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A Brief History Of U.S. Dollar Debasement

January 8, 2013
by David Ziffer

On the 100th anniversary of the creation of the Federal Reserve, it seems fitting that we should present a brief history of US dollar debasement:

1787: U.S. Constitution ratified. “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.”

1792: U.S. Coinage Act ratified. Our first Coinage Act establishes a uniform standard of gold and silver content of U.S. coins, paving the way for over a century of trust in the U.S. dollar that will ultimately catapult the U.S. to world economic supremacy.

1861: Greenbacks and Greybacks: In desperation and in direct violation of the U.S. Constitution, both the north and south issue paper currency with no gold or silver backing. Following the war, the U.S. returns to its constitutional roots, ceasing production of Greenbacks and making efforts to retire them as the U.S. returns to the gold standard. A first-class postage stamp (introduced in 1863) costs two cents.

1913: Creation of the Fed: In the belief that a central bank will prevent future economic panics, the U.S. government forms a banking cartel called the Federal Reserve, a rather facetious name given that the Fed is not federal and it maintains no reserves. In so doing our government ignores the warning of Thomas Jefferson:

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 them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.

The stage is now set for the collapse of the dollar. A first-class postage stamp still costs two cents.

1934: Gold Reserve Act: After 23 years of dollar debasement by the Fed, Franklin Roosevelt is forced to acknowledge the growing disparity between the century-old fixed price of gold ($20.67/oz.) and its market price. The rift is made painfully obvious by the outflow of U.S. gold into the coffers of foreign nations redeeming dollars for gold at the stated fixed price. In direct violation of the U.S. Constitution, Roosevelt and Congress not only remove gold from circulation but prohibit ownership of gold by U.S. citizens. With the stroke of a pen the dollar is devalued from $20.67/oz. to $35/oz. Despite massive improvements in delivery efficiency, a first-class postage stamp now costs three cents.

1944: Bretton Woods: In the belief that the world requires a unified monetary standard in order to eliminate trade wars that ultimately lead to shooting wars, leading nations establish a dollar-based monetary system in which currencies are valued in terms of the U.S. dollar, which still claims to be gold-backed. This unwarranted trust ironically gives the U.S. yet more license and incentive to continue its debasement, since the world’s citizens now accept newly printed dollars with the mistaken notion that they can be redeemed for a fixed amount of gold. A first-class postage stamp still costs three cents.

1965: Second Coinage Act. In order to finance two very expensive initiatives (the Vietnam War and moon walking) and in direct violation of the U.S. Constitution, Lyndon Johnson signs a new Coinage Act that removes all silver content from U.S. coins. In so doing he provides the following advice to the public, explicitly promising future federal precious metals market manipulation:

If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content. The new coins are not going to have a scarcity value either. The mint is geared to get into production quickly and to do it on a massive scale. We expect to produce not less than 3 1/2 billions of the new coins in the next year, and, if necessary, twice that amount in the following 12 months.

In this same speech Johnson states that scarcity of silver is the motivation for the change. Despite incredible improvements in delivery efficiency that should have dropped the price astronomically, a first-class postage stamp now costs five cents.

1971-75: Petrodollars replace the gold standard: In a repetition of the 1934 crisis, the U.S. gold supply is being decimated by foreign governments redeeming dollars for gold at the stated fixed price ($35/oz.), a completely untenable ratio after thirty more years of dollar debasement by the Fed. In direct violation of the U.S. Constitution, Richard Nixon and the Congress once again stop the outflow, but this time rather than set a new unmaintainable fixed rate they simply eliminate the fixed dollar/gold ratio. Realizing that the collapse of the gold standard will dramatically reduce demand for dollars worldwide, Nixon strikes a deal with OPEC: trade oil in dollars only in return for perpetual U.S. military support. By 1974 gold is irrelevant to the U.S. hegemony, and so as his final act of the year Gerald Ford signs a bill that once again allows U.S. citizens to own gold. The first-class postage stamp now costs ten cents.

2000: Iraq threatens the petrodollar: Shortly after the creation of the Euro, Saddam Hussein makes Iraq the first major oil exporting country to sell oil in a currency other than the dollar, thereby threatening the global petrodollar arrangement. Citing this “weapon of mass destruction” while misleading the public into a preposterous belief that he is really referring to conventional weapons that could somehow threaten the U.S., George W. Bush reacts swiftly by invading in 2003 and quickly reverting Iraq to dollar sales. To make our point exceptionally clear to world leaders, the U.S. (using proxies) hunts down Hussein and executes him in 2006. The first-class postage stamp now costs 33 cents.

2008: Beginning of the end: Under Barack Obama, Fed chairman Ben Bernanke begins a series of bailouts of banks (that are presumably Fed members) and of U.S. debt (both mortgage-backed securities and U.S. Treasurys). The first-class postage stamp now sells for 42 cents.

2013: 100th Anniversary: The master of dollar-printing is 100 years old. The Fed marks its birthday by engaging in the largest debt purchase program in history ($40 billion of mortgage-backed securities and $45 billion of Treasurys per month). Awaiting the collapse of the petrodollar arrangement and the subsequent radical reduction in the purchasing power of the dollar, the price of gold is bid up to over $1600 per ounce. And despite the fact that humans now expend a tiny fraction of the effort to deliver a letter in 2013 compared to what was required in 1863, the price of a first-class stamp is now 46 cents.

Technically the U.S. left the gold standard in 1971, but in reality we abandoned it in 1913 with the creation of the Fed. The two publicly visible gold-standard slippages of the past century (FDR’s repricing and Nixon’s cancellation) were merely necessary adjustments following decades of gradually increasing gold-price inconsistency caused by continuous inflation. Given this, it seems hard to imagine that the Fed was created for any purpose other to create this inflation, i.e. to effectively raise our taxes under the table.

This has enormous implications for today’s long-term investor. Our most constant and predictable financial reality is the continued inflationary policy of the Fed. Given this, and assuming the U.S. is unlikely to pull another rabbit out of the global hat as Nixon and Ford did with the petrodollar in the early 70s, the dollar will almost certainly continue losing purchasing power indefinitely, in terms of both commodities and other currencies. And when the oil-producing nations finally agree to accept payment in currencies other than the dollar, expect a precipitous drop. Invest accordingly.

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Republicans Eye Return to Gold Standard

Published: Friday, 24 Aug 2012 | 6:39 AM ET
By: Robin Harding and Anna Fifield, Financial Times

The gold standard has returned to mainstream U.S. politics for the first time in 30 years, with a “gold commission” set to become part of official Republican party policy.

Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold.

The move shows how five years of easy monetary policy — and the efforts of congressman Ron Paul — have made the once-fringe idea of returning to gold-as-money a legitimate part of Republican debate.

Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of the platform committee, said the issues were not adopted merely to placate Paul and the delegates that he picked up during his campaign for the party’s nomination.

“These were adopted because they are things that Republicans agree on,” Blackburn told the Financial Times. “The House recently passed a bill on this, and this is something that we think needs to be done.”

The proposal is reminiscent of the Gold Commission created by former president Ronald Reagan in 1981, 10 years after Richard Nixon broke the link between gold and the dollar during the 1971 oil crisis. That commission ultimately supported the status quo.

“There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.

A commission would have no power except to make recommendations, but Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.

The Republican platform in 1980 referred to “restoration of a dependable monetary standard,” while the 1984 platform said that “the gold standard may be a useful mechanism”. More recent platforms did not mention it.

Any commission on a return to the gold standard would have to address a host of theoretical, empirical and practical issues.

Inflation has remained under control in recent years, despite claims that expansion of the Fed’s balance sheet would lead to runaway price rises, while gold has been highly volatile. The price of the metal is up by more than 500 per cent in dollar terms over the past decade.

A return to a fixed money supply would also remove the central bank’s ability to offset demand shocks by varying interest rates. That could mean a more volatile economy and higher average unemployment over time.

Copyright 2011 The Financial Times Limited

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Is President Barack Obama responsible for U.S. oil production rise?

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Posted on January 27, 2012 at 6:40 am by Dan X. McGraw

President Barack Obama has gotten an earful from Republicans and energy industry officials for claiming his administration has helped to spur a rise in oil and natural gas production.

So who’s right?

Robert Rapier at the ConsumerEnergyReport.com broke down oil production under the presidential tenures of George Bush and Obama. Here is what he came up with:

For industry folks, it isn’t exactly what you imagine, but Rapier says the graph doesn’t paint the clearest picture of who is responsible for driving production of oil and natural gas.

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“The reason that oil production has risen under President Obama is due to events that happened years earlier. In this case, it wasn’t some grand initiative that President Bush passed, rather it was years of steadily increasing oil prices that caused oil companies to approve a number of new projects that had marginal economics at lower oil prices. But these projects take some years to build, and as in the case of the Alaska Pipeline, decisions that were made (four to six) years earlier benefited President Obama with increased domestic oil production.”

Rapier dives into a similar situation between former presidents Jimmy Carter and Richard Nixon.

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The Public Has Rejected the Democratic Agenda

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By Victor Davis Hanson

Suddenly, liberal op-ed writers are trashing — even lampooning — Barack Obama as a one-term president (“one and done”). Centrist Democrats up for reelection in 2012 openly worry about inviting a kindred president into their districts, lest the new pariah lose them votes.

Left-wing think tanks, environmentalists, and academics vent their anger against Obama for supposedly being too soft on Republicans and too ready to compromise with right-wingers. But what really has caused the left-wing falling-out, less than three years after the hope-and-change crush on Barack Obama?

For now, it’s the polls.

Obama’s popularity has plummeted to little more than 40 percent approval. Suddenly, Democrats worry that the public anger could be contagious. It might infect them as well — in the way a sinking George W. Bush hurt congressional Republicans up for reelection in 2006.

Yet the Left cannot fairly blame Obama. After all, he rammed through on a strictly partisan vote the century-old liberal dream of a federal takeover of health care — something that Harry Truman, Lyndon Johnson, and Bill Clinton never could do. Keynesians never dreamed that a president could actually borrow $5 trillion for domestic spending in less than three years.

The Obama administration even tried to shut down a brand-new Boeing aircraft plant on the shaky argument that the company might thereby be hiring fewer union workers somewhere else. For environmentalists, Obama kept oil producers out of new fields in Alaska, the American West, the Gulf, and other offshore sites. Hundreds of billions in borrowed federal money went to failed “wind and solar” plants in an effort to jump-start “millions of green jobs.”

The Obama revolution that occurred under the radar was even more insidious. Open-borders activists were promised that the government would not bother illegal aliens unless they were wanted for felonies. Never before has the United States joined a foreign government in suing one of its own states — in the way that the Justice Department and Mexico have either filed or joined suits seeking to overturn Arizona’s immigration law.

From January 2009 through 2010, Obama advanced the liberal dream with a passion not seen since the New Deal days of Franklin Roosevelt. He bulldozed all opposition and rammed through most of what he wanted with the help of a Democratic Congress: Obamacare, record borrowing, record spending, and hundreds of hard-left presidential appointees and judges.

Far from being namby-pamby, Obama has gone after opponents like no president since Richard Nixon. He urged Hispanics to “punish our enemies.” He called his political opponents “hostage takers.” The affluent were lumped together with the super-rich and derided as “millionaires and billionaires,” “corporate-jet owners,” and “fat cat” bankers. His supporters in unions and the Congressional Black Caucus freely blasted the Tea Party with slurs — with the unspoken assurance that the president’s constant calls for civility certainly did not apply to them.

Critics may lampoon Obama’s use of a teleprompter, but he still uses it to good effect in his near-daily speeches. Obama is a far better megaphone for left-wing policies than was the lackluster Jimmy Carter, the pompous Al Gore, or the condescending John Kerry. He easily outshines the wooden Harry Reid and the polarizing Nancy Pelosi. Compared with Obama and his smoothness, an often gaffe-prone Vice President Joe Biden can seem a liability. Obama is as charismatic as “I feel your pain” Bill Clinton — as we saw in 2008, when Obama destroyed the primary challenge of Hillary Clinton.

So the Left cannot really complain that Obama either betrayed the cause or proved particularly inept in advancing it. Instead, what Obama’s supporters are mad about is that the public is boiling over chronic 9 percent unemployment, a comatose housing market, escalating food and fuel prices, near-nonexistent economic growth, a gyrating stock market, record deficits, $16 trillion in aggregate debt, and a historic credit downgrading. And voters are not just mad, but are blaming these hard times on the liberal Obama agenda of more regulations, more federal spending, more borrowing, more talk of taxes, and more “stimulus” programs.

A mostly moderate-to-conservative public has concluded that it does not like the new liberal agenda. After three years, it believes that the big government/big borrowing medicine made the inherited illness far worse. Voters may or may not like Obama, but they surely do not like what he is still trying to do.

In response, the Left needs a sacrificial lamb. So it has nonsensically turned with a fury on Obama as if he were culpable for pushing through the Left’s own agenda. If Democrats do not blame the public’s anger on their once-beloved messenger, then they are left only with their message itself. And that is something they simply cannot accept.

Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and author, most recently, of “A War Like No Other: How the Athenians and Spartans Fought the Peloponnesian War.” You can reach him by e-mailing author@victorhanson.com.

© 2011 Tribune Media Services, Inc.

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