Sunday, April 17, 2011

When a central bank collapses...

Jesse's Cafe American had a neat article on the collapse of Belarus' monetary system and more importantly the quote of Ayn Rand regarding paper money which I reproduce below:

Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.'


What is interesting is that the whole process of asset stripping citizens has taken nearly 100 years in this country starting with the creation of the Federal Reserve. At first the Fed was required to provide value for the notes it issued as every note was backed by gold or silver. However, with the collapse of Bretton Woods, and the creation of true fiat dollars, the process accelerated as money was not redeemable for anything of value. Credit on the taxpayer is only worth money if the government does not spend beyond its ability to receive tax revenue. As we can see in the value of paper money versus commodities, the creditworthiness of citizens is becoming less and less valuable.

The only holders of wealth left in this country will be those who hold gold and silver just like every monetary collapse from Weimar to Zimbabwe to Argentina. It seems crazy to think that the originators of outright fascism had put a plan in place 100 years ago that would slowly strip wealth from the country and transfer it into a very smal part of the populace, however the plan is succeeding regardless of the rise of a small libertarian movement.

With little hope coming from the corporate bought politicians in Washington, the probability of a US monetary system default becomes more and more likely. Unfortunately, it is impossible to time the default as we have seen with Greece, Portugal, Ireland, Iceland, Spain, and Belarus. The math however never lies. When anyone, a country, a business, or an individual fails to live within its means and its ability to service its debt, default occurs with serious repercussions. The best option for a country is to repudiate its debt, constitutionally revoke its central bank's charter, and allow for the private minting of currency rather than nationally controlled currency. Gold/Silver credit works just like paper money credit, except when a default occurs, the credit is backed by something that can be liquidated, whereas defaulted paper credit is money that comes from where it originated, thin air.

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