Former Federal Reserve Chairman Alan Greenspan has again defended the gold standard monetary system that the US dropped in the 1930s.
The gold standard pegged the value of the dollar to the precious metal at $US35 an ounce, and the US central bank promised other central banks to exchange dollars for gold.
Last July, after the UK voted to leave the European Union, Greenspan warned of a forthcoming debt crisis that would be averted if the US was on the gold standard. Proponents of the gold standard argue that it would help limit the amount of debt that governments can issue, as there’s a finite amount of gold that exists in the world.
President Donald Trump’s infrastructure-spending plans, coupled with lower revenues from taxes, could drive up the already-ballooning US government debt. In an interview with the World Gold Council, Greenspan said the gold standard would avoid this.
“I view gold as the primary global currency,” Greenspan said in the February edition of Gold Investor.
He also said (emphasis added):
“Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We cannot afford to spend on infrastructure in the way that we should. The US sorely needs it, and it would pay for itself eventually in the form of a better economic environment (infrastructure). But few of such benefits would be reflected in private cash flow to repay debt.
Much such infrastructure would have to be funded with government debt. We are already in danger of seeing the ratio of federal debt to GDP edging toward triple digits. We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.”
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