This is as much nuts and bolts as I think we dare put in a constitutional amendment.
Section 3 essentially directs the Secretary of the Treasury: a) to tally up the gold in the possession of the federal government and the federal reserve system; b) to keep one-tenth of it for the federal government as its own; c) to distribute one-tenth of it to the states, pro rata, to keep as their own; and for the remainder d) retain an amount sufficient to redeem all outstanding federal reserve notes in gold; and e) distribute the balance to banking institutions so as to enable their existing demand deposits to be redeemed in gold.
The dollar amounts of outstanding federal reserve notes and demand deposits will be known with certainty, as will the quantity of gold available and in the possession of the government. From there it is a simple matter of arithmetic to define the “dollar” in gold terms so that there will be enough gold to satisfy every dollar claim against it. This is what section 7 of the amendment requires the Secretary of the Treasury to do.
Let me use round numbers just to illustrate the process. For example, let’s say the outstanding federal reserve notes stand at $1 trillion and demand deposits at $6 trillion. The Secretary determines that the government has 8800 tons of gold. The federal government keeps 400 tons and distributes 400 tons to the states, pro rata. For the remainder, the Secretary just divides the amount of gold on hand into the dollar amount he needs to cover FRN’s and demand deposits and defines the dollar accordingly.
On the numbers given you would have 8000 tons of gold which is 256,000,000 ounces. This would be divided into $7 trillion and the dollar definition would be roughly $27,300 to an ounce of gold.
Obviously, if the amount of gold on hand were greater, or the number of “dollars” required were smaller, or both, the definition would be adjusted accordingly.
Now if the number in fact came out that high there would clearly be ramifications. Some of them would be obvious, such as that people who are holding gold would effectively have very high amounts of dollars relative to anyone who was not holding gold.
I have no gold, by the way. In case anyone was wondering.
Other ramifications would be less obvious. One can surmise, for example, that people would find a lot more gold since it was so dearly priced in dollar terms. As the amount of the gold supply increases, should the dollar definition be changed and the amount lowered? Section 7 provides that this could only be done by constitutional amendment. But at that point, such an amendment would directly reduce the number of dollars relative to gold holdings. Presumably gold hoarders would oppose. In any case, a super-majority and a major effort would be required to change the dollar-gold ratio, because that power will have been taken away from Congress by section 8. Perhaps it would never happen. Perhaps it doesn’t need to, and we just ride out a period of admittedly extreme distortion while nearly everyone goes panhandling for gold.
Perhaps – and I broach this subject very gingerly – that predictable practice could be discouraged somehow, such as by a temporary law forfeiting any new found gold to the federal government. One goal of passing this amendment is to provide a quiescent interregnum, if you will, where it makes sense for people to keep doing what they have been doing. Keep working at your job, keep living in your house, keep farming, keep delivering, keep shopping at the grocery store. The objective is that after the initial shock all these things will resume at whatever level individual people are comfortable with and capable of. If everyone left their jobs to panhandle for gold this wouldn’t happen.
The main thing is this: however many “dollars” you had in the bank and in your wallet before the amendment was effective, you would have the same number of dollars afterward. You would have no debt. Anything you owned before – house, car, whatever – you would still own.
The federal government would retain 10% of the country’s money for its own purposes. The states would collectively retain another 10%. Where it goes from there I don’t know. What I do know is that both state and federal governments would have a substantial reserve – about $700 billion for the feds – from which to keep operating, money-wise.
It is essential to avoid two other problems: first, the experience of Great Britain, which attempted to restore a gold standard after the first world war. They made the pound too dear, which resulted in an abrupt shrinkage of the money supply, and that was a disaster. And second, if the amount of dollars held in demand deposits and cash is $7 trillion, then you need to define the dollar so that you will have $7 trillion, so that people will at least know how many dollars they will have in what is otherwise a roiling sea of uncertainty. That, and nullifying people’s savings and cash – what most people think of as their “money” – would be, um, ill-advised.
It may be hard to get this at first, but it’s important to realize that the “dollar” can be defined in gold terms at will, at whatever level accomplishes what needs to be accomplished, but thereafter should be treated as pretty much sacrosanct, because a change is always going to benefit some and hurt others.
At one time, in pre-central bank days the dollar-gold ratio was $20 per ounce by law. If I’m right, and the only way to fairly ease our way out of this mess is to redefine the dollar to $27,300 an ounce, that should tell you just how distorted our monetary system has become. This amendment does not create the monetary distortion; it merely recognizes the distortion that has already taken place. The difference is that as things stand now the distortion is a largely hidden mechanism to the benefit of the political and financial classes; this amendment brings the distortion out into the open where everyone can see it, and then begin to deal with things on a level playing field.
I am more than amenable to any suggestions or comments.