November 30, 2003
There are men who stand on the street corner with a sign announcing the end of the world. Often the date is given as ‘tomorrow’, or some short time ahead. Because there is no convincing argument that any physical event that might be considered a threat to ‘the end of the world’ is presented, these people are regarded as rather retrograde in their reasoning.
Suppose, however, facts were put forward that were incontestable, incontrovertible, and widely regarded as accurate without debate. If the facts that were presented pointed to an ‘end of the world’ in some aspect, then the acceptance of that situation, with its expected consequences, would be a personal matter. Each person who looked at the facts would need to stop and reflect for a time, if the facts that are accepted as true really point to a portentous apocalyptic event. Let us look at a set of facts, and try to decide if they suggest any need for concern.
THE WORLD GOLD SUPPLY
The world supply of mined and refined gold is estimated at 4,000 tons. With 2,000 pounds to the ton, and 16 ounces to the pound, that comes to 128 million ounces of gold in the total world supply. [4 x 10 3 x 2 x 10 3 x 16 = 128 x 106]
US DOLLARS IN CIRCULATION
The US dollar is the standard currency in world trade, and there are many pieces of this paper floating about the world today. At one time the US dollar was guaranteed to be exchanged for pure gold by the US Treasury. That guarantee no longer exists. President Nixon was quietly shown the problem, and the guarantee was removed, so that now there is no guarantee of redemption, only a ‘good faith’ pledge. In 1953 there were 30 billions worth of these US dollars in circulation. A decade later there were 36 billion, an increase of 20%. In the next decade, as of January 1973, there were 69 billion dollars dollars were in circulation, an increase of 92%. It is easy to see that the printing presses were busy, and that Mr. Nixon was required to act quickly to avoid national financial embarrassment.
The currency printing presses continued to roll, and by January 1983 the dollars in circulation totalled 164 billion, an increase of 138% in a decade. New presses were installed, and the rate of printing increased. By January 1993 there were 353 billion dollars in circulation, an increase of 115% in the decade. Today, as of January 2003, there are over 702 billion dollars out there, fully on trust, an increase of 92% in the decade.
We may now calculate how much gold, at today’s price of 400 US dollars per ounce, it would require to redeem those 702 billion dollars worth of paper in circulation. If the US Treasury were forced to exchange an ounce of pure gold for each 400 dollars offered, it would require 1,755,000,000 ounces of gold. [702 x 10 9 / 4 x 102 = 1,755 x 106]
Since the world supply of gold is calculated to be only 128 million ounces, there is less than 10% of the amount that is needed to redeem all the US bills in circulation today. The US Treasury no longer provides this service, and the US government has passed laws preventing its citizens from buying gold. It is easy for non-Americans to buy gold on the international spot market, and rich Americans can buy gold abroad when they travel, which amounts to the same thing.
THE US NATIONAL DEBT
While the dollars in circulation are a debit on the federal books, they do not compare in size with the national debt. When the US government spends more than it receives from all sources, there is a deficit. Year by year, as the deficit accumulates, more and more interest must be paid to the bond holders. The growing deficit, along with the regular interest payments, is paid in dollars, either newly borrowed or newly minted. The total debt, if paid in gold equivalents, amounts to a substantial amount of gold.
The national debt of the United States has become burdensome, as may be seen from recent increases. In 1954 the national debt was 275 billion dollars, and it increased to 309 billion (12.4%) in the next decade. By the time of Mr. Nixon’s presidency, in 1974 the national debt had grown to 470 billion, an increase of 52%. This was the time of the Vietnam War, and one may see the expense associated with ideological warfare.
By 1984, the debt had increased to 1 trillion, 440 million (206%), and the situation began to appear troublesome to the world community. For the next decade the deficit spending increased by 213%, to 4 trillion, 500 billion in 1994, encouraged by politicians eager to avoid recessionary unpopularity. Today, ten years later, the deficit is 7 trillion dollars, an increase of only 56% due to President Clinton’s prudence in creating surplus budgets during his Presidency.
President Bush has announced a fifty year war on terrorism, the daily expenses of which are now 2.64 billion. For the year to come, that equals 964 billion of new debt, an increase in one year of 14%. At the present rate, the national debt in a decade will amount to 16 trillion, 636 billion dollars, an increase of 138%.
We may now calculate how much gold would be required to redeem in gold all these dollars in bonded debt. If the present dollars in circulation are added to the present debt, about 8 trillion dollars worth of gold would be required. That amounts to 20 billion ounces of pure gold. [8 x 1012 / 4 x 102 = 2 x 1010 = 20 x 109]
As noted above, the world supply is around 128 million ounces, and that is far from enough to redeem the US debt of 20 billion ounces. If we now extend the debt for a decade, and estimate the currency in circulation and the amount of new debt, we can then estimate the total amount of pure gold that would be required. At today’s rate of debt increase, extended for ten years, the public debt of the US will be 16 trillion, 636 billion dollars, and the currency in circulation would be around 1 trillion, 500 billion, for a total of 18 trillion dollars in the year 2014.
At today’s price of 400 dollars per ounce, the amount of gold necessary to redeem that amount of money would be around 45 billion ounces of gold. [18 x 1012 / 4 x 102 = 4.5 x 1010 = 45 x 109]
Let us now suppose that the great shortage in gold is being noted worldwide, and that a determined effort is being made to redeem US dollars in gold before the financial situation reaches a stage of threatened default. The dollar at present is sharply declining, and may be expected to continue its decline against more prudent government currencies. The price of gold, restrained only by the price of production, may be expected to continue its rise. When the world begins to take greater note of these facts, the general reaction may be to ignore its portents. That in itself will help to forestall catastrophe. The interim will provide additional time and opportunity for those who wish to act defensively.
Past concerns of threats to the world economic system have been found premature, poorly proposed and probably preposterous. Thus the prevailing popular argument is for a continued ability to find means to muddle through. The global situation, however, is becoming increasingly worse, oil reserves are falling, the environment continues to degrade, and the political realities of the Middle East are not understood in the West. The violent confrontation of ideologies will not be resolved in an atmosphere of arrogance and ignorance. Therefore, the current trends may be expected to continue. The numbers given apply only to the US debt. To these figures must be added the enormous debt of other countries. If the facts suggest a financial future of fault and finality, then there are signs to be painted. A few volunteers are needed. Busy street corners to wave them on are aplenty.
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