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The History of Money in the U.S. and the End Game


With gold at all-time highs against the U.S. Dollar – as well as against all fiat currencies - and silver finally breaking out to the high $20’s per ounce, a recap of this history of “money” in the U.S. seems like a worthwhile discussion.


The U.S. was on a bimetallic standard for its first hundred years (meaning the currency was tied to both gold and silver). With the ratification of the U.S. Constitution in 1791 and the passage of the Mint Act of 1792, the ratio of the price of gold to silver was set at 15:1. The 1834 Coinage Act moved the ratio to 16:1. During the Civil War inflation rose to over 40%, which pushed the price of silver to $2.94 an ounce.


Then came the 1873 Coinage Act, which has also been referred to as the Crime of 1873. Signed by President U.S. Grant, the act was ostensibly passed to change the U.S. Mint’s structure. But the main purpose was to remove the U.S. Dollar from bimetallism, adopting the Gold Standard. As a consequence, the standard silver dollar would no longer be minted.

Then in 1884, we come to the Supreme Court case “Juilliard v Greenman.” In this case, in an 8-1 ruling, the Legal Tender acts of the 1860’s were found to be constitutional. The legal ramifications were that it was now accepted precedent that the U.S. Federal government had the power to borrow money and establish a national currency, and establishing that paper money was now legal tender and must be accepted for payment of public and private debt. Under these guidelines, the government was free to print paper currency in any amount and for any reason.


This begs the question: why doesn’t the U.S. Treasury simply print paper (a.k.a. fiat) money without issuing debt (and being liable for the resulting interest payments)? Instead, the debt is issued and the paper money is used to buy the debt (mainly by the banks and the Federal Reserve). Could it be that eliminating the debt would deprive the banking cartels of their immoral gains?


The first central bank after the ratification of the Constitution was commonly called the First Bank of the United States. It was chartered in 1791 for twenty years and was promoted heavily by Alexander Hamilton when he was Secretary of the Treasury. Its charter expired in 1811. The Second Bank was formed in 1816, and again chartered for twenty years. Its charter ended in 1836 (when it became privately owned), but by 1833 it was effectively shut down by President Andrew Jackson, who had the Federal deposits moved to state and private banks.


Fast forward to 1913, when the Federal Reserve Act created another central bank to create fiat currency, set interest rates, and manufacture the money supply by buying government debt. Understand that except for minted coins, all money is now “loaned” into existence. The phrase “Federal Reserve“ was used to confuse the public into believing it was a government institution instead of a private bankers’ cabal.


From 1792 to 1833, gold was priced at $19.39. Not including a price spike during the Civil War, from 1834 through 1933 it was priced at $20.67. So, during this period, inflation (as measured by the price of gold) was 0.04% annually, an infinitesimal amount.


All of this changed in 1933. That’s when F.D.R. (via an Executive Order, later backed by the Gold Confiscation Act – for once a piece of legislation accurately named) ordered citizens to turn in their gold to the Federal government (with some minor exclusions for business use, and a small personal exception), in exchange for $20.67 in paper money. Historians call this “voluntary surrender” despite the threat of fines and prison for anyone caught hoarding gold. Immediately following the surrender period, the price of gold was reset to $35 an ounce, resulting in a “profit” of 70% on all the gold the government had forcibly collected. More to the point, that was a profit denied to the rightful owners of the gold.


In my view, both the Executive Order and the Congressional legislation were both unconstitutional. It wasn’t simply the illegal confiscation of the gold, but also the entire position that the government can print paper fiat currency. Refer to the U.S. Constitution itself. Article 1, Section 8, Clause 5 states: “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.” (For example, fixing the value of an ounce of gold at $20.67). Also see Article 1 Section 10: “No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.”


So where did FDR get the power to crown himself a king, with Congress his willing and obedient nobles? The government made itself into a criminal enterprise, colluding to take people’s wealth (in the form of gold). All three branches of government played a part in the scheme, as the Supreme Court refused to hear any of the lawsuits. So much for the laughable notion of “separation of powers.” Despite the constitutional restrictions on government “impairing the obligation of contracts,” the Gold Confiscation Act effectively resulted in all of the “Gold Clause Contracts” outstanding to become null and void. A “Gold Clause” agreement was a contract between parties to borrow and repay in gold rather than in fiat currency. The only legal way to have enacted these laws and orders was through a constitutional amendment. Instead, the Supreme Court refused to enforce the restrictions of the Constitution, and consequently what should have been illegal decrees became the new law of the land.


The United States - as it was founded - basically ended in 1913 under Woodrow Wilson. That was when the nation implemented the Second Plank of the Communist Manifesto: “A heavy progressive or graduated income tax.” This was exacerbated in 1933 when the Fifth Plank was instituted: “Centralization of Credit in the Hands of the State, by Means of a National Bank with State Capital and an Exclusive Monopoly.” With the surrender of gold by the public, the official money of the nation was now in the hands of the government.


In 1963, President Kennedy made the only modern move away from the Federal Reserve system when he signed Executive Order 11110. This order decreed that the U.S. Treasury would be solely permitted to issue Silver Certificates as currency, backed by the silver held by the U.S. government. These United States Notes were very similar in appearance to the fiat Federal Reserve Notes and were issued in $2 and $5 denominations ($10 and $20 denominations were printed but had not been distributed by the time JFK was assassinated less than six months later). While Executive Order 11110 has never been repealed, the Silver Certificates were taken out of circulation and have never again been issued.


Instead, LBJ became President and soon increased the war efforts in Vietnam while asserting his “guns and butter” policies. Inflation accelerated, and silver coins began to be hoarded as paper money declined in value. In response, the Coinage Act of 1965 was passed and signed. This eliminated silver entirely from dimes and quarters and cut the silver content of half-dollars to 40% (before silver was eliminated from those as well in 1970). With this one act, the composition of coins in the U.S. was forever changed from the silver standards set in 1792.


In 1971, Richard Nixon enacted internationally what FDR had enacted domestically: taking the U.S. currency off the gold standard. This began the exponential increase in government debt, as the entire monetary system was now a fiat paper-based concoction. From June 1971, to an estimated September 2020, total stated U.S. Federal debt (not including unfunded liabilities and “off-balance sheet items”) will have grown at a 9.02% compounded annual rate. Compare that to Real GDP growth between June 1970 to June 2020 of only 2.54% compounded annually. Debt has grown at 3.6 times the rate of real growth. If this rate of debt increase continues, by September 2030 the U.S. Federal debt will be $68.8 trillion.


When you start to talk about such vast sums of money it is difficult to understand exactly what it means. Let me try to put a trillion into perspective. If you counted back just one trillion seconds from today, you would be in the Paleolithic period, around the year 29,690 B.C. We’ve had a major ice age more recently than that!





The official CPI rate from December 1913 to June 2020 shows a 3.1% compounded annual rate of increase. Over that same period, gold has increased in value at a 4.28% compounded annual rate (using the June 30th close of $1,800.50). Gold has beaten the official inflation rate by 38% per year over this 106½-year period.


The question remains, what will the “end game” look like in the U.S.? In my view, I am 100% certain it will not be bankruptcy. In today’s world, we don’t even allow junk bonds to fail. That kind of default would also focus the public attention – and blame – on the government, which is something it never allows. Instead, in my view, it will be through hyperinflation that the government fails. This was defined by economist Phillip D. Cagan as a month in which the price level increases by 50%. At that rate, the $29 trillion that is estimated to exist in September 2020 would be washed away in a mere 4 months, dropping to 6.25% of its original value over that period. I believe that when hyperinflation hits the U.S., it will happen fast and be over, which is the only way to go.


Inflation will be pushed via the adoption of Modern Monetary Theory and exacerbated by the implementation of minimum basic income (or perhaps even universal basic income). My guess is we’ll eventually see $2,000 a month going to everyone over 18 years old, and that money will be printed (rather than borrowed). That amount would total $6.5 trillion a year going into the hands of pure consumers ready to spend it (as opposed to the Quantitative Easing programs, which have mostly gone to investors).


Who will take the blame for the resulting inflation? Probably the general population; they will have been given what they wanted and left to deal with the consequences. I expect gold will increase in value to between $10,000 to $25,000 an ounce conservatively, which is only between 4 and 12.5 times the current value. That wouldn’t even keep pace with the level of inflation in this example, so much higher is possible. If you think this sounds too high, remember that in France during the hyperinflation period between 1789 and 1797 gold went up by a factor of 600.


Why will this be the government’s “solution” to the problem? Let me close with the words of Ernest Hemingway:


“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

 

The statements in this communication are the opinions of its author, Victor Sperandeo, and are not to be relied upon by anyone as the basis for an investment decision. Any investments made by a party in reliance thereon are made at such party’s sole risk. No guarantee of any kind is implied or possible where opinions as to past or future market conditions/events is provided. Past performance is not necessarily indicative of future results.

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