Sanford Mann offers insights into gold and silver investments and the precious metals industry and is the CEO of American Hartford Gold.
In an era where the U.S. national debt has surpassed a staggering $36 trillion, concerns over the long-term stability of the dollar is growing. A renewed interest is being sparked in the concept of “sound money,” a system where currency is backed by tangible assets like gold or silver to ensure its stability and purchasing power. While returning to a gold standard may seem dated, ongoing efforts at the state and private levels are accelerating. Could a variation of sound money be the key to restoring financial stability?
The Case For Sound Money
Proponents of sound money argue that tying currency to real assets promotes stability, fiscal discipline and trust. Historically, the gold standard helped restrain inflation, preserve purchasing power and curb excessive government spending by limiting the Federal Reserve’s ability to print money freely.
Unlike fiat currency, sound money requires governments to align their spending with actual reserves. It can therefore curb excessive debt accumulation and act as a hedge against inflation.
During the gold standard era, inflation remained relatively low and stable: Historical analyses suggest that inflation under the gold standard averaged close to zero over extended periods, with some decades experiencing slight increases and others slight decreases. In contrast, after the U.S. left the gold standard in 1971, inflation rates have been more variable, reflecting the increased flexibility in monetary policy.
The contrast in national debt accumulation between the gold standard and fiat currency eras is even more striking. In 1971, the U.S. national debt stood at approximately $398 billion. By limiting the government’s ability to expand the money supply at will, the gold standard constrained excessive borrowing.
However, after abandoning the gold standard, debt growth accelerated dramatically. By 1982, U.S. debt had reached $1 trillion, almost doubling by 1986. As of 2024, the national debt has surpassed $36 trillion, marking an 85-fold increase since leaving the gold standard. This rapid expansion is largely attributed to the government’s ability to finance deficits without the constraints imposed by a gold-backed currency.
Another argument in favor of sound money is the restoration of confidence in the U.S. dollar. As the global reserve currency, the dollar’s stability is crucial for international trade and investment. However, rising debt and growing geopolitical tensions are challenging that stability. A move toward a sound money system could strengthen global trust in the currency and reduce reliance on fiat money.
Efforts To Advance Sound Money
Despite the dominance of the fiat system, several initiatives across the U.S. signal a growing push for sound money principles.
At the state level, Texas has established a gold depository, allowing citizens to store and trade gold within the state’s financial system. Utah and Wyoming have recognized gold and silver as legal tender, making it easier for residents to use precious metals in transactions. Several other states have also taken steps to remove sales taxes on gold and silver purchases.
On the legislative front, there are proposals to elevate state initiatives to the federal level. There have also been discussions about backing a portion of the dollar supply with gold to introduce some restraint into the monetary system. While these proposals face significant political and logistical hurdles, they reflect a growing recognition of the dangers posed by unchecked debt.
Beyond government efforts, the private sector has seen a rise in gold-backed digital currencies and stablecoins. These alternatives aim to combine the security of sound money with the convenience of digital transactions. While these initiatives remain niche, they highlight a broader demand for monetary alternatives in an era of economic uncertainty.
Counterarguments: The Case Against Sound Money
While the appeal of sound money is evident, critics argue that a return to asset-backed currency could create more problems than it solves. One of the most prominent counterarguments comes from Modern Monetary Theory (MMT), which suggests that governments issuing their own currency can never run out of money.
According to MMT proponents, rather than focusing on debt levels, policymakers should prioritize economic growth, employment and inflation control through strategic spending and taxation. They argue that restricting the money supply through sound money policies could stifle economic flexibility, making it harder to respond to crises like recessions or pandemics.
Another key criticism is the historical failure of gold-backed systems. The gold standard, while effective in some periods, was ultimately abandoned because it limited governments’ ability to manage economic downturns. Fixed money supply can lead to deflation, discouraging investment and economic growth.
Practical concerns also pose significant challenges to implementing sound money today. The U.S. currently lacks sufficient gold reserves to back the dollar, making a complete return to a gold standard nearly impossible. Transitioning to a partially backed system would require complex policy changes and international coordination, which could disrupt financial markets in the short term.
A Middle Ground?
A full return to sound money may be impractical, but the dangers posed by the $36 trillion national debt highlight the need for fiscal discipline. Policymakers could explore hybrid solutions that blend sound money principles with modern monetary policies. One approach is partially backing the money supply with gold, silver or other assets to curb excess expansion while maintaining flexibility.
As policymakers debate the future of the dollar amid a mounting debt crisis, financial professionals concerned about its long-term value can begin adopting sound money principles today, positioning themselves and their clients ahead of the curve.
• Explore Alternative Payment Systems: For example, consider integrating asset-backed stablecoins into your payment platforms, especially for international transactions or long-term agreements vulnerable to inflation.
• Model Stability In Client Portfolios: Guiding clients toward allocating a portion of assets into precious metals could help serve as a hedge against currency devaluation.
• Innovate In Financial Products: Fintech entrepreneurs and asset managers can develop offerings that reflect sound money values. Think gold-linked insurance, partially backed funds or decentralized savings tools.
Sound money may not return in its original form, but its core values—discipline, transparency and intrinsic value—are increasingly shaping how investors and professionals prepare for the future.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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