On March 15th, Moody’s Investors Service fired a shot across the bow of the U.S. government warning the U.S. it might lose its AAA credit rating1, something that was once unthinkable for many Americans only a few years ago. The warning comes as the Government has run record, multi-billion dollar deficits and propelled the national debt to over $12 trillion, and this has many, like Moody’s, questioning whether or not the Government will be able to pay off what amounts to “$38,974.34 for every man, woman and child”. 2 In order to avoid the credit downgrade and escape higher interest payments on the debt it issues, the Government must either radically reduce its spending, raise taxes, or run the dollar printing presses to pay down the debt with devalued currency.
If the Government chooses option 1 and reduces its expenditures, then its risks widespread social unrest and rioting—something Greece is currently experiencing.3 The second choice, that is, raising tax rates to pay off the debt,is political suicide for many politicians. Raising taxes also means less money and purchasing power for the private sector to create more jobs with. Less jobs means less taxpayers and income for the Government. The third option is probably the easiest option for politicians politically. That is, print off more money to pay down the debt; this is what economists call the monetization of debt. Monetizing debt is accomplished when the Central Bank creates money to buy U.S. Treasuries. While this option is probably the easiest politically, it is also very dangerous.
The German Weimer Republic tried to pay off its debt from WW1 by monetization, and the result was hyperinflation to the point where the German currency became worthless. Another example of unsuccessful monetization, and a more recent one, is that of Zimbabwe. Zimbabwe was faced with the daunting task of paying off a mountain of obligations so it decided to monetize its debt. By November 2008, Zimbabwe’s inflation rate was an unfathomable 89.7 Sextillion (1021) percent.4 Weimer Republic Germany and Zimbabwe clearly illustrate the dangers of monetizing debt.
American politicians are faced with some very tough decisions that will affect the future of all Americans. The $12 trillion of debt represents a currency crisis in the making if politicians turn towards monetization to solve the debt problem.
1. brown, matthew. (2010, March 15). U.s., u.k. move closer to losing rating, moody’s says . Bloomberg.
2. Knoller, Mark. (2009, November 17). National debt now tops $12 trillion. CBS NEWS.
3. Mail Foreign Service. (2010, March 11). Greece rocked by riots as up to 60,000 take to the streets to protest against government. Mail Online.
4. Hanke, Steve. (2009, February 5). New hyperinflation index (hhiz) puts zimbabwe inflation at 89.7 sextillion percent. Cato Institute.
Tagged: debt monetization, fiat money, hyperinflation, national debt
“There are a thousand hacking at the branches of evil to one who is striking at the root.” —Thoreau
For the past century, a general trend has taken shape in America where Americans are finding it harder and harder to make ends meet. There was a time in this country when only one member of the average household needed to work in order to support a family, and now it is not uncommon to have both adults in the household working to support their families. To make matters worse, many of the products we buy are declining in quality, and in many cases these same products are becoming more expensive. America has gone from a nation of savers and producers to a nation of debtors and consumers.
There are many explanations behind why this trend is occurring in America, but the most cogent among them is that the Central Bank, called the Federal Reserve (Fed), through its ineptitude in managing monetary policy, produces a hidden tax and causes serious imbalances in the economy with long term and far reaching effects.
For example, one of the ways in which the Fed makes it harder for Americans to live is through the hidden inflation tax. By expanding the supply of money, the Fed transfers wealth from the last receivers of the new money to the first receivers. To elaborate a bit, say the Fed creates two billion dollars out of thin air and purchases assets in the economy with this new money. The first people to receive the Fed’s new money through these asset purchases will be able to spend that money at its full purchasing power, but as the money begins to trickle down through the economy, and it is realized more dollars are buying the same amount of goods, the money loses more and more of its purchasing power. Those who experience the full force of the inflation tax are savers and people on fixed incomes, while those who benefit most from inflation are banks and corporations that are closely connected to the Fed. This is because the more scarce an item is (such as the dollar) the more it is worth. As people begin realizing dollars aren’t as scarce as once believed, the dollars begin losing their value. This is the process that has eroded the purchasing power of the dollar since 1913.
Another way in which the Fed causes hardships for Americans is through its creation of the boom-bust cycle—this being the most harmful of the effects brought about by the Fed on the American public. The boom begins when the Fed makes more money available for loans than is actually available. This mismatch of what are assumed available and what are actually available in resources causes entrepreneurs to miscalculate the profitability of newly undertaken projects.
With the power to create money out of thin air and that newly created money hiding the true scarcity of savings available for loans, the Fed leads production astray during the boom. Jobs are created where they should not have been. Eventually, the livelihoods of millions rest on an unsustainable boom that must end in a bust. Worse yet, each new bust presents an opportunity for government to grow in scope and power. The electorate—for lack of a better idea—believes the politicians who blame the free-market for the chaos that the Fed created. A new complex of liberty stifling and anti-business legislation and regulations emerges after the bust and leaves everyone but special interests worse off.
Fortunately, there is a solution to this whole mess. The Ohio Freedom Alliance (OFA) has started the Ohio Honest Money Project (OHMP) to provide Ohioans with an alternative. The OHMP consists of a three step process to restoring sound money in Ohio. The first step in this process is to abolish the sales tax on gold and silver coin—what the free market long ago determined to be the best money. If gold and silver are to be money, there cannot be a sales tax on these metals. The second step in the process is to get people to take possession of and transact in gold and silver. This is happening more and more every day now that we are living in a time of heightened uncertainty caused by the reckless money printing policy of central banks.
The third and final step is to put in force legislation embedded with triggers. The OFA proposes to add a currency devaluation trigger and a supranational or world monetary union trigger. If either of these triggers are activated (by the dollar dropping below a certain point on an index or the U.S. government entering an unconstitutional union with other nations) then the legislation would declare all legal tender laws in Ohio null and void, thereby putting a stop to Gresham’s Law where bad money drives out good money from circulation. No longer will creditors be forced to accept devalued dollars for repayment of debts.
We at the Ohio Freedom Alliance believe the third step in the Honest Money Project is essential due to the unprecedented economic climate in our country. The U.S. government is currently staring down a mountain of debt and massive unfunded liabilities, like social security, that can never be paid off without completely impoverishing future generations. It is for this reason that we believe this newest bust will result in a highly inflationary environment that will eventually turn into a run on the dollar. The government must either substantially raise taxes or print money to meet its obligations. If it raises taxes, the private sector—the only part of the economy that produces wealth—suffers and turns out fewer jobs, products, and services. In addition to that, raising taxes is very unpopular, and politicians are keenly aware of this because they care more about getting re-elected than planning for the future when they won’t be in office. The easiest option is to print money to pay off the massive obligations; this is also called the monetization of debt, and it is what destroyed the value of Zimbabwe’s currency.
The monetization of debt to meet U.S. obligations will likely destroy the remaining value of the dollar and force the U.S. into a supranational monetary union. A new fiat currency, backed by nothing, will again be forced on Americans.
The alternative to this scenario is that we proceed with the three honest money steps outlined in this article which would give gold and silver a level playing field against any fiat currency. Ohioans would then be able to choose a currency backed by real resources that can’t be printed at the will of government.
Tagged: amero, federal reserve, fiat money, monetary union, north american union, sound money
Our current situation, as of January 2010
The most recent economic crisis has set in motion a series of events that may wipe out the value of US Dollar. In order to save the economy, the Fed has injected trillions of dollars into the markets, and now banks have hundreds of billions of dollars sitting as excess reserves at the Federal Reserve, collecting interest, that has the potential to expand 10 times via the money multiplier. If the banks lend these reserves out, it would devastate the economy with massive inflation and widespread misallocation of labor and capital would ensue.
What steps we should take to prepare
Anticipating the effects of perpetual government ineptitude, the Ohio Freedom Alliance (OFA) founded the Ohio Honest Money Project (OHMP). OHMP is not only a solution to the anticipated high inflationary environment to come, but it is also a first step towards ending the recurrent boom-bust cycle. OHMP has three steps in the process of returning honest money to Ohio. The first step is to repeal the sales tax on gold and silver.
Gold and silver coin is what the founding fathers intended our currency to be composed of, and the advantage to gold and silver coin as currency is that you cannot create endless amounts of it like you can paper dollars. Removing the sales tax on gold and silver is an important first step towards honest money, because you cannot have a tax for exchanging money . For example, sales tax on gold and silver is like taxing a man who exchanges his dollar bill for four quarters; it doesn’t make any sense.
The second step in OHMP is getting people to take possession of and transact in gold and silver coin or certificates. This is also an important step because, as inflation picks ups, and, if they hold gold and silver, they will readily witness the depreciation of their dollar’s purchasing power and the stability of the purchasing power of gold and silver. The dishonesty of printing money and thereby stealing purchasing power from the people will be more apparent.
The final step in OHMP is to put in force legislation embedded with triggers, and these triggers would nullify legal tender laws in the state of Ohio. Nullification of legal tender laws would reverse Gresham’s Law, where bad money drives out good money from circulation. The triggers that the OFA proposes for the legislation are a currency devaluation trigger and a regional or world monetary union trigger. The currency devaluation trigger would declare legal tender laws in the state of Ohio null and void if the value of the dollar fell below a certain point on a index (such as a index of other currencies). The regional or world monetary union trigger would have the same effect if the United States joined a monetary union composed of other countries (a European Union type organization).
Ultimately, Ohioans will have to decide whether they want to continue to trust politicians in Washington with their economic future or take matters into their own hands by legalizing a hard money currency in Ohio, to compete freely with the devalued federal reserve notes. One path leads to more control and the other leads to more freedom and stability.
If you would like to see the Ohio Honest Money presentation use our contact us page. Here are some testimonials from previous presentations.
“If you, like most Americans, have concerns about the falling dollar, how did we get to this point, and what can we possibly do about it, you must experience this insightful and poignant presentation offered by the Ohio Freedom Alliance.” Steve McMaster, President Findlay 9.12 Project.
“We were impressed by the depth of knowledge regarding the grave challenges that face Americans today, and further, by their determination to move forward into effective action. The material covered is vital to every American in this climate of uncertainty and confusion, and we found within it both information and inspiration.” Kevin Cullinane. Freedom School Seminars and Freedom Mountain Academy, Mountain City, Tennessee.
“The Ohio Honest Money presentation presents an extremely complex subject in a simple and understandable form. The monetary issue is at the heart of so many of the troubles that America is currently facing and understanding it is essential to formulating a solution. Once you learn about the fraud that is being perpetrated, there is no way you can keep from taking action.” Dave Grabaskas, Ohio State Coordinator for Young Americans for Liberty
Tagged: gold, inflation, silver
What Has Government Done to Our Money by Murray Rothbard
Available as a free PDF! This book by Murray Rothbard is one of the most essential and easy ways to understand the history of money and its abuses by governments.
Tagged: currency debasement, gold standard, inflation, us dollar
By creating illusory profits and distorting economic calculation, inflation will suspend the free market’s penalizing of inefficient, and rewarding of efficient, firms. Almost all firms will seemingly prosper. The general atmosphere of a “sellers’ market” will lead to a decline in the quality of goods and of service to consumers, since consumers often resist price increases less when they occur in the form of downgrading of quality. The quality of work will decline in an inflation for a more subtle reason: people become enamored of “get-rich-quick” schemes, seemingly within their grasp in an era of ever-rising prices, and often scorn sober effort. Inflation also penalizes thrift and encourages debt, for any sum of money loaned will be repaid in dollars of lower purchasing power than when originally received. The incentive, then, is to borrow and repay later rather than save and lend. Inflation, therefore, lowers the general standard of living in the very course of creating a tinsel atmosphere
From What Has Government Done to our Money
by Murray Rothbard
Why does it get harder and harder every year for average Americans to make ends meet?
Why does the quality of products we buy keep decreasing and we seem to get less for our dollar?
Why is virtually everything we buy imported from overseas, and the American manufacturing base has all but disappeared?
Why has America quickly gone from the largest creditor on earth, to the largest debtor on earth?
Money is something that effects almost everything we do, yet very few of us know much about money and how it comes into existence. The answers to the questions above, and the solutions to our current economic problems can be found by looking at the problems with our money, also known as the monetary system.
The founding fathers understood that in order to have a truly free and stable society, people needed to live under a sound and honest monetary system. Yet over the past century we have gone from a monetary system left by the founders based on something real like gold and silver, to a fiat system that is based solely on trust. It is based on trusting that politicians in Washington and a non-governmental banking cartel called the Federal Reserve will always know how much money and credit the economy needs, and will always act in the best interest of the American people instead of their self interest. Yet this has not always been the case.
The Ohio Honest Money Act is a way to address monetary reform at the state level. If you already support sound and honest money in Ohio, we encourage to sign the petition on this site showing your support. If you are still exploring, we encourage you to look over the information on this site like the videos and keep asking questions. The founding fathers believed that government and banks having too much control over our money was one of the greatest threats to liberty and prosperity. The fact they were right is becoming more and more evident every day.
Gold is the world’s oldest international currency and has played a role in the currency system of almost every country. The properties of gold like the fact that it is scarce, durable, easily divisible, and highly valued has made it the perfect means of exchange across the world for over 2000 years. The founding fathers also recognized the importance of gold as money and wrote into our constitution the following:
“No state shall …coin money; emit bills of credit; [or] make anything but gold and silver coin a tender in payment of debts.” From Article I, Section 10, Paragraph 1 of the U.S. Constitution.
Appropriately, the Ohio Revised Code also defines money as “gold, silver, and other coin”. For the founding fathers and for the states, gold and silver were the choice for money because it held intrinsic value that was not open to manipulation by banks or the government.
Over time, sound and honest money like gold has been phased out of the U.S. economy, but not without many deleterious effects. First in 1913, before the great depression, the Federal Reserve Act passed by Congress created a private banking cartel we commonly called the Fed. This act granted the Fed the power to control the amount of money and credit in the U.S. economy. The American people were told the purpose of the Federal Reserve was to create stability in the economy and break the power of the banking “trust”, a group of elite bankers that the public viewed as having enormous power in Washington. However, even with the creation of the Fed, the U.S. dollar was still backed by gold which limited the amount of money the Fed could inject into the economy. Americans were still free to redeem their paper money for its equivalent gold at a bank.
In 1971 any remaining tie between the US dollar and gold was officially ended when Richard Nixon closed the “gold window”. After that, instead of a monetary system based on something real and physical like gold, we had a “fiat” monetary system based solely on trust. With a fiat system, the people trust that when politicians in Washington and the banking cartel make decisions about how much money and credit the economy needs, they will be able to figure out the proper amount needed, and will act in the best interests of the American people. However as one might expect this is not always the case because creating excess money and credit can be of great benefit to both Washington and the banks. It is the creation of the Federal Reserve in 1913 and the removal of any physical backing to paper money in 1971 that allows Washington and the Federal Reserve to literally create as much money out of thin air as they see fit.
The fiat monetary system explains why a dollar from 1920 is only worth 2.5 cents today, and still on the decline. If excess money is created which benefits those who get the money first, devaluation of our money occurs which is also called inflation. Inflation, although it is an invisible tax, it is one of the largest and most regressive of taxes the American people pay. Inflation also reduces the incentive to save because money not spent becomes worth less with time. But inflation has not been the only downside of our fiat monetary system. Today, especially in light of our current economic problems, more and more people are questioning the wisdom of the decision to eliminate the use of sound an honest money like gold. Modern research by scholars and economists shows that our staggering budget deficits, unstable credit bubbles, trade deficits, economic busts, and declining living standards making it harder to make ends meet are in fact at their root caused by our current fiat monetary system which gives bankers and politicians the ability to create money at will. There can be no real solutions to our problems until the monetary system is reformed.
It is not necessary to scrap the entire existing system overnight which would create a tremendous shock to the global economy. Rather the solution lies in introducing competition into the existing monetary system. The Honest Money Act serves just that purpose, it allows people to have freedom of choice for the money they use.