How Our Money is Devalued

Here is a great presentation on the value of money and why Constitutional money is so important in our out-of-control economy.

Listen to the audio [mc src=”http://mp3.rprradio.com/16k/200802/20080215_Fri_Malatesta1.mp3″/]

And watch the Powerpoint Presentation

Meaning of the Gold Price
by Dr. Ron Paul

A recent headline in the financial press announced that gold prices surged over concern that confrontation with Iran will further push oil prices higher. This may well reflect the current situation, but higher gold prices mainly reflect monetary expansion by the Federal Reserve. Dwelling on current events and their effect on gold prices reflects concern for symptoms rather than an understanding of the actual cause of these price increases. Without an enormous increase in the money supply over the past 35 years and a worldwide paper monetary system, this increase in the price of gold would not have occurred.

Certainly geo-political events in the Middle East under a gold standard would not alter its price, though they could affect the supply of oil and cause oil prices to rise. Only under conditions created by excessive paper money would one expect all or most prices to rise. This is a mere reflection of the devaluation of the dollar.

Particular things to remember:

  • If one endorses small government and maximum liberty, one must support commodity money.
  • One of the strongest restraints against unnecessary war is a gold standard.
  • Deficit financing by government is severely restricted by sound money.
  • The harmful effects of the business cycle are virtually eliminated with an honest gold standard.
  • Saving and thrift are encouraged by a gold standard; and discouraged by paper money.
  • Price inflation, with generally rising price levels, is characteristic of paper money. Reports that the consumer price index and the producer price index are rising are distractions: the real cause of inflation is the Fed’s creation of new money.
  • Interest rate manipulation by central bank helps the rich, the banks, the government, and the politicians.
  • Paper money permits the regressive inflation tax to be passed off on the poor and the middle class.
  • Speculative financial bubbles are characteristic of paper money– not gold.
  • Paper money encourages economic and political chaos, which subsequently causes a search for scapegoats rather than blaming the central bank.
  • Dangerous protectionist measures frequently are implemented to compensate for the dislocations caused by fiat money.
  • Paper money, inflation, and the conditions they create contribute to the problems of illegal immigration.
  • The value of gold is remarkably stable.
  • The dollar price of gold reflects dollar depreciation.
  • Holding gold helps preserve and store wealth, but technically gold is not a true investment.
  • Since 2001 the dollar has been devalued by 60%.
  • In 1934 FDR devalued the dollar by 41%.
  • In 1971 Nixon devalued the dollar by 7.9%.
  • In 1973 Nixon devalued the dollar by 10%.

These were momentous monetary events, and every knowledgeable person worldwide paid close attention. Major changes were endured in 1979 and 1980 to save the dollar from disintegration. This involved a severe recession, interest rates over 21%, and general price inflation of 15%.

Today we face a 60% devaluation and counting, yet no one seems to care. It’s of greater significance than the three events mentioned above. And yet the one measurement that best reflects the degree of inflation, the Fed and our government deny us. Since March, M3 reporting has been discontinued. For starters, I’d like to see Congress demand that this report be resumed. I fully believe the American people and Congress are entitled to this information. Will we one day complain about false intelligence, as we have with the Iraq war? Will we complain about not having enough information to address monetary policy after it’s too late?

If ever there was a time to get a handle on what sound money is and what it means, that time is today.

Inflation, as exposed by high gold prices, transfers wealth from the middle class to the rich, as real wages decline while the salaries of CEOs, movie stars, and athletes skyrocket– along with the profits of the military industrial complex, the oil industry, and other special interests.

A sharply rising gold price is a vote of “no confidence” in Congress’ ability to control the budget, the Fed’s ability to control the money supply, and the administration’s ability to bring stability to the Middle East.

Ultimately, the gold price is a measurement of trust in the currency and the politicians who run the country. It’s been that way for a long time, and is not about to change.

If we care about the financial system, the tax system, and the monumental debt we’re accumulating, we must start talking about the benefits and discipline that come only with a commodity standard of money– money the government and central banks absolutely cannot create out of thin air.

Economic law dictates reform at some point. But should we wait until the dollar is 1/1,000 of an ounce of gold or 1/2,000 of an ounce of gold? The longer we wait, the more people suffer and the more difficult reforms become. Runaway inflation inevitably leads to political chaos, something numerous countries have suffered throughout the 20th century. The worst example of course was the German inflation of the 1920s that led to the rise of Hitler. Even the communist takeover of China was associated with runaway inflation brought on by Chinese Nationalists. The time for action is now, and it is up to the American people and the U.S. Congress to demand it.

Filed under Economy, Federal Reserve by  #

Comments on How Our Money is Devalued

May 13, 2009