December 7, 2022

The Road Map To Sound Money and Restoring the Dollar – Ron Paul’s Proposal

“Road Map to Sound Money: A Legislative Hearing on H.R. 1098 and Restoring the Dollar”.

Ron Paul’s efforts to restore a sound currency in the United States continued this week as hearings were held on his proposed legislation that would allow American citizens to chose from among competing currencies.  Ironically, the one man whose proposals could ultimately save the U.S. financial system from collapse, was completely ignored by the mainstream press who provided zero coverage of H.R. 1098.

H.R. 1098, introduced by Ron Paul in March is known as the “Free Competition in Currency Act of 2011”.  According to Ron Paul, “This bill eliminates three of the major obstacles to the circulation of sound money: federal legal tender laws that force acceptance of Federal Reserve Notes; “counterfeiting” laws that serve no purpose other than to ban the creation of private commodity currencies; and tax laws that penalize the use of gold and silver coins as money.”

Ron Paul noted that gold and silver have constituted sound money throughout history.  Loss of confidence in the dollar and profligate deficit spending by the government have caused people to flee to gold and silver as a store of value.  Paul noted that “Even central banks have come to their senses and have begun to stock up on gold once again.”

Presently, the use of gold and silver by citizens is being severely punished by the government.  Ron Paul cited the case of Bernard von NotHaus, creator of the Liberty Dollar, who was convicted of counterfeiting for creating his own gold and silver currency and another individual who was “convicted of tax evasion for paying his employees with silver and gold coins instead of fiat dollars.”

H.R. 1098, according to Ron Paul, would allow citizens to maintain the purchasing value of their money and prevent the government from conducting excessive borrowing which will enslave future generations with debt.

Testimony at the hearing for H.R. 1098 was given by Dr. Lawrence Parks, Foundation for the Advancement of Monetary Education, and Dr. Lawrence White, Professor of Economics, George Mason University.

Dr. Parks, who presented 63 pages of prepared remarks, opened by stating that the current monetary system is not in conformity with the Constitution, is dishonest and unstable and in the process of “blowing up.”

Selected excerpts from Dr. Parks testimony:

With no exceptions, the history of legal tender irredeemable paper-ticket-electronic money is that its purchasing power always approaches its cost of production: ZERO!

With gold-as-money, and without the banking system creating money out of nothing, the amount of financial leverage would be de minimis with no possibility of collapse. Because legal tender irredeemable paper-ticketelectronic money can be created without limit, there is no market based self-correcting mechanism to limit financial leverage. Especially at a time when those who engage in leverage do not bear the full risk of loss, but are able pass the risk on to the public through the banking system, whose balance sheet and liabilities are de facto guaranteed by the public, financial collapse is a certainty.

Many think that the Great Depression was a “market failure.” Mr. Greenspan has written extremely eloquently that the Great Depression was in fact caused by the Federal Reserve feeding too much credit into the banking system, i.e., enabling the banking system to increase leverage too much.

Dr. Parks notes that the price level of the U.S. was stable until President Nixon defaulted on the U.S. promise to redeem dollars for gold.

 

Dr. Parks says that because the U.S. dollar is the reserve currency of the world, when the dollar collapses, the global financial system will also collapse, plunging most of the world into poverty and war.

Dr. Parks admits that as a “practical matter, absent the debacle of a complete collapse, there can be no abrupt changes to our monetary system.”

The continual appreciation of gold against paper money suggests that the monetary system will not be reformed in time to prevent a financial disaster.   The ongoing debt crises in Europe and the U.S. also provide little hope that governments will diverge from their path of monetary disaster as they seek to cure too much debt with more debt.   The only survivors at the end of this mad experiment with fiat money will be those holding the eternal sound currency of gold and silver.

Fed Lays Groundwork For Price Explosion In Gold

Gold hit another all time high of $1,779.10 before pulling back to close at $1745.10, up $26.90.  Gold has advanced strongly over the past year as the Federal Reserve engaged in quantitative easing and extremely loose monetary policy.  Over the past 30 days gold has gained $198 and over the past year, a stunning $548.70 per ounce.

At the conclusion of the Federal Open Market Committee (FOMC) meeting on Tuesday, the Fed announced that it would maintain its zero interest rate policy through the middle of 2013.   The Fed does not normally make commitments that limit future policy flexibility and three of the seven members of the FOMC  voted against the pledge to maintain zero interest rates.

The Fed has held interest rates at zero for 32 months now with little to show for it as debt burdened consumers continue to reduce spending.  With inflation running at 5 to 10% (depending on whose stats you believe), real interest rates are negative and savers are seeing the purchasing power of their dollars destroyed by Fed policies.

The FOMC also said that they expect “a somewhat slower pace of recovery over the coming quarters” and that future action might be taken to “promote stronger economic recovery.”  Since the Fed has already exhausted all normal policy tools, the FOMC seems to be positioning itself for another round of quantitative easing.  Some analysts speculate that the Fed will discuss further easing measures later this month at the Fed’s annual conference in Jackson Hole, Wyoming, where QE2 was launched.

Further fiscal stimulus seems improbable given the restrictions put on future spending by Congress as part of the debt limit agreement.  In a sign of how desperate the financial condition of the United States has become, all eyes are now turned towards the Fed.

Since zero interest rates and two rounds of money printing have done little to turn around the US economy, the expectation is that the Fed will need to do more of what failured before, except on a grander scale.  I expect that as the economy continues to weaken, the Fed will announce a “shock and awe” campaign of massive money printing accompanied by an explicit statement that they are committed to higher inflation.

Federal Reserve policies have been the primary factor pushing the price of gold higher.  The inevitable announcement of further quantitative easing will be trigger that pushes gold prices thousands of dollars higher.

Consider the statement of the former Fed Chairman Alan Greenspan who on a “Meet the Press” interview arrogantly proclaimed that the United States could never default because “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”  This is what the United States has come to under the easy money policies of the Federal Reserve and a government that believes prosperity can be created by oceans of debt.  Is it any wonder that the currency is collapsing and the purchasing power of the dollar declining precipitously?

Meanwhile, Kenneth Rogoff (of This Time It’s Different fame) who attended Harvard with Bernanke, tells Bloomberg that the Fed should explicitly set a high inflation target and engage in massive quantitative easing.

Federal Reserve policy makers are likely to embark on a third round of large-scale asset purchases, moving “more decisively” to secure the U.S. recovery, said Harvard University economist Kenneth Rogoff.

“They certainly should do something right away,” said Rogoff, a former International Monetary Fund chief economist who attended graduate school with Fed Chairman Ben S. Bernanke.

“Out-of-the-box policies are called for, especially much more aggressive monetary policy, however unpopular that may be,” said Rogoff, 58, a former Fed economist who like Bernanke earned a Ph.D. from the Massachusetts Institute of Technology. The Fed is “going to move more decisively,” Rogoff said.

Rogoff recommended the Fed say in “very clear statements” that it’s trying to create “moderate inflation.” “In the classic classroom QE, it’s open-ended,” Rogoff said. “You say, ‘I’m trying to create inflation of, let’s say 2 or 3 percent, and I’m going to do whatever it takes.’”

The extreme policy measures recommended by Greenspan and Rogoff prove that the US has already passed the tipping point and has only one policy option left.  If the Fed does not print like crazy, the whole rotten edifice of towering debts will collapse, plunging the country into a deflationary collapse.

Gold will have price corrections as it continues to move upward but the ultimate price will be many thousands of dollars higher than today.  Gold investors should continue to accumulate positions, especially on price weakness and enjoy the unfolding of one of the greatest bull markets in history.