No, Precious Metals Aren’t the Answer

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All that glitters is not gold; Often have you heard that told: Many a man his life hath sold But my outside to behold: Gilded tombs do worms enfold.
-William Shakespeare, The Merchant of Venice

America has a $21 trillion debt problem. Anyone that has any knowledge of history, finance, or economics knows that America’s debt is not only unsustainable, it also leaves us incredibly vulnerable to global economic competitors who would like nothing more than to see the United States collapse and to take our place economically.

Unfortunately, one incredibly bad solution to our debt problem, most recently suggested by our ignorant president, is to go back to a precious metal standard. This would be a categorically bad idea for many reasons, including the dire impacts it would have on Americans, American interests, as well as the global economy.

Let’s start by talking about the problems that come with precious metals being a valuable commodity. We have to start by understanding that, for thousands of years, there were no alternative uses for precious metals other than jewelry, artwork, and ritual objects. Gold, silver, and other metals were completely useless for any practical purposes.

Today, however, that’s changed, as precious metals were discovered to be extremely good conductors of electricity, far more efficient than even copper. Because of this, many precious metals are used in a lot of high end electronics which, of course, has driven up the demand for conductive precious metals specifically.

Couple this with the continued perception of precious metals as an inflation proof investment commodity, and it’s easy to see why gold prices are in excess of $1,200 per ounce of pure gold. It’s this inflated price of gold specifically that poses the main problem with using precious metals as a commodity, because an ounce isn’t a lot of gold.

At the current value of the dollar (historically extremely weak), a single gram of gold, an amount so small that three or four of these 1 gram flakes could fit easily on a man’s fingertip, is presently worth over $14. So, $1 of gold would be so small that it would be possible to fit 50 to 60 these flakes of gold on a man’s fingertip.

How do you operate a national economy, let alone the global economy, on a commodity so small that an errant box fan could conceivably wipe out an individual’s wealth? It’s impossible, and that’s only half of the problem with precious metals. The other side of the problem is the shear magnitude of our national debt.

As was noted at the very beginning of this article, the United States is $21 trillion in debt. At a debt-to-GDP ratio of over 100%, that means we could liquidate every building, every business, every car, and every acre of productive land in America into cash to pay off our national debt, and there’d still be debt left over. We owe more than we’re worth.

At recent prices, how much gold would the United States need to just cover our debts (not including our GDP)? The answer to that is roughly 42,524 metric tons of gold, or about 22.7% of all the gold mined ever. Presently, the United States government holds about 4,176 metric tons of gold, or only about 9.8% of what we’d need.

The only way the United States manages to get away with this insanity is because the US dollar is the reserve currency. Why? Well, it’s because so many countries around the world have hundreds of billions of dollars worth of US treasury bonds in their treasuries, and those treasury bonds only have value if the dollar has value.

In turn, the US dollar has value, only because it is the internationally recognized reserve currency. So here’s the problem. The US dollar has perceived value internationally, so the US Treasury Bonds have value, but, conversely, the US Treasury Bond has perceived value only so long as the US dollar has perceived value. See the problem?

If the US dollar collapses, the US Treasury Bond also becomes absolutely worthless as a debt instrument. Anyone holding US Treasury Bonds, which includes most of the world’s governments, would see hundreds of billions of wealth vanish in a matter of days. So, everyone is forced to act as though the highly leveraged dollar isn’t worthless.

This forces everyone into tolerating insane US debt loads, because the alternative is global economic catastrophe. If, however, the US dollar is dislodged as the reserve currency, the only thing keeping the value of the US dollar stable, vanishes, and the debt load of the United States makes it obvious the US dollar is worthless.

The problems with precious metals mentioned earlier still apply globally, so they can no longer be effectively used as a currency, because there simply isn’t enough gold, silver, etc. in the entire world to support the economies of more than 7 billion people, so the only real option will be to choose a new reserve currency.

Regardless, America would be in a total economic free fall, becoming a third world country literally overnight. Western countries, holding hundreds of billions in now worthless US Treasury Bonds, would be bankrupted right along with us, and the entire western world would be at the tender mercies of either Moscow or Beijing.

Isn’t it odd that the one of the two powers that would benefit most from the abandoning of the US dollar as the global reserve currency is exactly the nation that the president is allegedly guilty of colluding with?


Liberty is For The Win!

6 comments

  1. Correct, precious metals are not the answer for two major reasons. First is they have low intrinsic value. You can’t eat them or drink them, you can’t use them to grow crops or build shelter. Second is they already failed due to scarcity.

    Hydrogen is the answer. Hydrogen is the perfect commodity upon which to base a currency given Solid Currency and Capitalism Rules that the entire free market system requires to be free. Everyone can produce it with a modest invest in equipment, and between providing electricity, heat, and pure water simultaneously, it has true intrinsic value, and as long as the sun shines and the wind blows, it is totally scarcity proof.

    What we need is to adopt the Hydrogen Economy.

    H2Space.org

    1. Interesting, but I think that Hydrogen has the same problems that Gold does. It’s simply another element, it is a commodity, and, since it is a gas, you don’t even need an errant box fan to threaten wealth. A faulty valve can impoverish someone.

      1. You’re missing the beauty of it, you can’t threaten it, as long as the sun shines and the wind blows, there’s always more. The problem that caused Gold to fail was scarcity. Hydrogen isn’t scarcity proof. It of itself is not a measure of wealth, the capacity to create it is the measure of wealth. It itself is just a consumable commodity that brings power, heat, and water, in one package.

      2. The only way a currency works is if it can be controlled. The problems remain that you can’t exchange it. How do I pay someone with Hydrogen, or, specifically, if someone is going to call the dollar and demand the Hydrogen behind it… how on earth are they going to exchange it out? How are they going to turn it around?

        Hydrogen isn’t fungible.

      3. Of course you can exchange it, you take it to the CoOp and turn it in for currency to trade with. The CoOp manages the reserve and the currency issued against it. Hydrogen is completely and perfectly fungible, unlike Crude Oil, it has on one element involved. Hydrogen is hydrogen.

      4. Okay, so you’re treating it like a commodity again. What you’re missing is that it’s going to be a lot more expensive, because you’re increasing demand for it. It’s not going to be a cheap resource, because it also has to be a currency. And if it’s not limited, then it’s not a good stable standard of value.

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