While it was an opinion piece, it is nonetheless a powerful move for the Wall Street Journal to publish an article that so blatantly challenges the Federal Reserve, points out the inevitability of inflation and calls for a return to a gold-backed currency.
I have to admit being a bit shocked to find myself on the side of Fox News, The WSJ and the Republican party, after so many years of being absolutely outraged and disgusted by everything that they did and said. I believe they were wrong on the war, expansion of the government, stripping of civil liberties and so many other issues during the Bush administration, but are absolutely correct on opposing the irresponsibility of printing and borrowing trillions of dollars to prop up the very banks and institutions that are responsible for the crisis we face today. But enough of my ranting about the government’s runaway ego and rampant corruption, let’s get down to the key points from Wednesday’s WSJ article. Kudos to Judy Shelton for so bravely and brilliantly penning this piece.
Capitalism Needs a Sound-Money Foundation
Let’s give the Fed some competition. Abolish legal tender laws and see whose money people trust.
A gold standard stands in the way of runaway government spending.
Under a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money — i.e., currency with no intrinsic worth that government has decreed legal tender — loses its value when government creates more than can be absorbed by the productive real economy. Too much fiat money results in inflation — which pools in certain sectors at first, such as housing or financial assets, but ultimately raises prices in general.
If capitalism is to be preserved, it can’t be through the con game of diluting the value of money. People see through such tactics; they recognize the signs of impending inflation. When we see Congress getting ready to pay for 40% of 2009 federal budget expenditures with money created from thin air, there’s no getting around it. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account. Our paper currency cannot provide a reliable store of value.
So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies — and for good reason.
Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold. The existence of parallel currencies operating side-by-side on an equal legal footing would make it clear whether people had more confidence in fiat money or money redeemable in gold. If the gold-based system is preferred, it means that people fully understand that the purpose of money is to facilitate commerce, not to camouflage fiscal mismanagement.
At a moment when the world is questioning the virtues of democratic capitalism, our nation should provide global leadership by focusing on the need for monetary integrity. One of the most serious threats to global economic recovery — aside from inadequate savings — is protectionism. An important benefit of developing a parallel currency linked to gold is that other countries could likewise permit their own citizens to utilize it. To the extent they did so, a common currency area would be created not subject to the insidious protectionism of sliding exchange rates.
Last month, Indiana state Sen. Greg Walker introduced a bill — “The Indiana Honest Money Act” — which would, if enacted, allow citizens the option of paying in or receiving back gold, silver or the equivalent electronic receipt as an alternative to Federal Reserve notes for all transactions conducted with the state of Indiana.
It may turn out to be a bellwether. Certainly, it’s a sign of a growing feeling in the heartland that we need to go back to sound money. We need money that works for the legitimate producers and consumers of the world — the savers and borrowers, the entrepreneurs. Not money that works for the chiselers.
While I would like to see a return to the gold standard and think it is a critical step to solving our political and economic issues, I believe we will see the Federal Reserve, banking industry and government continue and accelerate current efforts to print our way out of the economic crisis. As mentioned in the WSJ article above, too much fiat money creation results in inflation, higher prices and debasement of the currency. Savvy investors have been turning to gold and silver to hedge against inflation, protect their wealth and book significant profits as precious metals and mining companies skyrocket in value.
I offer a view of my portfolio, the monthly newsletter Road Less Traveled and weekly trading alerts for Premium Subscribers. The subscription is month-to-month, allowing you to cancel at anytime if you are not completely satisfied.