The link above is a bit of a long read, so I'll break it down more succinctly- Ron Paul believes (and has good reason to believe) that the gold supply at Ft. Knox may be over-reported, or largely promised to cover foreign debts.
Or worse, non-existant.
He said there is "reason to be suspicious" about U.S. gold holdings and suggested officials were manipulating the price of gold to prop up the perceived value of paper money. Paul said "it is a possibility" that neither Fort Knox nor the New York Federal Reserve vaults have any gold.Why is this cause for concern? After all, the US dollar hasn't been standardized to gold since the Nixon administration, so why have gold reserves at all?
Let us go back to the Constitution (as we always should). The Constitution authorizes Congress to "coin money" (to mint gold or silver coins), not "print money" (paper bills) for a reason: in order to make a $20 gold coin, you need $20 worth of gold. Not only does this render counterfeiting impractical, but- more importantly- it prevents government from inflating the amount of money in circulation. Exchange systems, wherein a paper bill can be directly exchanged for an equal quantity of precious metal, though counterfeitable, serve the latter purpose almost as well.
The problem is this: A lack of immediate exchangeability allows the government to print money it doesn't have. Exchange was suspended during the Civil War (to print non-existant money to pay for the war); then again during FDR's presidency- during the transition from the gold standard to the silver standard, the dollar was "re-valued", effectively allowing the "expansion of the money supply"; and then during Nixon's presidency, in order to pay for the Vietnam War, the dollar became permanently non-exchangeable.
So, how is money valued now? It isn't! The U.S. dollar, like most currencies today, has no intrinsic value. The dollar have some perceived value, however- the possibility that a gold or silver standard could be resurrected, thanks to... drumroll, please... Our Gold Reserve At Fort Knox! So, if Ron Paul is right, and the amount of gold at Ft. Knox is over-reported, then the value of the U.S. dollar effectively becomes ZERO, overnight.
Now, let's say the quantity of gold has been reported accurately, and little-to-none of it is promised to cover foreign debts. We still have a looming problem: hyperinflation. The Federal government is 14 TRILLION dollars in debt, and growing rapidly. Much of that debt is held by other nations not friendly to us, such as Communist China. What will we do when China demands payment on the debt? We will, of course, print all the money needed to pay that debt, and the dollar will be horribly devalued as a result. This happened is Germany, circa 1921:
Although the inflation ended with the introduction of the Rentenmark and the Weimar Republic continued for a decade afterwards, hyperinflation is widely believed to have contributed to the Nazi takeover of Germany and Adolf Hitler's rise to power. Adolf Hitler himself in his book, Mein Kampf, makes many references to the German debt and the negative consequences that brought about the inevitability of National Socialism. The inflation also raised doubts about the competence of liberal institutions, especially amongst a middle class who had held cash savings and bonds. It also produced resentment of Germany's bankers and speculators, many of them Jewish, whom the government and press blamed for the inflation.The Germans called the hyperinflated Weimar banknotes Jew Confetti.But of course, that can't ever happen here, right? And Ron Paul is just a right-wing nutcase, isn't he?