Fiat Money: The Fuel of Government
End the Fed
By Ron Paul
210 pp. Grand Central Publishing 2009
How many politicians are capable of writing a book, nay, a paragraph that would be worth reading? Watching them on TV, they seem the most spineless, uninteresting group of people imaginable. It seems obvious why. In the same way diversity leads to a culture that appeals to the lowest common denominator, a popularity contest involving the general population favors the smallest men imaginable.
An exception is Ron Paul, a man who lives a life of ideas and action, as the Founding Fathers did. The congressman has spent a lifetime as a champion of liberty and his greatest enemy is the Federal Reserve. Fresh off his 2008 presidential campaign he wrote End the Fed.
Our Government the Thief
According to Paul, the best case against the Fed is simply that it’s immoral. When government prints a new dollar, the value of each one in circulation goes down. The government shouldn’t be allowed to print money for the same reason you or I aren’t allowed to counterfeit.
If that’s not enough for you, there is the constitutional argument. The Tenth Amendment to the Unites States Constitution says that whatever powers not explicitly granted to the Federal Government are left to the people or the states. There is nothing in the Constitution about centralized banking. And the states aren’t allowed to declare whatever they want as money either. Article 1, Section 10: “No state shall…make anything but gold and silver coin a tender in payment of debts.” The economic argument that centralized banking is needed to deal with the boom and bust cycle is like a tobacco company saying that their goal is to fight lung cancer. It’s the Fed which mandates artificially low interest rates and creates imagined wealth in the first place, leading to the bust phase. Unfortunately, Paul doesn’t explain this clearly enough and I think he may expect too much from the casual reader. The author proceeds as if it’s common knowledge what the Fed is and what it does, or even how money works. Had I not read Murray Rothbard’s The Case Against the Fed and What Has Government Done to Our Money? I would’ve been lost. Both books along with those of others by Mises Institute scholars are recommended under suggested reading.
Paul points out that he’s not obsessed with his gold; he’s happy to let the market decide what commodity to use as a medium of exchange. Let the government get out of the business completely. Gold, from Ancient Egypt to the twentieth century, has emerged as the preferred commodity due to its durability, intrinsic value, difficulty to counterfeit and divisibility.
The state has long understood how its power is threatened by gold. Paul recalls him and his aide Lew Rockwell in 1980 meeting Federal Reserve Chairman Paul Volcker for breakfast. When Volcker arrived, before acknowledging his two eating companions, he turned to his aide and asked, “What’s the price of gold?” The higher it is, the less faith there is in the currency system. It’s no wonder that Roosevelt confiscated all gold in 1933-1934 and the government for the next few decades would try to fix the price of the metal. Nixon in 1971 took the US completely off the gold standard. The commodity once again became legal to own in bullion form only later that decade thanks in large part to the Paul’s efforts in congress. When government isn’t being evil, it’s incompetent. A congressman on a committee dealing with financial matters once asked Paul whether the dollar was still backed up by gold.
Ronald Reagan once told the author, “Ron, no great nation that abandoned the gold standard has remained a great nation.” Gee, if only he was in a position to do something about it! More maddening is the case of former Federal Reserve Chairman Alan Greenspan (1987-2006). Paul remembers reading a 1966 article by him in Ayn Rand’s newsletter The Objectivist called “Gold and Economic Freedom.” Greenspan wrote,
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold…
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.
In 2004 Paul brought the article to Greenspan before a scheduled meeting and asked him to sign it. Paul asked whether Greenspan would like to put a disclaimer on it. “Astoundingly, he answered that he had just recently reread it and wouldn’t change a word of it.” Paul struggles to reconcile this with Greenspan’s tenure as head of the Federal Reserve. He concludes that the chairman was operating under the philosophy of pragmatism, detested by Greenspan’s old idol Ayn Rand. The author provides long transcripts of exchanges he had both with Greenspan and current Chariman Bernard Bernanke. The two men assured the congressman that the financial system was sound as Paul warned that our wealth was artificial and the day of reckoning would come.
The Federal Reserve and the Warfare State
The ability to print money gives the government unlimited power. If you tax the people too much they rebel. But if you declare your paper to be the only thing used as legal tender and allow yourself to print as much of it as you want, there’s no limit to what you can do. The effects of inflation are as real as any tax. It’s just that the people are slower to notice and connect their lower living standards to the actions of the government. The scariest power that the Federal Reserve gives government is that to wage war.
Under a regime of sound money government would have to pay for war, or anything else it did, by taxation. Since war is costly, heads of state tried to avoid it. If war did start, governments would try to settle as quickly as possible. With the ability to print money, the state could finance ambitious projects and scapegoat others when it wrecked the economy. As Paul puts it, “It is no coincidence that the century of total war coincided with the century of central banking.”
The US Federal Reserve was founded in 1913 and allowed America to enter World War I four years later. It has been estimated that only 21 percent of the war effort was funded through taxation. 56 percent of the spending came from Fed-backed borrowing and 23 percent of the money was created out of thin air. Without centralized banking there would’ve been no World War I, Treaty of Versailles, Russian Revolution, Nazism or World War II.
Lew Rockwell explained that centralized banking funded Russia’s efforts in the First World War. It “turned a relatively benign monarchy into a war machine. A country that had long been integrated into the worldwide division of labor and was under a gold standard became a killing machine.” The inflation led to massive unrest and eventually, Communism.
Today, the Federal Reserve funds the American empire as it has the wars in Iraq, Haiti, Korea, Vietnam, Afghanistan, Serbia, the Dominican Republic and Nicaragua, and bases on every continent but Antarctica. If the American people had to make the connection between the taxes they pay and bases in Kazakhstan or women’s rights workshops in Iraq the beast may be reigned in. This principle not only applies to wars, but everything else that the government spends its money on.
The Current Mess
Paul does not shy away from blaming affirmative action lending and the Community Reinvestment Act for the problems we face. Yet the easy borrowing standards problem is simply a subset of a larger one: a government with unlimited power to inconspicuously steal from the citizen so it can spend on everything from a human rights empire to wasteful education programs for the hopeless.
Without sound money, there is no protection of wealth and thus no freedom. The things that the bureaucrats can get away with are directly linked to there being no check on the state’s power. Ending the Fed should be the goal of anybody interested in restoring American freedom and prosperity. I would’ve never believed that a cause so obscured by the media and requiring some knowledge of economics to understand could gain popular support. But Paul recounts a telling experience he had at the University of Michigan while giving a campaign speech.
…it was a very friendly crowd, applauding my comments on government spending and on wars and on foreign policy. But when I mentioned monetary policy, the kids started cheering. Then a small group chanted, “End the Fed! End the Fed!” The whole crowd took up the call. Many held up burning dollar bills, as if to say to the central bank, you have done enough damage to the American people, our future, and to the world: your time is up.
People don’t understand monetary policy and therefore distrust those that make it. This is a healthy instinct and the public should be made to understand that their suspicion of the powerful is justified.
Ron Paul strikes me as a man almost too honest and sincere for this world, or at least this era. The fact that he can have influence says that there is still something good about our system and society. Whether he’s simply the relic of an old civilization in its last throes or the leader of a true revolution remains to be seen.
Comments (page 2 of 2)
Oct 19, 2009 3:39 pm |
“Exactly why would “one can expect periodic shortages of gold coins (or gold certificates) to take place ‘”
Because the demand for money fluctuates up and down depending on which way credit markets are going. The reason we don’t have shortages of dollars is that it’s easy for the government to print more of them.
Anyway, check the history books if you don’t believe me. During the days of the gold (and silver) standards, there were periodic shortages of gold coinage.
Oct 19, 2009 6:17 pm |
“it was impossible to buy gold coins on ebay if you were willing to bid high enough?”
Ebay? Are you kidding me? Caveat emptor? I don’t send my UTPs to ebay sellers, hoping for p.m.s by return mail for the same reason I won’t be sending you any UTPs and hoping for p.m.s by return mail.
So….let’s explore this. Renter stiffs on the contracted gold coin per month for rent. Landlord goes to court. Court awards the UTP “equivalent” of a gold coin.
Landlord takes UTPs to coin shop — sold out.
Landlord buys on ebay — coin never comes. Landlord jumps through all ebay’s hoops trying to get his coin, finally sues. Court awards landlord the “equivalent” UTPs for the gold coin landlord never got — ergo, Court does NOT enforce contract to pay in gold.
Both renter and ebay guy sit happily holding their gold coins laughing their arses off at YOU, landlord. SUCKER! Dumb landlord to think contracts mean anything.
Ah, the joys of a coin shop, where a buyer can go inside, see and hold and marvel at the piece of p.m. he’s buying, you hand the guy your UTPs and he immediately hands you his coin. But when he’s sold out, TFB, dude. No coins fer you.
No. You propagate a false statement. It is NOT possible “any day of the week” to get gold coins if the coin shops are in shortage.
“During the days of the gold (and silver) standards, there were periodic shortages of gold coinage.”
Hence the idea of digital gold. If gold were revalued to back all the UTPs out there, it would require gold to be many, many thousands of UTPs “equivalent.” Transactions would take place in gold grams. Ah, BUT, if a Joe wishes to save enough UTPs to GET a gold coin to hold, he can.
Most people will choose NOT to carry their gold around, but knowing they COULD if they wished, restores the confidence in the currency — as BOTH a medium of exchange AND a store of wealth that cannot be inflated away from you.
Of course, this all presupposes the gov’t allows for independent auditing to make sure the digital gold banks are holding the gold they say they are.
Fiat currency Banksters, being supported by the full force of the U.S. gov’t and being the crooks they are, will fight tooth and nail to prevent any such of a deal from coming to be.
Oct 19, 2009 6:25 pm |
“Because the demand for money fluctuates up and down depending on which way credit markets are going.”
Right. The Federal Reserve System, having, as it does, the power to print money out of thin air and loan it to the gov’t, also puts banks in the happy position (from their perspective, not mine) to collect interest on dollars for which they bear no risk. If the banking system loans out too many and inflate the money supply and cause a run on the banks, that’s okay, they’ll just print more.
Meanwhile, Joe Saver who would like to retire someday finds that the UTPs he saved as a young man when a dollar actually bought something, discovers that, instead of the $35000 he THOUGHT he’d need, back then, finds at 65 he needs to have a million.
But, a gold coin, then as now, will pay a month’s rent. A thousand gold coins will provide a lovely retirement.
Oct 19, 2009 6:41 pm |
“EAh, the joys of a coin shop, where a buyer can go inside, see and hold and marvel at the piece of p.m. he’s buying, you hand the guy your UTPs and he immediately hands you his coin. But when he’s sold out, TFB, dude.”
There were also plenty of coin dealers selling gold bullion during the shortage. You just had to pay a much higher premium over spot.
“No. You propagate a false statement. It is NOT possible ‘any day of the week’ to get gold coins if the coin shops are in shortage”
Quit strawmanning me. My claim was about buying gold, not about buying gold coins.
“Hence the idea of digital gold”
I’m not sure what your point is here.
Oct 20, 2009 11:10 am |
“Quit strawmanning me. My claim was about buying gold, not about buying gold coins.”
If you’re talking about buying futures, a mini is 33 ozs/ a full contract is 100 ozs.
So unless you’ve got big bucks UTP, (say, $33 K or $100 K) you cannot take delivery of a contract. If you buy on margin and sell without taking delivery, you are merely playing a trading game of gold derivatives, “paper gold” — NOT real, honest-to-goodness gold you hold in your hand.
A landlord looking to get an oz. of gold for his rent for the month has the option of gold in the form of coins or bars only. Nobody sells one oz. nuggets. How am I strawmanning you? In what OTHER form can a landlord looking to get hold of one oz. get his gold?
Us gold bugs believe in real, actual stuff you can hold in your hand. We hold derivatives in contempt. Derivatives bought on margin with the intent of selling and never taking delivery is “paper gold,” hence fraud, imo. Completely counter to the whole idea of honest, sound money.
“Hence the idea of digital gold”
I’m not sure what your point is here.”
Digital gold is a way of getting around the argument that “there’s not enough gold” to return to using gold (or silver, too, or any precious metal) as currency. It would work similar to the way debit cards do with UTPs.
The plan goes like this: You would be paid in gold grams (for most transactions) which are on deposit at the digital gold bank. It is tracked electronically (similar to how you now, today, get your paycheck on a check, but your account is credited the amount of the check — or you pay with a debit card and the amount is subtracted.)
However, if you save 1000 grams of gold, as represented electronically, you can, if you wish, go get your oz. of gold and carry it home in your pocket. So, if we as a nation were to return to p.m.s as currency, the problem that there’s “not enough gold” is covered by digital gold where the transactions would have to be in tiny amounts, such as grams. Basically, an oz. of gold would have TREMENDOUS purchasing power — far more than just one oz. paying for one month’s rent.
Again, this presumes the digital gold banks are audited by independent agencies to prove they actually have in their vaults sufficient gold to cover all the deposits, in order to prevent them from resuming the old game of loaning more money than they have on deposit, only this time it would be more gold-grams digits than they actually have grams of gold in their vaults. Otherwise you’ll be right back to the issue of banks inflating the money supply for their own benefit (to collect interest on money out of thin air for which they bear no risk) and inflating away your savings’ purchasing power.
Oct 20, 2009 11:20 am |
“There were also plenty of coin dealers selling gold bullion during the shortage. You just had to pay a much higher premium over spot.”
Really? Because I buy an oz. of p.m.s a month, I was very aware of the shortage as I was trying to get some ozs. at the time and could not.
Unless you were able to purchase very large bars, like 100 ozs., (meaning you had $100 K UTP) the dealers were SOLD OUT. If you wanted like 1 oz., 10 oz. amounts, Kitco was out. NWT was out. APMEX.com was out. My local coin shops — out.
I read the forums on Kitco. Other posters were telling the same tales — their local coin shops, all out. When an online dealer had a shipment in, a poster would tell us all, and we’d rush over there. And so we saw, even when the dealers would get some, they were quickly sold out again, like within hours.
So where was all this gold in small denominations available for a premium above spot that you claim to know about? Hm? Name a few dealers for me, so the NEXT shortage, I can get my monthly purchases.
Oct 20, 2009 12:33 pm |
“In what OTHER form can a landlord looking to get hold of one oz. get his gold?”
You’ve already answered your own question. There are services available online which let you buy and exchange small amounts of gold.
“Us gold bugs believe in real, actual stuff you can hold in your hand.”
Even when we had the gold standard, most gold was traded in the form of gold backed certificates. And there were periodic shortages of gold and silver coins.
” Name a few dealers for me, so the NEXT shortage, I can get my monthly purchases”
I’ll do you one better. YOU pick 3 or 4 dealers near you and I’ll arrange things so that there will be a one ounce gold bullion coin for you to purchase. I will charge you triple the spot price so that I can make a nice profit for my trouble.
Oct 20, 2009 1:11 pm |
Okay. Now I see where Sabril’s weasel room comes from.
I made the mistake of typing “gold coin” as shorthand for “one oz. of physical gold bullion in the form of bars or coins.” Readers, everywhere in my posts where I’ve typed “gold coin” please mentally replace with “one oz. of physical gold bullion in the form of bars or coins.”
Too bad there’s no edit function.
“You’ve already answered your own question. There are services available online which let you buy and exchange small amounts of gold.”
False. Because the reputable dealers can sell out and not be able to sell you gold in small denominations, as we have seen, you are leaving the poor landlord in the unhappy position of being forced to trust unknown strangers, with no business reputation to protect, that the unknown stranger will actually send the one oz. of gold bullion.
So the gov’t is NOT enforcing the “pay me my one oz. of gold bullion per month as payment for my rent, Mr. Renter” contract. You are stuck with UTPs or nada — or even end up, due to being forced to trust unknown strangers, if you sigh and take the UTPs with the intent of trying to get the one oz. of gold bullion yourself, with not even having the UTPs, if you are forced to try to get the one oz. gold bullion in coin or bar form yourself from ebay sellers because the reputable dealers are sold out.
“I’ll do you one better. YOU pick 3 or 4 dealers near you and I’ll arrange things so that there will be a one ounce gold bullion coin for you to purchase. I will charge you triple the spot price so that I can make a nice profit for my trouble.”
You funny.
And no, I don’t begrudge someone trying to make a profit in a shortage situation, but I would trust you about as far as I could throw you on a puny day that you’d actually deliver me my one ounce gold bullion coin (or bar).
Oct 20, 2009 1:22 pm |
“And no, I don’t begrudge someone trying to make a profit in a shortage situation, but I would trust you about as far as I could throw you on a puny day that you’d actually deliver me my one ounce gold bullion coin (or bar).”
You don’t have to trust me. The gold coin will be waiting for you to pick up at any reputable dealer you choose.
“I made the mistake of typing “gold coin” as shorthand for “one oz. of physical gold bullion in the form of bars or coins.” ”
:shrug: You are still strawmanning. When I said that dollars are easily converted to gold, I was including other ways to own gold besides physical possession of actual gold.
Even without physical possession, it is still possible to prevent the government from inflating away the value of your dollars.
“Because the reputable dealers can sell out and not be able to sell you gold in small denominations,”
That’s not true, but even if it were, you would still have the same problem (or worse) under a gold standard.
Oct 20, 2009 1:37 pm |
Oh, and one other question:
Do you agree that going back on the gold standard would not solve the problem you have described?
Oct 20, 2009 2:00 pm |
“You don’t have to trust me. The gold coin will be waiting for you to pick up at any reputable dealer you choose.”
Suuuuuurrrrre it will.
“I was including other ways to own gold besides physical possession of actual gold.”
If it ain’t physical gold, then it’s “paper gold” which is only a gold derivative and is NOT gold. Any more than a painting of a piano is a piano.
Gold has the value it does as gold because it has no counterparty risk. If YOU have it, you hold it, you own it, you don’t have to worry about a cheating liar not delivering the promised gold.
“Do you agree that going back on the gold standard would not solve the problem you have described?”
I’ll explain it once again. A digital gold bank — preassuming it is audited by independent organizations to be sure they actually hold the gold they say they do — where transactions are usually conducted electronically with debit cards but CAN be redeemed for actual, physical gold if the depositor desires, avoids the coin shortages situation because MOST people, provided they have reason to trust in the veracity of the multiple independent auditing agencies, will leave their gold in the digital gold bank vaults.
AND because one oz. of gold will have such tremendous purchasing power — far more than just to pay a month’s rent — there won’t be many gold coins floating around, therefore not much danger of gold coin shortages.
Oct 20, 2009 2:31 pm |
“Suuuuuurrrrre it will.”
Of course it will. Assuming you trust your dealers, of course.
“If it ain’t physical gold, then it’s ‘paper gold’ which is only a gold derivative and is NOT gold.”
So what?
Anyway, do you understand that even while the gold standard was in place, most gold transactions took place with “paper gold”?
Simple yes or no question.
“I’ll explain it once again.”
Ummm . . . does that mean yes or no?
“AND because one oz. of gold will have such tremendous purchasing power — far more than just to pay a month’s rent — there won’t be many gold coins floating around, therefore not much danger of gold coin shortages.”
That doesn’t make any sense. If gold coins had more purchasing power, all things being equal they would be in greater demand and therefore rarer and more prone to shortages.
But anyway, there’s no need to speculate.
Do you deny that there were regular shortages of gold coins while western nations were on the gold standard?
Simple yes or no question.
Oct 20, 2009 2:59 pm |
“Of course it will. Assuming you trust your dealers, of course.”
My dealers are not, in the event of a shortage, going to take hold of a coin you just handed them and then just send it to me. Their business plan is to BUY from the public below spot and then, themselves, resell it at a markup above spot to some other member of the public, taking the profit for themselves. Duh.
(AND even if, in some alternate universe, some dealer was willing to do such a goofy thing, you would really trust me to then send you 3X of spot UTP? Because I sure wouldn’t be sending YOU the UTPs first, hoping to get gold by return mail. I don’t trust you. I only trust my dealers because they were faithful when I traded small amounts of UTPs for small amounts of p.m.s. Because they’ve earned my trust,
I trust them to conduct the transaction honorably with larger amounts. This is true of any mail-order situation.
Obviously you wouldn’t send the gold before I sent the UTPs. I doubt you’re that big a fool. You’re just spouting hooey to win the argument. My dealers send me a coin (if they have it in stock) when I send them enough UTPs.
“Do you deny that there were regular shortages of gold coins while western nations were on the gold standard?
Simple yes or no question.”
Well, sure, when the purchasing power of gold was one oz = 1 mo. rent or 1 man’s very good suit of clothes as it has been for most of history.
If the purchasing power of an oz. is far, far higher, say, the equivalent of a Mercedes, then few people will be willing to carry around on their person that much purchasing power. So as long as the digital -gold bank is audited, therefore trustworthy, people will store it in the digital-gold bank.
Oct 20, 2009 3:20 pm |
“Anyway, do you understand that even while the gold standard was in place, most gold transactions took place with “paper gold”?
You do think I’m dumb, don’t you?
Well, as a lesson for the lurkers who aren’t up to speed about America’s history of money:
When we were on the gold / silver standard, a “dollar bill” meant that you could go to the bank and trade it for the silver dollar that the note represented. People would pass the notes around for transactions, in place of the actual silver dollars, because they knew, at any moment they wished, they could trade the paper for the silver dollar, but the paper was easier to carry.
So the paper took on a derivative value — derived from the fact it could be traded for the silver dollar.
When we went OFF the gold / silver standard and Federal Reserve Notes could no longer be traded for precious metals, the gov’t was completely free to print and spend all the paper they wished, and the populace was forced to accept the paper “money” created out of thin air. So the purchasing power, due to the inflation of the money supply, of the paper dollar in your pocket began its epic slide.
Today, people pass around paper dollars. They also use checks to represent the paper dollars. They also use debit cards to represent the paper dollars.
So a digital gold system would use debit cards to represent the amount of gold in your account at the digital-gold bank.
A tiny transaction of a few grams (or micrograms, etc.) would be electronically deducted from your account and credited to the vendor. IF the vendor wants his gold, if his account holds an oz, he can go to the bank and collect his oz. He likely won’t, because the purchasing power of an oz, being a Mercedes, means if he drops it down the sewer, he’s screwed. BUT HE CAN IF HE WANTS.
This ability to get zee gold if you wish, when you save up enough micrograms to get an ounce, restores faith in the currency.
So long as the digital gold bank is audited so they’re not creating digits out of thin air without the requisite gold to match, your savings WON’T lose purchasing power.
So now we have money: that thing which is BOTH an exchange medium AND a store of wealth that the purchasing power can’t be inflated away from you.
So no, there won’t be a big demand for gold coins to pass around from person to person for modest transactions,-since the loss of one coin would be a disaster for a person — so there won’t be a “shortage” that creates the difficulties in day to day transactions as happened when the West was on a gold standard where an oz. of gold only bought one mos. rent or a good suit.
Oct 20, 2009 6:40 pm |
Both Mises and Rothbard state that any amount of gold is sufficient to act as a medium of exchange in an economy. The rest is bookkeeping. Sabril, you are confusing the demand for cash with a lot of things. There are many extraneous issues in your discussion of a putative “shortage of gold coins” under the gold standard conditions of the U.S. 19th century. The U.S. at the time was under a bimetallic standard with both gold and silver circulating and with a ratio determined by law not the market, thus bringing Gresham’s law into play. A market based gold coin standard without legal tender laws and with enforcement against fraud and counterfeiting and with enforcement of valid private contracts would not only work fine it would be infinitely superior to what we have now.
Oct 20, 2009 8:05 pm |
“My dealers are not, in the event of a shortage, going to take hold of a coin you just handed them and then just send it to me. Their business plan is to BUY from the public below spot and then, themselves, resell it at a markup above spot to some other member of the public, taking the profit for themselves.”
Lol. I guess you never heard of a consignment sale. Not that I would even need to do it. I suspect all I would have to do is call up the dealer and say “I’ve got someone coming in tomorrow who’s willing to pay double spot for a gold coin . . . can you get one for her?”
“So as long as the digital -gold bank is audited, therefore trustworthy, people will store it in the digital-gold bank.”
Lol. What happened to your objections to “paper gold”?
“So long as the digital gold bank is audited so they’re not creating digits out of thin air without the requisite gold to match, your savings WON’T lose purchasing power.”
Ok, so our hypothetical landlord should be perfectly happy with an ounce of e-gold . . . right?
Oct 20, 2009 8:11 pm |
“U.S. at the time was under a bimetallic standard with both gold and silver circulating and with a ratio determined by law not the market, thus bringing Gresham’s law into play. ”
Even assuming that’s true, there have been many shortages of gold (and silver) coins throughout history. It’s hard for me to believe they were all caused by market interventions.
Anyway, do you have a cite for your claim? I would like to check it out.
Oct 21, 2009 12:15 pm |
“Lol. What happened to your objections to “paper gold”?
Simple. The “paper gold” that exists today is a fraud. There is no independent auditing agency. The NYMEX, COMEX and LME are being run by the foxes. The gold, and especially silver, shorts are in cahoots with the “regulators,” and we can expect they’ll be PROTECTED by when they can’t deliver. Case in point: the nickel default on the LME. (2006, I think it was?)
What’s happening today with “paper gold” is that “paper gold” is being fraudulently created out of thin air and sold to the unsuspecting as representing actual, real gold that the shorts actually have, when they do NOT have it. There are far more “contracts to deliver” than there are ounces available to deliver. The paper fraudsters issue a flood of “paper” gold, ostensibly, but falsely, representing actual ounces to be delivered. This sends a message of “glut” to market speculators, driving DOWN the price. The shorts then rebuy those contracts at a profit (in UTPs) and no one’s the wiser. It’s a scam and a ripoff and hurts me because it causes most people to forget just how valuable gold really is — as proven by 5000 years of human history.
The answer is multiple, independent auditing agencies, NOT government “regulators” who cast a blind eye to their buddies’ scams.
“Ok, so our hypothetical landlord should be perfectly happy with an ounce of e-gold . . . right?”
PERFECTLY happy? No. Nothing I’ve argued requires that. A digital-gold system, one more time, presumes multiple independent auditing agencies to PROVE the digital-gold bank holds the gold they say they do. In which case Mr. Landlord is likely to feel comfortable leaving his ounce in the digital bank. BUT if he WANTS his actual physical ounce in his hot little hand, he can HAVE it. There’s no “should” to it.
Oct 21, 2009 7:50 pm |
“Simple. The ‘paper gold’ that exists today is a fraud.”
And the same argument would apply to the United States back when we were on the gold standard, right?
Oct 21, 2009 9:28 pm |
“Simple. The ‘paper gold’ that exists today is a fraud.”
And the same argument would apply to the United States back when we were on the gold standard, right?
No. The difference is: The silver / gold certificates at that time in circulation were immediately redeemable for silver / gold just by strolling into a bank. Anyone could do it, easily. No need to hire an armored truck to go get your 100 ozs if you want to take delivery of a futures contract. The inconvenience of actually taking delivery of 100 ozs. is part of the reason so many otherwise-honest futures buyers don’t take delivery of their gold. And the fraudsters know it and take advantage of the fact that few take delivery. It’s what makes it so easy for them to be able to get away with issuing more contracts than ozs. exist.
Of course, there have always been some banks, even in the 1850s, that couldn’t resist trying the corrupt, fraudulent tactic of issuing certs beyond what they actually held in their vaults. And when the market got wind of it, which it always did, a run on the bank ensued — which, rightly, brought down the fraudulent bank, and corrupt CEOs got tossed in jail. So the anti-fraud system worked.
Some innocent people got hurt, to be sure. BUT, the fraud WAS stopped before the damage was massive-beyond-words, as we are seeing today. The trouble really WAS contained, unlike Mr. Bernanke’s announcement in 2008.
BUT when the Fed Reserve System came into to being to “stop the runs on banks” — with the eventual result, as planned, of going off the gold standard completely — the fraudster banks no longer needed to worry about being found out. The Fed would look after ‘em, and no banksters need fear jail –as we are seeing the Fed do, just now, today.
Multiple, independent auditing agencies, some governmental, some non-profit non-governmental public interest groups, some for-profit rating agencies, all independently auditing the vaults of the digital-gold banks is the obvious answer to the reality that banks will ALWAYS succumb to the temptation, if they think they can get away with it, of issuing more gold-representers than they have gold. It’s a known ill, with a known cure.
What’s different today that makes a return to a gold standard so doable is that we can use exceedingly tiny amounts of gold for tiny transactions, because we can do it electronically. This was not possible in 1850. The gold you carried around back then had to be big enough to see. A microgram, with the purchasing power of a roll of t.p., would have been too easily misplaced to work.
Oct 22, 2009 4:31 am |
“Of course, there have always been some banks, even in the 1850s, that couldn’t resist trying the corrupt, fraudulent tactic of issuing certs beyond what they actually held in their vaults.”
Fundamentally, how is that any different from the situation today? There are numerous providers of e-gold. Presumably some are tempted to issue more paper gold than the amount of real gold they hold in reserve.
Oct 22, 2009 7:51 am |
Most of the information pertinent to this thread can be found in Murray N. Rothbard’s excellent book “A History of Banking in the United States” (available at Mises.org.) The voluntary exchange market does an excellent job of keeping banks honest, if they inflate the # of certificates above the amount of gold they have on hand to satisfy depositors they are under the constant threat of a run that would reveal their fraud. Fractional Reserve banking is fraudulent at its core and central banking has always been an attempt to cartelize the banking system and back up the fractional reserve system with a “lender of last resort” so that bankers can continue to counterfeit. It’s really as simple as that. Fraud is fraud whether it is issuing more gold certificates than you have gold in storage or creating some sort of digital chit that you say represents an amount of gold that you don’t have.
Oct 22, 2009 1:20 pm |
“Most of the information pertinent to this thread can be found in Murray N. Rothbard’s excellent book “A History of Banking in the United States” (available at Mises.org.)”
I searched that web site but could not find the book you are referring to. Would you mind linking to it AND quoting the relevant part?
Oct 22, 2009 1:42 pm |
You may have seen this back in April, but it looks like the current conditions are the worst for anyone who would issue more gold certificates than they can really deliver.
http://seekingalpha.com/article/129128-did-the-ecb-save-comex-from-gold-default
On Tuesday, March 31st, Deutsche Bank (DB) amazed everyone even more, by delivering a massive 850,000 ounces, or 8500 contracts worth of the yellow metal. By the close of business, even after this massive delivery, about 15,050 April contracts, or 1.5 million ounces, still remained to be delivered. Most of these, of course, are unlikely to be the obligations of Deutsche Bank. But, the fact that this particular bank turned out to be one of the biggest short sellers of gold, is a surprise.
Oct 22, 2009 1:47 pm |
Deutsche Bank con’t
Was it yet another bank bailout? Has another bank sucked up precious resources belonging, in this case, to the people of Europe? Gold is needed to bring confidence to the Euro currency, as often noted by Germany’s Bundesbank, which seems to be less kind to German banks than the ECB. Why should the ECB be permitted to sell gold to closely connected derivatives dealers, if the primary purpose is to save those dealers from the bad decisions they have made, and the end result is to reinforce moral hazard? Should banks like Deutsche Bank be allowed to take on more derivative risk than they can afford without involving publicly owned assets? Did Deutsche Bank issue naked short positions? Have innocent European citizens now had their currency placed at more risk, and some of their gold stolen from them, simply to enrich private hands? All of these questions are begging for answers.
Oct 24, 2009 7:34 pm |
I won’t quote the relevant part but I will link or at least list the address at Mises.org. Rothbard has written extensively on money, sound money, banking, the gold standard, etc.
http://mises.org/store/History-of-Money-and-Banking-in-the-United-States-P191.aspx
Oct 24, 2009 8:01 pm |
“I won’t quote the relevant part but I will link or at least list the address at Mises.org. Rothbard has written extensively on money, sound money, banking, the gold standard, etc.”
Thank you, but your link goes to a place where you can purchase the book for $25.00. Sorry, but it’s not my burden to do your homework for you and to spend time and money searching for the argument (or evidence) you claim exists out there.
If you have an argument to make, please feel free to make it. I’m not interested in bare conclusions.
Oct 24, 2009 8:15 pm |
Here’s the PDF for free
http://mises.org/books/historyofmoney.pdf
Oct 24, 2009 8:56 pm |
Thank you. Brad W, can you tell me which page or pages I should look at? Thanks!
Leave a Reply