Monday, October 17, 2022

A Return to the Gold Standard

Let's open this posting by looking at some charts from FRED:


1.) M2 which is defined as follows:


"Before May 2020, M2 consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000) less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market funds (MMFs) less IRA and Keogh balances at MMFs. 


Beginning May 2020, M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1."


2.) Federal Reserve balance sheet/total assets:


3.) Currency in circulation:


As you can see, in all cases particularly since the 2020 pandemic-related recession, the Federal Reserve has been very busy running its "printing presses" at full speed which has resulted in this:



...which has led to a massive devaluation in the value of a dollar.  In fact, it would take $29.80 today to purchase what $1 would have purchased in 1913 when the Federal Reserve Act was enacted.  A great deal of the devaluation of the dollar can be laid at the feet of President Richard Nixon who ended the convertibility of the United States dollar to gold in 1971 under his New Economic Policy aka the "Nixon Shock" which marked the end of the Bretton Woods system of fixed exchange rates which was adopted near the end of the Second World War to stabilize the world's post-war economy.


Alex Mooney (R-WV) recently introduced House Resolution H.R.9157 entitled the "Gold Standard Restoration Act" which would, for the first time in over 50 years, repeg the dollar to gold in an effort to stop runaway inflation, the devaluation of the U.S. dollar and the unceasing growth in federal government debt. 


Here is H.R. 9157 in its entirety:


Here are two interesting extracts, giving us the "sense of Congress":


"The Federal Reserve note has lost more than 30 percent of its purchasing power since 2000, and 97 percent of its purchasing power since the passage of the Federal Reserve Act in 1913."

"Under the gold standard through 1913 the United States economy grew at an annual average of four percent, one-third larger than the growth rate since then and twice the level since 2000."


H.R. 9157 also notes that even with the Fed's 2 percent inflation mandate, over a 35 year period, the dollar will lose half of its purchasing power.


Under the Act, the Federal Reserve will have 30 months from the date of enactment to accomplish the following:


1.) define the Federal Reserve note dollar in terms of a fixed weight of gold, based on that day’s closing market price of gold.


2.) Federal Reserve banks shall make Federal Reserve notes redeemable for and exchangeable with gold at the fixed price and create processes that facilitate such redemptions and exchanges between member banks and the public.


If a Federal Reserve bank fails to meet its duties under the Act, the Secretary of the Treasury will make the redemption or exchange as guarantor and place a lien on all of the assets of the offending bank.


As well, under the Act, the Federal Reserve's Board of Governors and the Secretary of the Treasury must make public all gold holdings held by the Fed as well as reports of any purchases, sales, swaps, leases or any other financial transactions involving gold that took place since the "temporary" suspension of gold redeemability on August 15, 1971.  As well, all records of transactions of United States gold in the ten years prior to August 15, 1971 must also be released to the public.  Both of these have been secret for decades.  Alex Mooney had requested information about U.S. gold reserves from Secretary of the Treasury Janet Yellen in 2021 with this letter:



Here is the reply from the Department of the Treasury which basically clarifies nothing but further exemplifies the secrecy when it comes to U.S. gold reserves:



H.R. 9157 has been referred to the House Committee on Financial Services by the House of Representatives, however, you can pretty much assure yourself that the powers that be in Washington and the Federal Reserve will, unfortunately, never let this bill progress past the debate stage given Washington's addiction to debt.

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