Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Who Decides What Is Money?

Currencies / Fiat Currency Feb 22, 2015 - 10:44 AM GMT

By: John_Rubino


The following is an edited excerpt from The Money Bubble: What To Do Before It Pops:

During a 2011 congressional banking subcommittee hearing, Texas congressman Ron Paul - long a champion of gold's role in the financial world - asked Federal Reserve Chairman Ben Bernanke if gold is money. "No," replied Bernanke, "It's an asset." Video of this exchange went viral in the gold-bug community, because the difference between money and an asset is, to people who care about such things, both profound and crucial to the future of the global financial system.

The subtext of the Paul/Bernanke exchange was a slightly different but equally important question: Can a government simply decree that what has functioned as money for 5,000 years no longer be money? This question has been debated in various forms and forums since the first government began debasing its currency eons ago. But the modern iteration can be traced back to the Great Depression. Recall that at the time the US was on a gold standard, and a paper dollar was simply a warehouse receipt for 23.222 grains of gold (approximately 1/20th of a troy ounce), while a dollar in a bank account was in theory exchangeable for those paper receipts (dollar bills). But because the Federal Reserve issued up to 2½-times more receipts than gold and because banks operated on a fractional reserve system, the total quantity of claims vastly outnumbered the weight of gold held in reserve.

After the 1929 stock market crash, the fractional reserve system began working in reverse (see Chapter 15), leaving the US - and much of the global - economy on the verge of imploding.

For countries on the gold standard, currency devaluation was seen as an admission of failure and deemed dishonorable because it allowed a country to pay off its debts in currency that had less purchasing power than at the time the loans were made. Nevertheless, devaluation was grudgingly accepted as last-ditch strategy for badly-run countries to boost economic growth and avoid a depression or more direct form of default.

The US, as it turned out, chose to both devalue its currency and default on its debts. Shortly after his inauguration in 1933, President Franklin Roosevelt concluded that US problems were serious enough to warrant devaluation of the dollar, among other aggressive policies. Under Article I, Section 8 of the Constitution, only Congress had the power to "regulate"6 the relationship between the dollar and gold, but FDR claimed that authority for the presidency. And instead of simply decreeing that henceforth the dollar was worth less gold than before, FDR first confiscated Americans' privately-held gold and made it illegal to own the metal - and then devalued the dollar against gold, effectively taking the difference between the purchasing power of the gold citizens turned in and the dollars they received in return. This was, to put it bluntly, theft. It was also a partial default on US debt, much of which carried "Gold Clause" provisions specifying that it was payable in specific weights of gold.

The implications of FDR's actions, however, went far beyond a garden-variety asset confiscation or currency devaluation. By making gold ownership illegal, FDR was asserting the primacy of government over the market in deciding what constitutes money. In the process, it made the right of private contract - a fundamental pillar of law heretofore considered sacrosanct - subservient to the government's conception of the "national interest."

By lifting the restraint that sound money places on federal spending, FDR fundamentally altered the relationship between Americans and their government. Previously, governments could borrow modestly (by today's standards) but for the most part could spend only the money that they had on hand. Money was gold, and the coins and bars in the national treasury helped define the government's wealth while limiting its ability to promise all things for all constituencies. In the future FDR created, governments would be free to act as they saw fit, simply creating a desired amount of paper fiat currency and spending it to make the world a better place - as defined by the people in charge. Perhaps FDR's goal was the public good rather than what is now often called an "imperial presidency." But regardless of his intent or motivation, as the brief tour of monetary history in Chapter 1 makes clear, a government with a printing press is a monster in the making.

By John Rubino

Copyright 2015 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules