Solid Gold: The Gold Standard

SOLID GOLD IS THE NEW RED GOLD The Republican party platform has proposed a return to the gold standard after more than 30 years. Despite its promises to prevent inflation and reduce government interference, the proposal has received scrutiny from Democrats and Republicans alike. NerdWallet provides an in-depth analysis of the gold standard and its effect on the economy. nerdwallet WHAT IS THE GOLD STANDARD? Au Dollar backed by gold Fixed Currency Rate No Government Regulation GOING OFF THE GOLD STANDARD: A Timeline of 1971 Bretton Woods System Vietnam War drives U.S. Countries exploit U.S. "promise to pay" an ounce of gold for $35 by redeeming USD for gold and selling the gold on the open market at a profit Nixon withdraws from pegs international currencies to the gold- backed US Dollar: $35 is worth I ounce of gold to send $22 billion Bretton Woods to avoid overseas; enormous debt "foreign price-gougers" causes severe inflation and transitions the USD and devalues the dollar into a fiat currency versus gold WHAT WOULD HAPPEN? Many argue that the gold standard will guarantee economic stability, but it's not always right in every situation. Critics argue that the gold standard is inherently undemocratic and takes power away from the government and the people; supporters say the government shouldn't have that power to begin with. Here are a few scenarios depicting the effect of the gold standard on an economy in distress. ON OFF / Central bank adjust interest rates to raise employment • Consumer demand goes up DEPRESSED ECONOMY X Central bank can't adjust interest HIGH UNEMPLOYMENT rates • Consumer demand goes down • Prices go down • Prices go up Economy continues to suffer Economy recovers HIRE ME V No possibility of inflation • US dollar value stays equal to gold X Central Bank prints money, triggering hyperinflation HYPERINFLATION • Interest rates go up • Prices go up • Consumer demand goes down Economy unaffected Economy suffers x Price of gold can change • Dollar value changes with gold • Consumer demand goes down FLUCTUATION IN / Price of gold doesn't matter VALUE OF GOLD • No effect on the dollar value or the economy Consumers hesitant to spend money Economy unaffected because of unpredictable dollar value / Gold provides accurate depiction of US wealth X US could hyperinflate to repay debts TRUST OF INTERNATIONAL • Lenders' debts could be worthless LENDERS • No possibility of inflation • Interest rates go up • US still trusted to borrow • International creditors still willing to lend • Prices go up • Consumer demand goes down Foreign lenders won't trust the US and will stop lending US can continue to borrow SSURCES NPR's Planet Money • Congressional Research Service • Professor Sheri Berman