Commentary

Gold is Still the Standard: US Celebrates 40 Years of Fiat

COMMENTARY—ProspectingJournal.com—Have you ever  broken up with someone and years later saw how good he or she was doing, only to feel like the world’s biggest idiot? Well, this is probably how US bankers should feel, if it wasn’t for the fact that they have made a fortune plundering the US economy through a debt-based monetary system for the last four decades, while the vast majority of citizens are unaware that the paper money they hold is on a destructive path to the dustbin of history.

The barbarous relic is not gold; gold is the one who got away. Today marks the 40^th anniversary that the US divorced itself from the gold standard in 1971, then known as the Breton Woods system. This system—one of backing a nation’s currency by a finite resource—was argued as being the most sound monetary system available, as it prevented the US from creating infinite money at will. That is, every dollar had to be backed by a certain ratio of gold, which was stored in vaults. In the aftermath of World War II, international currencies were tied to the US dollar, which was itself backed by gold.

This gold standard, heralded by Austrian economists, worked as a natural restriction on overextension of the money supply, which was precisely why Nixon nixed it in 1971 as President Johnson’s Great Society programs and the Vietnam War gave the US deficits and raised concern that there would soon be a run on gold. This pressure, combined with a long history of bankers who were trying to take control of the US monetary system by destroying the gold standard, likely “helped” Nixon make the final blow. Quick to adopt the Keynesian economic model, which indirectly supports the notion of creating money out of thin air (backed by debt), Nixon heralded the modern era of fiat currency—and nearly every country has followed.  The result is well-illustrated in the following graph:

Nixon’s supporters probably should have brushed up on their history, as EVERY fiat currency created since the Romans first began the practice has ended in massive devaluation and ultimately the destruction of the economy. Why? Because many (if not all) humans are greedy and when given the opportunity to create money magically to solve problems will abandon all logic and try to print their way out of trouble. A Monopoly Money culture of keeping up with the Joneses, idolizing the rich and accepting a pathological lying mentality, which tells us that more and more debt is okay because we say it is okay, has pushed this system as the norm. The result has been record debt, growing inflation, a loss of purchasing power for all fiat currencies (which we see through the current inflation of prices for all commodities) and the destruction of jobs. Historically, this has led to the collapse of empires, wars, the full break-down of society, and so on.

Of course, there have been countless individuals who have pushed for greater awareness of the debt-based monetary system and the value of sound money. In the 1800s, President Jackson saw the scheming bankers, who were in support of a debt-based currency controlled by a central bank, as “vipers and thieves.” In Jackson’s time, the US had no debt. Modern proponents of a financial system overhaul include GOP Congressman Ron Paul, who is campaigning for the 2012 Presidential election; his “end the Fed” speech is backed by a central message that the Federal Reserve’s ongoing creation of debt-based currency will destroy America  . . . lately, he has become quite popular. Well-known activist Bill Still’s award-winning documentaries The Money Masters and The Secret of Oz have acted as a good starting point for those wishing to understand why the US financial system is in the mess it is in. While not calling for a gold-backed system like we saw before, Still recalls the great humanitarian struggle of the modern age to rid itself from the serfdom of debt and sees commodities such as gold and silver as invaluable stores of wealth that have stood up to the destruction of doomed fiat currency.

And unless you have been literally under a rock for the last couple weeks, the world is once again facing unprecedented financial turmoil, with gold (and to a lesser degree silver) now seen as THE only safe international currency. The IMF made the call recently for a gold-backed international currency, while China, who holds more than $1 trillion of US debt, has lashed out at the US after the debt ceiling farce, claiming that it’s time for a new reserve monetary system. Conspiracy theorists claim this is the possible beginning of the totalitarian New World Order, which will enslave us all under one currency and a brutal group of dictators. Gold opponents say that this is the beginning of the end, as the big boys will soon corner the gold market to prepare for the switch to a gold-backed currency, essentially putting us in the same situation we are in right now. And US dollar supporters, well, they aren’t saying anything because their head is still in the sand.

Overall, the US dollar has lost about 98 per cent of its value since de-pegging itself from the gold standard, as the constant printing of bills backed by nothing but debt has made the money more worthless. Gold has held all of its value and is consistently breaking records as panic sends everyone to the symbol of one thing we have all known, since childhood, that means wealth. Whether the precious metal is eventually re-adopted as a monetary standard or is introduced as a competing currency is difficult to judge. What is easy to conclude, however, is that since the end of the gold standard, gold has clearly won the test of time, while fiat currency has repeated the doomed history we should have learnt. Cheers to the gold bugs—you married the right one.

Chris Devauld
ProspectingJournal

 

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