By printing or creating more money, a nation does not create more wealth.
Having stable money however, helps entrepreneurs and citizens to more easily create
wealth; by creating new innovations, products, and better services. The question is often
asked "why goldT' of all the elements and things on the planet why is gold chosen as the
so called "right" standard to use for money? The answer is that through voluntary
exchange over time, gold evolved into money. The market chose. No international THE EFFECTS OF CRYPTOCURRENCIES ON THE BANKING INDUSTRY ANO MONETARY POLICY
government or specific bank mandated it, the people chose it. Anything could have been
picked: sea shells, salt, gems or jewels, silks, or even animals. The reason is that gold
was chosen over everything else was because gold has all the qualities that is associated
with good money: it's divisible, portable, high value per unit of weight, durable and has
uniform quality. (Rowlat, J. 201 3) Rather gold is used for money directly, like for gold
coins, or indirectly through currency that is "good-as-gold", people trust in gold over
other commodities. While other commodities like silver have also been used, gold has
always been the most valued.
Also because there is a set amount of gold in the world and
therefore cannot be artificially inflated. Even if more is mined, it cannot be inflated
because no one entity in particular controls the supply of gold, unlike fiat money where
the entire money supply could theoretically be double at the flick of a switch.
Knowing the difference between wealth and money is critical. Doubling the
money supply doesn't double economic prosperity, allowing the Fed to tinker with the
money supply and purposefully cause inflation is legal theft from every currency holding
citizen.
It allows the Fed to "tax" every citizen, poor and rich, by weakening the
purchasing power of each dollar in their pockets.
The graph on the next page shows, using data from the Bureau of Labor Statistics,
the weakening of the dollar since the Fed was founded in 1913 up to I 00 years later in
201 3. The dollar has lost 95% of its purchasing power. Meaning $100 dollars of groceries
in 2013 would cost $5 before the Fed and Presidents Nixon and Roosevelt inflated the
dollar and removed it from the gold standard. The Fed was so damaging that even while the U.S. was still on the gold standard the Fed was able to shatter a lot of the dollar's
value because it was tampering with the economy and caused the often unspoken of
recession of 1920-1921 (Grant, J. 2015). Once the U.S. was completely off the gold
standard, the downward spiral never went back up and has landed the U.S. in the position
that it is in today with its 95% loss of purchasing power.
By stealing citizens' purchasing power through the use of inflation, the Fed is
robbing citizens of their ability to accumulate wealth. Inflation doesn't speed up or
stimulate an economy as Fed supporters often claim; it simply creates an illusion by
increasing nominal numbers instead of real numbers of economic prosperity and instead
destroys the country's currency (Paul, R. 2009). Inflation is deceptive and causes
delusions of grandeur with regards to wealth and knowledge. The people who ''win" from inflation are people and nations that are in debt (Aizenman, J. & Marion, N. 201 1 ). This
is why central banks were created after times of war and why inflation peaks around
times war. By weakening the dollar, the government is able to cheat soldiers and
contractors by paying them in weaker dollars. The people who spend first win first. The
person who saves money is being robbed right under their nose. Alan Greenspan, one of
the most legendary Fed chairman even acknowledged in his article Gold and Economic
Freedom (1966) stating "In the absence of the gold standard, there is no way to protect
savings from confiscation through inflation. There is no safe store of value."
A healthy economy needs and depends on savers. It's people who save their
money and thusly allow banks to loan the money to entrepreneurs that create real
economic prosperity and help country to flourish. When central banks like the Fed
eliminates the incentives to save because of destructive inflation, more people spend
money on consumer goods or try to invest in riskier ventures because they need to
outpace inflation for a real return on investment. Fed policy causes a circle of
accumulating debt and risky leveraging that eats away and rips apart at a country and
when everyone begins to realize that all the money that is being spent is being spent for
the wrong reasons then bubbles begin to build, and soon after burst, causing recessions
and depressions (Mises, L. V. 2007).
"Lenin is said to have declared that the best way to destroy the capitalist
system was to debauch the currency. By a continuing process of inflation,
governments can confiscate, secretly and unobserved, an important part of the
wealth of their citizens. There is no subtler, no surer means of overturning the
existing basis of society than to debauch the currency. The process engages all the
hidden forces of economic law on the side of destruction, and does it in a manner
which not one man in a million in able to diagnose."
For even further proof that a central bank and specially the Fed is dangerous and holds
back the U.S economy; Marx's Fifth Plank of the Communist .Manifesto (1964) mandates
a strong central bank monopoly. He felt and argued that it was necessary to maintain
power over the entire economy to protect and fight back against the encroachment of
Capitalism. The Fed doesn't exist to help the economy. It exists to help prop up powerful
elites who are afraid of the competitive forces of a free market economy.
So how has the Fed done in its mission to protect the citizens from economic
calamity? according the National Bureau of Economic Research: 191 8-1919, 1 920-1921,
1923-1924, 1 926-1927, 1 929-1933, 1 937-1938, 1 945, 1 948-1 949, 1 953-1954, 1 957-
1 958, 1 960-1961, 1969-1970, 1 973-1975, 1 980, 1 98 1-1982, 1 990-1991, 2001, 2007 have
all been periods of recession or depression in the U.S after the Fed was created. The Fed
has failed to protect the economy and has arguably been the cause of some of these
economic downturns, contributing to the Great Depression, post war recessions,
stagflation in the 1 970's, and the great recession in 2008. (Friedman, M., & Schwartz, A.
J. 2008)
20
THE EFFECTS OF CRYPTOCURRENCIES ON THE BANKING INDUSTRY AND MONETARY POLICY
What would happen to America if the Fed ever came to an end and the gold
standard restored? In his book End the Fed (2009) Dr. Ron Paul answers the question
"People worry what would happen in a world without the Federal Reserve. My
answer is that you would enjoy all the privileges of modem economic life without
the downside of business cycles, bubbles, inflation, unsustainable trade
imbalances, and the explosive growth of government that the Fed has fostered."
Dr. Paul also talks about the effects of reinstating the gold standard by saying that the
gold standard with no Fed would impose discipline.
There would be clarity in costs of
wars and government programs. Accounting rules would come to reign in political
ambitions. The federal government will be financed through direct taxation and selling of
bonds, no longer through the subtle theft of inflation. Putting both legislatures and
executives on a short leash. The question then, is to ask if there is a new system, a new
process or way to take all of the benefits of the gold standard and counter all the
negatives of the Fed. A way that doesn't require the permission from congress or bankers.
There is such a system; cryptocurrency