Gold and Economic Freedom
by Alan Greenspan

Uncle Sam, the thief, taking citizens for a ride!!!
"I'm for a flat tax -- as long as the flat rate is zero.
The object is to get rid of big government,
not find a new way of financing it." Harry Browne

 

Uncle Sam is a THIEF!
SEE THIS AS INTERNET PAGE

 

9/6/2012: "Wenn wir beginnen würden, möchten die Probleme lösen, die mit der Finanzpolitik über die komfortabler bedeutet der Geldpolitik .. dann hätten wir ein Problem," sagt Herr Schaeble.
 
("If we were to begin to want to solve the problems of fiscal policy via the more comfortable means of monetary policy ... then we would have a problem," said Mr. Schaeuble)

 

The following article written by Alan Greenspan in 1967 before his economic conversion and devolution to Chairman of the Federal Reserve, may seem self-contradictory. Greenspan truthfully and objectively presents the realistic case for the gold standard, yet Big Al capitulated to the Keynesian --- spend yourself out of recession --- fallacy which has resulted in today's worthless dollar and inflated prices.

 

Published in Ayn Rand's "Objectivist" newsletter in 1966, and reprinted in her book, Capitalism: The Unknown Ideal (buy), in 1967.

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

How USA Residents Are Screwed!

FROM It's the Spending, Stupid

By Ed Moy — Friday, 31 Oct 2014 08:38 AM

U.S. Treasury Secretary Jack Lew proudly announced that for the fiscal year ended Sept. 30, 2014, the federal government collected the most tax revenue ever: $3.013 trillion. But despite record taxes, the federal government spent $483 billion more than it took in.

To paraphrase Ronald Reagan, we don't have a $17.8 trillion debt because we have not taxed enough. We have a $17.8 trillion debt because we spend too much.

Obviously, the federal government's strategy of taxing our way to a balanced budget is not working. The more money that is collected, even more money is spent. Taxes aside, the budget has little chance of ever being balanced (or producing surpluses) unless the government stops spending as much.

There have been recent efforts at spending cuts. There were across the board cuts in discretionary government programs (sequestration) and capping future discretionary spending. Both helped. But they were more than offset by mandatory increases in entitlement programs, expanding populations in the entitlement programs and new programs like Obamacare.

That is because entitlements are the main driver of increased spending. Medicare, Medicaid, Social Security and other entitlements currently account for 55 percent of the federal budget. Without entitlement reform, their mandatory rate of growth will overwhelm the rest of the budget. That means crowding out the defense budget (20 percent) and all other government spending (17 percent).

And when the federal government does not have all the money to pay its bills, it borrows. Interest payments on the federal debt represent 7 percent of the federal budget. By the way, the average interest rate paid on the $17.8 trillion of debt is 2.3 percent. Imagine how much interest would be paid when interest rates normalize, say at 5 percent.

The problem is that cutting spending is hard work and requires unpleasant choices. So instead of tackling them now, the president and Congress are content to kick the can down the road. But soon that road will run out and there will be fewer choices and less time for a solution.

Big spending requires big revenues to pay for that spending. All those tax revenues take hard-earned money away from Americans, who would use their money on what they think is important. And whether they spend it, save it or invest it, the end result is a big boost to the economy.

But when the federal government gets that money, it spends it on what it thinks is important. Because of the political process and bureaucracy, it is inherently an awful and inefficient allocator of resources. Think of it this way: Are Americans better off if a family cannot buy a refrigerator so that mountain lions can be trained to walk on treadmills?

I would rather rely on the people making choices. Cut spending and taxes, and have the people decide on how best to use their money. They and our country will be better off.

FROM ‘The More Power The Government Has…’

July 7, 2014 by Bob Livingston

“The more power the government has, the greater the risk to the people and the more dangerous the abuse.” -- Edmund Burke, 1771.

Big government is organized crime in all but name, and the man in the street is numb to the universal risk in today’s world.

Politicians and bureaucrats are spending the world into oblivion while secretly hoping and expecting to escape debt with depreciated dollars: yours. The public is unaware.

Note that your “elected” politicians never talk about the ongoing depreciation (inflation) of paper money (U.S. dollars). They don’t want you to think about this. They would rather you think about Donald Sterling and his frivolous racial comments.

But you should be on high alert. Liquidity is not only negative; it is at its most negative level in history. Are we facing the second Great Depression or worse?

For the third time in 14 years, U.S. stocks are in a bubble and far more leveraged than ever before. There are now more corporate bonds outstanding in the U.S. than there are mortgage-backed securities. This is significant, and the heart of the next crisis and the debt bubble will be non-financial corporate debt.

Investors beware! Stockholders beware!

Thanks to the Fed, it now seems that we have a bubble in all asset classes much larger than 2007. The Fed and other central banks with their expansionary monetary policies, all designed to boost asset prices, are similar to a juggler who is trying to keep all his balls in the air. The Big One is coming and there will be no place to hide except in very depressed gold stocks.

Why Do We Need Term Limits?

John Adams said, “Without [term limits] every man in power becomes a ravenous beast of prey”. That being said, here are some of the reasons we believe our country needs Term Limits.

  1. Term Limits can help break the cycle of corruption in Congress. Case studies show that the longer an individual stays in office, the more likely they are to stop serving the public and begin serving their own interests.
  2. Term Limits will encourage regular citizens to run for office. Presently, there is a 94% re-election rate in the House and 83% in the Senate. Because of name recognition, and usually the advantage of money, it can be easy to stay in office. Without legitimate competition, what is the incentive for a member of Congress to serve the public? Furthermore, it is almost a lost cause for the average citizen to try to campaign against current members of Congress.
  3. Term Limits will break the power special interest groups have in Congress.
  4. Term Limits will force politicians to think about the impact of their legislation because they will be returning to their communities shortly to live under the laws they enacted.
  5. Term Limits will bring diversity of people and fresh ideas to Congress.

Term limits for lawmakers: when is enough, enough?

[Editor's Note: If you want to get rich, i.e. advance from a low paying government bureaucrat job on the local or state level, THEN GET ELECTED TO THE US CONGRESS (House or Senate). Once you're elected, it's easy to steal from your campaign contributions or the Congressional budget allocated to your seat and staff. You can go on a government-funded junket with 'lavishly' paid expenses. The list of ways to steal from the government while in office is inexhaustible. There are only a few Congressmen who left Congress just wealthy instead of a multi-millionaire. Of course, there are several who arrived in Congress as multi-millionaires and don't need to steal from the government.]

[Editor's Note: what I have dubbed the "Legislative-Executive-Judicial Cabal" which the American People have caused by ignoring the generational transition from our Constitutional Republic to what now is, in effect, an"elected" dictatorship. Never mind who is elected. Never mind which bogus party is in power. We the People still lose more freedom.

A Constitutional Convention is necessary to amend the Constitution for Congressional Term Limits to twelve (12) years and restrict time in DC to only six (6) months per year. Such an Amendment is only a FIRST step in restoring America to its Constitutional roots. Back in the day when the People still feared kings, the president's term was limited by Constitutional Amendment.

Currently, CONgress is just a group of socialists, progressives, and faux-conservatives (career politicians) that, on a daily basis, ignores the Constitution, many of their own past statutes, and cedes their responsibilities to the president ("elected" dictator). A comparison to the history of Rome becomes more and more credible with the Executive and its "featherbedded" lackeys gaining more power while CONgress sits back all fat-dumb-and-happy.

CONgress has made recent efforts to expose State Dept. failures in Benghazi (inept political leader), Fast-and-Furious gun-running (criminal AG), IRS 1st amendment violations, gov't union Veterans Administration fraud, and whining about Obama(Reid)-killer-Care, but these efforts are mostly politics as usual. Most "citizens" will forget about these infringements from our unaccountable, uncontrollable Executive branch with its tyrannical agencies staffed by socialist unions that extort "juicy" contracts from the "elected" dictatorship.

Most positions in the federal government whether elected, appointed, or hired are nominal, make-work jobs (confidentially) designed merely to grow government, bilk money from private businesses and citizens, and eventually fully transform America into a totalitarian state. When this happens, CONgress will have destroyed the economy and the country by their negligence and counter-liberty policies, and it will be almost impossible to Restore America. The 'Restore America' list is only a beginning too.]

 

 

FROM Project to RESTORE AMERICA

The FairTax is a consumption tax unilaterally applied to all Americans at the same rate. For businesses, payroll taxes would no longer exist. Our exports would include a heavy tax for overseas buyers purchasing our products, while our imports would be cheaper for us to purchase. I'm not sure how this would affect GDP, as more information is necessary.

According to the FairTax website, "Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to the prebate." The prebate gives every legal resident household an "advance refund" at the beginning of each month so that purchases made up to the poverty level are tax-free.

So a family of four making something like $50,000/year should not have to pay taxes, thus preventing an unfair burden on low-income families. Since the FairTax eliminates both federal and payroll taxes, you get to keep your gross pay amount of each paycheck earned.