion dollars
• How much (mined) gold is there in the world?
• How much (mined) silver is there in the world?

So if money is to be gold base, we just divide 70 trillion by 5.3 billion =\$13,200 /oz for gold. or \$1500/oz for silver.

If both are used (with a 10 oz of silver = 1 oz of gold), then gold drops to \$6,600 /oz and silver to \$750/oz. One of the old (real) silver quarter dollars

was 0.18 oz, it would be worth \$140.

Of course, the money in circulation would be match by government gold reserves. If 10% of the gold is privately owned, then the money in circulation would be decreased by 10%. Countries that can mine gold and silver would become wealthy quickly – the mining cost is \$800/oz, the currency value is \$13,200.  South Africa would become the fastest growing economy (producing the most new gold). Canada would be producing 4 times the gold/person as the US.

Of course, all national gold and silver reserves would be subject to inspection. If the government need money to fight a war, then it would have to call in currency to free up the gold to buy materials. If there is not a balance of payment from trade, there would be less and less currency in circulation as gold is shipped oversea --- with no currency, housing prices and labors would fall until it match the available currency.

The US trade deficit is \$150 billion dollars, with 600 millions dollars a year increase (or 91,000 oz; the US mines 200,000 oz/yr – so half of all new gold will be sent overseas).

The world will definitely change – but likely not in the way expected.