Long ago the gold standard made sense for America, but not today. America has been off the gold standard for 40 years and for good reason, since the U.S. stopped allowing dollars to be converted into gold. The United States started printing more dollars to finance war expenses and in turn caused too much money to be in circulation and inflation. Everyone realized that the U.S. could not possibly have enough gold to back all of the greenbacks in circulation. If foreign investors decided to cash in their dollars for gold, it would bankrupt the U.S. President Nixon decided in 1971 to decree that the U.S. dollar was no longer redeemable for gold. Since that decree we have been on a fiat system, which basically means that the value of money is determined by supply and demand for money, goods, and services.
If we returned to a gold standard, it would constrict the government’s ability to manage the economy. The FED would no longer be in control of our monies and interest rates, which would be a good thing. This would cause our government to enforce fiscal discipline, a balanced budget, and limit government intervention. We could not return to a gold standard if the rest of the world did not. If we did, we would have to pay off all our debts to other countries in gold, because they do not want our dollars. It would essentially bankrupt us just as it would have if we would have stayed with the gold standard. Gold Standard
The gold standard sounds good on paper. Gold does not fluctuate like cash money does; and when cash fluctuates, inflation occurs. Yet, it will not work. The gold standard does not allow governments to fight recessions, and simply cause a rise in interest rates.
The gold standard enthusiasts would argue that the gold standard would spread money out among all Americans and stop the rich from getting richer. Some Libertarians even go as far as to argue that the government being able to print money is actually against the constitution. With one basis of money that cannot be printed, the rich would not be able deceive investors and falsify monetary information. The gold standard would also reduce inflation because the value of gold will stay constant, gold can be dug up, but you can’t make it. The problem with the gold standard is that the downsides completely outweigh the upsides.
When America goes into a recession, the government has to be able to fight these recessions. To fight recessions, governments may need to print more money; and the gold standard prevents that. Yes, printing more money can cause inflation, but a little inflation is better than the alternative outcome. This is why; in a survey done by a University of Chicago economist, zero economists supported the gold standard.
The market establishes long-term interest rates. If the gold standard were in place, interest rates would sky rocket. During the great depression people had no way to pay their debts with ridiculous interest rates because of the gold standard. Interest rates are a huge factor in our fiscal economy, and any standard that effects them negatively, is most likely the wrong choice. When gold is scare, interest rates have to rise to pick