What we have been conditioned to call money, today, is a Federal Reserve bank note, no longer backed by a fixed value of gold but rather based on debt, backed by the government’s ability to take your assets. That’s right, you are money! You are also the capital which the banks loan out and make interest on. Isn’t that special? Want to find out how that works vs. how it should work? Keep Reading.
Money – is the most valuable, and widely accepted commodity in a society that can be easily traded for all other goods/services, simplifying exchange and division of labor.
Wheat at harvest time, Tobacco, beads, skins/fur, jewels and precious metals have all been used effectively.
Gold and silver became “Money” around the world because it better fulfilled the criteria for Money than other commodities. It was durable, could be easily traded and carried, had easily determined value, could be divided and minted into equal quality coins and if stored away, its value would remain over time as opposed to wheat, tobacco, furs, beads and jewels which vary in quality and which can deteriorate or break.
If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible. – Allan Greenspan. Gold and Economic Freedom 1966
How it’s supposed to work
Coinage is minted with a set amount of precious metal, guaranteed to be accurate by a trusted minting authority (the US Treasury), so that every coin of a particular denomination is equal in weight. Gold and Silver coin is the only “money” permitted by the Constitution. Adjusted for production efficiencies, which lower the price of goods, and excluding numismatic value, the amount of gold or silver in a pre-1964 coin in good condition will purchase a similar amount of goods today as it did when it was first minted.
Paper or electronic currency is only a promise of “money”.
To be considered as good as money it must be redeemable, by a reliable source, for a set weight of Gold or Silver.
US Paper currency from 1882 – 1933 was redeemable on demand for coins of gold and silver deposited in the US Treasury and therefore “as good as gold” (assuming redemption in coins with the same gold or silver content as those initially deposited).
The line on the bill directly below Grant’s portrait reads “This is to certify that there is on deposit in the Treasury of the United States”
This was the “Gold Standard”.
Although paper certificates are not technically money (“Congress shall have the power… to coin Money”), they were accepted based on the reliability of the US Treasury.
The slippery slope is greased
In 1913 the Government , in it’s usual arrogance, decided it should remove the “vagaries” of a free market currency and interest rate, and let the wise men of the government control the supply and interest rate instead. So they established a Central bank, called the Federal Reserve (The FED), to issue paper certificates to be based on only a fraction of actual gold coins held in the Treasury by manipulating reserve requirements. Gold certificates, redeemable in coin, physically require 100% reserve. If the new FED notes only required, for example, a 50% reserve of Gold, then twice as many FED notes could be issued and available for lending. “Federal Reserve” is a misleading name to disguise that, going forward, less gold would be held in reserve.
Gold based money, fixes the amount of gold per dollar and caps the number of dollars in circulation. This keep governments honest and blocks theft of capital through creation of extra counterfeit (if you like puns, you could call them counter-fiat) notes, not reflected by a gold coin of fixed weight deposited in the US Treasury. The new notes would allow the government to pump money into the market to ease credit for their business and wall street cronies. But there were still those pesky Gold certificates floating around.
In 1933, FDR declared possession of Gold bullion, coins or Gold certificates to be illegal and they were taken out of circulation in the USA, leaving only the Federal Reserve Note.
Paper certificates issued as “Legal Tender” were forced by law to be used as a medium of exchange. They looked like prior certificates accepted as money, were denoted in dollars like before, but were no longer redeemable for coins with a set weight of gold. If you could ever redeem these notes you would only get whatever the law considered to be a dollar’s worth of gold from the Treasury, which could be much less than the weight of gold in a dollar coin. (Silver Certificates were redeemable in silver coins until 1964 after which quarter and dollar coins were no longer made of silver.)
Redeemable in Gold as authorized by law. Gold was illegal to possess so these notes were essentially un-redeemable except in more notes.
An item that cost $100 in Gold coins in 1820 cost only $63.02 in Gold coins in 1913.
Greater productivity lowers prices of goods relative to a stable currency based on real money such as gold. However…
An item that cost $100 in Notes in 1913 cost$2,014.81 in Notes in 2006.
This despite massive productivity increases, due to technology, since 1913.
Price of goods and services would have gone WAY DOWN under a gold standard because the government can’t whittle a gold coin down. What cost $100 in 1913 would have cost $4 or less today if the government didn’t steal your wealth through their control over the value of Notes. Notes are a promise of money and the government can never be trusted to keep it.
Notes (bills of credit) are specifically prohibited by the Constitution from being issued by the US Treasury. States are prohibited from accepting anything but gold and silver coins. The Federal Reserve is a trick used to get around the Constitution.
Foreign central banks still held gold certificates but, due to war in Europe, they did not redeem them, for gold, because they felt the safest place to keep their gold was in the USA. In 1944 at Bretton Woods, a War Weary world accepted the US dollar as a reserve instead of physical gold. All trade would now happen in Dollars rather than Gold. The price of Gold was fixed at $35 an ounce. In the 1960’s France and other countries redeemed their gold certificates and were removing literally boatloads of gold from the US Treasury. To stop the bleeding of Gold from the USA, President Nixon declared all redemptions be made in more paper. Thus the dollar was no longer backed at all by gold.
Today’s Legally Tenderized Dollars
We think of Federal Reserve Notes as money because we can trade them for goods and services.
Paper or electronic currency is only a promise of “money”.
What we are actually trading are promises of money that vary from day to day (also violating the contract laws of the Constitution). The value of their promise in buying power is manipulated by the Federal Reserve and the Government. The value of your Federal Reserve Notes, and therefore how much goods and services you can trade for them fluctuates up an down (mostly down). The government, using the Federal Reserve as it’s agent therefore, effectively controls how much your wages can purchase, a power that exists no where in the Constitution and in fact contradicts the Federal Government’s Constitutional requirement to fix a standard of weights and measures.
Our currency (Federal Reserve Notes) today is not money. These Notes are based on a debt the government issues (Treasury bond) which is backed by the governments ability to confiscate your income. Although these notes represent a promise of capital (originally 100 cents) it is not redeemable for anything but more of the same paper. It is “Legal tender” that your are forced to use instead of gold or gold backed money. The government changes the purchasing power by increasing or decreasing the amount of currency available to the market which alters the amount of capital they promise on each note.
The stated value of everything depends on the amount of capital represented by each dollar. If the government prints up twice as much dollars – for them to spend and the banks to lend – they change the amount of capital that your notes represent to finance the new notes. For instance, if the government prints up twice as much money as before, as they have done in the last few years, then your dollar will now represent only 50 cents of Capital. The other 50 cents is the capital for the new notes. Sorry you lose. The capital value of your income, savings, assets and wealth also decreases by half.
It is the same as if they took half the money out of your savings, college fund, pension etc. and sawed your house and car in half and gave it all to the bank. Instead of the bank paying you a higher interest (interest rates are fixed by the FED. Sorry, not much competition allowed) to entice you to put that 50% in the bank, they just steal it – and the interest! To add insult to injury the FED charges you interest and brokerage fees (which enrich Goldman Sachs, and other trading houses, where the Politicians come from and wind up).
What is mislabeled as “inflation” is an adjustment to the amount of money needed to buy something after the capital value of currency is decreased. Today’s ‘inflated’ price, translated into the new currency’s lower capital value. is relatively the same as before. The higher price does not net the merchant anything more than before. Wages don’t go up to match. Bottom line the government gains, you lose and the merchant merely breaks even. You do better if you are a privileged crony of the government like certain Unions whose wages are geared to “Inflation” but, even then, the government manipulates the figures to hide the real increase.
Using the term “inflation” is already a magician’s trick to shift your focus away from the decrease in the promise of value in your currency. Why we don’t see the real inflation
And even “inflation’ figures are a lie. Inflation numbers are kept low, by figuring in technological advances in production that should have lowered prices, but didn’t; by re-jiggering how price comparisons are calculated, for instance excluding the price of energy and food and other statistical frauds. Federal subsidies keep prices lower to hide inflation. So not only is the government stealing the value of money from you, they are stealing even more to cover it up.
What does this have to do with the price of Tea in China?
Foreign governments are even bigger crooks. When China devalues their currency, our dollar buys more. Most of our manufacturing and trade is with China and other foreign government. So the cost of raw materials and labor e.g. production goes down. We take advantage of China’s stealing from their people. This reduction keeps prices stable and covers up our dollar’s value reduction.
The government has been steadily decreasing the value of the currency since 1913 by printing more notes to cover expenses and paying back loans and interest they couldn’t pay for from taxes alone.
By the same process, the Fed also steals your capital and gives it to the banks to lend out. When the Fed prints up more money to be lent out to “boost the economy” the value comes from you. Think of the dollar as a balloon filled with the hot air of a Politician’s promise of value/capital. The government can make as many balloons as they want but, the government has no air (value/capital), of its own, to fill up the new balloons. One way to get the air/capital is from more tax revenue. Once they max out on that overt method of taking capital from you, they resort to the covert method of letting some of the air/capital out of your balloons which they then use to fill up the government’s empty balloons. Whatever value they gain, you lose. The market notices that your balloons/dollars have less air/capital in them and compensates by raising the number of balloons required to exchange for good and services (price inflation).
Not enough savings to lend out and meet the demand for loans? No problem, we’ll take a little from everyone’s pocket. They won’t notice that it’s really theft by the government. We’ll blame the price increases that follow on the profit motive of the big bad corporations and the evil rich. To top it off, the government pays back its debts with money that has less value. More theft and fraud.
The Fed should be called the Fraud.
In fact the FED is a Communist Nationalization of all Capital. The FED controls your capital, allowing you to use whatever percentage it determines by it’s Central Planning committee. The government acts as though your wealth belongs to them, because it actually does. Ownership is not guaranteed, there is no private property except in name only.
Without the fraud you would be 10 to 100 times richer and there would be no price increases other than those of the free market, based on supply and demand without having to adjust for currency value. In fact there would be significant price decreases due to production efficiency in producing products.
The point of a gold backed currency is to fix the value of money.
Some objections against the Constitutional system of a gold backed currency.
Due to deflation won’t borrowers be paying loans back with currency of a higher value than the one they borrowed.
Yes. This would compensate the lender for that same value lost by lending the money rather than keeping it. Or a deflationary factor can be built into all loans.
If it is profitable for people to keep their money/capital because prices will go down, then won’t the capital supply for loans dry up.
Interest rates would adjust to make it profitable to lend.
What if all the gold is stolen?
That’s why it has to be kept in a safe vault protected by the military and further covered by insurance.
What if the price of gold goes down?
The price of gold, in dollars, always remains fixed and provides a floor, below which the price of Gold can not go. The weight of gold in a dollar Coin is fixed by Congress. The Dollar remains stable because the weight ,in a gold coin, does not change and the paper Treasury Certificate dollar must represent one gold coin deposited in the Treasury. Therefore, the government can not print up more paper dollars than actual gold coins as they do with Federal Reserve Notes that are based on future taxation. All other prices vary in relation to Gold.
The vague promise of a gold standard kept the price of gold stable until 1971, when even this semblance of a “Gold Standard” was completely removed and currencies floated, depending on how much Paper/Electronic money their government created out of thin air by accounting tricks. Today the price of gold reflects speculation as to the future value of the Dollar and other currencies.
With a gold standard based on redemption in a fixed weight of Gold, guaranteed by a reliable source, all currencies regardless of name can be translated into gold and their value stabilized. Contracts and trading in different currencies becomes more practical when wild swings in valuation are curtailed.
If gold can be mined or created at less than the price fixed by the dollar, we can adjust the weight of Gold to the dollar to compensate. Because prices will deflate, we would probably have to do this every so often anyway. Maybe every 50 to 100 years. This type of change can be left to Congress, without an amendment, as long as the newly issued Treasury Certificates, based on a lower weight of gold, are exchanged in ratio to the older more valuable dollars. For instance, if Congress decreases the weight of gold to the dollar by four times, then the Treasury will issue four new dollars to be exchanged for one old dollar.
What if the price of Gold goes up.
More Gold will be mined, because it becomes more profitable to extract it, and the price of gold will again go back to the price fixed by the Dollar. Even if gold supply runs out we can use another metal or adjust the fixed weight of the dollar in the reverse of what we would do if the price of gold went down.
What if another Nation or currency trader, buys up all our dollars, so that we don’t have enough in circulation to conduct business or for loans. The value of the dollar, due to scarcity, would go up, Prices would deflate and interest rates would skyrocket.
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Either we prohibit trading without a good or service (a dollar put back into circulation) as the end result or
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we charge interest on the trade as though it were a loan, as long as the dollar is not returned to circulation (used for a good or service) or
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we use Federal Reserve notes, whose value we control, as trade for other currencies and or payback of foreign loans.
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or, since the FED is the Central Clearing house for all dollars, represented by paper or electronically, it will keep track of the money supply (perhaps by Serial numbers which would also nip other counterfeiting in the bud) and issue temporary Dollars (as Federal reserve Certificates or by separate serial numbered Treasury Certificates) that would be removed once the hoarder releases the original dollars back into circulation. The ability to do this should prevent anyone from attempting this in the first place.
Alternatively, instead of 100% reserve of gold, the Fed can, in an emergency only, temporarily lower the reserve requirement and release extra dollars to balance out hoarding, which will be withdrawn when the dollars are released by the hoarder. This should never be used to manipulate or stimulate the market as that is fraudulent interference in the market. Nor should this be used to finance war. Instead, in case of war, we should be prepared in the first place by consistent spending. If more war material and troop financing is necessary, a Temporary extra tax can be levied on gold backed dollar (Treasury Note) transactions, or money can be borrowed from the people or a foreign government (using Federal Reserve notes to pay them back) or just, cynically, generate and use Federal Reserve Notes directly, which screws up the value of the Fed notes, thus taking the money out of the Fed Notes the foreigners hold. (But that would be theft. Exactly! Now, you get it.)
“Valuation is under the control of a Central bank and government regulation not the free global market.”
There are market limits to this control. Currency traders drive the relative prices of currencies in response to news.
[Editor] – Thank you, I have rewritten the post to clarify