Ben Bernanke, testifying before the Senate Committee on Banking yesterday, was asked about a possible return to a gold standard – his disingenuous reply was that there isn’t enough gold in the world to cover the US money supply.
This really has to be one of the most pernicious fallacies that haunts the entire discussion of money*. The truth is there is always enough gold, it is simply a matter of price. Of course the dollar denominated price of an ounce of gold would be many multiples of the current price, but that just serves to demonstrate that gold is still significantly undervalued at the current levels. Creating a gold standard for the Dollar is simply a matter of dividing the total weight of gold that provides the backing, by the money supply to be backed. Each dollar is redeemable for a fixed weight of gold. The price does not matter. What matters is that new dollars cannot be created out of thin air without adding a proportional weight of gold to the reserves.** This is why Bernanke does not want a gold standard and perpetuates simple myths about money.
The Federal Reserve is arguably the most powerful institution in the world as it maintains the sole legal right to counterfeit the world’s reserve currency without limit and without oversight. This allows them to bail out the too big to fail banks, manipulate currencies, support foreign central banks and corporations and allow near endless government spending above and beyond what the government can pay for through direct taxation. A true, enforceable gold standard would put an immediate end to all of that. Responsible people who live within their means and save would not have the efforts of their labor stolen through inflation. These are all positive outcomes. So the problem isn’t that there is too little gold in the world but rather too little discipline and honesty in Washington DC.
*The close cousin of which is the fallacy that the money supply must continually be increased to match expanding production.
**In reality fractional reserve banking is not compatible with a true fixed gold standard. True monetary reform and discipline would require a full reserve banking model – another massive limitation on the power and profits of bankers.