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natsb88
Administrator
USA
1850 Posts |
 Posted - 01/15/2010 : 19:09:56
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This is an article I was asked to write for the conservative paper/magazine at my college at the end of the fall semester last year. An article Ardent just posted reminded me about it. It went through several edits after this version, but this version was much easier to copy and paste here than the PDF magazine versions 
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Downfall of the Dollar
The Biggest Ponzi Scheme in the World
Nate Boyer - December 2009
It is not run by Enron, AIG, or even Bernie Madoff. In fact, it is much larger than all three combined. The scheme involves arbitrarily valuing trade notes, using powerful Washington connections to legalize their use for private and public transactions, issuing and recalling them at will, and manipulating their supply to “correct” prices – all at the whim of a small and secretive board of directors.
The ploy is a collaboration between the United States Department of the Treasury and the Federal Reserve, and they have their friends at the Bureau of Engraving and Printing do the dirty work. It is a scheme better known as the United States Dollar.
Despite a very direct Constitutional decree to the contrary, the modern U.S. dollar is a purely fiat currency. Fiat money is, by definition, a completely unbacked form of tender. Fiat money is only worth something because the government says so, people believe them, and our federal friends demand it as payment for taxes.
Fiat currencies are notoriously vulnerable to inflation and lack the stability that tangible specie like gold provides. The purchasing power of fiat money depends largely on the political climate. Quite simply, the authority issuing fiat notes cannot resist the temptation to manipulate the money supply to suit its own agenda, and increasing the money supply becomes an acceptable way to raise revenue – the very characterization of a tax. The more money in circulation, the less it is worth, and the current administration seems bound and determined to continue driving the dollar into the ground.
Fiat money has only one consistent quality: its eventual failure. Unbacked money has continuously collapsed since the Roman Empire, where coins used for trade were gradually devalued by decreasing the silver content, until virtually nobody accepted them as a store of value.
One of the most cited examples of fiat failure took place in the Weimar Republic the 1920s. Germany, unable to raise sufficient funds through taxation, printed paper money to pay off war debts. The result was inflation to the tune of twelve orders of magnitude; by 1923 it took one trillion Marks to purchase what a single Mark could buy just two years prior. The paper notes were literally burned for heat, as they provided more warmth than the amount of firewood they could buy.
Since the monetary disaster of Weimar, hyperinflation has claimed dozens more twentieth century currencies. China, Greece, and Japan all experienced revaluations in the 1940s. Hungary experienced the worst inflation on record, 207 percent per day, printing paper notes worth 100 quintillion peng#337; – a one with 18 zeros behind it. At the end of the reign of the peng#337;, a single US dollar could be exchanged for 46 octillion peng#337; – 27 zeros. Inflation claimed currencies in Brazil, Bolivia, Poland, Turkey, Peru, and half a dozen others in the 1980s and 1990s.
Inflationary failure is not just a problem of the past. Zimbabwe provides the most recent example of runaway inflation, with food and commodity prices doubling every 25 hours in 2008 and 2009. The government revalued the tender several times, eventually by a factor of 10 septillion – 24 zeros, before giving up completely, bluntly telling its citizens to use more stable currencies from other countries.
America’s founding fathers were well aware of the weakness of fiat money. U.S. coinage was originally minted from gold and silver, universal stores of wealth, as specified by Article I, Section 10 of the Constitution. The intrinsic value of the coins determined the buying power of a dollar.
In 1900, the dollar was moved to a purely gold standard. The Federal Reserve began printing paper notes in 1914 labeled as gold certificates, redeemable on demand at any federal bank. In the 1930s, faced with the Great Depression, a population suspicious of paper notes made runs on federal banks to redeem their paper certificates for gold. When banks were unable to keep up with the redemption of paper notes for gold, President Franklin Roosevelt suspended the gold standard and issued Executive Order 6102, declaring it illegal for individuals to own gold. Personally held gold was confiscated and replaced by paper. Officially the suspension was temporary, but it was the beginning of the end of sound currency in the United States.
The classic gold standard continued to unravel in 1946 with a system of fixed exchange rates. Known as the Bretton Woods system, most international transactions were conducted in U.S. dollars, with the federal government guaranteeing it would redeem other central banks’ holdings at a fixed rate of $35 per ounce of gold.
In 1963, the Bureau of Engraving and Printing began printing Federal Reserve Notes without the phrase, “Will pay to the bearer on demand,” in reference to the gold the notes represented. Silver was removed from circulating coinage in 1965, and in 1968 the Federal Reserve ceased to honor the redemption of pre-1963 notes for the gold and silver they formerly represented. The gold standard, all but dead, was officially ended by President Richard Nixon in 1971 when the price of gold was unfixed. Gold was made legal to own again in 1974.
It is no coincidence that nearly every modification to the gold standard corresponded to a rapid increase in the amount of circulating currency, clearly visible in the Federal Reserve’s own reports. The money supply has increased exponentially since the official end of the gold standard in 1971. Every time the federal government runs out of ways to pay interest on the ever-growing national deficit, finance imperialism, or issue stimulus packages and bailouts, it simply resorts to printing more money. If the system designed to preserve the value of the dollar gets in the way, it changes it.
At the same time the price of gold is setting record highs – it blasted through $1200 an ounce in early December – the doomed dollar index is testing the record lows of last year. It is a testament not to the increase in the value of gold, but rather to the loss of buying power represented by the fiat dollar.
Growing world powers like China and India are passing up U.S. Treasuries, instead opting to take delivery of massive amounts of physical gold. At the same time, the authenticity of what remains of the U.S. gold reserve at Fort Knox and Manhatten has been called into question, after roughly 60 metric tons of gold bars stored in Hong Kong – allegedly produced in the United States during the Clinton administration – were found to be fakes.
The hidden inflation tax is pushing the dollar closer and closer to its inevitable demise. Instead of reeling in the federal budget and paying down the deficit, Congress continues to create credit by printing money, spending the country into oblivion. The days of the dollar and the bulging government it supports are numbered.
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Nate
The Copper Cave
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Market Harmony
1000+ Penny Miser Member
USA
1274 Posts |
Posted - 01/15/2010 : 20:03:37
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Nate, thank you!
This article is one of the best and most concise pieces of educational writing that I've read on this particular topic. I'm not trying to tout myself here, but I read A LOT of articles and books, covering nearly all political and financial spectrums of debate, and I really think this piece is just fantastic. It needs to be passed around. I'll be sending it to friends and family.
Considering the initial audience, I'm very interested to know of the response that you got from peers and professors, if any. I'd like to know what people had to say, whether in support or otherwise. I hope, probably as you have as well, that you opened the eyes of the readers that don't know history as well as you.
I'm also interested in your opinion of the periodical, in general, where this was first published.
I'd also like to encourage all other readers of this article to pass it on. And, of course, give the author due credit.
Thanks again!
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 01/15/2010 : 22:35:31
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| Very nice article. Thank-you for posting it. |
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” – George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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beauanderos
1000+ Penny Miser Member
USA
2408 Posts |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 01/16/2010 : 16:55:28
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| Thanks for posting it Nate! ***** |
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Think positive. |
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natsb88
Administrator
USA
1850 Posts |
Posted - 01/16/2010 : 21:31:10
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Thanks guys 
quote:
Originally posted by Market Harmony
Considering the initial audience, I'm very interested to know of the response that you got from peers and professors, if any. I'd like to know what people had to say, whether in support or otherwise. I hope, probably as you have as well, that you opened the eyes of the readers that don't know history as well as you.
I'm also interested in your opinion of the periodical, in general, where this was first published.
I really didn't receive any feedback, outside of my friends and the magazine's publisher and editor. I think this particular edition circulated less than usual, as it was released at the end of classes and the beginning of finals, when most people had other things on their mind. At that point in the semester, people were not in and out of academic buildings on a regular routine, so I'm guessing not as many copies were picked up.
The magazine is published by the Conservatives Club four times each semester. Along with news briefs, it contains both campus-specific feature articles and broader feature articles like mine. Government health care, global warming, and national security have been hot topics lately. I am not an active member of the Conservatives Club, but I know a good number of the members tend to lean Libertarian. While I do agree with a lot of the opinions expressed in the articles, they tend to follow Republican party lines a little too closely for me to agree with 100%. I tried with this article, and will with future articles, to stick to facts rather than political rhetoric, and hopefully they will appeal to a broader audience. |
Nate
The Copper Cave
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jadedragon
Administrator
Canada
3788 Posts |
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The Biggest Ponzi Scheme in the World
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