The Battle for Honest Money
After my March 1st column about coping with deflation I put my keyboard away and turned to more pressing things such as tending my vegetable garden and sorting through a lifetime of debris that must be disposed of before I'm consigned to the old folks home. But I've been keeping a weather eye on the monetary shenanigans of the U.S. Congress, which is ably assisted in its deviousness by the Federal Reserve and the banking system.
Things have gotten so bad my wildest hope has been revived - that the nation will finally begin a debate about rescuing the ruined dollar and revive the system of honest money. It will be damned hard to put across to the general public the idea of honesty in American commerce and politics, but we must try. Present values and methods have brought us a calamity and it's up to we-the-people to untangle the mess.
Ms. Floy Lilley focused on the heart of the matter in mid-August when she wrote a widely circulated piece that clearly shows that under the old-fashioned honest-money system the purchasing power of the U.S. dollar increased eleven percent in a period of 136 years. Since the establishment of the Federal Reserve, however, the purchasing power of the dollar has fallen ninety-five percent! This is a nuts-'n-bolts argument Fed chief Ben Bernanke must hate, because he cannot deny it. It helps the average person see in clear terms why a dollar that gains purchasing power is better than a dollar that is nearly worthless.
Dr. Bernanke was too busy dealing with his longtime foe Rep. Ron Paul to be aware of Ms. Lilley sneaking up behind him. Dr. Paul has been pushing for years for an audit of the Federal Reserve, whose books are kept secret from the public. Paul has usually been dismissed as a crank, but this time he has help from several other House members who have signed on to bill HR 1207 which would open up the Fedís books to a complete audit. One way or another, the days of Fed autonomy are coming to an end. It will take plenty of pressure from the public to make it happen. The fireworks will probably happen in October. (The two worst stock market crashes occurred in October. 1929 and 1987.)
To add to Bernanke's woes he has been told by a judge to name the financial firms the Fed lent to or disclose the amounts or the assets put up as collateral under 11 programs the central bank put in place during the height of the financial crisis. The Fed is balking but has no choice, under the court order.
Here's a chance to sweep aside the huge cloud of misinformation and confusion about the stuff we use as a medium of exchange. How is it created? Who owns it? Is the nickel in your pocket yours or does it belong to the government? Why is today's debt-based currency so untrustworthy compared to the commodity money established in the Constitution?
These questions and a dozen more could easily be answered in a 45-minute lecture to sixth graders. .
There are several hurdles to be overcome. 1/ The Federal Reserve and the commercial banking system do not want the present fiat money system challenged. It has been too profitable for them. 2/ Congress does not want to change the present method of money creation, either, and it particularly does not want to have its power limited by a return to sound money. 3/ Generations of citizens have been mislead for so long they don't understand the transition from commodity money and fiduciary money to the present system of fiat currency created from thin air.* They are uneasy about the financial system and uncertain about the future, but they don't know what's gone wrong or exactly whom to blame. (Hint: The ultimate blame rests with the U.S. Congress. Period.)
So - let's begin.
The United States dollar was defined by the Founders as a coin containing 371.25 grains of pure silver. A dollar was 1/ a unit of measure controlled by Congress, 2/ a medium to facilitate exchange of goods and services, and 3/ a reliable store of value. Today's Federal Reserve note is only a medium of exchange - nothing more.
The Federal Reserve note was redeemable in "lawful money" from 1914 to 1963. It is redeemable today only in copper/nickel coins which, unlike the paper currency, have some small intrinsic value because of their metal content. However, if people become aware of this distinction and choose to hold more metallic money a coin shortage will erupt.
Which is better? The money of the Constitution or paper notes printed at will by the Federal Reserve System? We will hear more on this question in the weeks ahead.
September 1, 2009
* Commodity Money = Metal money of intrinsic value which cannot be created from thin air.
Fiduciary Money = bank notes that are redeemable in commodity money.
Fiat Money = bank notes that are not redeemable. Backed only by hope and stupendous debt.
Click here for:
Coping with Deflation
From Riches to Rags
Fiddler's Broken Wrist
Chances of Gold Confiscation
Look Out Below!
Voting for Maggie
Poobahs of Positivism
A Wistful Vista
An Unknown Road
Blood In the Streets
How To Buy Gold
Just Plain Stealing?
A thing to fear
Unstuffing a Lifetime
FDR & History
The Chicken Little Convention
And Lead us not into temptation
The Legislature and Embryos
Ac-cent-tchu-ate the Positive
What Fools, We Mortals
My Immigrant Relative
The Eloquent Pogo
Unionize School Children
Hucksterism Gone Wild
Unmanageable Religious Violence