Return to Gold Standard and price per ounce

I recently heard a comment about the price of Gold if the U.S. government had to revert to the Gold standard.It sounded to high so I decided to do my own calculations.
While searching for the dollars in circulation,all articles state the amount is almost always underreported.I assume this is because the Federal Reserve is not audited.
Thus,dollars in circulation divided by troy ounces held by the government should give me the price per ounce under a Gold Standard.

Calculation #1 using U.S. dollars in circulation:
860,000,000,000 [860 billion dollars in circulation] divided by 147,400,000 [147.4 million ounces of gold held by the goverment] = $5,834 per ounce.

Calculation #2 using total national debt.This is relevant,as to pay off the 14,078,000,000,000. [14.078 trillion] debt,dollars would have to be printed thus adding to dollars in circulation.
14,078,000,000,000 [2010 debt] divided by 147,400,000 ounces of gold held by the government] = $95,508.81 per ounce

I did not include Gold held privately as this Gold should be private property and is currently no way related to the banking system.It figured it would only count if the government siezed it,adding to the Gold reserves on hand.Of course,they would have to pay for it,but the cost to do so would depend upon if siezure happened after the Gold standard was applied or before.

In my second calculation I was not sure if I should have subtracted the current money supply [860 billion] from the total National debt.[14.078 trillion].

Looking for input on these calculations and if they are right or wrong.

I only have grade 10 math but this is the best I could come up with.

 

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This first calculation is probably reasonably close. Two other things to remember are that (1) the money supply could also include silver, and (2) if you open the Mint to the free coinage of gold and silver, a lot of metal will come out of hiding and be coined as money. There is absolutely no need or justification for confiscating metal.

However, it will never happen because the government would not be able to finance their activities. A more reasonable change would be to eliminate the Federal Reserve and return control over the money supply to the US Treasury. People think this would bring politics into the picture, but Congress can already spend any amount they choose without limit and the Fed will monitize it for them. But the elimination of interest on the debt would be a step in the right direction.

 

Just wondering who in the U.S. goverment would have the power to make a decision to eliminate interest on the National debt?Would the IMF have to get involved?Also,if the government decided to not pay interest on debt,would not there be a massive sell off of U.S. dollars held buy other countries such as China.I understand half the debt is held by foreigners.

 

The interest on the national debt has to be paid. But if there is no Federal Reserve to issue federal reserve notes backed by Treasury bonds, then the US Treasury can go back to issuing debt-free US Notes. If they do this, it eliminates the need to incur additional debt and the existing debt can be gradually paid down.

 

But there's no difference, as far as the government's financial position is concerned. The Fed's operating profit is deposited in the Treasury, after all. So the interest that the Treasury pays to the Fed winds up right back in the Treasury--minus what the Fed spends on operational expenses like printing and sorting currency, of course, but if the Treasury got back into the currency business it'd incur those expenses itself anyway. The net cost to the Treasury is the same in either case, and that net cost is what becomes new debt....

 

http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/

 

The point was that there is no need to have a national debt or interest. And while part of the interest is returned to the Treasury in the form of taxes, most is not. My recollection is that the Fed is permitted to earn a 6% return on capital with the rest going back to the Treasury.

 

Does the Treasury have to pay interest on money they borrow from the Federal Reserve Bank?Is this where there profits come from?In the end are they,the Treasury,just borrowing from themselves or is the Federal Reserve acting like a bank unrelated to the Government?
My Poor Example:
If I borrow money from my coffee jar and put the interest I charge myself from my pocket in another jar,then in the end all I will have done is move money around.Using this logic,I can see how the government can operate without paying interest on at least half of it's debt.The other half is owned by foreigners and they expect a return.
If anyone can clarify this,that would be great.

 

From what I understand, the Federal Reserve Bank is privately owned and not a Government agency.

I found a link to a site that explains this. Hopefully, it's accurate. If it isn't, I'll delete it:

http://www.globalresearch.ca/index.php?context=va&aid=10489

 

Indeed that is correct. The Federal Reserve is owned by its stock holders and those stock holders are the major banking institutions in the USA. The stock is not traded. In return for being given the monopoly for legal tender in the USA, the US President and Senate choose the head of the Federal Reserve. The Federal Reserve is a legislated institution. That means it is not codified in the US Constitution and can be dissolved by Congress without changing the Constitution.

Congress requires that all base money printed (or electronically created) by the Federal Reserve be covered by lawful money. For the most part lawful money consists of gold reserves (valued at $42/ounce in lawful money) and US Bank or Treasury notes backed by the taxpayers. For the purposes of this discussion Federal Reserve Notes are not considered lawful money. The US Treasury has the right to directly issue currency, but has not done so since 1971 because that would be considered lawful money and that would disrupt the entire legal tender fiat scheme.

So if the US government needs to borrow, it will sell Treasury Bills or Bonds. The proceeds are deposited at the FR in the form of US bank notes back by the taxpayer, and the FR gives the US government an equivalent amount of Federal Reserve dollars. The government can then spend the money like anyone else. The Federal Reserve for it's part can then take the bank note and use it as an asset to increase the base money supply. From there, it can loan this money to the Federal Reserve banks where it makes money and they in turn loan it out on a fractional basis. This is how the banking system makes a lot of money. This is how a debt system works.

The only way the US government can sell the bonds and bills is to agree to pay interest to the people buying the instruments. This ranges from individuals buying bonds through treasury direct to other governments buying them. Price of the bonds depends upon demand and the need for the government to sell debt.

The big built in failure of this entire scheme is where does the interest come from?

 

Thin air, obviously.....which is why we've been plagued with 2-3% inflation year after year.

 

The Treasury pays interest on the bonds, notes and bills it issues to whoever owns them. The Fed owns many of these and receives interest. They also profit from purchasing currency from the Treasury at a discount and issuing it at face value, and from a variety of other activities you can read about on their web site. The part of the process most people don't think about is that the Treasury issues interest bearing debt to obtain Federal Reserve Notes [or their electronic equivalent] that the Treasury itself prints for the Fed. If they bypassed the Fed, there would be no debt or interest on debt.

 

I would suggest that the big failure in the system is that since the debt is the money and the money is the debt, there is no way to liquidate debt without decreasing the money supply. So there is really no choice except to continuously increase the debt.

 

That's right.

The gold standard kept spending in check. The only way to get more money was to mine it. I am all for silver or other metals as money too. Anything that must be worked for could be money. Throughout history commodities have been money; silk, lumber, tea, spices. A money supply that could not be increased at whim would prevent population overgrowth and wars.

 

It's been estimated that all the gold ever mined adds up to less than 100,000 cubic yards. That's a cube less than 47 feet on a side. You could fit it into a high school gym without needing to use the bleachers.

You couldn't even fully back the currency of Denmark with it.

 

I think your calculation might be a bit off on the Denmark thing. That's a tremendous amount of gold. Remember, only the currency has to be replaced and not total financial assets.

But it basically won't and can't happen even if it could be shown to work. There are too many communities of interest that would be against it.

 

Be that as it may. The redefinition of money from commodity to fiduciary to fiat wasn't done on a whim, or without long consideration. It was done because it's not practical to operate a large industrial economy on the back of money that's still defined as it was in the days of Croesus.

 

Since large industrial economies were already running on gold and silver currency, it is more likely that either (1) some folks in power sincerely thought that the system could be improved, or (2) some of them didn't like the fact that gold and silver prevented them from gaming the system in their favor. I am always puzzled by people who say the gold system won't work when it already has. Antal Fekete has done a pretty good job of filling the education gap regarding how the gold system really operated vs what we are commonly led to believe. He has performed a valuable service by preserving this part of economic history for anybody wishing to review it.

 

Well, OK. Do you know the difference between commodity and fiduciary money? Do you know why the Panics of 1869 (and by extension of 1873) and 1907 occurred? Do you know why the official reaction to the latter was essentially a bluff by which fiduciary money that had no real commodity backing was successfully employed, until the bluff was called during the Great Depression?

As to who Antal is, I have no idea. Given my education on the subject, I consider my ignorance more an indictment of him than of me.

 

I understand commodity and fiduciary money, and the panics [although I secretly think the fallout from the San Francisco earthquake had more to do with the 07 problems than some writers attribute, but I wasn't there].

Congratulations on reaching the point where you know everything worth knowing.