Picking up where we left off a couple of weeks ago…
The US monetary system during the 20th Century has dramatically changed from the one authorized by the Constitution. Only silver and gold were to be used in payment of debt and no paper money was to be issued. In one of the few restrictions on the states, the Constitution prohibited them from issuing their own money and they were to use only fold and silver in payment of debt. No central bank was authorized. The authors of the Constitution were all aware of the dangers of inflation, having seen the great harm associated with the destruction of the Continental currency. They never wanted to see another system that ended with the slogan “It’s not worth a Continental.” They much preferred the “sound as a dollar” or “as good as gold” as a description of our currency. Unfortunately their concerns , as they were reflected in the Constitution, have been ignored and, as this century closes, we do not have a sound dollar “as good as gold.” The changes to our monetary system are by far the most significant economic events of the 20th Century.
The gold dollar of 1900 is now nothing more than a Federal Reserve note with a promise by untrustworthy politicians and the central bankers to pay nothing for it. No longer is there silver or gold available to protect the value of a steadily depreciating currency. This is a fraud of the worst kind and the type of crime that would put a private citizen behind bars.
But there have been too many special interests benefiting by our fiat currency, too much ignorance and too much apathy regarding the nature of money. We will surely pay the price for this negligence. The relative soundness of our currency that we enjoy as we move into the 21st Century will not persist. The instability in world currency markets, because of the dollars’ acceptance for so many years as a reserve currency, will cause devastating adjustments that Congress will eventually be forced to deal with.
The transition from sound money to paper money did not occur instantaneously. It occurred over a 58-year period between 1913 and 1971 and the mischief continues today. Our central bank, the Federal Reserve System (established in 1913 after two failed efforts in the 19th Century) has been the driving force behind the development of our current fiat system. Since the turn of the century, we have seen our dollar lose 95% of its purchasing power, and it continues to depreciate. This is nothing less than theft, and those responsible should be held accountable. The record of the Federal Reserve is abysmal. Yet at the close of the 20th Century, its chairman is held in extremely high esteem, with almost zero calls for study of the monetary system with intent to once again have the dollar linked to gold.
… It is most likely that we would have pursued a less militaristic foreign policy if financing it had been more difficult. Likewise financing the welfare state would have progressed much slower if our deficits could not have been financed by an accommodative [sic] central bank willing to inflate the money supply at will.
There are other real costs as well, that few are willing to believe are a direct consequence of Federal Reserve Board policy. Rampant inflation after World War I, as well as the 1921 Depression, were a consequence of monetary policy during and following the war. The stock market speculation of the 1920s, the stock market collapse of 1929, and the Depression of the 1930s (causing millions to be unemployed) all resulted from Federal Reserve Board monetary mischief.
Price inflation of the early 1950s was a consequence of monetary inflation required to fight the Korean War. Wage and price controls used then totally failed, yet the same canard was used during the Vietnam War in the early 1970s to again impose wage and price controls with even worse results. All the price of inflation, all the distortion, all the recessions and unemployment should be laid at the doorstep of the Federal Reserve. The Fed is an accomplice in promoting all unnecessary war as well as the useless and harmful welfare programs with its willingness to cover Congress’ profligate spending habits.
Although many claim the 1990s have been great economic years, the Federal Reserve board action of the past decade has caused problems yet to manifest themselves. The inevitable correction will come as the new century begins and is likely to be quite serious.
The stage has been set. Rampant monetary growth has led to historic high asset inflation, massive speculation, over-capacity, malinvestment, excessive debt, negative savings rate, and a current account deficit of huge proportions. These conditions dictate a painful adjustment, something that would have never occurred under a gold standard. The special benefits of foreigners taking our inflated dollars for low-priced goods and then loaning them back to us will eventually end. The dollar must fall, interest rates must rise, price inflation will accelerate, the financial asset bubble will burst, and a dangerous downturn in the economy will follow. There are many reasons to believe the economic slowdown will be worldwide since the dollar is the reserve currency of tee world. An illusion about or dollar’s value has allowed us to prop up Europe and Japan in the past decade during a period of weak growth for them, but when reality sets in, economic conditions will deteriorate. Greater computer speed, which as helped to stimulate the boom of the 1990s, will work in the opposite direction as all the speculative positions unwind, and that includes the tens of trillion of dollars in derivatives. There was a good reason the Federal Reserve rushed in to rescue Long-Term Capital Management with a multi0billion dollar bailout. It was unadulterated fear that the big correction was about to begin. Up until now, feeding the credit bubble with even more credit has worked and is the only tool they have to fight the business cycle, but eventually control will be lost.
… Congress must someday restore sound money to America. It’s mandated in the Constitution; it’s economically sound to do so; and it’s morally right to guarantee a standard of value for the money. Our oath of office obligates all Members of Congress to pay attention to this and participate in this needed reform.
I’d be interested in knowing how many other men and women in Congress and the Senate saw exactly the same thing that Congressman Paul saw, yet did nothing about it. Remember, you have a civil obligation to police your representatives.