Return to Kitco Homepage
- Date: Fri Aug 20 1999 13:01
Lock&Lode (THC @ your 10:31 post - Creation of "Money") ID#266110:
Copyright © 1999 Lock&Lode/Kitco Inc. All rights reserved
- You've stumbled onto a critical concept that the Fed and US Govt do not want you to know. Yes, when fiat currencey or credit is created, it comes out of thin air. It has no value. It truely represents nothing of value. And it is predicated upon two concepts:
- the public's willingness to accept it
- using forward "earnings" or future taxes to pay back the debt that was issued as a bond by the Govt.
A dollar is a unit of measure, just like a gallon is a unit of measure. If someone wants to give you a "gallon", you most assuredly want know what the substance is that constitutes that gallon. Is it milk? Is it gasoline? Is it a slurry of pig excrement? The substance is the critical factor. Either it has value or not. Both milk and gasoline have value, while the pig excrement is typically a liability.
The point being, if I say that I am going to give you a gallon, then by giving you the unit of measure, I have not given you anyting of value at all. How can the unit of measure become the substance itself? Can a "gallon" become the substance milk or gasoline itself? Absolutely not!
The same thing exists with the "dollar", "pound", "mark" or any other fiat currency. The "dollar" and "pound" are units of measure. The "pound" was a unit of measure for silver - a pound of sterling silver, hence the name "sterling. Similarly, the dollar was defined by the Founding Fathers as being one ounce of silver. Hence, we get the division of a one ounce dollar of silver as being a half dollar ( half ounce ) , a quarter ( 1/4 ounce ) , and a dime ( 1/10th of an ounce. All are of equal weight and measure so that 10 dimes will have the same content and weight of silver as a dollar does.
Similary, a dollar of gold is 1/20th of an ounce of gold. Look at a $20 Lib or Saint and you will see the face value defined as $20 which corresponds with the weight of 1 ounce of gold.
So, based upon the system as established by the Founding Fathers, the US used gold and silver coin as the medium of exchange - something of real value - for commerce. The system lasted for over 100 hundred years until the birth of the Federal Reserve - at which time, the US began to experience unbridled and continual inflation resulting in the destruction of private wealth held by its citizens.
The quintessential question is - How can a paper "dollar" that is not backed by the substances of gold or silver, become the gold and silver that it has replaced? Quite simply, it cannot!
WHAT MONEY IS and IS NOT
Money is not a reality in and of its self. The word refers to something that a society chooses to use as value or as money. In the case of the early colonies, tabacco was used as money. It had value, it was divisible, and people readily accepted it as a unit of exchange. Tobacco began to lose value when growers discoverd that they could produce more "money" at a lower cost to them. This resulted in a form of "inflation".
By producing more tobacco at a lower coat, the growers got more "wealth" by exchanging their tobacco for other goods. Quickly, the marketplace discovered the incentive to market lower quality ( higher quantity ) tobacco that required less effort, care, and growing time to produce. Then, it became important to "grade" the tobacco in order to determine how many leaves were required to buy a particular product. As tobacco became significantly more plentiful, a grower needed more and more leaves to purchase another product. Eventually, tobacco became so plentiful and the demand for it dropped so low, that tobacco ceased to be a useful medium of exchange. It lost its value.
Money needs to be something that is rare and hence, becomes something of value. Gold and silver coin serve this purpose, because they are rare, valuable, and easily minted in divisible units. If gold and silver became as plentiful as tobacco or grains of sand, then Au and Ag would cease being valuable.
So, money represents a commodity of value that is rare and divisible. If the "money" ceases to become rare, then it ceases to serve as money. Similary, the unit of measure cannot serve as the commodity or item of value. Therefore, money MUST be a substance with equal weights and measures that the public can trust and use as a medium of exchange.
INCREMETAL DESTRUCTION OF THE DOLLAR
In the early 1800s, bankers issued "certificates" of deposit that represented tangible dollars of Au or Ag coin held by the bankers. The thought was to make it easier to buy goods instead of transporting large amounts of gold and silver. At specific times, bankers made settlements with one another by transferring tangible gold to match the number of gold certificates held by the corresponding banker - hence the birth of institutions like the BIS. The concept is initially sound. Rather than lug around multiple ounces of Au or Ag, a person can utilize a "certificate" as payment. The certificate represents an ounce of Au or Ag that the goldsmith or "banker" keeps in his vault. There is a critical one to one ratio. Only one certificate can be issued for one ounce of gold or silver. In the case of a 5 dollar certificate, it represented 5 ounces of silver and there were 5 ounces maintained in the vault. 100 dollar gold certificate then was "backed" by 5 ounces of gold.
In the initial stages of this system, everything worked out fine. But the bankers began to realize that no one is coming to them to redeem their certificates for gold. Instead, the public continued to trade certificates with one another and the Au / Ag remain in the vault untouched. The banker then comes up with a novel idea. "How about printing MORE certificates than I have? No one will know the difference and I can become wealthy by loaning "money" or gold certificates to people who need them." The banker then holds the deed ( s ) to property as collateral for the loans he is making with the understanding that a default on the loan will result in a default of the property. He has created inflation. He is issuing bogus certificates that the public sees as being valuable. It cost him NOTHING to produce the certificates. And he gets true, tangible wealth in return for the bogus certificates. Whether he spends them himself or loans the certificates as money, he has still created inflation. And if he loans the money, he can get even MORE wealth by charging interest. Now the banker gets EVERYTHING for nothing.
By manipulating the supply of certificates, the banker can either cause inflation ( by issuing more certificates than tangible PM ) or deflation ( by taking out of circulation, more certificates than the PMs he has in his vault ) . In a loan situation, the inflation transfers the promise to pay to the banker. The deflation transfers the title and ownership of property. By cycling back and forth between inflation and deflation, the banker is able to continually manipulate the money supply so he maximizes the creation of wealth for himself FOR DOING ABSOULETY NOTHING. He is robbing from the populace and they are none the wiser.
THE PUBLIC CALLS FOR AN END TO THE CYCLE BETWEEN INFLATION AND DEFLATION
As the bankers created cycles of inflation and deflation, they created a situation where the public would ultimately call for a more "stable" system. Some people believe that this is how the Fed came into existence. The bankers created the "crisis". The people clamored for a stable system. And thus was born the FED in order to manage the system so the US would not experience the seesaw effects created by the bankers of the 1800s.
This is known as the "Hegelian dialectic" - the scheme of which it's thesis, antithetis, and synthesis work together for a desired outcome. In other words, an original situation, followed by the opposite of the original situation, resulting in a unification that works together for an desired outcome. SO, in the case of the bankers - they create inflation, then they create deflation ( by removing dollars from the system ) and take ownership of property. This is then followed by a synthesis where the public dislikes what is occuring and it is the PUBLIC ( not the bankers ) who clamor for an end of the manipulation by the bankers. This is a perfect situation for the bankers.
Unwittingly, it is the public who has played exactly into the hands of the bankers and thereby created the single largest private monopoly in the US - the "Federal Reserve".
CREATION OF THE FED
With the creation of the "Fed", the US saw the beginning of the destruction of its money system - by the removal of Au and Ag as the only true money and replacing them with worthless paper.
From 1913 until 1933, the Fed printed Gold Certificates. They printed many more certificates than gold. Then in 1933, when the Bank Panic occured, people went to their banks in order to redeem their certificates for gold. Remember, there was less gold than certificates. As the gold was being depleted, the Fed quickly realized that the jig was up. Their fraud was about to be exposed. So, they had only one option - to get FDR to declare a "bank holiday" and then confiscate the gold from the people. Once this was done, they would revalue the gold at a higher "price", whereby stealing the difference in the value from the populace for an additional gain in wealth for the Fed.
It is my take that the US Govt went bankrupt at that time and went into default. I believe that they transferred all of the US gold over to the Fed as payment in the default. The Fed then created a new system for the US Govt where the Govt would issue bonds ( a promise to pay ) and then the Fed would issue fiat currency ( or paper "dollars" ) as a "note" or indication of the debt that the US Govt had incurred. The payment of this debt is predicated upon the taxes received and the "creditworthiness" of the US Govt to extract future taxes as payment for additional bonds issued / debt owed. The US Govt continues to be in receivership to the Fed and will never get out of "debt".
SOMETHING FROM NOTHING
Hence we see the birth of the fiat monetary system built on debt. How can you pay a debt with a debt? It cannot be done. The net result is that the issuer of the debt gets everything for nothing and continues to do so as long as the system does not collapse. Ultimately, the end user or holder of the FRN will be the patsy and get NOTHING for the worthless paper. The FRN is a promis to pay. But the essential question is payment of what? There is no payment of gold or silver. So what is the thing of value to be paid. Ostensibly, it is the future taxes ( or more debt notes ) which is again worthless. SO, the big sham is that the current system is BANKRUPT. And what is worse, the Fed issues more FRNs then there are FRNs on deposit. This is known as fractional reserve banking which compounds inflation upon inflation.
This is why the Fed and every big institution is compelled to beat Au and Ag into the ground. As long as they can keep the charade going, then they continue to siphon wealth for absolutely nothing. But when the FRN system begins to collapse and people start running to gold, the BACKDRAFT begins. It will result in a major Depression ( which is the natural result of unbridled inflation ) .
NOTE: Every "dollar" FRN created by the Fed is 100% inflation. So we are experiencing 100% inflation all the time. Just look at the number of FRNs it takes to buy something when compared to 1913. The one thing both the Fed and the US Govt have guaranteed is inflation - never deflation, until the Depression hits like an atomic bomb.
Viva la Au and Ag !!!!