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Your money is now worth nothing Options
John Edward Mercier
#21 Posted : Sunday, May 10, 2009 2:26:47 PM
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Currently US money is made from 'other metals'... but also from gold and silver (American Eagles). The Gold Standard was original created under the British Parliament's Currency Act of 1764... and was believed by many the basis for the American Revolution. The government enforced standard limited economic development within the Colonies... maintaining British economic control. The Gold Standard was not 'de Jure' (law) until 1900 and was remanded in 1971

The current US Treasury metal reserves, along with the US Con Art 1 Sect 8 valuation by Congress... means that all paper money could be replace by coin. Paper money (warehouse receipts) became the norm, because of the nature of its weight and cost of production. In the modern electronic age, neither of these currently matter. You are much more likely to exchange significant sums through a check than through the use of USD.

The Federal Reserve is privately-owned. Its a system of public-private entities enacted to ensure that the Jacksonian Second Bank of the United States problem did not reoccur, nor did the banks suffer the problems of the 1906 Panic . The member banks are private corporations that submit part of their capital to the 'reserve'... thus the name. The control of the percentage of this capital reserve is under the Board of Governors... appointed by the US President, and confirmed by the US Senate to a limited term with limits on the number of terms.

The capital reserve controls the limits the level of fractional lending that member banks may engage in. Non-member banks have no fractional lending limits... hence Lehman's twenty-four times capital fractional lending. The capital reserves are invested in various holdings by the Open Market Committee to pay for the system costs, a six percent dividend to member banks, and the remainder to the US Treasury.

The actual expansion of the USD (devaluing of the dollar through supply demand) is through this fractional lending (remember those outside the FedRes have no limits), or through the direct lending from the capital reserves to the US Treasury through the purchase of federal government-backed securities (its an interest rate driven process).

The current crisis was not expansion of the money supply... no quantitative expansion had occurred prior to the beginning of the 'crisis' (nor since the remanding of the Gold Standard for that matter). It was a demographic wave predicted by the Greenspan Commission in 1982. As it approached the government failed to act appropriately due to political pressure.

davisonh
#22 Posted : Monday, May 11, 2009 2:16:08 AM
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I agree JEM,this indeed is a large demographic wave recession and has made markets worldwide extremely unstable,oil is a good indicator of this.The price of gasoline and oil products jumps and falls on a daily basis due to what the stock markets do and mostly our stock market here does that.I am glad that Chrysler has filed bankruptcy,long overdue.What Fiat will do with the pieces is anyones guess,we have not seen a Fiat in this country in years.GM is next,will be strange not to see Pontiac or a GMC (aka Cheverolet)vehicle,nor a Staurn,but it's been a long time in coming.I think it may allow some room for some upstart companies to make a stab at the  long closed off car market that it the US.It's time for time to move on as far as our system goes,I think the cleansing effect it'll have will be beneficial. I do believe many will try to retire or move on to where jobs are,who knows what'll happen.I have made a few changes myself to save money and have been working to cut my reliance on the 'system' or what they used to call the 'Establishment'.It is seriously unstable though recently some stabilizing factors are taking place;the Obama administration  is taking this all seriously by the looks of it.The crooks have been found and are finding more..going to take a lot of cleaning house and trying to get the image of  a large,weak and arrogant  nation will take a long time.

John Edward Mercier
#23 Posted : Monday, May 11, 2009 7:49:58 PM
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The price is jumping around because of the need of oil exporting countries to fund their internal programs... and somewhat of a belief that Americans will return to their previous consumption patterns.

I think they'll be stunned by the tax and interest rate situation within a year or two.

Pat Miketinac
#24 Posted : Thursday, May 14, 2009 4:25:58 AM
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The price of oil is jumping around because it is tied to the value of the dollar.

I rarely find anyone who even knows what fractional reserve banking is, so let's take this to another level. The money supply HAS increased rapidly since Nixon ended the gold standard in '71, and has doubled in the past 5 years. Banking theory teaches that the money supply will double if the monetary base doubles. This is not just physical money. This monetary base multiplies through the fractional reserve lending system. Keynesians, Chicago School, and Austrian School economists at least agree on this.

The Fed is now trying to stop the increase of the base that THEY caused when they artificially lowered interest rates, probably to avoid a post-9/11 recession. If they lend reserves now held at the Fed beyond the 10% legal limit, that will result in mass inflation with the CPI doubling. They actually have a policy now that PAYS banks NOT to lend. Somehow, this money will probably be forced out by Congress, resulting in inflation.

It is interesting that China is already buying far more commodities than they can use soon. I think they are anticipating the loss of purchasing power of our dollars, so they are getting rid of them now, using the commodities as a store of value like money. See article "Copper Standard" at telegraph.co.uk

John Edward Mercier
#25 Posted : Saturday, May 16, 2009 7:33:16 AM
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China isn't actually using a 'copper standard'... there using relative commodity prices to calculate the best priced material asset. I do the same thing in my extraneous commodity holdings. This is why US coins are made of several metals... to keep the relative innate value low and avoid Grensham's Law.

The problem the FRS BOG and OMC are having is that most of the money supply is because of fractional reserve banking outside the systematic regulation.

Our local banks are lending, but they have stated that few qualified borrowers are requesting funding. The actions of the FED are held in check by the credit markets. In the past no one would have thought about this, but then the US was not in the current debt-to-GNP (GDP) situation. No one is going to buy treasuries, if they believe the US will devalue the dollar resulting in a net real loss of buying power.

For inflation to take off, it would require demand...

Something the government is trying to prime... but can't do under status quo thinking and regulation.

 

jd
#26 Posted : Tuesday, May 19, 2009 1:36:53 AM
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Here's a concept: money is more than a medium of exchange.  It has a 'life force' all its own.  An analogy: the ocean.  In effect, it is just a body of water.  But the ocean, by being so huge and by being able to be heated by the sun and moved by the tide and all that, it becomes more than just a body of water.  It becomes a living, breathing, entity that creates and supports life, threatens and erodes shores and creates weather.  It is no longer just water.  It is something else.  And so it is with money..................

By creating more of it, we do more than just 'dilute the value of hard goods'.  By having it electronic, we do more than just make it convenient.  We have rapidly changed money, the nature of it, the character of it, the very concept of it.  It is no longer just a medium of exchange.  It is now a monster.

 And more and more REAL people are opting out of it.  Ironically, the last vestige of money as a 'medium of exchange' is cash and that is the last use of it by REAL people.  More and more RPs are using cash and trying to use credit cards as little as possible.  It is no fluke that governments are trying to eliminate real cash.  They can't track and control real cash as easily as they can your radio-gps embedded credit card. 

Want a quiet revolution?  Use only cash. 


John Edward Mercier
#27 Posted : Wednesday, May 20, 2009 9:20:23 AM
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The US is only trying to get rid of the paper warehouse receipts (bank notes)... it cost more than the coin.

The FRS was is designed to limit credit expansion, but its a voluntary system unlike other countries' central banks.

 

Pat Miketinac
#28 Posted : Thursday, May 21, 2009 4:49:16 AM
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Wow, this is turning into a great discussion. Some more thoughts: On 2/23/07, jd said that the capitalist system required 5% annual growth. I think this is intentional by the Fed because people assume costs must rise on average and the Fed takes advantage by devaluing the currency. The dollar has lost over 96% of it's value since the Fed was established in 1913. Before the Fed, there was a period of about 100 years where prices stayed virtually the same. Yes, I have read "The Shock Doctrine" about disaster capitalism, what an eye opener, not for the squeamish. We don't have true free market capitalism here.

John mentioned that the Fed is designed to limit credit expansion. I wonder if  "control" might be a better word. Their policy of cheap money for most of this decade created unsustainable spending  that they and their cronies profited from. There is a great article about the Fed and the gold standard that I first read in M.E.N. back in 1983 that you can read in the archives. Type in "Ron Paul" in the search box at the top of this page. Look how long ago this guy was right! He is now trying to get the Fed abolished. If he is able to force an audit, the results should gain him some support.

John Edward Mercier
#29 Posted : Thursday, May 21, 2009 4:36:23 PM
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GDP is inflation-adjusted. The reason the system requires growth under normal circumstances is that it is a measure of productive labor (Adam Smith's Labor Theory of Value). So as new workers entered the system in greater numbers than those leaving... a marginal growth in GDP needed to occur to maintain full employment.

Currency devalues when it expands faster than the underlying productive labor that it represents, resulting in greater supply than demand. The Dollar Value Index represents a steady representation of labor value after the end of the Bretton Woods system. It equates a labor-hour of current value with one in 1973.

www.wikipedia.org/wiki/History_of_money

Notice during the Gold Standard period that gold-dollar ratios where not one to one, nor did the gold hold a specific dollar value... but that set by Congress. Congress could easily double or triple the value of the gold reserves in dollars... thus devaluing the dollar in gold equivalent. Government control of valuation and standard is certainly not a free market principle.

As for the audit of the Federal Reserve System... they have open book accounting  published every two weeks.

Pat Miketinac
#30 Posted : Wednesday, May 27, 2009 3:54:08 AM
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Speaking of devaluation, I see that the Fed has been authorized to create another 1.75 trillion dollars to buy bonds. The European Central bank is going to do something similar to buy corporate bonds. The Swiss have been expanding their money supply at a rate of about 30% a year. This is obviously a huge worldwide problem. Meanwhile, an ounce of gold still buys pretty much the same quantity of goods and services that it has for centuries, on average.

John Edward Mercier
#31 Posted : Wednesday, May 27, 2009 3:14:56 PM
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Authorized by whom? The FED is independent within government...

It doesn't create money... the US Treasury does. It can expand the money supply by the direct interaction of the FED OMC buying government-backed securities (this is public-sector credit expansion, as composed to the individual banks private-sector credit expansion)... but it doesn't need authority to do so.

Gold is no longer an international trade standard, so as a commodity its price rises and falls on market valuation... not congressional decree. It maintains a relative relationship to other open traded commodities... because it is an open traded commodity. But doesn't have a direct relative value because of emotive market forces, unrelated to utilization value.

 

 

Pat Miketinac
#32 Posted : Saturday, May 30, 2009 4:42:05 AM
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The Government allows the Fed to create the money to buy Government debt that the Fed then buys for itself, $59 billion in U.S. Gov't. securities last week alone.

The Fed has issued $1.293 trillion in credit to banks in the last 12 months, which is more than half of all credit they have issued since 1913. Is this not money creation? Now do you see why Ron Paul wants to abolish the Fed? They will destroy the dollar. Note that Goldman Sachs commodities index is up 20% year to date, measured in dollars, during a recession. Also note that Keynesian economists think that the recession will be over by early next year. Flawed theory, Flawed conclusion.

jd
#33 Posted : Saturday, May 30, 2009 6:24:25 PM
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the use of I
John Edward Mercier
#34 Posted : Sunday, May 31, 2009 4:09:38 PM
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Too many jumps at once.

The US Treasury creates money under the power of Congress. It deposits the money in the FRS. If you can't get that part... the rest really doesn't matter.

The FRS then loans the money... when it loans the money to the US government this is known as quantitative expansion. Its an attempt to lower interest rates beyond the control of the federal discount rate (which currently hovers near zero)... and should devalue the dollar. The DVI is currently 79.233 just below the 12 month high of 80.375. But what you are now stating is we should blame the FED Board for trying to fix the mess of congressional over expenditure rather than blaming the members of Congress for the expenditure. This is something we call 'scapegoating'...

In other words, the problem is not at the FED... its in Congress. And what Ron Paul is attempting to do is lay the blame at the foot of the FED Board, rather than in Congress where it belongs.

And no... I really don't see who placing monetary control within the body that has created a fiscal mess to be in the best interest of the people. The division of power into many parts is to limit any one body's power. It would be as bad had Congress passed the Coin Act of 2006... swapping money creation from the US Treasury to the FED Board. That division of power protects the people and must be maintained.

What is really needed is a constitutional provision to a balanced budget for the US federal government...

Ron should put his efforts behind that.

 

jd
#35 Posted : Sunday, May 31, 2009 6:13:12 PM
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Sorry about the previous short post.  I wrote.  The forum 'ate my homework' except for the weird sentence you may have read.

Anyway, I was saying.........GDP is now a red herring.  It is no longer an accurate picture of anything.  Years ago, when the USA was a producing colosus, it measured real production.  Now it measures 'services'  to one another predominantly.  Add ten police to a crime ridden area and you have increased GDP.  Rebuild a burnt home - adds to GDP.  Net gain to the economy in either situation is nothing and much of it (Homeland Security, military spending) is just a drain.  Gross Domestic Expenditure is NOT the same as PRODUCTION especially in a service oriented economy.  

 

Gold is passe'.  You can't eat it and it stores no real value - especially in a world where the trading system is yielding pollution to the point of species extinction.  Silver is better because you can use it in many manufacturing processes but it is not as 'real' as porkbellies and oil.  If you want a 'reserve currency' for the coming crash (if there ever is one) use bullets instead.  You can hunt with them, defend yourself with them and they are small enough to use as trade items.  It is gross, perverted and ironic in the extreme but bullets are better currency than are dollars.  They even fight inflation.

 

But none of this matters much.  Climate change will alter the playing field so radically, the economy will become primarily localized and GDP (real or not) will be a history topic.  Globalization is spent.  Climate rules and it is on the warpath.  Rising ocean levels.  Altered weather patterns.  No ice in the arctic in summer?  No water in Africa, southeastern USA, lethal pollution of water in SE Asia.  It will all change the world as we know it - GUARANTEED - by 2050 and it may be much sooner.  Basic result: people will be ón the move', hungry, dislocated and not easily managed by the lies and propaganda on TV.  Look out!

 

By the way, I know that sounds like hyperbole and doomsday preaching.  It is not.  Read the science on climate change and you will be convinced that tectonic-style change is in the offing.  How it may look or be managed is anyone's guess but history has proven that when the going gets tough, the bulk of the people get going - down the road to the next place.  My advice: get going while you still can.  "Where?" Find a small (under 3000 people) town in the north with a heavy agricultural base and plenty of water.  Expect to live in weather more extreme than you've ever experienced.  Learn a trade.  Pick well.   

Paratrooper
#36 Posted : Monday, June 01, 2009 6:22:02 AM
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Stock up on guns , food and ammo . This way if nothing bad happens you still have guns , food and ammo . If you don't grow at least some food AND reload you just might miss the boat . Forget about gold . If someone else has a gun and you have gold you have a problem . They will have a gun AND your gold when it's over .


Tom in Kingman AZ
Pat Miketinac
#37 Posted : Tuesday, June 02, 2009 4:54:14 AM
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I guess we can at least agree that gov't. spending is out of control. A balanced budget amendment would not be needed under a gold standard because you can't print gold. Gov't. would be forced to operate only on taxes tolerated by the people. Yes, I know it won't happen, but you will see more barter and hard assets replace dollars. Bullets are good, I found that 30 year old bullets still fire. Gold is up about 500% since '78, matching the rise in money in circulation.

                           Reasons to Get Rid of The Federal Reserve:

They create credit by fiat. From Sept. 2008 to Feb 2009 they doubled the monetary base.

They distort the market by causing boom and bust cycles with their artificial interest rates. That's what caused the housing boom and other speculation. Rates stayed around 3% to 5% with the gold standard.

They are a private cartel controlling a legal monopoly over money. We are not allowed to specify other currencies as legal tender to pay debts owed to us as individuals.

They prevent you from making money with your own money because they supply it more cheaply. That's also why most stocks are a bad investment. Why should a company issue public stock to raise capital when they can get it cheaper from banks via the Fed? Also, debt interest is deductible for companies, dividends are not.

 

John Edward Mercier
#38 Posted : Tuesday, June 02, 2009 7:44:16 AM
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The US was on the Gold Standard from 1900 to 1971... since Congress has the power to value the dollar it sets what an ounce of gold is worth... not the free market like currently.

The FED doesn't create fiat credit. Credit is fiat. It allows you to spend labor you have yet to provide. They are lowering the rates to make up for a contraction in the M3 that measures the unmanaged market. Though the FED itself no longer develops the M3, it can be found in its equivalency on ShadowStats.

The Housing Bubble was created by companies that were not part of the FRS... but its demise was created by 100% utilization of global oil production... something also outside the control of the FED.

The US Congress created the FED and is the only entity allowed to specify 'legal tender' that is not 'silver or gold coin'. And only the US Congress can set a value on the coin.

I do pretty well as far as capital gains are concerned. And most corporations tend to finance themselves via direct bond or stock issue... not so much bank borrowing.

 

Pat Miketinac
#39 Posted : Wednesday, June 03, 2009 3:45:07 AM
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Credit is not fiat if it comes from real savings.

The free market decides what anything is worth. That's why other countries don't care what our government decides that gold is worth. They know , and use it to help decide the dollar's value in their eyes.

Today's article on mises.org explains the problems with the Fed better than I can. See "This Craziness Will End" by Christopher Westley.

John Edward Mercier
#40 Posted : Wednesday, June 03, 2009 5:20:21 AM
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Fiat means that its backed by nothing more than a promise... pretty much what credit is.

And under the Gold Standard, no...

An ounce of gold was set at a particular number of USD by Congress... this is what a 'standard' is.

It means the underlying standard does not float freely against a currency because a they are statically pegged to one another.

The reason the USD is called a 'reserve currency' is that at one time all major currencies were pegged to it.

 

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