Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21
Corsair H150i Pro iCUE Firmware Update Says Bye Bye - H100i, H115i, Bricked Jet Engine Fans Fix - 27th Apr 21
Bude Cliff Walk and Secluded Pebble Beach Tour in VR 360 - Cornwall UK Holidays 2021 - 27th Apr 21
The Top 3 CBD Oils with Anti-Inflammatory Properties for Stopping Pain - 27th Apr 21 -
Biden’s Green New Deal - 27th Apr 21
Gold Stocks Upleg Accelerates - 27th Apr 21
The Tax Plan to Slay the Stocks Bull Market? - 26th Apr 21
See What’s Next for European Markets - 26th Apr 21
Gold's Perfect Storm - 26th Apr 21
Biden’s ‘Green Reset’ Could Be Great for Silver - 26th Apr 21
SPX Stock Market Short Squeeze – Here Or Not? - 25th Apr 21
Fiscal Guilt: What a Shift in Monetary Policy Portends for Investors - 25th Apr 21
Gold Price Reversal? Have No Fear! - 24th Apr 21
No Fear Of Inflation; Threat Of Deflation - 24th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Sound Money Sound Society

Economics / Money Supply May 25, 2007 - 11:44 AM GMT

By: Christopher_Quigley

Economics

This article is a summary of work by Professor Antal. E Fekete , Professor Heinrich Rittershausen and Ferdinand Lips.

Summary
The World's developing financial crisis is totally inter-connected with a crisis of monetary theory and until we change how money works we will change nothing. What is required is a return to a solid monetary standard that is also a return to a more moral standard, which protects real work and long-term monetary value.


Most students of economics today do not realise the true implications of our current money system being based on "paper" i.e."legal tender". These students know nothing of the inherently inflationary nature of this system and do not realise there is an alternative such as the gold standard with a real bills clearing and exchange mechanism.

The existing legal tender arrangement is a compulsory paper system. It replaced the old gold standard that had developed internationally over thousands of years. Under this framework gold coins were value money and gold backed paper was accessory. All this changed around 1909 that fateful year when France and Germany , in preparation for the coming war, decided to concentrate monetary gold in their own coffers. They stopped paying civil servants in gold coins. In order to make this legally possible they declared banknotes "legal tender". Thus governments started sabotaging the gold standard ***** real bills system. The effect was fatal. Finance and treasury bills gradually "crowded out" real bills from the portfolios of central banks. Thus fake financial paper assets replaced real manufacturing/consumer asset bills in the balance sheets of major banks.

How exactly did the old system work? The transition from the barter economy of the Middle Ages, when workers were journeymen who were fed at their masters' table, to the modern factory system with workers on wage rates, raised a problem unsolvable by real bill circulation. Wages had to be paid immediately but could not be paid in actual bills because the bills usually bore large unsuitable amounts. How was this problem solved? Well to use the expression of an intelligent farmer, the banks exchanged the large bills backed by goods for "chopped up" bills. The banks accepted from their customers their bills of trade and returned to them typified and guaranteed "chopped" pieces to the same amount (ignoring discounting). These chopped bills; these "banknotes", were also usable in small transactions and for wage payments. When the large bills became due the trader paid in gold coins; the proceeds were thus used to clear off the loaned "chopped" balances. Thus we can see that the coins were used as a clearing function in the banking system. The circulation of the real bills, that is short-term liquidating credit, greatly facilitated trade. The then functioning gold standard pre-supposed the ebb and flow of bills of credit, which facilitated the journey of goods from producer to con- sumer. A rigid 100% gold standard is a pipe dream, it has never existed. If one were put in place it would collapse during the first Christmas season.

By its nature even though this gold standard had a flow of credit it had a natural restraint which does not exist under the paper tender mechanism. Under the rules of automatism the business community that was guilty of over-creation of paper money would be penalised with a loss of gold. Gold would start to flow out of the business community leading to a tightening of money supply and causing a rise in price until the rules of balanced budgets and sound finance were observed again. Gold acted as a natural curb and there was no need for central banks.

Under the legal tender paper system there are no automatic constraints in the amount of money that can be issued. More paper means more inflation thus is explained the contemporary curse of spiralling modern inflation. A modern industrial society cannot be maintained without a sound accounting unit with which to calculate long-term depreciating schedules and set long-term contracts of all kinds. In particular a society needs to be able to adequately record savings, life insurance policies and pension funds in real rather than fictitious values. The tremendous capital investments required for a modern industrial nation cannot be maintained, replaced and renewed without correct instead of false accounting. Management in terms of constantly inflating paper tender units has become a moving fiction incapable of providing "value" information essential to the operation of large-scale and long-lasting enterprises. In essence a solid money system is also a solid moral standard protecting and defining real value in real independent units.

Ideally any money should perform 3 functions:

  1. As a means for clearing and payment
  2. As a means of transfer of claims and debts
  3. As a means to measure and maintain a value unit in the long-term.

Now many would contend that legal tender performs the first two functions adequately but when we truthfully consider the third function, that of storing value, we must surely admit that as a system legal tender it is fatally flawed. This observation is proved by the fact that since the introduction of the Federal Reserve in the U.S. in 1913 the dollar has lost over 90% of its purchasing value. For pension funds this situation is terminal for when long bonds reach maturity their nominal "unit" value is repaid by the borrower, normally the Government. However the real purchasing value being repaid is marginal due to destructive reality of paper inflation. In the long-term this situation leads to the ruin of "assets" held for pensioners and retirees and ultimately undermines the very economic basis of a nation.

To prevent the problem of continuous rampant inflation under legal tender paper the central banks including the ECB and The U.S. Fed should allow discussion on the possibility of a negotiated currency devaluation coupled with a return to a modern gold standard that facilitates international world trade. But what exactly is the benefit of a gold standard? A gold standard is a mechanism whereby people exercise their God-given right to create or extinguish money, while denying the monopoly power of money creation to national and international governments. The individual, if he or she thinks money is scarce, or the rate of interest is too high, can do something about it. She can take old jewellery or newly minted gold to the mint and convert it into the coin of the realm free of charge. Conversely if the individual thinks that money is too plentiful, or the rate of interest is too low, he can melt down coins or export them. In this way a freely operating gold standard can guarantee the lowest level for the rate of interest. Of course such a system should be operated in tandem with a real bills exchange mechanism as explained earlier. This system allows the free market to set the rate of interest. But most significantly under its order there is no bond market for the simple reason that there is no sufficient volatility in the price of a gold bond to make speculation profitable.

Apart from removing free market control of interest rates, the destruction

of the gold standard had a disastrous effect on worldwide employment. The unprecedented unemployment that started in the 1930's and which is still very much with us but for the fig leaf of the welfare state (that pays workers not to work and farmers not to farm) was a delayed consequence of the legal tender legislation of 1909. Since the wage fund of the workers in the consumer goods sector was financed by the bill market, and no other way of financing it was available, massive unemployment threatened the globe. This event had been foreseen by German economist Heinrich Rittershausen. His prediction came true in the 1930's when up to half of the work force was idled. Economists failed to diagnose the problem correctly and America tried to solve the problem with "New Deal Socialism". Conditions for full employment in the world will not return until the wage fund has been re-established through the rehabilitation of a new gold standard ***** real bills; however researching the question is forbidden. Young economists are brainwashed by the Keynesian and Friedmanite orthodoxy into thinking that the regime of irredeemable currency represents a great advance over "obsolete" metallic monetary standards.

Obstacles in the way of monetary education are enormous. A case in point is to realise the fact that the global clearinghouse for the system of irredeemable currency is a private company called the Deposit Trust and Clearing Corporation (DTCC). Its shares are closely held by multinational banks and financial institutes. DTCC's turnover in 2004 exceeded 1000 trillion dollars. More than half of this amount was generated by trade in government securities and foreign exchange derivatives. In comparison the combined GNP of all nations was a paltry 40 trillion dollars. In other words two weeks' turnover was all it took to clear transactions generated by the production and distribution of all the goods and services deemed necessary to keep the whole world fed, transported, clothed and sheltered for the entire year. The other fifty weeks' turnover was pure froth and speculation. This speculation is disengaged from the real world of most peoples lives yet controls the cost and value of money. It is made possible because the legal tender mechanism has created such an enormous quantity of tender that it constantly circles the globe looking for returns yet achieves no real economic action other than a speculative gain or loss. This derivative monster undermines the real economy and because it is growing exponentially each year it has prompted such luminaries as Mr. Warren Buffet to state that it is an aspect of the current financial structure that could cause a global financial crisis of incalculable magnitude. Many believe the time is now to start looking for the solution that will inevitably be required to fix the problem. The issue is not "if" the storm will arrive but "when".

Sources:

  1. Prof. Antal E. Fekete, Professor Emeritus, Memorial University of Newfoundland . www.goldisfreedom.com
  2. Prof. Heinrich Rittershausen, Monetary Theory, Version V. Translated by T. Magelli, assisted by John Zube.
  3. Ferdinand Lips Gold Wars www.fame.org, New York , NY , USA .

By Christopher M. Quigley
http://www.wealthbuilder.ie

Mr. Quigley is 46 years of age and holds a Batchelor Degree in Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in San Francisco, California where he lived for 6 years. Now based in Dublin, Mr. Quigley actively trades utilising the principles set out in the modules above. This Wealthbuilder course has been developed over the last 9 years as a result of research, study, experience and successful application.


© 2005-2019 http://www.MarketOracle.co.uk - 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