The Dollar, the Fed, and Freedom

* I gave this speech on April 15th, 2009, in Charlottesville, Virginia. I had forgotten about it, but stumbled across it again today. It deserves a post to ACC.

So, we’re here to make our voices heard because we believe, we feel, we know, that there is something very wrong in our country. Over the past year, we’ve seen our IRAs shrink, the value of our homes diminish, and in recent months, have even begun to fear that our way of life, a way of life that is based on freedom and free enterprise is under serious threat.

And it is under threat. But this is not a new phenomenon. We have just recently entered an acute stage of crisis. For quite a while, we have observed the continual decline in the purchasing power of our dollar. It gets harder and harder to make ends meet. Slowly, year by year, more and more of our freedoms are taken away by bureaucrats who enforce ever more numerous regulations. We say nothing as the tentacles of government reach into every corner of our once private lives. We have said nothing, but that time is past. We now say we have had enough.

As a fan of freedom, it pleases me to see such open advocacy for liberty today. But this crisis, and the ensuing fallout is not Obama’s fault. It’s not Tim Gietner’s fault. It’s not Hank Paulson’s fault. It’s not even Ben Bernake’s fault, solely.

The main reason we find ourselves in the midst of the current economic calamity, is because of the deeply flawed Federal Reserve driven economic regime this country has lived under since 1913.

The famous economist, Murray M. Rothbard, once said, “The Federal Reserve System virtually controls the nations monetary system, yet it is accountable to no one. It has no budget, it is subject to no audit, and no Congressional Committee knows of, or can truly supervise its operations.”

We are told that the Federal Reserve exists for our benefit. We are told that the world would fall apart without its guiding hand. This is false.

Most people don’t really know what the Federal Reserve is.

The Federal Reserve is an ingenious institution that bridges the gap between the federal government and the large banks of the world. It is a central bank that sets the price of money, that is, interest rates for the US and by extension much of the world. It is, after all the US government, the most powerful institution in the world. But, it is most importantly a cartel by which the most powerful banks in the world protect their interests, often at our expense.

It is a cartel like any other. Only the Federal Reserve doesn’t deal in sugar, oil, or drugs, it deals in money. People forget that money is a commodity in addition to the means by which commodities are exchanged.

The Fed gets to set the cost of money arbitrarily. If it wishes to raise interest rates, it does so. If it wishes to lower interest rates, it does so. By doing either one, it determines the fate of millions by sheer decree. There is no market mechanism at work here. Whether the Fed moves is the opinion of fallible, often very fallible, Fed governors. I, for one, do not like my fate being determined by a small group of secretive and thoroughly unelected “masters of the universe” that I know are at least as human as I am.

I would prefer that interest rates be set by the market. If a bank wanted my money it’d give me a higher rate. If it didn’t, it’d offer me a lower rate. Banks sell money. Don’t forget that. Money is subject to the same rules of supply and demand that turnips are. The bankers, however, have done a very good job of convincing people that there is some kind of mystical element to what they do. I’m here to tell you that there is no magic. Bankers adhere to the 3/6/3 rule. That is get the money at 3%, lend it at 6% and be on the golf course by 3 PM.

The Fed has many powers granted to it by Congress through the Federal Reserve Act. But, the most important of these powers is the ability to create money out of nothing. Just move a couple of decimal points to the left and poof, new money to do whatever the Fed wants to do. OK, it’s not quite that simple, but it’s close to that simple.

It’s a great trick. Whenever the government needs another credit card to pay its bills, it just asks the Fed to make a new one. And then another. And then another. And then another. Until we have a debt that threatens to destroy the Republic itself.

This is our current situation. We are trying to use yet more debt to extricate ourselves from a situation that was created by the reckless creation of debt. It will eventually destroy us if we don’t head in a new direction in the very near term. Seriously, when does it end? When do we start being adults? When do we start doing the right thing?

The truth is that the federal government and the Federal Reserve don’t believe that they adhere to the same laws of economics that the rest of us live under. Vice President Cheney, for example, is famous for saying that deficits don’t matter. They may not matter to him, but they matter to most of us. Deficits have to be serviced. Debt does have a cost. Eventually, the house of cards will fall. Even if we can print money with abandon,the piper has to be paid. And the piper is paid with inflation.

Inflation is not soley the rise of prices, this is a common misunderstanding. It is, in fact, the increase of the money supply. The “inflation” of the amount of money. For example, imagine for a second that there is $100 in the universe. Now, imagine if the Fed decided to print another $100 into existence. What happens to the original $100? It becomes half as valuable. That’s what’s happening now.

As the fed pours more money into the world economy, each dollar we own is worth less. Of course, there’s always a delay.

Inflationary monetary policy does work for some, the thing is it’s usually not you or me.

Let’s say, for instance, that a cement company gets a piece of a construction industry bailout and is able to buy its cement at $5 a bag with citizen subsidized dollars, but 6 months down the line we decide that we want to build a porch. Well, now there is much more Fed created money chasing the same amount of cement (and other goods). Now, I have to buy my cement at $7 a bag from the company that got the federal bailout because prices have gone up across the board. They “make” 2 bucks on the same cement just by virtue of the fact that they got the Fed created money first and had the right friends in Washington and New York. The cement company didn’t create any value. It was just able to short circuit the money flow from Washington.

Many Americans are becoming increasingly aware that though they play fair, their government and the institutions surrounding it do not.

We teach our children to be honest. We are honest in our business dealings. Yet, the powers that be, have little regard for fair play. In fact,many of us feel as though the rule makers look at us as suckers, or worse.

Why is it that the three wealthiest counties in the United States according to Forbes Magazine , Fairfax County, VA, Loudon County, VA, and Howard County, MD, just happen to ring Washington, DC? It is because it is in the leafy suburbs of Washington that the wealth of this great nation is aggregated and then doled out to an immense bureaucratic class. We, the producers of the nation, are the bureaucrat’s cash cows. They make the rules to benefit themselves and their agencies. They are paid handsomely by us to enforce rules and write codes that make our lives more difficult.

Between the Federal Reserve attacking the value of our savings, by destroying the dollar and the federal government taking more and more of our depreciated dollars, it is amazing that more Americans are not up in arms.

The thing is, we have just gotten used to being abused. We know that the federal government is bigger than us and can squash us if it wants, so every April 15th, we bow and then go on with our lives.

This year though, let’s take a moment to remember the string of failed Obama appointments, people who would have happily expanded the state if given the chance, who it was discovered hadn’t paid their taxes. Is it only we, out in the hinterlands, that pay our taxes? I swear, if you are going to advocate for big government, at least pay your taxes.

I personally, in case you haven’t figured it out by now, am not an advocate of big government. I would like to see a much smaller government, in fact. I would like to see an end to the bailouts. I’d like to see an end to the never ending regulation that emanates from Washington. But most of all, I’d like to see an end to the Federal Reserve and the havoc it creates in the economy.

There is a way to do these things, believe it or not, that in relative terms is simple. Reinstate a gold standard.

A gold standard does a few things.

First, if a dollar is backed by gold, one knows that there is real value in the money one owns. It is tied down. It can’t be inflated away by a central bank that wishes to pay back debt at depreciated levels, and have no doubt that is exactly what the Fed is scheming, at the expense of you and your savings.

It also restricts the growth of government, something that under the current dollar regime seems impossible. There is only so much gold in the world, therefore the government can only grow but so big. Or, at least, it will have to get the approval of its citizens who will have to fork over their gold based dollars to finance an expansion.

A gold standard will also encourage social security. Now, I don’t mean the FDR created government program, I mean actual social security. People will be able to save for their future secure in the fact that gold has retained its value over 5 millennia. In Jesus’ time an ounce of gold would buy the average Roman a nice tunic and a pair of well-made boots or sandals. Today, that same ounce will buy a fairly nice suit and a decent pair of shoes. The gold has retained its value. Can the same be said of the US dollar, over say a much more modest period of time? A century? Definitely, not. In fact, since the Federal Reserve took control of the dollar in 1913, the dollar has depreciated to about 2.5% of its original worth.

Gold and its sister silver, most importantly, empower the average person who has the discipline to amass it. Gold rewards those who live below their means and think forward. It punishes those who make their living with economic slight of hand. Gold increases transparency and shifts power to everyday people. This is why the current system that is built on opacity and looks with derision at those of us who live outside of the Beltway, or off of the island of Manhattan, fights reinstatement of the gold standard. (When, of course, they are concerned with it at all.)

Our founders wanted a gold standard for the same reason they instituted the right to bear arms in the constitution. A population with guns has power. Likewise, a population with gold has power. If we really want change in this country. If we really want government to work as much as government can work, we must insist on a new gold standard.

The socialists will hate it. The central bankers will hate it. The corporations in bed with the government will hate it. And this is why the people must insist upon it.

If we want to take our government back we must take our money back. The best way to do this is with a new gold standard.