This is the continuation of “Money and Wealth I” which, as I said last week, suffers from an ever present malady of my blogging … too long!!<\/p>\n
Wealth and Money II<\/p>\n
Back to America …\u00a0 The Continental Congress didn’t have any gold or silver, their only revenues were quotas promised by each of the Colonies that were to be derived from local taxation.\u00a0 The States (Colonies) were not very forthcoming with their obligations to provide the money for the war, but the debts of the Congress continued.\u00a0 So the Congress just printed the money anyway.\u00a0 Since the paper money had no intrinsic value and could not be redeemed for a real commodity, the “Continental” was soon worthless.\u00a0 As a result, when the US Constitution was adopted, it was recognized that all money should be based upon gold and silver; and our money was, until well after the adoption of the Federal Reserve Act; until the Roosevelt Administration cranked up the printing presses in the early 1930’s in order to comply with the now debunked “Keynesian model.”<\/p>\n
From the beginning of the constitutional republic, the American dollar was pegged at one ounce of silver; and the price of gold on the open market was $17.50 per ounce for well over 100 years.\u00a0 The $20.00 gold piece also weighed one ounce, so we see right off that the government was scamming the gold producers.\u00a0 Nevertheless, American money was still commodity based.\u00a0 The paper money was either a gold certificate or a silver certificate, that is, the paper certificate could be redeemed in metal … a commodity … something of worth.\u00a0 All that changed with FDR.\u00a0 He outlawed “gold certificates” and made private ownership of gold illegal.\u00a0 He had to do this because as he printed more and more paper dollars, redeemable in gold, the amount of gold in the treasury to back those paper certificates remained the same.\u00a0 As he manipulated the price of gold, it being a commodity, its price began, inexorably, on the open market, to rise from the historical $17.50 per ounce until it reached $34.00 per ounce; it was at this point that he outlawed its ownership.\u00a0 It is easy to see why he did this.\u00a0 An individual person could buy a $20.00 gold piece with 20 silver dollars, 20 paper dollars or could sell his particular commodity for a $20.00 gold piece, then melt the one ounce coin down and sell it back to either some gold merchant or the government for $34.00 dollars, thereby nearly doubling his money.\u00a0 Roosevelt’s minions labeled people who would do this as “evil speculators.”\u00a0 The fact is that the evil speculator here was, as always, the government.\u00a0 Gold coinage disappeared from the American scene.\u00a0 The crisis in silver coinage was not as immediately apparent, because silver is, in addition to its use in coinage, a highly demanded industrial commodity.\u00a0 Also, throughout the 20th Century, there was a large supply of silver from numerous mineral discoveries that kept its price as a commodity down.\u00a0 For those of us who grew up mid-century, silver coinage was still very much in evidence.\u00a0 We who grew up in the western US routinely had silver dollars and half dollars in our pockets.\u00a0 The people in the east did not often see these coins.\u00a0 Everyone in the US traded with silver quarters and dimes … and with nickels made of real nickel and copper pennies made of real copper.\u00a0 By the time that Richard Nixon became President, however, America, continuing to print dollars, had much further debased the value of the money.\u00a0 The world demand for silver, nickel and copper had escalated to the point that people were melting these coins and selling the metal at a large profit.\u00a0 Nixon was forced to withdraw the dollar bills from circulation that were “silver certificates.”\u00a0 A one dollar silver certificate bore on its face the words,”This certifies that there is on deposit in the Treasury of the United States of America one dollar in silver payable to the bearer on demand.”\u00a0 The payment presumably would have been one ounce or there would have been some very angry citizens.\u00a0 The silver and gold certificates were replaced by the currency that we now use … the Federal Reserve Note.\u00a0 The pledge of this note is simply, “This note is legal tender for all debts, public and private.”\u00a0 It is a little known fact that if you refuse to accept one of these bills when tendered to you in payment of debt, the tender statute states that you have been paid. (Presumably without recourse)\u00a0 Very soon after abandoning metal backed paper money, the United States Mint had to start withdrawing all denominations of silver and nickel metaled pocket change from circulation.\u00a0 This scam was not much different from its historical antecedents. \u00a0 The Mint, instead of changing the size of the coins (probably because of the millions of coin operated machines), opted to debunk the quality of the coins.\u00a0 Dollars, half dollars, quarters, dimes and finally nickels were made of a low grade copper alloy that was overlaid with a zinc wafer.\u00a0 The coins, when new, looked like their silver forerunners, but soon oxidized or tarnished; nonetheless, after initial resistance, the American public soon got used to the fiat coins.\u00a0 We are now well into the second generation of citizens who have never seen a silver coin, so the modern generation doesn’t know the difference.\u00a0 By the end of the Nixon,\u00a0certainly by the Reagan administration,\u00a0 the wealth base, the commodity base value of our money had disappeared.\u00a0 All our money was fiat paper or valueless coinage.\u00a0 It is to the point now that the penny, once the size of a dollar (which most Americans have never seen), is, as with its more valuable noble metal cousins, now worth more as metal than currency.\u00a0 People will soon be melting copper pennies. (In the last year or so, the copper has been taken from pennies by the Mint)<\/p>\n
When American money was tied to something of real worth, a commodity like silver or gold, the number of paper dollars in circulation, although distorted by the factional reserve laws that allowed 9 dollars to be loaned for each dollar of deposit, was somewhat constrained.\u00a0 From the time of FDR on until the present, the Treasury has been constantly debunking the worth of the dollar by printing and putting into circulation more and more paper dollars.\u00a0 This malady in our economic life has been manifested by the continual rise in the cost of the things that we buy.\u00a0 This phenomenon of a 4 or 5% (or more) general cost rise of the things that we buy on an annual basis has been blown off by governmental and economic experts for the last half century (or more).\u00a0 This inflation has characterized variously as, “normal”, “the result of ‘evil speculators'”, the result of “business expansion,” an \u201coverheated economy\u201d and so on, but never, as we now begin to see the real cause, the immoral monetary policies of the government, the Federal Reserve Bank and (and\/or) cynical governmental officials and regulators.\u00a0 Not many people understand that this “normal” inflation devalues the purchasing power of any savings, property, cash, stocks or bonds in an IRA that they have put away for a rainy day at that rate of inflation.\u00a0 A dollar today; 95 cents next year; 90 cents the year after and so on at a
\n“normal” 5% inflation rate.<\/p>\n
As soon as the noble metals were withdrawn as a basis for our printed money, Pandora’s Box was opened.\u00a0 The Federal Reserve has tried every imaginable restriction on the money supply and\/or tinkering with interest rates and banking gimmicks that man can think of, but the only way that the numerical amounts owed by government can ultimately be paid is by cranking up the presses to pay debts in the short term, with result of devaluing the worth of the dollar by the ratio of the printed dollars to the total dollars in circulation.\u00a0 In the last few years, the Federal Reserve has found an even more innovative way of legal stealing, described by Federal Reserve chairman, Ben Bernanke<\/em>, in a television interview with “60 Minutes,” when he stated that (paraphrasing), “we make an entry on a computer.”\u00a0 In other words, the Fed makes up money out of whole cloth.\u00a0 Think about it, if you receive money by direct deposit from the government, the government credits a sum to your account, you spend it by swiping you debit card and your bank electronically credits the store … no money ever changed hands.<\/p>\n The government’s minion, the Federal Reserve, is now buying the deficit debt of the US government by buying US Treasury bonds through large banks (with a high commission) like Goldman-Sachs electronically with money created by a few keystrokes on a computer.\u00a0 If the Fed is a governmental entity, then we owe the debt to ourselves; if the Fed is a consortium of mega-bankers, as some suspect, then the citizens of the US are the dupes of a world banking conspiracy … Is that why the Federal Reserve Bank has never<\/span><\/strong><\/em> been audited?<\/p>\n So who is stuck for the bill?\u00a0 Well, back to the core argument of this essay.\u00a0 Only resources with the infusion of man’s muscle, sweat and intelligence can create commodities … wealth.\u00a0 Money can be commodity backed, or it can be bogus coinage or fiat paper whose only value is the “full faith and credit” of the United States.\u00a0 Many of us are losing “faith” in the monetary policies of the US and we also know the only true credit of the US is in the minds and labor of the citizenry and the commodities that they make.\u00a0 Obviously, the only pseudo-moral way that the government’s debt can be paid is by taxing or by immorally stealing it from the people by mechanisms like inflation.\u00a0 Of course, historically, there are other far more immoral ways to get rid of the debt.\u00a0 Just refuse to pay (e.g. the Chinese, among others) and let the chips fall where they may.\u00a0 Since the debt is in dollars, not based in wealth, crank up the presses (or callous up the numerical pad finger) and print up enough fiat dollars to pay the bill … Weimar Germany did it in 1923, to satisfy its obligations for losing WWI … in our case, just a few one trillion dollar bills should do it.\u00a0 Or use the classical approach to get out of a monetary crisis, as was done with the “Great Depression;” wait 10 or 12 years, then go to war.<\/p>\n It is apparent that the Democratic Party’s solutions always involve keeping the governmental status quo, funding obligations with higher taxes on some minority until that proves inadequate and then taxing all until there is nothing left to tax.\u00a0 Some Republicans have historically agreed with this approach.\u00a0 The new Republican “Tea Party” inspired approach, which should be obvious, is to cut spending … a lot.\u00a0 Many of the members of the “Tea Party” clamor for this solution, but probably have not divined that if this is done on a large enough scale to work that their particular “sacred cow” will probably get gored.\u00a0 If the Republicans have the cajones to attempt this solution, they will be very much in danger of being turned out of office.<\/p>\n The inflation of money supply, with the resulting devaluation of the worth of the dollar is interesting to trace.\u00a0 Henry Ford’s Model “T” sold for as little as $495 in the early 1920’s.\u00a0 You could buy a new Chevy Pick-up for $600 in 1934, $1800 in 1956, $4000 in 1978 and $25,000 to $35,000 now.\u00a0 Although in no way as luxurious as nowadays, the ’34 would run 75 miles per hour, the 1978 had the same engine and accessories as those of today and, if 4 wheel drive, would go anywhere the modern one will.\u00a0 My 1955 Chev Bel Air was clocked at 155 miles per hour and got 24 miles per gallon down the highway.\u00a0 The point is that the quality has not changed much; the price has, but not the wealth to buy it.\u00a0 Approximately … the Model “T” cost 28 ounces of gold, the ’35 was 18 ounces, the ’56 was 53 ounces, the ’78 20 ounces, and the 2011 23 ounces.\u00a0 The only real anomaly in the group above is the ’56 when the American price of gold was artificially far below the world price by law.\u00a0 The point here is that the value of gold compared to other commodities remains essentially the same.\u00a0 It is the value of the dollar that continuously diminishes.\u00a0 And that diminution is exclusively due to government action.\u00a0 And that governmental action is due to misapplication (certainly deviously … and maybe knowingly criminal) of economic principles and mistaken understanding of economic theory. John Maynard Keynes, a Fabian socialist, certainly advocated the increase of the money supply in times of economic stress, but he also advocated retracting the money supply in good times.\u00a0 Worshipers at the altar of Keynesian economics have always supported the first part of his theory, but have never followed through on the second part.<\/p>\n So there you have some<\/span><\/strong><\/em> of my thoughts on the subject.\u00a0 Trade of things of worth — commodities — is a natural trait of mankind and is as old as civilization itself.\u00a0 Left alone, man will naturally evolve a system of trade, which will quickly develop money based upon convenient commodities.\u00a0 Money naturally gives rise to banking.\u00a0 Banking develops into a capitalistic system as is evidenced by fractional reserve banking and the bond market.\u00a0 Everything works fine until the government intervenes with its minion’s insatiable appetite for spending the wealth of others on things they, for supposedly empathetic reasons, deem needed or desirable.\u00a0 As long as money is based upon a commodity, it remains a reasonable medium of exchange, but when money is divorced from wealth, it is the populace that pays the piper.\u00a0 Savings, annuities, bonds, any device used to store wealth other than investment in commodities is diminished, compromised, ultimately debunked, degraded, and finally stolen from the thrifty individual by governmental monetary policy.<\/p>\n The fruits of man’s mind and the sweat of his brow combined with those assets of the Earth provided by Mother Nature produce commodities which are wealth.\u00a0 As we have seen some commodities lend themselves to being money.\u00a0 As long as money is tied to wealth it works.\u00a0 Divorce money from wealth and all the furies are released.\u00a0 We have seen that money can be as ethereal (and worthless) as the click of a computer keyboard.<\/p>\n One has to wonder if Og and Smed would be proud of their descendents Ogden, the banker, and Smedley, the bureaucrat.\u00a0 One has to wonder!!!<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" This is the continuation of “Money and Wealth I” which, as I said last week, suffers from an ever present malady of my blogging … too long!! Wealth and Money II Back to America …\u00a0 The Continental Congress didn’t have … Continue reading