Congressman Alex Mooney's Bill Defines the Dollar as a Unit of Gold

This story came out in March, but I just now caught it. I salute Mooney for wording the legislation correctly.

Please consider House Bill HR5404 Defines New Dollar Gold Standard.

HR 5404 A bill to define the dollar as a fixed weight of gold was introduced to the Committee on Financial Services on 22nd March 2018 by congressman Alex Mooney.

Here is the actual HR5404 Bill.

Key Item

"Effective 30 months after the date of enactment of this Act – (1) the secretary of the Treasury shall define the dollar in terms of a fixed weight of gold, based on that day's closing market price of gold; and (2) Federal Reserve Banks shall make the Federal Reserve notes exchangeable with gold at the statutory gold definition for the dollar."

That is how it must work. Mooney did not make the mistake of setting a price for gold. He correctly defined the dollar as a unit of weight.

Thoughts

Supposing HR5404 gets signed into law in 6 months, that would mean that the US would need to transfer to a gold standard by Spring 2021. The mere passing of this bill would send gold rocketing over the next few years and, assuming the US gold stocks are intact, it would neutralise the national debt. While there is no mention of the national debt in the bill, this is clearly a major benefit of a gold standard to the US administration. However, as the gold price rises against federal reserve notes, so does everything else, which means the public worldwide would suffer crippling inflation if they hold FRN dollars and other fiat currencies.

The price of gold would certainly skyrocket, but it is not necessarily so that national debt would be extinguished. However, it is clear that any countries that do not have gold reserves would be severely punished.

Let's Talk About Gold

Congressman Mooney wrote this Op-Ed for the WSJ: Steel and Aluminum? Let’s Talk About Gold.

I believe in free trade, but I still understand why President Trump is imposing tariffs on steel, aluminum and a range of Chinese products. America’s industrial workers have suffered for a long time, and Mr. Trump is fighting to create middle-class jobs.

President Trump has rightly blamed bad trade deals, particularly those with Mexico and China, for contributing to this meltdown. But the Federal Reserve deserves a share of the blame, too, since its inflationary policies priced out U.S. manufacturers from global trade. Since 2000, their prices have risen nearly 50%, compared with about 25% for German competitors—mirroring the domestic inflation rates in each country. As a result, manufacturers fled the U.S., much the way American families have fled high-tax states.

My constituents in West Virginia get little of the upside from the Fed’s money creation and most of the downside. They don’t benefit from speculative investment returns, but they do lose their jobs and homes when the local plant decides to close because it’s too expensive to compete from the U.S.

The current Federal Reserve system benefits elites. The gold standard is equitable and puts “we the people” in control of the money supply. That’s why it was part of America’s founding and has been a key to the country’s long economic success.

On Thursday I introduced a bill that would return the dollar to the gold standard—the first such attempt since Jack Kemp’s Gold Standard Act of 1984. Under this legislation the Fed would still exist, but it would administer the money supply rather than dictate it. Instead the market would be in charge, the supply and demand for money would match up, and prices would be shaped by economics rather than the instincts of bureaucrats.

Like President Trump, I believe that success is again possible for Americans who go to work every day and build things. Mr. Trump’s vision of how the American economy could and should work resonated with voters in 2016. Returning to the gold standard is a way for the president to deliver on his promise of American working-class prosperity.

Backwards But Correct

Mooney has the trade story wrong, yet, his solution is correct.

Bad trade deals are not at the heart of the problem. Rather, severe problems began the moment Nixon closed the gold window, ending convertibility of dollars for gold.

That is the source of the trade deficit, not bad deals.

Explaining Balance of Trade

“Our Currency but Your Problem”

The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% is Nixon closing the gold window.

At that time, Nixon’s treasury secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the “dollaris our currency, but your problem.”

Balance of trade issues, soaring debt, declining real wages, and the demise of the US middle class are now our problem.

The Fed, ECB, Larry Summers, Paul Krugman, Donald Trump, and economists in general, cannot figure out what caused the problem. Instead, Bernanke, proposes a “savings glut”, and Larry Summers proposes “secular stagnation”.

For further discussion, please see Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?

Mike “Mish” Shedlock

Comments (19)
No. 1-19
shamrock
shamrock

The US has about $20B worth of gold. The money supply is between $4 and $15T. How in fucks name could they ever meet that obligation? Gold would need to be worth between $300,000 and $400,000 per ounce on the magical day in question.

CCR
CCR

Probably DOA.

Brian1
Brian1

As Mish points out the key part of the bill is that a dollar would be worth a fixed weight of gold, not a value in gold. I'm curious as to who/how determines what that weight is and what tiny fraction of a gram it would be.

Brian1
Brian1

Rep. Mooney or his bill? :)

Tengen
Tengen

Where are you getting the $20B figure? Officially (as of 2017) the gold in Ft Knox is worth north of $100B, but there hasn't been a proper audit since Eisenhower was president! The public last got a glimpse of any gold there was in 1974.

Of course Mnuchin and his trophy wife took a peek recently and assured us all is well, and I think I speak for all of us when I say his trustworthiness is beyond reproach. In fact I can't think of a single Goldman Sachs partner I would doubt in that situation!

Roanman
Roanman

While bad trade deals are not necessarily the problem, the are absolutely a problem.

Among the issues is the fact that, as Mish demonstrates so ably when off on one of his rants, the sales job on the American people only has to do with cheaper prices providing benefits to the consumer, and never considers the fact that the better of us wear two hats during the course of our lives, consumer and worker. Our trade deals have decimated workers and their families. Yeah, crap is cheaper, but you have to go into debt to purchase it because your wages are in decline. And when I say wages I mean both real wages and "WTF happened to my check?".

The only real benefit of our trade policies have accrued to asset gatherers and the banks ... a redundancy, I know. The American people and specifically workers got our trade deals jammed straight up their asses.

Webej
Webej

Nothing more pathetic than to hear people from the country that throws out a bomb every 12 minutes and has caused more mayhem and destruction than all the communist regimes and terrorists put together the last 40 years whine and pretend that they are the victims of some injustice that the whole rest of the world is inflicting on them. Why can Americans never acknowledge simple facts? They invented outsourcing. Most of what they import from China has been produced there for American corporations that have outsourced their production. How can all these countries be getting rich at the cost of Americans if they were really "dumping" everything for below cost prices? America has a trade surplus with Canada and the EU (goods & services). America has a trade surplus in goods with Canada if you leave out oil imports. Casting America in the role of victim is ridiculous and dangerous. The enemy is not outside the gates, the enemy is us. The real problem is that the US economy is not competetive because of the cost structure: military spending, the education and health care scam, as well as various other forms of oligarchy and corruption, are what is making American uncompetitive.

Webej
Webej

Imagine that the world used gold as money, and that there was only one group of people somewhere who could produce more gold at their whim. Is it conceivable that these people would be very powerful and rich and shower their own with gifts, no matter how much they told you they were actually very hard-working honest people? Now substitute "dollar bills" for "gold" and you have an exact picture of the position of those close to those who "produce" dollar bills.

shamrock
shamrock

The point is there is not enough gold to make good on that promise of converting dollars to gold. Once 1 out of every 500 dollars was converted to that fixed amount of gold there would be no more gold to give out.

Ambrose_Bierce
Ambrose_Bierce

While it won't do much for the dollar, physical dollars are not the problem, it does put the big hurt on running deficits. They don't need a gold standard, they need to run a second sovereign or sweat dollar, and allow that to float against digital or investment dollars. The core dollar would be the standard. So I want to predict the next economic/political crisis will be an old crisis everyone has forgotten, the debt ceiling. The GOP has no problem with raising the debt ceiling when they are in the majority, but should they lose control this fall they will fall back on their old obstructionist ways. Goodbye fiscal spending package, border wall, and space wars.

JonSellers
JonSellers

Won't work. China will just continue to run trade deficits, but will trade dollars for gold instead of treasuries. Eventually, the US will run out of gold and have to return to a fiat currency. A gold standard has failed every time it has been tried.

JonSellers
JonSellers

I am 100% with you on fractional reserve issues. But I don't see how a gold standard could work in a free trade world. You would require some mechanism for balancing trade flows between nations.

baldski
baldski

We were on the gold standard in 1929, 1920 - 1921 depression, Panic of 1907, Panic of 1893, and Panic of 1873. So tell me how the gold standard would prevent panics and depressions?

SpiderPig
SpiderPig

Agreed. The closing of the gold window was directly linked to other countries letting the market determine the value of gold in their currencies and creating the opportunity to make money on the arbitrage between the official exchange rate of the dollar (ozt of gold) and the price of gold in another country. This will repeat on any currency based around a limited commodity, traded on a global basis. The gold standard is really complete government price setting with regards to a specific commodity.

hmk
hmk

James Grant wrote a book about the 1921 depression and claimed it was over and done with a lot quicker because of the gold standard. The gold standard doesn't prevent depressions but according to Grant the free market resolves it more efficiently when on a gold standard. I don't have an opinion on the gold standard but I do believe the main reason we have this debt problem is because of unrestricted govt deficits. Even without a gold standard having the govt live within their means would solve a lot of the current and future issues we will face.

Ambrose_Bierce
Ambrose_Bierce

You can't game them, they print worthless fiat and use it to buy gold to back their worthless fiat and then sell it to YOU. They hold all the aces, unless you want to move the underground economy and barter, which I hope you like Bitcoin, because it will drive these cockroaches back into their hole. You make Bitcoin, you own it.

RonJ
RonJ

"Rather, severe problems began the moment Nixon closed the gold window, ending convertibility of dollars for gold."

Severe problems lead to closing the gold window. Everything is cyclical. Glass-Steagall was designed to prevent 1930 from ever happening again. What happened? it was dismantled. It got in the way. In 1971, the gold standard got in the way. It was dismantled.

In 1913 , the FED was designed to do X. Then World War One happened. X was changed. If WW1 had not happened, the FED's original design could have gone on far longer.