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I do not profess that the main structural arguments of the following essay are mine. Rather they belong to a rather famous former Chairman of the U.S. Federal Reserve named Alan Greenspan as noted in his rather seminal 1966 essay titled “Gold and Economic Freedom”. However, I have taken the specific arguments of that very prescient essay and modified and reinterpreted them to fit into the contemporary situation of our current global and financial crisis.
It is clear that at some point after his appointment to the Chairman of the U.S. Federal Reserve in 1987, Alan Greenspan turned his back on the very structural beliefs about gold’s inextricable connection to freedom that he championed some twenty years earlier.
However, Greenspan’s failure to uphold the ideals he once championed does not invalidate their keen insight and validity. Today, these very ideals are especially pertinent to the impending economic catastrophe we face today, despite the continued three-ring circus of government, Central Bankers, & corporate executives that continually tell us that the financial crisis has bottomed.
Today, due to the proliferation of fragile and confusing financial instruments called derivatives and the fraudulent nature of our fractional reserve banking system, hundreds of billions, and more likely, trillions of more dollars exist than claims on real assets and goods.
The comparable analogy would be if, as an Apple (AAPL) store owner, I sold the same 100 Apple desktop computers to 10,000 clients. As long as no more than 10 of my customers required delivery in any given year, then my business could operate for many years without this fraudulent scheme ever being exposed. However, the instant my clients collectively decided they wanted to take delivery of all 10,000 computers in the same month, my ruse would be exposed and my business sentenced to a fate of bankruptcy.
Almost all of us would agree that this would be an insane way to run a business, yet we readily accept the fact that all major banks in every modern, developed nation run their businesses in this very manner. However, the development of such a situation would be next to impossible with the institution of a true gold standard and this is why Alan Greenspan once made the timeless statement that economic freedom and gold are inseparable.
A true gold standard would operate as follows. The introduction of any new supplies of money into the global economy would necessitate the equivalent purchase of gold to be stored as reserves to back them. Thus, if the power to print money was returned to the U.S. government as explicitly stated in the U.S. Constitution, Article 1, Section 8, and the U.S. Treasury wished to print $1 trillion new U.S. dollars, such an action would require the purchase of an additional $1 trillion of gold to back the new dollar supply.
Of course there is not enough gold in the world to back all the trillions of dollars that exist in our current monetary supply unless gold were to be revalued somewhere in the vicinity of USD $10,000 an ounce, or perhaps even north of this figure. Or perhaps the standard would have to be a silver standard or a hybrid gold / silver standard. For the sake of a hypothetical argument, however, let’s examine how a gold standard keeps money “honest”. Once a new supply of $1 trillion was printed, every new dollar would be a claim on a portion of the U.S. Treasury’s gold reserves, not just an empty piece of paper backed by the “full faith and credit” of the U.S. government, as is the case today.
Because there is a cost to printing new supplies of dollars under a gold standard, the primary driver of monetary supply expansion would consequently become the sustainable expansion of real goods and services, NOT the speculative whims of a few powerful banking families that wish to drive up prices of unsustainable assets such as subprime mortgages, derivatives, dangerously overvalued stock markets, and rigged commodity markets for their own benefit. Inevitably, under our current fraudulent monetary system, such actions occur and lead to what the media erroneously terms as “bubbles” and which financial “experts” misinterpret as natural economic cycles.
In reality, “bubbles” are grossly distorted unsustainable valuations of assets driven by the speculation and the monetary policies of the financial oligarchs that control the U.S. Federal Reserve, the Bank of England, and the European Central Bank. This is why “bubbles” always burst. By the purposeful creation of bubbles, the financial oligarchs that create them increase their riches, and then plunder the wealth of their fellow citizens when these bubbles inevitably burst. This accomplishes two important goals for the financial oligarchs.
(1) Since they create every capital market bubble in every major economy, inevitably, they understand exactly how to profit from these markets, and they increase their wealth and power substantially as these bubbles grow;
(2) Since most citizens don’t understand the extreme fragility of the bubbles the financial oligarchs create and instead interpret the bubbles as bull markets that cannot end, when the bubbles inevitably burst, this action conveniently strips wealth and power from the classes that reside below the financial oligarchs and stifles any chance for real opposition and dissent to their power.
It is the perfect con game.
J.S. Kim - Seeking Alpha
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