hatman | (no subject)

Here's how it works (and correct me if I'm wrong on any of this...):

Fort Knox contains a supply of gold which backs up the power of the dollar. That gold is what makes dollars "real." They're promisary notes. Government-issued IOUs.

Theoretically, I could go up to Fort Knox and hand them a dollar, and they would be legally required to give me a dollar's worth of gold (an amount defined, in this case, as the total amount of gold in Fort Knox divided by the number of dollars in circulation). My dollar bill would then be destroyed, and the total number of dollars in circulation would be decreased by one.

That's the whole idea behind Fort Knox. Having that gold there is what gives dollars actual value.

Except... We've moved beyond that stage, haven't we?

We all agree that dollars have value. We know what they are. We accept cash as an end unto itself. I doubt most people ever really think about Fort Knox, and I wouldn't be surprised if the vast majority didn't even know what it was there for.

Meantime, the value of a dollar has very little to do with how much gold is in Fort Knox. It's got a lot more to do with a sort of group understanding. Inflation. Purchasing power. The global economy. Exhange rates (which are determined by relative values on the global financial market... people investing in various currencies, buying and selling them like stocks). That sort of thing.

And the value of gold is determined in the same way, more or less. The price is set on the commodoties market. It's affected by things like how useful it is and how much of it there is and how much everyone else seems to be willing to pay for it.

And there are a lot more "dollars" out there than there are bills. Banks give out interest, but don't print bills. It's because they invest your money, make money doing it, and give you a steady flow of gains in exchange for the privilge of having your money to invest. But the value of an investment doesn't mean that you have actual dollars for it. It means that, theoretically, if you sold that investment, you'd get that many dollars. And the number on your account doesn't mean that you have those dollars, either. It means that if you went to the bank and took money out of your account, they would have to give you that many dollars.

But we've accepted that, too. Without thinking about it. We use credit cards and online payments and move numbers around and pay for all sorts of stuff... all without actually touching cash. We accept that those numbers mean a promise of cash, if it's really needed. Just as we accepted long ago that cash means a promise of gold, if it's really needed.

We gave up the physical need for cash in exchange for the convenience and portability of account values, just as our ancestors gave up the physical need for precious metals in exchange for the convenience and portability of paper money.

So... Do we really need to tie up all that gold? We've moved beyond that stage, haven't we?

Why are we paying for the upkeep of that building? The soldiers' salaries. The equipment. The utilities.

And why are we keeping so much gold - one of the most incredibly useful and versatile metals known to man - locked up, out of reach?

EDIT/UPDATE: Seems I was misinformed about Fort Knox. The real story is on this page:

The stock market crash of 1929 didn’t just plunge America and rest of the world into the Great depression. It also effectively wiped out any chance of keeping America on the gold standard. On March 16, 1933, Americans were told for the first time in U.S. history that they could no longer own gold. On that date, President Franklin D. Roosevelt issued Executive Order No. 610, which decreed that all U.S. citizens must turn in all their gold to the government. Citizens would be repaid in paper dollars for their gold whether they liked it or not. Anyone who did not surrender their gold was subject to a $10,000 fine, or a 10-year hitch in prison. Americans who turned in their gold were compensated at the “official” price of $20.67 an ounce, which had been the “official” price of gold for the previous 97 years. Following the confiscation, the dollar was devalued by 40% and the price of gold was revalued upwards to $35 an ounce. In short order, millions of common and rare gold pieces were melted and turned into gold bars.
Obviously the government couldn’t leave these gold bars lying around all over the country in banks that could be robbed by the likes of Depression-era bandits like John Dillinger, “Pretty Boy” Floyd, “Machine Gun” Kelly and Bonnie & Clyde. It had to be stored somewhere. That “somewhere” became Fort Knox. Construction of the U.S. Bullion Depository began in 1936 and was completed in December 1936 at a cost of $560,000.

As for the "gold standard" of money, there's a brief history of it on this page. Seems that, as of 1971 (i.e. before I was even born), dollars are no longer backed by the gold standard.

So, basically...

The stock market crashed. There was a Great Depression. It caused panic and hoarding and a lot of problems which could have theoretically been avoided if people had been more willing to keep circulating their money and investing in things. So... The government decided that it would be illegal to own gold. They collected everyone's gold, melted it down, and stored it in Fort Knox, where it has remained locked up for many years.

I still have yet to find a good reason for keeping it all. It's expensive to keep up the facility, and we could be doing much better things with that much gold. Not like there is that much of it available in the world, you know. Estimates are that if you took all the gold mined in the world in history and formed it into a cube, that cube would fit inside a standard football field.

Out of that:

The present gold holdings at the Fort Knox Gold Bullion Depository amount to approximately 147.3 million ounces worth more than 6 Trillion Dollars! Except for small samples removed to test its purity, no gold has been transferred to or from the Depository for many years.

And yet... the stuff is so incredibly useful. Excellent conductor, highly malleable, almost impossible to tarnish, extremely beautiful... And no one can seem to tell me why we keep so danged much of it locked up.

Flat | Top-Level Comments Only

Dude, you saw Mary Poppins, right? And It's A Wonderful Life? There would be PANIC IN THE STREETS.

;D

My understanding was that dollars weren't backed by gold anymore anyway. That there's no longer enough gold set aside to guarantee all the currency in circulation, and dollars aren't considered a promise of gold anymore. I'm not sure where I got that idea from, now that I think of it, but I do remember hearing it somewhere...

Our Economics teacher in what you'd call tenth grade told us that.

(I hated Economics, btw *g*)

See ya,
Anna.

heck, forget gold...as you said, we're practically past the "paper money" stage. i think they should divide the gold up and give everybody a piece *g*

and i know there was something really useful and erudite i was going to say in this comment; i've just forgotten what it was....as soon as i hit "post" it'll come back to me.

oh well.