Philosophical Musings

Philosophical Musings

Sunday, October 6, 2013

Gold or Fiat?

I think most of the demise of America can be DIRECTLY attributed to leaving the gold standard, & going to fiat currency. I concede that we probably could not have had the exponential economic growth from the middle to the end of the last century, but that era is over, & now we pay the piper.  It was like a pyramid scheme, with lots of people getting rich as long as it works, but hurting a lot more when it crashes down. With a hard currency, the govt has little to do, other than minting coins & providing exchanges for gold or silver.. and we could easily add platinum & even copper or other things to the basis for the currency. IMO, oil is kind of the defacto standard for the dollar, as it is the currency of choice in that exchange. That also propped up the dollar during the massive QE's & inflationary printing of paper.

BUT, instead of basing the currency on something of value.. 'hard' assets.. the govt has gone fiat.. since 1972, when nixon took off the last vestiges of gold basis in the dollar. FDR started it in 1933. The gold standard was blamed for the great depression. People didn't trust paper money, & began to exchange it for gold, hoarding it rather than 'investing' in the dollar. So fdr made it illegal to own gold, & everyone has had to trust the govt since.. a bad idea. We can own gold again, now, but the damage to the dollar had already been done. It & just about every other currency on earth was no longer tied to hard assets.

So as long as currency is fiat, instability is certain. Govts will print money, start wars, promise goodies for votes.. anything to feed the fantasy that govt can provide. In hard currency times, people would put their money in banks, who paid interest, then loaned it out at a higher rate to make a profit. Lots of small or mid sized banks could operate in this system. But now, the govt just prints money, & hands it out to the big banks. They skim off some for themselves, then loan it out to smaller banks to loan out. Interest is not market based, but declared by the govt. They keep rates artificially low, discouraging anyone from saving in banks. So everyone has to put any investment or savings into the money ponzi scheme.. stocks & bonds, which is a casino for fiat money. You don't work, save, & increase at a stable rate. You borrow, leverage, & bet on fluctuations in the market. The system has converted us from a production based economy.. building wealth by labor.. to one of speculation & shuffling paper around. In past centuries, industrialists, manufacturers, & entrepreneurs got wealthy by making something. Now, they get rich by betting on the market. Most of the market is fiat based speculation, not actual production.

One of the most important duties of a good govt is to provide a stable currency, where business can operate on a level playing field, & where the laborer's fruits can be saved & invested in his future. It is as essential as securing our rights to speech, religion, & assembly. But they have deceived us, & generations have become dependent on govt currency manipulation.

The power to determine the quantity of money... is too important, too pervasive, to be exercised by a few people, however public-spirited, if there is any feasible alternative. There is no need for such arbitrary power... Any system which gives so much power and so much discretion to a few men, [so] that mistakes - excusable or not - can have such far reaching effects, is a bad system. It is a bad system to believers in freedom just because it gives a few men such power without any effective check by the body politic - this is the key political argument against an independent central bank. ~Milton FriedmanThe Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. ... Roosevelt's policies were very destructive. Roosevelt's policies made the depression longer and worse than it otherwise would have been.
Milton Friedman

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... 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. ~Alan Greenspan

Historically, the United States has been a hard money country. Only [since 1913] has the United States operated on a fiat money system. During this period, paper money has depreciated over 87%. During the preceding 140 year period, the hard currency of the United States had actually maintained its value. Wholesale prices in 1913... were the same as in 1787. ~Kenneth Gerbino

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people. ~Friedrich August von Hayek

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