It took the United States over 100 years to acquire a mountain of silver and another mountain of gold bullion. From the 1790’s through the 1920’s, these precious metal hordes, stored in Fort Knox and other treasury depositories throughout the United States, were the basis of the wonderful hard-currency American Dollar, that “Little Iron Man” respected throughout the world because it was backed up by these real, very rare and very valuable assets. Those were the days when “as good as Gold” proudly applied to the US dollar.
The Federal Reserve System was created by Act of Congress in the fall of 1913. What had begun as a “good idea” to prevent bank runs of insolvent banks by the Democrats (nearly all the Republicans voted against it) opened Pandora’s box of fiat currency and government manipulation of the money supply. As a result, for 95 years, the value of the US dollar has been steadily dropping.
Over the years, the currency was changed too. What was once a Gold Certificate issued by the US Treasury (redeemable at any time for 1 ounce of gold — often in the form of a US gold coins) became a Silver Certificate redeemable in a sack of silver — usually silver dollars, half-dollars, quarters or dimes. It was, in effect, a deposit receipt for your real money kept protected in the vaults of the US Treasury.
Then one day, the US Treasury stopped issuing dollar bills, and the control of the US money supply was turned over to the Federal Reserve. Now, the paper dollar bills could no longer be redeemed for anything. They were no longer certificates of deposit; they had become “Federal Reserve Notes”, in other words, IOU’s by a quasi-government agency. And to enforce the acceptance of these new fiat dollars, Congress legislated that they must be accepted by anyone in business in America. On the US dollar bills, it now says “This Note is Legal Tender for All Debts, Public and Private”.
To prevent circulation and hording of real money, the original US gold coins like the $20 Double Eagle were then confiscated by Franklin D. Roosevelt on April 5, 1933, and replaced with $20 paper bills. To refuse to turn in your gold dollars — or to own gold — was a criminal offence. The government had taken back the real money from its citizens.
Silver coins like the $1 Liberty or Morgan silver dollar could still be owned, however. To complete the debasement of the remaining coinage, the Treasury had to wait another 30 years.
In April, 1966, the US government ceased to mint silver coins. From then on, all regular US coinage in circulation was made out of cheap base metals. A dollar coin no longer had a dollars worth of silver in it. Instead, it contained perhaps 3 cents worth of common metals.
The transformation was complete. And inflation could begin in earnest, backed by the full faith and credit of the US government, and its 700+ overseas military bases.
For nearly 40 years, this process seemed to work. Each administration could rack up huge deficits which it could wash away by making the dollars it would have to pay back worth less and less in the future. As long as the US was the world’s manufacturer a net exporter of products, all was well.
Over time, however, the United States was transformed from an industrial powerhouse into a nation of consumers. It began to farm out its production capabilities, and eventually even its crop growing, to other countries. More and more, the US began to run huge balance-of-payment deficits. Other countries recovering from the ravages of World War II became more productive. Japan and Germany — our former enemies — rapidly grew to be the second and third largest economies in the world.
Other countries were receiving shiploads of dollars which they promptly handed back to the Federal Reserve Bank of New York (by now it had taken quasi-ownership of the US Treasury’s gold horde) and converted these paper dollars into gold bullion for transfer overseas.
(Well, actually other countries still trusted the US government; they didn’t really move their gold out of the United States, they simply had it transferred from the US government’s vault in lower Manhattan to their own storage vaults in the same Federal Reserve Bank).
Richard Nixon killed this when he pulled the US off the gold standard on August 15, 1971. By doing so, he reneged on America’s promise to pay its debts to the world in real money. Henceforth, US dollar bills and Treasury IOU’s would become the world’s “legal tender” More and more dollars were shoveled overseas, where they began to float around in their own netherworld of “Eurodollars” and other offshore trading systems. The US FED had become the world’s Federal Reserve System. The US benefited mightily. The value of shipping dollars overseas – never to return to the US — itself boosted the US economy by, some say, as much as 1% of the annual GDP.
And then the European Common Market nee European Community nee European Union began to appear. Charlemagne’s European Empire had been reborn. And on January 1, 2002 the Euro materialized to become a real alternative to the US dollar in world commerce.
Fortunately, the US dollar has been so successfully exported it forms the fundamental basis of most of the world’s trade and banking. It will be very difficult for the rest of the countries to claw back global monetary control from the Federal Reserve Bank — to America’s temporary benefit.
But the ramifications are clear. Gold is approaching $1000 per ounce. Some economists predict it will reach $5,000 per ounce in 5 years. And the Euro, now at roughly $1.50 is predicted in the extreme to grow to $2.00 to $3.00 as oil is projected to increase to $10 per gallon over the same time frame. Whether these dire predictions come true is yet to be determined.
However, the US Congress is hell bent on helping destroy the last vestiges of the American economic system that has continued to survive — and has kept the dollar strong(ish).
The best current examples of the US-shooting-itself-in-the-head in the field of economics come under the heading of “reviving the economy”. They include:
1) Passing laws to postpone or eliminate the repayment of poor mortgages while at the same time demanding that mortgage companies keep on lending in the future,
2) Dropping the FED’s discount (interest) rates with the goal of encouraging more people and companies to get into debt even more,
3) Changing the bankruptcy laws back to more generous terms allowing the debtors to escape their debts — and driving more lenders into bankruptcy in the process,
4) “Giving” each American family as much as $1200 in cash payments while at the same time loading the new government debt of $1200 — plus interest payments on it — on each household in the future,
5) Banning the incandescent light bulb (which provides some heat in the winter as well as light) and replacing it with toxic mercury and other deadly-substance filled florescent and other new-age lights,
6) Passing laws to force American food production to be diverted to the conversion into energy-inefficient caustic Ethanol thereby driving up the cost of food, and causing more gallons of ethanol-laced gasoline to be burned by drivers, increasing the cost of their daily commuting.
7) Forcing so-called “global warming” laws to make the economy less efficient by spending gobs of wasted money at the government level, by American manufacturers and US households (as compared to China or India which are exempt under the Kyoto Treaty). This to fight a problem which most serious scientists say is not caused by human activity — and likely doesn’t exist in the first instance. (See Dr. Arthur Robinson’s recent HUMAN EVENTS article on this subject).
Fortunately, at least two or three of the candidates for President are smarter than this — and would never allow Congress to do such stupid things. Hmmm… Now which ones were they again…?
*With complements to Art Robinson, Editor, Access to Energy.
"How do you tell a Communist? Well, it’s someone who reads Marx and Lenin. And how do you tell an anti-Communist? It’s someone who understands Marx and Lenin."
— Ronald Reagan
For more Reagan quotes, see: The Wit & Wisdom of Ronald Reagan, Regnery Books.