Idaho's Weekly Journal of Local & National Commentary  Week 1614


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by Free Market Duck

Federal Reserve drives U.S. into Super Recession, then Depression, then Martial Law
(Jan 19, 2008)

Not one member of the Federal Reserve -- or 99% of today’s PhD economists or stock market pundits -- can correctly answer the following basic questions in economics:

(1) What is the difference between money and a paper receipt for money?

(2) From where, exactly, does the non-backed U.S. Dollar obtain its value?

 (3) What is the difference between today’s U.S. Dollar and “real capital?”

Therefore, not knowing the answers to these three basic questions, the Federal Reserve erroneously continues to inject trillions of worthless, non-backed Monopoly Money into the banking system, under the false assumptions that (1) green paper printed on a U.S. Treasury printing press magically obtains “value,” (2) the non-backed U.S. dollar is the same as “real capital” and, (3) consumers rapidly spending trillions and trillions of newly injected National Wallpaper can somehow “stimulate” the enrichment of our economy.

The real purpose of a federal “monetary stimulus” package is for the Federal Reserve to bail out their billionaire buddies in banking and pass the monetary inflation on to the taxpayers in the form of higher prices for all commodities and services.

Washington, DC – Turn on the TV, girl friends, and all you hear these days are arguments about how much money the Federal Reserve central bankers should inject into the U.S. economy.  Nobody bothers to ask whether a central bank should inject trillions of dollars into the economy, or whether a central bank should even exist.  Everybody simply assumes that the Federal Reserve should exist, and should pump money into the market; their only questions are:  how much, and by what method?

   But wait.

   Shouldn’t we know exactly what we’re talking about when we advocate a potential billion or trillion or quadrillion dollar undertaking for the U.S. economy, executed by a private group of central bankers or Congress?  Shouldn’t we be asking important questions such as, “By the way, little Lord Fauntleroy of the U.S. Exchequer, what exactly is money, anyway?  What does the U.S. Dollar represent?  Is it the same as ‘real capital?’  From where does the U.S. Dollar obtain its ‘value?’”

   It seems rather slipshod that nobody bothers to establish their economic premises as they propose to perform this huge injection of undefined “money” and yet everybody is eager to inject trillions and trillions of U.S. Dollars into the U.S. economy to “stimulate” us to spend money as fast as we can to “save” us all from that mysterious plague from Mars called: a “recession.”

   Nobody defines what a “recession” is either, or where it came from.

   So, just what is the definition of the U.S. Dollar?

   First, we know what the Dollar is not.  It is not a gold-backed promissory note.  It is not a paper receipt redeemable for gold or silver coins -- or any other commodity -- at the U.S. Treasury.  It is not backed by America’s GDP because the Federal Reserve does not own America’s GDP and thus cannot issue paper receipts for collateral it doesn’t own – nor would it be legal for you to redeem your neighbor’s car, TV, or house by turning your Federal Reserve Notes into the U.S. Treasury, which is what a collateralized promissory note by the Federal Reserve would be.

   In short, the U.S. Dollar is not backed by anything.

   Since the definition of money is a commodity, and paper money is defined as a receipt for a commodity, the U.S. Dollar is neither money or paper money because it doesn’t qualify as either a commodity or a paper receipt for a commodity.  The most that can be said of our U.S. Dollar is that it has now morphed into pulp fiction.

   So, if it’s not backed by gold, silver, the GDP, or any other commodity, from where, exactly, does the U.S. Dollar, or Federal Reserve Note, obtain its “value?”

   Answer:  from citizens who have yet to figure out that paper isn’t gold.

   The U.S. Dollar has no “value” per se. It is not a contract, it is not an invoice for gold stored in the U.S. Treasury, and printing up trillions and trillions of copies of U.S. Dollars with no backing is not much different than counterfeiting a trillion copies of the pink slip to your ’57 Chevy and selling all trillion pink slips to the public -- and then making all the pink slips irredeemable for the '57 Chevy.  Welcome to today's U.S. Dollar and fractional reserve banking.  U.S. Dollars are simply rectangular little pieces of green paper printed up on U.S. Treasury printing presses for a cost of 3-4 cents per any denomination.  The One Dollar bill costs 3-cents, the Five Dollar bill costs 3-cents, the Twenty Dollar bill costs 3-cents, and the One Hundred Dollar bill costs 3-cents.  Which, adjusted for inflation, is what today's Dollar is worth relative to the 1980 Dollar:  3-cents.

   Right about now, somebody is going to pop up and say, “But wait.  I can spend the Dollar at the grocery store and buy a loaf of bread.  How can you say it has no “value?”

   Yes, you can spend a Dollar at the grocery store for groceries.  In 1900 a loaf of bread cost 5-cents; in 1930 it cost 10-cents; in 1950 it cost 70-cents; in 1980 it cost $1.69; in 1990 it cost $2.89; in 2000 it cost $3.89; today in 2008 it costs $4-$5 per loaf.  Yes, indeed, Margie, you sure can shop at the grocery store using the hyper-inflated U.S. Dollar.  And, at the current rate of inflation, guess what a loaf of bread is going to cost in 2010?  Would you believe $20?  How about in 2015?  Would you believe $100?  No?

   Listen up, girl friends:

In 1914, Germany’s Fed Reserve, the Reichsbank, suspended conversion of its paper money into gold.  By November 1923, after continual “injections of liquidity,” Reich Marks in circulation soared past 92.8 quintillion Marks and skyrocketed past 496 quintillion Marks through July of 1924.  On Oct 25, 1923, the Reichsbank apologized that it had been able to only print 120 quadrillion Marks that day, but the demand was for one quintillion Marks.  Finally, after nobody would accept the Mark, the Reichsbank devalued to a new Rentenmark convertible at 1 trillion to one.  By Nov 1923, circulation had increased 245 billion times and prices 1,380 billion times.  Inflation finally stopped in one day when 4.2 Rentenmarks (4.2 trillion old Marks) exchanged for 1 Dollar, which was convertible into gold.  Germany, via the Dollar, finally went back to the gold standard, after destroying its entire economy in 9 years through hyperinflation of its non-backed paper money. – Dr. H. Hazlitt, Economist

Today, in 2007, after FDR dumped the gold standard in 1933 and Nixon cut all dollar ties to gold in 1971, our derivative markets currently exceed a half a quadrillion dollars or $500,000,000,000,000 – five hundred trillion dollars – of non-collateralized paper fueled by America’s central bank, the Federal Reserve.  And what is it that everybody is screaming for more of?  The injection of billions and billions of more non-collateralized paper money as “liquidity” to “spur” the “growth” of the economy.

Sound familiar?

   So here we are in January 2008 with President Bush, Federal Reserve Chief Ben Bernanke, and U.S. Treasury Secretary Henry Paulson showing up on national TV and announcing that they desperately need to inject 1% ($140 billion) of the current U.S. GDP ($14 trillion) into the economy to “stimulate” consumers to spend, as rapidly as possible, more U.S. Dollars to pull the nation out of its current stagflation and recession.

   This is insane.  Since the U.S. Dollar is not money, and is not a paper receipt for money, and is not collateralized by anything, and is not “real capital” – “capital” is any tangible commodity such as gold, or a gold certificate, or a building, or a manufacturing plant, or information about gene mapping, etc. – then it is sheer lunacy to inject more and more pieces of green paper into the economy and call it a “stimulation.”

   Non-collateralized paper is not “real capital.”

   Previous hyper-inflation of the economy with trillions of pieces of debased green paper is THE CAUSE of the current stagflation and recession (and housing market depression).  Injecting more hyper-inflation of the economy with quadrillions of pieces of what is becoming our National Toilet Paper is like pouring more gasoline on a raging forest fire.  It will simply cause more price inflation, more unemployment, and a bigger stagflation and recession.

   Once again, the U.S. Dollar, which is non-collateralized paper, is not “real capital” and thus cannot “stimulate” anything except higher prices and unemployment.

   In short, the current recession was CAUSED by the Federal Reserve hyper-inflating our non-backed U.S. Dollar.  Whether they do it via setting low interest rates for either the Prime Rate or Interbank loans or subprime mortgage lending to their buddies in the investment community on Wall Street or through their latest vehicle called TAFs (Term Auction Facility) makes no difference.  Inflation is inflation.  Garbage in, garbage out.

   The solution is for the Federal Reserve to stop injecting more fake money into the economy.

   More specifically, the solution to our current U.S. recession is to (1) dissolve the Federal Reserve, (2) dump the IRS which was created to enforce the collection of personal and corporate income taxes to pay for the Federal Reserve’s cleverly concocted National Debt, (3) go back to a 100% gold backed monetary system, no fractional reserve banking, and (4) stop Congress’ incessant spending.

   In summary, the best thing the government can do to help solve the financial mess it created by previous monetary manipulations is simple.  Get out of the economy.  It’s called:  “Laissez-faire!”  Which means free market capitalism, no Federal Reserve, no central bankers, no fractional reserve banking, and YES, a return to real constitutional money, which is gold and silver.  The last thing we need is for the Federal Reserve or Congress to inject trillions and trillions of more fake paper money into the economy with phony-baloney “stimulus” packages concocted by everybody and their idiot brother who think paper is gold. – FM Duck

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