Goldfigure: Fort Knox and the Price of Gold

   On this website, I always attempt to identify problems with truthful facts.  After the problem has been identified, I attempt to provide a solution and oftentimes multiple solutions. 

   With the U.S. National Debt at 17.5 Trillion dollars, the problem has been clearly identified.  Total U.S. unfunded liabilities now are 123.3 Trillion dollars.  These are facts and they are real and exact. The issue is how do we “fix” the problem?  I am not wise enough to know the exact answer and I am not wise enough to know how to implement a partial solution.  However, part of the solution is to return to a reasonable form of a gold standard to back our “paper” money. 

   Many economists and experts in international finance believe that the real culprit behind the fiscal profligacy which descended upon the U.S. was the destruction of sound American dollars in August, 1971.  While it was not clearly evident for decades, it was President Richard Nixon’s default on the American obligation to redeem foreign debts in gold that really ushered in the era of ” deficits do not matter.”  President Richard Nixon, in August, 1971, allowed the American dollar to “float” against other world curriencies and no longer backed  U.S. dollars with the gold that was kept in Fort Knox.  Americans were then allowed to own gold and gold was then subject to the laws of supply and demand on the free markets of the world. 

   In 1971, after the gold window was closed in favor of floating fiat currencies, the Fed and other Central Banks around the world went on a rampage of paper money expansionism.  This point is clearly made by none other than a young Alan Greenspan near the end of Bretton Woods: ” Opposition to the gold standard … was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending.” 

   Returning the U.S. to a gold standard, in my view, is the first step to repairing the U.S. economy.  However, the question that needs to be answered is: ‘ How can we return the U.S. to a gold standard and how do we determine how much one ounce of gold will back in U.S. dollars?’ 

   I offer some facts that may assist us in this discussion.  Fort Knox has 368,000 gold bars.  This amounts to 147,300,000 ounces of gold.  That is a huge amount of gold.  Unfortunately, our National Debt of $ 17.5 Trillion is also huge !

   Now let us assume that members of Congress decide to “fix” the price of gold at a level where all of the gold in Fort Knox exactly equals the amount of the U.S. National Debt.  If congress enacted this idea into law gold would be valued at over  $120,000 per ounce.  Gold closed the year of 2013, at $ 1,204 per ounce.  This means that the free market value for gold needs to be increased by a multiple of 100 in order for our gold stored in Fort Knox to “remove or cover” our National Debt. 

   The really sad part of this story is that the U.S. is not the only country that has an out of control National Debt.  Many countries are in far worse conditions than the U.S.  The housing bubble burst in 2007-2008, and our economy was almost destroyed.  Soon, the “gold bubble” will begin to expand worldwide.  Gold will soon increase exponentially on world markets, and like all bubbles, will eventually burst.  But before the bubble of gold bursts, gold will trade on international markets at over $ 10,000.00 per ounce.  We will see this expanding gold bubble in 2014-2015. 

                                   R. Van Conoley

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