Fake Money: How it Funds Wars, Corruption, and Bubbles   

Introduction

This is my short course on the creation and effects of fiat ‘monopoly’ government money, which is now the only ‘legal tender’ in the USA. I use ‘monopoly’ in quotes because our paper money is worthless (not convertible to gold), just like the board game. The total of currency (coins and paper), and electronic/digital forms is known as the ‘money supply’. ‘Fiat’ means it is worth whatever the government says it is, although it may have more or less intrinsic market value (examples; valuable silver dollars and worthless paper, both declared worth $1). You won't read the following analysis in the newspapers or in a college economics course. Most government and industry leaders, and professors like the present system because their jobs, grants, and social life depend on having and supporting it!  They want to be viewed as 'normal', not a radical 'gold bug' who respects the importance of sound, or ‘real’, money which means gold or silver coins, and paper convertible to gold by anyone, on demand.

As discussed below, the risk of using excess fiat money hit the USA hard in 2008, starting with the collapse of the fake 'housing boom', with its government-created ‘Vote for Me’ jobs, and the Wall Street manipulation of related 'flaky' securities, which were sold worldwide. Massive amounts of cheap Fake Money, supplied by the Federal Reserve System (the ‘Fed’) started and supported these debacles. Since its creation in 1913, and with a surge since 2000, the Fed has expanded (‘inflated’) the money supply by twenty times. ‘Price Inflation’, a secondary effect caused by inflating the money supply, has reduced the US Dollars’ (USD) purchasing power by 95% (20:1) since 1913, So much for government management !

Money was invented by people (not governments) because it is more convenient than barter (buying shoes with milk, etc.). It is; 1. a medium of exchange, 2. a unit of account , and 3. a store of value.

Many people claim that ‘unfettered free-market Capitalism’ was the cause of the 2008 crash, and call for more regulation. They re-defined 'capitalism' and 'corporations' so they would have straw men to attack. In fact, Capitalism is just an ‘economic system' based on private ownership, free enterprise, and minimal regulation, and corporations are primarily just a way to raise money through sale of shares. Capitalism offers more than economic results, it is a moral system that depends on the activity of willing buyers and sellers within the rule of law, not coercion and control by others (the government power folks). Socialists, Liberals, and Progressives have distorted the meaning to call it a ‘social system based on greed and power for the rich’. They blame ‘corporations’ for most of the abuse, while ignoring that in any system (government, church, club, etc.), concentrated power and self-serving, unethical people are always the cause. What they also ignore, through ignorance or bias, is that we have not had a free market since 1913 (when the Fed was born), and especially since 1933 when FDR declared that the government was our mother and boss, and responsible to provide convenience and security for all, and have ‘someone else’ (the government or ‘the rich’) pay for it. This pushed a dagger into the heart of our citizen’s sense of ethics and personal responsibility. Our nation‘s culture and economy have been sliding downhill ever since. The fact is that excess, unconstitutional government programs and intervention have caused our problems. This result shows in every country run by central authority in history, and worldwide today. Central authority always brings less liberty, peace, prosperity, ethics, and justice for all but those in power, and their friends and lackeys.

Free market capitalism always provides more liberty, peace, prosperity, ethics, and justice for all. I recognize that ethics and justice are violated under capitalism, but this relates to bad people and can occur in any economic system. Capitalism still comes out best. Centralized systems like Socialism give more power to the bad guys.

Why Gold?

The two key reasons for convertibility of paper to a commodity (such as gold) with intrinsic market value, that people can exchange at a bank on demand, are to; 1) Limit excess expansion of the money supply (inflation; loss of value) by the government, and 2) Provide a market-based store of value. The commodity could be wheat, iron, diamonds, or pearls, but gold works best for many reasons because it is; 1) Malleable, so can be made into coins, 2) Stable physically and chemically; doesn't break, rust, or rot, 3) Easy to determine purity-by weight-, 4) Low amount in existence now, and limited new supply; rare, 5) Difficult to counterfeit, 6) Homogeneous in content (a chunks is the same throughout), and 7) High value per ounce (not bulky to handle or store). Silver is more volatile (more new production, consumed for industrial use, etc.), so is less attractive.

History shows us that when countries use sound money (such as; convertible to gold) they have zero or low inflation, zero or minor 'cycles' of economic panic or depression, and more peace, liberty, and prosperity. Thus, we would expect all countries to use sound money, except the leaders want more money than they can get by just taxing, especially for wars. They want a way to create money ‘out of thin air’. Un-backed paper money (we call it ‘Federal Reserve Notes’) serves this purpose. Even when some level of convertibility exists, they often 'suspend' convertibility before, during, and after wars (the USA did for the Revolutionary, 1812 and Civil wars), and then must be pushed to restore it (often with less value).

To avoid the inevitable crash in value of its money, the US should provide convertibility to gold. The coins and money should be designated as worth a certain weight in gold (xx grams), and names like 'dollar', or 'quarter' will not be needed. This would make the US Dollar (USD) worth about 1/800 ounce of gold at a market price of $800 per ounce. If this were done, the question is; 'Does the US have enough gold to back-up convertibility, and thus avoid 'runs' to convert paper and base-metal coins?'  The answer is yes, but since the U.S. has trillions of fiat 'dollars' in circulation worldwide, the market value of a USD might become one millionth of an ounce, with a corresponding 'price' of gold at $1 million per ounce! If it were not a secret as to how much gold the government and Federal Reserve Bank/System have, a better estimate could be made. Conversion is a tricky process to avoid panic and uncertainty among current owners of fake money. It has been suggested that a 'new' convertible currency be introduced in parallel as a transition. Stay tuned !

The USA ended the right for other nations (FDR took it from mere people in 1933) to convert paper dollars to gold when Nixon abrogated the Bretton Woods Agreement in August, 1971 due to our serious financial problems such as; a. We were running out of gold; France and others were converting their 'Euro-Dollars' to gold (USDs accumulated in Europe due to our postwar spending there); b. The US was poor after spending on Vietnam and LBJ's 'Great Society', etc. Under this pressure, Nixon illegally 'floated' the USD (no fixed-price for gold; no fixed exchange rates with foreign currency), and ended convertibility to gold by any person or government. This meant the US could make dollars out of thin air at will, and did they ever!

Again, the main purpose of convertibility of paper (or electronic dollars) to gold is to prevent excess expansion of the money supply ('inflation') by the government, and thus reduction in purchasing power. Without convertibility, this 'easy money' is an unlimited 'piggy-bank' and credit card for the government. Hence, the government cannot be trusted to not abuse it. The excess money has allowed damaging, unconstitutional, corrupting, massive increases in government spending for wars, welfare, and pork. It has also created the growth in the number of lobbyists seeking favors. Prices started their 'hockey stick' shaped rise a few years after 1971 as the effect of excess money and spending trickled to the world economy. Within in a few years, all nations worldwide ceased convertibility, even the prudent Swiss floated the Swiss Franc (SF), but have been less abusive than others; hence while 1 USD = about 4 sf in 1961, it is now about 1 US = 1 sf, so they only inflated by 2.5 while by 2008 the US inflated by 10; 4 times more! The USA has been the worst abuser among developed nations (older countries remembered their lessons from past monetary failures). The US has created so much new 'free, fake money' since 1971 that the US$ has lost about 80% of its purchasing power since then (this excess expansion of the money supply is called 'inflation', like a balloon) with its consequent price increases. Check prices of common 'commodity' items (that are not imported, subsidized, cheaper due to new technology, or under price control), such as a pizza, or a restaurant meal. A good example is that a room at 'Motel 6' cost $6 in the 1950s and is now in the $60 range in 2008 (same type of room and service). There is your 10X loss of US$ value! This goes along with a 95% loss since the Federal Reserve monopoly was created in 1913! The only reason we can get away with this is because the USD is the world's 'reserve currency' (any person or bank will take and keep it as if 'good as gold'), because it is viewed as a share in 'USA, Inc.', the world's strongest economy, which sadly is fading (starting 2007) as we continue the long abuse of our economy (by spending, taxing, and harmful intervention 'management' by the Fed and government) and money (by excess expansion of the supply). The era of USA world dominance is ending, as it does with all empires (see # 3 in left margin of Home page; debasement of currency).

History shows us that the use of 'real money' (convertible to a commodity with intrinsic value market such as gold, by anyone, on demand; not just paper) is fundamental to the long-term success and survival of a nation. 'Fake Money', paper and base-metal coins created and 'managed' by the Federal Reserve System (Fed) is what allows the massive spending and debt for wars and domestic pork and welfare. The pork and grants have corrupted the ethics of our Federal government ('here's some pork, vote for me'), and the citizens, business, universities, and academics, etc. who happily accept it. Congresspersons brag on their web sites about how much pork they have obtained for their districts or states. This 2-way corruption is a fatal sign of a failing Empire.

The Federal Reserve System (Fed)

The Fed is a private bank that was created in 1913 and was granted monopoly authority to issue our currency and manage our monetary system, with a goal of maintaining the Dollar's stability and purchasing power. In this regard it has been a massive failure, but bankers and government people like it anyway because it funds their careers and 'projects' (wars, welfare, pork, etc)! The crash of 1907 was used to justify the Fed, but its secret purpose was to put our monetary system in the hands of the federal government and 'member/owner' commercial bankers. The purchasing power of the USD has dropped 95% since 1913, all due to excess creation of new money (expansion of the money supply; inflation). However, the bankers have done well, since they make money selling US debt (T-bills, etc.) and get bailed-out when in trouble due to their own greed (Bear-Stearns in 2008, etc.). Most of its meetings are secret, and proceedings are not even available to Congress; Preposterous ! Some economists say the Fed is needed in order to assure adequate 'liquidity' for growth by proper expansion of the money supply, equal to growth of the economy; about 3 to 5% per year. The problem is that such powers are ALWAYS abused by governments (by expansion of 10 to 20% per year, or more!), though some (the Swiss) less than others (the USA is among the worst of the major currencies). We cannot, and should not, trust the government or Fed to 'manage' our monetary system. This excess money causes bad spending and investment decisions at both the business and personal level, which creates financial distortions (big peaks, then valleys), as seen in; 1. Bailing-out England after WW1, leading to mal-investment (too much $ around) and the crash of 1929 when the money supply was suddenly reduced by the Fed, and 2. The Spring-2008 housing collapse due to excess mortgage money (created by the Fed, Fannie and Freddie) being pushed to weak borrowers by lenders, and 3. Many other large peaks and valleys, and 90% loss of purchasing value, since the Fed was created. So much for government 'management' of currency and the economy!!

Nations that use real money may have small highs and lows in their economy, but they are 'self-liquidating' (private investors stop putting limited funds into bad deals), but they never the huge variations caused by excess fake money (investors and the government have lots of money to keep funding lots of deals; good and bad).

The analogy below helps demonstrate what fake money does to an economy, its firms, and people.

The Heroin analogy: The injection of heroin into your body, or a large increase in the money supply (over 5% per year) into an economy, are both 'stimulants', but cause illness when used to excess. When the stimulants are ended to solve the bad effects, your body suffers from withdrawal, and the economy from recession, or worse! Creating fake money to fund 'stimulus' risks price inflation (reduced purchasing power of the US Dollar), but or 'leaders' in DC like it because it is a quick 'fix' (shows that they are ‘doing something’), and also helps them payoff their friends (campaign donors) on Wall Street, and federal debt, with cheap dollars. This is part of the heroin analogy, where our 'leaders' (Obama, Geithner, Bush, Paulson, Bernanke (Fed Chm. since February 1, 2006), Greenspan, and most Congresspersons) are shameless, dishonest pushers and dealers with their ‘bailout’ programs. Their priority is to get re-elected (or keep their appointed job) by doing favors for voters, their bosses, and campaign donors, no matter what the long-term harm.

As shown in the May 5, 2009 issues of Gary North's REALITY CHECK, Issue 854, “The FED is engaged in a gigantic system of misrepresentation.  It is misrepresenting the solvency of large banks and financial firms in debt to banks.  It is misrepresenting the supply of invested capital.  It is substituting inaccurate prices for accurate prices.  These are the most important prices of all: the price of capital.  These prices inform investors and entrepreneurs of the condition of the capital markets.

The FED is doing its best to conceal the degree of risk and
uncertainty in the capital markets.  Central banks around the world are cooperating with the FED.  This is an international effort by central bankers to deceive the public. To the extent that this deception is working, investor confidence will increase. 

 On April 15, 2008, the FED held $866 billion in assets,
which served as the monetary base for the nation.  On April 15, 2009, it held $2.2 trillion. “

The Fed calls this giant, inflationary, increase in the money supply ‘quantitative easing’. It is the same as more heroin to a sick addict. See more on inflation below.

Some say the Fed should be eliminated because it is a preposterous, damaging, and unconstitutional scheme. Others prefer to just reform it (audits, transparency, etc.). I am in the former camp, and add that we should convert to gold-backed money as discussed below, and in Part #2 'New Money' in the left margin. The world will soon follow as fake money is dumped and refused by Sellers; a reverse form of Gresham's Law (without legal tender laws). In this case, good money drives out bad. This would end the justification by all governments for money control and manipulation groups such as central banks worldwide, the BIS, World Bank, IMF, FDIC, legal tender laws, etc., all of which should be abolished. Bernanke and his pals worldwide could look for honest work.

Price Inflation Due to Excess New Money

The above analogy sends the message that you will always get counter-productive conduct when you flood a system (nation, industry, family) with money. An example is that 'nice' student loans have resulted in 'college industry' costs (tuition, books, fees) going up (due to higher teacher and admin salaries, excess construction, etc.) eight times faster than starting salaries for graduates since 1950. You should expect price increases in an industry where the customers don't go away when faced with such price increases, they just borrow more! It’s an old story of unsustainable distortions caused by government meddling with the economy (social-engineering, stimulants, depressants, controls, etc., etc.). The government likes inflation because they have more money to pay of their debts, but the creditor gets less valuable paper. This a form of partial default

The solution is to use real money and free markets so there is a limited supply of money, and 1. Thus no funding for weird, corrupt deals, 2. Failing deals aren't funded for long (government deals get MORE money when in trouble!). Not perfect, but many times better results (peace, prosperity, justice, etc.) than produced by government 'management' and meddling (intervention in the free market)!

Monopoly Money, and Orgs of Government Intervention

Alan Greenspan was Chairman of the Federal Reserve Bank from 1987 to 2006 and was thus the chief, self-serving, 'pusher, dealer' of heroin (excess increase in money supply) into the USA economy. He did this to keep his job (Presidents and Congress hate to run out of money) with full knowledge of the risk of 'distortions' that the equally complicit Congress and Presidents would use it for (war costs, cheap loans for houses), and reduction in value (purchasing power vs other currencies) of the USD. His meek excuse in Nov-08 that; 'I erred in trusting the free market' is a lie, and he should be treated as a self-serving liar. He knew he was doing harm, as all heroin pushers do. Congressional 'leaders' like Sen. Dodd and Rep. Frank deserve equal shame, plus others. Only a few (Senators Hagel, McCain, Dole and others, and Rep. Paul) raised the red flag in the 2000 to 2005 era about the risks of excess and fake money, but were ignored. The crash of Oct-2008 is the result.

The Fed measures the quantity of money ('money supply') in three ways; M1 = currency + checkable deposits, M2 = M1 + near-money (savings accounts, mutual funds, etc; quick conversion to money), and M3 = M2 + large time-deposits (over $100k). They stopped publishing M3 in 2006. Far less than half of this money is coins or paper (= 'currency'). The rest is electronic/digital.

But there is another part of the money supply, namely credit. As John Mauldin, of www.frontlinethoughts.com, penned on April 17, 2009; " It's a bit misleading to talk about money supply, because money really is roughly $2 trillion of cash and then $50 trillion in credit. Because what do the banks do? They take deposits in and then they borrow money to leverage them up (this is their deal with the Fed; maintain about ten percent 'reserves', the actual deposits, and then borrow your 'lending money' from the Fed). I take my credit card and I spend with it. I borrow against a house. I have an asset that rises, and I borrow against it.

We have two trillion dollars of actual cash propping up $50 trillion in credit. If we all decided to settle and pay off everything, we couldn't do it because there is not enough cash. There would be massive asset deflation. We, as a nation, are levered 25 to 1, or we were. Now, that $50 trillion is in a real sense the money supply because that is what we are all pretending is real money. I lend you money and you pretend you are going to pay me back. Then you pretend he [pointing at another attendee] is not going to call your debt for cash, and we are all going to keep the system going. "

In addition to creating the Fed, the government tampers with money in other ways, such as, 1. 'Legal tender' laws were passed to force people to use Fed ‘notes’ (rather than insist on gold, etc.) if they wanted legal recognition of deals, 2. FDR was worried that foreign nations might start converting their paper USD to gold before the U.S. ran out of it, so issued the Gold Recall Act (an illegal executive order) in 1933 that made it illegal for US citizens own gold except for jewelry and by rare coin collectors. This demonetized gold, and increased the government holdings. People were forced to sell it to the government for $20.67 of paper per ounce, and then FDR increased the 'official' price to $35 oz ! (a fake bonus for the government !), 3. There have been a series of international agreements to 'manage' currency'. The International Monetary Fund (IMF) and World Bank were born of these deals. Both are counterproductive causes of spending and distortions (including feeding corrupt governments) and should be abolished. Convertibility was restricted more and more until the 'Bretton Woods' agreement (named for the resort in NH where they met) in July, 1944 which set rules to: 1. Allow only nations to redeem paper for gold between each other (not people), 2. Created the International Monetary Fund (IMF) to handle its transactions, and 3. Set the USD as the worlds reserve currency, with a fixed value of $35 per ounce of gold. The US engaged in so much monetary expansion (inflation of the money supply) after WW2 it lost much of its value and flooded Europe with so-called 'Euro-dollars'. France finally started demanding gold for most of their paper dollars but Nixon refused (we were running out of gold), and then abrogated Bretton Woods on Aug. 15, 1971, setting the dollar 'afloat' with no convertibility. Within a few years, all nations had done the same, including conservative Switzerland. Whoopee! Everybody could make money out of thin air! However, the USD (US Dollar) emerged as the world's reserve currency (good as gold) because all paper money is actually viewed as a share in the economy of the issuer. Thus, the paper of a large and stable government and economy has good value. Until recently (2008) the USA was without question the strongest, and the USD had good value as a share in 'USA, Inc.'.  Since 1971, the US has abused/inflated its currency even more than other countries, and value has decreased (prices increased) rapidly ever since (look at any chart) on both the international exchange basis (about 4:1 against western Europe 'legacy' currencies from 1971 to 1999, then a loss of about 2:1 against the Euro from 1999 to 2008; 0.8 to 1.5 USD per Euro !), and about 10:1 domestically (price increase of cars, pizza, etc.; things not subsidized or under price controls).

'Fractional reserve' banking is a big part of the problem. When the Fed sets the legal reserve at a typical 10%, banks can loan ten times more than they have. Example; If you deposit $100, they can loan $1,000 (newly created money), and still have your deposit as a 10% reserve. Note that every time a loan is made, or a credit card issued, the money supply increases (and value of all US$ goes down).

Another key problem is the Federal Deposit Insurance Corp. (FDIC). This fake 'insurance' (rates not set by market risks; not adequately funded) was created by the government in 1933 so depositors wouldn't get suspicious of fake money and worry enough to withdraw, or avoid making, deposits, and now covers $250,000 per depositor per bank. It back-fired in 1991 when the also fake Federal Home Loan Banks ('Savings and Loan' banks) were deregulated in 1990 (as to rates paid to depositors), yet were still insured. White-collar crooks started or bought S&Ls, offered excess high rates to attract deposits, then paid themselves high salaries and bonuses before going bankrupt due to high interest costs! A federal taxpayer-funded bailout ensued as yet another unintended consequence of government intervention in the free (honest) market. As the FDIC bailed-out depositors of failed banks in the 2008 crash, they replenished their depleted fund by fees on the well-managed surviving banks. Another ripoff!

The FHA (Federal Housing Administration), created in 1934, insures lenders against default by home buyers. This is another distortion of the market that weakens our economy. Sure enough, use of the FHA was broadened in the 2008 home mortgage crisis to bail-out home 'owners' who signed-up for loans they couldn't afford, and lenders who knowingly approved their bad or insufficient credit. This is another case of the government pouring good money after bad, rather than liquidating past counterproductive 'help'.

Another counterproductive monetary intervention is the 'Pension Benefit Guaranty Corporation'. It is an independent agency of the federal government that was created to support (bail-out?) private pension plans.  How in the world does Congress justify using taxes (or fake money, or under-funded insurance premiums) to bail out private pension plans? Well, it is called 'buying votes' from pensioners. This is what economists call a 'moral hazard' (or perverse incentive), because it allows firms to under-fund their pension plans without penalty; thus more do it. The same applies to 'Federal Disaster Insurance' (passed by Congress in Nov-07), and 'National Flood Insurance' (NFIP, 1968) which forces all taxpayers to subsidize rates for 'other people' or land developers (including fees tagged-on to home loans, even in areas with extremely low flood risk; a small creek nearby !!) so they can get 'affordable' (subsidized) insurance to build (or rebuild) in high risk (flood, hurricane. etc.) areas. All this applies to FEMA, the disastrous Federal org that is supposed to help us after disasters, which in fact should be treated as State and local issues! This is more counterproductive 'vote getting' with fake money (the States run out of money, but the Federal government doesn't; it is another form of Federal pork)! FEMA should be abolished.

Yet other damaging contrivances are the federally-chartered GSE (Government Sponsored Enterprise) corporations Federal National Mortgage Association (FMNA, Fannie Mae, founded in 1938 by FDR, www.fanniemae.com/), and Federal Home Loan Mortgage Corp.(Freddie Mac, founded in 1970, www.freddiemac.com).  LBJ converted Fannie to a publicly-traded corporation, (FNM) in 1968 so it wouldn't be 'on the books' as part of the US budget deficit caused by the Viet Nam war. These fake orgs were created to allow banks to issue 30-year fixed-rate home mortgages (sometimes with liberal terms to qualify; such as 'no job, no money') to 'help' make home purchases 'affordable' (with fake, not market-based rates and terms). The problem is, no sane banker would ever guarantee a rate for 30 years! The game is that private banks sell these loans to home buyers, and then re-sell them to Fannie or Freddie the same day (to get rid of such garbage). Both are listed on the NYSE (FNM and FRE), and because their debts were semi-guaranteed by the U.S. Government ('fully' as of Sep-08), they are able to borrow at low rates. A further deal is that they pay no state or local taxes, and are not required to disclose internal 'problems' as normal banks are. We saw the predictable result of corrupt management policies in Sep-08 when the US Treasury and Fed invoked the new 'Housing and Economic Recovery Act of 2008' to bail-out (buy?) failing Fannie and Fred, then set up 'The Federal Housing Finance Agency' to regulate them. A better solution would have been to liquidate them!

On September 17, 2008  Byron W. King of  www.DailyReckoning.com said: “It used to be that the job of the Federal Reserve was, as former Chairman William McChesney Martin Jr. told it, “to take away the punch bowl just as the party gets going.” Now it seems like the Fed is laying a direct pipeline to the distillery to keep everyone loaded. And in the process of taking over Fannie and Freddie, the U.S. government is socializing the financial side of the national housing market. The cynical view is that the federal government will loan you the money to buy an overpriced house and your local government will tax you for the privilege of living there. But where is the money coming from? “ Well, out of thin air!, read on.

A third player, Ginnie Mae, or GNMA, Government National Mortgage Association also provides a link between capital markets (the lenders) and the Federal Housing markets. This makes Mortgage backed Securities more attractive to investors, such as pension funds and the like. The main difference between this company and Fannie Mae lies in the government backing. While the backing is only perceived in Fannie Mae, it is real in the case of a Ginnie Mae backed security or mortgage since the US Government owns Ginnie (it was spun-out when Fannie went public in 1968). 95% of all home loans through FHA (Federal Housing Authority) and the VA (Veterans Administration) are backed by GNMA, as are student loans.

These orgs distort our financial system, since at their fake low loan rates, excess money goes into housing because low wage earners can buy bigger houses. This is nice for politicians who want votes, but is a misallocation of resources in the overall economy! Of course, the Federal Reserve is part of the game with their own rate and reserve manipulations. This is what caused the 'sub-prime' mortgage crash in 2008! (see more below). Only the US and Denmark offer 30 year fixed-rate mortgages. This is known as 'borrowing-short, and lending-long', which puts the lender at high risk, and no sane banker would do it. BUT, in the US the Fannie-Freddie twins buy these toxic loans from the banks, and take on the risk. Even socialist Canada, while amortizing the principal over 30 years, requires the interest rate to be adjusted to 'market' every five years, and interest is not tax deductible. I recommend that this plan be adopted by the US, and will no doubt  happen once the GSEs aren’t there to buy the trash loans sold by banks. Part of the fun is that Mom and Pop borrower get to pay-off their loan with cheap dollars (the USD value declines every year, 10:1 since 1975, and most wages and salaries go up to compensate).

Excess money (combined with greed) also hurts the 'big guys'. The Mar-08 bailout of investment bank Bear-Stearns by the Fed (and injection of over $200 B 'liquidity' for others) was to prevent the bankruptcy of Bear Stearns, and its ripple effect on others, caused by high-risk, high-leverage (up to 40:1), high-profit investments that got into trouble. The Fed stepped in to save the US 'financial system'. What a pathetic, costly joke!; they damage the system with excess, and 'loose' money, then try to fix it with more of the same; guess who loses?, the taxpayers and little guys!. The system includes:

1. 'Commercial Banks', which provide services to large firms,

2. 'Retail Banks', which provide services to small firms and individuals (1 and 2 are sometimes called 'National banks' if multi-state),

3. 'Investment Banks' which invest in ('own') capital (bonds, securities, mortgages, etc.; not to be confused with securities brokers or dealers),

4. 'Savings and Loan Institutions' ('Thrifts'), which provide home mortgages, and

5. Stock Exchanges (SE), which sell securities (shares) issued by corporations. Examples are; New York SE, Pacific SE, NASDAQ, etc.

The 'system' is regulated by the:

1. 'Federal Reserve System' (not a bank; see above),

2. 'Securities and Exchange Commission' (SEC), created in 1934 to regulate securities markets,

3. 'Federal Deposit Insurance Corp.' (FDIC) which insures deposits against bank failures,

4. 'Office of Control of Currency' (OCC) was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is headed by the Comptroller , who is appointed by the President. The OCC was created by Congress to charter national banks, and to oversee a nationwide system of banking institutions.

5. 'Commodity Futures Trading Commission’ (CFTC) is an independent agency of the US government. Its mission  is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets, and

6. 'Office of Thrift Supervision' (OTS), an agency of the United States Department of the Treasury, is the primary regulator of federal savings associations (sometimes referred to as federal thrifts). Federal savings associations include both federal savings banks and federal savings and loans. The OTS is also responsible for supervising savings and loan holding companies (SLHCs) and some state-chartered institutions. The OTS was established by Congress as a bureau of the Department of the Treasury on August 9, 1989 as part of the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

7. 'The Federal Housing Finance Agency' as conservator to regulate Super GSE's FannieMae and FreddieMac. (Sep-2008 as part of the bailout)

8. The 'Troubled Assets Relief Program' (TARP)  became the manager of the Oct-08 $700+ billion bailout of Wall Street and banking firms. The initial plan was to buy toxic mortgage-based assets from Walll Street firms, but by Nov-08 the target had shifted helping with frozen consumer debt. What is Next in this 'Panic to Patch' ??

Here are some words that came out of the April 3, ’08 Senate Banking Committee hearing investigating the near collapse of Bear Stearns: "20 years ago the Fed would have let Bear Stearns go bust; today, it is too interlinked to fail." Not too big to fail, too interlinked to fail. The ‘I’ word is our new monster! ‘I’ describes the world of derivatives, and hedge funds. The proliferation of a vast array of complex financial instruments that are sliced and diced and recombined in a bewildering variety of forms and bought and sold and traded by thousands of parties across the globe (and sometimes labeled ‘AAA’ even though backed by junk loans; can you say FRAUD) has woven everyone tightly together into one big knot. It wasn’t just Bear-Stearns, but the entire system of globally interlinked financial markets and Crony Capitalism that got bailed out! Again, the Insiders win, and the People lose!

The ‘moral hazard’ here is that Wall Street knows they will get bailed-out the next time their high-risk, highly leveraged ventures fail. Oh sure, Paulson and Bush promised ‘sweeping changes’ with new regulations and powers for the Fed, but Wall Street will find a new away around them.

It all comes back to the unspoken core problem; Fake Money. Without the hundreds of billions of ‘liquidity’ (Fake Money) the Fed poured into the financial system since the ‘90s, these games couldn’t be played. The toys they play with are the fake sub-prime home mortgages, plus other lose-money-based securities.

In the past, we could keep spending this fake money worldwide (by both people and government) because the USD was still the world's only 'reserve currency' (anyone would accept it as payment, and hold assets denominated in it) because despite our problems, others have been worse (past tense; others are becoming attractive; Euro, Yen, Yuan).  The USD now has competition! Our strong (while it lasts) economy sets the confidence level that it won't become worthless (but it is now crashing because the USA is bankrupt due to debt and spending, with no cure in sight). For fear of starting world-wide panic selling, those countries who own a lot of US$ (trillions in China, Japan, etc. due to payments for exports to USA) can't afford to dump them as their value declines, but history shows us that something always triggers panic selling, and a crash in value.

For example, as of Spring 2008, individuals and businesses worldwide started to avoid transactions, investments, and savings in USD. They feared ongoing loss of market value in dollar-denominated assets. They were right, and this is how worldwide crashes in a currency can start!   As should be expected, in late-2009, China and others started to; 1. Use their own currency for international trade, and 2. Reduce their 'reserves' of USD (slowly, to avoid a panic).

Governments play the 'hold-and-hope' game with 'other people's money', but people and businesses avoid a failing currency since their own money and assets are at risk!! The crash could start from the bottom up !

One of the risks foreign governments fear is that the US will payoff its debts they own (bonds, etc.) by creating huge amounts of cash out of thin air. This would greatly reduce the value of the dollar, and is a form of default. They should be concerned. The US has huge debts (some are even 'off the books', such as future obligations of Social Security, Medicare, etc.) so our 'leaders' prefer inflation so they have more (albeit of less value) money to pay debts. Deflation (less money in circulation; more value per dollar) would help recovery from the coming 2009 depression, but that would eliminate the easy payoff of debt by the US. Its called being 'between a rock and a hard place', caused by the short-term pleasure of fake money. 

Causes of the Sep-08 Wall Street Debacle

The rush of home loan defaults and bank problems started in late 2007, and peaked in Sep-08. The underlying cause was Fake Money, as described above.This excess supply of money, delivered to lenders by the Fed and its pals at FreddieMac and FannieMae, was the ‘mother’s milk’ of market distortion.  Of course, our Wars for Empire (not defense) in Afghan and Iraq added to the spending spree (which pours unproductive money into the economy), that we can no longer afford. See more at : http://www.lewrockwell.com/rockwell/understanding-the-crisis.html.   

Kudos are due for leaders who raised the warning flags early, despite opposition from both Bushes and Clinton, and lack of support from ’vote-for-me’ fellow Congress members.  Since 1976, Rep. Ron Paul MD (R-TX-14, first elected in 1976 with 2 gaps totaling 14 years; born 1935) has always been the strongest fighter in Congress for more liberty and less government. His Libertarian philosophy calls for sound money (convertible to gold), and he wants to abolish the Federal Reserve Bank (HR-2755), and associated GSEs Fannie, Freddie, the World Bank, IMF, BIS, etc., or at least make the Fed subject to audit (HR-1207), As the ranking Member of the Domestic and International Monetary Policy, he has introduced many bills to restore sound money. As far back as 1993, legendary House Banking Committee Chairman, the late Henry B. Gonzalez (D-Texas, CD-20, 1961-1999; lived 1916-2000), fought to make the Federal Reserve and GSEs more accountable. Next, Richard Baker (R-LA, CD-06, since 1987; born 1948), since 2000, has been engaged in pushing the biggest reform bill of his congressional career, trying to protect taxpayers from potential losses by the GSEs Fannie Mae and Freddie Mac. Then in May, 2006, Sen. Chuck Hagel (R-NE, 1996-2009; born 1946) wrote a letter, co-signed by 19 other Senators, asking Majority Leader Frisk for support of his 2005 bill S-190 ‘Federal Housing Enterprise Regulatory Reform Act’ that would protect taxpayers from potential losses by the same GSEs. He got no support, and the bill died. Then disaster struck in 2008, as predicted!

A major facilitator to start this mess was the Community Reinvestment Act (CRA), a 1977 federal law pushed by Pres. Carter that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as ‘redlining.’ The purpose of the CRA is to provide credit, including home ownership opportunities, to underserved (unqualified?) populations and commercial loans to small businesses.

The CRA was passed into law by the U.S. Congress in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community. The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions. The CRA is enforced by the financial regulators (FDIC, OCC, OTS, and FRB). In 1995, as a result of interest from President Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs (that is, forcing lenders to make more sub-prime loans!!). These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for five years. Thus in 2002, the regulators opened up the regulation for review and potential revision.

The Clinton Administration's regulatory revisions with an effective starting date of January 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers (i.e., 'sub-prime', unqualified!) for home loans. Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide (set up as an ‘off brand’ by Bank of America), that was aggressive and did not mitigate loan risk with savings deposits (ie, borrowers must have deposits) as did traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans ('subprime', high risk for banks). The revisions allowed the securitization of CRA loans containing subprime mortgages (ie, packaging good and bad debt together and calling the bunch 'AAA'; this is FRAUD by the rating firms, see below!!). The first public securitization of CRA loans started in 1997 by Bear Stearns, and it helped break them in Sep-08!. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent (a flood of money into high risk).

A major factor was sloppy, incomplete, fraudulent, self-serving (to get and keep customers) work by credit rating firms such as Standard and Poors, Fitch, and Moody’s, who were complicit in the chain of perpetrators who branded bad debt as AAA. 

In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen

Among banks and the regulatory agencies, there was a consensus that data collection, recordkeeping, and reporting requirements imposed a heavy burden on small community institutions. As a result of a 2002 review of the CRA regulations, and revision of an initial Federal Deposit Insurance Corporation (FDIC) proposal following a public commenting period that was largely negative, the FDIC, Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB), made substantive changes to the implementation of regulations for the CRA for banks (not Thrifts). Credits: Excepting inserts ‘(xx)’, most of the above five paragraphs are from the Wiki entry:

http://en.wikipedia.org/wiki/Community_Reinvestment_Act .

In the 1980s, groups such as the activists at ACORN (‘Association of Community Organizations for Reform Now’, www.acorn.org) began pushing charges of "redlining" - claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants; this allowed various studies to be ginned up that seemed to validate the original accusation.

In fact, minority mortgage applications were rejected more frequently than other applications - but the overwhelming reason wasn't racial discrimination, but simply that minorities tend to have weaker finances. A study in 1992 proved that bias was not the problem. Yet the harm was done and banks loosened their rules to avoid lawsuits.

The 'Troubled Assets Relief Program' (TARP) was a 3-page note introduced by Paulson and Bush in Oct-08 in a panic mode based on predictions of a sudden crash in the economy.  They wanted $500 billion with no questions asked, and no liability. Congress converted it to a pork-laden 500+ page tome which still had little oversight. They and the recipients have refused to account for how the first $385 bill. was spent! The so-called 'panic' urgency is now being viewed by many as a lie used by Paulson and Bush to bail out firms run by their friends and campaign donors, and the voters who own their stock. It is grossly unfair to well-managed firms who now must continue to fight competitors (run by greedy jerks or fools) who should have failed. The huge debts incurred by the Treasury and Fed to pay for the bailouts has created a large risk of major reduction in value of the US Dollar in 2009 and up (due to rapid and excess expansion of the money supply; ie, Inflation). Stay tuned!

It all comes back to how distortions of the free-market by the government always do more harm than good, often to the intended beneficiaries.

Very few people understand, or care about, the above currency issues. They prefer bread and circuses, as we crash!! SAD.

 How Politicians Use Fake Money to Keep Their Jobs, and Damage Our Nation 

Politicians hate to have the government run out of money. They need it to fund projects as gifts to voters and campaign donors that help them win elections, and continue their lush lifestyles of fun and power. Most are ushers at the trough; ‘Slip me $5 and come to the front of the line and get $100 from the trough.’ A good return on investment ! This is why political campaigns raise and spend so much money; the donors give it in expectation of a big payback ! This is true of any country, but is worst when there is a central bank to provide fake money (no intrinsic value; coins and paper have no convertibility to a valuable commodity such as gold). Our central bank, the unconstitutional, privately-owned, secretive, Federal Reserve System (Fed), was created secretly by bankers for long-term control and profits, but in the short-term they knew they would need it for their planned entry into WW1. Since then the US Dollar’s (USD) purchasing power has dropped by 95% (20:1)! All governments ALWAYS abuse this access to an unlimited supply of money by creating too much, thereby reducing, or destroying, its purchasing power. Those few people who warn of such abuse are called kooks and dinosaurs by the elite in power, who also call gold a ’barbarous relic’. This elite includes most ‘economists’ since they are dependent on government funds for their pay and grants.

Central Banking Worldwide

The various central banks worldwide are another layer of monetary manipulation. They use the ‘Bank for International Settlements’ (or ‘BIS’) as their meeting place. The BIS, established by the Hague agreements of 1930, is an international organization of 55 central banks, based in Basel, Switzerland, which claims to "foster international monetary and financial cooperation and serves as a bank for central banks" , and says it seeks to make monetary policy more predictable and transparent among its member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. Although a private corporation, the BIS, its offices, employees, directors and members share an incredible immunity from virtually all regulation, scrutiny and accountability, with quasi diplomatic status granted and supported by the Swiss government. See more at; http://en.wikipedia.org/wiki/Bank_for_International_Settlements, http://www.newswithviews.com/Wood/patrick5.htm, and http://informationclearinghouse.info/article22247.htm. Many believe the BIS is; 1. Controlled by elite bankers to serve not just the interests of their nation, but also of business and personal ‘friends’, and 2. Is the cause of most currency-related problems, such as inflation and depressions. Stay tuned!

Another ‘world’ financial group is a private club known as the Bilderberg Group. The original Bilderberg conference was held at the Hotel de Bilderberg, near Arnhem in the Netherlands in1954. It was initiated by several people concerned about the growth of anti-Americanism in Western Europe, who proposed an international conference at which leaders from European countries and the United States would be brought together with the aim of promoting understanding between the cultures of United States of America and Western Europe. Now its focus is on world monetary affairs and holds an annual invitation-only conference of around 130 guests, most of whom are persons of influence in the fields of politics, business, and banking. The participants talk about a variety of global issues, economic, military, and political.

The group meets at a luxury hotel — normally in Europe, and once every four years in the United States or Canada. It has an office in Leiden in the Netherlands. The 2009 conference took place from May 14-16 in Athens, Greece. This year the focus was on topics such as; a Global Monetary Authority, a Global Central Bank, regional currencies, a global reserve currency, and a world governing body. For details, see; www.globalresearch.ca/index.php?context=va&aid=13738

ARTS says the vision of both the BIS and Bilderberg Group for world prosperity will fail because it is based on money that has no intrinsic value, is subject to excess creation of new money, and thus unsustainable. Yet another ‘world financial’ group, the ’G20’ (20 major nations) had its annual meeting of April, 2009 in London and also focused on the ‘money’ problem. History has many examples of failure, since all empires fail due to running out of purchasing power (their fake money becomes almost worthless, see # 3 in left margin of Home page, ‘Empire’); Rome/Italy, Spain, France, England, USSR, etc. are examples. Another sign of failing is decadence of the citizens. Look at how the content of TV, movies, and magazines, etc. have changed since the ‘50s, with more sex, violence and cursing. Just as Romans wanted bread and circuses, with lions and gladiators, our people thrive on the violence of NASCAR and cheating and fighting in sports.

Starting in the late ‘90s, Pres. Clinton and Cong. B. Frank (the worst mortgage abusers) pushed our fake money to fund high-risk, politically motivated, home mortgages (sub-prime) through government-controlled GSE’s such as Fannie and Freddie. Commercial banks made the deals, but sold most of these toxic loans overnight to the GSEs. As Peter Schiff wrote on 14-Feb-09; “Developed primarily over the last 10 years, securitization permitted loans of all shapes and sizes to be packaged into investment-ready securities. The system worked, fueling unprecedented levels of lending in the home, auto, student, and credit card sectors. But in the last few years as the collateral underpinning these securities has collapsed in value, the trillions of dollars of securitized debt now in circulation has become the toxic sludge at the bottom of our financial pit.” Foreign banks and investors happily bought $ trillions of these securities because they were based on US real estate, had high interest income, and were apparently backed by the US government. The process was corrupt from the start, but was pushed by Congress and Wall Street elites, many of whom made hundreds of millions each in bonuses. The billions that Wall Street firms paid for lobbyists, and donations to legislators, paid off in favorable laws that fostered the abuse and crash. As the false prosperity slowed, and caused loss of US jobs, then mortgage foreclosures, these fake securities lost value, and the worldwide crash started in late 2008. Pres. Bush-43 made things worse with his heavy spending at home and abroad, (wars for oil and Empire).

The countries we buy imports from (China leads) accumulate billions of USD and buy our T-bills to get some interest. In China, the government buys the USD from those firms who export to the US, then they buy US securities. Their next step may be to buy US firms and our politicians! This is a re-cycling of fake money, with interest paid by fake money, and all parties hoping it will last forever.

The USA is an Empire built of federal debt of over $50 trillion, plus consumer debt. Another debt load is the trillions of unfunded future liabilities in the Social Security and Medicare programs. The Bush TARP, and Obama stimulus, will add almost two more trillion! It has been a fun party, but our era of financing wars, Empire-USA, foreign aid, imports, and homeland spending with fake money is about to end. China and Russia suggested at the Jan-09 ‘World Economic Forum’ in Davos that a new system is needed to replace the USD. Classical economists such as Adam Smith and David Ricardo did not anticipate (or could not imagine) that ‘fiat’ money (it is worth whatever the government says it is) could ever be accepted as the world’s reserve currency, thus their writings do not account for it.

Transition to Real Money (Gold-Backed) 

What is the lesson here? Of course, bad endings to false schemes are an old story. In this situation, let’s focus on the role fake money plays in making it worse.

First, we must be clear that money was invented by people (not governments) as; 1. a convenience in buying and selling (a medium of exchange; better than barter), 2. a store of value (saving), and 3. a unit of account. Under these conditions, all money was based on a valuable commodity (from shells, and hoes, to copper and gold). Most societies find that gold works best (see First Rule below). Silver is more volatile (more new production, consumed for industrial use, etc.), so is less attractive. Also, note that Article 1, Sec. 8, of the United States Constitution grants Congress the authority;  ‘To coin money, regulate the value thereof…’ We say the ‘value’ should be in weight of precious metal. It does not grant the government a monopoly (but they want it so they can force us to use their fake money), or exclude use of foreign coins.

Scientists use theories and hypotheses to describe their research and to help make predictions (such as A. Einstein’s ‘General Theory of Relativity’; S. Hawking’s ‘Unified Theory’, etc.). I offer below,  ‘Redick’s Four Monetary Rules’ to describe the requirements for a monetary system using ‘real money’ (money made of, or convertible to, gold).

First Rule:

A. Coins must be made of a material that is: 1) Rare, with a low amount in existence now, and limited new supply, 2) Malleable, so can be made into coins, 3) Stable physically and chemically; doesn't break, rust, or rot, 4) Easy to determine purity by weight, 5) Difficult to counterfeit (make ‘artificial gold’), 6) Homogeneous in content (a melted chunk is the same throughout), and 7) High value per ounce (not bulky to handle or store). Gold fits these requirements best. The coins must be valued and marked by weight of their precious metal content (such as ‘milligrams’).

B. Paper money must be; 1) Valued and marked by weight of precious metal it represents (Such as ‘grams’; No ‘name’, such as ‘dollar’, is needed); and 2) Convertible to such metal by the Bearer on demand to the Issuer of the paper at Issuer’s various premises, with such premise locations disclosed on request.

Second Rule: No government laws shall apply to control the Issuers, foreign or domestic, of coins and paper currency, except to assure full disclosure of content (% purity and % mixture of base metal, thus hard metals may be included to decrease wear) of issued coins, and ready access for inspection of the amount, and purity, of precious metal on deposit to convert paper.

Third Rule:  Money issued by the government, if any, shall have no special status, or privilege, over money issued by persons, or privately owned firms. Such money would be issued by the nation’s Treasury Department, and there would be no ‘central bank’.

Fourth Rule: There will be no designated ‘World Reserve Currency’, set by agreement between nations, but such status might be set de facto by free market forces.  Thus, buyers and sellers will decide which are the ‘preferred’ currencies, and fake or debased money will be avoided.

In the USA, these rules would require abolition of the Federal Reserve System, and the FDIC and associated GSEs Fannie, Freddie, GNMA, etc., and curtailment of fractional-reserve banking to ensure adequate gold for convertibility, and refund of deposits. Banks would be free of government control (including foreign bank branches in the U.S., starting a new bank, and multi-state banking), but would be required to publicly disclose their reserves, loan amounts, and obligations. Examples of former world reserve currencies are the French Franc, British Pound, and now the US Dollar (USD) is approaching ‘former’ status.

The goal is to engage in a transition to Real Money in the USA, then promote the same transition worldwide. This is likely to work, because fake money, or money from issuers with inadequate reserves of gold for convertibility, will, a) soon be refused as payment, b) the Seller will ask a higher price, or c) not be held as savings or investments. This shows the error in Gresham’s Law which states ‘bad money drives out good’. It does not consider a, b, and c above, because it only applies where the exchange rate between currencies is fixed by law, and legal tender laws exist.

Some of the results of using these Rules are;

1. Stable Purchasing Power: Purchasing Power will be stable, or increase, in the long-term (hundreds of years), with; a) possible minor and gradual decreases as new gold is mined, or b) increases (appreciation) if some of the existing supply is taken out of circulation, or as economic activity grows, causing an increase in demand for the existing supply of gold. The appreciation is a positive incentive to save, and avoid debt. For example, gold is now worth about $800 per oz., so it would take about 30 oz. to buy a car. Maybe after 50 years on the gold standard, it will take only 10 oz. to buy a car. The opposite affect exists with today’s fake, depreciating money. With the USD losing value at over 5% per year, it makes no sense to save cash in a bank at 2 or 3% interest, so people, funds, and firms are obliged to try high-risk stock and real estate investments. Of course, the $800 (1 dollar = 1/800 oz., almost 1 thousandth) figure is false because it does not consider convertibility of the trillions of USD now in circulation worldwide, and in USD denominated assets. Thus, if we went to a gold standard today, the current ‘dollar’ might be valued at 1 millionth oz. of gold, or less. A valid ratio can only be set when the Federal government and Federal Reserve Bank disclose how much gold they have. Then the transition to 'grams per dollar' can be set so there are enough reserves (20 to 40 percent) to avoid a 'run' of holders converting their paper to gold. Thereafter, the 'term 'dollar' would fade and all currency would be valued in grams of gold (or milli-, or micro-, etc.). This subject is discussed in depth in Nobel Laureate F. A. Hayek's 'Denationalization of Money: The Argument Refined', 1976, which puts forth the case to; 1) end the government monopoly on money creation, 2) let anyone create money, and 3) let the free market determine which type of money is used (just as I suggest above). The point is to end government politicalization, abuse, and fraud in creation of money. Remember, the plan is to get rid of currency ‘names’, and just label them as to weight of gold. The sooner we change, the better.

2. Reduction of Excess Spending, and Its Damage: With real money, people, firms and governments will not be able to engage in excess spending because they will run out of money. This gives incentive for them to engage in honest, rational, positive acts such as; a) spend carefully, b) save, and c) plan ahead. As a result there will be; a) fewer and smaller wars; b) no major bubbles in housing, Silicon Valley, or Wall Street; c) less welfare, pork, subsidies, etc. which make people, schools and firms dependent on DC money, and attract lobbyist to ‘buy’ legislators so they can get favors (a nice side-effect is that most lobbyists will go out of business because their will be little or no pork and subsidies available from DC; just favorable laws; also, campaign funding will dry-up, so campaigns will be cheaper, and more ‘normal’ people will be able to run for office); and d) no excess imports, and resultant ‘off-shoring’ of USA jobs, factories, and professionals, because there will be no unlimited supply of fake money, injected into the economy by the Fed to fund this abuse and corruption! These limits will be automatic. Some will say, this is a loss of needed ‘liquidity’, but I say it is a good brake on unfettered (dare I use the Liberal’s pejorative?) spending. The ‘feel good’ heroin analogy applies. The result is a positive incentive due to APPRECIATION of purchasing power of the money.

The supposed need for a ’government-managed monetary system’ is a key fault held by those economists who support the Fed concept (the ‘Chicago School’ economists, and all Progressives). They state that the money supply must grow to provide liquidity to a growing economy. They need this because their fake money has no appreciation. To the contrary it loses (95% since 1913) due to excess money creation, which doesn’t happen under Redick’s Rules. The key is to get government ownership and ‘management‘ (controls, monopoly, legal tender laws, setting a ‘price’ for gold, excess money creation, etc.) out of the monetary system, and abolish the Fed.

Notice that 2-d) above solves the problem of excess imports causing loss of jobs due to off-shoring. With the finite supply of real money, US importers will find themselves short of money, and start buying local. Free trade is good, unless importing is taken to extremes by the use of fake money. Note again, this can only happen if the fake money is also the world’s reserve currency (until demoted!). Poor citizens in third world countries that have little ‘real money’ to buy imports, will have incentive to work hard, innovate, and earn gold from exports.

Many articles have been written about causes and cures of the current economic crash since it started in late 2007. Politicians want various versions of ‘stimulus’ (more spending) to fix a problem caused by too much money in the economy. This will make things worse after a few months of fun spending. What they should do is cut taxes, end wars and empire, end all subsidies, end the Dept. of Education and others, and take broad measures to reduce government spending. Free-market capitalism will rise from the ashes, and produce honest, sustainable, jobs, peace, and prosperity. Pres. Obama, N. Klein, R. Reich, P. Krugman, and others whine that ‘capitalism was tried and failed’. What a joke! The USA economy has had a declining percent of capitalism since fake money was started in 1913, and the above positive benefits of capitalism have fallen even faster since the end of partial-gold backing of our money in 1971. It is Socialism (a government managed economy, with much government ownership of firms, run by Liberals, Progressives, Empire-building war-mongers, Bush-Neocons, etc.) that has harmed us most since 1913. The whiners are either lying, ignorant, or engaged in self-serving rhetoric to enhance their ‘change-based’ jobs.

I don’t underestimate the difficulty of, and opposition to, a transition to real money. Maybe if we hit bottom hard enough (2010?),in the coming depression people and the government will start to listen to us ‘real money’ folks, and go for it. Cong. Ron Paul has been a leader for many years in the fight for ‘sound money’ and compliance with the Constitution as to reduced spending and intervention at home and abroad. Former U.S. Sen. Chuck Hagel issued warnings in 2004 and 2005 about impending trouble at the GSEs, but was ignored. Bravo to these leaders, plus many authors such as P. C. Roberts Ph. D., Judy Shelton Ph.D. (see her 12-Feb-09 Wall Street Journal article on ‘Sound Money’), and others, plus web sites antiwar.com, LewRockwell.com, informationclearinghouse.info, and FFF.org that publish ‘less government intervention’ essays daily.

Because the Fed gives it an unlimited supply of funding, the U.S. Federal government has become an arrogant master that dominates and abuses its citizens, the U.S. States, and other countries, while providing big incomes and privileges to those people and firms that have ready access to it. Over half of the federal government spending and projects (Medicare, Social Security, wars for empire, bailouts, grants, subsidies, pork, etc.) are unconstitutional, but Congress, the people, and the Supreme Court don’t seem to care. Our national disease is that it is deemed ‘normal’ to have the government supply whatever is ‘needed’, and most people want ‘somebody else’ to pay for it (‘the rich’).  When I first ran for Congress in 1982 (District CA-01) I promoted liberty and personal responsibility as the path to success. I soon found out that most people (including educated, successful people, and business managers) want convenience and security, and hope someone else will pay for it. This mode of living is immoral and unsustainable, and reveals the classic signs of decadence in a failing empire as shown in # 3 in the left margin of the Home page, ‘Empire’.

A new approach is needed! Go to the Home page to see my plan for ‘America’s Roadmap to Success’ (ARTS).

To those who join me in the fight for more liberty and personal responsibility, I say ‘We must never give up.’  

                                           *************** 

Recommended Authors on Money and Finance:

1. James Quinn, is Senior Director of Strategic Planning for a major university, and author of a series of essays on world financial affairs. See: 'WHAT HAPPENED TO THE AMERICAN DREAM', Dec. 24, 2008' at http://www.financialsense.com/editorials/quinn/2008/1224.html,

and 'The Law of Unintended Consequences: 20th Century and Beyond' Jan. 5, 2009

http://seekingalpha.com/article/113162-the-law-of-unintended-consequences-20th-century-and-beyond. For more, go to 

http://seekingalpha.com/author/james-quinn , 

http://www.financialsense.com/editorials/quinn/2009/0218.html, and his main site; http://www.theburningplatform.com/ .

2. Ellen H. Brown J.D., is a lawyer and author of books and medical and financial matters, with an emphasis on monetary systems. See

'The Tower of Basel: Secretive Plans for the Issuing of a Global Currency' at www.globalresearch.ca/index.php?context=va&aid=13239. Her sites are; www.webofdebt.com and www.ellenbrown.com . 

3. Peter Schiff is President of Euro Pacific Capital and author of ‘The Little Book of Bull Moves in Bear Markets’ and ‘Crash Proof: How to Profit from the Coming Economic Collapse’. See his http://www.europac.net/, and archives at http://www.lewrockwell.com/schiff/schiff-arch.html 

4. Murray Rothbard Ph.D., Libertarian economist, Professor, and  prolific author. See 'What has the Government Done to our Money?' and  http://www.mises.org/money.asp     

5. Paul Craig Roberts, Ph.D., author and economist. See: 'Crisis Is Beyond The Reach of Traditional Solutions ' Nov.13, 2008  http://www.informationclearinghouse.info/article21218.htm

6. F. A. Hayek, Nobel Laureate. See;  'Denationalisation of Money: The Argument Refined', 1976, which puts forth the case to; 1) end the government monopoly on money creation, 2) let anyone create money, and 3) let the free market determine which type of money is used.  

7. For more on money, visit  http://en.wikipedia.org/wiki/Money_supply, http://www.mises.org/freemarket_detail.aspx?control=483,  http://www.history.com/minisites/money/viewPage?pageId=52498.