Money is often called ‘The Root of All Evil’, and this comes true when governments (and their lackey central banks) create money out of thin air to fund their evil wars and excessive spending (often on wasteful projects to help politicians get re-elected).
Fake money (‘fiat’, with face value decreed by government; not made of, or redeemable in, a commodity such as gold) made ‘out of thin air’ which funds our evil welfare-warfare programs (taxes are not popular) must be replaced by sound money (made of, or redeemable in, a commodity such as gold) before the USA economy crashes. Wars and welfare are expensive, so our biggest weapon to stop the damage they cause is to block their funding!
Politicians and bankers created the Fed in 1913 so they would never run out of money for war, welfare, and bank lending. It is the ‘lender of last resort’ (read ‘bailout’) for them and their friends. Our economic problems today started with our excessive spending, using newly created money, for Vietnam, Medicare, LBJ’s ‘Great Society’, etc. This reduced the percent of gold ‘backing’ the US Dollar (USD) supply. This dilution prompted other nations to redeem many of their USDs for gold and we were close to running out. Thus, in 1971 Nixon announced a default on the Bretton Woods gold standard agreement of 1944, where we had promised to redeem the USD to other nations (not to mere people since FDR made it illegal in 1933) at $35 per ounce of gold. Since then, our creation of new ‘fiat’ money (worthless paper ‘currency’) has soared and thus the value (purchasing power) of the USD has fallen, as shown below.
The US Dollar is Losing its Reserve Currency Status
Despite the Bretton Woods default and subsequent monetary inflation (excessive increase in the money supply), the USD remains strong because; 1) It is ‘backed’ by the world’s largest economy, and 2) Has demand due to international use (when India buys coffee from Brazil they use USD, plus over 90% of oil sales are in USD). The USD is still the world’s primary ‘reserve currency’ (all sellers will accept it for payment; banks will hold it as reserves) and is used in 60% of world transactions, but falling (was 70% before the 2008 crash). The Yen, Euro and Swiss Franc get most of the rest. This strength also allows us to borrow heavily, because the USD is still considered a ‘safe haven’, compared to the Euro, Yen, Yuan and other major currencies.
This ‘reserve status’ (while it lasts) also allows us to create new money (printed or digital) ‘from thin air’ to pay our debts and pay for cheap imports, which in turn has caused millions of our jobs (from assembly to hi-tech products and software) to be ‘off-shored’! Only the issuer of a reserve currency can do this! Others try, but Sellers refuse their high-risk currency. Excessive importing (funded by an endless supply of new money) has changed the U.S. from a ‘productive’ economy to a ‘consumer’ economy, which is unsustainable due to increased debt and falling value of the USD. If other nations reduce or cease using the USD as a reserve currency, we will no longer be able to create new money to pay our bills, and we will have to; 1) Offer higher interest rates to borrow money instead, or 2) Invoke a crash austerity plan to cut spending, which no politician will approve. The borrowing will cause high interest costs which will destroy our economy. We are now on the brink!
Other Nations are Avoiding the Falling US Dollar
Other nations are worried about the decline of the USD purchasing power (not a good ‘store of value’) due to the flood of new ‘stimulus’ and ‘bailout’ money from the Fed since 2008 (QE1, 2, and ‘3-forever’). Thus the BRICS (Brazil, Russia, India, China, and South Africa), plus Japan, are now avoiding the USD by trading with each other in their own currencies. China is starting to allow use of its currency worldwide by anyone. These choices will reduce demand for USDs and hasten its decline and crash, taking the US economy (our standard of living) with it! Even the ‘Bank of International Settlements’ (BIS) in Basel, Switzerland (the manager of all central banks worldwide) has shown its fear of declining value (purchasing power) of fiat currencies by including in its new set of rules (the ‘Basel III Accords’, announced in 2009 and effective Jan. 1, 2013) that gold will be elevated from a Tier 3 asset in bank reserves (worth 50% as much as cash) to Tier 1 (equal to cash)! Most central banks have been buying gold since 2010, after selling since 1988! China and other Asian nations, and their people, are the biggest buyers. When banks are purchasing gold, it gives gold credibility as a wealth preserving property, and as a store of value. This will confirm that ‘gold is money’ (sorry Ben!) and could result in a big price increase for gold.
A Golden Opportunity to Save the US Monetary System
Excuse the pun, but this new respect for ‘gold as money’ is a golden opportunity for the USA to return to the gold standard to save its monetary system from collapse! All politicians prefer to have a ‘flexible’ system that allows endless creation of new money, but ours may now consider supporting ‘gold as money’ to save their jobs by avoiding collapse!
The USA claims to have 8,134 metric tonnes of gold, which makes it the largest holder in the world (but an audit is needed). We could allocate a tiny amount of gold to each ’Federal Reserve Note’ (apply to M3; cash, deposits, bonds, etc.) for redemption so they would instantly be treated ‘as good as gold’ (which would avoid a ‘run’ to dump them), and then replace them with new money denominated in ‘weight of gold’ as the ‘unit of account’. This would result in about 53,000 Fed Note dollars per ounce of gold. Prices would be in weight of gold, such as ½ ounce (15.6 grams) for a car!
The name ‘dollar’ would disappear, and metric weight (‘5 milligrams’, or ‘5 millis’, etc.) would be the term used to describe a piece of money. A small amount of gold could be made part of a coin (such as a small disc in the center), and for small denominations, paper notes and base-metal tokens (called ‘representative’ money) could be used if redeemable by the bearer on demand for gold.
Private mints would be allowed and there would be no central bank (now the Fed). I predict that all nations would soon follow, or no Seller would accept their trash fiat paper. Currency wars (devaluations, pegging, etc.) would end because weight-of-gold (and its ‘fineness’, purity) would be the common basis for value. Investors would have confidence to start new job-producing companies because they know that gold has a long history (centuries) of maintaining its value (can’t be created ‘out of thin air’, thus no ‘monetary inflation’ causing ‘price inflation’, thus loss of value – purchasing power!). Existing contracts (mortgages, pensions, salaries, etc.) would be adjusted to the new pricing. The details are in Chapter 4 of my book Monetary Revolution USA which is available on Amazon.com (Kindle edition here), or the text at Part 2 in the left margin of my web site Forward-USA.org.
Gold as Money Always Works
History shows that when a nation converts to sound money (made of, or redeemable for, a commodity such as gold), there is more peace (fewer expensive wars) and prosperity (gold retains its purchasing power, and fosters more and better job-creating investments). Let’s get started before we crash!
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