It's been over seven years since the US had real or competent leadership and now a neo-ape man may precipitate our return to the cave! Iran's planned oil bourse threatens not only Bush's simplistic view of the world, it strikes at the the coffers of "big oil". Isolated by mysteriously cut internet cables, Iran --if it is not nuked --will this month begin trading oil in currencies other than the dollar. Bush's cave man response: Nuke Iran! Kill, kill!
On September 16 1985, when the Commerce Department announced that the United States had become a debtor nation, the American Empire was as dead, theoretically, as its predecessor, the British. Our empire was seventy-one years old and had been in ill financial health since 1968. Like most modern empires, ours rested not so much on military prowess as on economic primacy.
Bush's response to Iran's "Oil Bourse", his response to the end of American empire, is pre-stonge age in nature. Indeed, the US empire will collapse when the dollar collapses. Because we have an ape-man and not a real President, the consequences will be tragic.
A commenter to this blog used the term "sunset fuel" to describe oil and our dependence upon it. The world grows more dangerous as oil becomes increasingly hard to find, more expensive to produce and refine. We should have expected the world to become a much more dangerous place under those conditions. In its decline, oil becomes disproportionately important, nations more desperate, Bush more belligerent.
Monitoring the news today --it is clear that the Middle East cables were deliberately sabotaged and the effect has been to cut Iran off the internet. Isolating a nation by cutting off its systems of communication is a first step preceding a military attack. Bush no longer cares about even the pretense of pre-text! His charge that Iran has weaponized grade fuels is universally and credibly debunked. The real threat is to the poohbahs of US empire --the Military/Industrial complex. Bush doesn't care. Nuke Iran! Kill, kill!
Like the US today, Rome had currency problems, one of the reasons for its fall. When Rome attacked Dacia, it was for the gold. Much of the history of Rome is the history of how "empire" became "enterprise", how the Praetorian Guard become the Military/Industrial complex.
The first known Roman "money" was a lump of bronze aptly named "aes grave", literally, "a heavy lump of bronze". An "aes grave" weighed about seven pounds. Traded by weight, it required slaves to carry it around.
A more portable medium --the true coin --would not appear until about 89 BC. It was quickly debased with increasingly thin silver plating as more coins were needed in circulation than could be backed up by the "real" wealth of empire. By one AD, a tiny new bronze aes or "as" was introduced. It had no real intrinsic value but it was easy to carry around. One could gain entry to bath houses or free public performances with it. Even then it was just a token to help "ushers" and/or doormen keep track of the number of folk.
By the mid 60s AD, Nero was alloying silver with cheaper metals, a process virtually impossible to detect. Nero thus set the precedent and standard not only for later emperors but politicians of almost every stripe. Briefly, Nero did what almost all politicians do. He swindled the people in order to put more coin into circulation.
By the time the Praetorian Guard auctioned off the empire to Didius Julianus, the transaction would be completed in Drachmas (Greek currency) not Roman the sestercius or the ass. The smart money had already dumped Roman coinage. In the late Empire, it was hoped that new coins --the silver "nummus" and the gold "aureus" -- would restore confidence during periods of devastating inflation.
Much is made of the "gold standard". In fact, it doesn't matter. If someone like Ron Paul restored the Gold Standard in the US, the economy would melt down for several reasons. First, economies must grow or die. Fixing the currency to a finite standard guarantees that it will be necessary to "debase" to accommodate a growing population, growing demand for money itself. Secondly, given US weakness, encouraging Americans to dump bucks for metals, will only hasten the death cycle of the dollar. Perhaps Paul believes it is already too late --so just kill it off and be done with it. Nevermind, the millions who would literally starve or wind up on the streets.
The "Gold Standard" is a myth that is easily demagogued. In fact, a nation's currency is really backed up by its total productive capacity. If the nation is at work and productive, we could use monopoly money! And we have been for years. Who the hell would cares for so long as we stay out of jail and pass "Go"? American prosperity was always behind and had always "backed up" the strong dollar. Paulian thinking that we need only jack around with the currency to restore American prosperity is literally "backward". It doesn't work that way.
Productivity needs help. US economic expansion had always been fueled by an abundance of natural resources --land, timber, water, farm land, metals, et al. The nation's history was changed forever when oil was discovered first in Pennsylvania and, when that ran out, Spindletop in Texas. For over a century, US economic expansion was backed up by oil. The US was an oil producing nation. Oil was better than gold or silver in that it had much more intrinsic value than either metal.
Oil not only lubricated the engines, it fueled them. In the process of turning it into gasoline, it was discovered that its plastic properties could make an almost unlimited number of doodads, some of which had utilitarian value and some only value as playthings and baubles.
On a personal note, landing at Kansas City International Airport the other day, my vision of America altered by my in-flight reading of Mr. Berman's remarkable work, I saw the landscape through new eyes, a landscape I now understood to have been systematically vandalized by the corporatocracy: big box stores, chain hotels and restaurants, strip malls and gas stations, a landscape everywhere repeated across the United States, a landscape we intend to impose upon the world in order to fulfill our destiny as bringer of freedom as expressed through consumption.
From internet reaction to my previous article on the US v Iran:
If Iran is attacked it will have nothing or next to nothing to do with the oil bourse. It will be because the PNACers have targeted Iran, because, like Iraq, it is not a puppet state, and, in the Neocon "mind" thus presents an "existential threat" to the greater Israel that they imagine.
It has everything to do with Neocons who are most certainly supporters of the Military/Industial Complex or, more accurately, the Military/Oil Exploitation complex. Neocons are all about empire and oil is at the heart of American empire. Israel is, in fact, just a convenient ally as were the various puppet, vassel states of Rome --many of which were in the Middle East.
Certainly, when oil is no longer traded in dollars, it is not only the dollar that will collapse. It means that the US --on the bad end of a huge balance of trade deficit --will no longer be able to afford to import goods or services. For a nation that long ago (Reagan years primarily; See Vidal, cited) gave up its role as a manufacturing nation, this collapse will be monumental, catastrophic. The fact that oil had been traded in dollars was the only thing propping up the dollar. That there was a demand for dollars because there was a demand for oil meant that you could continue to buy imported goods with dollars. Now --imagine a world in which no other country need "purchase" dollars in order to import oil! What if oil producing nations agree to accept other currencies? What if they refuse to accept dollars? Go to Wal-Mart or even your local supermarket. Almost everything on the shelves is imported. Imagine a shop owner refusing to accept as payment for anything in the shop your worthless dollars !
Len Hart is a Houston based film/video producer specializing in shorts and full-length documentaries. He is a former major market and network correspondent; credits include CBS, ABC-TV and UPI. He maintains the progressive blog: The Existentialist Cowboy
Pay off your debts store up some canned goods and ammo
Pay off your debts store up some canned goods and ammo and only buy what you need to survive because tough times are ahead.Neither party has the will to do what is necessary to make this country what it once was.
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Michael Chavers (47 articles, 0 quicklinks, 13 diaries, 174 comments)
on Monday, February 11, 2008 at 2:13:36 PM
Why pay off your debt when the $x you owe will soon become relatively worthless? If you owe enough to buy a loaf of bread today, and it costs 10 times as much to buy a loaf tomorrow, you can pay off your debt tomorrow with the equivalent of 1/10 a loaf of bread.
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Jim Arnold (12 articles, 0 quicklinks, 2 diaries, 80 comments)
on Monday, February 11, 2008 at 4:02:33 PM
What you say makes sense if you can borrow at a low interest rate, inflation is low and steady, and wages are rising commensurate with inflation. But, if a loaf of bread costs ten times as much tomorrow, then you are talking about rapid inflation. Wages NEVER rise as fast as prices during high inflation periods. So, you will need every nickle you can muster to pay for bread, and it would be a mistake to take on debt unless you are very certain you will be employed and earning income in the future that rises as fast as prices.
Buying gold to preserve wealth during high inflation does make sense.
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Paul Rye (7 articles, 2 quicklinks, 15 diaries, 284 comments)
on Monday, February 11, 2008 at 5:52:45 PM
I'm saying - buy gold instead of paying off debt. When your income falls behind inflation you can sell some of the gold as needed, when its value has increased relative to the dollar. And if you've borrowed at a fixed rate to buy the gold, if inflation is rising more rapidly than your interest rate, you're actually profiting by the loan. Paying down debt makes no sense right now.
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Jim Arnold (12 articles, 0 quicklinks, 2 diaries, 80 comments)
on Monday, February 11, 2008 at 8:25:37 PM
I've had the same idea myself. Buy gold instead of paying down the mortgage. Or borrow on a home equity line at 5.5% and invest in gold, selling a little off at a time to make monthly payments. That's different than just borrowing to buy a house, car, or boat.
But it takes discipline. It's a bad idea to take any gains in gold and spend it instead of saving it or paying down debt. Timing helps too. Even buying gold in a bull market, it's possible to enter the market just before a correction and get scared out of the market with a loss. The average investor who tries to time the market will lose money even in a bull market.
I would suggest waiting for a correction in gold before entering the market on borrowed money.
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Paul Rye (7 articles, 2 quicklinks, 15 diaries, 284 comments)
on Friday, February 15, 2008 at 10:13:27 PM
Your analysis concerning currency is completely off base
What this world does need is a return to an economy limited by the amount of money in circulation. It is the debasement of coin and the later adoption of fiat currency that has led us to where we are now.
Had the world continued to use gold and silver without debasement, there would not have been the population explosion that ocurred and we would not now be worried about running out of resources.
What needs to happen is that the global economy and the population need to shrink in lock step with each other. A gradual return to a gold and silver based currency coinciding with strict controls on reproduction. If we do not shrink the population in a controlled manner, then it will be shrunk in an uncontrolled manner when the global economy collapses.
Having a new gold and silver standard in place will prevent there ever being 6.5 billion people on the planet again in the future because the economy will not be able to support that many.
by
Watching (0 articles, 1 quicklinks, 3 diaries, 313 comments)
on Monday, February 11, 2008 at 3:15:44 PM
Ron Paul is clueless....and spreading misinformation
What this world does need is a return to an economy limited by the amount of money in circulation.
That's utter nonsense disseminating by Ron Paul who knows nothing about economics. No one knows how much money is in circulation because money is literally created minute by minute. If you bothered to read even Ron Paul's own propaganda with regard to this issue, you would have known that. As no one could possibly know from minute to minute how much "money" is in circulation, no "authority" could possibly "fix" or decree its value against a finite resource like "gold" or any other precious metal. Sheesh! Where does nonsense like this get started??????
It is the debasement of coin and later the adoption of fiat currency that has led us to where we are now.
Every monetary system is backed up --not by a fixed quantity of gold or silver --but by the total productive capacity of the economy. Even Milton Friedman would have understood that. In the end, the dollar is worth what people are willing to "pay" in other currencies in order to hold dollars. You missed the entire point of the article.
The dollar had REAL value, even as the US economy declined ONLY BECAUSE OIL WAS TRADED IN DOLLARS. Any nation or any company wishing to buy large quantities of oil had to first "purchase" dollars in order to do so. This kept the dollar strong on every foreign market. When nations or companies no longer have to BUY dollars in order to buy oil, the value of the dollar will collapse.
There was talk about going back on the gold standard! What do you propose to buy the gold with? Are you sure there is any gold in Ft. Knox! And if the US went back on the gold standard, those selling the dollar now would be LINING up to sell the buck for gold. Paul wants to provide tax breaks for people who invest in metals! What a stupid idea!!! This, in effect, REWARDS FOLKS FOR DUMPING BUCKS and --worse --taking money out of circulation.
Had the world continued to use gold and silver without debasement, there would not have been the population explosion that ocurred and we would not now be worried about running out of resources.
Utter nonsense! Rome debased the currency because the demand for denarius was not met with big, frickin' aes grave"!
What needs to happen is that the global economy and the population need to shrink in lock step with each other.
There is a word for "shrinking economies". It is DEPRESSION! That is, by the way, the only smart thing you've said. Your policies --being those of the cult of Paul --would plunge the world into a depression not seen since the Great Depression --another ERA which reputable economist say was characterized by a shrinking money supply.
I am losing patience with the misinformation and outright lies that Ron Paul has been peddling. It's a disservice.
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Len Hart (131 articles, 172 quicklinks, 0 diaries, 543 comments)
on Monday, February 11, 2008 at 4:36:56 PM
A Little More Light and a Little Less Heat, Please
I think you have a better understanding of money than the commentor you just responded, however, I don’t think either of you understand Ron Paul’s actual position with respect to a gold standard.You both appear to be talking about a specific type of gold standard (a pure gold coin currency, or the old British model – paper currency partially backed by gold at a fixed rate of exchange) that Ron Paul does not propose.Ron Paul’s solution to the current monetary/banking crisis would likely be better than what we have now, but it still isn’t necessarily the best system.
Before engaging in pointless histrionics over an undefined “gold standard” or what Ron Paul says or understands, read The Case for Gold, by Ron Paul and Lewis Lehrman, Chapter VI, page 177, “The Transition to Monetary Freedom”.
Then, read “Web of Debt” by Ellen Brown and pay particular attention to how the U.S. long ago, Japan after WWII, Germany before WWII, and Argentina not long ago all developed remarkable economies in short periods of time, by the use of Government issued debt free currencies.If you wish to say then that there is a better system than Ron Paul proposes, you might have a leg to stand on.
There are ways to transition to a completely different monetary system without going back to an old inflexible gold standard and without shrinking the money supply.
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Paul Rye (7 articles, 2 quicklinks, 15 diaries, 284 comments)
on Monday, February 11, 2008 at 6:44:27 PM
Ron Paul is clueless....and spreading misinformation
I won't even comment on that.
That's utter nonsense disseminating by Ron Paul who knows nothing about economics. No one knows how much money is in circulation because money is literally created minute by minute. If you bothered to read even Ron Paul's own propaganda with regard to this issue, you would have known that.
I do hope you realize the man has written six books on economics and is a fellow at the Mises Institute for Austrian economics. How many books have you written on economics?
As no one could possibly know from minute to minute how much "money" is in circulation, no "authority" could possibly "fix" or decree its value against a finite resource like "gold" or any other precious metal. Sheesh! Where does nonsense like this get started??????
You can't know minute by minute how much money is changing hands, but you don't need to. You CAN know how much total currency exists. This is called the M3 figure and the federal reserve has recently stopped reporting it in march of 2003.
Either way it's irrelevant. You're confusing fixing a currency against a "finite resource" -- as you call it, I prefer commodity-- with fixing a price against all goods. The price of goods would still fluctuate according to supply and demand, however the value of the medium of exchange would remain relatively stable and would not be subject to the arbitrary devaluation that occurs when the total money supply is increased in order to facilitate deficit spending.
Every monetary system is backed up --not by a fixed quantity of gold or silver --but by the total productive capacity of the economy. Even Milton Friedman would have understood that. In the end, the dollar is worth what people are willing to "pay" in other currencies in order to hold dollars. You missed the entire point of the article.
That may be what our current monetary system is right now, but it was not always such. At one point a unit of currency was directly redeemable in precious metals. Paper has no intrinsic value, so we have built this system around the idea that our productive capacity is what backs up our currency. What do we produce these days? Not much. 80% of the american economy now exists in the service sector. It's this idea that has gotten us in this mess to begin with.
Friedman's miscalculation was the belief that a Central banking system such as the federal reserve would always make responsible decisions.
There was talk about going back on the gold standard! What do you propose to buy the gold with? Are you sure there is any gold in Ft. Knox! And if the US went back on the gold standard, those selling the dollar now would be LINING up to sell the buck for gold. Paul wants to provide tax breaks for people who invest in metals! What a stupid idea!!! This, in effect, REWARDS FOLKS FOR DUMPING BUCKS and --worse --taking money out of circulation.
Listen, no one is talking about the US government buying a bunch of gold. Allowing competing currencies would allow private banks and mints to sell gold to the public in exchange for dollars.
Taking money out of circulation is a good idea. Less money in circulation= more value per buck. Simple supply and demand. Demand for dollars goes up, value goes up. What we are fearful of is a flooding of the market with unwanted dollars. This is what destabilizes a currency.
Utter nonsense! Rome debased the currency because the demand for denarius was not met with big, frickin' aes grave"!
There is nonesense, but I believe it's coming from you. Rome debased the currency not because of the demand of its citizens. Do you think the Roman Empire was keeping tabs on complex economic indicators like M1 money supply?
Repeat after me. Empires debase currency because they need more money to spend.
What do they spend it on? Bread and Circuses. Government welfare, entitlement programs, and WAR. If you have the power to print (or debase) a currency, you get to use it first, and thus swell your coffers and spend accordingly before the population catches on that your money is for all intents and purposes, worthless. This is why people began to circulate drachmas.
So like I said, you have most of your argument right, at least when it comes to talking about empires failing because of economic ruin.
There is a word for "shrinking economies". It is DEPRESSION! That is, by the way, the only smart thing you've said. Your policies --being those of the cult of Paul --would plunge the world into a depression not seen since the Great Depression --another ERA which reputable economist say was characterized by a shrinking money supply.
I disagree with the poster to whom you are responding to. I don't think we need to shrink our population or our economy. Only our runaway deficit spending, and our irresponsible abuse of our monetary unit.
Depression is caused by an artificial contraction of the real (not nominal) money supply through depletion of savings, reluctant lending practices, and massive amounts of bad debt.
Incidentally, we are seeing all of the above right now with the exception of the lending. Ultimately though, irresponsible lending and bad investment will lead to a recoil when the Federal Reserve can no longer bail out banks, at which point we will see sharp economic decline. This is already beginning to happen.
I am losing patience with the misinformation and outright lies that Ron Paul has been peddling. It's a disservice.
I wish you would muster whatever patience you have left and at least do a cursory inspection of the ideas which you are so eager to dismiss as silly. Ron Paul is perhaps the most honest man I have ever seen in public life. I don't think you understand much of what you are railing about. In that you are purporting yourself to be an authority, it is you that are doing the disservice.
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Dennis Lee (0 articles, 0 quicklinks, 0 diaries, 3 comments)
on Thursday, February 14, 2008 at 4:51:03 AM
First of all, Paul, I probably disagree with everything you've posted --but give you credit for being rational about it. On this end, I admit to having lost patience not only with 'Paulian' ideas themselves but with what I perceived to be the intolerant and belligerent manner in which they are sometimes shoved down our throats. Having met and talked with Paul personally, I don't suspect that he promotes or encourages it. The ill will it creates has the effect of trickling up --to Paul.
I think you have a better understanding of money than the commentor you just responded, however, I don't think either of you understand Ron Paul's actual position with respect to a gold standard. You both appear to be talking about a specific type of gold standard (a pure gold coin currency, or the old British model – paper currency partially backed by gold at a fixed rate of exchange) that Ron Paul does not propose. Ron Paul's solution to the current monetary/banking crisis would likely be better than what we have now, but it still isn't necessarily the best system.
I've talked about this with Paul personally in Houston, TX in the middle 80s. His position then was 'gold standard' --as in Bretton Woods, an international protocol that Nixon rejected in the '70s. Since that time, Paul has advocated tax breaks for those who purchase metals! This may be even worse than restoring the 'gold standard', in effect, rewarding the hoarding of money. It simply flies in the face of basic principles agreed upon by almost every major economist and that is: the circulation of money is absolutely essential for the health of any economic system. Moreover, economists as disparate as Adam Smith (very conservative) and Karl Marx (very 'left') absolutely agree upon an essential economic concept: the 'labor theory of value'. That is, wealth is created by the process of work. Hence my conclusion that pegging the value of money to gold (or any other precious metal or commodity) is folly. Gold is not wealth and must be acquired even it is agreed that it should 'back up' paper money or debased coins in circulation.
My position vis a vis the Iranian oil bourse is much narrower. We are concerned here with the simple purchase of dollars so that oil can be purchased with them. As long as demand for oil was high (and it will be for some time) and as long as dollars were required to buy oil, the value of the dollar would be strong. Obviously, some nations for various reasons might prefer to purchase oil with other currencies. And oil bourse selling oil in currencies other than the dollar may be perceived as a threat, especially to a nation that is no longer a major oil producer, namely the US. When oil is trading freely in Euros and other currencies, the 'value' of the dollar will, inevitably, decline.
Paul's proposals, meanwhile, would result in a shrinking money supply and quite possibly the impoverishment of millions left out of his scheme, those who have no discretionary income with which to buy metals. Because of this the scheme is elitist and will most surely aggravate inequities even as the money supply shrinks precipitously, drying up investment in productive enterprise, and cutting spending on drastically across the board! Basically, Paul's 'tax breaks' reward those who take money OUT of circulation and removing money from circulation is a recipe for economic disaster, perhaps, permanent depression.
Paul's proposals are simply beside the point. 'Money' is backed up by a nation's productiveness, simply, GDP. IF people are working and/or productive and paid adequately, the value of a nation's currency will reflect that. Over a period of some thirty years, the US declined precipitously in many areas. It became a net debtor nation as it lost its leadership position in many industries --automotive, steel, electronics, etc. The dollar remained strong because of oil. Now --the US is no longer an oil exporting nation, although it had exported oil technology to the very nations which now outproduce us. The dollar remained convenient until the Euro came along. Alas, the days of the 'dollar' as an international currency are over.
Thanks for the reading list. I have one as well: Keynes, Smith, Friedman, Ricardo, Marx, Galbraith, Veblen, Malthus, and Gibbon's account of the sale of the Roman Empire to Didius Julianus. It is found in his The History of the Decline and Fall of the Roman Empire. My own view is that measures that shrink the money supply are as pernicious as were hyper-inflationary policies at the other end! Both have the effect of impoverishing those who can least afford it and, ironically, both policies have the effect of enriching those who are already rich. The conservative economist Joselph Schumpeter gave the game away when he likened recessions to a cleansing douche. My question is: WHO gets douched? Personally, I am not willing to be douched in order to vindicate Ron Paul.
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Len Hart (131 articles, 172 quicklinks, 0 diaries, 543 comments)
on Tuesday, February 12, 2008 at 12:09:56 PM
Talking about money is all good; it's the right subject
First of all, Paul, I probably disagree with everything you've posted --but give you credit for being rational about it.
Thanks Len.Glad we can disagree and still communicate.When I learn new things, I have no problem modifying my opinions.
I've talked about this with Paul personally in Houston, TX in the middle 80s. His position then was 'gold standard' --as in Bretton Woods, an international protocol that Nixon rejected in the '70s.
Cool.I’ve never met the man.Yes, Nixon rejected the gold standard because the Government, the Fed, and the banking system produced so many dollars that the fiction of a fixed relationship between the dollar and gold could not be maintained.
The Ron Paul book I referred to was published in ’82 and republished in ’83, so I would assume that it represents basically what Paul told you in the middle 80s.It’s not clear to me why he would have told you his position then was essentially “Bretton Woods”. From what he advocated in the book, it does not seem like Bretton Woods:
Repeal of all legal tender laws
This would permit various currencies to compete.The value of this approach, according to Paul, is that people would be free to specify which currencies they would accept, the idea being that people would prefer payment in a currency having a stable value.
[Actually, this is the part of Paul’s approach I disagree with the most.Rather than repeal all legal tender laws, it makes more sense to me to make gold, silver, certificates, and fiat paper money all legal tender, and to establish exchange rates between them on a market-based currency exchange.That way a foreign country could not demand payment in gold and drain away U.S. gold reserves the way England did in the early days of the U.S.]
A legal definition of the term “dollar”
This could be defined as a weight of gold or silver, however, it need not be, leaving open the possibility of defining it in terms of a basket of commodities as others have suggested.The point is to give the dollar a definite value.
[Again, an exchange rate based on the value of the dollar could satisfy this requirement for a definition, without establishing a fixed rate, and eliminating the need to keep redefining a fixed exchange rate when new paper currency is created.]
A new U.S. Mint gold coinage denominated in weights instead of dollars
The Government could spend these coins into circulation.As their value could adjust in terms of any paper currency in circulation, there would be no need to hoard them and take them out of circulation, the way that gold coins denominated in a fixed number of paper dollars are taken out of circulation when paper dollars depreciate.
Permission given to private mints to issue coins under their own trademarks.
Private citizens could bring gold or silver bullion to the mints and exchange them for coins for a nominal fee.
Government collecting taxes in gold or silver coins or certificates, but not levying taxes on gold or silver coins or certificates.
The first part would have to be phased in gradually.In the second part, people would be free to keep their savings in gold or silver without penalty, because gold or silver would be money.
Eventual revocation of the Federal Reserve monopoly over the nation’s money and banking system.
[Currently, the Government prints Treasury Notes and gives them to the Fed, in exchange for which the Fed tells the Treasury to print Federal Reserve Notes (FRNs, or paper “dollars”) or tells the Mint to mint coins, and the Fed loans the dollars or coins to the Government at interest according to the T-Notes.The Government then spends the dollars and coins and taxes people to pay back the loans, with interest.Approximately 97-99% of the FRN based money supply is lent into existence this way.If the average interest rate is 5%, then interest payments equal the principle after 14 years, meaning that the money supply must double simply to make it mathematically possible to pay back the principle plus interest.Historically, debt and M3 have at least doubled every 14 years.
That is crazy.The Government prints interest paying T-notes and gives them to the Fed.It gets non-interest paying dollars in return.If the dollars are created in exchange for T-notes, and T-notes pay interest while dollars do not, then a $1,000 T-note must actually be worth a lot more than a $1,000 bill.Why doesn’t the Government just print non-interest bearing bills of its own and spend them as dollars, instead of borrowing FRNs and spending them as dollars?It would be monetarily equivalent except for one huge improvement.The Government would not have to pay interest on the money supply, and we would not have to pay that interest in taxes!
This is a crazy system that works only for the benefit of the banking elite and their cronies.]
Since that time, Paul has advocated tax breaks for those who purchase metals! This may be even worse than restoring the 'gold standard', in effect, rewarding the hoarding of money. It simply flies in the face of basic principles agreed upon by almost every major economist and that is: the circulation of money is absolutely essential for the health of any economic system.
The “tax break” you mention is only a tax break if you conceive of metals as commodities and not money.If metals are money, then it is not a tax break.This is hard to see if you only think of money as our “legal tender” U.S. dollar, so just to illustrate the concept, imagine the U.S. had two types of paper money in circulation, both legal tender:the U.S. dollar and the British pound.Now suppose the pound were to appreciate 10% against the dollar.If both were legal tender, then it would be illegal to tax someone for converting some pounds into dollars, even though they would be making a “profit” on their “currency trade”.Otherwise, it would also be necessary to allow anyone converting dollars into pounds to take an investment “loss” on their “currency trade”.
The assumption is that if it is a currency, then it has a stable value tax-wise, and you cannot record a profit or a loss just for holding a currency (even though our current dollar makes a mockery of this stable-value assumption.)So, if gold is made a currency there would be no justification for taxing it as you would a commodity.Rather, you could make a moral case that if the dollar were to drop in value against gold, then savers holding dollars should be permitted to declare an investment loss on their dollar holdings.
The craziness of current U.S. law is reflected in the fact that the IRS accepts pre-1965 silver coins at face value in the collection of taxes, but at market value in the assessment of taxes.So, the Government is saying two ridiculous things.Specifically, if you sell a silver dollar for $10, then the Government says the coin is worth $10 and you need to pay tax on $9 of income, but if you try to pay the tax with the silver dollar, the Government says the coin is only worth $1.In general, the Government can assess U.S. money that appreciates in value such as gold or silver coins a tax on the gain, but it will not allow a loss for U.S. money that depreciates in value such as paper dollars.
Moreover, economists as disparate as Adam Smith (very conservative) and Karl Marx (very 'left') absolutely agree upon an essential economic concept: the 'labor theory of value'. That is, wealth is created by the process of work. Hence my conclusion that pegging the value of money to gold (or any other precious metal or commodity) is folly. Gold is not wealth and must be acquired even it is agreed that it should 'back up' paper money or debased coins in circulation.
You are absolutely correct here about what is wealth.But what does the phrase, “pegging the value of money to gold” really mean?By definition, gold = money is not wealth, dollars =money is not wealth, because money does not = wealth.So, if you cannot use gold as money because it is not wealth, then by the same argument, you cannot use dollars as money either.From yet another view, if you cannot peg the value of money to an item with intrinsic value such as gold, then you cannot peg the value of money to an item of instrinsic value such as “the productive capacity of the U.S. economy”.
It is not really a question what is wealth, but what makes better money.The significant differences between gold as money and dollars as money are that gold has intrinsic value and scarcity, while dollars have no intrinsic value and scarcity.The problem with gold is that it cannot expand or contract to match growth or decay in the economy.Gold essentially being a fixed money supply will lead to varying prices in a varying economy, so it is not truly a stable unit of account.People are in a poor position to correctly assess its value, and long term transactions suffer when the unit of account changes in value.
Paper dollars suffer from the same problem for a different reason.There is no fundamental restriction on the dollar supply and ample incentive to create too many dollars, inflating the supply and debasing it.Dollars as well as gold suffer from not being a stable unit of account, and in addition savers are punished for holding depreciating dollars.
Under the current private Fed, the public also suffers under the dollar system because almost all dollars represent debt, permitting a huge amount of public wealth to be siphoned from the economy by a parasitic financial elite.Fortunately, there is a potential solution to this particular problem, a debt-free paper dollar system as noted above.
So, why not have both gold, silver, certificates, and debt-free money in circulation?Gold is better “quality” money, but the Government could spend debt-free paper money into circulation to make up for the inelasticity of the gold supply and grow the overall money supply as needed?
My position vis a vis the Iranian oil bourse is much narrower. We are concerned here with the simple purchase of dollars so that oil can be purchased with them. As long as demand for oil was high (and it will be for some time) and as long as dollars were required to buy oil, the value of the dollar would be strong. Obviously, some nations for various reasons might prefer to purchase oil with other currencies. And oil bourse selling oil in currencies other than the dollar may be perceived as a threat, especially to a nation that is no longer a major oil producer, namely the US. When oil is trading freely in Euros and other currencies, the 'value' of the dollar will, inevitably, decline.
We are in complete agreement on the specific issue of oil bourse selling oil in currencies other than dollars would be bad for the dollar, at least in the short term.Interestingly, if it makes no sense to base the value of the dollar on an essentially finite but permanent commodity, gold, then it must be crazy to base its value on an essentially finite and gradually depleting resource, oil.With the dollar being kept artificially strong for 35 years by backing it with oil, the world has been flooded with dollars.Now, the oil is running out, and the European Union and a few other countries have more stable currencies than the dollar.It’s a double whammy on the dollar.
Logically, it makes no difference if you replace the concept of gold-backing or oil-backing with the concept of “productive capacity of the United States backing”, the dollar has no value unless it is defined in terms of something specific and relatively stable.The U.S. economy grows at what, about 2-3% per year.The world gold supply has historically grown at what, about 2.5% per year?Seems like a near perfect match.What is crazy is our 12-13% growth in the dollar money supply, as if merely printing money can create wealth, which as we both know, money is not wealth!
Paul's proposals, meanwhile, would result in a shrinking money supply
Under a Bretton Woods type gold standard, perhaps you are right.At least it would lead to a fixed money supply, not good either. But, consider what I’ve said above.I cannot say what Ron Paul told you, I take you at your word, but I’ve tried to explain what I read in his book.
and quite possibly the impoverishment of millions left out of his scheme, those who have no discretionary income with which to buy metals.
Anyone who saves any money at all has discretionary income and would be advantaged by saving gold instead of depreciating dollars.To me, this would not hurt people with no discretionary income.That is an unfortunate position to be in, but if people have no money to save, it seems as if not saving dollars is the same as not saving gold.
Because of this the scheme is elitist
As I understand it, the elites are adamantly opposed to it.
and will most surely aggravate inequities even as the money supply shrinks precipitously, drying up investment in productive enterprise, and cutting spending on drastically across the board! Basically, Paul's 'tax breaks' reward those who take money OUT of circulation and removing money from circulation is a recipe for economic disaster, perhaps, permanent depression.
Why would the money supply shrink?Denominating the gold and silver in weight and not dollars would provide some incentive to keep savings in gold, but issuing paper money in parallel with gold would encourage people to spend it rather than hold depreciating dollars.That would keep paper dollars in circulation.
In fact, that is what happens right now, except without the tax advantage of keeping savings in gold.Why should people be charged a capital gains tax on savings?One of bad side effects of our current monetary system is that people now spend money rather than save, precisely because savings in dollars is a losing proposition due to dollar debasement.
Paul's proposals are simply beside the point. 'Money' is backed up by a nation's productiveness, simply, GDP. IF people are working and/or productive and paid adequately, the value of a nation's currency will reflect that. Over a period of some thirty years, the US declined precipitously in many areas. It became a net debtor nation as it lost its leadership position in many industries --automotive, steel, electronics, etc. The dollar remained strong because of oil. Now --the US is no longer an oil exporting nation, although it had exported oil technology to the very nations which now outproduce us. The dollar remained convenient until the Euro came along. Alas, the days of the 'dollar' as an international currency are over.
Well yes, the current private banking cartel is destroying the dollar, but it really doesn’t matter if “money” is backed up by gold, by a basket of commodities, or “a nation’s productiveness”, in theory, provided that the total money supply is kept reasonably stable and matched to total productiveness.But, “a nation’s productiveness” is difficult to define and makes it nearly impossible to use as a basis for a stable unit of account.How can it be measured honestly and consistently?
It is true at this point in history the dollar is in grave danger.The question is how it got there.Why has the U.S. become a net debtor nation and lost so many industries?This decline did not happen on the gold-standard watch.It happened on the Fed credit-dollar watch, with the dollar de-linked from anything giving a specific stable value except oil, and now that link seems in danger, too.The dollar did not maintain whatever value it had because it was “convenient”, it was because its value was linked first to gold at Bretton Woods and later to oil in the early 70s.Since then, the banking elite took the opportunity to make the dollar a world currency.Now, it is a “world currency” not linked even to the vague notion of the productiveness of the U.S.
You might say that the US has declined precisely because the dollar has not been managed by the Government for the benefit of Americans, but by Government for the benefit of the banking elite’s world interests.America has been milked by the banking elites the same way as South America has.
Thanks for the reading list. I have one as well: Keynes, Smith, Friedman, Ricardo, Marx, Galbraith, Veblen, Malthus, and Gibbon's account of the sale of the Roman Empire to Didius Julianus. It is found in his The History of the Decline and Fall of the Roman Empire.
Hey Len, that’s not fair.I gave you two references and specific things to read there.I’ll check out Didius Julianus, but I’m not going to read all the others unless you give me something specific to look up. I’m not all that young anymore!
My own view is that measures that shrink the money supply are as pernicious as were hyper-inflationary policies at the other end! Both have the effect of impoverishing those who can least afford it and, ironically, both policies have the effect of enriching those who are already rich.
We agree then that a stable money supply is important.Greenspan, a student of the Depression, admitted the Fed blew it in 1929 by tightening credit, so it really wasn’t the gold standard at fault for shrinking the money supply.But that didn’t stop economists from blaming the gold standard.I’ve written before about the mathematical necessity for periodic recessions and depressions to extinguish debt.If the Fed fails to maintain liquidity in the system during the current crisis, and we get another Depression, or if to prevent Depression, we end up with excessive inflation, it will be hard for Fed apologists to blame it on the gold standard a second time!
Interestingly, Ellen Brown in Web of Debt cites many examples of hyperinflation to desperate responses by governments attempting to counter the effects of foreign speculators when they attack the nations’ currencies.The attacks result in a drop in value of the home currency leading to capital flight and high prices for imports.Governments are forced to print excessive amounts of money to keep the domestic economy afloat and pay for imports.
The conservative economist Joselph Schumpeter gave the game away when he likened recessions to a cleansing douche. My question is: WHO gets douched? Personally, I am not willing to be douched in order to vindicate Ron Paul.
Maybe none of us will get a choice.The douching that Schumpeter talks about is the extinguishment of debt I just referred to above, a very real and necessary part of the monetary system based on credit money creation by a fractional reserve banking system, having nothing to do with a gold standard.It is just a necessity that results from the mathematics of credit money creation and loan repayment in a fractional reserve banking system.
I’m holding out a little hope that it will not play out that way because the U.S. dollar is not just a national currency anymore; it’s a world currency.Foreign countries with large dollar reserves will suffer big losses if they all attempt to dump the dollar.Not saying it can’t happen, though.
If Keynes was right, and an increasing supply of money does actually grow the economy, maybe when all those overseas dollars start coming home to the U.S. we won’t just have to sell all our land and businesses on the cheap, but maybe it will stimulate our economy instead.
by
Paul Rye (7 articles, 2 quicklinks, 15 diaries, 284 comments)
on Monday, February 18, 2008 at 1:03:16 AM
If you think it's the Gold Standard, you're missin the point
I agree with almost everything you said except your gross misunderstanding of what Ron Paul proposes. In an ideal world, we would have never gone off the Gold Standard, but in this one what he would like to do is legalize competing currency. This would allow people to protect their savings and not have them ravaged by inflation, all the while the American currency would be restrained by competition with commodity backed currency. Restraining the debasing of the currency inevitably leads to vastly scaling back government spending.
