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The Fiat Currency Cyclone Gathers

Politics / Fiat Currency Sep 23, 2012 - 07:35 AM GMT

By: Stephen_Merrill


Best Financial Markets Analysis ArticleThe present experience of the United States and Europe from the abuse of fiat money has been a recurring drama for millennia.  Kingdoms, the reign of pharaohs, oligarchies, dictatorships, republics and empires have imploded from within largely due to discredited money. 

The Western Roman Empire fell a thousand years earlier than the Byzantine Romans by debasing the silver content of coinage to fund military adventures.  The debasement of the pound helped the sun set across the British Empire.  In the last century national fiat currencies have drown in hyperinflation in Germany, Italy, Yugoslavia, Hungary, Zimbabwe and Argentina (three times) to name the ones that come to mind to a Westerner.

The Brave New Era

The US Federal Reserve has already created and prolonged the Great Depression of the 1930's and caused every recession since.  Since the 1950’s the only substantial period when free markets forces in the financial sector were allowed to cure inflation and mal-investment in the economy was during Fed Chairman Paul Volker’s reign, 1978-1986.

The imperial reign of Dr. Greenspan and Dr. Bernanke though has brought official US dollar counterfeiting to heights never dreamt of, with no end in sight, ever, as announced anew last week by the Fed.  Only the yawning depth of the mountain cliff dead ahead appears to be much different this time around from where this disastrous course, practiced in lower gear, has led to so many times before. 

With counterfeit capitalism in place for decades the Greatest Depression has already arrived with by far the worst to come, a prospect by now virtually written in stone.  Emperor Bernanke has no clothes, as Barack Obama has been finding out for the last couple of years.  Yet, the chairman continues to posture in public, quite embarrassingly.

The present mega-storm has been building since the Reagan-inspired fiscal irresponsibility of the 1980's in the US. That same irresponsibility continues in hyper-drive today, surpassing even the greed of Roman emperors everywhere in the West.  If government money for important friends cannot be borrowed or taken in taxes or stolen from the social security funds, counterfeit can always do just as well.

The inevitable result will be the destruction of the US dollar and the Euro, the middle class across the West and, for certain in the end, another abolition of fiat central planning, thankfully, at least for a long time.   It is the same sequence that has played out so often before in many places.

National Banks in the United States

There has been no shortage of commentary in the United States on this general phenomenon.  The traditional American view of central banking counterfeit for the rich is best expressed by four Presidents.

America's founders made fiat currency unconstitutional largely due to the hyperinflation experience during the Revolutionary War.  This principle of sound money was one of the few national mandates made in the new federal Constitution.  Gold or silver reserves had to back state-issued currencies by law everywhere.  No national currency was established by the federal Constitution, none needed.  US gold and silver coins had already been widely circulated for many years, secure in their intrinsic value.

The authors of the Constitution never seriously considered establishing a National Bank as an arm of the Treasury Department.  Most founders opposed the entire idea of central planning, especially monetary control, with passion as Jefferson did.  18th Century America allowed a proliferation of currencies, foreign and domestic, gold and silver coins and all kinds of other “money” to compete as a reliable store of value.

Yet, the champion of Wall Street at the time of the nation’s founding, Alexander Hamilton, exercised much authority as General Washington’s first Treasury Secretary.  Hamilton managed a near legislative miracle, but one that never met its intended potential. 

The First National Bank of the United States was established by the First Congress of the United States and chartered for a period of twenty years.  The bank was premised by Hamilton on the need to handle financial transactions, to store and collect taxes and, ironically, the need to clean up the hyperinflationary mess created by the fiat Continental.  The feds had to borrow money in the first session of Congress to pay off, at least in large part, the debts left unpaid by the faulty money offered to fund the war of independence.  Thus, a national bank of some form was quite necessary.

The constitutionalists applied chains to the first national bank that it never managed to break through.  These included a ban on lending and a fully transparent audit at any time.  By the time its charter came up for renewal in 1811 it was thought by Congress better to sell its shares in the private national bank, rather than face raising taxes.  A big federal program, believe it or not, expired.

By General Andrew Jackson’s defeat of the greatest army on earth at the Battle of New Orleans weeks after the peace treaty was signed in Paris, the United States won the War of 1812 against England, at least on the ground.  The war though was lost by the country in the field of finance and national wealth.

With war debts well beyond the gold store in the US Treasury vaults the United States muddled through for a few years after the war, but Congress faced a wall in 1817.  The biggest part of the solution was to re-engage in a formal, ongoing national debt that would need to be administered.  Also, there was the glaring need to impose some official regulation for capital requirements and other fraud avoidance on banks and other lenders.  There was also the need to facilitate international trade settlements as had become the customary method used by US trading partners.  The Second Bank of the United States was founded that year and chartered for twenty years to meet these needs.

The second national bank never breached the Jeffersonian chains that also applied to its operations.  Yet, skullduggery in many ways was practiced by the bank to the great benefit of the national bank’s primary owners, big Wall Street banks.

President Andrew Jackson decided his hard-money policies were inconsistent with the goals and methods of a national bank.  The bank’s re-authorization became the main campaign issue in 1832 with Jackson winning re-election in a landslide.  Farmers and builders and local merchants had won a great victory over the rich and powerful so derided by Jackson.

A newly elected Andrew Jackson wasted no time in ending the Second National Bank of the United States.  All deposits by the United States were withdrawn in 1833.  The bank, now a fully a private entity, folded shortly thereafter.

President Jackson then paid off the national debt a couple of years later, the last time it was paid off. 

Yet a third war, the greatest in United States history, the War Between the States, 1861-1865, ruined the finances of the United States.   The first national paper money issued by the United States, the US greenback in 1862, arose to fund the war existing alongside the gold and silver US coinage.   The paper notes were justified as the right of the United States to borrow money just as any person or business may borrow money.  Though still formally backed by the gold-standard the new US treasury notes multiplied the spending authority of the federal government by several times.

The largest financial power play in world history was, of course, spawned at Jekyll Island and passed into law in the United States in 1913, the US Federal Reserve System (Third National Bank of the United States).  A private corporation was for the first time empowered to create US dollars from thin air to lend and invest in banking largely as it saw fit, including by enriching its member banks.  The US Federal Reserve joined similar empowered corporations in the capitols of Europe.  It was the founding of the financial oligarchy that has ruled the world’s finances ever since.  The debt dependency system was freed of all chains with the abolition of the gold-standard in the United States in 1971.

Class Warfare at Apex

Unfortunately, the century long experiment in central banking, by now with fiat money everywhere across the globe, has brought the greatest nations in the world to their knees financially.  Yet, the accumulation of wealth at the very top of society is higher now than ever before in the United States and also Europe to a lesser degree.  Such is the obvious effect of endless counterfeit handed to the elite.

Newly invented money has always been the Bain of economic growth for all, a vehicle primarily aimed at enriching the rich and empowering the government.  Keynesian dreamers say modernity rules out the policies of sound money as practiced for centuries.  Believers in sound money have been drowned out across present memory.

Yet, the laws of economics have not changed in modern times any more than the laws of physics have.  The failure of Keynesian folly is as plain today as is the failure of world-wide communism: both end with power and wealth concentrated in the hands of a few.

The Fatal Vice

Fiat currencies have imploded endless times throughout history only to arise again and again from the vices of overly powerful government.  This destructive process of class warfare has reached its zenith once again, like never before.  The fall of the powerful will prove sudden and thorough, like never before.

It seems the human being, in the end, is unable to resist the destructive temptations of easy, false money.  The affair always ends in disaster.  The proof is everywhere today, again. 

There are excellent reasons counterfeiting is a very serious crime, a crime of fraud.  So should be the Keynesian folly that supports the tidal waves of legal counterfeit now gushing endlessly from the central banks of the world.

Fiat currencies are not the only possible modern terms of trade for the world economy: far from it.   Free markets for sounder currencies, trade credits, gold, silver, and other "money" is by far the best path to long term global economic growth that will raise all boats.  That is the level playing field for a free economy: the American way, past and future.

Stephen Merrill is a trial lawyer practicing in Anchorage, Alaska.  He was a founder of the Tidewater Virginia Libertarian Party in 2001, the most successful Libertarian Party affiliate in the nation.  He is now a founder of the Anchorage Tea Party, Occupy Anchorage and General Counsel and Secretary for the Alaska Libertarian Party and remains a longtime defender of the Bill of Rights.

Stephen Merrill is a trial lawyer practicing in Anchorage, Alaska.  He was a founder of the Tidewater Virginia Libertarian Party in 2001, the most successful Libertarian Party affiliate in the nation.  He is now a founder of the Anchorage Tea Party, Occupy Anchorage and General Counsel and Secretary for the Alaska Libertarian Party.  He is a longtime defender of the Bill of Rights.

Mr. Merrill is the editor of the Alaska Freedom News http://FreedomNews.US, formerly the Hampton Roads Freedom News.

© 2012 Copyright  Stephen Merrill - 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.

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