"To get the economy going again we must rebuild consumer confidence," say the Wall Street wags. What they yearn for is the good old bubble days when consumers happily loaded up with debt. That was that not-so-long-ago time when lenders chased after borrowers to ply them with abundant cash. Remember the credit card offers? The astonishing home mortgage deals?
Suddenly the game has changed. Something went horribly wrong and millions of Americans who were living the good life on borrowed money are overwhelmed by debt that's made them miserable. They are staying away from shops and auto showrooms in droves. Their confidence is shot, along with their budgets. Bankruptcy courts are clogged as people look for an escape route. Repo business is brisk. Foreclosure lawyers are busier than ever.
What's to be done? Can't Washington just run those money printing presses overtime to pump cash into the economy? How about mailing every American a $5,000.00 check to jump-start the economy? Surely, if the trouble is merely a shortage of money we can fix it by just creating a few billion more dollars for the masses.
A Zimbabwean style hyperinflation is unlikely to happen in the U.S. After some sixty-eight years of inflationary policy we're more apt to be headed into a deflationary recession. The present run of price inflation began in 1940 and, except for slight dips in 1949 and 1955, every year has seen the Consumer Price Index rise. In October the CPI collapsed a full percentage point, the biggest one month drop since the index was begun in 1947. Politicians and Federal Reserve officials are worried about their ability to get inflation going again.
What, exactly, is the matter with money? How could it be so abundant only a few months ago and suddenly so scarce today that cities, states, manufacturers, and financial institutions are lining up at the Treasury Department, hats in hand, begging for bailouts?
Blame Congress. Right under our noses it allowed the money unit of the United States to be transformed from the discipline of the U.S. Constitution into irredeemable scrip. Today's currency doesn't even meet the historic definition of money. It represents debt and nothing more. Ever so slowly the U.S. morphed in the twentieth century from the healthy restraints of commodity money into an irrational financial system based almost entirely on debt. Most citizens could summon large sums into existence merely by presenting a credit card to a seller.
Now our debt-based economy is entering an inevitable correction which promises to be embarrassing for a nation that grew to international prominence on sound money. It seems incomprehensible today, but the wholesale price level in the U.S. remained amazingly steady from 1792, when the dollar was adopted as the nation's money unit, to 1914 when a newly created central bank began operations. The dollar of 1914 has now sunk to 5¢ thanks to decades of monetary inflation created by Congress with the help of the Federal Reserve System.
Before the dollar reaches zero Americans should demand a national conversation about the debauchery of the once mighty U.S. dollar and insist that Congress do the one thing that will restore confidence and trust in the nation's money unit - - replacing the debt-money scheme with the honest money demanded by the Constitution.
Thomas Jefferson, who invented the U.S. money system, warned of the damage debt-money (paper) could cause. In a letter to Albert Gallatin in 1818 he wrote, "The flood with which the bankers are deluging us of nominal money has placed us completely without any certain measure of value, and, by interpolating a false measure, is deceiving and ruining multitudes of our citizens."
In an earlier letter to Thomas Cooper, Jefferson wrote, " Our whole country is so fascinated by this Jack-lantern wealth [it] will not stop short of its total and fatal explosion."
Franklin Roosevelt began removing the dollar from its moorings in 1933. Richard Nixon finished the job in 1971. From a monetary unit based on something of intrinsic value we're now doing business with "money" backed by nothing of value. We're about to be punished for allowing it to happen.
Let's talk about restoring the United States to a system of honest money! Surely there's still a market for honesty.
November 19, 2008
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