classical economics
for analysis,  forecasting
and policy design

The Role of Gold

In U. S. Economic Recovery

By Wayne Jett © December 19, 2016  ** Added Content **

     The current highs in U. S. financial markets and in the U. S. dollar’s value relative to other currencies are illusory, even to the extent they are based on improved public optimism arising from President-elect Donald Trump’s economic policy reforms. The catastrophe that has been made of the dollar by the Federal Reserve’s actions, both disclosed and undisclosed, comprises an enormous chasm which must be navigated, if not bridged, before any degree of general prosperity can return to this nation. With each additional day that the Fed exists, the impoverishment of the American middle (productive) class draws nearer completion.

     Let’s be clear. Neither the dollar’s destruction nor the current economic depression can be blamed on capitalism. Both are due to advanced practices of ancient mercantilism, by which ruling families placed kings on thrones and enriched themselves further by leveraging influence over government power. This discussion, however, will focus on the road to U. S. economic recovery and the role, if any, gold must play in it.

                                                                       The Problem with the Dollar

     The dollar’s end is at hand. This is assured by the trillions of dollars in new currency created by the Fed since August, 2008. Those trillions were not at all for “stimulus,” but so the Fed’s owners could make hundreds of billions in the international carry-trade of government bonds, or buy hard assets before their sellers got wise to the game of worthless currency. This is only one of the reasons the Fed has never permitted a full financial audit of its activities.

     The U. S. dollar has been badly abused as an instrument to steal the value of capital produced by Americans and others all over the world. So the dollar will be badly hated and will have to be renamed after its collapse. The new currency will have to earn the respect of anyone expected to accept it in exchange for something of value. This will be an impossible task unless policymakers return to first principles.

                                                                Stable Value of the Monetary Unit

     The first principle of classical economic theory is that money used in the economy ought to have the most stable value possible. This principle assures that money serves those who work for it, not a government that issues it. Money is defective and harms the economy when its unit value changes over any period of time, either by increasing or by decreasing.

     Money with increasing unit value is called deflationary. It causes businesses to fail because prices must be decreased in order to sell, thereby bankrupting the producer. Money with decreasing value robs the producer of the value of output over time, and every product or service must be re-priced continuously – a costly and inefficient process.

                                                              Gold: “Measuring Stick” of Money Value

     Thus we arrive at the essential design requirement of every successful monetary system: a mechanism to assure that the value of money remains stable. This is where gold serves like no other substance or design can. The reason gold plays the central role in achieving stable money is not due to magic, mystique, superstition or human subjectivity.

     Gold has been the essence of good money throughout recorded history due to laws of physics that determine what gold is. By nature, gold does not waste, weather, oxidize or otherwise deteriorate. Nor is it extinguished or destroyed by its uses.

     Gold remains the same, as does its value, over time better than any other substance known to man. Gold, therefore, may be used as the ideal (or as close to ideal as we can get) “measuring stick” for the value of money.

     Those are the simple grounds upon which gold in the forms of coin or bullion has been the essence of good money for millennia. Silver, too, has served well as coinage for smaller values.

                                                                                      Gold Price Volatility

     Those unfamiliar with classical economics often note sharp price changes in gold and silver, concluding erroneously that gold-backed currency would be equally volatile in value. The point they miss is this: swings in gold price attest volatility in currency purchasing power as gold value remains stable.

     Or, more accurately, that was the case throughout history until recent years when cabal operatives learned to control the “official” gold price. The U. S. financial sector now uses paper futures contracts in the nature of counterfeit “gold-backed currency” as the basis for establishing the posted daily price in gold markets.

      Billions of dollars in nominal value of gold futures contracts are dumped into the “paper gold” markets to sell at the market, thereby suppressing the “paper gold” price and thereby the “official” price of physical gold. Sellers of such "paper gold" cannot and will not ever deliver physical metal under the contracts, yet the prices they set are still deemed "official." Dealers then sell small amounts of gold at that price plus whatever margins they are able to negotiate. Large buyers pay significantly higher prices, while the “official” gold price disguises the weakness of the dollar.

                                                                         Complications of Currency

     The primary challenge in achieving stable money is not the complexity of its design. It is the opposition to stable money by the ruling cabal which controls the U. S. shadow government.

     The cabal prefers having complete power over the value of paper currency, as they have had over the dollar since 1971. Otherwise, the cabal prefers a gold-backed currency rather than gold used directly as money. In a currency system, gold is kept in central storage by government and, thus, is more easily looted by one means or another.

     In past centuries, governments and banks often undertook to introduce paper currency into their economies, citing economic efficiency and convenience. When they did, complications arose. Holders of gold or silver demanded a guarantee that paper they accepted in exchange for their metal be exchangeable back in every case, without fail. This was so in the U. S. until 1933. Any person in America could exchange $20.67 for one ounce of gold at any bank.

     President Franklin Roosevelt destroyed that exchange mechanism of the gold standard shortly after taking office as president, complaining that too many Americans were hoarding wealth in gold rather than investing in productive business. Exchange of cash for gold had, indeed, been stimulated by several important factors: Smoot-Hawley Tariff constriction of exports and imports; virulent fraud in securities trading during and after the Crash of 1929; horrendous income tax increases made retroactive to January, 1931; and rumors during Roosevelt’s presidential campaign that he intended to devalue the dollar. Roosevelt made the rumors come true in January, 1934, when he devalued the dollar 41% to $35 per ounce of gold, after paying Americans $20.67 per ounce only months before when he confiscated their gold.

     Consider what has happened to the dollar during roughly 100 years of central banking under the name Federal Reserve, which many Americans currently believe is a government agency. The Fed is, in fact, a private firm owned and operated by the ruling cabal – the same that controls the U. S. shadow government. In the century of Fed existence, the U. S. has lost its fully gold-backed currency, its dollar is now paper with illusory debt value, and the      U. S. Treasury owns no gold reserves.

                                                                   Currency Without Gold Reserves

With no gold reserves, how does a government provide a gold-backed currency? The question is especially difficult when the nation currently experiences a deficit in international trade balance of $550 billion per year.  This deficit, so long as it continues, means $550 billion leave the U. S. this year and the recipients will bring them back here to buy land, minerals, factories, and other hard assets.

     The task of eliminating this trade deficit, and reversing it, as soon as possible must be achieved if the U. S. is to have sound currency with stable value in the long run. Shorter term, the U. S. Treasury may be able to arrange gold backing for a new currency, for example, by leasing gold from a foreign government. Some have reported that China has actually offered and encouraged such a plan, but have been rebuffed by the Obama government. This topic will require prompt attention in the coming year, as the life expectancy of the current dollar is short indeed.

                                                                               The Long Road Back

      After 240 years of existence, a few as a declared world superpower, the U. S. is back to where it began: in debt from wars and owning no gold reserves. The national debt is considerably larger now, but so is the population and the productivity of the work force.

     With sound economic and foreign policies, perhaps the U. S. can reverse the severe setbacks of the past 100 years before this century ends. The linchpin for such a new beginning will be gold-backed currency to assure fair value for productive contribution. ~