## 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.

1. The gold standard doesn't have to mean gold, or any other metal, is used as currency. It could also mean that gold is sold at a fixed price by whatever authorities are in charge of the currency. This is the type of gold standard that is being pushed for by most modern gold standard advocates.

The point is to have the value of currency fixed (or at least slow moving) to ensure long-term stability, rather than something that can be manipulated by the current political winds.

2. This post seems way far afield from the topic of programming...