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Trading Lessons

The Dismal Science of Phony Money: A Rejoinder

Economics / Analysis & Strategy Jan 31, 2007 - 08:42 PM GMT

By: Douglas_V_Gnazzo

Economics John Maynard Keynes was a champion of the elite money changers, an intelligentsia proponent of the dismal science of phony money - a hired gun. Keynes did not get much right regarding monetary theory, however, in one of his more lucid moments he hit the mark when he stated: "Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." [2]


That is some pretty heavy stuff: overturning society by destroying the currency of a nation, by using hidden forces that not one in a million are able to understand. However, Keynes knew this to be the truth, as he was one who was without equal in the debauchery of our currency; until Alan Greenspan took the stage - the reincarnation of John Law.

Ayn Rand nicknamed Sir Alan the undertaker, a most fitting title for the head of the Federal Reserve, under whose watch more debt was created then in all previous administrations combined. A world record that will most likely stand adamant against the passing ages.

How does one explain the behavior of Keynes and Greenspan, whose monetary policies destroyed the purchasing power of our money? There are not many "above" these infamous players that are in the class of one in a million that understands, nevertheless there are a few, as the following quote by one of the Rothschilds clearly expresses: "The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." [3]

Nonetheless, opposition still exists, as this paper is a testament thereof. It is in the spirit of finding the truth and dispelling the forces of economic law on the side of destruction, be it done knowingly or unknowingly - that the following is offered.

1933 REVISITED
It is true that in 1933 the government, under the auspices of President Roosevelt, confiscated all private holdings of gold, and made it illegal to own gold as private property. For a more detailed discussion of the gold confiscation see Social Security: The New Deal - A Raw Deal, Part 5 .

Once the confiscation took place, it is incorrect to say that we were any longer on the gold standard: we were not, as gold was now illegal to own. It was considered a crime to own one of the two metals that our Constitution mandates as legal tender:

Article I, Section 10, Clause 1 . "No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt." [4]

Note the wording "emit bills of credit". This is a reference to paper money, aka Federal Reserve Notes. For a more detailed discussion see the series The Constitution of the United States & Honest Money .

It is incorrect to say that the currency was backed by gold once Roosevelt issued any of the following: Presidential Executive Order 6102 ; the Emergency Banking Relief Act of 1933 US Statutes at Large ; and the 1934 January 31 Presidential Proclamation (no. 2072) of Franklin D ...The Gold Reserve Act . For a more detailed explanation see: Letter to Congress

The currency was no different then the markers that a riverboat casino issues to an addicted gambler that has not the means to fulfill his contractual obligations. Even the Federal Reserve knows this to be true:

"Neither paper currency nor deposits have value as commodities, intrinsically, a 'dollar' bill is just a piece of paper. Deposits are merely book entries." [5]

POLICIES RUN AMOK
The stock market crash from the thirties does indeed have a lesson for modern times: the lesson that after every artificial boom, financed by increasing levels of paper fiat debt-money, ends in the inevitable bust or bursting of the bubble.

However, the unbridled printing of money, which is the debauchery of our currency by the debasement and destruction of its purchasing power, should not be viewed as good news in any way, shape, or form - even for those who recognize the "potential" for gold.

Nothing good can possibly come from the destruction of a nation's currency. To think otherwise is nothing but an illusion: the Keynesian mindset that has been inculcated into the thinking of even those who are supposedly "pro-gold" and for a sound monetary system.

WHAT THEY DON'T WANT YOU TO KNOW
Is gold really the beneficiary of reckless monetary policies and the War On Terror? What does it really mean that the "price" of gold has gone up? Gone up as measured by what? By the paper fiat debt-money known as Federal Reserve Notes.

If one claims that the FRN's are nothing more than paper iou's or debt obligations, which cannot ever be fulfilled, and that the ever-increasing supply of them continually debases and erodes the purchasing power of the currency, then what worth or value can such have to honestly and proficiently define the value of gold?

Since 1913 when the Fed took control of the monetary system, the Federal Reserve Note has lost 95% of its purchasing power. This is a measure of value - or is disvalue more appropriate? The dollar bill is not a standard of value: an ounce of gold has been a standard of value since time immemorial, is presently, and always will be.

It is the debasement and loss of purchasing power that causes goods and services to go up in price, as the value of the currency continually goes down, thereby calling for more units of the currency (supply) to make up for the loss of purchasing power (quality). See Gold's Hidden Secret: The Moral Hazard of Fiat Money .

This may cause the "price" of gold to go up, but that is not the same thing as saying that it is great news for gold, or for those that own gold. Such belief is mired in the Keynesian mindset and steeped in the stench of the maestro's discordant vignettes.

It is a folly to accept the unacceptable - to allow gold to be priced in dollar bills or Federal Reserve Notes. According to the Constitution our monetary system is a hard system of silver and gold coin with no bills of credit (paper money). There has never been a constitutional amendment to change this mandate, therefore it still stands as the Supreme Law of the Land.

The Constitution and the Coinage Act of 1792 mandates that our monetary system is based on a Silver Standard, which utilizes a bi-metallic currency of silver and gold coin. The dollar of the Constitution is defined as 371.25 grains of fine silver - a silver dollar of Honest Weights and Measures. See the series Honest Money, Part I: The Constitution and Honest Money . There was no gold dollar at this time. That did not appear for another 57 years until 1849. And there was no circulating paper currency that was redeemable in silver and gold - that too came later.

The crucial point being that silver and gold were not defined or priced in paper fiat dollar bills or Federal Reserve Notes - they were the currency, according to Honest Weights and Measures. The dollar was defined by a specific WEIGHT of 371.25 grains of silver - a silver dollar.

To price silver and gold in dollar bills (which are Federal Reserve Notes which are different then the dollar of the Constitution) is to accept the unacceptable, it is the turning of the monetary system of the Constitution upside down and inside out. See Can the U.S. Return to a Gold Standard? .

When one says the price of gold has gone up, what that means is that more units (quantity) of dollar bills are needed to purchase the same one ounce of gold. And why are more units required - because the purchasing power of the dollar bills or Federal Reserve Notes has continually lessened, thereby causing a greater quantity of units of money (dollar bills or FR's), to be required, to buy the same one ounce of gold.

In other words - price inflation cannot occur unless monetary inflation (increase of the supply of money greater than the demand for money) takes place beforehand.

Gold is not an investment that should be sold for dollar bills or Federal Reserve Notes that are becoming worth less and less in purchasing power as they approach to worth - less-ness.

It is correct to say that paper fiat debt-money, which circulates as the current medium of exchange, is based on faith - people still have the faith that the dollar bill will be accepted in lieu of actual payment of debt.

It is one big CON-FI-DENCE scheme. Once the confidence goes, so goes the currency, as it self-destructs. But the discharge of debt is not the same as payment of the debt. One cannot pay off debt with another debt obligation.

"There is a distinction between a 'debt discharged' and a debt 'paid'. When discharged, the debt still exists though divested of it's charter as a legal obligation during the operation of the discharge, something of the original vitality of the debt continues to exist, which may be transferred, even though the transferee takes it subject to it's disability incident to the discharge." [6]

Physical gold should not be viewed as an investment that one is going to sell or exchange for paper fiat debt-money. If you do that you are simply accepting a debased currency that has lost as much purchasing power as gold has gained. You are back to square one.

Gold's greatest asset is that it is a STORE OF VALUE. It does not lose purchasing power. However, it should not be "priced" in dollars or yen or euros - it should exchange by weight and weight alone, as in Honest Weights and Measures. See Honest Money: What It Is and What It Isn't - Part 4 Store of Wealth .

If gold goes to $3000 an ounce you may think you are wealthier but you are not. The prices of all other goods will go up commensurate with the rise in gold due to the loss of purchasing power of the dollar. There will be much pain and suffering. You will not like the way the world will be if this occurs. Be careful what you wish for - it may come true.

This is the dirty little secret the elite money changers do not want you to know. This is the dirty little secret that even most gold-bugs do not know. But it is what it is until it isn't - until We The People stand up and take the money power back from the elite money changers that have no constitutional or natural right to be in possession thereof. See Honest Money: What It Is and What It Isn't - Part 6 The Money Power .

"But when a long train of abuses and usurpations, pursuing invariably the same object, evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security." [7]

This paper is a rejoinder to a recent article by nearly the same title. The author may have meant well, however, there was some disinformation presented - as is usually the case when gold and silver and monetary theory are the topic de jour. We do not differ with the messenger - only with the message. We invite any and all replies.

[1] Declaration of Independence
[2] The Economic Consequences of the Peace , ch. 6.
[3] Rothschild Brothers of London, 1863
[4] The United States Constitution
[5] Modern Money Mechanics Workbook, Federal Reserve Bank of Chicago, 1975 [6] Stanek vs. White, 172 Minn.390, 215 N.W. 784
[7] Declaration of Independence

 

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME). Come visit our new website: Honest Money Gold & Silver Report , And read the Open Letter to Congress

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

NOTE - From time to time, The Market Oracle publishes articles from third parties. These articles do not necessarily express the viewpoints of The Market Oracle or its editorial team.


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