Uncle Sam's Frivolous Fiat Fiasco/America's Irreversible State of Collapse!
Historically, fiat inflation was realistically deemed extremely dangerous to the economic, social and political safety of a country, but as usual, the temptation for the unleashed power and the ability to use the fiat system to convert the labor of a population to unlimited wealth for those in charge of the money has always proven far too great to resist. by Republicae
(libertarian)
Sunday, August 10, 2008
There was a time in this country when those who advocated a Fiat Monetary Standard were considered certifiable crackpots, monetary quacks and dangerous interventionists set on domination of both the political and economic processes in this country, the roles have been reversed and those who advocate sound money are assigned such epitaphs of derision. Fortunately, that will change and at this point in time, change rather rapidly as the true nature and inherent problems of fiat money become evident to the people themselves.
At one time, Classical Liberalism promoted the ideals found within the principles of a sound monetary unit that not only provided stability economically, but also provided for the spread of real prosperity and liberty. The cornerstone of Classical Liberalism was private property rights and the cornerstone of all private property rights was, and is sound money, money that is actual real property, solely owned by the individual who labored either by the sweat of his brow or the sharpness of his creative mind. Such money was not owned or controlled in any significant way by government except in trust through the regulation and verification of the fineness of coinage in purity, weight and measure. Otherwise, money was the property of the individual, or legal corporation, just as any other property of which legal title may be held.
Along with the ideal of private property rights, Classical Liberalism, which could just as easily be called Jeffersonian Liberalism, promoted a confidence in the market economy, as free as possible from all interventions, especially from the government. They held, and still hold that private property rights, in all aspects, provides for the best means of production and distribution of prosperity within society with a system of economic organization organic in both concept and operation. It was, and is, the best system to secure the broadest means of prosperity and individual protection within a society for it assigns the individual consumer the power to choose which producers provide the best quality at the lowest possible price for the consumer's needs and desires. The principles of sound money and free, unencumbered markets were just some of the foundation stones that help create this wonderful and I might add, successful experiment in the broadest spectrum of individual freedom and liberty the world had experienced: These united States of America under an mutually agreed Constitutional Compact between the people and their government.
The Founders of our country realized that the main challenge facing such a liberal system of government and society was how to control the only real danger that would ever face the country, the government itself. The goal of the Founders was to institute a government so cumbersome, so divided in function and authority that all power would be distributed between the general government and the independent State Republics; the best description could be called a Republic of Republics, functioning in a cooperative compact. Then, of course, they implemented further divisions within the general government itself, once again dividing function and authority to ensure that power could not easily be concentrated or consolidated.
In essence, the general federal government was simply a reflection of the will of the people through the agency of their respective State Republics. So, the main problem, in the minds of the Founders, was how to prevent those who are entrusted to govern by consent from becoming despots, endangering and enslaving the citizenry in their stewardship. The layers of defense for individual liberty was obviously the primary goal in the institution of our system of governments and the focus of each layer of defense was the broadest application of individual freedom and liberty possible within such a system. What an absolute shame that we have allowed ourselves and our country to devolve far from such a very workable, very efficient ideal.
Today, there are few who seem to realize or understand that within all the defenses for individual freedom and liberty laid out by the Founders, was the principle of sound money. It is absolutely impossible to understand the full meaning and import of sound money without understanding that one of the primary purposes of sound money is the protection of individual freedoms and liberty, private property rights, as well as a protection against government intrusion. Sound money is politically and ideologically in the same strata as our Constitution and our Bill of Rights, and it is just as important to our freedom and liberty. It was, and should be considered, the most essential restraint upon arbitrary government expansion and the potential for unbridled consolidation of power.
The principle of Sound money has a dual purpose, one positive, one negative; in the positive aspect it provided for the greatest degree of individual freedom and liberty while providing for the broadest spectrum of free market choices. On the negative side, its aspect was one of governmental restraint, an abutment of reckless expansion, potentially dangerous debt aggregation and of course eventual despotism. In such a system, only actual coinage was to be considered loose legal-tender, all tokens, scripts and types of "paper-money" were to only represent the real money and only served as fiduciary mediums, which upon demand of the holder, were completely redeemable in lawful real money. "Real money", it definitely has a wonderful ring to it, doesn't it?
I wonder how many in our government, or in the Federal Reserve for that matter, finds the term "Fiat Money" as oxymoronic as I do? Money, by definition, is a store of value; fiat, by definition is simply a decree without intrinsic value. Fiat money is an impostor, giving the impression of value without retaining a store of value as a medium of exchange. With the dedicated assistance of the Federal Reserve, this country is in now in a state of irreversible collapse, technically bankrupt for several years, it will absolutely be unable to climb out of the horrible pit these criminals, both in the Federal Reserve and the government, have share in taking this country to the precipice of disaster and they are still pushing.
"... the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." –Ben Bernanke 2002
Today, we are so far-removed from the concepts of sound money that it is totally foreign to our understanding; we have been convinced that the only monetary system that is acceptable or applicable is the one we current have imposed upon us and that is the fiat monetary system. Sound money is an alien concept, so much so that we don't realize just what we are missing, it doesn't enter our minds, for the most part we are totally unaware of the benefits of a sound monetary system. Of course, a fiat monetary system requires ignorance, equalized with confidence, in the general population to function properly, without widespread ignorance or confidence, the system fails, as we will see.
The fiat system not only relies upon widespread ignorance and misplaced confidence, but it also relies heavily upon government intervention and regulation. A sound money system, on the other hand, doesn't rely upon such numerous variables in order to function; actually it is extremely simply and straightforward in both functionality and application. A sound money system can easily operate independently of all government policies and the pressures of political intrigues, including very divisive party politics. Such a system also helps to prevent government officials, and representative assemblies, from using various tricks to elude their budgetary and fiscal responsibilities to the people and the country.
Since the rather subversive introduction of the fiat monetary system in this country, there has been little room for the consideration of a sound monetary system. The proponents of the fiat system have for the most part, effectively exiled it from economics and serious monetary studies for good reason, for it poses the greatest danger to the fiat system and those who enormously benefit from that system. The various proponents and schools of economic thought have yet to consider the precarious position they are in because they have failed, utterly failed to contemplate that all their theories are based upon a monetary system inherently doomed to failure. Such a foundational flaw will always ultimately distort all conclusions associated with it, especially when the flaw is not considered to exist. Today, our country is fraught with what could only be considered "Crypto-Despots", eager to maintain their position as well as their power, the prime impetus of which has been the introduction of a system of fiat money for it provides them with medium of control over society that they crave.
So, there are few questions asked and the questions that arise are based upon incomplete assumptions because the foundational structure of the economy is completely based upon a system that contains two divergent fault lines, which will, in time converge in disaster. The first fault line consist of the inherent terminal life span of all fiat monetary systems due to the systemic inflationary depreciation, the second fault line consist of requirement of absolute widespread public confidence in fiat money itself.
Eventually, these two fault lines converge and the system collapses. Such collapses are not preventable any more than the system itself is sustainable without massive government and central banking interventions. The system lends itself to those who require the benefits of inflationism, this trait, of course, is welcomed and enhanced by both government and central bankers who are all too eager to utilize such a trait to their best advantage. What need is there to operate within budgets, to maintain expenditures by within tax revenues since, according the a former Chairman of the Federal Reserve of New York: "taxes for revenue are obsolete", and indeed they are obsolete within a fiat monetary system. I have found that the full import of that statement has yet to be realized, especially within the minds of the majority of economists and their feeble schools of economic theory fashioned around the fiat monetary system, a system that is inherently flawed.
Eventually, of course, the people, the economists and the politicians will become painfully aware of just how flawed the fiat monetary system really is as the very harsh reality rises into view, affecting everything and everyone within this country. Like all fiat monetary systems, ours is destined to go through the same stages of failure as all others before it, and our economy will, at that moment, collapse under the inflationary pressures of an enormous expanding government.
Inflation is an easy tool in the hands of the government as long as they can maintain it at gradual incremental increases over long periods of time, but the moment a rapid increase occurs, the ruse becomes far more difficult to maintain. In the first stage, the people will begin to witness the rapid increase in prices for both goods and services. While at that point they simply believe the government when it states that commodity prices are rising for various reasons; the government of course, always has a plethora of reasons on hand to justify such price increases, all in the hope of maintaining the charade.
At this stage, there will be a few people who actually realize just what is going on in the economy, but unfortunately the majority will remain true to their conditioning and while they may gripe, will not question the true cause of their financial pain or the culprit behind it. The majority will continue living their daily routines as though the inconveniences of higher prices will be a passing phenomena, continuing to misplace their trust in a government that was in on the damnable ruse from the beginning as it shifts all blame to something or someone other than itself.
While, at this stage, people may wish to make certain purchases, they think that prices will eventually retreat so they put off the purchases in the short-term until a later date. This common attitude is relatively short lived because as prices continue to rise, at unprecedented levels over longer, consistent periods of time, people will begin to think that because prices are so high that they will then put off a purchase for a year or two, perhaps then prices will once again subside to more normal and manageable levels for their income. The last stage abruptly hits and the entire system then faces catastrophic collapse when the people begin to think that they had better make a purchase, any purchase immediately because they realize that the purchasing power of their fiat money is rapidly loosing its value of exchange.
So, the people, in a panic, will withdraw, if they are allowed, their bank deposits, cash in their stocks, redeem any bonds for cash to exchange for commodities or merchandise they feel will retain value even if they have no real needs for the commodities or merchandise they are buying. As the panic spreads, shortages being to take shape, manufacturing slows to a halt, unemployment skyrockets, and public services breakdown and in the last stages chaos ensues. The government seeks to assert itself, but to no avail for even the government under these circumstances, in this present age will prove to be as impotent as the fiat money they so ardently promoted, to solve the problems faced by the country and the people.
While it is easy to see the conclusion of such a system as a failure, the truth of the matter is that entire system, and the polices created to sustain it, were failures from the beginning. The purpose of the system is not, nor has it ever been throughout history, for the benefit of the people; its sole purpose is to provide the government with unlimited, unrestrained finance and the central bankers with an incredible profit machine without much oversight or regulation to impede their government authorized monopoly.
So, the system of government and central banking fiat money, dependent upon intentional deception of the population to remain viable comes to an abrupt end, it is no longer a manageable system of exchange, nor will it provide the government with a free financial reign. There are no solutions to the problems inherent within our government's fiat monetary regime even though the government economists continue to heap unabashed praise on both the system and the polices required to maintain it, that will become more and more difficult as the system reaches its terminal point.
Historically, fiat inflation was realistically deemed extremely dangerous to the economic, social and political safety of a country, but as usual, the temptation for the unleashed power and the ability to use the fiat system to convert the labor of a population to unlimited wealth for those in charge of the money has always proven far too great to resist. Of course, the campaign to demonize sound money has been unrelenting, primarily from those who benefit the most from the fiat monetary system, and those who have been duped into believing it was the source of all economic troubles prior to the advent of the Federal Reserve System, of course, it wasn't. Those pro-inflationist, those fiat-philanderers have vowed to forever prevent sound money from raising its head in this and other countries again, but their faith will be shaken soon enough.
In Liberty and Eternal Vigilance,
Republicae-Seditionist
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Posted By: Jake, the champion of the constitution
Date: 2008-08-10 19:40:42
Republicae -
Good article, although I can't offer much in the way of constructive criticism as I completely agree.
In terms of the populace waking up, I think you clearly spelled out how it will most likely happen. Really the only question is when, how fast and how global. I recently became aware that David Walker and others are coming out with a movie real soon called I.O.U.S.A about the gov't going bankrupt, etc. I think it will be worth watching regardless, but I read it was inspired by PBS's 2002 Commanding Heights 6-hr miniseries, which is a brave attempt at summarizing the last 100 years in terms of the global economy. I watched the whole series over the weekend and was more than a little flabbergasted they failed to mention commodity money at any point, the absence was actually very glaring if you were looking for it, so I have limited faith that movie will talk about honest money at all.
Right now it seems the whole world is trying to get back in step with the dollar and inflate bit by bit, but I don't see this working very smoothly, especially if as we have decided to bail out any big corporation.
Jake, the problem is that they are unable to connect the dots, an addict will always resist the notion that he is an addict for once he does he must face that reality, a reality that he must then confront.
What amazes me is that they seem to be completely unaware that our current monetary system is following the same pattern of degradation that all other fiat systems have followed in history, the exact same pattern is evident today, yet the ignore it because they must. They are forced to ignore it because to acknowledge the pattern would require the most drastic transformation in the history of the world since the FDR coup, and to acknowledge such a pattern of degradation would mean a complete loss of trust and confidence, the one thing that powers of THE STATE can not afford.
It matters not, reality will press itself upon the system, upon the government and unfortunately upon the People.
o.k. Now What? What can I do to protect myself from the dollar doom and profit from its demise? What can I do to get ready for the debacle? Barter? Buy the already inflated Gold? Short the dollar on the futures market? Buy cheap land? Any suggestions are welcomed.
Maybe you can explain who is going to benefit from a collapse of a fiat system. Who is going to lose power and who will gain power?
Also, what keeps you, as an individual, from converting your dollars immediately upon receipt into the hard assets that you feel will protect their value? If there were enough of you, you should be able to operate within a fiat based system with minimum exposure to its collapse.
Where are the gold-based bank accounts? In this day and age, if there was enough demand, certainly some bank somewhere would offer a gold checking account you could write checks against. The value would fluctuate daily as to how many dollars it was worth, but that would be a risk that you take.
You may be right. The system may fail one day. But you do not know when. Next year, the next decade, maybe longer.
Meanwhile, many of us are profitting in a fiat based system, and profitting quite well. And I am talking real value, real profit, and real assets. If the fiat system fails, rest assured, we will still profit from whatever system evolves.
Gold does not produce, invent, create, grow. Over history gold has not been a great investment. In an inflationary fiat based system, why would gold ever decline in price as steeply as we have seen? Gold should be a foolproof, guaranteed return investment. Yet history says otherwise. Would you have been better putting your assets in Microsoft or Apple or gold?
A loaf of bread might be purchased for the same amount of gold or silver as it took decades ago, but how much more medicine can you get, or computing power?
Judging from the only examples we have of such collapses I can say that throughout history, when a failed fiat experiment occurred there was always, without except a return to sound commodity money. The problem with our present situation is that there are drastic differences in the circumstances surrounding us that were no present in the past. Today, we have a global fiat monetary system of economic development, which is complete intertwinded, the levels of interconnectivity is unprecedented.
Take, for instance the Great Depression, the general economy at that time was relatively contained within the country, though the effects of the depression were felt throughout the developed world at the time, it was relatively isolated. It should also be taken in consideration that our money at that time did have underlying support of commodity specie, that is no longer the case. The difference however, is that there was a relatively strong manufacturing base at the time within the country, additionally the population at that time was far less concentrated in urban areas as they are today. The majority of the population enjoyed a rather isolated agricultural life with the ability to survive such economic dislocation, today that is very different.
I don’t need to tell you that few people in this country would have the required knowledge to survive such a disaster, particularly one on the scale that I am speaking about. The government will be without resources, the power base upon which this government now depends will virtually disappear overnight. It’s only hold on power at this point in the history of our country is the monopoly on fiat money, without that source it has absolutely no power to enforce its will upon this country for it has forsaken the consent of the people and without that support there is no government.
The point is that no one will benefit from the collapse the fiat system in either economic or political terms, this collapse will be a societal disaster on a scale that has never been seen in history.
There is absolutely nothing that keeps me, or anyone else, from converting dollars into hard assets, in fact that is exactly what I do. I keep a minimum amount of fiat cash on hand, but you must also realize that for the last 50 years I have accumulated real assets, prepared those assets for any eventuality, such as economic collapse. There are numerous people who do exactly the same thing as I do, they have prepared themselves.
There are also “gold-based” accounts, but you must realize that such accounts will be subject to the same stresses associated with the general economy. It is all fine and good to have your cash assets deposited in such an institution however, if at some point in the future you would not be able to access that account due to physical impediments then what good would they do you in such a situation?
As I have said for decades, a person interested in surviving a massive economic dislocation should never invest in gold as a fiat investment. Gold and silver should be looked upon as simple stores of value, not stores of fiat value because fiat is a depreciating medium of exchange therefore you cannot judge your investment in gold by such a medium. The problem is that people look at gold in fiat terms, not only is that a misapplication of judgment, but it is potentially dangerous since it presents a person with a misconception of what gold or silver is in the first place. Gold and silver should be considered a medium of exchange, not in terms of how many fiat dollars it costs, but in terms of future utilitarian value.
For instance, I began purchasing gold when the government lifted its ban on private ownership in 1971, the price was extremely low in comparative terms when looking at fiat money today. The value of gold is not in terms of fiat value, to look at the difference between gold v. fiat today as opposed to say 1913 you would see that spot prices would relate, at this moment, to 1/822 of an ounce, when it was 1/20 an ounce in 1913, the gold has not changed value, but this reflects the loss of value in the fiat monetary unit. This means that the fiat monetary unit of one dollar is basically worth perhaps 0.03 or 0.04 compared to what it was in 1913 when one dollar was 1.00. In other words, our currency is very close to negative value, when it reaches negative value you will begin to witness hyper-inflation or the destruction of the economic base.
Concerning the mathematical model that denotes the timing of collapse, it is relatively easy to calculate when the debt overwhelms a system, a business, or even a government. I entered a business once, at the request of the owners, after several hours of delving into their books, I looked at the owners and straightly informed them that their company was technically bankrupt, they were unaware of the condition of the company because it was operating basically the same as it had always operated, things seemed relatively smooth, but underlying issues, such as debt, were about to overwhelm their ability to maintain an adequate cash flow to continue business.
The system reaches the terminal point in its lifespan when the costs of servicing the debt, both principle balance and interest obligations exceed the circulation, the real world collapse of the system ensues when the costs of sustaining commerce is precluded by the costs associated with servicing the debt. Such a collapse cannot be avoided while maintaining a debt-based monetary system, it is simply impossible. In other words, there reaches a point when the money in circulation is not enough to service the debt, and simply adding to the money supply continues to dilute the purchasing power but at a much more rapid rate.
Based upon such mathematical models it can be reasonably assumed that our current monetary system reached it practical lifespan two years ago and is rapidly heading into the maximum possible range of its life span now, given the Bush Administration’s abuse and debt accumulation it will accelerate even more rapidly. As I have said, by 2012, we will have all wished that Dr. Paul had been elected this year. Even Dr. Paul states that he believes we have reached that critical point and the system will not long be able to bear the burden. I agree with him.
You mention profiting from what ever system evolves after the collapse of fiat money, the question is from what will you profit? Consider the Great Depression, the direct effects were felt for over a decade, the indirect were felt until the 60s. When the fiat monetary system fails, everything associated with or dependent upon that system will also fail. The idea of profit in such an aftermath will be the last thing on your mind, the first thing will be food and how to protect your family from those who are just as hungry as you. Although, it is not as drastic, it is interesting to view the effects of hyper-inflation in various countries throughout history, including some today, especially viewing the reactions of the people themselves, and the breakdown of society. The difference is that there were, in many cases, stable countries to lend support to such countries, today every country is completely dependent upon the fiat system.
To misunderstand gold as it relates to the fiat monetary system is to misunderstand the entire history of sound money, some cannot come to grips with the notion that gold, unlike other assets serve a function that is both a commodity and a monetary unit of exchange value. There is absolutely nothing magical about gold, nor should it’s qualities as a commodity or money lift our estimation of it. It is simply a wonderful tool and a great commodity, but if we make the mistake of thinking of it in terms of fiat value then we lack the understanding necessary to see just what value it really holds.
As a commodity, it is subject to the same market forces as any other commodity, to the same speculation. Once again, if you are looking at gold through the mentality that a fiat economy has instilled then you miss the point. Even in an inflationary fiat system, gold fluctuates in fiat price because of market forces, not because the gold itself retains some quality that protects it from such forces. When you view an investment in gold, through fiat eyes, what do you see. You see the rapid decline of the purchase value of the fiat dollar verses the level value of gold. The unit of value that gold retains is constant, value verses price are two entirely different things, especially when viewing gold with a mentality that is absolutely steeped in a fiat world.
The fiat world and the world of gold money are completely different, they may share similar historic traits such as serving as a means of exchange, but the “genetic” makeup of the two are totally different. Now, if you look at Microsoft Stock in say 1986 dollars you would have purchased that stock for 32.25 per share, today that stock is at 28.13, but what is the difference in fiat value from today verses then? Let’s take a look at the value today as it relates to 1986 dollars, and then, just for giggles lets take a look at the cost in 1986 dollars say with 1970 dollars. Now realize that I am using the government approved CPI percentages to calculate this although I consider such CPI percentages off substantially. Today, it would take 63.39 dollars to purchase the same share of Microsoft stock that was purchased in 1986 for 32.25, and only 11.42 to purchase that stock in 1986 using 1970 dollars, to take it farther it would take only 2.91 1913 dollars to purchase the same 1986 stock. In 1913, the U.S. dollar was backed by gold. Now, today Microsoft stock is at 28.13, that means that the value of Microsoft stock in 1986 dollars is 14.09, in 1970 dollars it is 4.99 and in 1913 dollars it is valued, in real money at 1.27.
The key to understanding is purchasing power, because that is the sole purpose of money, the ability to exchange money for either goods or services and when the money looses that function, as all fiat money eventually does then the outcome is devastating to the general welfare of the people.
Again, you are looking at gold as a fiat investment and that is a definite mistake in understanding the qualities that make gold perfect for the use of money. It has proven itself over 5000 years, no fiat monetary system can say that. Today, you can make relatively the same purchases with an ounce of gold as you did 100 years ago, why, because the relative exchange value of gold has remained the same while the fiat currency has depreciated in exchange value. You are, after all, looking at it from the only frame of reference that most people can relate to, and that through the frame of reference that fiat money allows.
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