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Last
year the Chairman of the Federal
Reserve told me that gold is not money, a position which
central banks, governments,
and mainstream economists
have claimed is the
consensus for decades. But lately
there have been some
high-profile defections from
that consensus. As Forbes recently reported, the president
of the Bundesbank (Germany's central bank) and two highly-respected analysts at Deutsche Bank have praised
gold as good money.
Why is gold
good money? Because it possesses all the monetary properties that the market demands: it is divisible, portable, recognizable and, most importantly, scarce - making it a stable store of
value. It is all things
the market needs good
money to be and has been recognized
as such throughout history. Gold rose to nearly $1800 an ounce after the Fed's most recent round of
quantitative easing because
the people know that gold is
money when fiat money fails.
Central
bankers recognize this too, even
if they officially deny it. Some
analysts have speculated that the International Monetary
Fund's real clout is due to its large holdings of
gold. And central banks around
the world have increased their
gold holdings over the last year, especially in emerging market economies trying to protect themselves from the collapse of
Western fiat currencies.
Fiat
money is not good money because
it can be issued without
limit and therefore cannot act as a stable store of
value. A fiat monetary system gives
complete discretion to those who run
the printing press, allowing
governments to spend
money without having to suffer the political consequences of raising taxes.
Fiat money benefits those who create it
and receive it first,
enriching government and its cronies. And the negative effects of fiat money are disguised
so that people do not realize that money the Fed creates today is the reason for the busts, rising prices and unemployment, and diminished standard of living tomorrow.
This
is why it is so
important to allow people the freedom
to choose stable money. Earlier
this Congress I introduced the Free Competition
in Currency Act (H.R.
1098) to permit people to use gold as money again.
By eliminating taxes on gold and other precious metals and repealing legal tender laws, people are given the option between using good money or fiat money. If the government persists in debasing the dollar – as money monopolists have always
done – then the
people would be able to protect themselves by using alternatives such as gold
that are both sound and stable.
As
the fiat money pyramid crumbles, gold retains its luster.
Rather than being the barbarous relic Keynesians have tried to lead us to believe it is, gold is,
as the Bundesbank president put it,
"a timeless classic."
The defamation of gold wrought
by central banks and governments
is because gold exposes
the devaluation of fiat currencies
and the flawed policies
of government. Governments
hate gold because the
people cannot be fooled by it.
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