Thursday, October 15, 2009


“Pearls are not valuable because men dive for them…
men dive for them because pearls are valuable.”

It’s pretty scary to think that the United States dollar is not backed by gold, silver or anything precious or valuable. It is in fact, only worth the paper that it is printed on, and the only reason we accept its value is because enough people believe it to be worth something. This is called a fiat currency, where the power and the value of the dollar is determined by the central bank that prints it.

There is an inherent flaw in the fiat currency system though. If too many dollars are printed we face hyperinflation, where all perceived value of the dollar is lost and they become less valuable than the latest Hanson CD. This is the problem that we face today as the value of our dollar plummets.

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It hasn’t always been this way. Our Founding Fathers knew the flaws of a centralized banking system and wanted to keep the nation's wealth in the hands of the people. This meant that if everyone used gold and silver pieces to trade, instead of a central bank note, it would deter banks from running on a fractional reserve banking system. FRB, for short, would give banks the ability to loan out or print more money then the gold they have in their vaults. If we stuck to the Founder's system, gold and silver pieces would be inflation proof and counterfeit proof.

Through the Constitution and the Coinage Act of 1792, the Founders set up a system where they defined dollars to be gold and silver coins, and allowed only Congress the power to coin money. Only these minted coins would be deemed "lawful money," meaning that promissory notes or demand notes (today’s version of dollars) were unlawful.

The government was able to keep to these standards for at least a few decades. But in order to finance the Civil War, Lincoln reeled in coins and replaced them with the infamous greenbacks. The value of the dollar plummeted and it wasn’t until after the war, when the government began to reissue coins, that the buying power of the dollar increased.

In order for paper money to have value, it must be a legally binding document or contract. That’s what all the writing and funky signatures on the bill are for. But when looking at a bill you should pay close attention to the wording of it.

Between the Civil War and 1914, there were several versions of paper money with several different agreements, but when the Federal Reserve Bank, a “private” central bank, opened its doors in 1914 they began printing money with this contract on it:

"This note is receivable by all National Banks and Federal Reserve Banks for taxes and public dues. It is redeemable in gold on demand at the treasury department in Washington or in gold coin or lawful money at any Federal Reserve Bank."

If dollars can be exchanged for lawful money, then they are not lawful money. They are a loan, a promissory note, an IOU. They are a contract that gives the Federal Reserve the full power to inflate the dollar, and does not guarantee any set amount of gold in return.

Today's dollars have been further revised to not allow the exchange of notes to lawful money.


By the 1920s Fractional Reserve Banking was in full effect. Banks, backed by the Federal Reserve's notes, loaned out too much money, creating a financial bubble that would soon burst and result in many bank failures. (Sound familiar?) To stimulate the shrinking economy, FDR sent the printing presses into overdrive and confiscated all of the circulating gold coins. Under Executive Order 6102, it became illegal for citizens to have any gold coin, bullion or certificate. The seized gold would become the infamous gold housed in the Federal Reserve vaults.

At the time of the confiscation it cost $21 to buy an ounce of gold, and immediately after, it became $35 per ounce. Already the purchasing power of the dollar was declining. In all, 11 billion dollars were exchanged for all 261,000,000 ounces of gold.

Complete control of the gold supply was now in the hands of the Federal Reserve, exactly what our Founding Fathers were trying to avoid. World war and depression raged on throughout the globe and, in order to provide a foundation for global recovery, a conference was held in Bretton Woods, NH in 1944 by all 44 major allied powers. At the conference it was recognized that the US represented half of the global economy, and it would be for the world’s best interest to make the US dollar the global reserve currency to make trade easier between nations. This was great for the Unite States, because in order to trade, all countries had to buy dollars at its $35 per ounce rate, resulting in a US economic boom. But there was nothing in the Bretton Woods agreement that stopped the Federal Reserve from issuing more Federal Reserve Notes.

In only a few decades, countries began to question how we were possibly able to finance our unending wars overseas. In order to fund the Vietnam War, the US ran huge budget deficits and started flooding the economy with paper dollars. The French, under President Charles de Gaulle, became suspicious that the United States could not back the money supply with gold, and began trading in their surplus of dollars for gold.

In 1971, the United States Treasury's gold stocks began to decline at an alarming rate and, in order to save our reserves, Nixon declared a force majeure, unilaterally breaking us from the Bretton Woods agreement. He had officially closed the gold window, and would no longer allow anyone to redeem their dollars for gold. We were now completely severed from the gold system. Without gold backing our dollar, there was no limit to how many Federal Reserve notes could be printed.

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It took our country 300 hundred years, from the first pilgrim until 1973, to generate the first trillion dollars of money stock. The most recent trillion dollars was generated in the past four and a half months. Before our dollar completely crashes, we need to put an end to our out of control spending. We need to take back control of our dollar, and put it back in the hands of the United States citizens. And, above all else, we need to put an end to the Federal Reserve.

There is hope. The rules that were outlined in the Constitution still stand. There has been no amendment to repeal them. The Coinage Act is held in a state of suspension by laws that are both unconstitutional and illegal. We have ended central banks in the past and we can do it again. New currency can be phased in as the Federal Note is phased out. The introduction of the euro is proof of it.

Right now there is a bill, HR 1207, in Congress to audit the Fed. Contact your representatives and make sure that they are supporting this bill. This is the first step to change we can actually believe in.

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