QUESTION: Marty, Given the accumulation of gold by China and other nations with large trade surpluses, along with the statements by Alan Greenspan, and the implementation of the Shanghai Gold Exchange, does this suggest that gold is being positioned to be re-introduced into the international monetary system?
ANSWER: No. The statements of Greenspan seem almost delusional. If there was to be a REAL gold standard, as people would like to think existed, you are talking about far more of a political revolution than even Donald Trump would imply. If money was actually backed, you would end deficit spending, social programs, effectively everything. No government, not even China, would seek such a system. It would be the total loss of everything. There would be far more involved than most people even think about. Talk about blood in the streets. Pensions would end with socialism. You are creating a total collapse and revolution. How can all the unfunded liabilities be paid in gold?
If you are talking about another Bretton Woods, that would be a joke. They tried fixing the price of gold but allowed the money supply to increase and it collapsed. No peg or standard has ever lasted because politicians cannot run government in any efficient manner. Marx tried that and communism failed. Human nature is human nature. It does not matter the century or country. It always ends the same.
The Latin Monetary Union was just an agreement that various currencies were equal to a specific weight of gold. That allowed for efficient trade by eliminating foreign exchange fees for the most part, but it did not seek to “fix” the value of gold and everything floated. It was not a “gold standard” during the 19th century as people loosely assume it means money is a store of value. It still was not. The value of money, even when gold, rose and fell. It was not “fixed” in terms of some value. Everyone agreed simply on specific weight per your currency. The purchasing power still rose and fell.
So those who talk about gold standards typically imply fixed values and money becomes a store of wealth. That is a total fantasy land. It has never existed in such a manner. Even under communism, they had to issue gold coins to settle international trade when wealth was confiscated and the state owned all property. That would not fly internationally. They still needed acceptable money to deal with the world.