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TOWARDS
A NEW GOLD STANDARD
by Michael A. Nystrom
BullNotBull.com
June 27, 2007
Last week I wrote
an article titled, “On Returning
to the Gold Standard,” which was primarily a critique of a video
interview of Simon Constable at the Street.com on the possibility of
the nation returning to the 19th century gold standard. I
received a surprising amount of positive feedback on the article, as
well as a note from Simon Constable himself, thanking me for the
commentary.
However,
after a little further research on the subject, I realize now with much
regret that my article, critical as it was, was mis-titled. It therefore
conveyed -- or rather amplified -- the wrong impression that we should
be going backwards in time. My mistake was in accepting
Simon’s assumption that Ron Paul wants to “return” to the gold
standard of the 19th century. Nothing could be further from the
truth, as this interview
with Dr. Paul in the Columbia Tribune (June 15, 2007) makes
abundantly clear:
Question:
You support returning the country’s currency back to the gold
standard. Is that correct?
Ron Paul: Not
exactly. I’m for supporting the Constitution, and the Constitution
still says only gold and silver can be legal tender. … The reasons I
don’t like to say "go back" is because there were
shortcomings in the original gold standard. What I reject, and the
founders totally rejected, was a paper standard - creating money out
of thin air. Spending money you don’t have. Printing it up. Causing
inflation. Causing bubbles. Causing recessions. And wiping out the
middle class. The middle class is getting poorer as the wealthy class
is getting wealthier.
In
his article last week, Simon wrote “[Paul] proposes returning to a
system of money abandoned more than three decades ago,” which is
incorrect. Thirty-six years ago, we abandoned the fatally flawed
pseudo-gold / fixed exchange rate system known as Bretton-Woods.
Dr. Paul is well aware of the shortcomings of that system, as well as
the flaws in the gold standard as practiced in the 19th century.
Rather than “go back” to that outdated system, it is more accurate
to say that Dr. Paul would like to move forward, towards a new
gold standard.
Dr. Paul
elaborates on the Federal Reserve and the flaws of the old gold standard
in this interview
with Lee Rogers (June 24, 2007):
Once
again, I have transcribed the relevant portion of the interview for easy
reference. The transcribed portion takes place within the first
five minutes of Part I. To view the remaining three parts of this
four-part interview, please visit Lee’s site, RogueGovernment.com
Lee
Rogers: I first wanted to talk about the Federal
Reserve System. I know that you recently proposed
legislation to abolish the Federal Reserve System. Do you believe
that the monetary policy being implemented by the Federal Reserve is
dishonest, and do you think it is lacking in appropriate transparency?
Ron
Paul: Oh, obviously. I, as a member of the
[Congressional] Banking Committee, and as the ranking member on the
Monetary Subcommittee -- I couldn't possibly attend [a Federal] Open
Market Committee (FOMC) meeting where they decide what the interest
rate should be and how much money they're going to create next week
and that sort of thing. I'm not allowed to know that. As a
matter of fact, they don't even keep minutes of any importance.
They have minutes, but they are just what they want the public to
hear.
But a
lot of the things that go on behind the scenes are very, very
important. They control literally the money of the world,
because the dollar is the world's reserve currency. But it's
done very secretly, and for those who know what is going on there, it
can be very, very beneficial information. But there are a lot of
other reasons I don't like the Fed.
The Fed
creates money, and that is inflation. When you create
new money, the rest of the money goes down in value. Prices go up and
it is very, very detrimental and it hurts one class of people more so
than the other. It causes the economic bubbles that we
experience, and then the collapses. We had the Nasdaq bubble
collapse not so long ago, and now we're in the middle of a housing
bubble collapse. Of course, since the [creation of the] Federal
Reserve, we've had a lot of inflation and a lot of collapses.
They inflate for wars - then you have the inflation, followed by a
recession. And we've had that ongoing for a long time. The
depression was really a consequence of Federal Reserve Policy.
The
worst part about the Fed is that it allows government to grow.
When government grows, they do things they shouldn't be doing like
fighting wars, and controlling people here at home and having all
kinds of domestic programs that don't work but that just steal and
cause disruption.
So if
you want to strive for personal liberty, you want government to be
small. But the Federal Reserve permits members of Congress and
the politicians to expand government without being responsible. They
can only just tax and only borrow so much, but they have an unlimited
ability to print money in order to expand the size of government.
Lee
Rogers: Absolutely. Now, how do you think we
should restore our monetary system to something more honest? Do
you believe we should go back to a gold & silver standard as was
proposed by the founding Fathers of this country? Or do you
think we should just go to printing US notes instead of them being
printed by a private Federal Reserve? What do you think we
should do in order to restore an honest monetary system?
Ron
Paul: Well, we should just go to the Constitution and
look for our guidance. It says only gold and silver can be legal
tender. When they debated this at the Constitutional Convention,
they debated paper. They had [already] had the runaway fiat
currency experience of the Continental dollar, and they didn't want
that to happen [again], so they said there will be no "emitting
bills of credit" -- which is paper money. So we'd
have to go back to gold and silver coins.
But I
don't like the notion that we have to return to exactly what we had in
the 19th century, because there were some shortcomings. We had
bi-metalism, so the government went and fixed the ratio of gold to
silver. And markets don't [like that]. Governments can't
set a market price. So you should either turn it over completely
to the marketplace and let private money evolve, and use gold and
silver, or if the government was to be involved, they should issue a
currency and define it as a weight of gold or a weight of silver, but
not fix the ratio. That to me would be a better standard than we
had in the 19th Century.
Nystrom’s
Comment: I’d just like to amplify that Dr. Paul, an
elected Congressional official, one who sits on the Congressional
Banking Committee, is not allowed access of any kind to the
super secret Federal Open Market Committee (FOMC) Meetings. When it
comes to those Fed meetings, Dr. Paul is as far out in the cold as we
are, reading those lame official statements when they come out on the
news wire. And this is someone who sits on the committee that
ostensibly has oversight on the Fed.
The
Fed will be holding another one of these meetings on June 27-28, and
it is certain to be accompanied by the requisite media circus.
Sultry news anchors will pant breathlessly for days: “Will They
raise rates or hold the line??? What does the market think and how
will it affect your portfolio?! Stay tuned!”
With this
article, I hope that I have clarified that Ron Paul does not wish to go
back to a flawed gold standard. Next time, I’ll have more
information on what a new gold-backed system might look like, but for
now, put to rest the idea that we’ll all be carrying around pocketfuls
of heavy gold coins! With our increased understanding and advanced
computer & network technology, there is no reason to think that a
100% pure gold standard is infeasible. More
on that next time – sign up here to be notified.
The
Sinister Relationship Between the Federal Reserve and the IRS.
You’re Caught in the Middle!
 Back
when I still used to watch TV – back when Greenspan was still Fed
Chairman - CNBC used to focus on the size of his briefcase going into
the meeting as an “indicator” as to which way interest rates would
go. Why the public needs to speculate on such important decisions
in our Republic remains a mystery to me. This kind of tittytainment
is one of the main reasons television has become so ridiculous to
millions of Citizens who
now independently seek out our news on the net. Tittytainment is
certainly not conducive to explaining the sinister relationship between
the Federal Reserve and the IRS, so thank God for YouTube! Let’s
take a look at the first 30 seconds of this compilation of a
conversation between Aaron Russo and Ron Paul:
Aaron
Russo: So the Federal Reserve is actually an illegal
entity functioning within the government.
Ron
Paul: It is illegal. And what we have given to
this so-called agency is the authority to counterfeit money.
Aaron
Russo: Do you have any points of view about the Federal
Reserve and how the Federal Reserve operates?
Ron
Paul: They just enter something on a computer.
“Oh, you need $20 billion today? Well, here’s $20
billion.” But they got that out of thin air. It came out
of thin air. It goes to the Treasury, and the Treasury then pays
the bills.
We have
already seen how this process is inflationary. However, the
relationship to the IRS is a little less clear, so let’s tease it out:
Congress formerly had the power to coin money, but it delegated that
power to the Federal Reserve in 1913. When The Fed creates that
$20 billion out of thin air, it doesn’t give the money to the
Treasury – it loans it to the Treasury. There is a huge
difference.
In
exchange for the loan, the Treasury gives the Fed collateral: $20
billion worth of Treasury bonds (T-bonds). But as we all know,
T-bonds are not simply static collateral, T-bonds also pay interest
to the holder. In this case, the holder is the Federal Reserve.
But where
does the Treasury get the extra money required to pay the
interest back to the Fed? The Fed didn’t create the interest –
it only created enough money for the face value of the bond. If the
T-bonds pay 5% interest, the Treasury needs to come up with an
additional $1 billion each year to pay the
interest back to the Fed! Where do they get it?
You
guessed it, friends! It comes from you – the generous American
Taxpayer. The IRS – also founded in 1913 - was part of a package
deal. It is required in order to raise the money to pay back the
interest on the money the Treasury “borrowed” from the Federal
Reserve.
You
didn’t know that? Now you know why Henry Ford said, “It is
well enough that the people of the nation do not understand our banking
and monetary system, for if they did, I believe there would be a
revolution before tomorrow morning.” And you also now know why
Dr. Ron Paul is so vehemently opposed to both the Fed and the IRS.
Closing
Note
The wide range of positive feedback that the first
article in this series was encouraging, and the note from Simon
Constable was surprising. Simon asked me where I was based.
While I live in Boston, I’m actually based at my kitchen table, though
from time to time (such as last week) I do
venture out into the Peanut Gallery. I mention this only as a way
of conveying to you, dear reader, just how fluid and new the
times are that we are living in today.
When a guy
reporting from his kitchen table can access and share this range of
information with tens of thousands of readers using the same platform as
multimillion-dollar news outlets, real change can (and I dare say will)
happen. In addition to being a presidential campaign, Ron
Paul’s candidacy is also an educational one, and each day more and
more people are getting informed about issues they hadn’t even heard
about last week! Information that was previously almost secret is
now working its way out into the daylight, and a huge younger generation
is on the rise.
Things are
far from static, friends! Hold on to your hats - we’re in for a wild
ride in the months and years ahead.
Reporting
Live from the Kitchen Table
Michael Nystrom
© 2007
Michael A. Nystrom
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Michael A. Nystrom
Cambridge, MA
www.bullnotbull.com
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