Alan Greenspan may no longer be chairman of the Federal Reserve, but his opinion still holds a lot of importance in economic circles. So when he weighs in on President Trump’s spending plans, and their viability in our current economy, it’s smart to listen. And his opinion is that it could prove disastrous, now that our economy is no longer on the gold standard.
A History of the Gold Standard
When paper money was first printed in this country, it was backed by gold. A dollar bill was worth nothing on its own, but was a symbol of the gold behind it. In fact, you could take your paper notes to a bank at any time and exchange them for an equal value of gold coins.
Then came the Great Depression. In 1933, President Roosevelt, as a means of printing more currency, enacted legislation stating that paper money would no longer be directly convertible into gold for private citizens. However, the dollar was still technically backed by gold, and the U.S. Treasury could still convert it for foreign governments, if they wished.
Then in 1971, President Nixon delivered the final blow to the gold standard, by announcing that dollars could no longer be converted into gold, even in foreign markets. This ultimately devalued the dollar and led to significant inflation. Since then, many people have expressed a desire to return to the gold standard as a means of strengthening our economy. Alan Greenspan has long been one of the strongest advocates for gold.
Gold and Infrastructure Spending
Donald Trump has expressed his intention to increase infrastructure spending in this country significantly. At the same time, he wants to cut taxes. Both of these things sound like good ideas, but it’s difficult for them to work in tandem. With more spending and less revenue, it will drive our already astronomical national debt up even further.
In the current economic climate, this seems like a no-win scenario. However, Greenspan believes that if we were still on the gold standard, this wouldn’t be happening. He has said that increased spending on infrastructure is sorely needed in this country, but that there’s no way we can currently afford it.
However, if we were still on the gold standard, our national debt wouldn’t be as out of control as it currently is. We would have more money and a more stable economy, and be able to afford the type of infrastructure spending that Trump is proposing. That spending would then ultimately pay for itself in the long run, leading to increased economic prosperity.
Greenspan is clear, though: He doesn’t believe we should go back to the gold standard at this point in time. Rather than a shrewd move, it would be a desperate one, as a last ditch effort to save our failing economy. Rather, it would have been much better if we’d never left the gold standard in the first place. It would have kept our economy on track and prevented us from accruing this much debt.
Unfortunately, what’s done is done. We did leave the gold standard, and we are in debt, and there’s no going back at this point. Therefore, if Trump wants to go forward with his plans for increased infrastructure spending, he needs to find an alternate source of revenue for it, in order to keep our economy from going even further off the rails.