Sound
Money: The Impossible Dream?
by Floy Lilley
by
Floy Lilley
Recently
by Floy Lilley: Voluntary
Serfdom Captured on C-Span Live
Our gold standard
money didn’t fail us in 1913; it was murdered.
Did it deserve
to die? What was its crime?
It had provided
us with nothing less than relative peace and prosperity over a span
of 136 years. It had not only retained one hundred percent of its
value, it had gained eleven percent. That’s right. The dollar
we started with in 1776 bought us eleven percent more after almost
seven generations. Then, J.P. Morgan’s creatures picked a quiet
23rd of December in 1913 to suffocate our sound money system. Since
that manslaughter, the purchasing power of a dollar has plummeted
over 95%. We now pay twenty times more than J.P. Morgan did for
any item.
Morgan and
his henchmen had global plans for the state. Their vision was of
a state, under their direction, that would supplant the failing
British Empire. This state would support and create wars, marshal
powerful and intimidating forces over foreign and domestic affairs,
dispense military contracts to political favorites, grow a professional
bureaucracy, seize central powers while diminishing individual liberties,
and fund any welfare plan designed to deliver votes. Importantly,
Morgan’s bank would be the state’s bank for all of this activity.
So, under the
guise of stabilizing the dollar, the Federal Reserve Act
destabilized it, causing booms and busts while proliferating
and prolonging conflicts everywhere. The new Central Bank designed
for the state the secret paper door to all the money it could dream
of spending, at the bald expense of unsuspecting, trusting citizens.
Morgan did
not originate the concept of this taxation by stealth inflation.
In Colonial times, Massachusetts had needed money and simply printed
it, also. One Bostonian had seen the consequent harm clearly,
William Douglas
understood that paper issues were a form of taxation on the public…that
increasing the quantity of money only depreciates the value of
each unit, so that a larger supply of money does no better or
greater work for society than a smaller. Hardest hit by the severe
depreciation of all the notes were nondebtors, especially creditors,
fixed-income groups, charitable endowments, and laborers, whose
wages rose less than prices. Conceived
In Liberty, Volume II, p.139, by Murray N. Rothbard.
A military
historian, Martin van Creveld, also sees clearly why and how the
state grabs total monetary control. He tells the full story in The
Rise and Decline of the State. Van Creveld reveals that,
"[the]
states having finally succeeded in their drive to conquer money,
the effect of absolute economic dominance on the states themselves
was to allow them to fight each other on a scale and with a ferocity
never equaled before or since. … The concentration of all economic
power in the hands of the state would not have been necessary,
nor could it have been justified, if its overriding purpose had
not been to impose order on the one hand and fight its neighbors
on the other. (pp. 241–2)"
Thus, the murder
of sound money became the most consequential death of the last one
hundred years. The Bretton Woods reform of 1944 was an acknowledged
failure by August 1971 when Nixon closed the international gold
window. The state, having cast off its golden restraints, made the
Twentieth Century a nightmarish bloodbath the world around.
Today, the
state’s fiat money theft and death machine wobbles. It can no longer
animate spirits or digitally create everlasting bubbles. Observe
the tremulous, palsied ravages of the wayward printing press:
- US Economy:
Currently in a double-dip depression, the economy experiences
the worst contraction since the first drop in the Great Depression.
- Debt:
The US must borrow 46 cents for every dollar spent this year.
Outstanding public debt
as of 18 August is $11,704,322,903, 918. An estimated population
of the United States is 307,209,243, so each citizen’s share of
this debt is $38,127. The debt-to-GDP ratio is 82%. This debt
will grow by a trillion dollars a year. The debt has to be rolled
over every four years. That’s $240 billion a month to be skimmed
off capital markets. The four largest budget items are wars, social
security, Medicare/Medicaid, and interest on the debt.
- Credit
cards: Credit card debt is $990 billion and rising. Private
debt per citizen is $23,902.
- Pension
and health-care liabilities: Believed to be over
$99 trillion. Brookings Institution’s Alice Rivlin states
that the long-term budget outlook is impending catastrophe.
- Home
foreclosures: The housing bubble peaked in July 2005. One
half of Americans now holding mortgages will be unable to pay
them in 2011. One household in every 355 homes received a foreclosure-related
notice in July. The Fed pays banks to keep their money with the
Fed. Lending that money seems not as safe. Real estate is unlikely
to rise, making it also unlikely that lenders will want to continue
any mortgages whose value has dropped 20 to 40% even though many
need to be re-set. States having the highest foreclosure rates
are Nevada, California, Arizona, Florida, Utah, Idaho, Georgia,
Illinois, Colorado and Oregon.
- Inflation/
Deflation: The monetary base has doubled over the last year,
so inflation, or hyperinflation waits, but prices are currently
falling 1.3% annually now. The Fed’s money machine is so broken
that its efforts to produce just a mild-flavored inflation will
fail. China’s imports are way down and we could be trapped in
a long deflation.
- Bank
Failures: Seventy-four banks have failed so far in 2009. This
compares unfavorably with 25 in 2008 and just three in 2007. More
defaults are ahead. The number of banks on the FDIC’s list of
problem institutions rose to 305 in the first quarter.
- Unemployment:
Officially 9.5%. June unemployment rate topped 20% in Michigan,
Oregon, Nevada, California, South Carolina and Rhode Island. Rates
are higher than published and often manipulated. If the number
falls, it will probably only be because those people have given
up looking. The government is the major employing sector now.
Mike Shedlock predicts structurally high unemployment for a decade.
- Fed intervention
increased: A Money Market Investor Funding Facility and an
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
Facility were created; the government has taken equity positions
in many larger banks; more moral hazard is encouraged by the Treasury
issuing a blanket guarantee of money-market fund liabilities;
and, more moral hazard is encouraged by raising FDIC limit to
$250,000 from $100,000.
- Manufacturing:
China has officially become the leading manufacturer of the world.
The US does pizza delivery well. US manufacturing barely employs
11% of the labor force.
Fractional
reserves and fiat funny-money caused the implosion of these areas
of economic life in the US. Our monetary system is a collapsing
apparatus. Clearing this market seems an impossible task. Yes, economic
law will work its magic to match supply and demand, but can it plough
through such an incredible economic global mess within our lifetimes?
Will the frantic state stop intervening long enough for the economic
body to heal itself?
Since a sound
money system has delivered peace and prosperity in our historical
past, could it not be called upon to do so again?
 Is
it an exercise in futility to spend any time even thinking about
life after the Fed, embracing specie-backed money that is not the
inflationary design instrument of the state? Gary North has written
an article
on replacing the dollar as the world reserve currency. Few have
written on the mechanics of getting back to sound money. But, many
are thinking that unthinkable. Audit the Fed cries are turning into
End the Fed demands. That begs the question, "What then?"
Repealing legal tender laws, generating competing currencies, denationalizing
money, meeting the small change challenge of 100% reserve money,
letting the market select which commodity will be the specie basis,
and a few zillion other considerations tickle the mind.
It’s a fitting
and proper time to be thinking of what such a free market monetary
system could smell like, taste like, look like and be like. Who
knows? The shambles that the central bank has made with the power
Congress sadly placed in its paws, calls for rigorous analysis of
a free society’s options. As this empire collapses, creating a fresh
monetary system won’t be an option for our future. It will be a
necessity. We once again will need to navigate our communities out
of the barter systems we will initially be thrown into. No banker
or politician or Keynesian economist will help us. Sound money is
suicide to them. Literally, sound money is Bernanke’s worst nightmare.
So, without those bankers, politicians, or most economists, we’ll
need to have given the creation of a sound monetary system in our
twenty-first century serious thought.
It’s time to
get thinking. It’s time to prepare. It’s time to dream that impossible
dream.
August
20, 2009
Floy
Lilley [send her mail]
is an adjunct faculty member at the Mises Institute. She was formerly
with the University of Texas at Austin's Chair of Free Enterprise,
and an attorney-at-law in Texas and Florida.
Copyright
© 2009 by LewRockwell.com. Permission to reprint in whole or in
part is gladly granted, provided full credit is given.
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