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.

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 reportfrom 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!

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.”

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.