Many signals around the globe are showing the final days of fiat currencies. The problem being the political systems that are bringing societies to the brink of destruction through fiscal irresponsibility.
The global credit card has fueled hyperinflation globally. Banking and global financial services are showing their real colors as a result of their corporate leaders following political leaders and their direction. Leaving populations globally insecure with personal household debt and little to compensate for losses incurred.
What can steer the Titanic of economic destruction? Many influential individuals have presented their position and then end up a byproduct of the financial disaster we have today. There are several in this arena and one of them is Alan Greenspan.
The person who led the U.S. into the eventual Great Recession of his current successor Ben Bernanke wrote an article, Gold and Economic Freedom in 1966. In the U.S. the 1960s there was a lot of turbulence in the political and financial markets. Presidential assassination and a devaluing dollar. However, this article presents a clear message for what is the eventual outcome of financial reform.
From the beginning in the 1960s, the appearance and message was that gold and economic freedom were synonymous. Gold was seen as an instrument that would simply take care of itself and anything else it encountered in conjunction with the economy combined, both would take care of the other.
Consumable goods which have global value such as tobacco, coffee bean, wheat could be used as payment for debt but would require a division of labor to secure the payment. As well as other external factors such as weather conditions as a dependency. Then additional factors like storage and temperature control would also have to be maintained. That leads us from the consumable to the durable good where there is not a dependency on external factors and the demand requirement. That is the case of metals.
Metals are the preferred choice for payment due to they can be blended, formed or mined. They do not require any external factors to preserve their integrity and value beyond their mining production their costs to form or blend. More importantly, metals are divisible, are found globally and can be divided in units for mutual pricing considerations.
We see through many nations the desire for luxury goods, consumables where both will always be in demand even under extreme economic times. But they do not make a nation prosper nor thrive financially, there must be a some form of payment which is globally accepted. In WWII we saw similar needs for consumable goods and also the use of them for payment. This was the case with tobacco or cigarettes where they were seen globally as having buying power and a high value. But none of the consumable goods has had a historical trend of buying power as gold has over the years.
It is out of the wide acceptance that replaces one entity used for payment for another. It begins with several nations agreeing to it as an acceptable form of payment for others to follow. It is the shift in the preference of the item used for payment, and an acceptable commodity for payment, that it evolves as a source for payment. Therefore, having a single commodity for payments insures not only the commodity and its pricing, but also makes it more acceptable for usage on a wider scale.
Whether this commodity is gold, silver, tobacco, coffee beans, livestock, it is the principle value of the commodity that is dependent on its acceptance. All of which over the course of time have had some acceptance in the form of receipt as payment. However, one has separated itself from the others in terms of acceptance as a medium of exchange, gold.
Since WWI gold has had the distinction over all the others as an international standard of exchange. The problem that has limited its acceptance is that large payments of debt limited the metal in its execution of payment. As Alan Greenspan mentions, “If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.”
Gold has this unique quality of insurance from the fact that historically has maintained a stable pricing standard and one of increasing in value. Along with the fact that since its recent demand and interest has grown from the coin denomination to now the multiple weight of ounce and gram purchasing. Therefore, the global banking systems as they create notes and deposits for the stability of the industry, so should the insurance be developed for them with gold. The mere deposit of gold in banks for security is being performed by the prospective investor and by the central banks as reserves.
Alan Greenspan notes this same position as well, “But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.”
Therefore, the banking standard practice of paying off loans with bank credits can continue. The management of the bank credits in paying debts then shifts to nothing more than what the gold reserves are in holding. Which enables banks to then only loan at a level of which they can maintain without encountering a potential risk of insolvency. Thus the restrictions of payments are leveled against what banking institutions can leverage toward their customers. So then the gold standard rises not only as insurance protection of the financial institutions but also as the insurer of their integrity.
The insurable metal then has the ability to stabilize nations as an international trade bartering entity and also their credibility through application of the rules of the standard. Regardless of nations having separate fiat currencies for representation of their economy, they can then exist upon the principle of wide acceptance for payment with the gold standard as its insurance. Thus the global stabilization of interest rates can be maintained and only upon which fluctuations of interest rates come to existence. Gold would then be used in shifting toward those higher interest rate banks. Along with creating a shortage of gold reserves from the debtor bank in which the institution would then need to create a higher credit standard and increase their own interest rates.
However, this gold insurable banking standard has yet to evolve and replace the political influence of fiat currencies and uncontrollable debt of nations. What it will take is for nations to realize the example that has been already set with one particular nation. The U.S. during WWI saw banking institutions able to survive out of difficult economic times through the insurable gold standard as a co-existent bartered payment system. From this practice there was a free banking system without political economic interference, however, the gold standard was plagued with uncontrollable loan practices by banks where the reserves were being depleted. Resulting in a short recessionary period to follow and one which soon recovered through the implementation of withholding from unbalanced business expansion activity. This led to the return of sound banking and eventual economic growth and expansion.
This principle soon was overrun by various intervening economists which later pushed for a never ending reserve depletion with banks. The birth of the Federal Reserve System in 1913, consisting of twelve regional Federal Reserve banks privately owned. Through its creation there was the allowance of the holding of gold but introduced the credit extending policies to be combined with the precious metal. The reasoning behind the move was to create additional fiat currency into Federal Reserve banks and that it would be a benefit in lowering interest rates to the level of Great Britain. This reduced the gold loss but also nearly destroyed the global economies from the credit that ended up leaking into the stock market. The level of the spillage had become so great it reduced business confidence from the enormous imbalances leaving Great Britain to abandoning the gold standard in 1931. Leading to inevitable picture of numerous bank failures and the period of the Great Depression.
The failure of banks during the Great Depression is not much different than what we are seeing today with the insolvency of banks globally. However, the departure from the gold standard was not the reason for the bank failures during the Great Depression. It was the creation of the insatiable appetite for extending credit by the Federal Reserve System. That led to banking failures and the eventual political influences adding to the economy increased taxation. The result of these inflationary practices is the deficit spending practices of which we have seen for decades with the creating of governmental bond instruments. Financial instruments contributing to the large scale financing of welfare expenditures.
In the gold standard, credit can only be extended for that amount of tangible assets that exist. So no more than what is available can be provided. Government bonds though are not backed by tangible assets but rather as a promissory note to be paid from tax revenues received. With the gold standard that changes everything in that regard, government will then be restricted in their deficit spending guidelines thus stymying the outflow of money and the end of bailouts. With current banking practices extending beyond their limits to handle tangible goods has lead to pricing increases reducing the value of banking lending. Only leading to consumers in turn to have reduced value for tangible goods and services.
The lack of the gold standard has also ruined the savings investments from the point that there is nothing to prevent inflation or its practices. Therefore, there is nothing in place to protect their value. If banks were to convert all their deposits to precious metals and then declined to accept paper checks for payments, we would see government bank credit having less value as payment.
From the minds of those that can present sound financial principles for economic wealth, the potential exists, and the result has occurred, where we see economists become the opposite once they are in a political position. The result leading to the destruction of global economies. We certainly see this with the Federal Chairman position operating in conjunction with various political influences of organizations. Where the nation’s wealthy have a support base to undermine the guidelines of credit standards.
In the global scheme of financial practices with the handling of debt payments, we can see bailouts and other inflationary practices are those of which are occurring by the greedy wealthy. With gold, it is the intermediary to the payment standard and seen by those that recognize it as such. But also understand why there are those that are continuing to prevent its eventual insurable payment standard return.