The below pictures were from a presentation given at yesterday’s “Towne” Hall on May 24.  I’ve added a few comments with documentation links.  The quote above from the Declaration easily applies to the 22.5 million bureaucrats, America’s second largest job sector, who make nearly twice the average wage of the private sector.

While America is not Greece – or Iceland – there are glaring similarities.

While the Republocrats are not King George… they are far worse.

For Liberty and the Constitution,

Jake Towne

USDA link here.  Note the strong rise in number of SNAP food stamp recipients during the past year.  One would expect to see this number dropping or even flat-lining – along with employment rising – if a recovery were underway.

BLS link here.  Note that while the “newspaper” unemployment rate is still 10%, the U-6 figure – which more accurately describes total unemployment is 17% – a depression statistic.  I’ve described the common sense solutions to end rampant unemployment almost overnight in the campaign’s Jobs plank.

Since the BLS drops off workers from its U-6 figure, the real unemployment rate is most likely slightly greater than 17%.  Shadowstats estimates the rate at about 22%.

The current national debt – which is closely tied to the USTreasury market is now over $13 trillion.  Current government plans include massive deficit spending through 2013, and the government’s optimistic projections of a return to “normalcy” even then should be severely doubted.  Source of budget data.  However, due to the cash-based accounting method government uses, this hides the undeniable fact that the real national debt is much larger when GAAP (Generally Acceptable Accounting Principles) are used to identify future taxation sources and future debts such as Social Security and Medicare (see below).

The above is taken from the Treasury Department’s latest report from April 2010 where government’s inlays – social security and retirement taxes, income taxes (both personal and corporate), and excise taxes can be seen.  The average monthly level is about $170 billion per month.

From the same report, the level of government spending, which averages about $300 billion per month.  (Only the government can run that type of accounting, due to its money-printing!)  While Social Security and Medicare are a major expense, the level of “National Defense” spending appears deceptively low as it is just the DoD budget.  As I wrote about in “Guns or Health Care?” plenty of “Other Non-Defense” spending are in fact related to the military – Homeland Security, the nuclear arsenal under the Dept. of Energy, Veteran’s Affairs, the Treasury’s military retirement program, etc.

As seen in the official USTreasury report on page 178/254, the total unfunded liabilities for Medicare and Social Security is a jaw-dropping $107 trillion over the future of these programs.  While I predict the Democrats may bear the brunt of the blame for the collapse of Medicare, one must not forget that it was the Republican’s massive expansion of Part D’s prescription drug plan that worsened the fiscal situation.  One interesting possible interpretation of the recent health care takeover plan is it may simply be a stop-gap solution to temporarily increase taxes over the next few years.  (On Social Security, I will be delivering a presentation in more detail next Friday.)

The above is built from the Federal Reserve H.4.1 data here.  The red line is the total (reported) balance sheet of the FED, which has more than doubled since the time of the Banker Bailout.  While the original TARP bailout (not shown) accounted for much of the initial sharp increase, most of the debt has been replaced by $1.12 trillion of mortgage-backed securities from Freddie Mac and Fannie Mae (the purple line).   This graph shows the nationalization and propping of America’s entire residential housing industry. The yellow and green lines show the cumulative totals of USTreasury and USAgency debt held by the FED.  While the Federal Reserve has admitted it will take losses on the MBS debt, the question remains as to how much and when.

The purchasing power of the dollar has lost well over 94% since FDR took America off the classical gold standard in 1933 through monetary inflation.  The monetary inflation is caused by the FED.  They debase the dollar by creating more and more irredeemable paper dollars.  Graph provided by Bloomberg Financial, 2009.

The above chart shows the “real interest rate” from 1970 to 2009, formula below.  It is an approximation for the dollar’s purchasing power versus time.  While in 1980 it reached nearly +10% (savings rate of ~19% and inflation of ~10%), in 1990 this rate went negative and continued dropping.  The chart shows the capital and savings of America being ruthlessly destroyed by the FED and the government.  Source.

Real Rate of Interest = (Interest Rate earned by a bank savings account) minus (Inflation Rate)

The rising price of gold over the past decade demonstrates the destruction of the world’s paper currencies.  In the past several weeks, gold reached all-time record highs in dollars, yen, euros, Swiss francs, and British pounds.  As described in this article, the gold price is likely suppressed by governments in order to make their own currencies look good as I wrote about in “The Summers Gold Price Suppression Scheme.”  Gold trades over $20 billion USD per trading day – or over $20 trillion annually – a figure larger than the $15 trillion GDP figure used for the United States.

To cap off the situation with the dollar, the latest quarterly banking profile from the FDIC indicates the deposit insurance fund (DIF) is bankrupt.  While consumers at failed banks still receive “insured” funds, the losses are presumably filled in with dollars from the FED, as reported last here.  The current FDIC “watch list” rose to 775 banks, or almost 10% of all FDIC-insured banks in the US per p. 3/26.

The crux of the Over-the-Counter derivatives problem is its enormous size.  However the $600 trillion figure shown is the derivatives’ contracts notional value – a true market value cannot be assessed.  The primary issue with OTC derivatives is that they trade off of exchanges, so their contents are opaque to the rest of the marketplace.  Note that exchange-traded derivatives (EXD) are much smaller.

BIS data here.  Note the sharp drop following the 2008 financial crisis.  More details on derivatives can be learned in “What the Heck are Derivatives?” and “Bring Light to Dark Derivatives!”

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

America’s monetary situation is becoming fairly ridiculous.  This Monday, the Wall Street Journal carried “Will Nickel-Free Nickels Make a Dime’s Worth of Difference?” on its front page.  The article shares the government’s dilemma that minting each $100 box of nickels costs very close to $200, and that the metal content of the coin is worth more than the face value of 5 cents.  The penny, which was already debased from almost 100% copper to 2% copper in 1982 also costs more to mint than its face value.  The pre-1982 pennies are now worth over double their face value.

The nickel’s mass is 5 grams and consists of 25% nickel and 75% copper.  It is the only US coin to never have been devalued by using cheaper metals since it was first minted in 1866.  At that time, both the penny and nickel were worth far, far less than their face value, but were used as placeholders for gold and silver coins.  America’s dimes, quarters, half-dollars were all 90% silver up until 1964 when the silver content became worth more than the face value.  Today’s dimes, quarters, and half-dollars are nickel plating – done on purpose to resemble silver – sandwiched over a cheap copper core.

While the WSJ hems and haws between substituting wood, plastic, aluminum or zinc in the coins, one of the issues with “toy money” or devaluing the coin currency is that it could cause a psychological trigger as citizens realize Congress and the printing operators at the Federal Reserve intends to pursue its permanent monetary policy of inflation, which is a hidden, insidious tax on all Americans who hold dollars.

From my overseas experience in China, one oddity is bank accounts and many restaurants or shops still issue receipts with two decimal places, even though there is no coin in wide circulation that is worth 0.01 yuan.  These coins stopped being used by the public simply because this amount no longer has any practical purchasing power.  A similar situation now exists in the USA today.

The most sensible solution for Congress to pursue is to halt the inflation and stop minting pennies and nickels altogether.

However, Congress is not sensible.  For reasons briefly outlined here, Congress will continue inflation for as long as it can to maintain this charade of “desperado economics.”  Note the gold price rising to all-time record highs yesterday in dollars, British pounds, Swiss Francs, and Euros.  However, gold’s value is not really rising – it is just the devaluation of the dollar becoming more and more visible to the general public as posted recently in “The Haunted House of Fiat Currencies.”

Today’s dollars are mere shadows of what America’s money once was.  Money made with a printing press is nothing new – Thomas Paine and the rest of the founders were aware of the dire dangers – the phrase “worth less than a Continental” refers to script currency Washington issued the troops which quickly became worth nothing. This campaign has specifically about the nickel debasement two weeks ago, again in January, and well before this campaign started way back in August 2008 when I was just beginning to figure out what the government has done to our money.

While the masses will eventually catch on, forewarned is forearmed.  Here is a snippet from Chapter 17 of Human Action written by economist Ludwig Von Mises:

“The course of a progressing inflation is this: At the beginning the inflow of additional money makes the prices of some commodities and services rise; other prices rise later. The price rise affects the various commodities and services, as has been shown, at different dates and to a different extent.

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against “real” goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German Mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.”

[Suggested further reading: the campaign's Federal Reserve plank, Sound Money and Jobs plank, and "One Step Clower to the End of the Yellow Brick Road"  Towne is one of the few writers brave enough to address the transition to sound money here.  While the end result of the crack-up boom predicted by Mises is as above, during the path towards it anything can happen as the amount of credit could be contracting at a faster rate as I wrote about in "'Credetary' Inflation and Deflation" and "Bring Light to Dark Derivatives!!" last year.]

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

The world champion athletes at the Winter Olympics receive gold, silver, and bronze medals that contain roughly the same amounts of metal as the last Summer Olympics.

• A gold medal contains 550 grams of silver and is layered with just 6 grams of gold.
• A silver medal has 509 grams of silver and about 41 grams of copper.
• The bronze medals likely contain about 450 grams of copper and 50 grams of mostly tin and zinc.

At current market prices, a gold medal is exchangeable for about $494, a silver for about $260, and a bronze for just $3. If the gold medal was solid gold with the same mass, it would be exchangeable for almost $20,000.

While the Vancouver athletes are receiving the same amount of gold and silver as the Beijing Summer Olympics, world central banks – like the Federal Reserve – have been devaluing their currencies steadily for the past century or so to pay for the wild growth of government, non-stop warfare that have killed well over 170 million civilians, and the redistribution of wealth from those who worked for it to special interest groups. Sound money has been considered such a serious threat to the primacy of the state that virtually all dictators – Hitler, Mussolini, Stalin, and Mao top the list – have banned it so government spending cannot be checked.

FDR, during the midst of the Great Depression caused by the printing presses of the FED, outlawed all gold coins in the United States from 1933 until 1975. Americans still used silver in their coins up until 1970 when the silver became more valuable than its face value and the coins all disappeared from circulation. A 1964 half dollar can now be exchanged for nearly $6.

Unbeknown to most of the American public, the world’s gold market has over $20 TRILLION in annual turnover, a sum much larger than the $15 trillion figure bandied about for US GDP, which is the theoretical sum of all the goods and services exchanged by American firms and individuals.

Unnoticed to most of the American public, while the S&P 500 has actually fallen in dollar terms over the past decade, the price of gold has steadily risen each and every year by an average of 17%. Unfortunately, a rising price of gold does not indicate an asset bubble – like housing – in my opinion. It is the whistling before the kettle blows its lid. It is the silencing of the canary chirping in the coal mine from noxious fumes.  So, back to the question, what is an Olympic gold medal worth?

While one cannot deny the sentimental value* attributed by some athletes to winning a gold medal at these Winter Olympics in Vancouver, Voltaire’s comment will remain as true in the coming years as when he first said it. All one must do is study the ruin of France under John Law, the debasing of the currency of imperial Rome, George Washington’s “worthless-as-a-Continental” script money failure after the Revolutionary War, post-WWI’s Weimar Germany’s hyperinflation – among many other European countries, the 1990 Argentine hyperinflation, and the Zimbabwe fiasco that is finally subsiding.

The gold and silver medals are money. Governments should take a lesson from the last couple Olympics and not devalue their currencies so carelessly.

History doesn’t repeat, but it does rhyme, and it’s best not be trampled when it decides to stampede.

[* Nor, in truth, deny the subjective value of anything.]

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

- Lord Rothschild, European central banker

The below slides are meant to explain fractional reserve banking as simply as possible using pictures.  The below demonstration assumes a reserve requirement of 10%, which is the figure typically given by the banking industry and financial experts.  However, in Part 2 I will demonstrate there there is effectively NO set reserve requirement though the banking system obviously carry some level of cash reserves.

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

Money is an invention of mankind. Our society refers to the irredeemable scraps of linen and ink as “money,” but in truth the dollar is no such thing. It is merely a currency, a medium of exchange, created by fiat - by government decree and force. The dollar is a phantom I.O.U. note. It is a Ponzi scheme and the central banking system issues new dollar currency whenever it wishes.

Dollars are toxic waste in the literal and fiscal sense. Literally, each dollar bill contains arsenic, cadmium, mercury, thallium, and cyanide and generates dumpster upon dumpster of hazardous waste every day.  Fiscally, the dollar has lost 98.3% of its value as of January 1, 2010 since the creation of the central bank known as the Federal Reserve in 1913. (Note 1) Many Americans are unaware that the electrons and scraps of linen we trade around as currency are mere shadows of sound money.

To see the shadows in our money, we have only to look at it. Look at this old quarter. The one I have is a little worn but it still has a silvery glisten to it and rings when you drop it. Now look at the rim of any current quarter – it is a cheap copper sandwich with a thin plating of nickel on top to make it appear like silver. It makes an annoying tinny sound when you drop it. The quarter was exchangeable in 1916 for about 0.012 troy ounces of gold, or over $13 modern-day dollars. Today it is still exchangeable for over $3 just for its silver content. The modern quarter? The “melt” value of its copper and nickel is worth less than 5 cents.

Golden shadows? Look at a new $1 Sacajawea or presidential series coin. It’s copper with a manganese brass cladding to give it a nice, fake golden shine. The melt value of the metal is about 5 cents. Desperate to introduce them into circulation, the United States Mint accepts credit cards and ships direct for free (well, at taxpayer cost) to your home. [The Mint is trying to replace $1 bills, which costs around 5 cents each to print as they wear out very easily over several years, after which it is shredded and treated as toxic waste.]

When originally introduced as a super-cheap placeholder coin for silver and gold redemptions in 1866, the nickel was made of 3.75 grams of copper and 1.25 grams of nickel. The dollar’s debasement is so horrendous that nickel’s melt value is now higher than its face value of 5 cents.

Not all that long ago, a single penny actually had purchasing power, unlike today. The melt value of pre-1982 pure copper penny is 2.2 cents.  The modern penny, debased with a zinc core covered with a thin copper cladding, has a melt value of 0.6 cents. The cost of minting a penny puts its cost at over a cent.

Money gradually evolved from societies from barter (or direct exchange) economies to economies based on indirect exchange. Under indirect exchange, Joey sells his chickens’ eggs for money and then either buys, say, a wrench from Bob or saves the money for future use. If one looks at this with an economist’s eye, Joey exchanged his commodity (eggs) for another commodity (money) and then either saved the commodity or exchanged it yet again for another commodity (Bob’s wrench). Hence money is actually a commodity just like corn, copper, or even an Ipod. Sound money is the hallmark of prosperous societies. Fraudulent money impoverishes and enslaves societies and commonly rips them apart in blood-soaked wars.

For money to be sound, it must have the following characteristics. Money must be durable and not easily destroyed. Money must be portable for convenience. Money must be easily divisible into smaller units. Money must be recognizable and uniform. Money must be reproducible. Money must be scarce, and it must also have a relatively stable purchasing power.

Fiat currencies – like the dollar and all other national currencies – can never truly fulfill the scarcity and purchasing power requirements. For example, let’s use our own currency again. In 1964, all dimes, quarters and halves were 90% silver by mass. Four silver dimes in 1964 would buy a good loaf of bread. In 2010, the dimes would certainly not be enough at a bakery, but exchanging at a jeweler or coin shop for its worth in silver would yield $4.85 today – quite sufficient to make the exchange.

For nine straight years from 2001 to 2009, the gold has climbed in price against the dollar with an average annual gain of 17%. Silver gains have also been 17%, but with far more volatility. Most importantly, gold is strengthening against all other national currencies which indicates the entire fiat monetary system is falling apart.

Central banks suppress the price of gold to make their own fiat paper currencies look stronger. While this may seem at first to be a wild-eyed claim, there is plenty of historical precedence and modern-day evidence collected by GATA. Per facts collected from Federal Reserve’s very own archives, the United States government schemed with other central banks to secretly manipulate the gold price from the creation of the London Gold Pool in 1961 until its utter collapse in 1968. Sources for the modern-day suppression of the gold price can be reviewed in my article “The Summers Gold Price Suppression Scheme.”

If you live in Pennsylvania’s 15th congressional district, it is now easy to understand why there are so many full-page newspaper ads asking to buy your gold and silver, and few willing to sell metal. Not only is gold and silver money, but it is the only lawful form of money authorized by the Constitution of the United States, as I reviewed in the below talk.

In his ground-breaking Principles of Economics, Carl Menger noted the Germanic word “Geld” was applied to any goods that assumed the role of money in the marketplace. This word was derived from the verb “gelten” which meant to compensate or pay. (Page 260/328) As society evolved from ‘cattle standards’ and ‘buckskin standards’ to ‘copper standards,’ the ultimate form of “Geld” became – and remains – gold.

Unknown to most Americans, the annual turnover at London gold market alone exceeds $20 trillion dollars – a sum that is far larger then the figures used for US GDP.  As the insane Ponzi scheme of fiat dollars designed by crackpot Keynesian economists spirals into oblivion, dollar holders chase “gelten” shadows as central bankers’ schemes to support the reckless welfare and warfare spending of Congress becomes apparent to all.

Note 1: Under the Gold Standard Act of 1900, the dollar was roughly convertible to 0.048 troy ounces of gold.  The NMA calculates the dollar value of a troy ounce of gold to be $18.92 in 1913.  The London gold fix to finish 2009 was $1104.

Jake Towne is running for U.S. Congress in eastern Pennsylvania’s 15th district in 2010. Prior to returning home, he had been living in Shanghai as an engineer in the semiconductor industry for over 3 years. As part of defending liberty and championing the Constitution, Towne is offering the citizens in his area a novel form of accountable government called “Our Open Office.”

What is credit? Webster defines it as the “reliance on the truth or reality of something”. Simple enough. The Federal Reserve controls the supply and creation of money and credit in the United States. Credit creation is defined as the “collective abilities of lenders to make money available to borrowers”. The Federal Reserve, through its monopoly power over interest rates, is able to control the flow of credit. When interest rates are lowered, banks can borrow funds from the Fed at cheaper levels in order to lend it more easily to their customers.

The manipulation of interest rates is an important topic to understand today’s economic climate. For better or worse, the concentrated group of bankers that is the Federal Reserve dictates all monetary and credit policies. Over the past decade the Fed has kept interest rates at particularly artificial low levels in order to boost and stimulate the economy. But, lowering interest rates doesn’t just “stimulate” the economy. It cheapens money for banks to borrow. When the Fed lowers rates to levels that the market wouldn’t normally allow, it builds up a manipulated situation of wealth and credit, which then creates an artificial, short-sighted opportunity for people. While this may create a fantastic situation for the economy in the short-term, the bubble always bursts.

The subprime mortgage escalation that we saw over the past decade would not have been possible were it not for the Fed’s control over interest rates and therefore control of credit. Ordinarily, banks would not have had the capital to continue lending ridiculous loans to people who certainly could not afford them. However, when interest rates are kept low, the artificial creation of credit allowed banks to continue the unsustainable process much longer than the regulatory forces of the market would naturally allow. So, while the printing of money out of thin air is what causes the monetary inflation problems; it is the Fed’s control and manipulation of credit that allows banks to go down the road of unsustainable, irresponsible business decisions without immediately feeling the effects as they would in a free market.

The federal government’s role in this cannot be downsized, either. Primarily through Fannie Mae and Freddie Mac, the government supported the subprime loans and loans in general to people who normally couldn’t afford a loan. While this may be a worthy cause, intervening in the markets will not come without its consequences, usually over the long-term. Whether it comes from the government or a central bank, it is not possible to make the market more “fair” or level out the playing field, so to speak, with interventionist policies. Through cheap credit and government backed loans we have gotten to where we are today.

Just as money can’t be printed out of thin air without having substantial negative effects on the currency, neither can credit be artificially created without it coming back to bite the very hand that fed it. Today, the same path is being followed. The Fed has announced a new program “aimed at boosting the availability of credit to consumers and small businesses.” It seems that the Fed is either unable or unwilling to learn from its past mistakes that brought us here in the first place.

The Fed’s new program will “spur consumer lending” by loaning up to $200 billion, hopefully enough to dupe people into thinking they can once again afford things they thought they couldn’t before. Common sense will tell us that creating more cheap credit will not solve a problem created by cheap credit in the first place.

The problem with the  government and Federal Reserve is shortsightedness. The short-term spending and performance of the economy is all they seem to pay any attention to. Therefore, the fed and the Fed (that is my cheap attempt at a pun) do what is in their power to get the economy stimulated for the next quarter, or focus on the next week’s unemployment numbers, rather than stepping back and look at what makes a sustainable economy.

Short-term spending is not what creates a prosperous and sustainable economy. We should be able to know this by now after everything we’ve gone through, but the constant federal and central interventions discourage people from looking at the larger scheme of events. We’re lead to believe that it’s okay for us to go deeply into debt and buy loans that we can’t afford, because the government is “backing” those loans. After the government and Fed’s relentless pursuit to prevent businesses and homeowners from failing, I have a hard time believing that people are going to come away from this crisis understanding the principles and benefits of individual responsibility and hard work.

Saving and investing are what sound economies are based upon, not spending. Rather than constantly spending money in the short-term on items that really are unnecessary and even irrelevant to our personal lives, as the government and Fed encourage, it is through wise saving and investing at one’s own discretion that funds are built up for children to go to school, for houses to be built, and have a sustainable lifestyle that will benefit the economy for years rather than quarters.

While saving and investing may not create an immediately noticeable effect, they will do far more in creating a sustainable, truly prosperous economy over the long run. Focusing on the short-term results and disregarding the long-term aspects of decisions played a major role in the messes that both individuals and governments around the world find themselves in today.

Credit cannot be created nor cheapened by a central bank sustainably over the long-term, as hard as it may try. True and sustainable credit is built from a strong reputation built on the foundations of living within one’s means, saving, investing, and at the heart of it, having a long-term focus. The laws and abilities of the free market are what promote these key qualities for the prosperity of both people, and nations. Federal and central control, manipulation, and intervention promote the opposite: a spending economy, a short-term focus, and living beyond one’s means in order to achieve greater wealth in the short-term, as unsustainable as it may be.

Let us solve our current problems not from more of the same, but a return to the principles of personal savings, hard work, and individual responsibility.

I cannot pretend to understand everything about the Federal Reserve; far from it. One may wonder if such a complex system was purposefully put into place to confuse and discourage people from fully understanding the system. When Woodrow Wilson signed the Federal Reserve Act into law in 1913, the U.S. was still on a gold standard. The currency was backed by a physical commodity, rather than a plain faith-based system like we have today.

The Founding Fathers greatly understood the dangers of paper, or fiat, money systems. They dealt with it firsthand during the Revolutionary War with the Continental Dollar. The Continental Dollar was established by the Continental Congress in 1775, and it was nothing more than worthless paper and collapsed in a matter of years after runaway inflation. This was the primary reason why these words were put in Article 1, Section 10 of the Constitution of the United States:

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; [...]

The gold standard was not put in the most important document of the U.S. by accident or coincidence. The gold standard was and still is necessary for the same reasons: it holds the powers-that-be back from the incredible power of wildly expanding the money supply (monetary inflation that leads to a worthless currency and a wiped out middle class), gold and silver have been accepted as currencies worldwide for thousands of years, whereas fiat money systems have been tried countless times throughout history and failed every time.

In short, after the Fed was created, the gold standard was attacked bit by bit through 1971. Franklin Roosevelt issued executive orders confiscating many forms of privately owned gold, greatly expanded the Federal Reserve’s scope and power over money and the economy, and devalued the relation of gold to the dollar from $21.67 to $35.00 per ounce. All of these acts were in the name of stopping the Great Depression, but they only led to handing more secrecy and sheer power to central planners.

The gold standard was phased out over the next 30 years, and the power given to the Federal Reserve continued at a consistent pace. Legal tender laws were enacted, making Federal Reserve Notes the only legal currency in the U.S. In 1971, the dollar became a complete fiat monetary currency and lost all ties with gold. This is the system that we have today.

What’s interesting is seeing what’s happened with the dollar through all of these changes. Let’s start with the 100 years before the creation of the Federal Reserve (these are inflation numbers as reported by the Historical Statistics of the United States and Statistical Abstracts of the United States):

Between 1813 and 1913, the purchasing power of $1.00 actually increased to $1.76.

From 1913 to 2007, the purchasing power of $1.00 decreased to $0.05.

Do you think that these facts are merely coincidence? Let’s break these statistics down a little more.

From 1913 to 1971, when we had the Federal Reserve and at least some connection to a gold standard, the purchasing power of $1.00 decreased to $0.25.

From 1971 to 2007, with a fiat monetary system under the Federal Reserve, the purchasing power of $1.00 decreased to $0.19.

This means the purchasing power of the dollar actually decreased more than twice as quickly under a fiat monetary system, than with the minimal gold standard the U.S. had between 1913 and 1971.  The Federal Reserve has managed to delay corrections by artificially lowering interest rates, but all of this comes at a price. How big? We can’t say. Tinkering with interest rates and credit cannot solve a crisis, and this will be a difficult lesson we’ll have to learn due to the incompetence of a select few who secretly control every aspect of money and credit in this nation.

For a much more indepth look of money in the U.S., I encourage you to take a look at this analysis. There is a lot more history of monetary policy that I didn’t have the chance to cover in this post, so do some exploring and research and see what you can find. This is an extremely important topic that has been ignored for too long and must be brought to the attention of the public.

I have never heard of an economy that collapsed because of too little government intervention. Throughout all of history, government intervention and central planning have done nothing to save an economy and increase prosperity. Rather, they have led to the economy’s destruction and demise. The Roman Empire fell largely due to devaluing its currency and overextending its quest for world empire. I ask you for just one example in history where a troubled economy was saved from central planning and government intervention, that otherwise would have perished had the marked been left undisturbed to deal with the problems.

As hard as we might try, you cannot spend record amounts of money, inflate the currency like never before in recent U.S. history, drastically increase regulations, and expect to create lasting wealth and economic strength. The Federal Reserve has used its monopoly over money and credit at increasing levels over the past 30 years or so, which has done nothing but worsen the boom/bust “business” cycle. Central planning from the Federal Reserve, with next to no oversight from Congress, has brought the U.S. to this situation more than any other factor. The fact that the Fed is getting through our current situation with hardly a speck of blame ought to be very disturbing to the majority of the citizens of the U.S., or at the very least somewhat discussed in the mainstream. The whole concept of the Fed itself completely contradicts a free society.

Looking at basic history of interest rates over the past 10 years, as controlled by the Fed, shows us that there is a close connection to low interest rates and a subsequent period of short-term, unsustainable economic growth. When the bubble economies reach their full height and the begin to unravel, the Fed immediately goes to the printing presses as the calls for lower interest rates abound to keep the economy strong. What caused the problem in the first place is seen as the ultimate solution just a few years later. The Fed lowered interest rates sharply in 2000 through 2001 to help re-inflate the economy from the bursting tech bubble.

Today the Fed’s taking the same road as it did in 2000, only at even greater extremes. The more the Fed inflates the dollar, the larger the bubble will be, and thus the inevitable correction will be that much worse.  In an effort to prevent the correction, interest rates are lowered even more, once again. Essentially, as the correction becomes more delayed through money and credit manipulation, the economy continues to build up on the unstable, wildly inflated foundation. So, while in the short-term it may sound like a reasonable solution, it will not solve a thing over the long run.

This is why I cringe when I hear about trillions of dollars being thrown at the economy in an effort to create a ripple effect of job creation and wealth. The main problem I see among many is that there is very little sound reasoning for this “stimulus” plan. Government debt and deficits will continue to skyrocket at unbelievable rates, the Federal Reserve certainly will not be slowing down its expansion of the money supply anytime soon, yet somehow this is supposed to be a longer-term solution to these problems. Just the fact that there is no source where this money can come from should be a major concern. All that is happening here is a delaying effect, but one must wonder how long the government and Federal Reserve can delay a recession that the economy is pleading for. Government shenanigans and central manipulation work well for a time at delaying the inevitable in the short-term, but as history has masterfully shown us time and time again, it will not delay the correction forever.

This is part of the ongoing Recommended Video archive.