March 2, 2018 Is Trump Serious about Returning to a Gold Standard?

While President Trump is known for saying things to control the news cycle and influence public perception, he has made numerous statements in the past about wanting to revert to the gold standard.  Is he serious – and is it even practical?

What Is the Gold Standard, Anyway?

While the allure of gold is strong today, it's nothing new.  Gold has been used all throughout history and has often been the currency of choice for settled governments and even rural communities and nomads.  The earliest known use was in 643 B.C. in present-day Turkey.

Just as it has a rich history on the global landscape, gold is also intrinsically connected to American history.  After the discovery at Sutter's Ranch in 1848, the precious metal inspired what is now known as the Gold Rush in California.  Not only did the Gold Rush help settle the western part of the country, but it also brought America onto the global stage.

As the world was becoming less fragmented and more unified – at least in the sense of commerce – industrialized countries were looking for ways to standardize transactions and create a "world market."  In response, the gold standard was adopted.

From the perspective of a citizen, the gold standard meant that people no longer had to carry around gold bullion and coins to handle transactions.  It also meant that you could redeem any amount of paper money for its corresponding value in gold.

Congress created the Federal Reserve in 1913 as a way of stabilizing gold and currency values, but World War I soon came and threw a wrench into everything.  Countries started printing paper money in massive quantities in order to pay for the expenses they were incurring as part of the global conflict.  This led to hyperinflation.  And while most countries did return to a modified gold standard after the war, some flaws in the system had been exposed.

The stock market crash of 1929 and the ensuing Great Depression caused the price of gold to rise tremendously, which led people to exchange their dollars for gold and start hoarding the precious metal.  From 1933 all the way through the 1960s, a variety of agreements, acts, and fiscal policies from presidents like Roosevelt, Truman, and Eisenhower eventually led to such great problems that the gold standard came to an end.

"Starting in 1971, the USA refused to redeem its dollars in gold because excessive government debt and money printing had caused the price of gold in the free market to rise way above the fixed redemption price of gold," explains Money Metals exchange.  "Since the dollar was backed by gold up to that point and had gained the status as the most important reserve currency, most other countries around the world had already abandoned their own gold standards and instead pegged their currencies to the dollar."

While it was met with trepidation at the time, the end of the gold standard has actually paved the way for unbridled economic growth.  It also led to gold as a secondary investment mechanism, which becomes especially popular during times of recession.  But despite operating without the gold standard for nearly 50 years, there are always calls to return.  And because of statements he's made in the past, many wonder if President 45 is the man to do it.

Is Trump Really Considering a Return?

When the U.S. government first legalized private ownership of gold again in 1975, Trump was one of the more aggressive investors in the country.  He bought in at around $185 an ounce and claims he eventually sold his stake at somewhere between $780 an ounce and $790 an ounce.

But that doesn't mean that Trump is done with gold.  He still has quite an affinity for it – something clearly visible in his lavish lifestyle.  And when asked about his views on the gold standard in a 2016 interview, he told GQ, "Bringing back the gold standard would be very hard to do, but boy, would it be wonderful.  We'd have a standard on which to base our money."

Trump is far from alone in his stance.  When you look at other supporters of a return to the gold standard, many of them were on the debate stages with him during the 2016 campaign cycle – including Ben Carson, Ted Cruz, and Mike Huckabee.

The American people, while mostly aligned on the topic, aren't exactly opposed, either.  A 2015 Gallup poll shows that 39 percent of people approve of the gold standard, compared to just 15 percent who disapprove.  (Nearly half of all respondents were undecided.)

"The appeal of the gold standard rests with those consumers who are growing weary of a ballooning federal deficit levels and nearly $20 trillion in national debt," Sean Williams writes for The Motley Fool.  "With the need to have gold on hand to exchange for dollars on an as-needed basis, the Federal Reserve's ability to print money would be restrained, limiting the amount of debt that could be issued annually.  Some pundits believe that the gold standard could be America's ticket to getting out of debt, or, at worst, balancing its federal budget."

Is It Even Practical?

As with most economic issues, there are pros and cons associated with a return to the gold standard.  The benefit, as Williams touched on, is that it would rein in irresponsible spending by the Fed and possibly help the country get out of debt.

The biggest negative is that it would seriously constrain what the Fed can and can't do.  (Many would say this is actually a positive.)  While it's easy to disagree with what the Fed chooses to do at times, the ability to influence the economy through monetary policy is important.

In terms of practicality, moving to a gold standard is certainly possible.  Most countries keep the majority of their foreign reserves in gold already, and whatever the U.S. decides to do – since most currencies are currently backed by the dollar – would almost certainly be accommodated by other countries.

But practical and probable are two different things.

It would take a lot for the U.S. to move back to a gold standard, and with so many other issues on President Trump's plate at the moment, it's hard to imagine that this is the administration's biggest priority.  But if anyone were to do it, it would probably be he.

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