Agitator Hour - NORFED - Use specie backed currency instead of Federal Reserve Notes

The Agitator ^ | 020206 | The Agitator

[CobaltBlue]

Correction, the article cited is by Eichengreen and Temin. Excellent, in my opinion.

[Deuce]

You have made several excellent posts above. I have a few questions and comments below.

You wrote:

The amount of money created by the derivative market and the securitized equity markets is several thousand times what the Fed creates.

In what way do you mean this? None of the money supply numbers ( M1, M2, M3, or MZM ) contain derivatives.

…you can't have the government doing anything with the money system except serving as guarantor that the paper is really a receipt for real gold that exists in the government warehouse….

The government should enforce valid contracts. The gold merely has to exist in the warehouse of the issuer, not the warehouse of the government.

The United States has done a better job preserving the exchange value of a fiat money supply than anyone else over the course of history.

Davison and Moog explain why in Blood in the Streets:: The U.S. is militarily powerful.
Mao tse tung said, “political power emanates out of the barrel of a gun.” So does economic power. Who dares tell the King he has no clothes?

[handk]

"I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . ."

"Interesting that home ownership and wealth in this nation keep going up under this destructive system." [said Always Right]

Really? Are you one of those "homeowners"?

Try this experiment. Stop paying your property taxes. You'll be thrown off "your" land and replaced with a new serf who will "specifically perform." So-called "homeowners" are nothing more than "tenants in fee simple" and if they fail to pay their annual "tribute to the Prince" (aka the State in which they reside), the "Prince" (aka the "Governor") will replace them with someone who will.

FEUD. Land held of a superior on condition of rendering him services ("state property taxes"). 2 Blackstone, Comm. 106.

A hereditary right to use lands, rendering services therefor to the lord, while the property in the land itself remains in the lord. Spellman, Feuds, c. 1.

The same as feod, fief, and fee. 1 Sullivan, Lect. 128; 1 Spence, Eq. Jur. 34; Dalrymple, Feud, 99; 1 Washburn, Real Prop. 18.

FEUDA. Fees.

Back when this nation was a Republic, individuals owned their land "in allodium" (or "allodial title").

ALLODIUM (Sax. a, privative, and lode or leude, a vassal; that is, without vassalage).

An estate held by absolute ownership, without recognizing any superior to whom any duty is due on account thereof. 1 Washburn, Real Prop. 16.

Source:

[STANDARD LAW BOOKS.]

Revised and Greatly Enlarged Edition

JUDGE BOUVIER'S

LAW DICTIONARY

ADAPTED TO THE

CONSTITUTION AND LAWS

OF THE

UNITED STATES OF AMERICA

AND OF THE

Several States of the American Union

WITH REFERENCES TO THE CIVIL AND OTHER SYSTEMS OF FOREIGN LAW.

Twelfth Edition, Revised and Greatly Enlarged.

Two Volumes Royal Octavo. Price $12.

November, 1867

And speaking of "wealth", how do you reconcile your claim with the fact that the outstanding debt load for governmental, commercial and private sectors is roughly 21 trillion dollars? Hmmm?

[Deuce]

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . ."

While widely quoted and in concert with the general beliefs Jefferson held, this quote is NOT something TJ ever said. The words "inflation" and "deflation" did not come into use until well after the Civil War'

[DallasMike]

I can tell you that the view amongst many economists is that the Federal Reserve was to blame for the Depression, not because of the gold standard but because they allowed all the bank failures.

I agree. I don't want to give the impression that the gold standard caused the Depression, merely that it was one factor amongst many that made it worse.

[David]

'The amount of money created by the derivative market and the securitized equity markets is several thousand times what the Fed creates.'

"In what way do you mean this? None of the money supply numbers ( M1, M2, M3, or MZM ) contain derivatives."

The whole point of the derivatives is to create credit values, depending on movements of interest rates, or commodities, or whatever--those credits are then banked and the the offsetting credit turns up in a checking account as M1. The issue of quantification is not all that clear because no one keeps track of this anywhere. Further complicating the question is the fact that some of these credits, although viewed by the owner as balance sheet cash, don't get into a checking account until realized because it is the other party to the deal or his assignee that delivers up the value.

Again, I commend to you Doug Nolands articles on PrudentBear.com and in the archieves there--he has devoted enormous study and analysis to this issue. Today's issue (he posts every Saturday morning) is particularly enlightening--movements in long rates, availabilty of credit to high grade corporate credit risks, and movement in the price of gold imply that we will see some significant events in the money markets in the not far distant term.

'…you can't have the government doing anything with the money system except serving as guarantor that the paper is really a receipt for real gold that exists in the government warehouse….'

"The government should enforce valid contracts. The gold merely has to exist in the warehouse of the issuer, not the warehouse of the government."

In a gold money system, you would not have much contract money. For one thing, the gold money system would eliminate many of the risks which derivatives are designed to hedge against--you wouldn't need derivatives any more. Sure, the government runs the judicial system and enforces contracts. But my view of paper money is that the piece of paper is a receipt for physical gold (not a fractional reserve but 100%) that exists somewhere and title to which is transfered by delivery of the paper. To the degree that you had a bank holding the gold and refusing to deliver upon presentation of its receipt, you would use the courts to make them.

Whose warehouse? I might have the gold in the government's warehouse because in international trade deals or any commercial deal where the party getting the value is a long way from the bank that held the gold, you would want some kind of paper the recipient could rely on. Perhaps a better system could be designed than the government.

US financial administrators have a better understanding of the pitfalls of paper and fiat money system than their historical anticedents. The New York money managers were concerned in 1978 that the system and inflation were out of control and at the edge of a situation where they might lose control of the political system with inflation running at 12%. They forced the appointment of Paul Volker who stands as the most effective manager of the Fed in my view.

I think the general view is that in the United States, the people won't stand still for very much in the way of lost value of money--if we had inflation at the rate of 20% in one year, we would have a new system of money and probably government. And as you recognize, a significant number of the establishment owners of capital have a large vested interest in preserving control over the money system represented by the Fed. Absent the Fed; absent control over the fiat money system, many political decisions in this country would be different.

[DallasMike]

What is the value of that mythical men's suit during the period depicted on your chart?

See, you have shown nothing of value in the discussion at hand.

Actually, I have. Your assertion (and I've seen it many, many times before) is that an ounce of gold has steadily approximated the value of a man's suit. Ergo, if an ounce of gold was worth $32 (more or less) in 1968, it means that a man's suit cost approximately $32 at the time. If an ounce of gold cost $800 in 1980, it means that a man's suit cost approximately $800 at the time. Is this what you're claiming?

It's your job to either prove this assertion or denounce it for the old wives' tale that it is.

[DallasMike]

But my view of paper money is that the piece of paper is a receipt for physical gold (not a fractional reserve but 100%) that exists somewhere and title to which is transfered by delivery of the paper.

Unfortunately, the worth of goods and services in the world at this moment is far greater than the value of gold that we have mined. If we were to return to a gold standard (fat chance that we ever do) it would have to be on a fractional reserve basis. Either that or we decrease the money supply and drive up interest rates chasing after scarce capital.

[norraad]

Depends on the suit{I always thought, no accounting for taste}.

Love to have these old answers questioned!

Sat through too many stuffed shirt econ. lectures thinking "this can't be all there is to this mess"

Love the alloidial ref. too, there's alot of fun to be had there.

[savedbygrace]

if an ounce of gold was worth $32 (more or less) in 1968,

Why would you think so? This was an artificial price.

If an ounce of gold cost $800 in 1980

This was a manipulated price. Of course, the current price is manipulated, too.

Both these examples try to peg the value of gold to the value of dollars. Dollars do not have a fixed value, so the exercise is not fruitful.

You could try to somehow peg the value of labor, but even if you found a way to do this, the taxes on labor would confound the effort.

I wonder why the Founders specified that no State was to "make any Thing but gold and silver Coin a Tender in Payment of Debts"? Remind me again which Amendment abolished that.

[DallasMike]

This was a manipulated price. Of course, the current price is manipulated, too.

Ah, of course. So the claim that an ounce of gold approximates the value of a decent man's suit can never be verified, even though it is held to be gospel truth by the gold standard promoters. If the values do match up, it's proof that the theorem is valid; if the values don't don't match up, it's proof of a conspiracy.

Just as I suspected.

[savedbygrace]

You must've mis-read me. I never claimed it was proof of anything either way. It sure seems to track a lot better than those FRNs you like so much, though.

BTW, you do recall that the price of gold was held artifically until, what was it, 1968 or so? Was that why you choose 1968 for one of your examples?

You and I are never going to agree about this. My reading of the relationship between the Great Depression and the gold standard doesn't lead to the same conclusion you have.

One thing is certain in my mind: A monetary system not tied to a gold standard is wide open for government manipulation and control. Need to solve a few nasty fiscal problems? Print more money. Need to solve certain other types of problems? Hold the money supply down.

[CobaltBlue]

Article One, Section 10 of the Constitution doesn't apply to the United States as a whole, it applies to the states:

"No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility. No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress. No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay."

[David]

"Unfortunately, the worth of goods and services in the world at this moment is far greater than the value of gold that we have mined. If we were to return to a gold standard (fat chance that we ever do) it would have to be on a fractional reserve basis. Either that or we decrease the money supply and drive up interest rates chasing after scarce capital."

That is simply incorrect. G (value of all above ground gold) = PV (value of all goods and services at the point in time measured times transactional velocity). There I did it for you. Now they are equal. Ask yourself what P is. If you want to value P in terms of current value US dollars, maybe P is 20 Trillion of those. If you want to value P in terms of British pounds sterling, it is 30 Trillion of those. If you want to value P in terms of Gold, it is X metric tons (all: dollars, sterling, or gold divided by V of course).

When you get down to trading value, maybe one ham sandwich is worth 5/100000 of an ounce of gold. Maybe our basic monetary unit is 1/100000 of an ounce of gold and we call that a gold dollar. That would of course value gold at about $100,000 US dollars an ounce today. Fine. But maybe the trading value of ham sandwiches is only 2/100000. Point is once you say gold is money and that is all there is as money, all the goods and services times V (velocity) is the gold supply. You will devide it into units that are convenient to measure and quantify. At the point we are on a real gold monetary system, I suspect gold is worth a great deal more than it is worth today but again what difference does it make? The objective is that we know have the commodity which is perfect money serving that purpose free of any interference from the Government beauracrats who think they know better than the market.

What you need to focus on is that you really don't know what the units of gold (how many 100ths or 1000ths or 10,000ths or whatever) would exchange for what value production. But once you said gold is the money, the market would tell you the answer and those are the units (1/100; 1/1000; 1/100000 or whatever of an ounce) you would trade in.

[Deuce]

First of all, I'm in agreement with most of what I have seen you say in prior posts. However, I don't understand your original comments or your further explanation equating derivatives with money.

Money, by definition, is that which passes from person to person to fufill the buying side of economic transactions (or something which can quickly be turned into such media at predictable exchange rates with money itself). Derivative contracts of which there are so many varieties are largely bi-lateral in nature. Those that are exchanged traded are hardly money by the above definition. Therefore, I still don't understand your point---which initially was made by you in connection with a comment that the Fed doesn't really affect the money supply all that much. The latter is a comment with which I strongly disagree and was surprised to see you say it in view of my having been on the same page as you up to that point.

I will read the articles to which you refer over the next few days.

[DallasMike]

That would of course value gold at about $100,000 US dollars an ounce today. Fine. But maybe the trading value of ham sandwiches is only 2/100000.

You just made my point for me. With your idea of a gold standard and at a current price of roughly $300 per ounce, gold is either vastly underpriced or the dollar is vastly overpriced. What happens when the supply of gold doesn't keep up with the increase in goods and services produced throughout the world? One must either restrict the supply of money or change the value of the currency. Either way, you lose whatever advantage that you're claiming to gain by going on a gold standard in the first place.

[Pelham]

The U.S. suffered the most from the Great Depression, of all the developed countries. And it also had the most provincial banking rules of the developed world. There is a connection between the provincial American banking laws and the depth of the Depression. Schumpeter writes that it was the collapse of the American banks that caused the U.S. to suffer a far deeper economic crisis than did the rest of the world. The other developed countries didn't have the bank failures that afflicted the U.S.

One main problem was the American prohibition against interstate banking. Large money center banks couldn't open or buy branches in the western and southern states, and when the rural banks began to weaken there was no way the stronger northeastern banks could aid them or purchase them. So they simply failed. The Fed, having just suffered the loss of its first and only Chairman, Benjamin Strong, was essentially rudderless and failed to act to prop up the rural banks. This is why the country suffered a 30% decline in its money stock in the early 30s.

[Pelham]

Friedman and Schwartz's A Monetary History of the United States has some very detailed descriptions of "bank money", "credit money", "high powered money", the "monetary base", etc. It's well worth having as a source.

Mises' The Theory of Money and Credit is another source. That book appears to me to have been written at two different times- the second part after his experience of the German hyperinflation.

[Pelham]

Bible says that Anti-Christ sets up a money system where every person gets a number on the back of their right hand or on their forehead--that no man can buy or sell without one.

Actually that "hand and forehead" imagery is also used in Old Testament books with reference to events that happened in the OT era, where it couldn't possibly have indicated computer chip implants. In those books it is a figure of speech indicating the willingness of the people to follow various kings: "hand and forehead" being something like "action and allegiance". And it's also helpful to know that the term "anti-Christ" never appears in Revelation- it's found in Peter's short letters, but not Revelation. My point being that some popular ideas of what Revelation is saying seem to be based on dubious hermeneutics.

[Pelham]

Paper money could have originated with Bills of Exchange drawn on the credit of the great trading houses of the Medieval Era. These Houses lasted for generations, and their credit was good as gold, so to speak. A bill issued on their House would circulate instead of being returned to the trading house for specie, or whatever else of value they were trading in. Which could have been silks, spices, gems, marble, whatever. The idea that paper money began as a warehouse receipt from a goldsmith is but one explanation for the origin of paper money.