Gold or the Fed #3

This essay is the conclusion of my journey into the convoluted world of Wealth and Money … Gold or the Fed … 6 essays in all.  I hope that those of you that have suffered through all this writing have learned as much as I have in trying to understand where we have been and where we are going … Lee

Evil as it is, the IRS code is a happy tune when compared to the real deviousness of what the Progressives did to us in the 1930’s.  FDR’s New Dealers soon found that the income tax did not provide enough money for their schemes … after they had raised marginal tax rates up to near 90% for some of the “evil” rich, they knew that they could not raise taxes any more and get away with it … so they had to find some other devious way to tax the people without their knowledge.

“Ahaw! the Progressive intellectuals said, “Let us institute a welfare program for the aged.  We will institute another tax called “Social Security” which we know that the charitable American people will go for … they will gladly contribute to the retirement income of the poor elderly.  Here’s what we will do … We will go to the insurance company’s actuarial tables and find out when at least half of the populace will be dead and make that the “retirement age” … 65 years old.  And although the wage earning individual’s job will pay the tax in full (no job, no FICA tax), we will tell the gullible worker that he will only have to pay half the tax, because we will make his evil employer pay the other half.  That will obviously make the employer angry, but since there are a lot more workers than employers and it will not only make the worker happy, but will give him a sense of camaraderie with other workers in their animus toward the rich, we will do it.  We won’t point out to the ignorant fools that the FICA tax is a direct tax that is more than 16% of the workers pay.  Or that we spend it as we receive it.  We won’t advertise that our new system is a general fund tax, we will tell the public that the money will be put into a “Social Security Trust Fund”, but we will be sketchy on the details.  If we should need more money from time to time, we can just raise the tax, only half of which will appear in the worker’s pay slip, although he pays it all.”

This ingenious method of taxation, a true scam … a ponzi scheme, has been working for almost 75 years.  Initially, it was a great source of revenue.  There were very few claims and a great number of people paying.  The government, as always, paid those who qualified and spent the huge excess … the only trust fund was the accounting department.  Now at this late date, the chickens are coming home to roost; the outgo is far greater than the income.  Although the system is bankrupt, the burden, now temporarily suspended, still is an albatross on the shoulders of the American worker.  How does the Treasury pay for Social Security obligations?  Well of course, it issues interest bearing Treasury bonds which the Fed monetizes with baseless fiat paper money.  Actually, the Fed no longer prints the money … the Fed chairman Ben Bernanke has been quoted as saying, “it is a simple computer entry.”

What has been the effect of the Fed printing its fiat money?  Today’s dollar has the purchasing power that the penny did 75 years ago.  How do we know that?  We know that gold is more or less timeless.  It doesn’t change in value.  We also know that for the 120 years of American history when we used gold for money or our paper money could be redeemed for gold or silver that the Treasury would buy all the gold that you had for $17.50 per ounce (so, honest entrepreneurs minted their own one ounce coins for the $2.50 difference) and that a silver dollar weighing almost an ounce could be redeemed by the tender of your dollar Treasury note.  Or by tendering 20 paper dollars you would receive a one ounce gold “double eagle.”  Today it takes 30 paper Federal Reserve notes to purchase an ounce of silver and 1600 of them to buy an ounce of gold.  That is bad enough, but the Federal Reserve dollar bill cost of these commodities is escalating.  As the Fed prints more and more notes, it takes an ever increasing number of them to purchase the same amount of metal.  Gold and silver don’t change in real value, but the paper fiat Federal Reserve note very soon may not, like the post WWI German mark, be worth the ink on the paper on which it is printed.

All of this is horrifyingly evil, but we have not yet measured the depth of this monstrous banking/governmental depravity.  You work for a wage, sum certain, and then you deposit it, less your expenses, in a bank; in stocks or bonds; or some other asset to provide for your future needs … retirement; college; travel; old age; or some other personal want or need.  But our friendly Progressive politician has now evolved the most sophisticated method of governmental fraud … thievery … of all, the ultimate tax.

Your greatest personal commodity is your labor.  It may be presumed that you are making a fair wage for your labor … so many hours for so much money.  Another way at looking at the money that you are saving for the future is this: instead of your account representing so many dollars, it represents so many hours of your life.

When the Fed injects its fiat money into the economy … it uses euphemisms like “European Bail-Out,” TARP, QE1 (quantitative easing), QE2, and soon to come QE3 to give a “politically correct” name to their skullduggery.  In the most recent past, because of the tenuous solvency of the American banking system, the Fed has bought bonds from the US Treasury for “zero” per cent interest.  In other words, they are giving the Treasury free bogus money.  The Treasury can now spend without limit and it is doing so.  Our government is spending trillions of dollars that it does not have.

What does this mean to you and me?  Those dollars (hours of our lives) that we deposited in our nest eggs … banks, savings, stocks, bonds, etc. are being attacked by the devaluing effect of the Fed’s fiat money printing as never before.  Our nest egg is being taxed by the Fed (and the government) working on the delayed action of inflation.  Today’s prices for commodities are a product of the free market … so many hours of our life to buy our groceries based upon the grocer’s ability to buy his groceries which is a function of how hard it is for the farmer to produce them.  We are offering our labor (our dollars), a commodity, to the entrepreneurial efforts of the grocer in gathering his commodities from the farmer whose commodity is food production … all these transactions being separate commodities.  All this based upon how hard it is to obtain a dollar.  When the government puts its ill gotten fiat money into this system it takes advantage of today’s prices based upon today’s dollar with its counterfeit money, purchasing real commodities with a currency that has no worth.  The government’s action allows it to purchase something of real value with something of no worth, while polluting the money supply in circulation with worthless paper.  We producers of real commodities perceive, slowly, the infusion (or dilution) of the fiat bills.  The result is that we demand more dollars for our work and the grocer and farmer more dollars for their commodities.  Inflation becomes rampant and as more and more fiat money is circulated, prices rise at an escalating (perhaps asymptotic) rate.  When the Weimar Republic (Socialists) did this in Germany in the early 1920’s it took 10,000,000 (paper) marks to buy an egg.  At the beginning of WWI the mark was a silver coin equivalent to the silver American quarter.  Today in the Democratic Republic of Zimbabwe (Socialists) they have actually been printing a 100 trillion dollar bill with a value of approximately 30 cents of the current American currency.

Because Congress has never and will not now act to do so, nobody has been able to audit the Federal Reserve System to see who the principals are or to whom the interest that the Fed charges the US Treasury goes.  It is known that the Fed was conceived at Jekyll Island, Georgia in November of 1910 by a conference of the most influential bankers in the world.  It is reasonable to assume that the banks that these men represented or they themselves or their heirs are the beneficiaries of the interest paid to the system.  No one knows what the average interest paid by the Treasury to the Fed is.

It is not generally known, although it possibly is by some in the Congress, but certainly not the American public, how much the Treasury owes to the Fed.  The chairman of the Fed has in the past been quoted as saying that the cost of operating the Fed is “only” ¼ of 1%.  Say the Fed handles 40 trillion dollars per year, a figure once opined by former Fed chairman, Alan Greenspan.   This amount would yield this monster organization 100 billion dollars a year without even considering interest amounts due on outstanding loans to the Treasury.  Does the Congress and the Fed owe the American public an audit?   Is somebody getting rich loaning counterfeit money to the US?

So what is the scenario?  … The Federal Reserve prints counterfeit money and loans it to the US Treasury as if it had value.  The Treasury spends this borrowed counterfeit along with the real blood, sweat and tears money that the IRS has stolen your and my nest egg … real commodity money … our income, FICA, and other taxes.  The fiat money dilutes our supply of commodity money, thereby devaluing purchasing power of the dollar.  This phenomenon which devalues our money is called INFLATION.  This inflation not only devalues the money that we use day to day to purchase goods and services, but it does something that is far more insidious.  Every hard earned dollar (day’s work) that we have saved is also devalued.  That is the heinous, evil, despicable, monstrous, unspeakable fraud that has been foisted upon the American public.  Those dollars (day’s work) that you put away last year are now worth, assuming 6% inflation, 94 cents.  Those put away 16 years ago have the purchasing power of less than a nickel.  The Fed and the IRS have taxed away all your savings without you even knowing it.  Additionally, it is obvious that the Fed intends for the fiat dollars loaned to the Treasury be repaid to them, interest and principal, with our commodity money … our blood, sweat and tears money.  If you are having trouble making ends meet, the cause is not the evil store owner downtown, or the evil businessman, or the evil oil company, or even the evil banker, but the monstrous minions of the government, the Fed and IRS and the Presidents, members of Congress and the Supreme Courts who willingly allow this unspeakable fraud to continue.

What will happen? … We need not fear the Chinese who have loaned us back the 100’s of billions of dollars that we have spent on their goods, for they have made the same contract with the US government that you and I have when we accept the dollar as money.  The paper money that we accept is believed to be backed by the “full faith and credit of the United States of America,” but when push comes to shove, probably is not.  And the last two chairmen of the Fed have both said that we will never default on our obligations.  This can only mean that as the notes that individuals, businesses or nations hold come due, the Treasury will borrow and the Fed will print the money necessary to pay the country’s bills.  After all, the debts are in dollars, the dollar has no intrinsic value or commodity worth and the Fed prints as many as necessary.  As the profligate spending continues and even accelerates, the debt will continue to rise at an ever increasing rate, until very soon, the commodity portion of the income to the Treasury will not be sufficient to pay the interest on the debt.  When this happens, the payment on the interest will have to be borrowed too.  Very soon after this happens, if not before, we can expect that confidence in the dollar will be lost, if not in this country, certainly abroad.  Foreign nations and their citizens at that point can be relied upon to stop buying Treasury bonds.  We in this country almost certainly will see runaway inflation like that that ruined post WWI Germany … probably with its social and political upheavals in addition.  Our money will become worthless, those of us on pensions and annuities will no longer be able to pay our obligations.  Wages will have to be paid twice a day or more.  Contracts will be paid with the money from a morning’s work.  The populace’s commerce will devolve once again into barter.  This condition will prevail until some new medium of exchange appears, until we have a new money.  Modern governments have solved this problem by cancelling debt and then issuing a new fiat currency, starting the process all over again.

The correct answer to this problem is simple … we need a commodity money, something to use in exchange that has true value, something that is scarce, something that is durable, something that is immutable.  And of course, that entity is the gold and silver and copper and possibly other metals envisioned in the Constitution.  Banking can once again become an honorable vocation that promotes thrift and enterprise.

If we use these metals we need not be concerned about their supply, as they, like all commodities in a free market will be valued in proportion to their scarcity and if one becomes very scarce, the value of others will adjust so that we have a stable currency.  If we do as I would like and repeal the 16th Amendment or in the alternative enact a balanced budget Amendment, coupling that with commodity money, inflation will not be a factor as was proved when our forefathers required gold and silver money for our new nation.  Our blood, sweat and tear money will be stable and untouchable, because it is a timeless, tangible commodity.  Our country will once again be stable and our thrift rewarded.  International intrigue, interference and meddling will be truncated and American citizens can once again concentrate on the American dream and the betterment of themselves and mankind in general.


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