Realizing this, what if we instead made each paper dollar redeemable in merely two grains of gold? The result would be a maximum money supply of $1.273168 trillion, and hence a M2 money supply contraction of at least 85.7%, which, although not quite as bad as the previous figure (98.8%), is still far worse than the contraction that caused the Great Depression.
There are undoubtedly many who believe that the preemptive solution to the deflationary nightmare referred to above is to institute a gold
and silver backing of the dollar.
Is this belief based on an actual study of the matter, or is it the mere product of wishful thinking? Let's find out.
According to the
Silver Institute, the total supply of silver is 1,056.8 million ounces, or 507.263 billion grains.
If we add that to the total supply of gold -- 2,546.336 billion grains at present -- we have a combined gold-silver supply of 3,053.599 billion grains (or just over 3 trillion grains).
Now, even though it took a lot more silver (371.25 grains) to make a dollar under the
1792 Coinage Act than it did gold (24.75 grains), let's assume that the newly-instituted gold/silver standard makes each paper dollar "redeemable" in either one grain of gold or one grain of silver.
Note: To understand how small a "grain" is, in the following pic the small golden disk close to the 5cm marker is a piece of pure gold weighing one troy grain:
With that sort of "backing" under a 100% reserve system, the maximum M2 money supply is $3.053599 trillion, which (surprise!) is a mere
34.26 percent of the current M2 money supply ($8.9137 trillion), and hence a minimum
decrease of
65.74 percent -- more than
twice the money supply contraction that caused the Great Depression. And that's assuming we have the total supply of gold and silver (we
don't) and that we don't have a trade deficit that would drain however much gold and silver we actually do have out of the country within a few years (we
do).
Do all of you precious metal-obsessed right-wingers finally get it now?
The very thing that makes gold and silver a great
private investment is what makes them a
disastrous thing on which to base an entire nation's money supply.
