How to Abolish the Fed and Convert to Gold as Money

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David Redick

Activist Post

Now that Rep. Ron Paul (R, TX-14) has become Chairman of the House Financial Services Subcommittee, which provides congressional oversight of our central bank, the Federal Reserve System (Fed), the managers at the Fed are facing the dreaded time when they may have to reveal the secret dealings that they use to help their political and banking friends worldwide. 

Vanity and job security are a big part of what guides Fed managers. They love the power and prestige of their jobs, and do whatever is needed to please the politicians who put them there. Of course, most of them are ‘true believers’ in the need for their control of ‘monetary policy’, despite the horrible record of the Fed, which has caused the US Dollar to lose over 95% of its value (purchasing power) causing prices to rise (price inflation) since the illegal, unconstitutional, creation of the Fed in 1913.  The main reason for this decline is expansion of the money supply (monetary inflation) caused by creation of fake ‘fiat’ money; where ‘face value’ is decreed by the government, even though the material it is made of may have more or less market value.

Most countries have central banks, but ours is the only one that is a private corporation owned by other banks; more on that below. Rep. Paul has made his concerns and solutions clear in his popular September, 2009 book End the Fed, as I have in my December, 2010 book Monetary Revolution-USA. As in these books, this essay will show why sound money (coins made of, or paper backed by, a commodity such as gold or silver) ends the so-called need (and means) for the counter-productive meddling of ‘monetary policy’ and fake money by the Fed in our nation’s economy.

The first salvo in their fight for survival was an article by Paul Hobby (Chairman of the Houston branch of the Dallas Fed) Hands Off the Fed in the Houston Chronicle on Jan. 22, 2011.  In his defense of the Fed from expected criticism by Rep. Paul, he said, ‘No one who studies the global economic issues today would forfeit this nation's ability to conduct monetary policy through a central bank’, and ‘Because the dollar is a fiat currency, confidence is the only backstop, and aggressive monetary policy provided that confidence at a decisive moment.’ Kudos to Robert Wenzel for his January 23, 2011 article Is This the Best the Fed Can Do in Its Defense? where he challenges Hobby’s article and describes the false statements and counterproductive conduct by the Fed.

I say, yes indeed our ‘Fed Notes’ (dollars) and base-metal coins are ‘Fiat and based on confidence’, and that’s why we have the FDIC (Federal Deposit Insurance Corp.) to give depositors false ‘confidence’. With sound money, no FDIC, central bank, or legal-tender laws are needed, and poorly managed banks are subject to insolvency and bankruptcy. No more bailing-out of greedy bankers (also political buddies) who use high-risk deals and high-leverage fractional reserves to increase profits. The sound money approach produces more personal responsibility by depositors to keep an eye on their bank and move their deposits to another one if they don’t like its policies. The incentives are positive for both the depositor and bankers. We now have ‘nanny’ government serving this watchdog role, which creates the corruption and failure we see around us today.

Creation of the Fed
Politicians and bankers like central banks that control the national monetary system, because they can manipulate them to gain funding (create money) without politically unpopular taxation. England created the world’s first central bank in 1694. In 1791, the ‘First Bank of the United States’, (BUS-1), was started, but it failed in 1811. The second attempt was the ‘Second Bank of the United States’ (BUS-2), which was chartered in 1816, with a renewal required in 1836. The main reason that BUS-2 was chartered was that spending for the War of 1812 caused severe inflation and we had difficulty in financing military operations. It was a privately held corporation that had privileges with the federal government to give it access to substantial profits. President Andrew Jackson strongly opposed the renewal of the bank’s charter, and built his platform for the election of 1832 around doing away it, which he did in Sep-1833. The Federal Reserve System should be considered the third U.S. central bank (BUS-3). The plan to create this financial monster was consummated on November 22, 1910 in a secret meeting at a private club on Jekyll Island, Georgia.

This meeting included seven of the most powerful financial people in Europe and America, led by Sen. Nelson W. Aldrich, who was a business associate of J. P. Morgan and father-in-law to John D. Rockefeller, Jr.  The sole intention of these conspirators was to draft a blueprint for a strong central bank that served their interests. This was the blueprint for the Federal Reserve System and the prize was the future control of the money supply and credit of the United States. It was created ‘By Politicians and Bankers, for Politicians and Bankers’.

Because the Federal Reserve System was authorized to issue paper money (first ‘Silver Certificates’, then ‘Federal Notes’), it was unconstitutional from its inception because Article 1, Section 8 of the Constitution only allows the government to ‘coin money’, and further does not permit it to create and operate a bank. Another challenge to the schemers was to prepare a program of fundamental banking reform and get it past the scrutiny of patriotic Congressmen and the American public. 

Aldrich headed a commission in 1911 to study the role and need for central banks. He came home from a study trip to Europe claiming to be a new supporter of them, but that was a ploy to cover the existing plans from Jekyll Island in 1910. The Aldrich Commission's report was submitted to Congress in 1912. Although Woodrow Wilson, a Democrat, won the 1912 election, the Republican Aldrich's plan shaped the extensive debate that followed. A Democrat, Carter Glass of Virginia, shepherded the Federal Reserve Act through the Congress. On Dec. 23, 1913, when many Congresspersons, including major opponents of central banking, had already left town, Congress adopted the Federal Reserve Act, also known as the Owens-Carter Act. 

Even the name was meant to deceive, so they chose: 1. ‘Federal’ to make it seem to be part of the government, and 2. ‘System’ instead of ‘Bank’ because many Congresspersons opposed a federal bank. They planned the ‘system’ with twelve regional banks (each a privately owned corporation) to satisfy private bankers that their regional concerns would be heard.

Some people claim the above ‘secret meeting’ never happened, but one of the group, Frank Vanderlip, wrote a first-hand account of the meeting a quarter of a century later (1935) in his book From Farm Boy to Financier. Although the book is out of print, excerpts from it may be viewed here. Thus, the Fed was created, and was assigned twin policy goals of; 1. Price stability, and 2. Full employment. It has been an extreme failure at both, as described below. Of course, as a government body, this failure is not seen as a reason to restructure or abolish it! The Politicians and Bankers still want it as a means to create money out of thin air!

The Fed’s Record of Results
The purchasing power of the US dollar has dropped by more than 95% since the Fed started in 1913, all due to excess creation of new money (expansion of the money supply; monetary inflation). This hurts the people (especially those on limited or fixed incomes, and those with savings), but the bankers have done well, since they make money selling US debt (T-bills, etc.) and get bailed-out when in trouble due to their own greed (Bear-Stearns in 2008, etc.). Most Fed meetings are secret, and proceedings are not even available to Congress.  Preposterous! Some economists say the Fed is needed in order to assure adequate 'liquidity' or ‘elasticity’ for growth by proper expansion of the money supply, equal to growth of the economy; about 3 to 5% per year. The problem is that such powers are always abused by governments (by expansion of 10 to 20% per year, or more!), though some (the Swiss) less than others (the US is among the worst of the major currencies). 

We cannot, and should not, trust the government or Fed to 'manage' our monetary system. This excess money causes bad spending and investment decisions at both the business and personal level, which creates financial distortions (big peaks, then valleys), as seen in: 1. Bailing-out England after WW1, leading to mal-investment (too much money around) and the crash of 1929 when the Fed suddenly reduced the money supply by about 30%, and 2. The 2007-2008 housing price and construction collapse due to a Fed interest rate increase of 4.25% (from 1 to 5.25%) in 2006, and 3. Many other large peaks and valleys, and 90% loss of purchasing value, since the Fed was created. So much for government 'management' of currency and the economy!

What Should We Do Now?
Our present system of big spending and fake money is not sustainable. The Fed should be abolished and Fed Notes replaced by gold as money. This will; 1. Put limits on government spending by stopping its endless supply of fake money, and 2. Reduce or end the wars and business cycles funded by it. The use of gold as money gives a positive incentive to save, and avoid debt, due to appreciation of purchasing power of the money.  Econ 101 tells us that a commodity (such as gold) in limited supply, and with increasing demand for it (growth of the economy), will appreciate in value. This has huge importance because it kills the ‘there is not enough gold’ argument against gold! Appreciation is ignored by most economists and suppressed by, or unknown to, all politicians.  The conversion of our present Fed Notes to ‘gold as money’ can be done by the following ‘Six-Step Plan’ (this is a 'short-form' description). 

Step 1 Repeal all legal tender laws so private firms (mints) can issue new money. The Federal Reserve will be abolished five years after private money becomes legal (or if Congress refuses abolishment, let it atrophy to death from lack of customers and income). 

Step 2 Allow private mints to be created without government permission or license, with new gold money labeled by the weight of gold a coin contains, or that tokens or paper certificates represent. 

Step 3  Require the Federal Reserve banks, the U.S. Treasury (Ft. Knox), the Exchange Stabilization Fund, and any other part of the United States government, to promptly submit to a private audit of the amount and quality of gold they own and its title status (leased?), reveal the results to the public, and then give it all to a ‘Redemption Trust’ owned by the U.S. Treasury, to be used to redeem existing coin or paper currency on demand, based on a certain weight per Dollar, in accordance with the plan below. Private sources put our total money supply (M3) at about $14 trillion worldwide in mid 2010. If the M3 dollars were redeemable in our claimed 260.415 million troy ounces of gold there would be 0.0000186 oz. per dollar. This means 53,763 dollars would equal one troy ounce, thus an ounce would be worth $53,763, in today’s pricing method. This implies a 97% drop in the dollar's current value versus today's $1,400 per oz. The dreaded day of reckoning! But this issue fades as all nations convert to gold money, and they must, or no sellers will take their trash 'money' once the US dollar is redeemable. There will be no ‘price’ for gold, just its weight.

Until a proper audit is done, we cannot be certain how much gold the US has. Fortunately, the amount of gold per dollar is not crucial. It will set a new standard, whatever it may be, and we will grow from there. The same applies to all nations that also convert.  There will be no 'price' for gold, just its weight.  Thus, sellers will show prices of things by weight of gold (food, cars, whatever), such as '20 milligrams' each, etc.  People and governments may want to assign a 'name' to certain weights (that's how the 'dollar' got started, as a weight of silver), but this should be avoided because it leads to corruption by reducing the weight or quality of the metal associated with a 'name, and the 'name' is then used in pricing.  This is called 'debasement' of the currency; an old story since before the Roman Empire.

Step 4 Abolish the unconstitutional GSEs such as Fannie, Freddie, Ginnie, and Sallie Mae, FHA, Pension Benefit Guaranty Corp (PBGC), FDIC, all TARP-Like projects, ‘special’ bankruptcies, corporate-takeovers, Recovery-Stimulant Acts, the Exchange Stabilization Fund (ESF), the Export-Import Bank, etc., etc.  All of these are part of the government’s intervention in, and manipulation of, money, private business, and banking.

Step 5 Terminate US membership in the IMF (and get our gold back), World Bank, BIS, G-20, G-8, United Nations, and others. Their ‘manipulation’ role will end with use of money valued in weight of gold. Free trade and embassies are adequate for communication with other nations. 

Step 6 Work to repeal or change other unconstitutional and counterproductive Federal laws, and policies that intervene in our lives, economy, and the world.

The above ‘Six-Step Plan’ includes a formidable list of legal changes, and of course most people in government (all branches, and all levels; city to federal) will oppose them, initially. However, as our economy and the US dollar crash (2012, 2020 ??), the pressure for change will be enormous, and we will win many converts to gold. An advantage of this plan is that just the removal of legal tender laws will allow gold money to prove its benefits. Other changes can follow.  Central bankers and the IMF are already devising methods to minimize damage from the dollar's ongoing decline.  The current plan is to use a 'basket of currencies', including the USD, Yen, Euro, and Yuan.  they hope this will allow a 'graceful decline' of the USD as the world's reserve currency, without wreaking havoc and losses in world banking and commerce.  It won't work, because they will still end up using fiat money manipulated by politicians and bankers.

As painful as this transition to ‘gold as money’ may be, it is better than the hyperinflation (with currency values approaching zero) that is otherwise 99% likely to occur.

We can enjoy the benefits of sound money, and avoid a crash of our economy, currency and lifestyle if we implement this plan for conversion to gold money. If we crash, meaning severe reduction in economic activity (depression), and 50% to 90% loss of purchasing power of the US dollar, we will need to rebuild from the ashes. This can be viewed as an opportunity for the people to spontaneously start using gold as money. They will see its benefits, and demand to keep it! The laws can follow. Politicians will be desperate to keep their jobs so will cooperate to pass and repeal laws as needed; otherwise they will be fired and replaced.

It will require something like the above ‘crash’ circumstances, and a people-led Monetary Revolution, to take back our government from the self-serving career politicians, empire-building warmongers (neocons), and banksters. Please spread the word to help get the Monetary Revolution started. Thanks.

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David Redick is a businessman and author in Madison, WI, and President of Forward-USA

Related article by David Redick:

Why Use Gold As Money?

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The After-the-Fed Solutions Debate Begins: Greenbackers vs. Goldbugs 

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