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A
specter haunts executive mansions, chambers of legislatures, and halls of universities:
the ghost of the gold standard. Governments and academia have utterly failed
in discharging their sacred duty to provide a serene environment for the
search for and dissemination of truth regarding economics in general and
monetary science in particular.
This
failure has to do, first and foremost, with the incestuous financing of
scientific research ever since the Federal Reserve System was launched in the
United States in 1913. The formula for distributing the profits and undivided
surpluses of the Federal Reserve banks has made it possible for the United
States Treasury to grab the lion’s share (in spite of explicit
prohibition of Treasury participation in the earnings of these banks by the
Federal Reserve Act as amended), with far-reaching consequences. As a result
the bond market has been reduced to a gambling casino where shills, in order
to whip up gambling frenzy, conspicuously make obscene gains at the gaming
tables.
But unknown
to the public, at the end of the day the shills (the Federal Reserve banks)
are obliged to hand over their gains to the casino owner (the United States
Treasury). There is nothing open about what is euphemistically called
“open market operations” of the Federal Reserve. It is in fact a
covert conspiratorial operation. It has come about through unlawful
delegation of power without imposing countervailing responsibilities. It was
never authorized by the Federal Reserve Act of 1913. It defies the principle
of checks and balances. It is immoral. It is the most lucrative business
second only to highway robbery. It is a formula to corrupt and ultimately to
destroy the republic.
Even
though later amendments to the Federal Reserve Act retroactively authorized
it, the constitutionality of open market operation has never been put to the
test. It is clear that such an examination would not be in the interest of
the conspirators, and they would use every means at their disposal to prevent
it. The folksy name for open market operations is check-kiting, whereby two
conspiring parties issue obligations that neither one has the intention or
the means to honor but, when they come up for payment, the phantom obligation
of one party is covered with that of the other.
The
side effect that concerns us here most is the fact that the junior partner in
the conspiracy, the Federal Reserve, can only increase its share of the loot
beyond the mandated limit of 6 percent per annum of subscribed capital if it
increases its power in a way not measurable in dollars. It can readily do so
by beefing up its “support” of research, namely, by spending
pre-distribution dollars in making grants to anybody pretending to be able to
write awe-inspiring, mathematically convoluted, nonetheless vacuous, papers
on macroeconomics, or anything else of which the fraudulence and charlatanism
is hard to detect.
As a
result of this immoral way of financing research a veritable deluge of
worthless papers has glutted the technical literature on money which has one
common earmark: they all attempt to defend the indefensible. They try to
defend the issuance of irredeemable promises to pay: the bonds issued by the
Treasury and the Federal Reserve notes issued by the Federal Reserve banks.
Thus, then, the basis for money creation is the flimsy check-kiting scheme
whereby the Federal Reserve banks buy the bonds with the notes while the
Treasury uses the notes to pay the bondholders at maturity. The bond is
supposed to have value because it is ‘redeemable’ in the note
which, in turn, is supposed to have value because it is ‘backed’
by the bond. In effect both instruments are irredeemable and both lack
backing in the form of any verifiable wealth. At the heart of the
money-creating process, however explained, analyzed or defended, is the
stubborn fact that both the Treasury and the Federal Reserve banks are
privileged to issue obligations that they have neither the intention nor the
means to honor. For any other would-be check-kiters
the running of such a scheme would constitute a crime dealt with by the
Criminal Code.
This
double standard of justice has, of course, an immensely demoralizing effect.
But what concerns us here is that the grant departments of the Federal
Reserve banks have effectively put themselves in charge of deciding what
should and what should not be researched on the subject of money. While they
control research on money directly, they control the appointment of
heads of economics department and directors of research institutions and
other think-tanks indirectly.
This
incest in financing research stands without precedent in the entire history
of science to the eternal shame of our “enlightened” age,
regardless what yardstick we may choose to measure it, of which the dollar
amounts of grant money is only the most conspicuous, but we should not ignore
the more subtle yet more persuasive methods of arm-twisting: bribe and
blackmail.
The
hijacking of the agenda for economic research has resulted in a distortion of
traditional values. The new values favor ephemeral knowledge, short-horizon
planning, consumerism, debt-creation without seeing how it will be retired,
instant gratification, marginalization of savings, scientific charlatanism,
spreading half truths and even outright falsehoods,
while discriminating against durable knowledge, time-honored scientific
values, work-hard/save-hard ethics, long-horizon planning. It is no less a
crime of omission than it is a crime of commission, as revealed by the
following.
1.
Support for research on the merit of metallic monetary standards as a
political arrangement of placing the power to create and to extinguish money
directly into the hands of the people, rather than into the hands of elected
representatives or appointed agents, in conformity with the demands of the
U.S. Constitution, is nil.
2.
Support for research on the burning question of the “sudden death
syndrome” as it affects irredeemable currencies with a deadly 100
percent efficiency, is zero.
3.
Support for research on the question of legality of the open market
operations by the Federal Reserve as it was surreptitiously and illegally
introduced and retroactively authorized, is unavailable.
4.
Support for research on the scientific foundation of accounting and on the
necessity of taking great pains to make the sharpest possible distinction
between an asset and a liability, capital and credit, debt owing and debt
owning, is naught, in contrast with generous support for research purporting
to justify the practice of shunting items in the balance sheet of governments
from the liability to the asset column.
5.
Support for research on the code of inspecting financial statements in order
to prevent overstating assets and understating liabilities, even in the
balance sheet of banks, is non-existent.
6.
Support for the scientific examination of the curious tenet that it is
possible to increase the volume of unpaid and unpayable
debt in the world indefinitely, is denied.
7.
Support for the examination of the question whether the issuance of promises
to pay which the issuer has neither the intention nor the means to honor can
have any justification, is not available.
The
above short list already makes it abundantly clear that something is woefully
amiss with the principle of granting unlimited power, not subject to advice
and consent, still less to control, review or withdrawal by the public,
empowering one particular agency not only to issue purchasing media but also to
direct, permit or inhibit all scientific research pertaining to the question
of its own activity of issuing the purchasing media.
It
is a sad commentary on the corruption of the flow of funds in support of
research that neither a single court of justice, nor a single accredited
university in the entire world has found it possible to place the
justification for a world-wide regime of irredeemable currency on its agenda,
after thirty-five years of unprecedented economic and financial devastation,
including the decimation of the purchasing power of all the currencies of the
world, and the even more vicious decimation of the market value of all the
bonds in the world, directly attributable to that regime.
It
was this corruption of financing research that has disabled the immune system
of society, that has made economics and monetary science open to the invasion
of quackery and chicanery, ensuring that the success of the final assault on
sound money would be a foregone conclusion. In the end the government of the
United States could inflict irredeemable currency not only on its own
subjects, but on the people of the rest of the world as well, without meeting
any significant resistance.
It
speaks volumes about its integrity that financial journalism has failed to
alert the public to the imminent danger of a credit collapse arising out of
the universal use of irredeemable currency which the governments of the world
have blithely embraced and foisted upon their subjects, without bothering to
examine the scientific and juridical arguments against it. In previous
instances of experiments with this type of currency sane and self-respecting
governments have always resisted the temptation of siren song to join others
living in financial backwater. Whenever weak governments came to their senses
and wanted to return to the path of monetary rectitude, there was no lack of
countries around on the gold standard to lend them a helping hand.
No
such luck this time. The world is a rudderless ship on uncharted waters, and
the storm is fast approaching. When it strikes, it will be “everybody
for himself”. No helping hand will assist survivors. All defenses
against this type of disaster have been dismantled, and all life savers cast
overboard, thanks to the diligence of the grants departments of the Federal
Reserve banks.
Not
only have financial journalists failed to alert the people of the dangers
they are facing under the regime of irredeemable currency, they keep adding
insult to injury. They lionize the Wonderful Wizard of US, King Alan who,
unlike King Canute, has been able to order the tide of inflation back. Maybe
after disaster has struck, it will be blamed on the ‘early’
retirement of the Wizard.
Gold
Standard University
In
order to soften the coming blow, a group of concerned citizens have decided
to establish, in the year 2006, Gold Standard University, home for the study of
monetary topics placed under taboo by other institutions of higher learning. Here
is a partial list:
a.
The gold standard is a mechanism whereby the people can exercise their power
of creating or extinguishing money while denying monopoly power of money
creation to would-be crooks.
b.
The longevity of the regime of irredeemable currency can be extended through
machinations such as the artificial suppression of the dollar price of gold,
but only at the expense of making the inevitable credit collapse a great deal
more painful and recovery ever more protracted.
c.
The idea of increasing the stock of money based on scientific principles is
chimerical. There is no scientific way of determining the optimal rate of
increase in the money supply any more than there is a scientific way of
predicting future. If the power to increase the money supply is delegated to
an agency dressed in a scientific garb, then this agency represents impostors
hell-bent to usurp unlimited power under false pretenses. Unlimited power
inevitably means unlimited corruption.
d.
The regime of irredeemable currency is a scheme whereby savers and producers
are disenfranchised. Savers are deprived of their power of choosing the form
in which they want to save. They are forced to save in terms of a
depreciating currency. Producers are deprived of their right to sell to
whomever they wish to sell. They are forced to give the right of first
refusal to the issuer of irredeemable currency.
e.
The chief merit of the gold standard is not to be found in the stabilization
of prices which is neither possible nor desirable, but in the stabilization
of interest rates. Only the gold standard can guarantee the lowest level for
the rate of interest that is still compatible with conditions in a free
economy. There is no bond speculation under a gold standard. The resulting
stable interest rate structure benefits both the savers and the producers.
f.
The so-called open market operations of the Federal Reserve banks is a
fraudulent practice short-changing every segment of society. It should have
never been authorized. It is a prescription to destabilize interest rates if
not in the short then certainly in the long run. Bond speculators move in to
preempt the Federal Reserve banks’ buying or selling bonds. They want
to act before the banks in order to pocket riskless profits. Everybody rushes
to the same side of market and the herd action will generate a destabilizing
oscillation in bond prices and in the rate of interest.
g.
Gold hoarding under a gold standard is harmless. (This assumes that saboteurs
are not permitted or encouraged to spread false rumors about the imminent
suspension of gold payments by the government or by the banks.) Gold hoarding
is a legitimate tool in the hand of the bondholder to withdraw bank reserves
thereby forcing banks to contract credit, thus allowing the rate of interest
to rise and find its proper level. Gold hoarding is also a legitimate tool in
the hands of the electorate to force the government to fulfill its election
promises for greater economy in public spending.
h.
By contrast, hoarding other marketable commodities is harmful. It is
destabilizing as it contributes to oscillating speculative money flows
between the commodity market and the bond market. It can only be prevented by
removing all obstacles in the way of gold hoarding, which is the proper
outlet for the propensity to hoard.
* * *
The Gold
Standard University appeals to individuals:
who cherish freedom and the ideal
of government of limited and enumerated powers;
who support the principle of
checks and balances in public affairs as well as the notion of delegating
power only if it is encumbered with countervailing responsibilities;
who reject the formula to finance
scientific research through an incestuous combination of the monopoly to
create money and the monopoly to dictate the agenda for monetary research;
who reject the prostitution of
mathematics to be used as a smoke-screen with which to camouflage the
enslavement of the entire population of earth;
and it calls upon them to step
forward and support the cause in exposing monetary deceit and mischief, to
fight pseudo-monetary-science and the obfuscation of eternal monetary truths.
The world-wide regime of
irredeemable currency has reduced the people of the world to bondage.
Monetary servitude is no better than other forms long since discarded by
history, such as slavery and serfdom. It may well be worse if for no other
reason than being covert, whereas previous forms of bondage have been overt.
Disenfranchised
scum of the earth, rise! Put an end to the usurpation of power by the clique
of impostors pretending to be monetary experts! Chase the money-mongers out
of the temple! Cast your jail-keepers into the sixth circle of the seven in
Hell, to which Dante confined all counterfeiters of money, perpetrators of
false pretenses, and other tormentors of widows and orphans! Scientific truth
is on your side! It is you, not your slave-drivers, who command the high
moral ground! You can win a world free of yokes! The only thing you may lose
is your shackles!
People of the
world, unite!
Antal E. Fekete
San Francisco School of
Economics
aefekete@hotmail.com
DISCLAIMER
AND CONFLICTS
THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY.
THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING
THAT IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL
ANY SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND
SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT
IT IS COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS
TO BE TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A
STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT,
IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.
Copyright
© 2002-2008 by Antal E. Fekete
- All rights reserved
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