Gold or the Fed #2

As promised, here is the second installment of the three part essay ending my look into Money and Wealth … Lee

Gold or the Fed

We can easily see that the individual entrepreneurs whose business is metal debunking, coin striking, counterfeit printing or some other more subtle villainy are all thieves.  But is the individual entrepreneur the greatest threat to the integrity of the money supply?  To answer this we must look at what governments through the ages have done to money.

For thousands of years miners offered metals or made coins and traded them for needed commodities.  As civilization advanced, for their necessities, kings added to the specie in circulation when they converted their plunder into coins, generally with the likeness of themselves on them.  People in a given area became used to these coins and accepted them as all being of the original value.  However, kings did not always have surplus gold, so they, throughout the ages, did their own counterfeiting and debunking.  We nowadays have the benefit of seeing what they did.  A king would issue a beautiful coin with familiar markings on it.  As his treasury dwindled he would re-alloy the metal with something more base, such as silver, but more often copper (his ostensible reason being to make it more wear resistant), which worked until the change in color became too dramatic.  After that subterfuge was exhausted, he would strike the coin in a slightly thinner model and finally he would reduce it in diameter.  If this was done incrementally the populace would not notice or if they did, they would overlook it.  If the coin was traded for a commodity the difference in value was soon realized and the money cost of the commodity rose … it was INFLATION!  But he had another ace up his sleeve, the king would make his coin “legal tender”, that is make it against the law NOT to accept his coins in payment of debt.

How did the king get away with it?  If the coin was tendered in satisfaction a contracted debt, the debtor was happy with the transaction because he was paying his debt with devalued money, money that was more easily obtained than previously.  The creditor could not legally complain because he had contracted for a sum certain of coins. (His protection was to charge higher interest)  This was the state of money at the time of the beginning of the American republic.  Our founders solved most of these problems by denominating the size, weight and purity of our coin, making it legal tender for all debts and further, providing the death penalty for counterfeiters.  Any paper money was issued for a sum certain of gold coins (or silver.)  That was in 1792 … it took the governmental crooks (with a few glitches) until 1913 to start to screw that up.  In the USA, there was almost no inflation (conversely devaluation of the dollar) for 120 years … Then, in 1913, along with other Constitutional horrors, came the income tax and the Federal Reserve System.

Until the advent of the 16^th Amendment, the government of the USA was almost entirely financed by excise taxes and tariffs on foreign trade.  For Progressive leaders in Washington, like Theodore Roosevelt and Woodrow Wilson, who wanted to interject the country onto the world scene of Imperialism with its huge navies and large standing armies there had to be some new source of money to fund their ambitions.  The income tax provided a huge, steady flow of money into the Treasury.  The Federal Reserve’s ability to print paper money and to have it legally accepted because of the enactment of tender laws guaranteeing their bills, provided an unlimited source of money for the Treasury to borrow.  If the Treasury needed money, it would issue interest bearing bonds (creating national debt) which were offered to the world at large.  Depending on the interest offered, the bonds were quite often sold on the open market, to individuals, corporations or foreign governments.  But always, if the bonds did not sell, the Federal Reserve was there to print the money necessary to make the purchase.  In the beginning the money printed declared on its face, “Pay to the bearer on demand, in gold (or silver)” the amount of the denomination and upon presentment, the paper note ostensibly would be paid in silver or gold specie.

It was found by bankers that for every dollar that they had on deposit, they could lend in a paper transaction several more than were on deposit.  Although they did not have the money lent out on paper, because all the depositors were not likely to withdraw their money at the same time, they could get away with it.  This is called “fractional reserve” banking … lending more money they had.  Because some bankers were more reckless than others, lending far more than they had, there were bank failures.  This state of affairs soon spawned banking laws prescribing the perceived correct ratio of the fractional reserve.  All went well until the stock market crashed in 1929 largely as a result of banks lending much more money than they had, due to the large fractional reserve ratios allowed by law.

Economist John Maynard Keynes was a man who theoretically advocated that the government inject money into the economy in times of economic depression.  Franklin Roosevelt was his disciple.  Of course, during the depression of the 1930’s FDR could not tax the penniless populous to fund government programs, so he had the Treasury borrow money from the Federal Reserve for his purposes.  The Fed dutifully printed fiat paper money which he spent on his grandiose schemes.  The upshot was that the fiat (government counterfeit) money very soon caused the value of the dollar to fall in relation to gold.  Gold, which for over 120 years could be bought for $17.50 dollars per ounce, now demanded more and more dollars to be purchased until it required 35 dollars to buy an ounce.  Panicked by the specter of runaway inflation like Germany had experienced in the 1920’s, Roosevelt wrote an “executive order” making it illegal for American citizens to own gold.  There was no constitutional authority to do this; making it a prima facie illegal act for him to do so.  But, nonetheless, gold remained at $35 per ounce because of the public acceptance of FDR’s pseudo-legal Federal law until the Nixon administration came to power nearly 40 years later.  The American public did not rebel because, although they could no longer own gold, they could still trade their paper dollars for silver or the magnificent silver dollar coins then in circulation.  Additionally, the minor coins, the half dollar, the quarter, and dime were also silver.  The nickel coin was made of pure nickel and the penny of copper.  Americans still had their hard money.

The catch was that foreign holders of our fiat paper money could redeem their paper dollars for gold from our treasury … the gold in Fort Knox.  As the treasury continued to borrow from the Federal Reserve which bought the US bonds with the baseless paper money that it printed, the value of the paper money in relation to gold on the world market continuously diminished.  Foreign nations could take the dollars that they received from trade or our foreign aid, present them to the Treasury to be redeemed in gold at the rate of 35 for an ounce and then sell the gold on the world market at a hugely inflated price.  By the time of the Nixon administration it was apparent that the redemption of paper money for gold by both foreign and domestic holders would very soon empty the treasury of its gold reserves which were supposedly, but arguably not, in Fort Knox.  Nixon lifted the illegal ban on gold ownership, thereby pleasing those who believed in hard currency.  The devious other part of his action was to remove silver coins from circulation.  He un-Constitutionally prohibited the use of gold and incrementally withdrew silver from circulation as money, replacing it with the worthless slugs that we now use, and then prohibited both domestic and foreign holders from redeeming their dollars for gold.  He additionally abolished treasury notes of all denominations which promised on their face redemption in gold or silver and made Federal Reserve notes the only legal tender.  These Federal Reserve notes are printed with the statement “Legal tender for all debts, public and private.”  A subtle, but fundamental difference from what had formerly been printed on government money.  The Constitutional mandate that money be either gold or silver was illegally abandoned.  The commodity basis for money had been abandoned and worthless printed paper substituted.

Once again the people did not rebel.  The only legal money, by law, was the worthless paper Federal Reserve Note.  Laws were passed that prohibited contracts that are redeemable in gold or silver.  In court you could enforce debts payable in legal tender, but not in Constitutional money.  The result is as described above … debtors happily pay debts with cheaper dollars and creditors must demand ever higher interest.  The government can pass laws that can criminalize anything but it can’t stop people from bartering and it can’t make the laws of economics illegal, so inflation became rampant.

After Nixon did away with our Constitutional money, the flood gates of spending opened by J.F. Kennedy’s adventures into space and in world control, and in the Great Society policies of Lyndon Johnson were given free rein to expand because money (fiat money) could be printed at will to satisfy the astronomical costs.  Every President since FDR has been culpable in this orgy, but all constraints on Federal profligacy were removed by Nixon.  Followers of J. M. Keynes, mostly the “informed source” economists often quoted in newspapers, have told the American populace that 4 to 6 % inflation is a sign of a “healthy economy”; that inflation is caused by an “overheated business climate”; that inflation is caused by greedy speculators or oil companies; by the American consumer spending too much money; and on and on … ad nauseam.  We ordinary people can see the prices rising for everything we wish to purchase, but we have been lied to so much about the true cause that most of us are too confused to sort out the real picture.

The only cause of inflation is fraud … be it private or governmental counterfeiting, or fractional reserve banking!  

The consequences of the Income Tax and the Federal Reserve, when understood, are the most diabolical fraud ever promoted onto the American public.

President George Washington, in his farewell address cautioned us to never become embroiled with foreign wars or politics.  The 16^th Amendment, allowing the income tax and its soul mate, the Fed, were instituted to give those wishing to project America onto the world scene the monetary wherewithal to become a player … to ignore the wise counsel of Washington.  Americans, although they purchased Louisiana territory and were embroiled in the war of 1812 for territorial and naval considerations, did not participate in the Napoleonic wars, the revolutions of 1848, the Franco-Prussian war or any other European war during the 19^th Century, but after adopting the 16^th Amendment in 1913 were embroiled in Europe in World War I within four years.  Our record of meddling in foreign wars and politics during the 20^th Century made us a major player in the most barbaric century in human history … all because of the income tax and the Fed which allowed the “Progressives” in our government the funds to lead our credulous, but gullible populace into it.

The IRS, the minion of the 16^th Amendment, the administrator of the income tax is the resurrection of the tyranny of the English monarchy that was the cause of the Revolutionary War.  The tax code, which is anathema to the values of our forefathers, is unequaled in history in its diabolical scope, its 70,000+ pages of rules are unfathomable, its administration autocratic and its monetary effect is economically crippling to the citizenry.  Its revenues are very often squandered or used for purposes considered superfluous or immoral by those who are paying the taxes.  The IRS is much like the thief who robs you.  The thief takes your money against your will under the threat of bodily constraint or harm to use for purposes that you disagree with. The IRS does the same.  Doesn’t it follow that they are both thieves?