There's no such thing as a free lunch

Just deferred payments

As a thanks to my paid subscribers they received this article yesterday. After a day, it opens up for everybody else.

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Everyone’s talking about gold…

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Central banks are buying it at record pace.

Politicians mention it when they want to sound serious about the dollar.

Gold touched $5,700 earlier this year and still sits above $4,300 after a sharp pullback.

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The US government still holds - officially at least - 261.5 million ounces of it, sitting in vaults at Fort Knox, West Point, and Denver, officially valued at $42.22 per ounce because apparently it’s still 1973 on the Treasury’s books.

But No1 - and I mean no-one in any position of power - actually wants to go back to a gold standard.

Because doing so would mean admitting that the last fifty years of monetary policy have been a controlled demolition of purchasing power.

But more importantly… it would mean living within your means. (Radical concept… I know…) Which is, of course, exactly the point.

So let’s go boldly where no politician has gone before…

It is my mission to explore these strange new concepts, to seek out new perspectives and questions that deserve honest answers. 🖖 (Yeah, that’s all I got today)

As you maybe already know by now: I’m a numbers guy… So lets start with the math. And trust me, it gets ugly. Fast.

The US federal debt crossed $39 trillion. Growing at roughly $6 billion per day. Fiscal responsibility is a long distant memory.

The government collected $5.3 trillion in revenue last fiscal year and spent $7.1 trillion. That’s a $1.8 trillion gap, funded entirely by issuing more debt. The CBO now projects this deficit at $2.3 trillion for the current fiscal year alone, growing to $3.1 trillion by 2036. Yet Washington seems untroubled by that course.

Now take those 261.5 million ounces of gold. At today’s market price of roughly $4,350, the total US gold reserve is worth about $1.14 trillion. That sounds like a big number until you realize the government burns through that in about two months of spending.

To fully back the $22.8 trillion M2 money supply with gold, you’d need gold at roughly $87,200 per ounce. To back the total federal debt? $150,000 per ounce.

These numbers are insane right? But believe me… they’re not.

They’re just the honest accounting of how far the gap has grown between the money in circulation and anything resembling real backing.

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Every dollar of that gap represents purchasing power that was conjured from nothing and handed to someone. Usually not you.

A return to gold doesn’t necessarily require backing every dollar one-for-one. That’s the straw man opponents always trot out.

No historical gold standard worked that way either.

The classical gold standard that ran from roughly 1870 to 1914 operated on fractional reserves. Banks held gold at ratios of maybe 20-40% against their liabilities.

What mattered wasn’t full backing.
What mattered was convertibility.

Trust you know. Trust that the banks had the actual money. That when someone showed up, they could actually receive it.

Trust.

We’ve lost more than you know.

A realistic modern gold standard would work something like this:

The Treasury revalues its gold holdings from $42.22 to something reflecting monetary reality. Let’s say Congress sets convertibility at $25,000 per ounce. That would give the US gold reserve a value of roughly $6.5 trillion - covering about 29% of M2 money supply. Historically defensible as a fractional reserve ratio. Not full backing, but enough to impose some discipline.

The Fed would then be required to maintain gold reserves at some fixed percentage of base money. Want to expand the money supply? You need to acquire more gold first. Or you don’t expand it. Simple. Brutal. But effective.

International settlement would shift back to gold transfers between central banks, much as it worked under Bretton Woods.

Countries running persistent trade surpluses accumulate gold.
Countries running deficits lose it.

The balance of payments becomes self-correcting because you can’t just print your way out of a trade deficit. You actually have to produce things people want to buy.

I know. Revolutionary concept.

Now this all sounds great, why doesn’t want ANY politician - no matter their colours or stripes - wants to touch this?

The US government spent $7.1 trillion last fiscal year. It collected $5.3 trillion. Under a gold standard, that $1.8 trillion deficit doesn’t get papered over with new Treasury issuance. It simply won’t happen. You can’t borrow that what can’t be printed.

So you need to cut. And it’s easier to promise free stuff than to tell people they need to live within their means. Or - horror - even shrink the Federal Gov!

Social Security cost roughly $1.5 trillion in FY2025. Medicare and Medicaid combined ran about $1.7 trillion. Interest on the national debt is on pace to exceed $1 trillion this fiscal year - and that number is growing faster than any other line item in the budget. Defense spending took around $900 billion. Those four categories alone consume more than $5 trillion, which is essentially all of what the feds appropriate.

Everything else - education, infrastructure, food stamps, housing assistance, veterans’ benefits, the entire federal bureaucracy - runs on borrowed money. ALL of it.

A gold standard doesn’t allow this.

You spend what you collect.
Period.

That means entitlement reform becomes not a political talking point but a mathematical necessity. Social Security benefits would get restructured. Medicare would get means-tested or restructured. Medicaid would get pushed back to the states with hard caps. The retirement age goes up. The promises that were made under a system of infinite money creation get renegotiated under a system of finite money.

Painful? Absolutely.

But those were promises that always were going to be broken anyway. The only question is whether they’re broken honestly, through explicit reform, or dishonestly, through inflation that slowly eats the purchasing power of every check the government sends out.

That second option is what’s happening right now. Your Social Security payment arrives on time. It just buys less every year. They call this a “cost of living adjustment”.

It’s a default. With better PR.

And then there’s the warfare state.

The US has been engaged in effectively continuous military operations since 2001. The cumulative cost of all those post-9/11 wars has been estimated at over $8 trillion. None of it was paid for with current tax revenue. And all of it went on the credit card.

Are we any safer now? Money well spent?

Under a gold standard, any country that wants to fight a war has to either raise taxes to pay for it or deplete its gold reserves. Or - of course - win and pillage the loser. But that initial cost creates immediate and very visible costs that the public can see and react to.

The reason the classical gold standard era saw relatively few large-scale conflicts isn’t because people were more peaceful.

It’s because wars were expensive in ways that couldn’t be hidden.

When Britain fought the Boer War, the cost was visible in the national accounts. When the US entered World War I, it temporarily suspended gold convertibility because it couldn’t fund the war and maintain the standard simultaneously.

The honesty of the system forced honesty in politics.

Fiat money removed that constraint. Now a government can fund a twenty-year occupation of Afghanistan without ever sending the public a bill. The bill arrives later, in the form of a generation that can’t afford a house, $4,000+ gold, and $7 gas. But by then the politicians who started the war are long gone, collecting speaking fees and writing memoirs.

A gold-backed monetary system doesn’t prevent a war though.

But it makes the cost of war immediate and undeniable. And historically, that transparency tends to make the elite a lot more careful about which wars they choose to fight.

The transition itself would be the hardest part.

Step one is the revaluation. The Treasury marks its gold to market - or to whatever convertibility price Congress sets. This is actually a net positive for the government’s balance sheet. At $25,000 per ounce, the gold reserve goes from $11 billion on the books to $6.5 trillion. That’s an instant $6.5 trillion asset that can be used to retire existing debt, creating breathing room for the transition.

Step two is a credible commitment to convertibility. Not tomorrow - you’d need a transition period, maybe five to ten years. During that period, the deficit gets reduced to zero through a combination of spending cuts and revenue adjustments. No more debt issuance except to roll over existing obligations as they mature.

Step three is the institutional framework. An independent gold board - not the Fed, which has every incentive to resist this - that manages the convertibility window and enforces the reserve ratio. With teeth. Real teeth. Not the kind of “oversight” that lets banks leverage 100-to-1 on paper gold claims.

Step four is international coordination. This is where it gets geopolitically interesting. China has been accumulating gold for over a decade. Russia has been doing the same. The BRICS nations have been openly discussing a commodity-backed settlement system. A US move toward gold convertibility wouldn’t happen in a vacuum. It would likely be part of - or more likely forced by - a broader reshuffling of the global monetary order.

The fact that central banks worldwide have been buying gold at record pace since 2022 suggests the smart money already knows where this is heading. They’re not buying gold because they think the current system is fine.

What would daily life look like? Different. Not catastrophically, but fundamentally different.

Interest rates would be set by the market, not by twelve people in a room. They’d probably be a lot higher than what we’ve been conditioned to expect, because the artificial suppression that cheap money enables would be gone. That means mortgages would cost more.

But houses would cost less, because the speculative frenzy driven by cheap credit would deflate. Net effect for a first-time buyer? Probably a wash. Maybe even positive.

Credit would be harder to get. But wages would hold their purchasing power. You wouldn’t need a 30-year mortgage to buy a house that your parents bought with ten years of savings.

The entire hamster wheel of needing ever-more credit just to maintain a middle-class lifestyle would slow down. Maybe stop.

Innovation wouldn’t stop. It didn’t stop during the classical gold standard, when we invented the internal combustion engine, alternating current, the telephone, the radio, the airplane, the transistor, and the theoretical foundations of modern computing. I covered this in a previous article (link). The idea that we need unlimited money printing to innovate is historically illiterate.

What would stop is the financialization of everything.

The leveraged buyouts that load companies with debt and fire workers. The stock buybacks funded by cheap corporate bonds. The private equity model of extracting value from productive enterprises.

All of that depends on cheap, abundant money.

Gold makes money expensive. So you’d have to actually create value to earn it.

I’m not naive about the politics here.

The people who benefit the most from the current system - the financial sector, the political class, the military-industrial complex, the entire ecosystem of government contractors and subsidised industries - would fight this with everything they have.

They’d call it reckless.
… Dangerous.
… … A return to the Dark Ages.

They’d trot out economists to explain why this would cause a depression.

And some of those warnings would contain genuine kernels of truth.

The transition would cause a recession. Asset prices inflated by decades of cheap money would deflate. The stock market would take a hit. Real estate would correct. Some banks would fail.

But here’s what they won’t tell you.

That correction right there? It’ll come regardless.

The only question is whether it happens in a controlled way, through deliberate policy, or in an uncontrolled way, through a currency crisis that forces the same outcome but worse.

Debt-to-GDP already sits at 123% and climbing. $2 trillion per year is added to the debt. Interest payments alone will exceed $1 trillion this year. At some not so distant point, the bond market stops believing. And when that happens, you don’t get to choose the terms of your adjustment.

The gold standard is the voluntary version of what the bond market will eventually impose involuntarily.

That’s my argument in its simplest form.

Not that gold is magic.

Not that the transition would be painless.

But that honest money - money that can’t be created from nothing to fund promises that can’t be kept - is the only foundation on which a sustainable economy can be built.

The world ran most of known history in some form of honest money. We tried an alternative for fifty years. The debt is $39 trillion. Interest payments are eating the budget alive. The currency has lost over 98% of its purchasing power since 1971.

At some point, you have to ask yourself:

Maybe we should just … stop?

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My other publications:
[Daily Digest] → The news in 5 minutes, without the forty open tabs.
[Portfolio] → What I do with my own money