was conceived in iniquity and born in sin. The Bankers own the earth. Take it
away from them, but leave them the power to create deposits, and with the
flick of the pen they will create enough deposits to buy it back again.
However, take away that power, and all the great fortunes like mine will
disappear -- as they ought to in order to make this a happier and better
world to live in. But, if you wish to remain the slaves of Bankers and pay
the cost of your own slavery, then let them continue to create
deposits." ~ Sir Josiah Stamp (1880-1941), one time governor of the
Bank of England, in his Commencement Address at the University of Texas in
1927. Reportedly he was the second wealthiest individual in Britain.
no mistake about it: in this credit collapse we are witnessing the death
throes of irredeemable currency. In vain have governments and their client
banks tried, for hundreds of years, to graft this repulsive and degenerate
bastard on the living organism of society. The result was always the same:
the healthy organism rejected the unnatural implant in its own good time. The
present episode is no different from earlier ones except, perhaps, in the
degree of the conceitedness of the perpetrators, and in their contempt for
the native intelligence of man.
on August 15, 1971, Richard Nixon defaulted on the gold obligations of the
United States and declared the irredeemable dollar the "ultimate"
means of payments and liquidator of debt, he was relying on the expert advice
of Chicago economist Milton Friedman. Five years later the world's oldest central
bank, the Swedish Riksbank would bestow upon
Friedman the prize it established in memory of Alfred Nobel. The reward would
be in recognition of the brilliance of Friedman's idea that if a central bank
robs the people piecemeal (read: it dilutes the currency at a fixed rate of,
say, 3 percent per annum) then the victims would not cry "we wuz robbed!" They would never notice the robbery.
all previous episodes shame and disgrace were part and parcel of the
government's default on its promises to pay. Not so in 1971. In this latest
experiment with irredeemable currency there was a new feature: far from being
a disgrace, the default was presented as a scientific breakthrough;
conquering "monetary superstition" epitomized by gold; a triumph of
progress. Sycophant governments and central banks overseas that were
victimized by it and had to swallow unprecedented losses due to the
devaluation of the dollar were not even allowed to say "ouch!" They
were forced to celebrate their own undoing and hail the advent of the New Age
of synthetic credit, irredeemable currencies and irredeemable debts.
regime of the irredeemable dollar was put to the test soon enough. In 1979
the genie escaped from the bottle. The price of oil, silver, and gold were
quoted at twenty times that prior to 1971; in the case of sugar the rate of
increase was more like forty times, so much so that the Coca Cola Company
found it too expensive to put into coke and started using corn syrup instead.
Interest rates were quoted in double digits well past the teens. There was
panic across the land and around the globe. Hoarding of goods became a way of
life. Everybody was expecting the worst.
was at this time that the notion of "targeting inflation" was invented.
Previously the claims of central bank power were rather modest. Central banks
were supposed to target short-term interest rates. Later they graduated to
targeting the money supply. Now they were claiming supernatural powers of
micromanaging price increases. It was apparently working, and the genie was
put back in the bottle.
the intervening three decades policymakers and mainstream economists became
ever more confident that in inflation-targeting they have found the holy
grail of irredeemable currency. Professor Frederic Mishkin
of Columbia University, a former governor of the Federal Reserve, published
the gospel of inflation targeting with the title Monetary Policy Strategy
in 2007. In his book he calls inflation targeting "an information-inclusive
strategy for the conduct of monetary policy." Martin Wolf, the chief
economic columnist of the Financial Times of London explains: inflation
targeting makes allowance for all relevant variables -- exchange rates, stock
prices, housing prices and long-term bond prices -- via their impact on
activity and prospective inflation. This, then, is the new modified holy
grail. Cast your net wide enough to catch all that you want to control. If
you do it boldly, you will make people believe that the government can
control everything it wants to control. It is amazing how much can be
accomplished by piling prestidigitation upon prestidigitation.
disaster struck just at the time when the prophets of inflation-targeting
became cocky beyond any measure of modesty. They actually had a whole debate
going on in American journals, but also English ones. Ben Bernanke, who in
the meantime was made the chairman of the Federal Reserve, contributed the
keynote address and the title to the debate: "The Great Moderation".
Their description, up to and including the beginning of 2007 of what was
happening in the macro economy, was a reduction in the volatility in the
trade cycle: more consistent growth, less bouts of inflation, more stability.
The London Times published a jubilant piece as recently as early 2007 with
the title "The Great Moderation" which began with the line:
"History will marvel at the stability of our era." It was not meant
to be a joke. It was meant to be believed. Complacency about the almighty nature
of monetary policy reached its peak. They celebrated the success of inflation
targeting just when it started to unravel. Policymakers, central bankers, and
their lackeys in academia and journalism, felt inordinately proud of
themselves. They thought they held the whole world in their hands.
celebration and self-congratulation was premature. Bernanke & Co. did not
know that they were about to be humbled by the markets. Blinded by the glare
of their own glory, none of them foresaw the coming disaster.
Wolf in his column on May 7 talks about "this unforeseen crisis" as
an unmitigated disaster for monetary policy. It leaves fiat money with just
one last chance to put its act together and save its hide. He says: "The
holy grail turned out to be a mirage. If fiat money is not made to work
better than it has, who knows what our children might decide to do in
desperation. They might even decide to bring back and embrace gold". Oh
horror of horrors! Wolf still considers the gold standard an absurdity.
kind of strange. It is not the regime of irredeemable currency, whereby
governments are supposed to create wealth by sprinkling some ink on little
scraps of paper, that is considered an absurdity. Of
course, Mr. Wolf has the right of wanting to be pilfered and plundered. But
he has no right to advocate that the rest of us be cheated through this
crudest form of plunder forever and ever.
is also mistaken when he assumes that Bernanke & Co. still has one more
chance. The chance they just blew was the last. We are witnessing the
closing of the regime of irredeemable currency and irredeemable debt. We may
not know how long its death throes will take, but there will be no other
chance. Financial journalists and mainstream economists, in their blind
stupor acting as cheerleaders for the disastrous monetary policy of the
government and the insane credit policy of the banks, have exhausted and
destroyed their own credibility for once and all.
Wolf, like most of his colleagues, is a victim of brainwashing inspired by
Keynes that has been going on to discredit the gold standard for some 75
years, but which got a new lift after Friedman inspired Nixon to default.
Here are the facts about the gold dollar that should be made available to the
world through the opening of the Mint to gold, as demanded by the U.S.
The gold standard is an indispensable prerequisite of freedom. Without it
individuals are helpless in facing the constant and ongoing encroachment of
their property rights by the government and the banks. The right to demand
gold in exchange for bank notes and bank deposits far transcends the mere
technicality of exchange of one form of money for another. It is the only way
to check the unlimited power of the government manifested by the unlimited
creation of bank deposits. The combination of governmental power and the
power of the banks to create deposits is especially dangerous for the freedom
of the individual, because of the double standard involved. The government exempts
banks from the effects of contract law in exchange for the banks' special
treatment accorded to government debt.
hoarding is not a blemish on the gold standard; it is its main excellence.
When a sufficient number of individuals are disturbed by the encroachment of
this combination of powers, or disapprove the monetary policy of the
government and the credit policy of the banks, they are not helpless under a
gold standard. They can withdraw bank reserves, namely gold, from the system,
thereby putting the government and the banks on notice that unless they mend
their ways, and stop their adventures in debt creation, they will find
themselves insolvent and out of power. The gold standard gives people the
is no accident that all dictatorships set out by limiting the people's access
to gold. It makes no difference whether they march under the banner of
national or international socialism. All totalitarian regimes inflict
irredeemable currency on the people as an instrument of servitude and
bondage. Martin Wolf should know this. The ideal of limited government is
meaningless unless reinforced by a gold standard denying to the government
the power of issuing unlimited amounts of currency. There is no other way of
doing this than making the promises of the government redeemable in something
other than more promises of the same shabby kind.
the government makes the currency irredeemable, it puts itself in the
position to curtail the rights and freedoms of the people as it sees fit.
Constitutional government is effectively overthrown. Once the government
usurps the public purse, its power becomes uncontrollable. Budget debate in
Parliament or in Congress becomes an annual farce. Nothing stands in the way
of unscrupulous politicians to undermine constitutional government. The
purchasing power of the currency is constantly undermined year in, year out.
The banks are freed from constraints on them exercised by the people under
the gold standard. Pandora's box of corruption is opened and its contents
contaminate the nation's economic, political, and social system.
which employ irredeemable currency grab unconditional control over foreign
trade, exchange rates, foreign investments and travel, even the amount of
currency an individual can take in or out of the country. The more powerful
governments will buy the allegiance of the less powerful. Out of this
feudalistic web of allegiances financed by irredeemable currency come various
adventures in fomenting and waging wars in far-away lands, spilling the blood
of the young people of the nation for causes alien to them.
a gold standard prolonged budget deficits and prolonged unfavorable balance
of payments cannot occur. There are forces limiting persistent losses of gold
which tend to correct the underlying distortion. By contrast, under the
regime of irredeemable currency economic distortions can persist
indefinitely. They ultimately become destructive. This is so because
government bureaucrats cannot possibly provide the same level of wisdom that
a people free to act in their own interest can.
problems in foreign trade mount, governments will find ever more excuses for
ever more controls. There is no end to the expansion of government power over
the individual until the nation regains the benefits of a gold standard,
requiring that the government retire to its proper role of umpire and
relinquish its role as dominant partner and dictator.
can take total control of the people either by the use of military force, or
by the use of irredeemable currency. The former is readily understood, while
the latter is a subtle national drug that is not generally recognized as
such. Rather, it is readily embraced by its victims. For these and similar
reasons irredeemable currency is the favorite device of modern governments
that want to bring people under total control. Indeed, it enables the
government to succeed in controlling the masses while, at the same time,
earning their approval and even their enthusiastic support. Irredeemable
currency must be seen as the habit-forming drug that the government uses to
intoxicate people. Under this intoxication people will want more and more
national spending, more and more government control, and more and more debt.
intoxication obscures the sad end that arrives when the merry-go-round is
coming to a jerky halt, when credit is exhausted or withdrawn, and the kitty
is found empty. The nation is facing a most serious economic disaster
followed by prolonged economic pain. Unfortunately, government economists,
university professors, and financial journalists have taken their share of
the fun and they failed miserably in their duty to forewarn people of the
is useless to expect a mass movement on behalf of a sound currency. The daily
experiences of people provide them with a warped outlook. They confirm in
their minds the alleged virtues and benefits of an infinitely inflatable
currency. People lack sufficient understanding of monetary science to see
that no currency can be made infinitely inflatable without inviting disaster.
Like a drug addict, people exposed to irredeemable currency do not regard it
as a dangerous and undermining narcotic agent. Even the loss of purchasing
power does not disturb them to any great extent. Their response is to demand
more money, and they take pride in the fact that the government listens
sympathetically to their demand. They welcome the soaring stock indexes and
real estate prices, and put great stores on them. Heavy taxes and burgeoning
debt are not regarded with anxiety. A frequent and common agitation is for ever more government spending.
we are to be saved from the ultimate evil consequences of the regime of
irredeemable currency, needed action must come from the leadership of the
opposition party when it is its turn to take over government. The new
President and his Secretary of the Treasury, or the new Prime Minister and
his Secretary of the Exchequer must be statesmen. They must act as informed
and tough monetary surgeons, men who can and will persuade Congress or
Parliament to reinstate redeemable currency.
that step is taken, the people should experience a breath of fresh air.
Government would once more be subordinated to the Constitution, bringing
greater freedom to the people. Optimism should be wide-spread, because the
currency of the people would once more had
integrity. Business should prosper, domestic and foreign trade
expand. Imbalances in foreign trade should rectify themselves. Gold
should start to circulate and flow in from abroad. The control of the public
purse would be returned to the people where it belongs if human freedom is to
be preserved and responsible government is to be obtained.
as the last presidential election in the United States has shown, the needed
leadership is lacking. The party of the opposition is just as much in thrall
to the same toxic ideology as the governing party. The last change of guards
took place in the middle of a financial and economic crisis involving the
destruction of quantities of wealth unprecedented in all history, with more
destruction coming. Yet when the new president appointed officials at the
Treasury, confirmed others at the Federal Reserve, and named economic
advisors, they turned out to be the same men who were responsible for the
credit collapse in the first place. Not only do these officials continue the
dangerous course of the previous administration; they increase the stakes by
several orders of magnitude in announcing more bailouts, more stimulus
packages, hence more government spending, more government debt, and more fiat
situation is no better in the United Kingdom, another important country
expecting a change of guards, which could take the initiative to put a
peaceful end to the regime of irredeemable currency now in its death throes.
Rather than initiating a national debate on the utter failure of the present
financial system which was supposed to end bank runs, deflations and
depressions, serial bankruptcies and unemployment for once and all, and on
the return to sound money and sound book-keeping, Her Majesty's Loyal
Opposition is plotting a course how to cure the collapse of bad debt with the
injection of more bad debt.
this means is that there is no hope for change through peaceful means. When
change finally does come, it will be through violence. When the economic pain
inflicted on the people reaches unbearable heights, law and order will break
down, anarchy and chaos will ensue.
at the ruins of our civilization will be a bitter reminder of what the great
monetary tradition of the English-speaking countries, in ruling out
irredeemable currency and mandating a metallic monetary standard, was
designed to prevent.
Antal E. Fekete
San Francisco School
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