There’s this misguided notion often parroted in the sound money community that the government hates gold. If you’re a gold investor, you’ve probably heard it. But have you ever stopped to question it? If you did, you would soon realize that the thesis is a bit too simplistic to the point of being inane.
Gold is a form of monetary power. It isn’t pegged to other governments’ liabilities. It once backed the value of paper money. And before that, it was simply just “money.” Today, gold might be seen as an unwelcome competitor in a fiat currency system, but that threat confirms the validity of gold’s monetary value.
This is why most central banks hold it in reserve. It’s also why governments would rather keep it out of the hands of their citizens, we would venture to speculate.
Governments typically wouldn’t shun any form of power—monetary or otherwise—that would enhance their own ability to govern within their borders or to compete on the global stage. But we can assume that a government wouldn’t want the lion’s share of power to rest in the hands of its citizens, either. And that describes most governments’ position on gold.
Why It’s in Government’s Interest to Exclude and Suppress Gold
Given that fiat currency has been operating outside of the gold standard since 1971, we have to ask, “What can governments do in an environment where gold is excluded from the monetary system?” It turns out—quite a lot.
By enforcing legal tender laws, its own revenue potential increases. Taxation is the government’s only revenue engine. Monitoring physical gold and silver for the purpose of taxation is time-consuming, costly, and inefficient. Monitoring and taxing fiat currency are much easier.
Only through a fiat monetary system can hidden taxes can be imposed through inflation. If the government needs to increase its fiscal spending, it can issue debt (the same thing as printing money) to cover its costs. In a gold standard system, governments can’t fabricate (hence inflate) physical metals, leaving direct taxation as the only option, and a much more difficult one at that.
Money-printing allows governments to bail out regulated industries. Whether we’re talking about the kind of taxpayer bailout we saw in 2008 or the kind of monetary stimulus we’re seeing now during the pandemic, such bailouts are possible only through fiat. Gold would limit the amount of money that can go around. We saw this in the United States in the 1930s. FDR’s Executive Order 6102, limiting gold ownership and partial confiscation, was the solution.
The dollar has lost 85.4 percent of its value since the abolishment of the gold standard. All you have to do is check an inflation calculator to confirm this figure. If inflation were to rise at a rate equivalent to (or above) workers’ wage increases, the truth is that workers tend to focus more on their pay bump and less on their purchasing power decrease. It’s the illusion of wealth that keeps Americans supportive of the dollar and the overall fiat system despite their gradual financial decline.
Gold is a competitive threat to the dollar. Any asset that’s competitive with the U.S. dollar is a threat to the government’s means of economic control. Neither gold nor silver can be inflated. So pegging the dollar to gold and silver means reducing the government’s ability to exercise a good chunk of its economic power.
The Federal Reserve may own the monetary printing presses, but it can only do so under the government’s guidance and scrutiny. The sinister side to all of this is that the government can also prompt the Fed to print money at its behest. Bear in mind that the U.S. central bank, the Fed, is set up as a semi-autonomous private institution. Perhaps that’s why most Americans don’t immediately recognize the Fed as a key underlying cause of its own economic ills. The illusion of separateness works well, and the government is able to maintain its own monetary agenda by maintaining this illusion.
Rising gold prices are a harbinger of economic uncertainty that often correlates with rising unemployment. The problem with this is that it’s traditionally the Fed’s mandate to maintain price stability and promote maximum employment through the artificial means of monetary manipulation. The problem here is that gold prevents such manipulations, in turn preventing the Fed from exercising greater control over the economy.
A gold standard would prevent the government from running up massive spending deficits. Given the government’s inability to generate revenue beyond taxation, it’s important to remember that government debt is a claim on your future income. The greater the debt, the longer the claim on your money. Since 1970, the federal debt has risen to an eye-popping $30 trillion from $370 billion. That’s an astounding 7,575 percent increase in money owed by the American public.
Needless to say, a gold standard monetary system would have prevented U.S. debt from rising to such reckless and unsustainable levels.
If the Government Hates Anything, It’s Fiscal Austerity
Monetary and fiscal austerity reduces the government’s capacity to manipulate the mechanisms within its economy. And gold’s robustness as a monetary asset is in part because of the austerity that it requires. Yet gold’s value as a safe haven and hedge against fiat liabilities is something that most governments still aren’t willing to let go of, despite refusing to recognize gold as legal tender.
In short, gold isn’t a relic. The illusion of its non-functional status in the global monetary system is a ruse that governments support in order to maintain their own economic controls, often while hoarding gold within their own vaults and to their own benefit.
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GSI Exchange is a retail gold and silver dealer in Palm Beach Gardens, Florida, and doesn’t provide tax, legal, or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.
By Anthony Allen Anderson, Senior Partner
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