Why Returning to the Gold Standard is a Bad Idea

It seems Republicans, during this economic crisis, want to take us foward by taking us back, way back in the day. In August of 2012, the Republican Party platform called for the establishment of a commission that would look into the possibility of returning the U.S to the gold standard, a policy the U.S abandoned in 1933 when the federal government ceased the exchange of bank notes for gold coins and effectivley confined the gold standard to the dustbins of history when Richard Nixon severed the tie between the U.S dollar and the price of gold in 1971, leaving the price of gold free to be subjugated by the forces of the market. A recent poll by the Univeristy of Chicago of the top economists in the U.S found out that a grand total of zero of them thought that it would be a good idea to return the gold standard, yet Reublicans still think it should be done. Supporters of the gold standard claim that it will curb infaltion as the Federal Reserve would be unable to print money in excess of the supply of gold. This, in turn, will stabalize prices in the market as prices would be unable to rise due to inflation. However, there is a reason no economist advocates for a return to the gold standard; it is impossible, impractical, and, frankly, outdated.

During the time the United States was on the gold standard, we experiecied a total of 26 recessions and 6 depressions. Since the U.S effectivley left the gold standard in 1933, we have experiencied only 19 recessions and 1 depression. Though the dollar has lost 97% of it’s value and purchasing power since 1913, we have seen unprecedented economic growth in the face of that depressing statistic. Why? Because paper money does not confine economic growth to the physical supply of gold. However, let’s assume that returning to the gold standard is what we should do to solve our problems, how would we do it? The answer is you can’t. The first problem is that there just isn’t enough gold in the U.S. The total worth of gold in the world is worth about $9 trillion dollars, with the U.S possesing $478 billion dollars of that gold, hardly enough to support a $15 trillion dollar economy that we currently have. If the U.S were to push ahead with returning us to the gold standard, the Federal Reserve would have to contract the money supply and halt the expanison of credit in order to match the supply of gold. This would cause deflation, discouraging the investment of capital and causing a recession. Busniesses would be forced to layoff workers and cut costs in order to adjust to the smaller supply of capital avaliable. However, let’s say we still wanted to do it anyways, how would we connect the U.S dollar to the price in gold. The answer is you can’t. When Nixon severed the tie between the price of gold and the U.S dollar in 1971, the price of gold has since been up and down. The U.S has since outgrown the price ratios of $20.67, $35.00, and $42.00 per ounce of gold. In order to re-establish that conncection, the U.S would have to artifically establish a high dollar/gold ratio. There’s one problem with that however; we are the world’s reserve currency. Surely any announcment that we were looking to return to the gold standard would immedietly increase the demand of gold, thereby raising the price of gold. Since we are the world’s reserve currency, the prices of goods and commodities would rise in porportion with the price of gold, causing widespread poverty and starvation as the value of currencies around the world would stay the same. Let’s say we tried to establish an artfically low dollar/gold ratio instead, what would happen then? The dollar would continue to lose value at a faster rate that it is today and there would be inflation, and a lot of it. However, let’s say we could magically solve this problem and get us back onto the gold standard, what then? Well, prices would be far from stable. When the U.S was on the gold standard, from 1919 to 1933, CPI inflation constantly flucuated between 25%, 5%, 0% and -15%. Only when the U.S went off the gold standard did CPI inflation begin to stablize. So why were prices and inflation flucating so much during when the U.S was on the gold standard? It’s because the value of gold is based on the physical supply of gold, and the physical supply of gold constantly changes as gold is traded, used for jewelery, melted etc. Since the value of the dollar would be tied to the value of gold, which is dependent upon the physical supply of gold, the value of the dollar would constantly flucuate based on the constantly changing supply of gold, which, in turn, causes market prices to constantly increase or decrease as the value of the dollar increases of decreases. Let’s say we locked up all the gold in Fort Knox and banned the use of gold by everyone except the U.S government, what would happen then? During a recession, the government, and the Federal Reserve in particular, would be helpless to prevent a recession or lessen the effects of a recession in the event that there is one, as they could not simply print money and inject it into the economy. The only thing we would be able to do would be ride out the recession and hope the miners could dig up some more gold. A return to the gold standard would also hurt the poor. In the event that the price of gold rises, and with it, the value of the dollar, the prices of goods would fall too. Sounds good right? Wrong. Gresham’s Law would begin to take effect and companies would be less willing to part with thier valuable bank notes, meaning salaries would drop, but debt would remain the same. As a result, people would have to work longer hours to pay back thier debts and make ends meet. If the value of gold drops, and brings with it the value of the dollar, then you get your typical inflation scenario where the price of basic goods rise but the currency would be so worthless that the poor will have to work longer hours just to accumulate enough currency to make ends meet. However, if you’re wealthy, you might have a lot of gold bars stashed away somewhere, and if the price of gold rose, then you’d probably make a lot of money. A return to the gold standard would also mean the end of the welfare state as we know it as the government would be unable to run a deficit by simply printing paper currency to pay it’s spending. No wonder why Republicans want to go back to the gold standard.

For the life of me, I struggle to understand why libertarians would ever support this “barbarous relic” that restrains economic growth to the supply of a shiny rock even though it contradicts their beliefs in capitalism’s ability to create an unlimited amount of wealth. Simply put, the gold standard is not the answers to the problems of our $15 trillion dollar economy, the true answer is paper money and it’s potential for unlimited economic growth, backed by the “good faith and credit of the United States”. The dollar may have lost 97% of it’s since 1913, but perhaps the real reason lies in the fundamental flaws of our Federal Reserve System, a private banking cartel who circulate money by buying up U.S debt and forcing the Treasury Department to pay interest on the currency circulated, effectivley meaning that every dollar in your wallet is backed by debt. The Federal Reserve is the problem, but a shiny rock taking the place of a central bank will not only fail to solve the problem, it’ll make things much, much worse (refer back to how Andrew Jackson destroyed the economy back in 1836 when he abolished the Second Bank). Maybe we should nationalize the Federal Reserve System instead. There’s an idea I don’t see thrown around that often.


Comments

  1. says

    There are so many things wrong with this article. I’ll focus on the low-lights.

    First, nearly every one of your statistics is either outright wrong or grossly misinterpreted.

    The chart you cite from the NYT by Krugman does not demonstrate the instability of gold. Rather, it demonstrates the instability of the dollar. It graphs the price of gold vs the dollar, and it’s the dollar whose value has been calamitous during the period shown.

    When the dollar is charted during that same period against commodities like the price of houses, raw materials, etc. you see the same kinds of charts. This means that it’s the dollar that was the problem, not gold.

    Draw the same chart between commodities and gold and you’ll see a nice, relatively stable, level line. It’s not gold that was the problem during that period. It’s the dollar.

    If you doubt it, look at the economy during that period of time: the economic fatigues and recessions of the 1970s, the soaring stagflation of the late 1970s and early 1980s, the soaring interest rates (inflation driven) of the rest of the 1980s with the recession of 1987, the monetary expansion of the 1990s and 2000s that created crashes and languid economic situations in 2000, 2003, and 2007, and oh … dare I mention it … a financial crisis in 2008 and economic chaos since then due to a gigantic monetary expansion of the dollar that has more than TRIPLED the monetary base since 2008. Krugman strongly favors this monetary expansion, but more and more economists understand (as Krugman refuses to acknowledge) that this monetary expansion has set us up for a massive inflation that has not yet crushed us, but which eventually WILL crush us.

    I also suggest you take a look at the second graph at Shadowstats: where you’ll see that the government has so drastically changed the CPI since 1980 that if we were to use 1980’s CPI measuring method as a way of comparing apples to apples, our inflation rate today would actually be officially closer to 10% than to 1%, with a high of 15% a few years back.

    Krugman points to financial panics that you also cite, but fails to point out that all of them were precipitated by bankers and/or the government subverting the money supply rather than enforcing the law. When government refuses to enforce or subverts its own laws, that’s not gold’s fault. It’s the government’s faults.

    Included is the 1873 and 1884 panics which resulted from forcing silver out of the monetary equation at a time when a large portion of the money supply was denominated in silver, thereby forcing deflation.

    Similarly, the panics of 1893, 1897, and 1904 were not caused by the gold standard. They were caused by banks making poor lending decisions to the profit of their owners at the expense of their depositors and borrowers (sound familiar?) while the government turned a blind eye and refused to create legislation to hold them accountable for their immoral activities. It’s not gold’s fault if the government doesn’t do their job.

    He also includes four years as separate recessions, even though they all happened in a row as part of one, huge recession: 1930-1933, four years that were the depths of a Great Depression that were caused by the newly created Fed’s manipulation of the money supply in direct violation of the gold standard during the 1910s and 1920s into the 1930s, followed by FDR not only failing to hold the Fed accountable but instead blaming gold for what the Fed had done, justifying seizure of the gold (and thereby continuing the Great Depression until America’s entry into World War II).

    Your article also under-counts the recessions since 1933. Besides the first part of the Great Depression, there were recessions in: 1937-38, 1945, 1949, 1953, 1958, 1960-61, 1969-70, 1973-75, 1980, early 1980s, early 2000s, and the Great Recession of 2007-2009. Source: Wikipedia.

    Like many people, you misuse the word “deflation”, not realizing that a deflation can only happen after an inflation or by way of a deliberate government manipulation of the money supply. Gold cannot be inflated or deflated directly. The only way to do it indirectly is to violate the gold standard by increasing or decreasing the money supply while forcing the price of gold to sell at an unnatural level, thereby driving gold “underground” when the spam hits the fan. This is exactly what the Fed did repeatedly from the moment it was created. Again, it’s wrong to hold a standard responsible if it is not enforced by the government!

    You say that a return to the gold standard would hurt the poor, but you have it exactly wrong. It’s the elastic money supply that hurts the poor. There are now more poor people than ever before in human history, and this legacy must be laid at the doorstep of elastic money, not gold. The reason is that gold retains its value, while fiat currency loses its value over time. The poor don’t own property for the most part. They rent it and live on wages whose value constantly decreases under inflationary money.

    This is why the rich get richer while the poor get poorer. You think the rich keep their wealth in money? Hollow laugh! They buy things and preserve the value of their wealth, things like real estate, companies, commodities, and yes even gold and silver. The poor, on the other hand, have little choice but to keep their meager savings in dollars, which even at a “low” inflation rate of 2% will lose more than half their value over a poor worker’s lifetime. Meanwhile, their wages continue to buy less and less every year, again thanks to the inflationary money supply. A level, steady money supply is the only way for the poor to be able to save money that actually retains its value over time.

    There is so much more that is wrong with your article, but I’ll limit myself to addressing the above. I suggest you re-check your facts. You know where you can reach me if you wish to discuss this in greater detail.

    • jamesluko says

      Walt, but you ignore the stark proof that fiat currency has given Americans a higher standard of living than before and most other countries, compared to the industrial 1950s Americans today own more homes, live in bigger homes, higher literacy, live longer, take more vacations, own more cars, lower high school drop out rates, a higher percentage of Americans finish college, I mean I could on and on to offer you clear proof that the fiat currency and federal reserve has been the best system by far

      • says

        I don’t ignore that at all, because it is not true. This is actually
        the biggest lie of all. Fiat currency takes away value. It does not add
        value. The higher standard of living comes from people producing stuff,
        not from currency. To the contrary, fiat currency has taken away from
        the people who do the producing by destroying the value of the currency
        over time.

      • Republicae says

        When the highest standard of living is based on the illusion of credit wealth then there is a real problem with that assumed high standard of living. Likewise, you assume that there is a higher percentage of Americans finishing college, but how? The student loan “bubble” is over a Trillion Dollars. Yes, they “own” more cars, take more vacations, live in bigger homes…but you don’t ask the most important question: HOW? If all of these things are accomplished through the use of credit then there is a real problem, the reality is substantially different than the illusion you are apparently trapped by given your comments. Ownership is one thing, but if you think that you own something just because you have possession of it is meaningless if you are essentially “renting” it. That is what credit is, a form of “rent to own” and since most Americans were and continue to live on their credit rather than actual capital reserves made up with real wages then that ownership you speak of is simply a facade, one that can be wiped away rather quickly and with dire consequences.

        • jamesluko says

          I don’t “assume” that more Americans are finishing college, I checked the stats, you should too and your arguments might hold more weight then. The 2012 Pew Research Center cited that more than 1/3 of Americans ages 25-29 finished their undergraduate degrees- that is a historical record for America- whereas just in the 1970’s only 1/5th finished an undergraduate degree this is not an issue of debate, anyone knows more Americans are more educated than ever before- so I did not “assume” it as you say.

          • jamesluko says

            By the way, the Pew Center stat is just one of many you can cite regarding the historical percentages of Americans finishing college, the same stats are reflected by the US Census so you can look it up as well as there- as well as the “college board” which cites the percentage of americans attending colleges- so there is no question or haha- “assumption” as you say I assumed this stat.

      • Republicae says

        Please do…go ahead and offer clear proof that the fiat currency and the federal reserve has been the best system by far…so far you have failed miserably to make such a case. So, if you are capable of proving that your statement is true then by all means do so!

    • Jack Kazim says

      Sir, with all due respect I disagree. I will explain why.
      1) Gold like any other product has no magic intrinsic value in the market place. The value to any good is assigned by the market place. If the demand for gold dropped we would be in trouble.
      2) Gold has found industrial use in the past century. If we returned to the gold standard, then the prices of jewelry, computer chips, etc. would rise.
      3) see Mexican Peso Crisis of 1994.

      • says

        1) Well, nothing has intrinsic value in the market place. All value is subjective. But I don’t see how this point invalidates anything I wrote.

        2) No, this is a fallacy. Gold does not become more expensive merely by being a currency. You are confusing pricing in gold vs pricing in dollars. It is true that the price in dollars would increase, but then again the price in everything increases. This has nothing to do with gold. It has to do with debasement of the dollar.

        3) The Mexican Peso Crisis of 1994 was not caused by gold. Gold wasn’t even in the picture. That crisis, however, is an excellent example of why fiat currency is bad.

        • Jack Kazim says

          1) The reason this invalidates your point is because if the demand drops for gold which would hypothetically back out currency, we would be in trouble.
          2) I should’ve been more clear on that one. I’m still working on my english writing and an article I found explains it better. Here is a segment of that article I am looking to quote:
          “The largest and most glaring problem in returning to the gold standard is that there is simply not enough gold in the world to cover the quantity of currency presently in existence. To put it another way, even if the US were somehow able to purchase the world’s entire gold stocks (in itself an impossible proposition) there would still be nowhere near enough gold to cover the total value of dollars in existence. It is estimated that the total amount of gold that has been mined in the world is equal to about 142,000 metric tons.. Assuming a price of $50,000 per kilogram (corresponding to around $1550 per troy ounce), that equals about $7.1 trillion; not enough to cover all circulating money and deposits in the United States, let alone the entire world. A return to the gold standard would require a massive devaluation of the US dollar, precisely the scenario that many gold bugs feel that the gold standard would prevent.
          In addition, gold has gained several industrial uses in the last century, particularly the tech industry and some medical uses, as well as traditional uses in jewelry. The ensuing hyperdeflation of a return to the gold standard would devastate the jewelry industry (no one but the filthy rich is going to pay tens of thousands of dollars for a 14k gold wedding band, never mind 24k) and the tech industry (the extensive use of gold interconnects in chip packaging would send component prices through the roof).”
          3) OK I admit I screwed up on point number 3.

          • says

            (1) If the demand drops for gold? Are you kidding? You have absolutely no basis for that claim at all.

            (2) This fallacy has been around for a long time. There are two things wrong with it.

            (a) First, there is no reason we cannot issue, say, trillions of units of currency. Since Ron Paul is the most well-known advocate of returning to hard currency, let’s call the new currency a “Pauli” in his honor. Paulies could be issued at, say, 10,000 Paulies per one ounce of gold. With over 10 billion known ounces of gold, that would translate to a world-wide money supply of 100 trillion Paulies.

            (b) Second, people forget that the numbers of units of gold do not have to be large. They only have to be consistent so that money becomes a reliable measuring stick.

          • says

            By the way, there is also one more gigantic reason why fiat money is bad for everyone concerned. Consider the following example:

            Suppose Congress decided to have the Fed print up $310 trillion new dollars and distribute $1 million each to every single person in the U.S.

            If fiat currency really does create prosperity, then everyone in the U.S. would be rich, right? Except, of course, that it’s not true. Everyone would be poorer in the long run.

            See if you can figure out why! This is a little test to see how well you can think economically.

          • Republicae says

            “1) The reason this invalidates your point is because if the demand drops
            for gold which would hypothetically back out currency, we would be
            in trouble.”

            *First,it is extremely obvious that you are confused and the confusion
            stems from thinking that gold and fiat money operate exactly the
            same as mediums of exchange. Fiat money is not money, it is a money
            substitute, for that reason, in order for it to function as money,
            it’s must be constantly inflated to maintain a degree of economic
            growth. This is due to the fact that there is an ever-increasing
            conflict between actual purchase value of the paper currency and the
            amount of currency in circulation. The more that is needed to
            maintain economic growth the less purchasing value the currency has
            which, in turn, requires even more expansion of the supply and the
            cycle continues. Additionally, since the fiat currency has been
            inflated to such extremes, meaning the value of the “dollar” has
            lost 97% or more of its purchasing value, people tend to be mentally
            trapped by the nominal value of the fiat money circulating and
            always, just as you have, compare that nominal value to an amount of
            gold, it does not work that way. You look at a Federal Reserve Note
            [dollar] and you see this symbol $1, therefore you assume because it
            has that symbol on it that it is indeed a “dollar”, but a DOLLAR
            has the purchasing power of 100 Cents, today the Federal Reserve
            Note has the purchasing power of 3 to 4 Cents. You therefore,
            blinded by the nominal value of the fiat currency, make assumptions
            based upon that illusion, for it is not the amount of fiat money
            that is economically meaningful, but what that fiat monetary unit
            will purchase within the market.

            This fact is made extremely clear in your second point, just read the
            quote you cited again. Again, I will state that gold is money, not a
            money substitute, it functions very differently in the market because
            it is a double asset, not a double liability as it any fiat money
            substitute. The idea that there is not enough gold assumes there is
            not based upon the nominal value of the fiat currency and nothing
            else. The fact is that it is not the amount of paper circulating that
            is economically meaningful, but the quality of the money circulating.
            Money, real money is not static, it does not require inflation of the
            supply to maintain economic viability as does fiat paper money. Now,
            consider the nominal or face amount of the dollars in existence and
            instead of assuming the value of those as 100 Cents, you realize that
            each one of those are not 100 Cents but 3 to 4 Cents in real value.
            What do you have? The confusion is easy to see, and it is just this
            type of confusion that most adversaries of gold use, but it is
            perhaps the most incorrect logic when making a comparison between
            real money [gold and silver] and a money substitute like a fiat paper
            currency. To make this point a little clearer think about this: You
            have 6 slips of paper in your wallet, one had imprinted upon it this
            symbol $1, another $5, another $10, another $20, another $50, and yet
            another $100, what makes them different in value? Is the paper they
            are printed on more valuable as the nominal amount of the symbol
            increases? Is the ink perhaps more valuable as the nominal amount of
            the symbol increases? This illusion is right before your eyes
            everyday. Now, take a certain weight of gold, a coin with a symbol
            $20 if substantially different than a coin with the symbol $5, the
            difference is the amount of actual metal that gives the various coins
            value, real asset value. The fiat paper money all has the same real
            value, the actual value of the paper and the ink, there is not other
            value except through the the enforcement of legal tender laws,but
            even at that, the purchasing value of fiat paper money is always
            being depreciated through inflationary mechanics because in order for
            it to continue to function economically it must be inflated. If the
            currency has been inflated to the degree that each fiat money unit
            has lost over 97% of the original purchasing value of the real
            currency, then what does that tell you?

            The quote you cite makes certain assumptions, particularly about
            deflation, but if you are deflating “air” and are left instead
            with something that is not only real, but has real purchasing power,
            which is extremely economically potent, then what do you have when
            you deflate a fiat currency that is essentially worthless in terms of
            purchasing value? Today, it takes $23,260.61 in today’s inflated fiat
            paper money substitute currency to buy what $1000.00 in real gold
            money did in 1913; what that demonstrates is the flawed nature of
            fiat money substitutes and that the supply of the fiat currency has
            been inflated to such a degree that the purchasing value, which is
            the meaningful value, has been almost inflated away. Don’t get locked
            into the illusion of nominal or face value as the author of the quote
            you cites does, his quote is based upon the misconception that the
            amount of gold needed must be exactly the same as the face or nominal
            amount of fiat paper money in circulation, that is not correct. The
            nominal amount of fiat currency in existence or circulation means
            nothing, it is based upon the symbols printed on that currency but
            not upon the actual real purchasing value of that currency.

            Read David Hume, he proved nearly over 200 years ago that it is
            not the amount of money in circulation that is economically
            meaningful, but the quality of that money. The assumption that
            there is not enough gold to function as money is based solely upon
            misconception and misunderstanding of monetary mechanics.

  2. robtal says

    The gold stanard is not the problem it could work the value would have to be adjusted and go back to a fractional reserve. The numbers can be adjusted this guy is dead wrong.

    • jamesluko says

      but it is the problem, having an inelastic money supply takes away the most important monetary tool available, without which- in the past, caused several depressions. Since going on the fiat system- we have not experienced another depression- proof is in the pudding- not a “single” country in the entire world is on a gold standard- i wonder why? because it doesn’t work.

      • Republicae says

        Please give me exact details and examples of how an inelastic money supply caused several depressions, please provide ancillary actions that might have been contributing factors in such depressions and also make comparisons with the economic depressions and recessionary troughs that took place under the fiat monetary system. You have made such statements in many of your comments and yet you have failed to provide the exact mechanisms with examples of those mechanisms that you think caused those depressions in the past.

        Your statements do not follow a very logical path, think about what you said. First, the Great Depression was not a Gold-Standard Depression, quite the opposite, it was a fiat-standard Depression created by the over expansion of credit and fiat currency beyond the reserve of sound money during the 20s. Ben Bernanke finally admitted that it was the policies of the FED that caused the Great Depression, they essentially sterilized the gold standard of the period with their policies and effectively didn’t allow the market mechanisms to remedy the artificially created distortions in the market to be corrected. Additionally if you use the logic that not a single country used a gold standard as though that is proof that such a system does not work, that is, to be blunt, piss poor logic. There is a reason, a very good reason why gold is not used today and it has nothing whatsoever to do with its functionality as money, but rather as a medium of limitation on government and the patronages created by government through the banking systems, something governments, especially our government cannot allow, for it would restrain this government and make it actually face responsibility and accountability. This fiat system is on its last leg, the signs are everywhere and as noted, many politicians and economists are rapidly recognizing the fact that the problem with the entire economic model of this country is fiat money.

  3. jamesluko says

    The gold standard restricts govt to have tools to create a stable economy otherwise the economy would remain in a severe boom bust cycle, the federal reserve and fiat currency smooths this out and creates much more stability, lower inflation and sustainable economic growth. Now, if the Feds and congress take the wrong measures that is a different issue entirely.

    • Republicae says

      That is perhaps one of the more contradictory statements I’ve read in some time. The very nature of a fiat currency demands constant inflation in order to maintain any economic viability. The problem is that it is a two-edged sword, for in order to maintain economic viability the money supply must be inflated, but to constantly inflate the money supply created a monetary and thus economic impotency within the monetary economic system. The more money necessary to maintain the economy the less potency the money has to maintain the economy, monetary potency is the purchasing power of the currency, as the money supply is inflated the purchasing power is reduced, this alone is a problem, but when you consider the vast degree of distortions created within the economy by this one mechanism alone then it is impossible to say, at least with a straight face, that fiat currency or the manipulations of the FED, smooths out the business cycle of booms and busts, the fact is that the FED manipulations create such cycles. It is also impossible to say that fiat currency creates more stability and lower inflation, when it absolutely does not since any time you devalue the purchasing power of a currency you have higher inflation and less stability. As far as economic growth is concerned, there too is the grand illusion, for such growth is completely unsustainable under such a fiat monetary system, all gains are usually erased during the bust cycle of the artificially created boom. There is most definitely growth, but fiat growth is not a growth is capital wealth, but in credit wealth which is always fleeting.

      When a currency has been devalued to the point that it now takes $23,191.31 fiat dollars to purchase what $1000.00 dollars purchased in 1913, at the advent of the FED, then there is obviously something very wrong with that picture, it is amazing that you can’t see it. That deficit in purchasing power has very definite repercussions economically, the viability of economies which rely upon such monetary systems must, by the very nature of such systems, crumble from inflationary depreciation and the distortions created.

      • jamesluko says

        but prices of things are much much lower today than in 1913, because of mass production and assembly lines- how can you possibly compare the financial picture of 1913 to today? a simple comparision of dollar value is “meaningless” without all other factors brought into the picture- it’s an extremely “biased” picture which serves the conspiracy theories of alex jones, illumanati, jeckel island- federal reserve, etc. it’s a “baseless” argument and proof is in the pudding- we live much better than before, more healthier, live longer, etc. etc.

        • Republicae says

          Hahaha….you don’t even realize do you just how strong you are making the case against fiat money…keep on making comments James, they are helpful to the cause of sound money.

          • jamesluko says

            It is the role of the Federal Reserve to specifically-
            expand money supply commensurate to increased economic activity- no secret, no
            mystery and it creates a holistic and balanced economy if done correctly. Without a central bank, and mere reliance on
            a wild and untamed free market- you have the consistent financial collapses,
            boom bust cycle of the American economy 1780’s-1890’s- hardly a desirable
            scenario that you wish to repeat. It is “not” an inflationary policy that the Fed has- in fact, just the opposite. From reading your test, I don’t think you have a fundamental grasp of macroeconomics and how monetary and fiscal policy tools work. Gold doesn’t work, it never has.
            Also, standard of living index is not based on how many gadgets you have as you referred to,

            No a standard of living
            includes indicators like, life expectancy, days in hospital, percentage going
            to college, SAT scores, size of average home, percentage of people owning their
            own home- NOT gadgets as you say.

            Regards to bubble
            economy? No, we’ve had some financial bubbles- as stock market high tech bubble
            and a real estate bubble from 2000-2006, but post Federal Reserve- we did not
            experience a constant and consistent bubble- we had strong growth in the
            economy with real gains in industry, exports- (we export today more than double
            the manufactured goods we exported in 1997 or 1998 for example) home ownership
            and real asset growth-

            Regards to bubble
            economy? No, we’ve had some financial bubbles- as stock market high tech bubble
            and a real estate bubble from 2000-2006, but post Federal Reserve- we did not
            experience a constant and consistent bubble- we had strong growth in the
            economy with real gains in industry, exports- (we export today more than double
            the manufactured goods we exported in 1997 or 1998 for example) home ownership
            and real asset growth-

            “a crumbled mass of
            disorder?? Ha, what an exaggeration of the American economy, an extremely
            stable economy- overall, post Federal Reserve.
            Well, maybe you didn’t notice middle class America so that is your view,
            maybe you grew up in a different place, but you are creating your own scenarios
            that are fictional- we did not, in my opinion nor economic experts- leave a
            “crumbled mass” after each receding tide of growth and a few recessions that we
            experienced- which were very mild compared to pre-Federal Reserve busts.

          • jamesluko says

            I, as well as nobel laureats, do not agree with the entire premise of your argument, nor your fictional definitions- althought the Fed/Fractional reserve system is not perfect, it is “not” the structural or systemic cause of recessions post-Federal Reserve.

            Regarding your conspiracy theories of the Federal Reserve, – haha, what a joke- like thousands of Americans are in on this conspiracy at the treasury department and federal reserve? You think? Ever work there? Ever work in government? I have worked for the US, Canadian governments as well as with the United Nations for 15 years- having worked with peole like condaleezza Rice (before her White House days) and other White House officials during 1989-91, I would never believe

            in the Alex-Jonesesque type of
            conspiracies that you are asserting as those people are true blue and would
            not, and could not, all be involved in such conspiracies of premeditated intent
            manipulations of our currency and Federal Reserve- it is an absolutely
            ridiculous assertion and if you had worked with such people at those levels,
            you would know.

          • Republicae says

            I think you will find that there are more than a few economist who are
            now questioning the role of the Central Bank, William White for one,
            he is now the former Chief Economist of Bank for International
            Settlements who began to criticize Greenspan as far back as 1996 for
            his monetary policy. Additionally, you tend to lump Nobel Laureats
            into a category as though it were meaningful to any degree, just read
            the work of Paul Krugman to see just how oblivious he is to what is
            actually happening in the economy, of course, there is one Nobel
            Laureat that I tend to follow and that is Fredrich August Von Hayek,
            someone that I am quite sure you have never read, who happens to be
            in agreement with what I am saying and in disagreement to what you
            are saying. So, if you want to go tid-for-tatt there you have it.

            Addtionally, I find it odd that you say the Federal Reserve is not the structural
            cause of economic dislocations or recessionary troughs, what evidence
            do you have to support your assertion that it is not the cause? In
            one of my recent comments I went into great detail about what takes
            place due to the intervention and manipulation of the FED. Please
            give an adequate rebuttal instead of just saying it is not, explain
            why you think it is not the cause or that it’s policies are not
            directly responsible for them when it has been shown, time and again,
            to be explicitly responsible, if it is not responsible then why on
            earth does it promote and implement such policies. That logic doesn’t
            make sense since the FED is directly in charge of monetary policies
            that have a direct bearing on economic results.

            I know of none of the so-called conspiracy theories that I have put
            forth in any of my comments, please cite them and explain why you
            think they are conspiratorial. You put forth the charge but are
            unwilling to explain the charge, rather you choose simply to make the
            accusation as though that was an adequate form of rebuttal. Yes, I
            worked in government and in banking, actually in securities which
            gives me a certain point of view that cannot be had by the average
            person on the street. The fact that you have worked for government or
            I have worked in banking and securities does not give either of us
            any reason to boast of a particular knowledge one way or the other. I
            could frankly care less about your professional pedigree, it is
            meaningless, and does nothing to further your position. What you must
            do and have failed to do is support your own position adequately or
            to adequately provide a rebuttal that is substantially more credible.

            Perhaps the most amusing part of your rebuttal is your apparent need to
            somehow associate what I am saying with some Alex-Jonesesque type of
            conspiracy theory; to the best of my knowledge reading my comments I
            have yet to see where you can associate any of my comments to either
            the man or his particular brand of conspiracy theories. Yet, it is
            interesting that you apparently must rely upon such tactics in order
            to try to achieve what I suspect you view as a “higher-ground”,
            sorry it doesn’t work and I firmly believe that the readers of this
            forum clearly see those tactics exactly for what they are…mere
            tactics used when a true rebuttal cannot be found by you.

            You notice that I have not resorted to such tactics nor will I. Now
            interestingly enough, you show your hand, as you have before on
            numerous occasions in your comments. You say that “such
            conspiracies of premeditated intent manipulations of our currency and
            Federal Reserve- it is an absolutely ridiculous assertion and if you
            had worked with such people at those levels, you would know.”, and
            yet, read that again, logically you make no sense, for it doesn’t
            take a conspiracy to intent to manipulate the currency, manipulation
            of the currency is a matter of policy. Anytime the rate of interest
            is reduced or raised by the FED, anytime the FED purchases
            Treasuries, there is an intentional manipulation, surely they are not
            simply doing these things without intent. It would make no sense
            whatsoever for the Board of Governors of the Federal Reserve System
            to meet, and say we really don’t intend to keep interest rates
            artificially below market value, we are just doing it without intent.

            Again, why would you think it would require some sort of conspiracy,
            or, for that matter, why would you think that I think that? Quite the
            opposite, I view the entire process as one that is supportive of the
            fiat monetary system because that is exactly what is required to keep
            the entire fiat system functioning to a degree that is both
            politically and economically acceptable at this time, but that too is
            about to change. I am a student of economics and monetary history…I
            have read exactly what took place in history with fiat monetary
            systems and I’m well aware of the manipulations that are required to
            keep or to maintain the systems, this system is no different. You can
            either have a single-tier system or a dual-tier system of fiat money
            substitutes, both become extremely rigid as time passes, both
            collapse, the single-tier collapses much faster than the dual-tier
            system. We happen to be subjected to the dual-tier system, it is
            doomed, it has not only a self-reversal mechanism built into its
            economics but also the seeds of its own destruction.

          • Republicae says

            It is highly doubtful that anyone was ignorant of the fact in 1914, that
            a paper money substitute system would last beyond a certain measure
            of years, yet the reasons behind such a system are clear if you read
            the writings of men such as J. P. Morgan and numerous other bankers.
            It comes extremely clear when you read what Breardsley Ruml said in a
            speech in 1946, Ruml was the head of the New York Federal Reserve, so
            he probably knew a little bit about what he was talking about. I
            highly suggest you read that speech, it is very revealing as to the
            nature and the reasons behind fiat paper money, and guess what, it
            has nothing to do with the prosperity of the country itself, but all
            about government control. The fact of the matter is that fiat money
            allows government to operate beyond the boundaries that would
            normally restrict it and do so in a manner that is relatively
            concealed from the public. Ruml stated that the purpose of fiat
            currency was to avoid the necessity for taxation for revenue, to
            re-distribute the wealth through income and estate taxes, to
            subsidize and penalize various industries and economic groups, to
            maintain social control over the people.

            Now, given those facts, it is odd that there are those who would support
            such a system, one that takes the title of money proper away from the
            holder of that money and places title instead, in the hands of
            government. With the removal of money as property, the people are
            generally at the mercy of the State and its desire to control. Fiat
            paper currencies have always been used by the governments of the
            world to confiscate wealth through inflationary depreciation, our
            government is no different. Fiat money allows this government to use
            fiat depreciation as a form of hidden taxation rather than having the
            need to directly tax the people for expenditures, for if the
            government had to directly tax people in proportion to its spending
            there would be an instant revolt.

            What we are seeing around the world is a systemic break-down of the fiat
            monetary system, now when you begin to add in a crumbling confidence
            in the governments of the world, including our own, then there are
            some major problems on the horizon. The organization of debt into
            currencies have never, ever worked, they all fail…thus far, the
            known number of fiat failures around the world in the last 150 years
            is over 700, hardly a good track record and it is far worse than any
            gold monetary system. It is also evident that this government is
            preparing for a period of massive social unrest when this fiat
            monetary system bites the dust soon, with the recent purchase by the
            Department of Homeland Security of 2700 Tanks and over 1.6 Billion
            rounds of hollow-point ammo, they are well aware of what is facing
            this country, too bad you seem oblivious to it. But place your faith
            if fiat, such faith is as worthless as the paper its printed on.

            Now onto the subject of Macroeconomics, it is strange that you would
            speak of it as though it were one unified theory or even school of
            thought, was is amusing about your statement is that you assume, once
            again, that I may be unfamiliar with such theories, that is an
            incorrect assumption as many of yours have proven.

            It is, or should be evident that the over-expansion of money-credit in a
            fiat monetary system leads to a misallocation of capital goods. Even
            during times of economic dislocation the laws of economic
            coordination do not cease to function, yet many Macro-economist seem
            to think those laws don’t apply when they deem it necessary to
            artificially stimulate the economy during recessionary troughs. They
            do not seem to understand that a solution cannot be found by using
            the same methods that caused the recessionary trough in the first
            place, it is simply not possible to continue to inflate a deflated
            bubble as though the problem was simply a matter of more fiduciary
            expansion. They do not see that government deficit spending and
            monetary expansion are not only not helpful during such burst, but
            they are counterproductive and hinder economic calculation during
            such periods; rather than solving any structural problems, this only
            serves to deepen structural distortions within the economic
            substructure.

            If we look at Macroeconomic coordination, you will see that
            Macro-economist tend to look at money prices for certain types of
            information and yet due to distortions within the economy caused by
            the over-expansion of fiduciary media, prices are skewed and thus the
            information provided by the pricing structure is distorted, thus any
            input into an equation of these and other data only renders a
            distorted view of the macroeconomy, not one that can be relied upon
            for adequate decision making, yet that is exactly what happens.

            What happens and what Macro-economist apparently don’t take into
            consideration is that under such circumstances there is a
            mis-coordination of goods and serves that occurs because there have
            been artificial and apparently rather arbitrary changes made in the
            supply of fiduciary media by the Central Bank in loanable-funds, what
            takes place is that there is a most definite reaction within the
            entire structure of production because of this distribution of newly
            created money media. It always will lead to a higher amount of
            investments in the capital goods sector, just as we have seen with
            the FEDs QE1, QE2, Operation Twist and QE3, none of which worked as
            either were expected or claimed by Bernanke.

            Of course, the attractor is artificially low interest rates, it makes it
            much cheaper to invest in various stages of capital goods long before
            those goods are consumed, this creates obvious problems since the
            normal market mechanisms have been curtailed by these monetary
            manipulations. None of this would be possible under a sound money
            system because of the fact that there is total accountability
            throughout the entire system. An asset loaned requires an asset to be
            paid, the fact that debt has become an asset should give enough
            reason for questioning in its own right, but few question the effects
            of debt organized into a monetary system, yet there are definite
            repercussions built into to such a system, both seen and unseen.

            Rather than allowing the market to correct itself, the Central Bank
            intervenes and attempts to stop the process of correction. Instead of
            necessary liquidation of the mal-investments during the artificially
            induced boom portion of the business-cycle, the FED rather halts the
            process by attempting to re-inflate the bubble that it created with
            its monetary manipulations in the first place. Think about what the
            FED has been purchasing: MBS, Toxic Assets, etc., the reason is to
            avoid the market from self-liquidating these essentially worthless
            investments, these mal-investments.

            Rather than attacking the problem at the root, the FED steps in to simply
            add more fertilizer to the non-bearing tree in hopes that it can
            revive it, but in reality it only is prolonging the problems and
            creating greater problems that will require a more drastic market
            correction and clearing, one that will be beyond the control of the
            FED to manage. There is no doubt that such liquidation would be
            painful, but far less so than what will happen if patches are placed
            on the economic wound, but pain is not relevant to its absolute
            necessity.

            The FED interferes with every market process, particular pricing
            structures, this is due directly to their policies. Prices usually
            recalibrate according to consumer preferences, but that process is
            skewed by the artificial manipulation of both money and credit. The
            question is that if resources have been misallocated through this
            artificially manipulated process, when what purpose does it serve to
            maintain such misallocation and mal-investment? The answer is
            obvious, it serves not purpose but a political one, for it certainly
            serves no healthy economic purpose.

            It is indeed odd that Macro-economist, in particular those at the FED,
            think that a fiscal stimulus program is a sensible policy for
            actually kick-starting the markets and reinvigorating productivity,
            when none of those programs have had any measurable effect, since if
            QE1 has been successful there would have been no need for further
            measures. Macro-economist seem to believe that it is possible for the
            government to economize, but it is absolutely impossible for the
            government to replace market mechanisms or even intervene in the
            markets without creating distortions by its actions. Rarely are such
            considerations made by those who purport to advise this government or
            the Central Bank on the subject of economic processes. Government
            action within the markets, especially taxation, disrupts the entire
            process by expropriating capital from those who earned it and
            redistributing that capital into others hands. It tends to invest
            these expropriated capital funds into various programs that Congress
            concocts, projects and investments into industries that would not
            otherwise be viable except for government funding. Macro-economist
            tend to aggregate information and distill that information and yet
            they seem oblivious to the fact that capital goods are not
            homogeneous and cannot be aggregated, thus since the entire economy
            revolves around capital goods and the means and manner of resource
            allocation, there is problem with the aggregation of information for
            the interpretations of economic activity.

            When governments “buy” or “subsidize” resources through
            expropriation of tax revenues and invest those funds based on some
            political or policy-induced reason then there are definite
            implications on the entire structural economy, but these things don’t
            seem to be taken into consideration. It is as though the
            Macro-economist of the FED ignore these vital facts when engaging in
            economic advise. Such government investments are always inferior to
            what the market would have signaled, and since government investments
            are not a part of the market process there are consequences
            throughout the economy to those investments. Thus, such fiscal policy
            can never produce a proper response, especially when there are
            structural problems caused by the previous misallocation of capital
            goods and resources, such policies are completely unsustainable and
            harm economic growth in ways that are so complex that it would
            require a couple volumes of work to explain.

            All of this goes hand-in-hand with what is considered a bubble economy, a
            bubble economy is one that has been manipulated, where intervention
            takes the place or alters of market functions to such a degree that
            bubbles or boom cycles occur. It is impossible under a fiat monetary
            system that is governed and manipulated by Central Bank policy for
            the economy to be anything but a bubble economy, the subsequent burst
            are only symptomatic of a larger issue, the idea that you can isolate
            one “bubble” within such a bubble economy ignores the most
            fundamental facts regarding an economic system that is manipulated by
            Central Banking interventionism. It is easy, as you have proven by
            your comments, to associate certain superficial factors as though
            they were indicative of a healthy economic atmosphere, and yet this
            economy has shown massive dislocation for the last 40 years or so.
            You speak of things like “real gains in industry, exports, etc.”
            as though they were proofs of something extraordinary when, in fact,
            they are not, they are only proofs of an economic system that must
            rely upon an ever-increasing amount of fiduciary media to create a
            type of growth that is neither extraordinary nor sustainable. The
            amount of capital destruction that took place in the Panic of 2008 is
            ample proof that there is something wrong in this fiat paradise.
            Again, you speak of these particulars as though they are, in and of
            themselves, indicative, yet you ignore many of the underlying factors
            that are part-and-parcel of those particulars. Just because you have
            an increase in exports does not necessarily indicate that there has
            been a market response, but that there has been a response to various
            interventions and the interactions of such interventions. Of course,
            you must view this in the positive whereas I must view it in the
            negative because of the artificial nature of these forces that cannot
            be sustainable. Of course, you will read where statements have been
            made by Macro-economist that even a flawed policy is better than no
            policy at all, I tend to find that a disturbing way of thinking.

            It is evident that Macro-economist are primarily political economist, as
            such their entire careers are based and revolve around the political
            element of economics and their economic advise. Their economic advise
            is based upon political policy. Accordingly, Macro-economist tend to
            ignore all resource-allocation issues within the economy and the
            underlying causes of issues that arise from such allocation, in
            particular, misdirected allocation. Typically, by ignoring the
            complexity and interconnected actions within the economy policies are
            produced that cannot bring about a sustained recovery once a
            dislocation occurs. Simply look at the Stimulus Programs and the
            Bailouts, those were politically motivated economic policies, not
            simply economic, for if they were purely economic policies then they
            never would have occurred. If you remember the first Stimulus/Bailout
            under Bush, it was deemed absolutely essential that it be passed and
            put into effect immediately, yet when viewing the actual legislation
            most of the spending didn’t even take place until the next year, in
            other words, it had no immediate effect on the situation at hand even
            though it had been politically sold to the Congress, and the American
            People as an emergency measure. Of course the real reason behind the
            urgency behind the Legislation was because had the People been given
            time to fully grasp just what it did and what it would and would not
            accomplish the public support would have been far less then it was
            and it was low before its quick passage. It was little more than a
            politically motivated economic policy that had little to do with
            actually solving any of the underlying structural problems within the
            economy.

            History teaches us that anytime a government moves beyond the basic
            functions, such as those found within our own Constitution, then
            legislation becomes more intrusive and far less effective, that is
            exactly what has taken place and the entire Constitutional foundation
            to our government has been seriously compromised.

            Rarely has it been considered that the so-called “economic rescue”
            raises its own set of rather unique problems, issues and consequences
            that are difficult to fully ascertain unless viewed outside the
            normal parameters of Macroeconomic thought. If you look, really look
            at the policies of the FED, particularly those between the end of the
            second quarter of 2002 and the third quarter of 2006, you will find
            that the interest rate policy of the FED had a direct bearing on the
            events that were to occur in 2006, 2007 leading to the Panic of 2008.
            These policies that began in earnest in 2002, created economic
            imbalances and resulted in distortions that were extremely
            significant. You cannot, by such policies, misdirect resources and
            not expect to be faced with problems, and yet that is exactly what
            happened. Macro-economist should know better, hell they have done the
            same thing for years with the same results, but memories tend to be
            short when it comes to political economics. It is readily accepted
            that artificially low interest rates will always favor durable goods
            and capital projects, this creates demand that would be more tempered
            without such manipulations, and thus far more sustainable. The
            “housing bubble”, for instance, was symptomatic of a much larger
            problem, and that is an on-going policy problem that misdirects
            resources into areas that would not be favored by normal market
            conditions had such policies not been implemented.

            Like interest rate manipulations, Stimulus packages should not stimulate
            the misallocation of resources but that is exactly what happens, for
            what was the purpose of such packages or manipulations? Well, it
            appears that the purpose was to prop up housing prices, to re-inflate
            a deflating bubble where liquidation should have been properly
            allowed to take place and cleared from the market so proper
            allocation and investment could then take place. The FED, on the
            behest of a political motive, attempts to keep the bubble economy,
            which is to be considered as nothing more than a boom and bust cycle,
            going.

            Think, for a moment, about all the confusion in pricing or estimating the
            price of MBSs, all those toxic assets, the market expectations of
            price were not allowed to follow through before the FED stepped in
            and rather than let the market liquidate, it intervened and bought up
            those toxic assets thereby interfering with the market process of
            finding an actual market bottom in pricing. It was, in many ways, a
            means of price-fixing the mortgage and securities industries. Rarely
            is it considered that by intervening in such ways, there are
            consequences and just by stimulating or relieving certain sectors in
            the economy that the government continues to create what ultimately
            must be an unsustainable type of resource allocation. Once
            stimulation takes place on such a massive scale, the ability of the
            economy to function properly without such stimulation becomes
            increasingly doubtful. That is one of the effects of a fiat monetary
            regime, history teaches that eventually the economy cannot continue
            or maintain its functions without continued stimulation.

            Naturally, if you hold a view of the majority of Macro-economist, particularly
            those in the FED, you would not consider the fact that such
            government stimulus actually destroys economic value instead of
            creating it, but that fact becomes more and more evident with you
            look at the results of such stimulation by the government. There are
            two issued involved that are essentially simultaneous in action and
            reaction, recent estimates are that government spending only
            increases GDP by $1.4 dollars for every $1 dollar spent by
            government and yet now, most of the expansion of the GDP can be
            contributed to government spending rather than private consumption
            and investment. You would therefore think that any economic
            activities that the government promotes and the the FED implements
            that there would be actual positive value, as measured by
            Macro-economist in the aggregate, but it appears that the positive
            value is actually minimum. All of this doesn’t even take into account
            that most of the government stimulus is either borrowed or comes in
            the form of taxation, this means that the minimum gains that might be
            achieved by such government stimulation is off-set by the fact that
            borrowed funds and taxes take away from economic production.
            Ultimately, it will be seen that this type of stimulation is no
            better than had the government simply done nothing at all and allowed
            the natural market processes to clear out all the mal-investments and
            reallocated resources to more productive means.

    • Republicae says

      One must wonder why there is a fixation with elastic fiat money? Elastic
      money, what does it mean? It certainly can’t mean what proponents say
      it means for if so then how to the explain the lack of benefits to
      such a monetary medium? It is assumed that elasticity is the cause of
      economic growth, but when compared to economic growth during under an
      inelastic system such as gold there is simply no comparison, economic
      growth under the gold monetary system puts fiat money to shame.
      Additionally, it is almost impossible for anyone who supports an
      elastic fiat regime to adequately explain how it is beneficial when
      the more elastic the currency the less purchasing power or potency it
      retains, the less economic potency the less economic growth. For if
      we are to consider the shear number of fiat monetary units in
      circulation today, both physical and digital then the economy should
      be abounding with growth and everyone should be sharing in the
      prosperity of such a wonderfully elastic monetary medium, but that
      not the case, in fact, just the opposite. There are approximately
      $1.6 Trillion physical dollars in circulation, as of the month of
      February, 2013, the amount of digital money in circulation, as well
      as credit and debt is far greater and yet, with all this elastic
      medium there is virtually no positive economic effect that is
      proportional. Why, if there is, as those who support an elastic
      monetary medium claim, a benefit to its elastic nature, is there not
      a corresponding positive effect to all this fiat money floating
      around? If it were the quantity of money that was meaningful
      economically then we should see extremely impressive results by now,
      but the fact is that quantity of monetary units is not nor can it be
      meaningful economically because it is not the quantity but the
      quality of a monetary unit that is economically meaningful.

      In addition to those vital considerations about the elasticity of the
      money supply the easy money policies of Central Banks should be
      questioned as what balance there is between any possible short-term
      benefits, if they can be called that, and the more undesirable long
      term consequences that are usually unforeseen and unintended. There
      is no doubt that there are very definite limits to the power of
      Central Banks, though at times it appear that they think they have
      the power to actually reverse economic law, they do not have such
      power and usually the market seeks its revenge on policies that
      subvert such principles. It is evident, particularly with the various
      “tools” used by the FED, that those techniques are far less
      effective in stimulating the aggregate demand within the economy than
      is claimed, otherwise there would be little reason to try to continue
      with such techniques,i.e. QE1, QE2, Operation Twist, QE3 and so on.
      It is also obvious that after such measures, the cumulative effect
      seem to relate to a negative feedback mechanisms within the economy
      that, given time, have weaken both supply and demand with this
      economy. Not only that, but perhaps more disturbing is the fact that
      ultra-easy monetary policy has not only encouraged, but in many
      instances induced some very imprudent behavior in our government.

      It is quite evident that the Central Banks of the World, in particular
      the FED, has seemingly embarked on yet another monetary experiment in
      hopes of keeping the system afloat just a little longer. It is,
      without doubt, one of the most curious economic experiments in
      history, though few understand just what that means. There is no
      doubt that the extraordinary measures that have been taken by the FED
      are unprecedented in its history, but like its history this too may
      prove to be yet another policy gone wrong. The idea that artificially
      taking the rate of interest to what can be considered the Zero Lower
      Bound says a great deal about the fear within the FED and this
      government. It is also easy to see that they took other unprecedented
      actions that enormously expanded the FED Balance Sheet and they did
      this increase by purchasing some of the most riskiest types of assets
      that are unmarketable. All of this had consequences, many
      unintended, even globally there were consequences to these actions
      taken by the FED, especially in EMEs or Emerging Markets, for
      downward pressure was almost immediate on the exchange rates of those
      markets. It is hard to understand just what how immense the scope of
      these policies, most of which were discretionary in nature, were, it
      was historically unprecedented by all accounts. To compare this with
      a historical event, we should look to The Great Depression, rates
      during that period, as bad as it was, were never reduced to such low
      levels. It should go without saying that the FED has not solved any
      of the structural issues its policies have caused, it can’t solve
      them using the same methods, the same mentality that was employed to
      create them in the first place.

    • Republicae says

      I firmly believe that when everything
      comes to light, and it will, that those who have been blind
      supporters of the Federal Reserve System will suddenly find
      themselves completely void of faith in the entire institution. Think
      about what is really going on with the FED, particularly when it
      concerns the on-going process of purchasing troubled assets by the
      FED. There is, from what is and is not being said by Ben Bernanke,
      that the true amount being purchased is far more than is publicized.
      While being carefully concealed, the fact of the matter is that
      within a year the FED will have added close to $5Trillion in toxic
      assets to its balance sheet and there is a very good chance that
      there will be even more hidden off-balance sheet. That is an amazing
      figure, one that will end up being a massive problem, not only for
      the FED, but for the entire country. So, the FED is, once again,
      manipulating the entire market in an attempt to re-inflate the
      housing bubble and at the same time there is an obvious bubble being
      formed in the Stock Market due to the inflation of the money-credit
      supply. Eventually, the laws of economics will come into play and
      when it all comes to light the People of this country will find out
      just how bad things really are, how corrupt this system is and the
      actual damage it does to this country.

      It takes a complete fool not to grasp the fact that there is massive
      manipulation taking place, not only monetary manipulation, but as an
      ancillary result manipulation of markets. If you recall the manipulation
      of the LIBOR, that is a massive form of manipulation of an interest rate that govern over
      $800 Trillion in mortgage contracts, yet there are those who are
      either too naïve or too blind to recognize the fact that in such
      complex market systems it only take a minor form of manipulation to
      skew or change the results of an entire market function. There are
      those who simply cannot believe that the market, that money-credit is
      being manipulated despite the clear evidence to the contrary, those
      people are idiots and that is being kind.

      Another form of manipulation that is taking place can be found in the
      GSO FannieMae, it currently has a tremendous number of REO properties
      on its books, but instead of placing them on the market they are leasing the properties and have
      hired property managers to oversee the operation. If FannieMae were
      to sell those properties it would, aside from showing the true nature
      of the housing market, depress the market to even more realistic
      levels and that would be politically damaging to the government when
      people realized just how bad things really are in the economy.
      Eventually what we will realize is that this whole exercise is
      nothing more than yet another Pump and Dump scheme, an attempt to
      re-inflate a market bubble in order to dump as much of the troubled
      assets as possible on an unsuspecting public. At the moment, there
      are some very big players that have entered the Real Estate scene,
      institutional buyers scooping up property at basement prices; they
      have the “money” to do this and know full-well that the tricks
      that are going on behind the scenes favor their Pump and Dump plan.

      There is no doubt whatsoever, that the last housing bubble was a direct
      result of government and FED policies, it cannot be otherwise. These policies facilitate the
      creation and the maintenance of the bubble economy, you cannot have
      interest rate and credit manipulation without having a corresponding
      effect on the market, it is simply not possible. People would be
      absolutely amazed at what was taking place in the mortgage industry
      and it had little to do with greed or anything else, it had to do
      with policies that would force mortgage companies to give mortgages
      to those who did not qualify. It was not an uncommon occurrence for a
      mortgage brokerage to be audited and upon auditing the denials the
      mortgage company would be told that they had to provide mortgages to
      the very ones that were denied. I witnessed this first-hand, and who
      were these auditors? Guess, they were government employees charged
      with making sure that the Fair Housing and Community Reinvestment Act
      were being followed, but it was far more than that, it was
      essentially a system that disregarded all measurable qualifications
      of the applicant in order to manipulate the system for political
      reasons.

      There are some very interesting thingshappening if you know where to look,
      if you listen to the words of Ben Bernanke, if you read the types of legislation
      coming from D.C., what is happening is a massive attempt to re-inflate the bubble
      economy, the reason for this is because the market has not been
      allowed to make corrections and without natural market corrections
      and clearings the economic processes have been breached, distorted
      and are reacting to each form of manipulation taking place. It
      appears, from all indications coming from the FED and its Big Bank
      partners that they are not only willing but extremely eager to pump
      as much hot fiat money air into the system as possible to blow up the
      balloon once again, but at a scale that will make the last bubble
      economy pale in comparison. When it hits the fan and it will, you
      will witness a Panic that will make all the depressions and
      recessions combined look like a cake-walk.

      There is no doubt, and this can be easily verified, that current monetary
      polices coming out of the FED are facilitating this re-inflation of the bubble
      economy, that is the only type of economy that is possible under a managed, planned fiat
      system, it is the only way any economic growth is possible for
      without such manipulation the laws of economics would come into play
      in the market and actual corrections would take place, something the
      FED cannot and will not allow to happen. In the last couple of years
      we have seen, as I said, big players enter the Real Estate market,
      while that doesn’t seem unusual it really is because these
      multi-billion dollar financial institutions and investors have not
      been in this market before, but now they are herding into it as
      though they know something big is happening and it is, so they want
      to take advantage of the event. It is an event that has been
      carefully crafted and manipulated both for financial and political
      reasons. Look at who is buying what and follow the money, there is
      always a reason behind such moves, there is also money to be made if
      you are smart enough to follow that money.

      Now what is so interesting is that there are literally Trillions of Dollars worth of toxic assets still
      in the system, even though the FED is attempting to scoop up as much
      of it as possible from the banks that are holding those toxic assets.
      It is doing this because it would be political and economic suicide
      for the market to actually clear those assets through a correction, a
      correction that desperately needs to take place if a healthy,
      sustainable economy is to form. Now, while it appears, or so we are
      told, that the housing market is rebounding, the facts are
      substantially different. It is only because these big players are
      entering the market that the appearance of normalization is taking
      place and, of course, the political aspect of this is huge, it allows
      the government and the FED to claim their policies are working, when
      nothing could be further from the truth. So, think about it, what
      does all of the big players entering the housing market have in
      common? You might have guessed it, they are all connected to the Big
      Banks and the FED, they have first dibs at the massive amount of “new
      fiat money-credit” and they are playing it for all its worth.

      The FED realizes that it must keep interest rates artificially low, that
      too is a major form of manipulation, otherwise the bubble could not be re-inflated. The
      problem is that market and monetary pressures will eventually force
      an increase in rates, we have already seen an increase in some rates
      of 50 basis points. This entire economy has been and is fueled
      through artificially manipulated interest rates that are kept below
      the rates that the market would actually demand if allowed. When a
      fiat economy reaches the point where it must be manipulated in order
      to function that is a sign that the end of that system is extremely
      close, history bears that fact out.

      The FED is doing everything, trying to pull every rabbit out of its hat,
      to re-inflate the housing bubble and along with it the bubble economy.
      The proof of this is found in the FED’s own reports on housing, last year
      it purchased 95% of all newly originated loans in this country, that fact alone should give
      anyone reason to question what exactly is going on with the FED. It
      is impossible to think that it is not manipulating the market when it
      is purchasing massive amounts of toxic assets each and every month,
      has embarked on several Quantitative Easing programs that amount to
      nothing more than monetizing the debt and all the while keeping
      interest rates artificially below market demand. It would not
      surprise me in the least to find, when all is said and done, that the
      FED is not only buying up toxic assets in this country, but in an
      effort to keep the EU afloat, also doing some off-balance sheet
      purchases in the European toxic asset market, just as it did when it
      secretly loaned billions to EU banks as he finally confessed before
      Congress. But no, certainly there can be no manipulation, no secret
      deals, no monetizing debt, no deception coming from the FED, or the
      Government, or the Banks…they are good people, after all.

      The fact of the matter is that the FED and this government is extremely
      fearful of the reality that looms over them. Additionally, as the behest of
      both the FED and political pressures FHA began instituting low-down
      payment loans again, onemust wonder how soon the no-down payment
      programs will once againenter the mortgage scene. All of this is an
      attempt to once againinflate the housing market. If you look at the
      housing stock, you will see that the Big Banks are suppressing
      the inventory, and in some cases it appears that they are even suspending actual
      foreclosures to pump up prices, that is nothing more than a form of
      price-fixing and manipulation, all with the blessings of the FED and
      the government, of course.

      It is utterly amazing that anyone with half-a-brain could not see or figure
      out that there is a massive manipulation taking place. All one needs do is look,
      look at the amount of toxic loans that are still languishing on the books of many
      of the major banks. There is therefore, the necessity to increase
      housing prices to keep concealing the real state of the banking
      industry in this country. The fact of the matter is that there many
      of the major banks are actually bankrupt, insolvent and would be
      recognized as such if the truth about the toxic assets were exposed,
      but because the FED is providing extremely cheap lines of credit and
      continues to stimulate those banks with bailouts, they can keep their
      doors open for just a little bit longer in hopes that housing prices
      will rise enough to make those toxic assets less toxic.

      Ah, but a housing recovery is in the works, at least that is the Party Line,
      the propaganda machine isworking overtime to assure the American People
      that all is well, that things are looking up, that happy days are here again, or at least
      just around the corner…so have faith, put your confidence in the
      FED and in the government. What the American People are not being
      told is frightening and would instantly have extremely negative
      consequences on both the confidence and faith in the system.

      Interestingly, people are waking up to the actions of the FED, here are
      a few excerpts from USA Today concerning the Stock Market Rally:

      “…the time is approaching to scale back the bond-buying spree and get ready
      to unwind some of the Fed’s massive portfolio, which now tops $3 trillion.
      The longer the policy lasts, the more likely it will end unhappily.”

      “The best indication that the Fed’s bond-buying purchases are pushing stocks
      up artificially is that investors run for cover whenever there is a hint
      that the Fed might change course, as happened recently. On Monday,
      billionaire superinvestor Berkshire Hathaway CEO Warren Buffett told
      CNBC that markets are on a “hair trigger” waiting for signs of change from the Fed.
      The market is “hooked on the drug” of easy money, Dallas Fed President Richard Fisher told Reuters.”

      “Fisher’s comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more.”

      Intentional manipulation? Of course it is!

    • Republicae says

      Those who support the fiat monetary system fail to realize that a money substitute, such as the one we have now, and the economy it supports relies totally upon a constant expansion of the fiat money, without that expansion, without constantly inflating “printing” the whole thing crashes. Gold on the other had does not have that inherent deficiency or self-reversing mechanism, it is not a money substitute but it is actual money.

  4. Jack Kazim says

    You are right, but let me explain in a better way:
    Gold has no real magic intrinsic value. The value put on anything is determined by consumers aka. the market. Any product is intrinsically worthless. That’s why returning to the gold standard is a bad idea.
    Also gold has found industrial use in the last century. If we return to the gold standard, then the price of jewelry, computer chips, etc. will rise. That’s why it’s a bad idea.

    • Republicae says

      Ah, but what of psychological value Jack, if there is, as gold has shown for centuries, a confidence that cannot be found in any other commodity used as money, then the value of that commodity is a perfect monetary vehicle, is it not. Also you make assumptions that are not based upon factual information concerning gold as money and the corresponding price of other goods such as jewelry, computer chips, etc. If a commodity is priced in gold, then what is the price of such commodities determined by? Was jewelry priced according to the value of gold per ounce in the 1800’s or what it priced based upon the added value and demand for that value in the market? The same can be said today under a gold monetary system, the medium of exchange may be gold, but the price of goods and services in gold is determined by other factors. It is common for assumptions to be made based on what we assume the current fiat price of an ounce of gold is on the market presently, but the most vital thing to remember is that today an ounce of gold is priced with drastically depreciated fiat monetary value. The fiat price of an ounce of gold today being at the moment $1609.00 per ounce is only $69.38 dollars in a pre-1913 100 Cent Dollar. Understanding the illusion caused by the fiat monetary regime is vital, yet so many are caught up in the “nominal” or “face value” of the fiat dollar that they rarely, if ever, consider the actual real purchasing value of the currency.

      • jamesluko says

        you miss the point, the standard of living of the average american, much higher than previous baselines of 1970, 1960, 1950,1920, less americans are below the poverty line, more americans are educated, americans live longer, take more vacations, own bigger homes, etc. etc. the results of a fiat currency system, along with fractional reserve banking clearly tells the truth.

        • Republicae says

          Actually, I haven’t missed the point that you are trying to make, but
          when viewed from the standpoint of real income verses nominal income,
          there is a substantial difference between the two; additionally, the
          fact that the standard of living of the majority of Americans is
          based solely upon credit/debt accumulation instead of wealth creation
          or productive capital tends to shade your assertion. It becomes
          evident that the standard of living of most Americans depends upon
          their ability to maintain a certain level of available credit, when
          that credit is restrictive then so too is the “standard of living”
          of the average American. That does not point to an actual increase in
          the real standard of living, like the government itself, it depends
          upon the extension of credit, of “easy fiat money”, but that is a
          completely unsustainable monetary system and so too is any economy
          dependent upon such a system.

          The artificially based “poverty line”, a completely government
          construct, cannot be considered very reliable in terms of actual
          determination when it comes to the standard of living or lack
          thereof, nor can availability of goods and services, or education or
          vacations or bigger homes when all of those things you cite are
          completely dependent upon the extension of fiat credit. If you hadn’t
          noticed there are s major issues arising from the over issue of
          “easy-money”, loose credit and the lack of actual productive
          capital.

          Evidently, you have not noticed the fact that the FED has been forced
          into the extremely dangerous position of purchasing government debt,
          along with what I call “bad bailout debt”, in doing so it has
          been limited to the only route that can be taken under a dying fiat
          monetary system, one that is following the exact path of previous
          fiat monetary systems in the past, it must continually inflate in
          order to even maintain the economy, but that can only last just so
          long and the hard, cold principles of economic law kick in.

          • jamesluko says

            Regarding standard of living- your comments are “not” “entirely”
            true- although debt per capita has increased, this has much more to do with a “desire”
            to have more things rather than a “need” for more credit per capita in order to
            sustain food and shelter.

            (you say)
            “the fact that the standard of living of the majority of Americans is
            based solely upon credit/debt accumulation”

            Second, what you say- that ONLY credit has served to
            increase American living standards- that is simply not true-

            Don’t judge American economic history- by just the last few
            years- which was chaos created by factors which are not systemic nor an
            indictment of fractional reserve banking or fiat currency system.

            The two “major” factors which have led to greatly increased
            standards of living from any baseline you chose- 1920, 1940,1950,1960, 1970…
            the fact that women increasingly went to work outside the home, making family-two
            parent household incomes jump between 30-70% all other factors being the same-
            so, that is a substantial increase in disposable income to what was previously
            a one-parent income earning households. Secondly, prices of goods dramatically dropped
            as light goods manufacturing went offshore- to Japan, then Taiwan, then China,
            making many more goods within the reach of the middle class, i.e. computers,
            big screen TV’s, etc. and/or reducing the cost of what Americans were already
            purchasing- coupled with a long decline in food prices due to increased American
            productivity in agriculture- these were major factors in the increasing
            American standard of living.

            Another major fact which contradicts your theory that our
            great standard of living was/is attributable ONLY to “credit” is during periods
            where debt ratios were quite stable- standards of living continued to increase-
            how would you explain that?

            You also ignore the glaring facts such as our transition
            from an agricultural economy- then to an industrial economy- and then to a
            service-post/service economy added greatly to peoples income levels- as no
            longer were they being paid to pick carrots- but increasingly went to work in
            factories which paid higher levels of incomes which led to increasing standards
            of living- and then- the majority of Americans began obtaining college
            educations and went to work as engineers, etc. which gave even a higher level
            of income as we entered the post-service information economy.

            In fact, debt per head ratios were in fact quite stable from
            the years 1975-2000 and rose only very slowly- yet the American standard of
            living during that period rose substantially- making your theory- again- not
            credible. During that time period, debt
            payments took an average of 10-12% of disposable income, and it was only AFTER
            2000 that debt ratio’s began to soar upwards- reaching approximately 14%
            today. Another dent in your theory is
            that from the late 1990’s to today- the vast majority of increased debt was
            because of an aging population and the commensurate increase in rising
            healthcare costs that burdened an ever growing percentage of the population- as
            a higher percentage of our population aged.
            In recent years, debt went into a frenzy with the real estate boom and
            stock market debt- but- as I said earlier- these items are not an indictment of
            fractional reserve banking nor fiat currency.

            In sum, things are not so black and white as you paint them
            to be, that the increasing American standard of living is an “artificial
            construct” and “sole” function of increased credit and debt. Credit and debt, did and does- certainly play
            a role in a rising standard of living- but- it is NOT the “sole” reason for it-
            AND- it has played a major factor only in recent years- whereas the other factors
            that I point out- account for the vast majority of our increased standards of
            living from post-depression to 2000 (even while we had the Federal Reserve and
            it’s illumanati conspiratorial system of fractional reserve banking and fiat
            currency- so what- it gave the largest amount of people the largest standard of
            living the most consistently of any civilization in history- if that’s due to a
            conspiracy- I say- great.)

            Even so, Americans learn their lessons quickly and today- in
            2013 household debt service ratio is now at the lowest level in six years- since
            2007. Real estate speculation and the “abuse”
            of credit laws and lack of governance by banking committees in Congress- again-
            is NOT an indictment of fractional reserve banking or fiat currency- and
            Americans are now paying their way out of bad decisions and predatory lending
            based on a runaway real estate bubble from 2000-2006.

          • Republicae says

            You ignore a great deal of economic history and the circumstances behind
            that history regarding just about everything concerning a monetary
            system that is organized or created through debt. History has indeed
            repeated itself in ways that few seem to understand and the results
            are, judging from history, always the same: a collapse of the fiat
            monetary system that leaves people in the reality of poverty, chaos
            and social unrest. This judgment is not based on simply the last few
            years, but upon centuries of economic history, the patterns are
            always, without exception, the same, the results are always the same.

            There is one and only one reason this country is now suffering from
            extremely high deficits/debt, that is because of the very fundamental
            nature of the fiat monetary system itself. An economy based on a fiat
            monetary system [debt organized into currency] always accumulates a
            growing and ultimately intolerable amount of debt that burdens the
            society and the economy. It is required, therefore, to always
            increase the amount of debt through deficit spending under such
            systems; additionally governments tend to increase the tax burden
            while draining resources from the highly productive private sector to
            enrich the unproductive public sector. There is a direct correlation
            between the advent of a total fiat monetary system and the beginning
            of a massive expansion of deficit spending, that is evident
            historical charts on the subject.

            Under our current two-tiered fiat monetary system, deficits are eventually
            financed through expanding bank-credit, i.e. creating new fiat money,
            this signals the final stages of the two-tiered fiat monetary
            system’s life-span. Rather than using the bond markets to finance
            debt, the central bank buys the debt of the government, the modern
            term is “Quantitative Easing”, while the old term that is
            economically derogatory is “Monetizing Debt”. This is when the
            fiat monetary system reaches a point where it becomes increasingly
            rigid and each of the fiat monetary units [dollars] has lost
            essentially most of the purchasing power it originally had as a real
            money.

            The standard of living enjoyed today is nothing more than one based on a
            bubble economy, artificially produced through the inflationary
            policies of the Federal Reserve and government appetite. In order for
            a fiat monetary system to function there must be expansion of the
            money supply or inflation, that is why the “dollar” of 2013 has
            only a few cents worth of purchasing power compared to the “dollar”
            of 1913. While there are definite advantages to the fiat monetary
            systems, such as the apparent rapid growth associated with them,
            there are also increasing disadvantages as the system ages and is, as
            always, abused by both government and central banks. While the
            assumption is that increasing the fiat money supply is beneficial,
            the fact is that it does not confer a social benefit on anyone other
            than those who are lined up at the money trough first, it actually
            redistributes wealth from the people who work hard into the hands of
            those people and companies that are highly connected both politically
            and financially.

            When this government cut the last vestiges between gold and the currency
            there has been over a 12-fold increase in the fiat money supply. Fiat
            monetary economies rely upon inflating one bubble after another since
            there can no longer be a constant economic pattern of actual
            productive growth due to the fact that the currency is losing its
            economic potency. So, a society can accumulate all the gadgets, the
            goo-gas, the trappings of consumerism possible through a fiat
            monetary system, those things do not indicate either wealth or a
            higher-standard of living only the effects of an expansionary bubble
            economy. A higher-standard of living is evident only by capital
            generation and accumulation, not the increase of things, not the
            increase of debt.

            The fact of the matter is that unless the fiat monetary system is used to
            purchase hard assets, all other forms of consumer accumulation is
            bogus in terms of real living standards.

            If you recall, everyone was happy when their homes were “appreciating”
            in value at such an incredible rate, but the economic reality hit
            them like a ton of bricks when the bubble burst and the nominal
            values became real market values. Bubble economies makes people feel
            good, they feel smart, they feel that they can beat any odds, but
            when the artificial boom, the inflated bubble economic burst, those
            same people will be looking for someone to blame, but rarely do they
            understand that the blame is to be placed at the feet of the
            manipulators of the economy, the Federal Reserve and the government
            itself.

            Now, one thing that people, like yourself, seem not to understand is that
            during an artificial fiat monetary boom cycle or bubble economy,
            there are massive distortions created within the economy itself, one
            major distortion comes in the form of business calculations, most of
            whom make their planning around such booms and make decisions based
            upon the availability of consumer credit. A true business plan must
            be built on solid market information, but that information is
            impossible to ascertain due to the distortions created through the
            fiat “bubble/bust” economy, even profits are distorted in such
            volatile business cycles. All one need to is look at each of the past
            10 boom business cycles to see how businesses made the wrong
            decisions based upon distorted information, look at those large-scale
            companies which no longer exist because their business plans, their
            decisions were based on an artificial bubble economy.

            Look at various economic sectors in this country, look at them during a
            bubble economic cycle and during a burst cycle. During any artificial
            boom cycle, fiat monetary inflation creates illusory profits and
            consequentially distorts economic calculations, fosters
            inefficiencies, mal-investments, miss-allocation of resources. Yes,
            it is evident that under a fiat monetary system the rising tide of
            monetary inflation in a bubble economic cycle always lifts all the
            boats in the economic harbor to higher levels, but so to when that
            tide or monetary inflation, which includes fiat credit, seizes up for
            whatever reason, the receding tide leaves in its wake a crumbled mass
            of disorder.

            It is evident, by human behavior, that everyone wants to get in on the
            illusory profits of a bubble economy, it makes everyone feel and look
            good, especially the government, who is always more than willing to
            take credit for the good times but place blame when times are bad.
            One primary element or characteristic of artificially manipulated
            fiat bubble economies is the fact that such inflationary booms always
            penalize thrift while rewarding the accumulation of debt. Wealth is
            not judged by the amount of debt you have accumulated, but by the
            thrift that allows you to accumulate hard assets upon which you can
            capitalize, that is the true indication of a higher standard of
            living, something sorely lacking in this country.

            The fact of the matter is, despite the illusions that you apparently are
            not cognizant of, is that fiat inflation lowers the general stand of
            living. Oh, you can definitely say that it allows for people to throw
            on the glitter and tinsel of prosperity, but the fact is that without
            the availability of credit most, the vast majority of Americans
            wouldn’t have a pot to piss in or a place to empty it. Rather than
            create wealth, this system drains wealth from those who work, making
            it harder and harder to maintain any real standard of living beyond
            the illusion of credit availability. It takes more and more fiat
            income just to keep up, to maintain and when the availability of
            further credit is tightened then the reality begins to rear its ugly
            head. Oh, but there is no doubt that people think or have the
            impression they are doing better during the boom cycles, they extent
            their available lines of credit to match the boom, they “buy”
            more stuff, they buy bigger houses to put more of their newly
            purchased stuff in, they buy fancier cars, nicer clothes, go on great
            get-away vacations, but while appearances give the impression of a
            higher standard of living these people are getting less prosperous
            rather than more.

            It is beyond belief that you can’t see the fact that the very nature of
            the fiat monetary/fractional reserve banking system are the
            fundamental cause of every economic dislocation that has occurred in
            this country since the events leading up to The Great Depression,
            there is a direct correlation between boom/burst cycles and the
            fiat/fractional reserve monetary systems. There is no doubt that
            under such a system asset inflation produces wealth illusion because
            the belief, evidenced by your own comments, holds that pricier asset
            holdings make one richer or have a higher standard of living, that is
            in fact, not true and eventually the painful reality of the burst
            portion of the inflationary fiat cycle intervenes. The stock markets
            are a prime example of fiat monetary inflationary illusions, when it
            rises, despite low volume and high volatility, gives an impression
            and natural human behavior is to get in while the getting is good,
            but when the burst occurs and the losses mount up the reality is
            again painful.

            Look at the actions of Greenspan and Bernanke, holding interest rates
            below market demand and doing so for much longer than is even
            considered prudent, a credit binge sends assets soaring, at least for
            a while and everyone in various markets seems more prosperous, when
            in fact it is only an illusion of prosperity. Greenspan knew this
            fact and stated that, as he feared, even though his policy actions
            caused it, that a crash in asset values would do profound and lasting
            damage to the real economy. The fact is that there is a cumulative
            effect to such policies within the real economy, making distortions
            much more pronounced as time goes forward. The fact is that the
            Federal Reserve monetary policies actually expose all the mainstream
            and widely accepted fallacies about economic prosperity and living
            standards under such systems. Thus, it was, and Greenspan knew this,
            the expansion of fiat credit combined with piss-poor monetary policy
            that results in mal-investments which always do extreme harm to the
            real economy. Since the FED is more than hesitant to allow for a
            correction of these distortions, the damage becomes more extreme as
            such policies continue and the FED expands fiat credit through lose
            monetary policies in order to either maintain the bubble economy or
            re-inflate after a burst.

            When you build an entire economy on a debt currency such as the
            fiat/fractional reserve system, the illusion is hardly sound
            structurally and it appears that the lessons of such unsound
            structures are rarely heeded. Asset inflation is a direct result of
            fiat credit expansion and the monetary policies that are implemented
            to achieve it, it is always, without exception caused by credit
            creation in excess of saving which leads to demand growth in excess
            of actual economic output.

            Factually, the central banks of the industrial world are engaged in the
            impossible, that is attempting, once again, to inflate the bubble
            economic that artificially created the boom cycle in the first place
            through low and now close to the zero-bound fate of interest and
            through deficit spending with reckless abandon. The current and
            preceding economic crisis’ were a direct result of central bank money
            expansion and cannot be cured through more expansion, yet that is
            exactly what they are attempting to do. You cannot cure debt burdens
            by burdening the system with more debt, it is mathematically
            impossible, there is a peak debt accumulation point that is reached
            in all fiat monetary systems that organize debt into currencies. It
            has always happened the very same way throughout history. Today the
            central banks are bleeding the patient while he is already bleeding
            to death, doing the exact same things that facilitated the economic
            panic in the first place. Such artificially induced boom cycles
            always destroys capital even though such destruction is always
            concealed by the illusion that is created through fiat monetary
            expansion. Few understand that the boom is the problem and the burst
            is the actual solution as it liquidates the mal-investments,
            reallocates resources in a proper manner. The one thing that is
            evident in the last 85 years is that this government and the Federal
            Reserve cannot politically endure such corrections even though it is
            exactly what is needed.

            There is evidence that under such a system, artificially created and
            manipulated, that capital is mal-invested in long-term production
            processes, the problem is that due to the distortions in the market,
            there is insufficient real capital for a profitable completion since
            these distortions caused real capital and vendible goods to be
            mis-allocated into various business enterprises that never turn a
            real profit, this actually destroys capital draining it from the
            economic markets, consumer preferences are also distorted therefore
            the whole structure of production reflects this distortion. It is an
            unsustainable system, flawed in concept and execution.

            There is a very good reason, completely verifiable through history, for
            governments to destroy sound money, replacing it with fiat systems,
            that is because sound money forces everyone, including the
            government, to act and practice fiscal responsibility and discipline.
            Governments are allowed, through the fiat monetary system, to avoid
            every hard choice that a sound money system imposes on it, rather
            than an economy that is ruled by market scarcity and uncertainty, the
            government seeks to manipulate the fiat monetary system that allows
            it to create virtually unlimited deficit spending, redistribution of
            productive wealth from the private to the public sector and also
            allows for a type of patronage that assist in getting politicians
            elected by a population that increasingly depends on the largess of
            government coffers. Fiat money allows politicians to essentially buy
            votes of various groups and special interest all through the
            production and allocation of an expanding fiat money and credit
            supply, all the while avoiding actual taxation to pay for such
            spending. This system is in the direct interest of the government but
            not in the interest of the people. Fiat monetary systems allow for
            the whole political process to be distorted as well, the government
            becomes the master while the people, no longer titled to actual asset
            money, must rely upon the graces of the government and the official
            legal tender, which can never be actual titled property of the holder
            as is sound money.

            There is, based on what you have said, a disconnect between what you assume
            to be the cause and effect of fiat money and the actual cause and
            effect of human action relating to such an inflationary expansion of
            such a monetary substitution system. If you look at the various dates
            given as far as living standards you will see correlations between
            the advent of the expansionary fiat monetary systems and what
            actually took place. You talk about women entering the work-force,
            the two-wage earner family, have you ever thought why it became
            necessary for women to enter the work-force? There is a direct
            correlation between the inflationary depreciation of the currency and
            the necessity of additional family income. If you look at the various
            inflationary points you can readily see that there while the income
            of the average working family increased, the purchasing power of that
            income decreased faster than nominal wages, thus the point you are
            attempting to make is relatively moot when making such comparisons.
            Not only that, but in terms of so-called disposable income there are
            many factors that must considered, the burden of personal debt is a
            claim on all so-called disposable income, many times we assume that
            income is disposable when, in fact, it is simply income that must be
            diverted or is, based on human behavior, used in ways that might not
            otherwise be in the fiscal best interest of the individual.

            Perhaps one of the greatest indicators of actual disposable income can be
            seen in the rate of savings verses spending, based on asset
            appreciation over the decades [inflated through credit manipulation],
            the actual rate of savings should be substantially higher than it is
            if the actual disposable income was as high as you claim, but it’s
            not. The fact of the matter is, and history proves this fact
            empirically, that for over 120 years, from 1792 to 1912 the
            purchasing power of the dollar remained constant, it was only until
            the advent of the Federal Reserve that this highly prosperous system
            was assaulted and within two decades of the abandonment of the gold
            standard in 1933, the price index doubled, within four decades it
            quintupled, this is extremely pertinent, not only on the ability to
            create and maintain wealth, but also on what we call disposable
            income.

            While it is true that advances in both technology and agriculture have done
            much to increase the ability of Americans to live better, those
            factors are not directly related to the fiat monetary system, on the
            contrary, they are despite the fiat monetary system.

            If you compare the actual living standards of Americans during periods
            since 1971, you will see that those standards of living have
            corresponded with an increase in the expansion of the money supply
            and the accumulation of debt, prior to 1971, the rate of savings and
            thus capital investment provided a relatively stable atmosphere to
            increase a sustainable standard of living without credit excesses
            seen after 1971.

            Actually none of those facts have been ignored, just because I don’t touch on
            them doesn’t mean that I am not aware of such factors however, that
            being said there are other factors that must be included. One thing
            that you seem to avoid is the fact that, based on government
            computations, a person making the nominal wage of say $50,000.00
            today actually only has the purchasing power of $2,149.56 dollars in
            terms of a 100 cent dollar pre-1913, that is hardly an increase in
            the wages nor does it adequately contribute to the disposable income
            of the individual. Thus, while the nominal wages have increased the
            purchasing power of those wages have constantly decreased, as such
            there must be a contributing factor involved in generating a higher
            standard of living that does not factor in such a decimation of the
            wage income, that factor is credit/debt accumulation. You cannot make
            a case for a currency that is depreciated to such a degree, that has
            lost its economic potency, as a means to a higher standard of living,
            it is illogical. If the dollar today was sound, in other words a 100
            cent dollar, then a person making $50,000.00 per annum would equate
            to a person making $1,163,030.30 in today’s depreciated currency.
            That demonstrates a substantial disconnect between the nominal value
            of the currency and the actual purchasing power of the currency; it
            is, after all, not the amount of money that is meaningful in economic
            terms but the quality and what the currency will purchase that is
            meaningful.

            The fact is that from 1975 to 2000 household debt rose by a factor of 4.5
            and mortgages grew by a factor of 5.5 even adjusted for inflation,
            that does not speak of stability. The fact is that for the past 30
            years, in good times or bad, consumer debt has risen and since 2000
            there has been a substantial increase in consumer debt, now there is
            a relationship between that debt accumulation and the standard of
            living. Again, you are basing your figures on things that do not
            factor in the constant depreciation of the purchasing power of the
            currency. It is strange that you would make the assertion about debt
            related to the soaring cost of healthcare and not understand that
            there are some very good reasons why healthcare is soaring, those
            reasons can be directly tied to government interventionism, monetary
            manipulation.

            The real estate boom and stock market boom are directly tied to the
            monetary policies of the Federal Reserve, as stated previously in my
            comment. There is no escaping the cause and effect, yet you are
            desperately attempting to do just that. Things are indeed very black
            and white, there is a causative effect when a government depreciates
            the currency of a country. You act as though the economic system is
            somehow isolated from the effects of the fiat monetary system, when
            in fact, it is a product, with all its ancillary components [good
            and bad as a matter of perception], of the fiat monetary system. The
            entire economic structure depends solely upon the quality of the
            medium of exchange and cannot be isolated from that medium. By 2008
            the total of household debt stood at almost $14 Trillion Dollars,
            that almost comparable to the entire GDP of the country.

            The fact is that Americans are not paying for their mistakes anymore than
            the government is itself. The Federal Reserve has gone beyond the
            monetary policies that got this country into this quagmire in the
            first place, the fact that it has embarked on several policies that
            are not just suspect, but highly dangerous economically and socially
            speaks to the fact that they haven’t a clue about what to do to
            correct their previous problems.

            Since monetary policy makes it possible for the government to essentially
            steal resources from the legitimate producers and owners of those
            resources though fiat monetary inflation it is necessary to take
            certain precautions that are rarely considered. Of course, outside of
            the prudent investment in hard assets such as gold, silver, land,
            there are other investments that are necessary to protect your
            wealth. I personally avoid any business or industry that are capital
            intensive, the reason being that under a highly inflationary
            atmosphere, the government will always tax phony profits. I say phony
            because profits are counted in terms of nominal values not actual
            purchasing value. Since the IRS does not recognize replacement cost
            but only historical cost, there is a detrimental consequence to
            investing in such capital intensive ventures since they report higher
            profits due to low historical depreciation expenses, but the reality
            is that when such capital improvements or replacement is necessary it
            becomes difficult for them to replace plants and equipment since they
            take advantages of the low historical depreciation schedules rather
            than planning on actual replacement costs. Care must be taken when
            investing in the expansion of various industries, especially during a
            boom cycle, that maybe limited to future revenue generation rather
            than current generation of revenues, again inflationary depreciation
            and the tax code create and generate an unfavorable atmosphere for
            such investments. The further away present goods are from final
            consumer goods then such ventures cannot be adequately sustained due
            to a lack of real capital from actual savings, such companies must
            rely upon fiat paper capital instead, again this is a good example of
            mal-investment and the miss-allocation of resources in production.

            Again, it is paramount to avoid any industry that depends on the constant
            increase in the fiat money supply or any type of government coercion
            to maintain its existence. Due to the nature of government under a
            fiat monetary system, it always spends more than its revenues,
            eventually governments realize, usually too late, that under such a
            system, tax revenues can only be increased to a certain point before
            they begin to decimate the very foundation for such a government’s
            existence, that being those productive markets that generate actual
            wealth and jobs. The only eventual solution under a fiat monetary
            system that remains to such a government is to either default on its
            mounting debt or, as usual, to inflate that debt away through a
            massive monetizing of that debt, this is currently the stage that our
            government is taking, it is, by the way the last stage in the
            life-span of a fiat monetary system.

            It is also notable that all the measurements within the economy are now
            measured with depreciated dollars; this is rarely considered nor, for that
            matter understood as to the implication. GDP, for instance, is measured
            in a constantly depreciating dollar, yet it is assumed to be accurate. So too
            are all fiscal indicators, the fact that a measuring stick is always changing
            should not give anyone cause for confidence.

            Strangely, everything corresponding, Americans borrowed more last month
            than at anytime in our recent history, the question should be why? The answer is
            not very surprising, the standard of living enjoyed by Americans is a borrowed, it has
            not been created through productive savings, but through borrowing. Again, if
            most people understood the nature of the fiat monetary system and the fact that
            it is constantly being depreciated and that such depreciation causes numerous
            consequences seen and unseen. When there is no certainty, no sound measure then
            the resulting distortions can only get more erratic and chaotic.

            Watch what I tell you…it is happening now.

    • jamesluko says

      Yes Jack, exactly, Gold has no intrinsic value except psychologically, but- stocks, bonds, for example hold intrinsic value as representing ownership in real value- as real estate and companies- real property- and income producing entities- gold has NONE of that. In addition, a dollar- in which we pay salaries- represents stored labor and therefore- as a representation of real value- a lot more credible than Gold.

  5. Republicae says

    I am with Walt on this one, this article completely misses the boat and is far from factual. In terms of the University of Chicago “top economists”, the very same ones that completely missed what was happened during the years leading up to the dislocation and eventual Panic of 2008, well that speaks for itself doesn’t it?

    The idea that inflation is a good thing is an astounding proposition since the purchasing power of the fiat currency is dramatically decreased, meaning that price increases are not an economic benefit, but a detriment. Today, it takes approximately $23,191.31 fiat dollars to buy what $1,000.00 gold backed dollars bought in 1913 and that is using the government CPI calculations, the real devaluation is much greater than official numbers indicate. As such, today’s dollar buys about 3 to 4 Cents per unit compared to the 100 Cents it bought prior to the advent of the Federal Reserve System. The hidden taxation of inflation not only hurts the average consumer, but also, in a very real sense distorts every pricing system within the economy, including profits as well as making it extremely difficult to make decisions in the market due to those cumulative distortions.

    Now, under what is called the “classical gold standard” there was negligible inflation, in fact there was enormous economic growth and at times there was deflation during those periods of economic growth, something that befuddles most economists of certain “schools of thought”. It is easy for some to place blame on recessions and depressions, such as this article, on the gold standard, all the while completely excluding other factors that were directly and indirectly involved in those economic dislocations of the 1800s, particularly political factors. On the other hand, if we delve into the recessions and The Great Depression of the 20th Century we quickly see that not only was monetary policy the prime suspect, but the manipulation of the fiat monetary system was a direct cause of those dislocations. It is amazing that the author of this article cannot distinguish such factors and honestly expound on them, to do so would have given far more credence to the point being made.

    The idea that there has been unprecedented economic growth is one of delusion, the shifting of resources through misallocation, malinvestment and various forms of monetary manipulation hardly is impressive when it comes to actual sustainable economic growth or widespread prosperity due to that growth. If there was a correlation between the amount of fiat currencies being printed or circulated and the degree of economic growth and an ever-widening prosperity then the economic growth should actually be at a magnitude that would pale the highest growth rate ever seen in this country, but it does not correlate in the least.

    It is quite evident that within this article the author does not understand the mechanisms of money, and equates an elastic monetary system to economic growth. As stated above, if that were indeed the case then the world should be awash with wealth and prosperity that would be widespread rather than concentrated. It is also evident, and a common misunderstanding, that the amount of gold functioning within an economy as money is not a primary factor either way, the number of gold dollars can be completely static and yet the amount of economic growth can soar far beyond the limits of the number of gold dollars in circulation. It is common for people who don’t understand monetary mechanics to assume that more is better, therefore the more fiat money you place into circulation the greater the benefit however, unlike gold, fiat money devalues as the circulation increases, this does not provide an economic or social benefit since the devaluation or the loss of monetary potency displaces any possible economic benefit that might have been achieved. The illusion of growth is indeed compelling, for under a fiat monetary system that illusion provides, or so it is assumed, a “proof” of the beneficial nature of an elastic fiat monetary system and yet, we viewed from what is removed during economic dislocations, such as the Panic of 2008, it can hardly be considered actual growth. Actual economic growth is stable and steady, providing an ever-widening field of prosperity without the necessity of relying upon the second form of fiat illusion: fiat credit.

    Of course, the old argument that we have a $15 Trillion Dollar economy, so how on earth could the amount of gold support such an economy? On the surface that looks like a very good argument until you factor in the devaluation of the dollar and then the argument falls completely apart. If each of those $15 Trillion Dollars (the nominal value of the economy) are counted in the actual purchasing power of each of those $15 Trillion Dollars, the reality becomes much more clear. Given the fact that even with official government CPI formula the actual purchasing power of the current U.S. Federal Reserve Note is approximately 3 to 4 Cents, you can see that the illusion of nominal value compared to actual value provides a completely different picture of the entire monetary and economic situation. Of course, the mistake is an easy one to make, for the assumption that just because the economy or the debt is counted in the face or nominal value of the currency hold a valid meaning decries the fact that the reality is much more disturbing. Just because a piece of paper is printed with an image that shows $100 dollars on its face is meaningless if the actual monetary value or purchase value is $3.00 rather than the face amount of $100.

    As Adam Smith rightly stated: “Though the wages of the workmen are commonly paid to him in money, his real revenue, like that of all other men, consists, not in money, but in the money’s worth…”

    Thus, it should be easy to see, though few people, especially those who are ardent supporters of a fiat paper monetary system, can, it is the real value, the real worth of the money that holds meaning, not the face value of that money.

    Another assumption, based on the idea that there would be deflation if this country returned to a gold standard, is just that, an assumption founded upon the idea that there has to be an ever-expanding money supply to meet the needs of such an economy. This assumption, again, decries the fact that they still think in terms of the nominal value of the fiat currency and not the real value. The fact is that the fiat money supply has been inflated to such a degree that returning to a normal money supply, especially one that has actual value rather than an inflated value would be detrimental and cause deflation. What is deflation? Well, most of the fiat monetary enthusiast think of it as a complete disaster based on an understanding of deflation experienced in this country during The Great Depression however, what they don’t take into account is the fact that deflation was not the cause of The Great Depression. In fact, if you look at the various countries that experienced Depression during the 1930s, there were some that had no deflation at all and yet experienced economic depression, how is that possible? In fact, there were some countries during the 1930s that experienced deflation without experiencing a depression. So, again what is deflation? Those whose mind-set is anchored in The Great Depression view deflation as a bad thing compared to inflation, but deflation means that every monetary unit increases the purchasing power of the person that holds that money. Strange isn’t it, that a positive purchasing power is considered a bad thing, the more that money buys the greater the benefit to the holder of that money and yet, these Fiat Fanatics view that as a bad thing.

    Again, the author of this article makes the commonly-held assumption without actually asking the right questions regarding that assumption. Anchored in the mentality of The Great Depression, the author assumes that deflation is the cause of discouraging investment and that would cause a recession, that businesses would be forced to layoff workers and cut cost in order to adjust to the smaller supply of capital available. But read that again and consider that for a business, the greater the purchasing power of the money the greater ability to utilize that money in far more efficient ways, fewer dollars buys more when the money becomes more economically potent. Again, the assumption is that there would be less capital available, that too makes little sense in the real world and notes that the author is not aware of the differences between money and capital. The greater the purchasing power of the money the greater the capital value of that money, the economic potency of the currency being increased makes a massive difference in the ability to grow the economy in sustainable ways rather than depending on the illusion of an expanding fiat currency, which is nothing more than an artificial construct. The proof that such a system does not contribute to real economic growth is in the fact that if the increase in money supply is halted or reduced in a fiat monetary system there is an instant negative response within the economy itself. A real economy based on real money, rather than a money substitute, will not suffer such a negative response because it does not rely upon the number of gold dollars in circulation. Again, the common mistake is to think that it is the number of dollars in circulation that holds economic meaning in terms of growth. David Hume, the great Scottish Economists proved that point almost 300 years ago when he calculated that even if the amount of money doubled over night that the benefit would be fleeting, that prices would automatically adjust to outweigh the short-term benefit felt by those holding all that new money. The only ones who would benefit are those who held and used the money first.

    There is another assumption that when FDR took gold from the domestic economy it was for a particular reason and that was to influence the domestic economy, but the real reason was that it was a default on government obligations to the American People, he didn’t want to pay the bills of the government and the people paid the price. Again, when Nixon severed the ties between gold and the U.S. Dollar, that was nothing more than a default on foreign obligations and since that time, there is a very definite correlation between the decrease in economy viability, the increase in debt accumulation and the consequences we have yet to see because of it.

    As far as the remainder of the article, I could continue but there is really no point to drag this out, needless to say the author should go back to his desk and research this issue a bit more rather than rely upon the worn-out retreads that are so commonly argued to support fiat money. I’ve heard his arguments thousands of times and they are all the same, nothing new, no new theory, no new evidence…in short, nothing new.

    • jamesluko says

      purchasing power of 3-4 cents? compared to what baseline? which year? and … you ignore the fact that incomes are much higher than before- so if you wish to say that the dollar is 3-4 cents of its purchasing value of 1960 or 1920 or 1900 then it’s a ridiculous argument ignoring the higher incomes people have. For example, a prison guard in Arizona gets an income of maybe $23,000-25,000 – which is relative to costs in Florence Arizona- very low- and the same prison guard gets $80,000 in San Francisco area- to reflect higher local costs- or the concept of purchasing power parity- so comparing a dollar in1920 and income levels of that time to what a dollar buys today- as 3-4 cents is haha- noncents- I mean- nonsense…. since incomes are much higher AND- prices of most goods much lower than 1920.

      • Republicae says

        You are apparently not even aware of the fact that you are making my case for me James, too oblivious to what you are describing to understand just what it means. Strangely, the above article states the FACT that the Dollar has lost 97% of its value and purchasing power since 1913, let’s see James, but 100 minus 97 equals what now? The numbers are from a formula, an official government formula that measures the rate of inflation and what is inflation James? It is depreciation in the value of the currency, what happens when a currency is depreciated? It no longer retains the purchasing power of the original currency. One must wonder James why on earth would the government have a formula to measure the CPI, if such measurements were “noncents-I mean-nonsense”?

        Now, again, to show you that you have made my case for me, consider what the above article has said about the reasoning behind fiat currency is its elasticity and that it is this characteristic that makes for greater economic growth and yet, read your comment again. You overlook the most obvious James, swallowing camels while straining at gnats. What is the economic or social benefit of a currency that is so elastic that it no longer retains its purchasing power, in fact its purchasing power is totally dependent upon whether or not policy of monetary inflation is prevalent. What happens when a fiat currency is inflated to the point that the purchasing value is no longer positive?

        The fact of the matter is that, as I said, you are making my case for me. Despite your efforts to the contrary, you have shown that not only is a fiat currency inherently unstable, but is so unstable that it takes numerous units to purchase what fewer monetary units purchase in years past under a sound money system. Relative cost have nothing whatsoever to do with the decimation of the purchasing power of the currency James, that is simply reflective of local markets not the characteristic of the currency.

        Now, the only baseline to which to compare any currency is to its original value, that value was 100 Cents in the year 1913, since that time the purchasing value of the currency has been debased, now it stands at approximately 4 Cents compared to 100 [based on official government calculations], it is actually much less when using the older CPI formulation.

  6. Republicae says

    It is hardly amazing anymore that those who advocate such a fiat money
    substitution scheme will defend it despite contrary evidence that it
    is the ultimate form of economic degradation. There will come a time,
    not in the distant future, when the FED will be forced to purchase
    100% of the government’s debt. At which point those that have been
    such ardent supporters of the quack-pot fiat monetary scheme will
    hopefully finally pull their collective heads from the sand and
    understand the extremely flawed character of such a system.

    Those in the fiat monetary camp believe, or at least based on the system
    itself they must believe, that it is the quantity of monetary units
    that is economically meaningful when just the opposite is true, it is
    the quality of money that is economically meaningful. There is
    absolutely no social or economic benefit for the expansion or
    elasticity of the money supply. In fact, just the opposite is true,
    there is are detrimental effects when you have an expansionary or
    elastic money supply. It’s the most fundamental principles in
    monetary mechanics and the only beneficiary is government and those
    who are highly connected to the political-corporate structure that
    benefit.

    Under fiat monetary regimes, especially those which are based upon the
    organization of debt into a currency system, the entire system
    becomes inundated in debt, so much so that the system becomes
    crippled, growth is stifled, economic distortions and dislocation
    occurs. Inflationary policies make it easy for politicians to
    function beyond actual accountability or budgetary restraint.
    Additionally, it allows for governments to avoid the nasty
    consequences of heavy taxation to pay for its constantly expanding
    power and programs. If the people of this country were actually
    required to pay taxes to fund this government and its programs, its
    military, its own agencies then there would be an instant revolution;
    that is avoided through the fiat monetary system.

    Two things begin to occur under every fiat monetary system, businesses
    and households, no longer capable of dealing with servicing their
    excessive debt increasingly default and countries tend to take the
    path of inflating the debt away, causing even more problems, not only
    for the economy as a whole, but for the average American the
    inflationary path will be devastating.

    Fiat monetary regimes work for a while, the inflationary process is
    absolutely essential to maintain the semblance of economic
    prosperity; what an expansionary fiat monetary policy really does is
    simply mock economic growth, but real growth is based on productive
    capitalization of innovation and labor not on how much paper money
    substitutes the central bank can pump into the economic system.

    There is a constant illusion among the officially sanctioned economists, a
    level of comfort is attained each time more fiat money is pumped into
    the economy, they assume that the creation of fiat money can solve
    the debt problems, that by pouring more and more fiat money into the
    economy that somehow the issues that arise from overwhelming debt is
    solved, but it’s not nor can it ever be.

    The Panic of 2008 was not some isolated incident, it was the result of a
    type of monetary policy that naturally brings about boom cycles that
    eventually delverage or bust due to the massive miss-allocation of
    resources, mal-investment and distortions within the economy. The
    government sanctioned economists were wrong, completely blind-sided
    by the events that lead up to and followed the Panic, which is not
    over. This was no ordinary recession or economic down-turn, this
    Panic destroyed productive spare capacity within the economy and is
    just one of the reasons there has not been a real recovery, nor can
    there be.

    As reliable as most mainstream economists and central bankers like to
    appear in public, the fact is that they have proven themselves and
    their estimations to be severely lacking. The reason behind this gap
    in reliability concerning real information is that the fiat monetary
    system is extremely distorted, making most predictions essentially
    worthless. The so-called experts are locked into a closed system of
    understanding, fixed, as it were, by a monetary system that cannot
    provide adequate information in terms of real economic data. Perhaps
    the most interesting fact is that you can easily track inflation, or
    usually the lack thereof, historically all the way to the 1600’s, yet
    when we enter the 20th Century data becomes increasingly
    skewed, particularly after the 1970s. Factually, there is something
    very interesting about 1948, in that year the world economy was
    forced onto a “dollar standard”, after that point there was no
    longer a balance between what we could consider the natural cycles of
    deflation and inflation, there was only an ever-increasing
    inflationary base to the monetary regimes of the world. There are
    definite consequences to throwing imbalance into the economic
    marketplace, by 1971, the entire economic world was turned virtually
    upside-down, for it was then that all traces of gold were essentially
    purged from the monetary systems of the world, the United States
    leading the way. Of course, that had been planned much earlier in the
    1960s. Since that momentous year, we have been subjected to a
    monetary experiment on a global scale and it can be readily seen in
    any historical chart on inflation.

    Fiat monetary systems always lead to a banking crisis, leading to defaults
    which, in turn, also require fiat monetary inflation to attempt to
    patch up the decaying system that fiat money creates. Fiat monetary
    inflation, particularly the type that the FED is currently engaged
    in, always makes things worse, not better and it never, ever works as
    a response policy, it can only mask the real distortions within the
    fiat economy.

    Factually, gold/silver monetary systems exhibit no or minute episodes of
    inflation than any fiat monetary system, with good reason, gold and
    silver are restrictive regimes and require accountability, not only
    of business, but also of governments. Deflation, under a gold/silver
    monetary system are not economically detrimental, rather they provide
    the consumer with greater buying power. The fact of the matter is
    that during the 1800s, during episodes of deflation there was
    economic growth, something rarely mentioned or considered today
    because of the 1930s mentality that still prevails in the minds of
    most economist today. They rarely seem to understand that since 1971,
    the world and the economy is a completely different species than that
    of the 1930s.

    With that fact comes another, the tendency of government analysts or
    economists to always speak of deficits as a percentage of the
    country’s GDP, when the real numbers that should concern us is the
    deficit relative to expenditures, as that percentage increases so to
    does the danger and it is definitely increasing by leaps and bounds.
    Currently, when looking at the deficits of the United States and
    other developed countries we see several, especially the United
    States and Japan, are particularly close to the levels of deficits
    relative to expenditures that always precedes a hyper-inflationary
    event. The thing that will be the turning point is when the FED and
    the Central Bank of Japan decide to monetize the majority of their
    respective deficits, at that point it will be nothing to pay
    $4,000,000,000 for a baloney sandwich. I wonder what the supporters
    of fiat money will say then?

    One last thing to consider is actual economic growth in this country, particularly since 1971,
    the year that the dollar became a total fiat paper money substitute, if you look
    at the actual numbers you will see a steady decline in percentages. Now in order
    to make an adequate argument for fiat money verses sound money one must
    compare growth rates within the economy during periods of either a pure fiat or
    a classical gold standard. By the 1890s, the United States became one of the
    leading economic powers in the world, soaring above even Great Britain.
    This only occurred after the Panic of 1873, the economy in shambles,
    then the economy not only recovered but exploded with growth
    when the dollar was once again backed by hard money [gold and silver].
    The per-capital wealth of the count grew by an annual rate of 3.8% and the
    GDP was almost at 9%. Now this is amazing, but capital formation and investment
    grew by 500%, nothing has ever matched those numbers under a fiat monetary system.

    What I find interesting among those who advocate the fiat paper
    money substitution regime is that their argument can only be one
    sided, they assume that the elasticity of the fiat regime
    is beneficial, but are at a complete loss when such a regime
    is compared to the actual economic output under a gold monetary
    system. The assume that there would be a lower
    standard of living or that the standard of living which this
    country has experienced is due solely to a fiat monetary system.

    When Dr. Ron Paul ran for President in 2008, there was an extremely
    interesting article in one Canadian Financial paper, it stated that if
    Ron Paul won the election and was able to bring back the classical gold
    standard, that Canada would have to follow suit just to remain economically
    competitive with America under such a gold standard. The implication was that
    a classical gold standard would put America at such an economic advantage that
    Canada, and in fact, the rest of the World would have to do the same.

  7. Republicae says

    Due to the immense variations in the quantity of the illusionary paper currency we mistakenly call money, there is, as a by-product of such variations in quantity, a corresponding variation in the real money value of property and debts. Since the currency we call money is little more than a “promise to pay” money that has no real existence, there is no real or actual reliable estimate that can be made on property for any considerable period of time, the same can be said of debt since the real value verses the nominal value of the currency is determined by the quantity issued. The problem being that all debt under a system where debt is organized into a currency, is a double liability.

    There can therefor, be no reasonable reliabilance on the continual issue of such currency as a real measure of either obligations or property values over the long term. Other factors rarely, if ever taken into consideration is that when debt is organized into a currency system, the value will ultimately be regulated into a state of disorder, there is an impairment that takes place within the economic structure due ti the inherent instability and resulting disorder of such a currency system.

  8. Republicae says

    It is interesting, as evidenced in this recent article in The Sun, that more and more people are recognizing the incredible defects in the fiat monetary system, many of these are not simply people, but mor politicians and economists are seeing that the current fiat monetary system is crashing. Of course there will be die-hards, as we have witnessed in the comments below, but a reality will soon break upon even the most ardent supporter of the fiat money regime that it has reached the terminal point in its existence.

    “Mr. Brady is emerging as an important figure in the monetary debate. He has not endorsed a gold standard, per se. Nor has he signed on to some of the more radical measures, such as Ron Paul’s Free Competition in Currency Act, which would end the whole system of legal tender and open the way for privately issued money to compete with government scrip. Instead, Mr. Brady has been pressing a measure called the Sound Dollar Act, which he has just reintroduced. It would, among other things, end the Fed’s dual mandate to both stabilize prices and boost employment.

    Mr. Brady’s Centennial Monetary Commission Act, which is also known as H.R. 1176, is a parallel measure that would establish a commission “to examine the United States monetary policy, evaluate alternative monetary regimes and recommend a course for monetary policy going forward.” It is not a repeat of the United States Gold Commission, which was established at the start of President Reagan’s first term. That was an important body, to be sure, but it was stacked with advocates of fiat money and is today remembered primarily for its dissent, written by Congressman Ron Paul and another commission member, Lewis Lehrman, calling for a restoration of gold-based money.

    Mr. Brady’s bill would establish a much more balanced and bipartisan commission, without a predisposition for or against a gold — or any other — standard. It offers a chance not only to light the way to the repair a broken monetary system but also to illuminate the danger that our reliance on fiat money is itself the cause of our long economic travail. This alone is important. Congress is consuming itself with the fiscal debate at a time when a growing number of our best economists and political leaders are coming to the view that the real problem is the fiat nature of the dollar.”

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