On June 5, 1933, the United States went off the gold standard, a monetary system in which currency is backed by gold. With the various currencies around the world, especially back then, foreign investors liked knowing that whatever happened to the value of a country’s currency, that it wouldn’t negatively impact their investment. Congress enacted a joint resolution nullifying the right of creditors to demand payments in gold. This made us a less reliable investment at the time, but we weren’t anyhow because our economy had crashed. A growing business can be a good investment just as a growing economy can but at the time our GDP was in the toilet.
The United States had been on a gold standard since 1879, with an interruption during WWI, but bank failures during the Great Depression of the 1930s frightened the public into hoarding gold, making the policy untenable. Not having enough money in the Federal Reserve negatively impacted the economy even more than it already was, so quite frankly the our federal government was freaking out.
Soon after taking office in March 1933, President Roosevelt declared a nationwide bank moratorium as he didn’t want citizens pulling out even more money and converting it to gold. He also stopped banks from paying their customers in gold. This was all an effort to reverse The Great Depression through inflating the value of the U.S. dollar. If the federal government had better controls of the gold supply, they could dictate its’ value. Britain had already dropped the gold standard in 1931 to help their economy so Roosevelt decided to try the same strategy.
He ordered all gold coins and gold certificates in denominations of more than $100, to be turned in for U.S. dollars and coins. He gave each citizen a couple of months to deliver all gold coins, gold bullion, and gold certificates owned by them, to various financial institutions who were working with the federal government on the conversions.
The Federal Reserve set a price of $20.67 per ounce when people were trading in their gold for cash. In an already planned move (undenounced to taxpayers), the federal government later increased the price of gold to $35 per ounce, thus increasing the value of the Federal Reserve’s balance sheet by 69 percent. This is called “cooking the books,” something the SEC frowns upon. Could you imagine the federal government attempting to pull this off today; citizens would be livid with this Big Brother approach.
I’ve heard some people mention that we need to go back to the gold standard but it isn’t going to happen; we’ve gone too far down the wrong road as our economy is now propped up by borrowed cash, which I find extremely scary.
If more people understood the dangers of our massive debt, they too would be very afraid and demanding that our representatives create a surplus budget to pay down the debt, but we can’t even get them to agree on a balanced budget so what was an eight trillion dollar deficit not that long ago, is soon to be tripled.
We’ll reach $24 trillion in debt, which puts us at the brink of bankruptcy, even faster if Congress passes legislation for free healthcare, free college, and paying off student debt. If our economy wasn't as good as it is now to where other countries are still wanting to invest in us, we'd reach bankruptcy a lot quicker.
Young people love the idea of "freebies," because they don’t understand how massive debt can wreck an economy and this isn't a matter of “if,” but “when,” that the world they know will never be the same. There will be fewer jobs, depressed wages, outrageous taxes, limited home ownership, another car industry crash as people will purchase used vehicles over new because they can't afford them. There will be less discretionary income for such things as eating out and going to movies. Many of them don’t know what it’s like to put off wants. They don’t believe this will happen to them because few understand economics, but it will. They should be afraid, very afraid.