Ron Paul, pictured here, believes that the United States must return to the gold standard. How would that work?
Consider, if the dollar was truly backed by gold (that is, everyone holding a dollar could show up at the U.S. Treasury or the Fed and demand an amount of gold and there would be enough for every holding a dollar; paper currency would be gold certificates), the money supply could only grow – at an absolute maximum - by the amount of gold mined each year.
Well, how much is that? Not that much:
If you look at a page like this one, or if you look it up in an encyclopedia, you will find that the annual worldwide production of gold is something like 50 million troy ounces per year. Gold has a specific gravity of 19.3, meaning that it is 19.3 times heavier than water. So gold weighs 19.3 kilograms per liter. A liter is a cube that measures 10 centimeters (about 4 inches) on a side. There are 32.15 troy ounces in a kilogram. Therefore, the world produces a cube of gold that is about 4.3 meters (about 14 feet) on each side every year. In other words, all of the gold produced worldwide in one year could just about fit in the average person's living room! [emphasis is Spot’s]
This data is a little dated, but very little of of whatever the current production is comes from the United States.
Gold and precious metals prices are up these days:
Gold and copper prices struck record highs this week, oil benefited from a weaker US dollar and strong Chinese imports, while cocoa futures won support from violence gripping Ivory Coast.
[ ] Gold prices struck a record high US$1,431.25 an ounce on Tuesday when the safe-haven metal was lifted by concerns over the eurozone debt and deficit crisis, but it ended the week lower on profit-taking.
“Renewed eurozone fears continue to keep the market underpinned,” VTB Capital analyst Andrey Kryuchenkov said.
Gold’s rally helped sister metal silver reach its highest point in 30 years, at US$30.70 an ounce.
“The high-altitude flight of precious metals remains unbroken,” Commerzbank analysts said.
By late Friday on the London Bullion Market, gold fell to US$1,375.25 an ounce at the late fixing from US$1,403.50 a week earlier.
Silver rose to US$28.79 an ounce from US$28.74.
On the London Platinum and Palladium Market, platinum dropped to US$1,673 an ounce from US$1,718.
Palladium slipped to US$737 an ounce from US$758.
Anyway, fifty million ounces times US$1,431 is about $78,705,000,000. Seventy-eight billion bucks and change. It is my sad duty, boys and girls, to tell you this isn’t much money in an economy with a $14.2 trillion dollar GDP. While we’re doing arithmetic, one percent of this GDP amount is $142 billion dollars, about twice the annual world-wide production of gold. A one percent growth in the economy per annum amounts to recession when you consider the growth of the population and the work force.
Did I mention that South Africa accounts for most of the gold mined every year?
Well, Spot exaggerates. Sort of.
If the money supply was limited in the way that Rep. Paul wants, farmers and small business would, in fact, be crucified on William Jennings Bryan’s cross of gold. And if you thought the people with the money were in charge now, well Jeebus Christmas, welcome to Potterville.
The most amazing thing, though, is that the fumbling boob Ron Paul is poised to be in charge of the House subcommittee in charge of overseeing the Fed.
God help us all.
The images are from the Treasure of the Sierra Madre (Walter Huston pictured) and Margaret Bourke White.