[This is Part Two of a 2-part series of articles about whether or not it would best serve the United States to end fiat currency under the Federal Reserve Board and return to the gold standard.]
In March 1933, with the U.S. in the throes of the Great Depression (which lasted after the bank runs and stock market crash in August 1929 to June 1938), the United States passed the Emergency Banking Act which gave President Roosevelt and his Cabinet the authority to steer the national economy.
The U.S. government got away with confiscating its citizens’ gold after millions of people had become impoverished after their stocks became worthless and banks ran out of money in 1929:
“On April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. It required all persons to deliver all gold coin, gold bullion and gold certificates owned by them to the Federal Reserve by May 1 for the set price of $20.67 per ounce. By May 10, the government had taken in $300 million of gold coin and $470 million of gold certificates.”
On June 5, 1933, Congress enacted a joint resolution nullifying the right of creditors to demand payment in gold and the United States took its first step toward going off the gold standard.
Under a gold standard, a country ties the value of its money to the amount of gold it possesses. The paper money can be presented to the government and traded for an agreed-upon amount of gold from the country’s gold reserve. That amount of gold is called “par value.”
In 1970, the U.S. no longer held sufficient gold to cover foreign dollar holdings. The following year, the gold standard ended on August 15, 1971. President “Tricky” Dick Nixon changed the dollar/gold exchange rate to $38 per ounce and the Fed was prohibited from redeeming dollars with gold, making the gold standard meaningless.
In 1973, the federal government repriced gold to $42 per ounce. In 1976, the value of the dollar was decoupled from gold altogether, after which, the free market price of gold soared to $120 per ounce. Today, an ounce of gold is worth $1,500.
U.S. paper money and other modern international currencies have become “fiat” – meaning “currency that a government has declared to be legal tender, but it is not backed by a physical commodity…Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on the faith and credit of the economy.”
Today, politicians such as Rand Paul (R-KY) are lobbying the End the Fed and return the nation to the gold standard.
Rand is following in the footsteps of his father Dr. Ron Paul (R-TX), an outspoken Libertarian and leader of the Ban the Fed movement. During the 2008 and 2012 presidential elections, Dr. Paul spoke in favor of returning the U.S. to the gold standard and abolishing unbacked paper currency. His colleagues listened and liked what they heard:
“In its 2012 and 2016 campaign platforms, the Republican Party called for a commission to investigate the viability of a return to a gold standard system. The Republican-controlled House of Representatives passed a bill including such a commission in both 2015 and 2017, but both times the proposals died in the Senate.”
Other congressional members and President Trump (a long-time gold fan and investor since the 1970s) are making stronger noises about backing our paper money with a physical asset that has accepted international value.
Trump has nominated economist Judy Shelton to fill a vacant Federal Reserve seat. On July 2, 2019, the President tweeted:
“I am pleased to announce that it is my intention to nominate Judy Shelton, Ph.D., U.S. Executive Dir, European Bank of Reconstruction & Development to be on the board of the Federal Reserve…Judy is a Founding Member of the board of directors of Empower America and has served on the board of directors of Hilton Hotels.”
The first person to leave a comment told it like it is, Democrat-style:
“Trump has nominated Judy Shelton ONLY because she was a critic of the Federal Reserve.”
Someone else commented further below Trump’s tweet:
“How about abolish the federal reserve and go back to the gold standard!”
This fundamental economic sentiment is rippling throughout the United States. A dozen states – West Virginia, Wyoming, Utah, Arizona, Kansas, Oklahoma, Texas, Indiana, Missouri, Louisiana, Tennessee, and South Carolina – have passed laws supporting gold and silver currency and bullion by lifting taxes on them.
Louisiana, Utah, and Texas have passed legislation recognizing gold and silver as legal tender.
In a 2015 interview with GQ, Trump said:
“Bringing back the gold standard would be very hard to do, but boy, would it be wonderful. We’d have a standard on which to base our money.”
In a separate 2015 interview, the President commented:
“We used to have a very, very solid country because it was based on a gold standard.”
One liberal Trump critic claimed people who want the U.S. to return to the gold standard are taking a “rare view” and dismiss the idea as “a restrictive monetary system, last seen during the Great Depression in the 1930s.” They also question Shelton’s qualifications to join the Federal Reserve Board.
With more than 20 percent of the U.S. states passing laws favoring gold and silver currency, those who oppose a return to the gold standard may be in for a surprise.