In Gold We Trust?
The Federal Deposit Insurance Corporation (FDIC) ran a full-page ad in yesterday's Oregonian newspaper (page A5). It read:
“
Insuring deposits up to
“Without anyone losing a
“For 75 years, the FDIC has been protecting people’s money.
“Protecting and insuring people’s bank deposits. It’s a simple idea that became the foundation of our modern banking system, by creating stability and promoting trust and confidence. And it works. Since the start of the FDIC program, not a single depositor has lost a single penny of insured deposits from a bank failure."
The ad went on to describe the deposit insurance limits and tell readers where they could learn more about the FDIC.
Now, take a closer look at that $100,000 bill in the ad. It’s a gold certificate. When issued, the government was promising to pay $100,000 in gold coins. That promise ended in 1933 when President Roosevelt took us off the gold standard. The certificates themselves were actually illegal to possess until 1964.
It’s interesting that the FDIC would now choose to advertise its deposit insurance program by reminding Americans that they used to have the right to redeem their paper currency for “real money.â€
By claiming that federal deposit insurance “…became the foundation of our modern banking system…†the FDIC is overlooking the foundation of our “pre-modern†banking system…a foundation built on real money… gold.
Throughout history, paper currency has always been devalued by the governments that issue it. We should thank the FDIC for reminding us that in an earlier time our government recognized this fact and stood behind its currency with gold. Perhaps the time has come to consider returning to that “pre-modern†banking system.
To better understand the relationship between governments and money, read Alan Greenspan's classic article, Gold and Economic Freedom.
UPDATE: The FDIC ran a second full-page ad in The Oregonian on Monday, August 4th, page A6. Only this ad showed bundles of more recent bills, with no promise to redeem for gold. Could it be that my notice of its first ad caught someone’s attention, and led to a more accurate portrayal of the FDIC insurance promise?
Founder and Senior Policy Analyst at Cascade Policy Institute, Steve Buckstein is Director of Cascade’s Government Transparency Project and the Oregon Economic Opportunity Project. Based in Portland, Cascade Policy Institute is Oregon’s free market research center.
I collect coins, thought you all might like the trivia
One has to figure the FDIC knows a little more about the current banking crisis than is reported.
These are troubled times with many signs of vulnerability lingering and mounting.
Concern at every level is an understatement.
Unfortunately, here in Oregon we have Ted Kulongoski in charge.
A 1 once silver dollar was, well, $1 dollar.
Today, 2008, gas is $4.29 (avg) per gallon
Silver is $17.19 per 1 once in Federal Reserve Notes FRN’s (note the face value is still $1 dollar)
Now, take 17.19 and divide it by 4.29, it equals 4.
Now, take $1 and divide it by 4., it equals (Surprise) .25 cents.
.25 is the real price of a gallon of gas, $0.25, 25 cents.
Gas has only gone up $0.05 (5 cents) since 1933.
So, what has happen then? The value of the Federal Reserve Note (paper money) has been devalued, how was that done?
By removing us from the gold standard that is required by the Constitution, and then printing the paper money, as you need it.
So, if a dollar was a dollar in 1930, and today that same dollar is now 17.19 dollars, that means there are 16.19 times more paper FRN dollars out in circulation than there was in 1930. Now divide $1 by $17.19 and today’s dollar is only $0.058 (6 cents) of a 1930’s dollar. If you had save $1 from 1930 till today (78 years), you would have lost 94% of your money.
What made gold useful as an exchange medium was that it was rare, kings could send out armes to take it from other people, then hoard it, and use it to maintain or expand their power. If you really want to concentrate wealth and power in fewer hands, go back to the gold standard.
Of course kings could steal gold from others, but they could also steal beads, or any other commodity they saw as valuable. Ask people who travelled across Europe escaping from communist countries whether they used beads or gold to bribe the border guards and you’ll see the value of gold to individuals. Governments hate it because they can’t easily create more of it like they can print paper currency.
The reason FDIC and the Fanie-Freddie bailout is crucial is that it upholds the belief in our minds that money actually exists and it is guarenteed by an entity that has the power to create it on a moments notice. If you try and dismantle that system you are taking us back to horse and buggy days, as my dad would have said. A modern world economy is not going to stand on gold, which has no inherent value outside of filling teeth and decorating ourselves. Its utter nonsense. Recycled steel is more useful than gold. Copper is very useful. Gold? What is it good for? Absolutely nothing. Say it again ya'll.....(apologies to whever did that song)
While I understand your point, not everyone thinks your way, they need concrete currency in their hands. Currency that is backed by a commodity other than the industrial ability of the issuing country, will always command a higher amoun of rspect and be sought after.
The gold standard gave that extra effect to our money, now our money is backed by air................and is getting close to being worth the same
I did read the major points of the bail out and its not as big a giveaway as I first thought. Though the taxpayers are footing the bill for bad decisions, its not an absolute. If the people who take the bailout change their ways, this is enough to get them on their feet again, if not, it is only prolonging their collapse for a year or two.
This plan is conditional on the lenders dropping the amount people owe to 90% of the appraised value. In a good market area, it would be advisable for the lender to foreclose and sell the home, in a bad area, the lender may go with the government plan.
A caveat to it all , is that if the people have equity loans too, that lender must also agree to forgive the debt.
The worst offenders will still lose their homes, as it should be. Its not a bail out per se, more of a device that can be used to save your credit if you're willing to practice some financial restraint.
If I can’t add those zeros to my account balance because I would, in effect, be stealing from those I traded with, then why can the government do it?
I understand why technocrats don’t see any intrinsic value in gold, but here I have to defer to centuries of human experience. Without some store of value that is hard to produce, we are doomed to live our lives subject to the whims of those with the power to add those zeros to our money supply.
Just ask the poor citizens of Zimbabwe, where the government just issued its new 100 billion dollar bank note (which, by the way, has more value as a novelty item on eBay than on the streets of the capital.) source: www.iht.com/articles/ap/2008/07/23/africa/AF-Zimbabwe-Money-Woes.php
So I can't just add zeros. I would have to add to my productive capacity as a landscape architect, either by getting smarter or better or faster or al 3. Gold sitting there in a vault that "backs up" my claim that I have this capacity is just an albatross on the system. It can be hoarded, manipulated, thinned (governments did this with gold coins, lightening them).
Elect good people to run our government. If they turn out to be poor fiscal managers, like the current White House crew, get rid of them and make good fiscal management important in the next election. Even Greespan says through monetary policy the Fed can manage the currency as if there were gold backing it. No need to have the real deal.
Dude...I was just thinking today, if I had bought a $400K house last year and put 20% down, I'd have a $320K mortgage. If house prices drop 25% i now have a $300K house. I am out $80K and I am paying more mortgage than my pile of 2x4s is worth. Untenable situation. Those are the stakes we are dealing with, times millions fo homeowners. So yes, we have to hope these idiot bankers and moron politicians can stem the bleeding. Otherwise we are the next Argentina, from 1st to 2nd orld economy in a few short years. We bet the farm on housing and just lost the bet.
That's why there has to be a check on that power. Gold works for the various reasons cited in today's blog. The housing example Dean provides is unlikely in a stable monetary system. We have to understand how the Federal Reserve works and wreaks havoc on the economy.
Therefore, the bankers and pols. weren't the only idiots to blame under your scenerio. Personal responsibility goes a long way.
Though, the people I just mentioned won't be helped with this bailout, most of the ones you were thinking of will be, if they adjust their financial bad habits.
From what I read, this bailout isn't a give away, most will be paid back.........some at a premium. Those who through their bad decisions will still lose their house, which is how it works and should work in our market. It drives prices down, which allows other to purchase homes ( that incentive is in this bill too).
It was a refreshingly decent bill for once
Not sure how your housing example relates to this post, so I’ll leave that discussion to others.
My trust is in the self correcting ability of our democracy. If one party blows our finances, like the Republicans have managed to do, then we throw them out and replace them. In 1980 we did that in reverse by throwing Carter out and electing Reagan.
The government no longer controls the money supply through the printing presses. It does it by setting base interest rates. And this works just as well as gold. The housing crisis is directly traceable to artificially low interest rates held too long to cheaply finance unecessary tax cuts and a war on a credit card. Had we been on gold, the government would have sold off its gold stocks to finance the war, and bankrupted the nation that way. Either way we go bankrupt because we cut taxes and waged a very expensive war at the same time. What is the practical difference?
I think the practical difference is that without gold, we’ve financed the war on the backs of future generations, through deficit financing. With gold, we all would have seen the financial consequences much sooner as our paper was redeemed for gold. We might have been willing to accept that cost, but with a majority of the country apparently against the war, that financial drain may have been enough to change government policy.
So, I assume that those against the war would have preferred that we be on a gold standard to make the real costs of the war clearer, sooner.
Elections and the bill of rights are our check against the excesses of government. Not gold or silver or wampum.
Now, look at our soaring deficits today and ask yourself if Americans and foreigners could trade dollars for gold at some official price if that wouldn’t put pressure on the administration to alter its policies? It might not be the decisive factor, but I think war opponents would be better off with a gold standard than without one.
In the case of the current occupant, given his history of squandering first his dad's friends money and then everyone elses, no, I don't think it would have made any diference in his choices. He pushed his tax cut through before the war in order to squander the surplus that, if left alone for a while could have made a dent in the national debt. Bush of all people would have sold the Fort Knox stash to the Chinese. He would have melted down the silverware from the White House. Anything and everything necessary to finance his madness.
We had the opportunity to early retire him and save $10-12 billion a month in 04, yet he managed to hang on and prolong his adventure. Now we have another choice, all of us 4 years older and much deeper in debt. Which present candidate is more likely to bring our occupation of Iraq to a conclusion sooner rather than later? That is our choice, and I don't think it is even close on this issue. Whether to go back to a gold standard or not should be based on a much different analysis than war or peace. We can get war or peace with or without a gold standard about equally, if history is any guide.
For data on national debt: http://zfacts.com/p/318.html
Second, I wouldn’t call the Republican presidents you mention “welfare statists†but the debt did rise in their terms. I believe Greenspan wanted to draw down large surpluses by cutting taxes, which he viewed as a better policy than increasing spending (which, once started would be harder to stop). We got higher spending, and now it looks like the tax cuts will be history once more appropriately labeled “welfare statists†secure their hold on the legislative and executive branches of government.
In other words depositors have lost money from bank failures that were not insured i.e., deposits over $100,000 or $40,000 before the limit was raised.
Also since today's dollar is worth a small fraction of what the dollar was worth back in 1913, that is not exactly an advertisement for the "success" of the FDIC and the federal reserve bank. Trillions of "dollars" of wealth evaporated...lost...due directly to fiat money created by the government. No prosecutions yet that I'm aware of.
What has the government done with this new-found wealth? Started or entered wars. WWI, WWII, Korea, Vietnam, Iraq, on and on, none of which would have been possible without the possibility of printing money.
P.S the other element of current libertarism I can't agree is a large degree of pacificism. I do think the U.S. has ventured too far in military presence, but I get the feeling current libertarians think we should not venture beyond our borders and wait to be hit before rallying the forces.
Storage costs and transactional costs don't outweigh the economic harm of destroying wealth through fictional "money".
Do all countries have this supposed right of "venturing beyond our borders" or is the United States the only country in the world that can do this? If so, from where did this authority come from? I submit that the advice of our founders should be heeded.
This bank controlled who borrowed what and at what rates, it held the country in its grips. Sound familiar?. Jackson saw that allowing one group of greedy bankers to control the countries finances was sheer folly. Jackson also paid off the national debt and balanced to budget by selling federal lands to the Americans that own it.
You remember when banks competed for your saving accounts? 4% interest, wait, we're giving 4.5% at our bank. Have you noticed they don't do that anymore? The greedy jerks take the interest they once paid us and greddily hoard it. Without the Fed, the banks would have to compete again, there is no way that can be bad for America!
The only way for this country to become fiscally solvent again, is to do the same thing. Unfortunately, it probably isn't possible given the lawsuits and what not that occur if you look at a pine tree wrong.
As for expanding past our borders, why? Every other country out there should defend themselves. There is no reason we should have to defend them............and if we do, they should at least foot the bill.
The reason our defense budget is so high is because we protect countries that don't fund their own defenses, all we get out of it is debt.
As Teddy Roosevelt once said " Speak softly but carry a big stick". There is no reason to whittle our big stick into a bunch of tooth picks and station them around the world, we aren't its police man.
http://online.wsj.com/article/SB121737434767195077.html?mod=todays_columnists
The post you responed to of mine had nothing to do with the current housing bailout but was a response to Bob's post. I don't see why reading another article ( loks more like an opinion piece anyhow) about the bailout will have any bearing on this side conversation. I'll check it out, all the same.