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As preferable as the credit facilities have been compared to helicopter flights, the Federal Reserve essentially destroyed its own balance sheet during the past two weeks, which is why the Fed reached out to the ultimate lender of last resort, the U.S. government. Yet it might be too late for a cure. We’ll find out in a few weeks whether or not the Fed’s ill condition has deteriorated beyond the point of no return. If so, the U.S. dollar as a Federal Reserve liability will shrivel up and die as more and more people discover the truth. Sooner or later the Treasury will have to provide an acceptable monetary alternative because formally nationalizing the Fed will accomplish nothing if the Fed has already been effectively nationalized as of September 17, 2008. Under the circumstances, there is a good chance that gold and silver in the hands of the public will rise to the occasion. My next essay on this subject will describe the most likely approach that the Treasury will take to move back toward a Market-Based Monetary Standard (hint: I think it will involve gold.)

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