From time to time, you hear rumblings about a renewed gold standard. This is more often the case as financial crises continue to roil international markets every few years. U.S. Republican Presidential candidate Donald Trump has a senior economic advisor who is putting forward the idea again. Dr. Judy Shelton recently revived the gold standard in an interview she did with Fortune Magazine.
Who is Economist Dr. Judy Shelton?
Donald Trump recently appointed two economists to his all important economic advisory team. Dr. Judy Shelton is the only woman who has been named to it. She is both a co-director and senior fellow at the Atlas Sound Money Project. Their goal is to encourage the use of dependable money as well as to increase awareness with the potential built in problems of the present day monetary system. Dr. Shelton achieved fame as she correctly forecast the Soviet Union’s economic collapse two years before it occurred in 1989. This all matters enormously because Donald Trump is a businessman who surrounds himself with highly qualified people and then relies on their advice. If she is calling for a gold standard, then you can be sure the Republican presidential candidate is seriously considering it.
Trump’s Advisor Shelton Proposes A Gold Standard Return
Dr. Shelton was asked about her thoughts on a gold standard and she had interesting answers. For starters, she does not have any opposition to holding another international Bretton Woods conference. She also believes that it is not necessary to bring around numerous other countries to the idea at the same time. This is because the U.S. holds a unique position as the owner of the still dominant international reserve currency. It means that any action that the U.S. takes unilaterally would quickly work its way through to the other global economically important countries.
Trump’s economic advisor also has a refreshing perspective on gold as a relevant asset. To her the gold standard is forward thinking and sophisticated. Gold is both universally accepted in and neutral for all countries. As a standin for money, it has no time or border constraints. Consider the world’s most significant countries economically. Their foreign reserves are heavily or mostly kept in gold. This in itself is argument enough that gold is not a barbaric relic from the Middle Ages.
A Gold Standard Starts With A Gold Convertible Bond
You may wonder how the United States could actually begin to implement such a revived gold standard in practice. The answer is by starting with a gold convertible bond. This is not an idea that originated with the Trump campaign. Former long time Federal Reserve Chairman Alan Greenspan first suggested it back in 1981. Dr. Shelton has been promoting the idea for a number of years. A gold convertible bond could begin under the auspices of a pilot program. It might operate like a TIPS bond. These help people who are worried about the dollar’s future value to receive an inflation adjusted amount back. The gold convertible bond would allay the concerns of individuals who fear a future financial system meltdown. Gold as the ultimate insurance generally rises as financial uncertainty reigns.
One group that would love such gold convertible U.S. bonds would be the Chinese. They have trillions of dollars in American government bond holdings which would be better protected and stabilized. The Chinese have likely considered this type of instrument themselves as they have massively increased their gold reserves over the last several years. They would likely offer a similar or even parallel bond. This is where Dr. Shelton thinks it could prove to be a stabilizing force for currencies. If the United States and China both had a five year bond that paid in a choice of their own currencies or a single gold ounce, then the two bonds would be worth the same amount.
Over time this program could be picked up by other economically central nations such as Germany, Switzerland, and the United Kingdom. This would lead to a new exchange rate system that was both stable and backed by gold. Market forces would still determine the value of the currencies, but the equivalent amount of gold underlying the gold convertible bonds would smooth out the wild swings.
Belief In Another Economic Crisis Strengthens The Need for A Gold Standard
This idea of gold bonds leading to a revived gold standard of sorts becomes more important if you believe there will be another economic meltdown in the future. Donald Trump has discussed his belief in the possibility for another more serious economic crisis. Dr. Shelton calls it the elephant in the room that no one else much wants to discuss. The imbalances which caused the 2008 financial crisis have not been solved. A gold standard or at least gold bonds are a good idea to protect the stability of the financial system. In the meantime, physical gold holdings offer you the best chance to protect yourself and your retirement accounts.
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