William J. Watkins, Jr., a research fellow at the Independent Institute, argues the U.S. dollar is backed by government power rather than gold, as the national debt nears $40 trillion. Watkins told Kitco News the country drifted from the founders' constitutional design of hard money and limited federal powers. The shift occurred because elastic interpretations of the Constitution's spending clauses turned enumerated limits into what Watkins describes as a general police power, resulting in mounting debt. The U.S. Treasury reports the debt stands near $39.6 trillion, roughly $115,000 per American and about 120% of GDP, with net interest on track to top $1 trillion in fiscal 2026 and already exceeding national defense spending according to the Congressional Budget Office.
Watkins Traces Constitutional Limits From Founding to New Deal
Watkins traces the constitutional design to the founding debate over replacing the Articles of Confederation. He said supporters of the Constitution promised a limited federal government, citing James Madison in Federalist No. 45, who wrote that states would keep "numerous and indefinite" powers while the national government's would be "few and defined." Watkins told Kitco News his argument "is simply to go back to those promises that the Federalists made and hold them to it."
The turning point came in 1936 when the Supreme Court decided United States v. Butler, according to Watkins. "What changed that day is the New Deal," Watkins said. He stated the spending power had been read narrowly for years, but the court "rejected the Madisonian interpretation" and allowed Congress to spend in the name of the general welfare, "simply because if they did not, they would be in a pitched battle with Roosevelt and imperil the New Deal."
Constitution Specified Gold and Silver, Watkins Says
The Constitution gives Congress the power to coin money and bars states from making anything but gold and silver coin legal tender, Watkins noted. "The founders understood real money to be hard money, gold and silver," he said, adding that in the ratification debates many framers spoke of a chance to "banish paper money, fiat money now and forever."
That design began to erode with Civil War greenbacks issued under the Lincoln administration, according to Watkins. "Once you sort of build on that paper foundation, it's a house of cards," he said. "You just keep on building until it falls." He stated that if you don't start with the war in the 1860s and the Lincoln administration's monetary policy, "you're missing the full picture."
On the 1933 order that called in Americans' gold and revalued it from about $20 to $35 an ounce, Watkins said, "It's absolutely not constitutional." He stated, "A true reading of that document, you can find no power where government can take the people's money in that regard." Two years later the Supreme Court upheld voiding gold-payment clauses in contracts, and in 1971 the United States stopped letting even foreign governments convert dollars into gold.
Watkins said the result is a currency resting on authority rather than anything tangible. "Paper money is really only tied to the coercive power of the federal government," Watkins said. "It's a bit of a shell game that we just smile and keep playing, but it is but a game. There's nothing of real value behind it." Gold was $35 an ounce when the last link was cut in 1971 and traded above $4,100 on Wednesday, according to the Kitco spot price.
Foreign Investors Hold $9.5 Trillion in U.S. Treasuries
Watkins pushed back on the idea that the debt is harmless because it is owed domestically. Foreign investors held about $9.5 trillion in U.S. Treasuries as of early 2026, close to a quarter of the debt, with Japan, the United Kingdom and China the largest holders, according to Treasury data. "If foreign governments acted in a concerted manner to cash in their chips, that could absolutely bring a financial crisis," he said, warning it could produce "a Weimar situation." The Weimar reference is to Germany's 1920s hyperinflation, and is Watkins' characterization.
Watkins also framed sound money as a brake on war. Drawing on Jefferson, Watkins argued that when a government cannot simply print, "to pay for it, you would have to tax the people. They would feel that bite immediately," and could push back at the ballot box. "We've lost that now with paper money and inflation," he said.
Asked who ultimately pays for the debt, Watkins said governments "ought to reach for taxes first," but tend instead "to inflate the currency," pointing to pandemic-era stimulus. Left unchecked, he said, the endpoint is a reckoning "like we're some third world banana republic defaulting on our debts." Persistent spending, he added, tends to stick: "It's a ratchet effect."
Watkins Recommends Hard Assets Over Paper Money
For an ordinary saver, Watkins said the lesson is that decades of paper money have left savings exposed. "You can work all your life and accumulate all this paper money," he said, "whereas if you had used that paper to buy hard assets or gold and silver, you would have something tangible there." His hard-money argument arrives during a historic run in the metals, with central banks among the steadiest buyers in recent years.
He said he remains hopeful, pointing to grassroots civic movements, and argued the path back runs through the founding document itself. "Keep our eyes on that beacon, which is the Constitution," he said. "That will tell us how far we have strayed. That will tell us also how to get back home."
William J. Watkins, Jr. is the author of "The Independent Guide to the Constitution."
FAQ
What is William J. Watkins, Jr.'s main argument about the U.S. dollar?
William J. Watkins, Jr., a research fellow at the Independent Institute, argues the U.S. dollar is backed by government power rather than gold. He told Kitco News the country drifted from the founders' constitutional design of hard money, and that paper money is "really only tied to the coercive power of the federal government."
How much U.S. debt do foreign investors hold?
Foreign investors held about $9.5 trillion in U.S. Treasuries as of early 2026, close to a quarter of the debt, with Japan, the United Kingdom and China the largest holders, according to Treasury data cited in the Kitco News interview.
What does Watkins say about the 1933 gold confiscation order?
Watkins said the 1933 order that called in Americans' gold and revalued it from about $20 to $35 an ounce is "absolutely not constitutional." He stated, "A true reading of that document, you can find no power where government can take the people's money in that regard."
