The Gold Standard Explained: What It Was and Why It Ended

The gold standard shaped money for generations, then disappeared. In this episode, Ryan explains what the gold standard actually was, how it tied a country's currency to a fixed amount of gold, and why the United States ultimately moved away from it.

He and Aaron walk through the trade-offs in plain language: the discipline gold imposed, the flexibility it took away, and how its end shaped the dollar you carry today. A clear, story-driven history that makes a confusing economic topic click, and helps you make sense of the gold debates that still pop up now and then.

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And, as always, Stay the Course!

Transcript

Welcome And The Big Question

SPEAKER_02 0:01

Welcome to the Fiscal Physical Podcast. Join us today's week as we sit down with the founder of Alchemy Wealth Management and author of your physical physical, Ryan Nelson. Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons. From budgeting to retirement planning, this podcast is your go-to resource for mastering financial literacy.

Aaron Hoisington 0:33

Welcome everybody. This week's episode of the Fiscal Physical Podcast. My name is Aaron. I am joined by Ryan Nelson. Ryan, what's what's going on today? Yeah, not too much. What about yourself? Oh, not too much, man. You know, here to talk some fiscal physical stuff, get nice and fiscally fit. I don't know how many times I say fiscal in the next uh 20 seconds or so, but I'll find out. But uh today, Ryan, we're gonna break down uh we've we've we've done a bunch of episodes on uh you know different topics, different areas, and and so you know, coming up with these episodes and thinking of it, you know, one of the things that I I had I was actually talking to my wife about, and I said that you know, she was like, Oh, like how do you guys think of your podcast? And I was like, Oh, it is the gold standard podcast. And she's like, Really? And I was like, I actually don't know what that means specifically or like where that came from, but it's a phrase I use more often than I'd probably like think I do. And so I was like, hey, you know what, this would be a good topic to talk about, like the gold standard, what it is, why it ended, what it means to money, and such too. So I'm hoping today we can we can kind of break down what that what that is, and you know yeah, we'll just kind of dive

What The Gold Standard Is

Aaron Hoisington 1:39

in there. What is what is the gold standard?

Ryan Nelson 1:40

Yeah, so the gold standard, it's it's so back in the day when the US government would create dollars, it would be backed by gold or the gold standard. So they basically they would pile away an amount of gold representative to the amount of currency they released into the public. So that is what the doll the gold standard is. So effectively you could think about it as like every dollar out there in the pot in the wild, right, being spent, could be traded back for a fixed amount of gold, right? So the dollars out in the suppl money supply were tied back to gold the US government was storing. Exactly. So the money tie tie was or the money supply was tied to how much gold I guess any country but the US held. And so one of the things that would do is in theory hedge inflation and keep it it would help you couldn't just print money. You can't just go print a ton of money because you'd have to get enough gold to go put in your reserves as well, right? So it it limited the government's ability to go print a bunch of money, which helps restrict inflation, but it also gives us less the us as in the government, less flexibility during economic crisis to like sometimes it's good. Sometimes they print money intentionally to help try to get us out of a or or prevent us from going into a recession. So the the Federal Reserve can be a little bit strategic with that now, but back when they're on the gold standard, they wouldn't be able to put any more money into circulation unless they got the gold.

Aaron Hoisington 3:11

So back in the day then, so could we actually like just could you just swap $35 for gold? I'm curious like if that was like a thing that you could just do. Yeah. Or if that was like more of like a more of like an idea or a concept, I suppose. You probably couldn't go to the Fed and be like, here's $35, give me my ounce of gold. I really don't know.

Ryan Nelson 3:29

I would assume it was more of an like ideology than like actual practically being able to go in and and get the physical gold itself.

Aaron Hoisington 3:39

But yeah, I'd be curious, just a just something off the top of my head there. But uh you know, what what what changed with this? Is this this is if I'm understanding correctly, it's not the system we use now. No, what's the what's the what's the history

Why Nixon Ends Gold Backing

Aaron Hoisington 3:52

behind it?

Ryan Nelson 3:52

So we moved away from the gold standard in 1971, that was under President Nixon. And so basically what happened was the kind of what I alluded to before, the government needed more money than they had the ability to supply that to acquire gold. So they needed more money, so they were trying to fund a war effort, and they were yeah, wanting more money in the supply, and they couldn't find enough gold to do so. So you're in a bind, you know, and they decided to abandon the gold standard at that time. So that was left in 1971, and and now effectively the government is backed by the trust of the US government. Sure. So it's still one of the most secure financial systems in the world because the US government's never defaulted on a tax payment. And basically, if if they owe somebody money, how do they get that money? They pack they tax the US taxpayers, you and I, right? Sure, sure. Um, and that's a pretty reliable source and way of getting money. But so now when they move off of the gold standard and they move to this basically form of trust, is it being backed by? That is what we call a fiat system. So it moved from the mutt from the gold standard to a fiat and now backed by the US government as opposed to gold.

Aaron Hoisington 5:05

Okay. Gotcha. That makes that makes sense. And we've talked about like like I think it was US Treasury bonds. Maybe I'm messing that up. Or like one of like you mentioned, are one of the most like secure things like in the in the world. So that's nice to know that that's like you're like, oh, cool. I don't have a bunch of gold in my you know, safe, but I have these specifically that could are backed and like have never defaulted on something. It's a pretty good record. Yeah, yeah, yeah.

Gold As A Portfolio Hedge

Aaron Hoisington 5:30

I'll take that for any means. But uh should I guess like so today, should people still it's actually funny. I went to Costco yesterday, and my my father-in-law, he uh him and I went with my son and we were walking through and he's like, Oh, I'm gonna go check out the jewelry at Costco. And I was like, Why? Like, and uh uh it's funny, we're we're speaking Portuguese when we were doing this, so I almost like I'm like on a three or four, five second delay sometimes because I'm like trying to translate what he's saying, and he's like, Oh, like I need to go buy silver. And I was like, Why would you go buy silver? And he's like, Oh, it's a good investment. And I was like, What? Like, and so we went back and forth. I still don't fully on it. He didn't buy any, but he like went and like looked at it, and so I was like, All right, like, but uh just on this podcast here, I guess like with this episode, should a regular person like still have gold? Is there still value to like having that and like you know buried gold in your backyard? If that's curious.

Ryan Nelson 6:22

I mean, like everything, there's pros and cons, right? So I don't think that gold is inherently good. I don't think that gold is inherently bad. I think that it like it is what it is. It's not good, it's not bad. I think the type of people I think the argument that nobody should own any gold is probably kind of foolish, and the argument that all she should own is gold is also equally maybe more foolish, right? So I definitely I definitely think gold can be an appropriate piece of somebody's investment portfolio. So if it right, it's like anything else we are we've talked about in the past, you probably don't want more than five percent of your investments in any one investment. Hey, the same's probably true here, right? You probably don't want more than five percent of your investments in gold, right? Having one or two percent in gold of your portfolio could be a reasonable hedge. You know, gold in general is gonna it's typically felt like a little bit more of a secure asset that's gonna be a little bit of a slower grower in general. There's periods of time where it's grown very, very fast. There's periods of time where it's declined in price, right? So just like any other investment, it can go up fast, it can go down fast, it can stay neutral for a while. But so in general, you know, it's it could maybe limit some of your long-term growth. If you invest too much in it, you're no longer as diversified as you want to be. But my two cents would be if you have a reasonable amount of your net worth tied up in gold. I've got no problem with it. It's completely reasonable. Where I have issues with is sort of either extremist view where where it's like, oh, gold is evil or gold is like the savior and I want all my money in gold. I think there's pr that that type of thinking on both extremes is problematic. Yeah.

Aaron Hoisington 7:56

No, that makes sense. Yeah, it's like it's you want to be balanced just in general. I think that then what that they can equate that to your lifestyle, eating habits, whatever it is, but you can also definitely when it comes to your financial like resources and what you have, I think that's a that's a good way to kind of put it. So um I'm really curious now. I I didn't ask my father in law, I don't know how much silver he has just stored away somewhere, and I was like, uh, we'll find out later, I suppose.

Theft, Loss, And Storage Risk

Ryan Nelson 8:19

That's some of the hard things with it, is like it's you you know, like your investment accounts could be have insurance or FDIC on your cash in a bank and F D I C insurance on a cash in a bank and stuff. But like if you have you know a gold bullion or silver coin and somebody breaks into your house and steals it, or if you just lose it, or you like you said, you have it buried in the backyard and you pass away and nobody knows where it's buried, like what happens to that wealth? It just disappears, right? You know, so so one of the tough parts is like yeah, you you you know, just be aware, like there are other risks that come with holding you know large sums of cash, large sums of of gold, large sums of silver, all of that.

Aaron Hoisington 9:07

Yeah, no, I I think that that makes sense there for sure. So um awesome, Ryan. Anything else to say on this uh topic before we go ahead and uh pause here?

Ryan Nelson 9:14

Yeah, so I just say like, yeah, in general, so the gold standard was just when the our money was backed by gold, now it's backed by the US government that has both pros and cons with it. Now we maybe are more susceptible to inflation, but the big positive that's associated with that is the Federal Reserve has more tools in their tool belt, so to speak, to help prevent us potentially from going into future recessions. So, like everything in life, there's just trade-offs. But yeah, so overall, hopefully that gives the listeners a little bit more insight into what the gold standard is.

Aaron Hoisington 9:42

Yeah, I was just thinking about so at this point. So we I guess we moved off the gold standards like 55 years ago, I suppose. Like just thinking about doing the math in my head here. So somewhere in that kind of area. So um, I'd be curious to see like you look ahead, like what does 55 years from now look like? That's always kind of a fun conversation to think about. But we'll see. You guys will have to join us for a podcast episode in 55 years to see what we're what we're doing then. So awesome. Well, appreciate it, Ryan, as always. Everybody uh hang tight here. We'll be uh right back on the other side of this for some uh personal stuff.

SPEAKER_02 10:09

And now to put the personal in personal finance.

Putting Personal In Personal Finance

Aaron Hoisington 10:16

Welcome back, everybody, this side of the fiscal physical podcast. I hope you guys uh learned a bunch of a bunch about gold and the gold standard on the uh previous side, and now we're gonna lighten things up a little bit here. Get, you know, in enrich our knowledge, if you will. So uh Ryan, you you ready? I got a question for you. Heck yeah, let's do it.

Celebrity Crushes And Favorites

Aaron Hoisington 10:34

All right. Did you ever have a celebrity crush growing up? I'm curious about your your answer here. I I feel like this one where I wrote this question, it probably could go multiple different ways. So I'm uh I'm interested to see.

Ryan Nelson 10:46

Yeah, I mean, as listeners probably have already started to realize, like I am like the worst. I don't know any like actresses or actors, or I don't listen to music, so I don't know most music artists. Like I don't watch. Oh yeah, oh yeah. So I don't know many TV shows or movies, like so I'm like the worst at that. I I'm it's surprising probably to most people how little I know about like what's happening out in the world from that standpoint. But yeah, so from to be a little cheeky, yeah. My I'll just call my morning or my my childhood crush, I'll I'll say Aaron Rodgers and hell of an athlete. Absolutely.

Aaron Hoisington 11:22

How old was were you when Aaron Rodgers took over as quarterback? I don't know. I I wouldn't have really been a child. I wouldn't really have been a child. I think he's like 43 right now, 42, something like that. Yeah, something like that makes sense. I just saw that he just signed to come back for this upcoming NFL season, too. So I was like, holy smokes, like 43-year-old out there getting after it.

Ryan Nelson 11:40

They won their Super Bowl with him in 2010, the 2010 season.

Aaron Hoisington 11:44

Yeah, you so you were still younger at that point then. It's not like you were like ish, yeah. Something like that. Yeah, you're like, nah, actually I'm good on everybody, but that guy. Yeah, yeah. What about you? Yeah, no, it's a it's a good question. I think uh growing up, I I had a couple of different celebrity crushes just in general. One, it it's always interesting to me because I I think like a a crush or something can be, you know, normally think for myself like a female or something like that, but I also thought that like I kind of went in a similar direction. I almost thought that Denzel Washington was the coolest guy in the world. Like I watched my favorite movie growing up was Remember the Titans. I've seen a bunch of his like movies just in general, and I almost thought that he was just just had a swagger about him that I was just like, man, that guy's awesome. Like, so I think that as far as like one of the people I was like, Oh, that guy's that guy's cool. So that was always a guy that I kind of wanted to be like, but couldn't really do it physically, I suppose. But uh because I'm not an actor. Yeah, but I it's it's supposed for a woman though, I was uh a celebrity crush, if you will. I was uh very smitten, if you will, with uh Penelope Cruz growing up. That was one that I was like, whoa, like this lady picture. Yeah, oh dude. If you if you saw a picture of her, you'd probably I'm guessing you'd probably seen her. But she also can speak like five languages. I also thought that was super cool. She'd like switch like interviews to be in different languages and such. So it was always always neat to kind of see. And I just thought that she was a a great actress and and very easy on the eyes. So that's why you were attracted to the five languages? Yeah, I suppose so, yes. She was very very smart with that. So but yeah, anyway, that was that was it's funny that we kind of both went in a similar-ish direction as far as that goes. But uh yeah, it's uh I'm almost curious to see what people's celebrity crushes were. I know like my wife was a huge fan of the Backstreet Boys. So when she like moved to the United States, she's like, oh, the back even in when she was from Brazil, she was just in love with the Backstreet Boys and still is to this day, like what goes to their concert or tries to go like once every couple years. And I think it's always funny like what continues to be built on from your childhood when it comes to those things. And you're still a Packers fan. So let's get that. Yeah, but awesome. Well, appreciate it,

Listener Prompts And How To Reach Us

Aaron Hoisington 13:55

Ryan. As always, uh, thanks everyone for tuning in, listening. Hopefully, you learned something. Let us know who your celebrity crush is or who what uh what topics you want us to cover here on the Fiscal Physical Podcast. You can uh email us at podcast at alchemywealth.com, send us a text message, you know, em uh uh you know a snail mail, whatever it might be. And uh thank you, Ryan, for as always here, and I'll I'll let you have the uh final thoughts. As always, stay the course.

SPEAKER_02 14:22

Thank you for joining us for the Fiscal Physical Podcast. Until next time, happy listening. And as always, stay the course. If you have a question or topic suggestions, please email us at podcast at alchemywealth.com. If you enjoyed today's discussion, subscribe to the podcast to ensure you never miss an episode. And consider leaving us a rating and review on your favorite platform. This helps other listeners like you find this channel. For more resources, you can visit Alchemy Wealth Management website at www.alchemywealth.com or find your physical physical book on Amazon.

Disclosures And No Advice Reminder

SPEAKER_02 15:01

We'd be remiss if we didn't mention the personal finances just then. First of all, please don't take anything we say as advice. The printing content is for informational and entertainment purposes only. It's not an offer or a solicitation, nor should it be construed or relied upon for tax, legal, or investment advice. It doesn't consider your personal financial situation or objectives and may not be suitable for you.