It is certain that Federal Reserve Chairman Helicopter Ben Bernanke was relieved last month when he testified before Congress and his longtime antagonist, Congressman Ron Paul, wasn’t present.
Bernanke’s statement that “… nobody really understands gold prices, and I don’t pretend to understand them either” went unchallenged. That would not have been the case had the now-retired Paul been present. It’s an astonishing admission from someone who claims to be steeped in economic history, wisdom and experience, as does Bernanke.
Gold prices have historically indicated the confidence in or the failure of fiat currencies. An ounce of gold can still be exchanged for the same items an ounce of gold could be exchanged for 100 years ago. That’s not the case of a dollar, which now is worth only pennies compared to what it was in 1913, or even 1971 when Richard Nixon completely disconnected the U.S. dollar from gold.
In 1936, you could buy a very nice suit for $34. At the time, gold was $34 per ounce. Today, you can buy an extremely nice suit for $1,350. An ounce of gold can be had for about $1,350.
Suppose someone had put $34 in a shoebox in 1936, set it on the top shelf of the closet and forgotten about it. If you found it today, it would still be $34, albeit $34 that will buy a lot less than $34 did in 1936. But suppose someone had put away for safekeeping an ounce of gold in 1936. If you pulled it out today, it would be worth $1,300 or more.
In 1933, the Consumer Price Index (CPI) — the price of a basket of common goods purchased by the average consumer — was 12.8. The current CPI is 233. In other words, that same basket of goods has increased from just less than $13 to $233.
The rise in gold’s price from $34 to $1,300 does not reflect an increase in the value of an ounce of gold. It reflects an increasing loss of confidence in the U.S. dollar and the devaluation of the dollar through money printing. Every dollar printed dilutes the value of those already in circulation. And Bernanke has been on a money printing binge for the past five years.
There is a great myth that the Federal government is in debt. Thanks to central banking and the Federal Reserve, all the government has to do to erase its so-called debt is to print more money. (This is not the case for local and State governments.)
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In a column he wrote in 1995, the late economist and author Murray N. Rothbard explained the Fed’s operation thusly:
I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I “lend out” $10,000 to someone, either for consumer spending or to invest in his business. How can I “lend out” far more than I have? Ahh, that’s the magic of the “fraction” in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest than savers would. I don’t have to save up the money myself, but can simply counterfeit it out of thin air. (In the 19th century, I would have been able to issue bank notes, but the Federal Reserve now monopolizes note issues.) Since demand deposits at the Rothbard Bank function as equivalent to cash, the nation’s money supply has just, by magic, increased by $10,000. The inflationary, counterfeiting process is under way.
The Federal Reserve works this way, by “lending” money to other banks, through either a mark on a ledger sheet or by computer transfer. Real money never changes hand.
So when agents of the government talk about debt, they are talking about something that doesn’t actually exist.
Remember: Since the U.S. monetary system is no longer on the gold standard, Federal Reserve Notes (dollars) are no longer redeemable for gold, as they were prior to 1933. Now the government recognizes a slip of paper with a printed value on it as money. That slip of paper is backed by the “full faith and credit of the U.S. Government.” However, that government can simply print money whenever the supply runs short or the government decides to spend more on the pet projects of the elected class or to bail out their favored corporatist masters (as in the case of the stimulus packages of the past few years).
However, the process of printing additional money to cover the so-called debt causes inflation and a devaluation of the dollar. Consider that prior to 1933 an ounce of gold was equal to $20.67. Franklin D. Roosevelt’s New Deal set the price at $35 per ounce. Since President Richard Nixon separated the dollar from gold, the price has increased 47-fold.
In 1966, before he sold his soul to the banksters, former Fed Chairman Alan Greenspan wrote an essay titled “Gold and Economic Freedom.” In it, he said:
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. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
All fiat systems in history have been in socialist states. All socialist states in history have a history of suppressing their own people. And all socialist fiat money states/countries transfer wealth and production to the state without payment.
Of course, as in America today, this transfer takes place via the depreciation of paper money. The owner of the money printing press controls all wealth and production.
All that we ever get from our paper money is the promise to pay. Thomas Jefferson warned of this when he said: “The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals… it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.”
And President James A. Garfield said: “Whoever controls the volume of money in any country is absolute master of all industry and commerce.”
And now, you ask: “Since gold is way down from its high of $1,900, doesn’t that mean the economy is improving?” If you ask that question you are as economically ignorant as Bernanke.
The answer is no, because the banksters invented fractional reserve gold. In other words, they are selling paper gold that has no basis in reality. There are hundreds of thousands, if not millions, of ounces more gold represented by paper than has ever been mined in the history of the world.
Real gold is being purchased at a record pace. Yet because of the banksters’ manipulation and rigging of the market through the use of unbacked paper “gold,” the price took a precipitous dive in April. Paul Craig Roberts explained what happened to the gold price in great detail here and here.
As Michael Snyder of The Economic Collapse reminded readers in his column Thursday, the U.S. economy was at its best prior the creation of the Federal Reserve and the establishment of an income tax. Even Wikipedia notes this:
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.
The economy functions best when on a hard money standard and absent central control of the money supply and burdensome taxation and redistribution. The Federal Reserve, ostensibly created to keep the economy stabile, has created financial booms and busts, impoverished savers, and destroyed the middle class.