We all hate that the dollar is losing value, but it looks as if it is a trend that will only worsen as the effects of bailouts and the injection of excess liquidity into the market continue to hit the market in full. Meanwhile, China wishes to cut its ownership of U.S. debt down by 2/3, which could set a precedent worldwide that means our country’s debt will be in high supply with little demand. At these dangerous levels, our debt was created by Alan Greenspan, an allegedly free market economist who sold his soul to the state while he was the Chairman of the Federal Reserve. Listen to him in 1966 in Gold and Economic Freedom:
In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.
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.
Soon enough, his tenure at the Fed began the fastest destruction of our economic system…
Gold really is the answer though, to government manipulation of currency and the stability of the dollar for all. A recent speech given to the Subcommittee on Domestic Monetary and Technology by Lewis E. Lehrman:
Since the expansive Federal Reserve program of quantitative easing began in late 2008, oil prices have almost tripled; gasoline prices have almost doubled. Basic world food prices such as sugar, corn, soybean, and wheat have almost doubled.
Commodity and equity inflation, financed in part by the Fed’s flood of excess dollars going abroad, has profound effects on the emerging markets. In many emerging countries, food and fuel make up 25–50 percent of disposable income. Families in these countries can go from subsistence to starvation during such a Fed-fueled commodity boom.
The Fed credit expansion, from late 2008 through March 2011 — creating almost 2 trillion new dollars on the Fed balance sheet — triggered the commodity and stock boom, because the new credit could not at first be fully absorbed by the US economy in recession. Indeed, Chairman Bernanke recently wrote that “quantitative easing” aimed to inflate US equities and bonds directly, thus commodities indirectly. But some of the excess dollars sought foreign markets, causing a fall in the dollar on foreign exchanges.
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But commodity and stock inflation inevitably engenders social effects, not only financial effects. Inflationary monetary and fiscal policies have been a primary cause of the increasing inequality of wealth in American society. Bankers and speculators have been, and still are, the first in line, along with the Treasury, to get the zero-interest credit of the Fed. They were also the first to get bailed out.
Then, with new money, the banks financed stocks, bonds, and commodities, anticipating, as in the past, a Fed-created boom. The near-zero interest rates of the Fed continue to subsidize the large banks and their speculator clients. A nimble financial class in possession of cheap credit is able at the same time to enrich themselves and to protect their wealth against inflation.
But middle-income professionals and workers, on salaries and wages, and those on fixed income and pensions, are impoverished by the very same inflation that subsidizes speculators and bankers. Those on fixed incomes earn little, or negative returns, on their savings. Thus, they save less. New investment then depends increasingly on bank debt, leverage, and speculation.
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If the defect is inflation and an unstable dollar, what is the remedy?
A dollar convertible to gold would provide the necessary Federal Reserve discipline to secure the long-term value of middle income savings and to backstop the drive for a balanced budget. The gold standard would terminate the world dollar standard by prohibiting official dollar reserves and the special access of the government and the financial class to limitless cheap Fed and foreign credit.
The world trading community would benefit from such a common currency — a nonnational, neutral, monetary standard — that cannot be manipulated and created at will by the government of any one country. Thus, dollar convertibility to gold must be restored. But dollar convertibility to gold must also become a cooperative project of the major powers.
Gold, the historic common currency of civilization, was during the Industrial Revolution and until recent times the indispensable guarantor of stable purchasing power, necessary for both long-term savings and long-term investment, not to mention its utility for preserving the long-term purchasing power of working people and pensioners. The gold standard puts control of the supply of money into the hands of the American people, as it should in a constitutional republic.
Because excess creation of credit and paper money can be redeemed by the people for gold at the fixed statutory price, the monetary authorities are thus required to limit the creation of new credit in order to preserve the legally guaranteed value of the currency. As President Reagan said, “Trust the people.”
To accomplish this monetary reform, the United States can lead, first, by announcing future convertibility, on a certain date, of the US dollar, the dollar itself to be defined in statute as a weight unit of gold, as the Constitution suggests; second, by convening a new Bretton Woods conference to establish mutual gold convertibility of the currencies of the major powers — at a level that would not pressure nominal wages; third, to prohibit by treaty the use of any currency but gold as official reserves.
A dollar as good as gold is the way out. It is the way to restore American savings and competitiveness. It is the way to restore economic growth and full employment without inflation. Gold convertibility is the way to restore America’s financial self-respect, and to regain its needful role as the equitable leader of the world.
Lehrman goes on to give the historical data concerning the Fed and inflation and the dangers therein. Read it. Yes, a gold standard would be complicated, and turn our current financial system on its head. At the same time, it would solve serious problems for the poor while ensuring that the government cannot spend so far beyond beyond the revenues it collects. It is what we need for a stable future, and a re-establishment of monetary control to the people…