Bull! Not bull

by Michael Nystrom
November 9, 2009

I started collecting coins back in 1976, when I was just 8 years old. My interest was piqued when a kid brought an old Franklin half-dollar to school one day. I'd always liked the Kennedy halves since there were relatively rare, and getting one in change was a special event. But that Franklin half was something else entirely - like something from another planet! Even as a second-grader, I could tell there was something qualitatively different about it. It just felt different. It was heavier, and had a certain elegant dullness to its finish. It was dirty and worn around the edges in a way that made you think it was no stranger to work.

But in that glorious year of our nation's 200th birthday, America was far enough down its current slide into poverty that it no longer minted coins from silver. The government couldn't afford it any more. That practice had ended a dozen years earlier, and the silver that had circulated in America for hundreds of years had quietly disappeared. A silver coin was something entirely new - and exciting - to my eight-year-old eyes.

In retrospect, seeing that Franklin half was a life altering event. It got me interested in coins and money, got me started collecting, and provided me with an education that I otherwise would have missed completely in my public schooling. The old coins were elegant and beautiful. Through them I learned of art, economics, history and culture. At the same time, the new copper clad bicentennial coins were making their way into circulation. I wondered why the new coins were made of silver-colored copper sandwiches instead of real silver, and was told that "there wasn't enough" silver to go around. It was only much later that I learned the real reason - not that there isn't enough silver, but that the value of our money is being steadily eroded through inflation. The result is that even pennies today are no longer made of copper.

My education naturally allowed me to understand the language of Ron Paul, back when most others still thought he was a kook. It was through Dr. Paul that I began to understand the link between sound money and Liberty - another subject that was somehow missed in public school.

But something I've only recently been coming to grips with was hammered home this weekend as I read Charles Goyette's excellent new book The Dollar Meltdown. My entire life has been lived during a period of declining American living standards. The collective cultural mythology of 'the richest country in the world' has been so blinding that until recently, I had failed to acknowledge this simple fact.

The Dollar Meltdown puts America's decline it into a sweeping context that makes our collective outcome impossible to ignore: Plunging living standards, a steadily eroding currency and massive inflation in a nation that has lost its industrial base. If you think things are bad now, they're only going to get worse. To quote Goyette: (p.9)

Gold's recent advances signal that we are in a period of major transition now. The American dollar's role as the world's reserve currency is inherently unstable and the signs of a breakdown are all around. Just as the monetary authorities have been unable to reinflate the high-tech bubble or the real estate bubble, when the dollar bubble is finally burst, no other paper currency will be able to take its place.

This is not just gloom and doom. It is a reflection of the simple fact that actions have consequences. Because consequences are often delayed, this is a fact that has remained hidden in plain sight, though more and more are starting to realize it. Intuitively, we feel it - that things are coming apart at the seams. For those of us who still have homes, and jobs, we hope against hope that things will somehow get better. But it is becoming ever more apparent that we've reached a turning point for the US economy and the dollar as we know it.

Goyette begins his book with a story about a caller to his radio show -- Jim in Scottsdale -- who finally connected the dots in late spring of 2008. With his epiphany he took action and completely sold out of the stock market, putting all of his money into gold.

To the 'cultured' and 'educated' members of our society - those who were indoctrinated anywhere from the finest public schools to Ivy League institutions - the notion of doing such a thing must have sounded completely preposterous. After all, in June of 2008 the Dow still wasn't far from its all time high. We had the finest paper currency that money could buy. In fact, we had the world's reserve standard, thank you very much, not to mention an ample supply - nay an unlimited supply - of the 'safest' risk free investments in the world - US Treasury Bonds.

Why would anyone want that barbaric relic gold?

Today, as gold crosses $1,100 per ounce, and the dollar's reserve status is in question, Jim in Scottsdale looks pretty smart, and there is a reason for that. The hour is getting late for our once great nation, which was built and prospered on the solid foundations of Liberty, sound money and limited government. To the indoctrinated masses, these words may also sound quaint and trite, relics of a long bygone era. Because of the current widespread ignorance and disrespect for our foundational principles, further collapse is practically inevitable. Goyette writes (p.143-4): "With the citizenry's willingness to go along with a costly and unnecessary war, and the growing fiscal recklessness of the Republicans and Democrats, it has become apparent that the opportunity for collective action to avert the most serious economic episode in the U.S. since the Great Depression has passed."

Sound money is gone. As government grows, Liberty shrinks. "America is transforming itself," writes Goyette, "without forethought, debate, or pause into a command economy." (p.121)

Didn't we learn in the 20th century that command economies don't work? Apparently we have to learn it again. Our government has already taken over the former pillars of the US economy: Auto manufacturing, banking, finance, insurance and mortgage companies. It was done illegally with money created by fiat, and there is only one-way out for our now rogue state: Inflate or die. "There is no evidence that US officials have any plan other than inflation to deal with real-world economic circumstances that are already underway," writes Goyette. (p.113-4)

And he is quite blunt in his prognosis: The days of hoping to catch a ride on trendy fad investments are long over. Now is the time to hunker down and get back to basics and choose investments that will survive the inevitable inflation. Part IV of his book is appropriately titled, "What To Do." In it, Goyette explains alternative investments that should remain strong in the face of howling inflation, and gives readers tools to maintain the value of their savings and take advantage of inevitable future opportunities.

The following passage near the end of the book (p.231) poignantly summarizes America's journey though the designs on our coinage:

America's earliest coins portrayed Liberty. Not rulers and politicians. Just Liberty. A symbolic representation of the country's highest ideal. In the beginning, Americans had an affair of the heart with Liberty. She was their muse and they were aflame in their love for her. They talked about her everywhere, in their churches and taverns and town squares.

But she hasn't appeared on our circulation coinage for more than sixty years, not since the beautiful "Walking Liberty" half-dollar. It represented Liberty striding gracefully into the rising sun of the future, arm extended in peace and carrying a bounty of riches. It was a beautiful representation, because abundance accompanies Liberty wherever she goes. Our devotion would be no less if it were not true, but it is one of her secrets: Liberty creates prosperity.

It was the above passage that began me on my reverie of my how my childhood coin collecting hobby began, and what it continues to teach me.

Goyette continues:

Today's coinage, looking each year more like subway tokens, celebrate the state. Just as words replace deeds and paper substitutes for gold, politicians have displaced ideals. The American state, which was created to serve Liberty, is now commemorated instead.

Note that our current half dollar not only portrays a politician on its obverse, it features the Seal of the President on its reverse!

Here is the history of our country, in three coins spanning less than 100 years. America's ongoing slide into poverty has coincided with our loss of Liberty - economic, civil and social. The more the state attempts to control the people, the more Liberty is lost. Poverty creeps in until it becomes a rushing torrent. The reason that our Constitution makes nothing but silver and gold legal tender is to prevent the government from running its printing presses out of control, creating money by fiat while devaluing the existing money stock, as it is doing now.

I find it interesting that these lessons can be learned intuitively simply through the study of money. Ron Paul mentions having been fascinated by coins at early age in his recent bestseller, End the Fed. Goyette also talks of learning the lesson in the mid-1960s when his father started sorting out and keeping the silver coins, while spending the new copper clad ones back into circulation. It is an act so intuitively common that it has been practiced by millions of individuals over thousands of years and codified in Gresham's law: Bad money drives out good. Goyette writes (p.141), "I quickly learned that the value of the coins comes not from the name of the issuing government, the images represented, the face values inscribed, or even the stirring mottoes themselves."

Like Ron Paul and Charles Goyette, I was lucky to have started my monetary education early, through coin collecting, which led to a lifelong interest in money and the economy. Most people don't get this education - certainly not in public school system - and now is the time to catch up.

Charles Goyette has written a marvelous book, a comprehensive, guide to what happened, what is likely to happen, and what to do about it to protect yourself. It speaks to the very roots of our crisis in a non-partisan way. This education is invaluable in understanding what you can do to protect yourself and your family from its inevitable effects.

Dr. Marc Faber: "The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults, and the impoverishment of large segments of Western society." Video:

By Michael Nystrom | August 18, 2009

Ron Paul's new book, End the Fed (out next month) illuminates the real reasons behind America's recent stunning economic collapse. The Federal Reserve would just as soon you not read it, and instead believe the standard refrains from the standard economists (including those at the Fed): "No one saw it coming! How could anyone have predicted it?"

One school of economic thought - the Austrian School - predicted it, and the world's most famous practitioner of that school, Dr. Ron Paul, has been warning of it for over 30 years. In fact, Ron Paul's vision of our current slow motion decline is what got Dr. Paul into politics in the first place. A primary catalyst behind his decision to seek office was Richard Nixon's decision to "temporarily" remove the dollar's gold backing in 1971. This set the table for the mess we're now in.

That "temporary" disconnect between gold and the dollar remains in effect today.



After being mostly ignored for the bulk of his career, then being shunned and ridiculed during his 2008 presidential bid, Dr. Paul has since been redeemed as a prescient thinker. His fundraising ability has made him a rock star among his fellow Congressmen, and his proposed bill to audit the Federal Reserve (HR 1207) is riding a wave of bi-partisan support in the House of Representatives. Given the current political climate and Ron Paul's swelling influence, End the Fed is destined not only to be a blockbuster of a book, but one that makes a significant impact on the conversation about who we are where we are headed as a nation.

Money from Thin Air
The Fed -- unlike the rest of us who have to work for our money -- creates money from thin air. This has long been an open secret among those in the know. As Henry Ford is purported to have put it:

It is well enough that the people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.

People are starting to understand, and revolution, friends, is visible on the distant horizon.

The Morality Hazard of the Fed
By now, we are all familiar with the narrow definition of "moral hazard" with regard to our nation's banker of last resort. Since the Fed stands at the ready to bail out our financial system, banks and brokers are free to take excessive risks, secure in the knowledge that the responsibility of their poor decisions will be borne not by them, but by the Fed itself, and ultimately by the taxpayers. The bankers feel no moral responsibility for their investment decisions.

But Dr. Paul's argument goes further than that. Throughout his career, he has warned of a deeper meaning of moral hazard. Anyone who has followed Dr. Paul closely has seen this thread throughout his speeches and writings, but he hammers it home in one of the most powerful chapters in End the Fed. He states bluntly that the entire operation of the Fed is based on an immoral principle. Beyond just a moral hazard that encourages speculation in financial markets, the true hazard is all encompassing for society.

The very existence of the Fed creates a morality hazard for all of society by setting a standard of immorality at the highest levels of business and government.

In its simplest definition, morality is the ability to know the difference between right and wrong. The Fed has a power granted to no one else in society - except counterfeiters. It has the ability to create money from thin air. In fact, the Fed is essentially the largest, most revered, officially sanctioned counterfeiter in the world. It creates money from nothing, which is distributed via Congress to the politically most well-connected individuals and institutions. Bankers, defense contractors, and the medical industrial complex come to mind offhand, but they're not the only members of this old-boy network.

As more money is created to fund bailouts, stimulus measures and just about everything else under the sun, the currency in existence is devalued. Savings are eroded. Wealth is redistributed from the poor to the rich. And all the while, the government and the Fed say the measures taken are necessary, and for the benefit of all.

The Fed is a master of deception in its actions and vocabulary. Few people completely understand the myriad complex machinations by which it creates money and simultaneously devalues the existing stock of currency. But people are not stupid; they understand it on an intuitive level, and the result is the morality hazard: When citizens realize that their leaders are cheating them, they get angry. The implicit message sent from on high is that cheating is okay. Meanwhile every financial transaction is corrupted by the Fed's counterfeit money, weakening the very moral fabric of society.

In the book, Dr. Paul recounts that his first job, at the age of 5 (!), was to help his father, who ran a small dairy line from their basement. He tells of how his father was concerned about the quality of the milk -- primarily that the farmers might dilute their milk with water. This lesson obviously made an impression on the young Ron Paul.

Some forty years later, an older Dr. Paul had the opportunity to ask a Federal Reserve official about the morality of diluting the money supply and how it differs from a farmer diluting the milk he sells:

By what moral right do we have to create purchasing power out of thin air? Whether it is done by the creation of credit or Federal Reserve notes or whether it's the creation of SDRs and international in scope, by what right do they do this? Is it any more moral to dilute the purchasing power of the money you hold in your wallet than it is for the farmer to dilute the milk supply with water?

Let's think about this for a moment: Suppose you find that your local farmer is diluting his milk with water. You'd distrust him immediately - not just with the milk, but in any dealings you have with him. This is the first consequence. If he lies about his milk, you can assume he'd lie about anything.

You might think, "I'd just buy my milk from an honest farmer instead." And if it were a free market, you could do just that. But when it comes to our money, the Federal Reserve is the only show in town -it has a state sponsored monopoly. It is the worst example of a "public-private partnership." (In the old days, we called it fascism.)

So if you're stuck buying from a dishonest monopoly farmer who waters down his milk, you might find that since he is cheating you, it is only "right" that you cheat him in return. Thus begins the perverse cycle of lies and distrust. It is the same with our money. We're all stuck in a dishonest system, forced to deal with diluted dollars, running whatever scam necessary to get as many as possible (after all, if the Fed can create them for free, why should I have to work for them?) then getting rid of them as fast as we can before they lose their value.

Dr. Paul goes on to explain:

I happen to believe that because it [the creation of fiat money] is a moral issue more than an economic issue, it is for this reason that the people have lost trust in their government, trust in the banks, trust in business, trust in themselves, and that we are a nation of distrust.

This is the ultimate moral consequence of the Federal Reserve System: We have become a nation of distrust. Until we regain that trust, the future looks bleak.

The first step in that direction is a full audit of the Fed, and the next step is to end it.

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