Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

If Gold Backed the World’s Debt

  by    2   1

If all the world’s debt were backed by gold, the US dollar price of the yellow metal would be nearly $34,000. Frank Holmes of US Global Investors explains the math in an insightful article.

  • 5.9 billion ounces = total above-ground gold in world.
  • At $1,181 per ounce, that’s about $7 trillion.
  • Total global debt = $200 trillion.
  • $200 trillion divided by 5.9 billion = $33,898.

It’s an eye-opening number in a world where the gold standard reigned supreme for most of modern history.

15 06 22 gold to debt


The United States alone is responsible for 9% of that global debt, with a current debt load of $18 trillion. That’s currently 74% of GDP. A new report from the Congressional Budget Office says that will rise to 107% by 2040.

Everyone agrees that this is an unsustainable trajectory. The CBO itself puts it mildly, “further sustained increases could be especially harmful to economic growth.”

Of course, there’s little chance of central banks returning to a gold standard in the near future. And if they do, it’s definitely not going to be a 100% backing. So what is the value of thinking of the price of gold in terms of total global debt?

It reminds us of one of the key reasons for having a gold standard in the first place – it “limits the amount of debt that can be issued,” as Holmes puts it.

Famed Austrian economist Henry Hazlitt explained this concept in an article from 1979:

Let us begin with a hypothetical illustration. Suppose we have a world in which the leading countries have been maintaining a 100 percent gold standard, that they begin to find this very confining, and that they decide to adopt a fractional gold standard requiring only a 50 percent gold reserve against bank deposits and bank notes.

“The banks are now suddenly free to extend more credit. They can, in fact, extend twice as much credit as before. Previously, assuming they were lent up, they had to wait until one loan was paid off before they could extend another loan of similar size. Now they can keep extending more loans until the total is twice as great. The new credit, plus competition, causes them to lower their interest rates. The lower interest rates tempt more firms to borrow, because the lower costs of borrowing make more projects seem profitable than seemed profitable before. Credit increases, projects increase, and there is a ‘boom.’

“So reducing the gold reserve requirement from 100 percent to 50 percent, it appears, has been a great success. But has it? For other consequences have followed besides those just outlined. Production has been stimulated to some extent by lowering the reserve requirement; but production cannot be increased nearly as fast as credit can be. So as a result of increasing the credit supply, most prices have practically doubled. Twice the credit does not ‘do twice the work’ as before, because each monetary unit now does, so to speak, only half the work it did before. There has been no magic. The supposed gain from doubling the nominal amount of money has been an illusion.”

Hazlitt goes on to explain that a recession and financial panic inevitably follows. Eventually, as a way of solving these problems, bankers propose to reduce gold reserve requirements again and extend even more credit.

Indeed, that’s precisely what has happened. The US completely left the gold standard in 1971. So when the Great Recession hit in 2007, bankers were able to create new debt and paper money with ease.

The growth of debt in our modern world would curl Hazlitt’s toes. McKinsey & Company shows that global debt increased $57 trillion between 2007 and 2014 – nearly 60 percent!

15 06 22 global debt growth

Holmes reviews the US domestic numbers since the key date of 1971:

Forty-four years ago, when the U.S. made the switch to a fiat currency system, the federal government owed $399 billion. Since then, outstanding debt has ballooned 4,411 percent to $18 trillion—more than twice the amount of all the gold in the world. Such massive debt levels can be reached only in a fiat currency system, where money is easy, virtually limitless and unsecured by anything tangible.”

15 06 22 us debt to gdp

Government and Keynesian economists are adept at playing down the long-term problems of large debt-to-GDP ratios. However, the future of the global economy may bear little resemblance to the past.

What will happen as Asia – especially China – comes to play a larger role in global finance and the gold markets? What if China begins to directly back its yuan currency with even a small fraction of its unknown and ever-growing gold reserves? These are questions rarely discussed in the financial media or by central bankers, who have grown complacent in the easy-to-manipulate, fiat world of the past 40 years.

Gold is unlikely to shoot up to $33,000 anytime soon. However, the amount of gold being mined continues to shrink, while global debt continues to rise. Long-term investors know these fundamental facts provide a solid foundation for gold’s growth.

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Stagflation Warning: Atlanta Fed GDP Estimate at 0.5%

As governments shut down the economy in response to COVID-19 and the Federal Reserve put money printing into hyperdrive, we warned that it was a recipe for stagflation. Today, it looks like stagnation is here. Stagflation is an economic environment with rapidly rising prices, a weak labor market, and low GDP growth. It’s looking more […]

READ MORE →

Chinese Gold Demand Continues to Strengthen

Gold demand in China was up in September, as the country approaches a peak gold-buying season. Both gold withdrawals from the Shanghai Gold Exchange (SGE) in September and gold imports in August were up, a sign that the Chinese gold market continues to recover after it was hit hard by the coronavirus pandemic.

READ MORE →

JP Morgan Chase CEO Worried About Higher Than Expected Inflation

With CPI data once again coming in hotter than expected, it’s getting harder and harder for the mainstream to swallow the “transitory inflation” narrative. And some people are starting to worry. During an earnings call, JPMorgan Chase CEO Jamie Dimon expressed concerns about higher than expected and persistent inflation ahead.

READ MORE →

Ron Paul: This Is the Biggest Fed Scandal

There was a recent scandal at the Federal Reserve when information came out revealing that several central bank officials made multiple multimillion-dollar stock trades in 2020 even as the Fed was putting its big fat thumb on the economic scales. But as Ron Paul points out, there’s an even bigger scandal over at the Federal […]

READ MORE →

American Consumers Continue to Run up Credit Card Debt

Consumer borrowing has slowed somewhat from the record level we saw in June, but Americans continue to pile on the debt. Consumer debt grew by $14.4 billion in August to $4.35 trillion, according to the latest data from the Federal Reserve. That represents a 4% increase. This follows on the heels of a 4.8% increase in […]

READ MORE →

2 thoughts on “If Gold Backed the World’s Debt

  1. Rupert Atkinson says:

    Revaluing gold is the sensible option. Banning cash will be a disaster, but if it is in their game plan, and it must be if they are discussing it, then the more desperate they get the more it is likely to happen. Their are so many negatives for the average joe and freedom to banning cash.

  2. My understanding of the US’s debt to GDP ratio is 18.2 to 17.7 over 100% and that does not include the unfunded liabilities of SS, Medicaid, Medicare, Fannie Mae, Freddie Mac, Student Loans, etc. etc. which is another 127 trillion or more.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Call Now