“Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.” — Alan Greenspan, in his 1966 essay, “Gold and Economic Freedom”
Mr. Greenspan wrote those words before taking charge of the economic destruction of the world. He was an acolyte of Ayn Rand, the Russian emigrant novelist who wrote the free market classic “Atlas Shrugged.” The temptations of power and prestige overwhelmed Mr. Greenspan’s principles. He knows what crimes he is committing. He has created a blizzard of paper dollars that makes the total produced by all his predecessors appear as a mere flurry. Whether the vast inflationary bubble finally bursts or slowly deflates, he will not be able to truthfully claim he didn’t know what he was doing.
That will not be true for most of us, however. Few people understand what money is and how unbacked paper money allows its creators to steal from those who produce real wealth. Every new paper dollar is evidence of a crime of theft and fraud. The crime is particularly loathsome because it is done without the knowledge of the victim, and accompanied by pious lies about “fairness” and “compassion;” as if casting an entire nation into uniform, groveling dependency on politicians were a noble act.
Here’s how it works. Politicians buy votes with promises of benefits from the public treasury. There are two ways to pay for such benefits. There is the old fashioned extortion known as taxes, the traditional protection racket, pay or suffer. Then there is fraud, where money is borrowed with no intention of paying it back. Nobody gets elected by promising higher taxes, so the second method is the most popular among politicians.
When dollars were backed by gold the government couldn’t just print up more dollars to repay borrowed ones. Anyone with dollars could show up at a Treasury office and swap the paper bills for gold. Bills were just that, claims that had to be paid in “lawful money,” which everyone knew was gold or silver. The bills had promises printed right on them, the bearer would be paid in gold on demand. If someone demanded and wasn’t paid, word traveled fast. Before long no one would accept the bills.
Such a situation, of course, severely limited the ability of politicians to buy votes. In over a century before we had the Fed, Uncle Sam had run up a measly $75 million in public debt. That’s less than the U.S. Government borrows every hour and half today. So how did they get up to warp speed borrowing after so long on the slow boat of the gold standard?
It also happened that the gold standard hampered bankers’ ability to loan money they didn’t have. Having to maintain a reserve of gold against the possible demands of depositors put a severe crimp in their ability to generate new loans and obscene profits. In 1913 politicians and bankers put together the greatest swindle in history. They conspired to abandon the discipline of gold and opened the door to the greatest financial bubble the world has ever seen.
That was the year Congress created the Federal Reserve System. They granted the Fed the exclusive power to issue new dollars. Bankers were allowed to back their loans with paper “reserves” consisting of government IOU’s. They would always have money to lend. Congress would always be able to borrow from the Fed because government IOU’s were literally “as good as gold” for the banks. Bankers and politicians couldn’t have been happier.
There was just one hitch. The suckers who would have to provide the real wealth against which the flood of paper would have claims, ordinary working Americans, could still escape to God’s own money, gold. After the first inflationary bubble blew in 1929, people did just that, pulling cash out of banks at a furious pace. This was unacceptable to the bankers and politicians. Franklin D. Roosevelt, therefore, by executive order, eliminated Americans’ right to own gold.
There was now no escape. The transition to a “fiat” currency (that is, a currency whose value is determined by law, by fiat, rather than intrinsic value) was complete for U.S. citizens. In 1971 Richard Nixon would extend the system to the world when he halted the redemption of dollars for gold by foreign banks.
Now, whenever the load of IOU’s becomes too heavy and business slumps, the Federal Reserve Open Market Committee buys Treasury bills, notes and bonds from commercial banks. They pay for them by simply adding balances to the banks’ reserve accounts at the Fed. New money floods into the system. It’s like magic. And all the players get what they want.
Politicians get votes. Special political interests get subsidies. Banks get an infinite supply of deposits. Unfortunately, the public gets screwed. More and more dollars create only more and more claims against real wealth, not real wealth itself. Printing more dollars doesn’t increase the supply of beer, burgers and cigars, only their price.
In the first 100 years of our history prices hardly changed at all. In the years since the Fed took charge of our currency, prices have risen 1500%. The connection is obvious. The long-term rate of price inflation is proportional to growth of the money supply, and the money supply grows in proportion to the growth of government debt.
From 1950 to 1980, U.S. prices and U.S. government debt grew in lockstep by 220% each. Since abandoning gold internationally we’ve been able to export our inflation to the world, removing the last barrier to our trying to borrow all the wealth on earth.
Since 1980, federal debt has exploded from $909 billion to an incomprehensible $6.2 trillion. That figure doesn’t even include the mind boggling $44 trillion in unfunded promises Congress has made to constituents. In that time consumer prices have merely doubled, but the skyrocketing prices of speculative investments have created paper millionaires in stocks and real estate. The increase in those values has been largely borrowed again by high living American consumers. Foreigners have gotten into the game as well, using our exported dollars as reserves to create their own paper booms.
The world’s finances are floating on an unimaginably vast ocean of paper dollars, dollars created via loans, loans which, in their unfathomable vastness, will certainly never be repaid. When the lenders figure out they are not going to be paid, IOU’s will trade at deeper and deeper discounts until finally paper dollars return to their intrinsic value.
Is there protection against that devaluation? The same protection there has always been. Insurance against the whims and excesses of political money is available once again to Americans, in the form of God’s own money. In His infinite wisdom, He scattered it around the globe in places that are mostly hard to get to. He arranged it so the earth gives up His money only grudgingly. Its value is more stable than that of any political currency.
Since the creation of the Federal Reserve the price of God’s money in political dollars has increased from $20 to $400 an ounce. This is an increase that approximates, and for the moment slightly exceeds the 1500% increase in consumer prices. That increase is, however, only a small fraction of the total increase in the volume of dollars in the world. In Rome, 2000 years ago, a one-ounce gold coin
would buy a decent toga and a pair of sandals, the business suit of the day. An ounce of gold will still buy a business suit today.
Gold isn’t a get rich quick investment. Some would say it’s not an investment at all. But neither is accident insurance an investment, unless you have an accident. Many more men have been financially ruined for having too little rather than too much of God’s own money.