The Only Thing Backing the Dollar Now Is Force | William Watkins

The U.S. national debt has reached nearly $40 trillion, and the interest alone now rivals the entire military budget. Constitutional scholar William Watkins argues the dollar today is backed by little more than the coercive power of the government, and that the drift from the founders' hard-money design is why the debt keeps compounding.

Kitco's Jeremy Szafron talks with William J. Watkins, Jr. of the Independent Institute about how the spending guardrails came off (from the founders' "few and defined" powers to the New Deal-era Butler decision), why he calls the 1933 gold call-in unconstitutional, how Civil War greenbacks began the shift to fiat, what the arc from $35 gold in 1971 to $4,100 today says about the dollar, why he believes sound money was meant to make war expensive, and where the risk sits as foreign investors hold nearly a quarter of the debt.

This interview was recorded on July 22, 2026

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Transcript

SPEAKER_02 0:00

U.S. national debt has now reached nearly $40 trillion, $39.6 according to the Treasury. Now that is about $115,000 for every American. But here's the number that stops me. The interest on that debt alone is now running closer to a trillion dollars a year, according to the Congressional Budget Office. Now, roughly what the country spends on its entire military just to service what it already owes. Now, my next guest says that this isn't really an economic story at all. It's a constitutional one. And it runs straight through the one thing this channel cares about the most gold. Stay with me.

SPEAKER_01 0:32

Kitco News in Focus with Jeremy Saffron.

SPEAKER_02 0:36

All right, welcome back. I'm Jeremy Saffron. My guest today is a constitutional scholar, not a markets guy, and that is exactly why I wanted to bring him on the show. Now he argues that the country quietly walked away from the limits on federal power the founders wrote down, and this debt is the bill. Now there's even a thread in here about the day Washington reached into America's gold and what the Constitution uh did and did not do about it. William Watkins, author of the brand new book, Independent Guide to the Constitution, joining us now. Welcome, Bill. Thanks for making the time.

SPEAKER_03 1:06

Jeremy, it is great to be with you.

SPEAKER_02 1:09

Um, I want to kind of zoom out. I mean, by the end, I want to answer one thing, what all this kind of means for the money in our audience's hands. But uh Will Bill, let's start with um that number, you know, the debt pushing $40 trillion. And, you know, you argued that this is not just years of overspending, it's a constitutional failure. So just explain a little bit to the audience first. What do you mean by that?

SPEAKER_03 1:31

Well, what I mean is this is we have a constitution of few and defined powers given to the national government. The national government cannot act, it should not be able to spend, absent pointing to a specifically enumerated power. Unfortunately, we have gotten away from this strict construction of the document where certain clauses, such as the spending clause and the commerce clause, are used as what the founders would call a general police power. Uh our government spends uh and regulates things that it has no independent power to do. And as it has done so, it has piled up debt upon debt, and that's truly why we're in the fix that we're in.

SPEAKER_02 2:17

Now, take me back a little bit to that original design. Uh, there's a long-running debate about this, but the reading kind of you you argue is that the the founders didn't hand Congress a blank check, right? I mean, that they they meant to hold it to a specific kind of limited set of powers. Just lay that original design out for me and how that was kind of supposed to hold the line here.

SPEAKER_03 2:38

Well, we have to remember that in exchanging the Articles of Confederation for the Constitution, one of the big arguments that the proponents of the Constitution made is hey, we're not really jettisoning the federal system uh established under the Articles. All we're doing is just really invigorating uh Congress with the powers they already have. This isn't a big deal. The states will still have, uh, in Madison's words, in Federalist 45, numerous and indefinite powers, the national government, few and defined. So this isn't a real big switch. That was the argument there that the Federalists made, that Hamilton himself made, who we often uh associate, and properly so with aggressive constitutional interpretations, uh his financial bill. But that is not how the document was sold to the people and the state ratifying convention. So my argument is simply to go back to those promises that the Federalists made and hold them to it.

SPEAKER_02 3:44

Yeah, yeah, that's interesting. I mean, what was the kind of enforcement mechanism? I mean, if Congress interpreted its own powers broadly, who was kind of supposed to stop it? Was it the courts, was it the states or voters?

SPEAKER_03 3:54

That's a great question. Uh one, your primary stopgap measure is the voters in the states. But remember also at this time that the states had their own representation in the Senate. So they had a mechanism for self-defense that we don't have today with uh a popular election of senators. Of course, you also had the courts could step in, but Jefferson uh and Madison and their Kentucky and Virginia resolutions in 1798 ultimately point uh to the people, uh, whether it be in convention or out of doors or at the ballot box as the ones uh who are ultimately responsible for curbing government.

SPEAKER_02 4:41

That's interesting. And I, you know, I know it's kind of a complex topic, but I'm excited about it because it comes back to sound money. So I'll just give a little bit of context just to the audience. I mean, you're describing uh the move from the the Articles of the Confederation where Congress kind of lacked reliable taxing and regulatory authority, I guess, right? And to the Constitution. But Madison then called the new federal powers few and defined, while powers kind of remained with the states, were numerous and indefinite. So my question here, Bill, is you know, Hamilton kind of supported it, feel it felt like a broader spending power from the beginning. Doesn't that suggest today's expansive government kind of arose partly from that unresolved founding era disagreement rather than just, you know, abandoning the constitutional rule?

SPEAKER_03 5:23

One could argue that, but I would argue that if we look at Hamilton's uh representations about what the Constitution would do, his later arguments as Secretary of the Treasury uh were essentially just he went back on his original promises to push a program that he thought uh would benefit the nation. Uh, you look at the debates as a whole, uh, and I think that supported Hamilton in power was much different than the Hamilton in the New York ratifying convention or the Hamilton of the Federalist, who, again, essentially adopted what we would call today a Madison argument on the limits of the federal government.

SPEAKER_02 6:07

Now, there was that one moment that you you kind of came back to as well in the book. I mean, the the Supreme Court's case in 1936 called United States versus Butler. And as you read it, that's the case where the court kind of broadened the spending power, letting Congress spend beyond that enumerated list in the name of the general welfare. In plain terms, though, I mean, what changed that day? And why does it kind of still show up in your wallet now?

SPEAKER_03 6:31

What changed that day is the New Deal, is uh Franklin Roosevelt's New Deal, and how can we, as a court, uh rubber stamp, if you will, or allow these programs to go through? A key to that is the spending power. For years, the spending power had been understood uh in a Madison sense, i.e., if you want to spend money, you have to point to an enumerated power. And uh there's a specific list in Article 1, Section 8. Uh Hamilton, Joseph Story had argued, uh, you don't really have to point to an enumerated power. Congress has the power to spend, and as long as it's for the general welfare, uh, we're good there. The Supreme Court rejected the Madison interpretation, went with Hamilton and Story simply because if they did not, they would be in a pitched battle with Roosevelt and imperil the New Deal which so many people were supporting.

SPEAKER_02 7:33

Yeah. So, I mean, you know, the guardrails came off. And uh, let's talk a little bit about why it matters for anyone holding dollars. I mean, the Constitution actually talks about money in hard terms. It gives Congress the power to coin money and it tells the states they cannot make anything but gold and silver coin legal tinder. How far have we drifted from what the founders meant by the word money?

SPEAKER_03 7:54

We have drifted far afield, uh, as you and your viewers uh know. The founders understood real money to be hard money, gold and silver. As a matter of fact, uh in the debates uh on the Constitution and the drafting process, there are many statements from uh various founders that finally we have this opportunity to banish paper money, fiat money now and forever, and gold and silver were to be the money in the United States. Uh, unfortunately, uh, especially with the Civil War, war between the states, whatever you wish to call it, uh, with the greenbacks, the Lincoln administration issued, we have a major departure there. And you know, ultimately the Supreme Court upholds that uh simply not really based on the law, but based on national sovereignty and the idea if we don't rubber stamp this, if we don't approve it, we will have uh put the government in a terrible spot uh after they've printed all these green backs, made them legal tender. So uh they just rolled with it.

SPEAKER_02 9:06

Yeah. I mean, you know, 1933, most people, at least that watch this channel, kind of know the history, but obviously in 1933, Washington called in America's gold and then turned around and revalued it from $20 to $35. Um, the part I kind of want to get your read on is the one that still gets argued. I mean, how was that constitutional? I mean, the government compels people to surrender a hard asset, then marks up the price the moment it holds it all. What does that episode tell you about how far the money power can actually stretch?

SPEAKER_03 9:35

No, it's absolutely not constitutional. Uh a true reading of that document, you can find no power where government can take uh the people's money in that regard. Sure, government can pose uh in uh impost excise taxes with the uh income tax amendment. You can tax incomes, uh, but it you have to stretch that document so far uh to be able to take the people's gold uh from them. Uh there is no constitutional standing for that, especially again, it's clear that the framers, uh the power to coin money, gold and silver. Uh this was getting rid of fiat money, which had so plagued uh the states and the Continental Congress uh and the war for independence. They saw the damage that it could do, how it robs um essentially creditors um of their investments, the value of items they've sold, and they were ready to put a stop to it.

SPEAKER_02 10:39

Now, I almost want to go back to the greenbacks because it really did begin as a wartime emergency. I mean, how did that emergency power kind of become a permanent federal power to issue you know paper legal tender?

SPEAKER_03 10:52

Well, you know, you have the Lincoln administration made the decision that it would not let the southern states go uh peaceably. That um, you know, actually at the time, you know, there were two waves of secession, the uh Gulf Coast states that on Lincoln's election um seceded. But then Virginia and your other border states uh weren't going to leave the Union until Lincoln decides he's going to call up troops to force the southern states to stay in the Union, so you have this second wave of secession. With those two waves, you're gonna need a lot of money uh to force those states back into the union. Part of the process for this is uh the greenbacks, this idea that we will make them legal tender uh throughout uh the country, that you can suck whatever species uh is out there into the coffers of the national government and use paper money. And once you sort of build on that paper foundation, uh it's a house of cards. You just keep on building uh until it falls, and uh we're ever closer to it falling, as you and your viewers know.

SPEAKER_02 12:04

So, I mean, you know, Bill, is that the real constitutional turning point? I mean, from from money whose value was tied to metal to money whose value ultimately rested on government authority?

SPEAKER_03 12:14

Yeah, I would I you know a lot of people want to talk about uh properly, you know, Roosevelt and taking gold, or even Bretton Woods. Uh, those are all in the conversation. But if you don't start with the war in the 1860s and the Lincoln administration's monetary policy, you're missing the full picture.

SPEAKER_02 12:33

Yeah, you know, we talked a little bit about 1933 there. And then a couple years later, the Supreme Court upheld the government voiding gold payment clauses and contracts. So debts no longer had to be paid in gold. And then I think it was '71, the the last link was cut. The U.S. stopped letting even foreign governments trade their dollars in for gold. Just looking at that whole arc, what is the lesson for someone holding dollars today?

SPEAKER_03 12:57

Well, I think if you're holding dollars, you have to recognize that there's a great uncertainty that uh that paper money is really only tied uh to the coercive power of the federal government, uh, to the extent it can cause other uh industries, other people uh to hand over things of value. There is nothing tangible backing it like gold or silver. Um it's a bit of a shell game that we just smile and keep playing, but uh it is but a game. There's nothing of real value behind it.

SPEAKER_02 13:32

Yeah, and just to put that kind of drift into numbers for the audience, when the dollar was still tied to gold in 1971, gold was $35 an ounce today. Looking at the Kitko spot price, I mean it's uh over $4,100, up almost 2% today. So I mean, a dollar buys a tiny uh sliver of of the gold it once did. That is the erosion at the heart of all of this. And I gotta ask you, I mean, the clause also names gold and silver. Silver is the kind of the forgotten half. Why why did they both why did they write both in?

SPEAKER_03 14:01

Well, you know, if you look at um the time, you absolutely had uh countries uh using both metals uh for means of exchange. Uh both had independent, uh significant value. Uh you know, we obviously we could use um some sort of other metal, uh though the Constitution mentions gold and silver in a theoretical sense. If you had uh a metal that had great value, you could uh use that. A country could use that for coining. My argument would be uh gold and silver is what the constitution says, absolutely amendment, uh we stick with gold and silver.

SPEAKER_02 14:43

Yeah, I mean that very first kind of coinage law, I think, in 19 or 17 1792 uh defined a dollar as fixed weight of silver. I mean, when did the dollar stop being a thing you could weigh?

SPEAKER_03 14:57

Oh, you know, uh it's actually if you look in uh as a quick aside here, uh you know, the Bill of Rights indicates that uh for a dispute um over $20, you have a right uh um to you know trial in the federal courts. Uh you know, good argument that the measure they were talking about would be the Spanish gold dollar was most often uh what they were referring to. Uh but you know, you're absolutely right. Uh you know, eventually as you move forward in time, uh as you approach uh the mid-1800s, I think that's a a good point that you can start to see things get out of hand.

SPEAKER_02 15:42

I mean, well, I guess we should I'm nerding out here, Bill, so so stay stick with me. Also, the audience should too, but I I'll move on a little bit because I want to talk about why it matters now and who's actually paying this bill. I mean, where nearly a quarter of this debt is is held abroad. I mean, according to Treasury data, that's foreign investors, obviously, central banks funds, governments with Japan and the UK and China all at the top. They own U.S. bonds that they can trade, sell anytime. And in your writing, you kind of warn about the day they cash in their chips, meaning they start selling. I mean, obviously we've seen a little bit of that with this gold rush, but what would that actually look like? And how worried should investors be about that?

SPEAKER_03 16:19

No, it worries me uh greatly because you know you hear it often said, Oh, we just owe it to ourselves, our great national debt. No, we don't. As you just properly pointed out, you listed the top three uh holders there, but no, foreign governments. And if foreign governments acted in a concerted manner to, as we said, cash in their chips, uh, that could absolutely bring a financial crisis. I mean, we've so eroded even our paper dollar, and with this recent war in Iran, uh, we've been lucky that essentially the dollar has been the medium of exchange for oil, uh, thank you, Saudi Arabia. But uh that that gets undermined, and you have uh China selling off their holdings, uh, we could have a serious financial crisis. We could have a Weimar situation.

SPEAKER_02 17:11

You know, this is good because you can kind of bring it home for me here. I mean, for someone watching who's not a lawyer, just somebody kind of trying to protect their savings, why should this history really change how they think about the dollar?

SPEAKER_03 17:23

Well, I think it should bring home, if you had any doubt, uh, that the framers uh had great perspicacity uh in trying to ban fiat money to keep money honest, to keep it real, uh, so government could not via inflation uh essentially steal the wage of workmen or business owners. Uh unfortunately, uh that was gotten around, as we talked about with the Lincoln administration, then others there, but it gives us, it puts us in a world of uncertainty there with our holdings. Uh you can work all your life and accumulate all this paper money, and uh it is we're so very close to uh a financial crisis, the value could be gone for that. Whereas if you uh had used that paper to buy um hard assets or gold and silver, uh you would have something tangible there. So we're all at great risk.

unknown 18:23

Yeah.

SPEAKER_02 18:24

Do you got an opinion here, Bill, as to whether that gold is in Fort Knox? I have to go down there.

SPEAKER_03 18:31

You know, uh, I imagine there is a good uh there's a quantity, uh, how much I would not want to bet on.

SPEAKER_02 18:40

You know, here's kind of why it lands on this channel. I mean, for thousands of years, obviously when government buried themselves in debt or watered down their money, people protected themselves by owning something the government couldn't print, gold, silver, you know, and the founders kind of wrote those two medals into the Constitution as the country's money. So help me understand the founders thinking here a little bit. I mean, we talked about it, but what role were gold and silver actually meant to play? And did they see hard money as any kind of check on the government?

SPEAKER_03 19:07

No, absolutely, if especially if you look in uh Jefferson's uh writings and his economic thought, uh, the idea is that hard money uh would force government. For example, if government wanted to get involved in a foreign adventure or a foreign war, you would have to pay for that uh rather than just printing uh dollars inflating the currency. To pay for it, you would have to tax the people. They would feel that bite immediately uh as the tax gatherer uh showed up at their door wanting more of their resources. Therefore, the people would use the franchise to limit government, to pull government back from, say, the foreign adventure there. Uh we've lost that uh now with uh paper money and inflation and the way where uh Federal Reserve conducts matters.

SPEAKER_02 20:01

You I mean you brought up taxes there. I have to ask you. I mean, in the end, uh who really pays the bill? Is it higher taxes? Is it inflation quietly kind of eating your savings, or is it a default? I mean, which which one does a government usually reach for first?

SPEAKER_03 20:16

They ought to reach for taxes first, but what we've seen in recent years is uh the tendency to inflate the currency, uh, to pump more dollars out there. Uh, you know, recent examples, you know, the COVID situation, uh, the government just cutting checks uh that it doesn't have the funds for uh to essentially everyone in America or whatever stimulus program um you want to look at in history, recent history as well. They should uh look to taxes first, but that imperils them at the ballot box. Then they look to just inflating the currency, and of course, uh that brings up the last matter you mentioned. You know, when does the great default come? Like we're some third world banana republic defaulting on our debts.

SPEAKER_02 21:07

Yeah. And I mean you're but uh you brought up COVID there. I mean, the larger concern is kind of that emergency powers rarely disappeared when the emergency ends, right? I mean, normalized, it almost felt like they normalized the level of spending in intervention that then became permanent.

SPEAKER_03 21:23

No, it's a ratchet effect. I mean, think of the best example I can think of of the ratchet effect of government power and economics is rent control in New York City. Uh, that was supposed to be a temporary measure uh as veterans came home from World War II. Uh, how many people today in 2026 live in rent-controlled apartments still in New York City? Uh that government has not parted with that power and it uh and they rarely do as they accumulate powers.

SPEAKER_02 21:55

Now listen, I didn't get you to come on to talk about the bond market, but you know. This is not just theory this week. The 30-year treasury yield has been trading above five percent. And according to Bloomberg, part of what's behind that is the worry about debt and deficits along with sticky inflation and a flood of new bond supply. So, I mean, you know, when the market itself starts pushing back on the borrowing, does that feel like the reckoning that you've kind of been writing about?

SPEAKER_03 22:20

I think it's a sign of it, at least. Um, I mean, especially right now, as we've got the war with Iran heating up again, and you know, these missiles, these jets, how much it costs just a day for this, you know, piddly little fight, we could call it. It's certainly not a D-day, or but just with what we're doing there with the bombing and the sorties, that's a lot of money. Markets are taking notice of that. Uh, you add into that uh Iran's grip, uh, especially now that the Houthis are on board with um limiting uh the Strait of Hormuz and the passage uh of fuel, uh fertilizer, natural gas. Um, yeah, uh this is a serious situation. It certainly could threaten world war uh as power great powers seek to reopen things. Uh it also could threaten a great economic uh catastrophe for the United States.

SPEAKER_02 23:21

Now listen, you and I have to talk about your book because it's been uh interesting to look at. I mean, I find it pretty fascinating, this topic, obviously, and I think our audience will. And before I let you go, you know, for the person watching who finds this persuasive and honesty a little worried, I mean, you know, what is the one thing that you tell them to watch for or to understand kind of going forward?

SPEAKER_03 23:42

Well, going forward, the first thing that we have to watch for is keep our eyes on that beacon, which is the Constitution. Uh, that is that will tell us how far we have strayed. That will tell us also how to get back home if we really realize that we are uh in dire straits, that we're in a terrible financial situation, that we have a national debt uh that we can't dream uh of paying off. That you know, were we going to do so? I think the assessment the government would have to make on every individual citizen, uh, forget the illegals, uh, is about $150,000 per person, considering most Americans don't even have enough savings to make it a month or they lose their paycheck. Uh, that's not feasible. We're in uh a dire situation, but constitutional government is an option. Uh we could go back to that beautiful old federal system of few undefined national powers, numerous and definite state powers, uh trim, retrench, cut back, um, and life could get back to something manageable.

SPEAKER_02 24:52

Yeah. I mean, your new book we should plug it to. It's called The Independent Guide to the Constitution. Um, I gotta ask you a last thing here, but I mean, if if the founders could see the balance sheet today, what is the one thing you think would shock them the most?

SPEAKER_03 25:07

I think the one thing that would shock them the most is they would believe that we had completely abandoned uh the system of government that they had created and opted to go back to the old British system where parliament itself was sovereign. Uh, it is said that Parliament by Blackstone could make, unmake any laws it saw fit. Uh it parliament was the Constitution. They would think that we've adopted that system and unleashed an American Parliament to tax, to spin, uh, and just wreak devastation on our economy.

SPEAKER_02 25:43

Yeah, I'm gonna not leave it on necessarily that note. I want to talk to you just personally about what gives you hope. I mean, is there any is there still a tool inside the Constitution that could kind of rein this in?

SPEAKER_03 25:56

Oh, there's a tool. Um, I think I do have hope. I think your listeners should have hope. And so far as you look at all these great grassroots movements that have sprung up around the country, uh, the homeschooling movement is a great example, uh, as people have seceded from government schools, uh, moms for liberty, uh holding local government bodies accountable, uh such as that. Those are things for hope. You can build on that in a constitutional sense as people demand that their elected representatives, be them senators, uh House members, uh what have you, uh have a fidelity or at least uh support the Constitution as ratified, uh not this expansive version today. Uh we can build on movements like that and maybe slowly claw back uh some that's that has been taken.

SPEAKER_02 26:53

Yeah, well said. What a fascinating time to study this stuff. Well, listen to people, I appreciate your time uh, of course, today. Thanks for coming on Kiko. I think uh people are very interested in this stuff. We'll put the book down, of course, you can find out more of the information as well. Thank you so much. All right, that was Bill Watkins. Uh a very different way to look at a number that gets thrown around far too casually, nearly $40 trillion. Now, here is what I want to hear from you in the comments. Does the debt get fixed with a vote? Or does the bond market end up fixing this? Tell me below, and if you want to subscribe and have conversations that go past the headline number, hit that button. We do this every day. I'm Jeremy Safron for all of us here at Kitco. Thanks for watching.

SPEAKER_01 27:31

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SPEAKER_00 27:35

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