This too will be a brutal passage

"Is everything gonna be all right"?

This is the question Ron Holland raises in a recent article, and of course the only answer is, no one really knows.  "My advice is to legally diversify much of your wealth outside your home country, currency and the political leeches running everything and then live your life."  What else can we do?  We can pay close attention to the big banks and the governments they fund. 

1.  "As a contrarian I believe if the PIIGS return to their national currencies, this could actually benefit both them and those northern European nations remaining in the euro. While a win/win situation for individual nations this would be catastrophic for the banking elites and they seldom lose and why I believe the banks and EU politicians will do their best to keep every nation in the EU."

2.  "If you want to know what will happen in the US, just watch the mega-bank bailouts in Europe and the forced austerity measures on the already bankrupt PIIGS and their citizens, this is our future. Forget what the politicians promise, the financial experts say or the establishment news propaganda as the tide of wealth confiscation will also sweep the United States. The Federal Reserve and central bank cartels have created too much fiat money and the politicians have borrowed too much sovereign debt to buy votes and they will steal your wealth to prop up the governments, banking elites and political establish."

3.  The Super Committee, as expected, has turned out to be a Super Farce.  "Basically nothing will happen in reducing the budget and our debt will be continually downgraded."

4.  Could a Middle East war jack oil prices up to $200 a barrel?  If Israel gets its way, there will be war against Iran.  Oil prices could soar.  A revolution in Egypt could cause further havoc in the Middle East.

5.  Governments will crack down hard on dissenters, as witnessed in Egypt and the United States. Police are no longer "peace officers."  They are fast becoming militarized - even in the schools.  Law and order will be reduced to obey or else. 

6.  "If the firewall around the sovereign debt of Italy fails then the entire continent will likely be thrown into a prolonged recession and debt crisis as rising interest rates and falling bond prices jump the Atlantic to the final western redoubt of stable government bonds, the United States. This is what everyone fears most, no place of safety in the West."

7.  Was the MF Global Collapse "a deliberate attack against those making money speculating against the dollar and favoring gold?"  As Lawrence Lepard wrote recently,

Personally, I have $90,000 at MF Global and I would like to have my honestly earned money returned. Unfortunately, the odds of that happening any time soon seem slim. In part because when MF Global entered bankruptcy the judge appointed a Trustee whose law firm has done substantial work for JP Morgan, a deeply interested party. We will probably never find out what happened here. . . . 

I, for one, do not accept that Jon Corzine is stupid enough to lever up MF Global 40:1 and use the proceeds and customer money to bet on European sovereign debt. This was a hit, pure and simple. That is why there is no resolution to the problem.

And why a "hit"?  Simple: To punish commodities speculators for betting against government debt and fiat money.

So, how in the world can we wake up feeling optimistic about the future?  We can't.  That's asking too much.  The government parasite is too big and powerful.  And the government is imploding, financially.

Holland: "My answer is to quit worrying, take sound preparations and then get on with your life. Every generation and nation have had their trials and tribulations, success and failures and although today looks eerily like the 1930’s, this too will pass."

True.  But it will be a brutal passage for many.

Commodity money takes care of itself

In his 1982 article, “Monetary Policy: Theory and Practice,” Nobel laureate Milton Friedman said that "if a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself."  [emphasis added]

It takes care of itself. Consider that thought for a moment, then ask yourself why we've had politically-appointed bureaucrats running the money and banking system since 1913. The "official" reason was to maintain the stability of the dollar and avoid the kind of panics that plagued the 19th century economy. But the dollar has all but dried up in value, and the crises today are threatening to bring the whole planet to its knees.

Does this mean Friedman was right, even if he was never gold's champion?  Did commodity money keep economies in balance, both within and between nations?

Clearly, the views not only of central bankers but of their Keynesian supporters in the economics profession is, No, it didn't.  Precious metal coins can't be printed, and accelerated printing - make that wildly accelerated printing - is needed at times to get banks and governments out of trouble.

Trying to run a fractional reserve banking system with gold as the medium is a real pain for politicians and bankers because of the handcuffs it imposes.  To those at the top, gold's great flaw is its scarcity and lack of a "high elasticity of production," as Keynes informed us, meaning it can't be wished into existence.  Since bankers fund governments in times of war, clearly gold is more than a mere inhibitor of profits; it represents a potential threat to national security.  Anything that limits government action is regarded as a threat to its existence, and anything that threatens the existence of our masters threatens us, the argument goes. 

Historically, of course, no government has allowed itself to be at the mercy of metal when it comes to waging war, at least not since paper IOUs began circulating for gold and silver.  Belligerent governments in 1914 had little trouble going to war, putting gold on the sidelines as the slaughter mounted to settle the disagreements.  But after the war there was still the lingering thought that gold somehow should still be money, and so the house of cards was restructured into something called the gold-exchange standard from 1926-1931.  It took an ordinary recession amplified into a deep depression by government tampering to convince people that gold was unfit for societies run by a government - central bank alliance.

The hijacking of gold to serve special interests is one of the most consistent facts of human history.  It's also one of the most difficult to believe because of what it implies about the leaders we've been trained to respect.  Did Lincoln, Wilson, Roosevelt, Johnson, Bush, etc.. really lie us into war, then fund it with banker voodoo?  We certainly won't learn that in government schools.

Sixty-three years ago Garet Garret told his readers:

There is a long history of monetary experience. It tells us that government is at heart a counterfeiter and therefore cannot be trusted to control money, and that this is true of both autocratic and popular government. The record has been cumulative since the invention of money. Nevertheless it is not believed. [emphasis added]

After the election of Ronald Reagan in late 1980 a joke circulated that went like this: "What's flat, black, and smokes?"  Answer: Iran on Inauguration Day.  Given the rhetoric in the air and the belligerent history of the past decade, the joke could be tomorrow's headline.

But not if politicians were handcuffed monetarily.  Not if they couldn't get the Aladdin in charge of the Fed to fund their ambitions.  Not if people start to believe that government counterfeiting is real and a threat to their lives.

My new Kindle ebook, The Jolly Roger Dollar: An Introduction to Monetary Piracy, addresses in detail the relationship between central banking and war, as well as many other issues, providing numerous hyperlinks to web resources as references for further reading.

Preface to "The Jolly Roger Dollar"

The following is the preface to my forthcoming book, The Jolly Roger Dollar: An Introduction to Monetary Piracy, which will soon be available on Amazon.

Money and banking should be permanently divorced from the State.

Mankind should be divorced from the state but that’s going well beyond the scope of this little book.  For now, at least, our goal should be to kill central banking wherever it exists and open up the market to alternative moneys - alternatives to the fiat paper issued by central banks. Market participants should be free to choose what they wish to use for money without government interference.  Legal tender laws, since they constitute invasions of private property, should be repealed.  For the same reason, banking should lose the legal privileges that protect the practice of fractional reserve lending.  What is needed is freedom - freedom to conduct our monetary and banking affairs regulated only by private property rights and economic law.

The cover of this book was created to remind readers that the monetary and banking system we have is fundamentally an act of theft.  It is monetary piracy because the currencies we swap for real goods and property titles are hijacked versions of the real thing.  What constitutes the real thing, who did the hijacking, when, for what purpose, and the results it has brought are discussed in the remainder of this work.

The money we now carry in our pockets or checking accounts serves the purpose of providing a medium of exchange.  If it didn’t banks would be in the wallpaper business.  But it also serves to transfer wealth from those unconnected to the money creation process to those closely associated with it.  This is why monetary policy is more accurately thought of as monetary piracy.

In 2010, Federal Reserve officials celebrated the centennial founding of the Fed at Jekyll Island, Georgia.  The institution that was finally passed into law in 1913 was supposed to make financial crises and bad money virtual impossibilities.  It has instead made crises and bad money permanent conditions.  If freedom is not allowed to work its curative powers, the Fed and its currency-on-demand machine will continue to harm us.

Liberty is always on the defensive, having to bargain and plead with a state-backed ruling elite.  We should not have to justify human freedom.  The free market, centered as it is around consumer preferences, open competition, and private property rights, will keep us honest, to borrow an expression from my father’s era.  If there is to be a ruling elite, let them rise to their positions naturally, as entrepreneurs on a free market.  Only in such an environment will those on top be on permanent probation, forever subject to the market’s approval, because the customers who put them there always have the option of removing them when they fail to deliver.

For the most part this book is based on articles I wrote over the past decade.  I have redacted some of the material to clarify certain points or update sources.  If the same thoughts reappear now and again, I offer this explanation: the subject of money and banking is so corrupted with myth, misinformation, and half-truths that repetition is a necessary corrective.  It strikes me as incontestable that, as Goethe is said to have observed,

Truth has to be repeated constantly, because Error also is being preached all the time, and not just by a few, but by the multitude.

George Ford Smith
Lawrenceville, GA USA
November, 2011

The Utah Monetary Declaration

Earlier this year Utah passed a legal tender act authorizing the use of federally-minted gold and silver coins as money within the state.  Seeking to expand this idea to other states, sound money advocates from across the country met at the University of Utah campus in Salt Lake City on Monday, September 26, 2011 and drafted a declaration they are urging people to circulate as far and wide as possible, but especially to their state representatives.  

Special thanks to Ron Hera for making this issue public.

Here is the Utah Monetary Declaration:


Utah Monetary Declaration

WHEREAS, money, as a medium of exchange, a store of value, and a unit of measure promotes economic activity, growth and productivity by facilitating specialization and trade, the accumulation of wealth and its long-term investment, as well as accountability in setting prices, tracking progress, and settling accounts;
WHEREAS, natural money – precious metal coin – by virtue of its inherent qualities of recognizability, measurability, uniformity, divisibility, durability, portability and scarcity has reliably retained its purchasing power, notwithstanding periodic fluctuations, over the centuries and millennia of human history, serving as an effective medium of exchange and store of value often without any governmental declaration to require, legitimize or perpetuate its adoption and operation as such;
WHEREAS, sound money, by retaining stable purchasing power over time, best serves societal needs by substantially reducing the uncertainty of inflation risk for creditors and deflation risk for debtors as well as encouraging saving and investment among the general populace and benefiting the economic zone in which it circulates by stimulating the economy and by attracting foreign capital and commerce to the region;

WHEREAS, history attests that monopolistic monetary systems frequently engender currency debasement, resulting in serious consequences such as lost purchasing power, inequitable wealth redistributions, misallocation of productive resources, and chronic unemployment, and that, as the cornerstone of a free market and society, the right to choose, whether between suppliers of goods and services, political parties and candidates, or between alternative media of exchange, effectively promotes the general welfare;

WHEREAS, for the equal protection of all people, rich and poor, the open circulation of complementary and competing currencies should be fostered and promoted by every sovereign state, including those of The United States of America pursuant to their monetary powers (expressly reserved in article 1, § 10 and in the 10th amendment of the United States Constitution) to monetize gold and silver coin as an alternative, voluntary medium of exchange, and as an effective check and balance against debasement of the national currency by the national government which is constitutionally precluded from demonetizing state legal tender, through disparate tax treatment, discriminatory regulation, the threat of suppression and seizure, or otherwise;

NOW THEREFORE, we the undersigned hereby declare and affirm that:
1.     As an essential element of true liberty and of the pursuit of happiness in a free society, all people enjoy the inherent and unalienable right to lawfully acquire, hold and use as a medium of exchange whatever form or forms of money they may prefer, including especially gold and silver coin.
2.     All free and sovereign states bear the moral, political and legal obligation not only to refrain from debasing their own currencies (except under the most exigent circumstances) and from erecting barriers to the unfettered circulation of monies issued under the authority of their sovereign trading partners, but also to affirmatively defend and protect against fraud, counterfeiting, uttering, passing off, embezzlement, theft or neglect by requiring full transparency and accountability of all state chartered financial institutions.
3.     No tax liability nor any regulatory scheme promoting one form of money over another should apply to: (a) the holding of any form of money, in a financial institution or otherwise; (b) the exchange of one form of money for any other; or (c) the actual or imputed increase in the purchasing power of one form of money as compared to another.
4.     Except in the case of governmentally assessed taxes, fees, duties, imposts, excises, dues, fines or penalties, the authority of government should never be used to compel payment of any obligation, contract or private debt in any specific form of money inconsistent with the parties' written, verbal or implied agreement, or to frustrate the intent of contracting parties or impair contractual obligations by invalidating the application of a discount or surcharge agreed to be dependent upon the particular medium of exchange or method of payment employed.
5.     The extent and composition of a person's monetary holdings, including those on deposit with any financial institution, should not be subject to disclosure, search or seizure except upon adherence to due process safeguards such as requiring an adequate showing of probable cause to support the issuance by a court of competent jurisdiction of a lawful warrant or writ executed by legally authorized law enforcement officers.

We hereby urge business leaders, educators, members of the media, legislators, government officials as well as judicial and law enforcement officers to use their best combined efforts to reinstate and promote the legal and commercial framework necessary to establishing and maintaining well-functioning, sound monetary systems based on choice in currency.

The signatories hereto concur in the general principles expressed in the foregoing declaration notwithstanding specific reservations some may have as to how such principles should be interpreted and applied in practice.

Austrians Remove the Burden of Fear

Bad ideas are sometimes the hardest to de-throne.  It’s probably accurate to say most people think of money as the paper currency printed by governments.  And it is money in the sense that it functions as a medium of exchange, but is it sound, is it vulnerable to inflation?  Its very existence is evidence that it is, so why are so many people reluctant to switch to a money that isn’t?

There any many myths surrounding hard money currencies, and one of them is that money, both its nature and supply, is best left to the alleged guardian of our rights, the state.  The fact that money came into existence on the market and its ultimate form and supply were determined by economic law, is disregarded.  Money matters belong to the state, because the state, unlike the rest of us, is in a position to remove itself from market discipline.  Since the state is necessary to our survival, the story goes, it cannot do its job unless it can control the growth of money.  Money therefore must be of such a nature that its supply can grow in accordance with the orders of a state-appointed committee.

Even the classical gold standard was under control of the state.  When that control proved too limited for those eager for war, it was abandoned.  The gold standard did not fail.  States failed to keep the gold standard.

When Keynes unloaded his General Theory on the world in 1936 it was a manifesto of state economic law.  Free market economists would critique his work, but capitalism untethered scared the public.  After 1929 it became the devil in fine suits.  The fact that even top economists and industry leaders failed to see the Crash coming was especially unnerving.

Unaware of Austrian trade cycle theory, the public saw the market as an alluring evil, drawing people into its clutches with promises of riches then suddenly stripping them of their wealth.  Fear, then, and not ideological persuasion, led them to reject the market as it existed in the 1920s, and along with it any notion that the unhampered market was self-regulating.

Prior to U.S. entry into World War I, the government and its media allies worked hard trying to convince Americans that Germany was a threat to civilization itself.  No such effort was required to scare them about the Depression.  Unlike the Germans who were “over there,” the Depression was very painfully over here.

Robert Higgs’ outstanding book, Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government, underscores the importance of widespread fear for government growth.  In his opening chapter, “Fear: The Foundation of Every Government’s Power,” he contends that, contrary to the positions of Hume, Mises, Rothbard, and others, “public opinion is not the bedrock of government.  Public opinion rests on something deeper and more primordial: fear.”  After the Crash, the man in the street feared the market, and the governments of Hoover and FDR were eager to oblige.  Gold, by then, had been corrupted enough to take the fall.

Whether the public still feared the market six years later was immaterial because neither major party offered a free market candidate for election.  But Franklin Roosevelt knew the importance of keeping the public uneasy.  In his State of the Union address of 1936, he told listeners that “in thirty-four months we have built up new instruments of public power. In the hands of a people's Government this power is wholesome and proper.”  In hands under control of “an economic autocracy such power would provide shackles for the liberties of the people.”  It’s difficult to believe Americans would fall for the notion of a wholesome “people’s government,” but the times were ripe for collectivist concepts as long as they were served up properly.  FDR won re-election that year by a huge landslide.

It’s been said that FDR “saved” capitalism by co-opting the radical left into his New Deal.  Without FDR, in other words, we would be living under full fascism instead of quasi-fascism.  The free market was still useful, especially the name, but only if government-appointed bureaucrats regulated it, and never mind the contradiction.  Exactly which regulations were needed was a big unknown, but as a way of emphasizing the new in New Deal, government would experiment until it found the right combination.  How would they know if the system of “rugged individualism” that favored the big guys was adequately harnessed?  By looking at the economy.  Every trouble spot, for the government, acted like a magnet, the attraction of which was in direct proportion to the potential votes at stake.

The Highly Regulated “Free” Market

So successful were FDR and his successors in saving capitalism that finding something today that isn’t taxed, regulated, subsidized, cartelized, forbidden, mandated, or bound like a mummy in endless red tape, is a near impossibility.  We can get a feel for the massive amount of regulations the market is subjected to on the federal level alone by browsing the electronic version of the Code of Federal Regulations, updated daily by the Office of the Federal Register.  Obama, as president, has the whole economy in his hands.  As Higgs points out, with passage of

the National Emergencies Act (1976) and the International Emergency Economic Powers Act (1977), nearly all economic liberties in this country exist at the sufferance of the president.  If he decides to take over the economy, he possesses ample statutory power to do so. [p. 132]

What was once an economy with a strong element of freedom has become an economy of rent-seeking special interests, or as Nock expressed it, people using politics to gain an “uncompensated appropriation of wealth produced by others.”  In accordance with Garet Garrett’s thesis of a revolution within the form and the word, the old names have been quite useful for getting people to look the wrong way, as we saw in 2008 when Bush announced he was “abandoning free market principles” to save the economy from collapse.

The “forgotten man” of the Depression, whether Sumner’s or FDR’s, was fearful, and considering the intellectual ammunition at his disposal it’s easy to see why.  But what can one say about today?  Should people be fearful of the economic mess governments have created?  Not necessarily.  More people are beginning to understand, if only vaguely, that “politics” has brought the roof down, and that a sound economy is impossible without something politically indifferent supporting it: sound money.

Austrian critics are debunking the claims about gold’s role in the Great Depression, pointing out that the straw-man gold exchange standard of the 1920s and early 1930s was another government solution destined to collapse.  Ben Bernanke’s statement that “the longer that a country remained committed to gold, the deeper its depression and the later its recovery” is being seen as grossly misleading, at best.

(Earlier in his commentary Bernanke explained that the gold standard of the 1920s was a “reconstituted” version of the gold standard that had endured prior to World War I.  Abandoning a pseudo gold standard makes sense only if an honest monetary system replaces it. As it was, the country moved from one controlled system to one much worse.)

Unlike the poor souls of the Depression era, anyone on planet earth who is wired and can read English can access a vast literature of economic theory and criticism.  It would be impossible to deal with today’s misinformation without the many works of Austrian analysis, most of which are accessible to a lay audience.  In their absence we could well be the hapless captives of an FDR admirer like Obama.

Who said it, when and where?

Over the years I've accumulated a long list of quotes about money and banking extracted from online articles and books I've read.  Unlike most other sites that post pithy remarks from famous authors, I include hyperlinks to their sources, so that anyone who wishes can not only verify a quote but, perhaps more importantly, read the context in which it was used.  And unlike other sites, most of these quotes originated with today's financial writers and economists, writing from a perspective consistent with Austrian School principles -- people like Peter Schiff, Lew Rockwell, Steve Saville, Joseph Salerno, Gary North, Edwin Vieira, Judy Shelton, Frank Shostak, Ron Paul, and others, even Alan Greenspan.  What these writers have in common is their respect for a market-sponsored commodity money, traditionally gold and silver coins.

My purpose in publishing these hyperlinked quotes is to draw attention to the vast literature of criticism that has arisen over the money and banking system we are forced to live under.  The list is continually expanding as writers are continually writing.  I ask that you excuse the many omissions such a list necessarily entails and hope you will alert me to insightful quotes I have missed.

I personally find these words of wisdom intellectually stimulating.  Observations such as Ron Paul's "“Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it" or Judy Shelton's "Inflation makes suckers out of savers" are not merely true, but critical to a full understanding of today's political institutions, especially when combined with Jorg Guido Hulsmann's contention that inflation is always an imposed increase in the money supply.  They help keep me focused and fired up.  I hope they will do the same for you.

Here's the list.

From "golden fetters" to handcuffed investors

"The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves." - Alan Greenspan, 1966

An NBER working paper by Carmen Reinhart and Belen Sbrancia describes how Western governments in the post-world war economies unloaded their debts on credulous citizens through a policy of financial repression.  Because it is politically palatable (as opposed to outright default, hyperinflation, or overt tax increases) some analysts expect governments to try it again.  One part of it - inflation - is already well-underway.  Financial repression means savers (investors) will be forced to pay leviathan's debts, whether they like it or not.

The particulars of financial repression vary, but the general scheme is this: Using its power to violate private property rights, the government makes the domestic investment community a "captive audience."  With central bank cooperation it mandates low nominal interest rates along with a higher inflation rate, resulting in negative real interest rates.  The latter transfers wealth from, say, pension funds to the government, thus liquidating a portion of its debt.  Since the bond holders are "captive," there is no ready remedy for investors wishing to preserve or grow their wealth.  If investors attempt an alternative such as purchasing physical precious metals, the government will either restrict those activities or abolish them.  One way or another it will see that it has the "captives" needed to pay its bills.

The working paper contains language suggesting the authors have accepted several monetary fallacies.  For example, we read:

It is important to stress that during the period after WWI the gold standard was still in place in many countries, which meant that monetary policy was subordinated to keep a given gold parity. In those cases, inflation was not a policy variable available to policymakers in the same way that it was after the adoption of fiat currencies.

The post-WWI gold standard was a straw version of the classical gold standard, which itself was under government control.  Yet it's true, holders of Federal Reserve Notes could, in theory, swap them for gold coins prior to Roosevelt's heist in 1933.  "Monetary policy" (inflation) was indeed subordinated to gold, which is why government got rid of it, and the government-spawned gold-exchange standard of the 1920s served to set up gold, intentionally or not, to take the fall when the roof collapsed.  As economist Joesph Salerno writes,

The end of the classical liberal era in 1914 caused the removal from government central banks of the "golden handcuffs" of the genuine gold standard. Were these "golden handcuffs" still in place in the 1920’s, central banks would have been rigidly constrained from inflating their money supplies in the first place and the business cycle that culminated in the Great Depression would not have taken place.

The fractional-reserve scheme began to cave, as it always had, when too many people attempted to claim their property at the same time.  It exposed the essential fraud of the banking system, though few economists see it that way.  Which is not surprising, given that most of them, directly or indirectly, feed at the Fed's trough.

In another section of the NBER paper, Reinhart and Sbrancia tell us,

World War I and the suspension of convertibility and international gold shipments it brought, and, more generally, a variety of restrictions on cross border transactions were the first blows to the globalization of capital. Global capital markets recovered partially
during the roaring twenties, but the Great Depression, followed by World War II, put the final nails in the coffin of laissez faire banking.

This is truly shameful scholarship.  Banking was in no sense "laissez-faire."  The Federal Reserve Act of 1913, establishing a government-enforced banking cartel, erased the last traces of freedom in banking.  As we read in Wikipedia,

[Laissez faire] describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies.

The Fed is a monopoly money producer established by the state.  As such it is in violation of capitalism's private property foundation, and its very presence creates distortions in market activities.  (See The Ethics of Money Production, p. 170)  It seems that the further we move away from laissez-faire the more it is blamed for the catastrophes that follow in interventionism's wake.

Still, the NBER paper has great value.  The authors (rather tediously) document how Western governments from 1945-1980 used repressive financial schemes to pay down their debt relative to GDP.   The great appeal of such schemes is their transparency to the general public, making them virtually irresistible to today's debt-choked governments.

Reinhart and Rogoff's This Time is Different: Eight Centuries of Financial Folly spells it out this way:

Under financial repression, banks are vehicles that allow governments to squeeze more indirect tax revenue from citizens by monopolizing the entire savings and payment system. Governments force local residents to save in banks by giving them few, if any, other options. They then stuff debt into the banks via reserve requirements and other devices. This allows the government to finance a part of its debt at a very low interest rate; financial repression thus constitutes a form of taxation. Citizens put money into banks because there are few other safe places for their savings. Governments, in turn, pass regulations and restrictions to force the banks to relend the money to fund public debt. (from Prudent Investor Newsletters) (emphasis mine)

It's an effective racket, almost as effective as the central banking - debt monetization schemes that brought us to disaster's door in the first place.