Financial Sense

Gold vs. Debt

The Death of Paper Money

by Douglas V. Gnazzo, Honest Money Report | September 17, 2008

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Today we are witnessing why in paper fiat-land debt is a four letter word; and a nasty one at that. The only thing the Federal Reserve has accomplished since its creation in 1913 is the loss of 95% of the dollar’s purchasing power; and they are hard at work destroying what little is left. Incompetence does not even begin to describe their actions.

This means that you and I – all of us, except the elite few – are becoming poorer by the day. Our standard of living is decreasing – not increasing. We owe more than we own: a prescription for debt-servitude – not the accumulation of wealth.

The Fed was supposedly created to prevent bank runs and financial disasters commonly known as depressions. Yet within 20 short years of its creation the greatest depression ever to visit our shores occurred – The Great Depression of the 1930’s. It seems today they are trying for a new record.

Another reason the Fed was created was to supply an elastic money supply – one that could easily be expanded whenever the powers that be, in their all-knowing wisdom, determined more money was needed. There are a few points here that miss the mark.

First, it is impossible for a few individuals to know what is best for the market. The market is much wiser and all-knowing than any group of bankers, as the market’s recent actions clearly show. Such delusional thinking is pure elitism.

Second, when money ceases to be gold and silver coin – hard money, and becomes paper money, i.e. Federal Reserve Notes, the supply of money can expand, as the elite wanted, on a whim; however – there is a price to pay.

Funny money is a funny thing, the more you expand the supply of it – the more its purchasing power lessens: it is known as the debasement of the currency – it loses value. Suddenly it takes more units (quantity) of money to buy the same amount of goods.

Money is no longer the means to pay off debt, paper money is debt. The United States has gone from being the world’s largest creditor nation to the largest debtor nation in the world. Weekly we are witnessing the unwinding of the paper fiat money system, as it reverberates around the world.

Banks our going under, financial institutions are falling; hedge funds are collapsing, bail outs are needed on a regular basis. Who pays for all this mismanagement? We do – you and me.

The government gets money in one of two ways: they tax the people or they issue (sell) debt (T-bonds). Federal Reserve Notes are the currency of the realm. United State’s T-bonds “secure” FRN’s. T-bonds are paid for with FRN’s. Do you see the conflict of interest here – the moral hazard? Debt is being used to secure debt. Credit is used to create more money and more debt: promises back promises. It is a mug’s game.

This is why the Constitution states that gold and silver coin is money – not paper money. Nowhere in the Constitution does it allow for paper money to circulate as the currency. As a matter of fact, the Constitution has an express disability prohibiting bills of credit (paper money) from being used as legal tender between the states.

Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything 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.

When you look around and see all the financial problems occurring daily, it is ultimately caused by the fact that our money is paper fiat debt-money, when it should be gold and silver coin, as the above quote from the Constitution expresses.

A paper fiat monetary system can only do what we are witnessing – self-destruct, as the more of it that is issued – the more it loses purchasing power. It is like a cancer that eats its host from within. What is occurring is the systemic destruction of money, of the “system” – of paper fiat debt-money.

No bail out or lending facility, no white knight or band aid is going to save paper money, its fate was sealed the day it was created; it is simply playing out the hand that was dealt.

The only answer for our economy and way of life is a new system – the system the Constitution mandates: gold and silver coin: honest weights and measures; and no bills of credit. The book Honest Money explains all this in detail.

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Copyright © 2008 Douglas V. Gnazzo
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About the author: Douglas V. Gnazzo writes for numerous websites and his work appears both here and abroad. Just recently he was honored by being chosen as a Foundation Scholar for the Foundation for the Advancement of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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Douglas V. Gnazzo | Honest Money Gold & Silver Report, LLC
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