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9 Oct 1998, Last revised June 6, 2006 The truth IS out there.

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A NEXIALIST N+E+W+S FEATURE: Costs of Abandoning the Gold Standard

from L. Reichard White


"An unchallenged lie becomes an unquestioned truth." -lrw

No State shall ...make any Thing but gold and silver Coin a Tender in Payment of Debts; ... - United States Constitution from U.S. House of Representatives, Article I, Section 10, Clause 1 932_clip1
      On March 6, 1933, [President Franklin Delano] Roosevelt declared a "bank holiday." The stated purpose was to keep people from "hoarding" "gold or silver coin or bullion or currency." The actual reason was to forestall a run on the nation's banks and the Federal Reserve. ...On April 5, 1933, Roosevelt issued Executive Order No. 6102. It decreed that all gold certificates, gold coin, and gold bullion, owned by all partnerships, corporations, and individuals be delivered to the Federal Reserve on or before May 1, 1933. ... Other "Presidential" proclamations in April and May of 1933 made it ILLEGAL for U.S. Citizens, "the freest people in the world," to own or hold gold, except small amounts in jewelery. Roosevelt made GOLD a "CONTROLLED SUBSTANCE" like cocaine or heroin! ... As late as 1969 people were still being jailed for owning gold without a license. -L. Reichard White, MONEY, (Brownsville, Penna.: WhiteINK 1997) 932_clip2
... after 1971, the era of stable growth simply came to an end for the United States. Eighteen months after the gold window was shut, American wages, adjusted for inflation, reached their all-time peak. America went from being number two in pay then to number eight now. Productivity increases began to taper off. And since then the average American worker has been losing ground. Family income has gone up, which is the statistic most politicians point to but it now takes two workers in each family to make that income, whereas in 1971 it took just one. -Joel Kurtzman, THE DEATH OF MONEY, (New York, NY: SIMON & SCHUSTER 1993), p. 70 932_clip3
"I think you have to define what you mean by a free market. If you have a fiat [paper] currency, which is what everyone has in the world --- ...That is not a free market. Central banks of necessity determine what the money supply is. If you're on a gold standard or other mechanism in which the central banks do not have discretion, then the system works automatically." -Federal Reserve Chairman, Alan Greenspan, Semi-annual Humphrey-Hawkins Testimony to US House, CNBC, July 22, 1998, 11:45am 932_clip4

ABANDONING GOLD IN FAVOR OF FIAT MONEY ALLOWS INFLATION:

US President Jimmy Carter first, classically, blamed the double digit inflation during his administration on "greedy businessmen." Later he blamed it on "greedy consumers." As incredible as it seems, world leaders sometimes don't understand what causes inflation. -lrw 932_clip5
A well known story about Austrian economist Ludwig von Mises is how his knowledge of the cause of inflation put a stop to an intractable Austrian hyper-inflation. None of the perscriptions suggested by establishment economists helped. Mises, at the time noted as a brilliant but eccentric thinker was, as a last resort, called by Austria's "Minister of Finance." Mises told him, "Meet me at the corner of such-and-such and such-and-such, and I'll tell you how to stop this inflation." The dignified Minister objected, saying Mises should tell him immediately over the phone. In desperation, the Minister agreed to humor Mises and met him where Mises suggested. Mises asked him, "Do you hear that noise?" Sure enough, in the background, the Minister could hear a faint thunk-a-ta, thunk-a-ta, thunk-a-ta. Mises said, "Put a stop to that noise, and you'll put a stop to the inflation." The Minister thought he'd been had --- until Mises explained the noise was the Ministry of Finance printing presses creating shillings at an incredible rate. Impressed by Mises' performance, the Minister stopped the presses -- and in short order, the inflation subsided. 932_clip6
"There is perhaps no empirical regularity among economic phenomena that is based on so much evidence for so wide a range of circumstances as the connection between substantial changes in the quantity of money and in the level of prices." ... "It follows ... that inflation is always and everwhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." -Nobel Laureate Milton Friedman quoted in Judy Shelton, ^^wh$ Money Meltdown (New York: The Free Press 1994), p. 176 & 177 932_clip7
... a general inflation is caused only by the working of the law of supply and demand reducing the value of monetary tokens as a result of an increase in their supply --- which supply increase, obviously, can be accomplished only by the agency manufacturing those tokens. So let me ask you, what can you do faster; find, mine, and mint gold and silver coins --- or print paper money? But as Joel Kurtzman points out, in today's electronic world, money is no longer even printed paper slips; it's binary magnetic zeros and ones recorded in computer memories. Kurtzman dubbed this "megabyte" money. How fast can the supply of these magnetic entries be increased by an "authority" so inclined? ...the supply of gold available to man increases less than one percent per year, and no government or central bank edict can change this fact very much. How fast the supply can be increased is THE important difference between hard money vs. paper/megabyte money. -L. Reichard White, MONEY, (Brownsville, Penna.: WhiteINK 1997) 932_clip8
NEW: But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. -Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C. November 21, 2002 [Mr. Bernanke is now (2006 A.D.) Chairman of the Federal Reserve] 932_clip9
By the late 1970s [after Nixon "closed the gold window"] the world had seen an overall price increase of roughly 400 percent. -Joel Kurtzman, THE DEATH OF MONEY, (New York, NY: SIMON & SCHUSTER 1993), p. 70 932_clip10
"It takes $4.92 today to buy the same amount of goods that could be bought for $1.00 in 1960." -CNN Factoid, 12 Aug. 1993 932_clip11
"Inflation last year [1992] was 1,202% in Russia and 1,038% in Brazil." -CNN Factoid, 20 Aug. 1993 932_clip12
The South Korean Won has depreciated 40% in the last four days, down 10% in the first three minutes of trade last night... and it is predicted that the won will likely drop another ten percent, the limit, again tonight. -CNBC, 12-11-97, 11:25am EST 932_clip13

ABANDONING GOLD CAUSES SEVERE DIFFICULTIES FOR INTERNATIONAL TRADE ...

Clearly the value of each country's paper money will be different because, rather than being based on a universal standard such as gold, its value is dependent on the differing opinions of those comprising its own different monetary authority. Further, and for similar reasons, the values of different "national brands" of paper currencies will regularly fluctuate relative to one another. With each country issuing its own variable-value paper currency -- which may ultimately become completely worthless -- and no universal standard of value, predicting currency fluctuations is next to impossible. This makes business planning and operations difficult and expensive if not impossible. -lrw 932_clip14

CAUSING BUSINESS TO LOSE MONEY ...

// [Japanese corporation] NEC expects currency fluctuations to cost it no more than $25 million this year. -WORRIED GIANTS, By Sangwon Suh and Ricardo Saludo, found at www.asiaweek.com [& thanx to tourist] 932_clip15
// Moreover, many companies will also be recording losses due to unhedged foreign exchange loans. Malaysia's state power company Tenaga Nasional once among the country's most profitable enterprises, has suffered $392 million in currency losses in the year to August. It stands to lose half as much more in the next fiscal year, assuming the ringgit does not weaken further. -WORRIED GIANTS, By Sangwon Suh and Ricardo Saludo, found at www.asiaweek.com [& thanx to tourist] 932_clip16
// EUROTUNNEL, debt-ridden Channel-tunnel operator, managed its first operating profit -- of 57m pounds ($94m) -- in 1997. That operating profit, though, translated into a net loss of 611m pounds after interest charges and foreign-currency losses, an improvement on 1996's net loss of 685m pounds. -The Economist , Thu, 19 Feb 1998, Business This Week, February 21st - February 27th 1998 932_clip17

- Seagate Technologies, a large disk-drive manufacturer, takes $63 million charge, essentially for speculating on foreign currencies, particularly hedging on the Thai bhat and the Malaysian ringgit. -CNBC, 10-16-97, 5:57pm EST

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If currencies were pegged to gold instead, and especially international contracts contained gold clauses, as they regularly did before such contracts were unconstitutionally outlawed and nullified by the US Government in 1934, this would allow creditors to collect directly in gold if currencies fluctuated. A currency disparity wouldn't happen because with a gold standard, governments wouldn't be able to easily get away with massively counterfeiting their own currencies as they do now, companies wouldn't lose money in foreign exchange, and the other attendant problems which result from such losses wouldn't occur. It would also put an end to the paper money dependent phenomenon of "inflation." -lrw 932_clip19

AND THE RESULTS OF BUSINESSES LOSING MONEY, EITHER THROUGH FOREIGN EXCHANGE OR THROUGH DEPRECIATION/INFLATION ...

- Seagate will cut 10% of its work force worldwide. This includes 7200 jobs in Asia, 1300 jobs in the US, and 1400 jobs in Ireland. -CNBC, 15 Jan 1998, ~6:35:24 PM EST 932_clip20
- Philippine Airlines, Asia's oldest, will cease operations and go out of business next week after 57 years in the air. A pilot strike and a $2 billion dollar debt brought on by the Asian economic slow-down are cited as the reasons. -NWI, 19 Sep 1998, ~2:10:56 PM EDT 932_clip21
// Group net profit at DEUTSCHE BANK plunged by 56.5% in 1997 to DM1 billion ($577m) after the bank, Germany's biggest, set aside nearly DM4 billion to cover exposure in Asia and a three-year restructuring that involves cutting 9,000 jobs, 12% of its workforce. -The Economist , Thu, 19 Feb 1998, Business This Week, February 21st - February 27th 1998 932_clip22
// Currencies and stockmarkets plunged across EAST ASIA while banks, builders and manufacturers went bust in their hundreds. Worst hit were Thailand, Indonesia and South Korea, whose currencies all fell by more than 40% against the dollar, swelling firms' foreign-currency debt burdens. -The Economist or http://www.economist.com, Wed, 31 Dec 1997, 19:31:24 +0000 932_clip23
- The British Colombian economy, predicted to grow 2.8% in 1998, because of the Asian crisis, is now expected to grow only 1.8%, or ~36% less. -NWI, 16 Feb 1998, ~ 3:37:03 PM EST 932_clip24

INFLATION AND BUSINESS DISRUPTIONS HAVE SOCIOLOGICAL EFFECTS:

- The World Bank reports that [as a result of the Asian currency crisis] the number of poor in Asia (Malaysia, Thialand, Indonesia, and the Philippines) may double to 90 million over the next three years, and there is a desperate need to reduce the prices of basic supplies [food, etc.]. -NWI, 30 Sep 1998, ~5:51:13 PM EDT 932_clip25
- There's now a shortage of imported drugs in Indonesia because foreign drug companies won't extend credit to Indonesian hospitals and doctors. As a result of this and other side-effects of the Asian economic crisis, the cost of many medical procedures has risen by 500%. Many Indonesians can't afford this, and some are paying with their lives. -NWI, 20 Feb 1998, ~1:55:50 PM EST 932_clip26
Eight-thousand (8,000) Idonesians, half of them children, now sift through the garbage dump outside Jakarta from dusk to dawn, searching for food and goods. This is a direct result of the Asian economic crisis, and if it continues, the dump may become Jakarta's fastest growing suburb. -NWI Up Close, 16 Aug 1998, ~1:56:35 PM EDT 932_clip27
There will be more civil unrest in Indonesia. Expectations of people had risen over the last decade, and suddenly everything was taken away in a matter of months. A couple of months ago, the government there opened a public market to sell basic commodities like cooking oil at slightly subsidized prices: about 10-15% discount to the prevailing prices -- any higher, and people would resell the goods. The market was well-publicized. Habibie [the interim Prime Minister who recently replaced de-facto dictator Suharto] himself went to open the market, so there were tremendous crowds even on the first day. It was so overcrowded that it took a long time for people to buy the goods, so eventually people just started grabbing the goods. This happened the first day the market was opened. I see it as symptomatic that the fabric of society is just completely breaking down in Indonesia. -john murai , Wed, 19 Aug 1998 02:28:09 -0700 (PDT) 932_clip28
The problem is particularly troublesome to companies (and their customers) importing "foreign" goods or manufacturing goods with some "foreign" (from a geographical region using different government fiat tokens) components or content if the "local" fiat tokens (dollars, pounds, yen, rupiah, etc.) have slipped, relatively, in value. If such companies sell "locally", their prices must go up since the foreign products, components or content are now more expensive in "local" fiat tokens. This usually causes domestic (local) sales of foreign goods or goods with any appreciable "foreign" content to drop and local buyers to do without these goods. Imports of "foreign" goods drop because they are now more expensive in the "local" tokens, and this in turn reduces the profits, jobs, etc., in the "foreign" geographical area from which they are normally obtained. -lrw 932_clip29
"Whenever you have a currency fall as sharply as the [Indonesian] rupiah has fallen, which is approximately 80%, and you import any significant amount of materials or foodstuffs, which they do, then clearly the domestic price of many of the things which they import obviously skyrockets ...there are increasing concerns of food shortages and food prices which are too high for those average Indonesian citizens to afford." -Alan Greenspan, Semi-annual Humphrey-Hawkins Testimony to US House, CNBC, July 22, 1998, 11:45am 932_clip30
Inflation shows its ugly head in Korea. Gas was hiked 16% last week and is up 70% over all. This has cured the traffic problem in Seoul. [Korea imports most petroleum.] People rush to buy certain commodities from supermarkets. Sugar, flour and cooking oil, etc. have doubled in price. Korean inflation was running 26% at Christmas, and is expected to go higher. The increase in prices only increases Koreans' resolve to shun foreign products in the world's eleventh largest market. -Terry Kennan, CNBC, 15 Jan 1998, ~4:46:29 PM EST 932_clip31
Sugar and flour, largely imported, are 30% more expensive in Korea now. -NWI, 16 Feb 1998, ~3:42:57 PM EST 932_clip32
It's estimated that 25% to 30% of Montana wheat farmers will go out of business next year because the price they get for their wheat won't even offset the expenses of growing it. Demand for wheat has dropped because people in countries effected by the Asian [currency devaluation] crisis can no longer afford to buy wheat. -NWI, 26 Sep 1998, ~12:13:59 PM EDT 932_clip33

DEPRECIATING CURRENCIES CAUSE HYPER-INFLATION AND THUS, OFTEN, VIOLENCE:

- Most of the Asian tigers are now creating money at the rate of ~20% since the beginning of the crisis. This results in inflation and will further devalue these currencies. This is a result of prompting by the IMF. The result is that the workers' salaries and the people's savings are decimated [by inflation]. This results in various forms of civil and political unrest, and if this continues, we'll see more. -Lawrence Kudlow, -CNBC, 8 Jan 1998, ~9:11:50 AM EST 932_clip34
- Russians are hoarding not only TVs and VCRs, they're also hoarding toilet paper. They have money but it's rapidly becomming worthless. [The ruble has lost almost two-thirds of its value in the last two weeks.] Two billion rubles are owed to the army alone. They [the government] owe everyone. That's why they are printing rubles. Of course they will be worthless, but it's to Mr. Chernomyrdin's [subsequently Chernomyrdin lost his battle to become prime minister to Primakov] advantage to start from zero rather than below. After paying-off everyone, he will institute a currency board to instill currency stability. -CNBC (EUROPE), 09-07-98, 6:26am EST 932_clip35
The ruble is sharply down from 17 to the dollar to about 20 to the dollar. This is due to confusion over the central bank's plans to print rubles in order to redeem government debts and bonds and fears of the resultant hyper-inflation. Russian prices are up 43% since September 1. -CNBC, 18 Sep 1998, ~8:33:04 AM EDT 932_clip36
Russian Prime Minister Primakov announced today that the Russian government had paid off the armed forces and paid students their stipends. He didn't say where the money came from, but the government did print money last week. -Tom Costello, CNBC, 28 Sep 1998, ~ 4:48:13 PM EDT 932_clip37
- The Indonesian currency lost 25% of its value overnight. Indonesian stocks were off 12%. Indonesians stripped the supermarket shelves, buying everything in sight, because of expectation of price increases. -CNBC, 8 Jan 1998, ~9:02:12 AM EST 932_clip38
// The Indonesian army was out in force QUELLING RIOTS over rising food prices. As the rupiah languished, the IMF reviewed progress of the country's economic reforms, promised in return for a $43 billion rescue package. Indonesia has received $3 billion, and a second instalment is due in March. -Politics This Week (February 28th - March 6th 1998), The Economist http://www.economist.com 932_clip39
JAKARTA, Indonesia -- "As the roof of a blazing central Jakarta police station caved in a few yards away, rioters roared their approval and a shop owner named Joko broke into a grin. This makes me happy. I support it," he said, while nervously declining to reveal his full name. ...Demonstrations that began two weeks ago with university students shouting for democracy have turned into riots driven by a frustrated and rapidly expanding population of poor people who can't afford many of life's basic necessities. ...it's estimated that between 8 million and 20 million people out of a population of 200 million have lost their jobs since last fall. -"Economic despair turns peaceful protests violent" by James Cox, USA TODAY, FRI./SAT./SUN., MAY 15-17, 1998, COVER STORY, pg. 1 932_clip40
The elections in South Korea complicate matters. Social unrest is quite likely. The political elite can't maintain their position unless they deliver high growth. S. Korea grew at 8% for the last 30 years, and as recently as 5 months ago was lauded by IMF, etc. -CNBC, 12-11-97, 3:26pm EST 932_clip41
- Thousands of riot police are stationed outside the main Hyundi plant as the government threatens to remove workers who are on strike against the S. Korean automaker over plans to lay-off 1500 employees. Ethnic Chinese in Indonesia begin leaving the country after riots swept through China Town in Jakarta, resulting in many shops being looted and burned. [Later it was reported that many ethnic Chinese women were raped during the riots.] -NWI, 15 Aug 1998, ~7:33:47 AM EDT 932_clip42
- Demonstrations in Malaysia favoring financial reforms proposed by the ousted finance minister, Anwar Ibrahim, turn ugly as police attack the demonstrators. Anwar, well respected by the international community, is facing nine trumped-up charges brought against him by the Mahathir government and was apparently beaten by police. -CNNI, 3 Oct 1998 932_clip43
Government price hikes sparked a week of riots and demonstrations throughout Yemen that left more than 50 people dead in June, reports Faysal Makram in the Saudi-owned Al-Hayat of London. -WORLD PRESS REVIEW, SEPTEMBER 1998, p. 24 932_clip44
- Ecuador devalued it's currency today. -CNBC, 14 Sep 1998, ~4:54:32 PM EDT 932_clip45
- Riots break out against the results of Ecuadorian Government financial reforms. -CNNI, 3 Oct 1998, ~1:51:01 PM EDT 932_clip46

INFLATION AND PAPER MONEY LEAD TO AND ENABLE WAR

NEW: It is no coincidence that the 19th Century, a time of Gold coin standards for the most part, was an era of peace. [1] Nor is it a coincidence that the 20th century combines war with paper money. -Ron Paul (R-TX), The Ron Paul Money Book, 1991, pg. 32 932_clip47
NEW: [Niall] Ferguson [2]asks and answers ten specific questions about the First World War, one of the most important being whether the war, with its total of more than nine million casualties, was worth it. Not only does he answer in the negative, but concludes that the world war was not necessary or inevitable, but was instead the result of grossly erroneous decisions of British political leaders ... Ferguson regards it as "nothing less than the greatest error in modern history."
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The First World War continues to disturb the British psyche today, much as the Civil War still haunts Americans. British casualties in the war numbered 723,000 -- more than twice the number suffered in World War II. The author writes that "The First World War remains the worst thing the people of my country have ever had to endure." The Crime Called World War I, by John V. Denson, review of Niall Ferguson, The Pity of War, Basic Books 1999 563 pages 932_clip48
NEW: My claim is that, had the gold standard been maintained, the warring nations would have had to observe the rules of the gold standard, and, therefore, World War I would have been over in a few months. [^^w Schumpeter & The Fiscal State] Because of the automated mechanism and the prevalent "rules of decent behavior," financing the war on credit in a Keynesian style would not have been possible. {Parenthetically, except for Karl Marx, Swiss historian Jacob Burckhardt describes Keynes as one of the great destructive forces in world history.}
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Soon after the onset of World War I, the moment came when the world turned to monetary fraud. Political pressure to finance the war with money created out of nothing made a sane monetary structure futile and led to the ruin of currencies --and a war lasting four years. The world lay in ruins and a young, hopeful generation was lost somewhere on the battlefields. Ferdinand Lips, Why Gold-Backed Currencies Help Prevent Wars, Zurich, August 30 -- September 1, 2002 (translated from German) 932_clip49

INFLATION AND PAPER MONEY LEAD TO TOTALITARIANISM

NEW: [Because of inflation] In 301 AD Diocletian issued an edict declaring fixed prices; i.e., price controls. His edict provided for the death penalty for anyone selling above the control prices. There was also penalties (less severe) for anyone paying more than the control price. Irate consumers sometimes destroyed the businesses of those who sold higher than the control prices.
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In the short-run these draconian measures may have curbed inflation but in the long-run the results were disaster. Merchants stopped selling goods but this led to penalties against hoarding. People went out of business but Diocletian countered with laws saying that every man had to pursue the occupation of their father. The penalty for not doing so was death. This was justified on the basis that leaving the occupation of ones father was like a soldier deserting in time of war. The effect of this was to turn free men into serfs. EPISODES OF HYPERINFLATION, Thayer Watkins, ECONOMICS DEPARTMENT, SAN JOSE STATE UNIVERSITY 932_clip50

HOW BAD CAN IT GET?

- "What does 'Money Meltdown' mean." -Ron Insanna. ~"It means money loses its store of value and its medium of exchange value. Peoples' confidence in local currencies evaporate." -Michael Rosenberg, Merrill Lynch, CNBC, 11 Aug 1998, ~2:56:55 PM EDT 932_clip51
"As we pointed out earlier the rupiah is down 84% since July losing that much of its value against the dollar. There aren't that many percentages left. Can a currency go to effectively zero against another currency?" -Ron Insanna "Well, you've had of course, in Latin America and many other parts of the world -- go back to the 1920s in Germany -- periods of hyper-inflation. So failure to manage a currency can lead to a new currency eventually. [i.e. the old currency becomes worthless]" -Kim Schoenholtz, Solomon Smith Barney, CNBC Inside Opinion, 22 Jan, 1998. 932_clip52
Brazil is exchanging its current currency for the "real" supposedly pegged one to the dollar. This is the biggest currency exchange in history and will take two weeks. Current Brazilian inflation is running at 50% per month. This will be the sixth new Brazilian currency in a decade, but nothing can get the inflation under control. The shop keepers just keep raising prices. Buyers are urged by the president to report price increases to store inspectors but nothing seems to stop prices from rising. -CNN HEADLINE NEWS, 07-04-94 12:40am EST 932_clip53
N+N:Reprise: "inflation is always and everwhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." -Nobel Laureate Milton Friedman 932_clip54

N+N:Reprise: As incredible as it seems, world leaders sometimes don't understand what causes inflation. -lrw

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N+N:Reprise: Mises asked him, "Do you hear that noise?" Sure enough, in the background, the [Austrian Finance] Minister could hear a faint thunk-a-ta, thunk-a-ta, thunk-a-ta. Mises said, "Put a stop to that noise, and you'll put a stop to the inflation." ...Mises explained the noise was the Ministry of Finance printing presses creating shillings at an incredible rate. Impressed by Mises' performance, the Minister stopped the presses -- and in short order, the inflation subsided. 932_clip56
...The fact that the debt reserve asset pays interest is little more than a joke in these banking circles. Any paper currency, the dollar included, can fall in exchange value against your local currency far more than the interest received! -FOA (Friend Of Another), 17 Sep. 1998 932_clip57
- The dollar is down 30% from its highs. -Neil Cavuto, FNC, 8 Oct 1998, ~1:51:22 PM EDT 932_clip58
"Why would you want to own gold? It doesn't pay any interest." -Paul R. 932_clip59
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"What's the lowest value a piece of paper money, say a $100.00 bill, can reach?" -lrw 932_clip61
"Well, zero, I suppose." -Paul R. 932_clip62
"What's the lowest value an ounce of gold can reach?" -lrw 932_clip63
"Well, I don't know, but never zero I guess." -Paul P. 932_clip64
At a luxury-car dealership in downtown Jarkata, salesman Shierly Wijaya faced another problem: a run on BMW's. In an odd mirror image of the panic in the supermarkets, wealthy Indonesians snapped up every BMW in the showroom, apparently reasoning that, unlike currency, cars would keep their value. One thirtyish businessman bought two cars at the same time, a $36,000 323iA and an $83,000 735iL. He paid on the spot with a thick wad of cash. By the end of the two-day panic in Jakarta, every single one of the 200 BMW's in city show-rooms had been sold. -Marcus Gee, "Globe and Mail" (centrist) Toronto, Feb. 5, 1998 [World Press Review, April 1998, p.8] 932_clip65
      If somehow you traveled back in time to 1930 and asked citizens about the "inflation" they experienced, you would get blank stares and "Huh?" as a response. Explaining that by "inflation" you meant that prices were constantly rising, or conversely, that the value of the money was decreasing every year wouldn't help. This simply didn't happen while the U.S. was on the gold standard. These citizens would be baffled by your questions. They would tell you that if anything, prices were very gradually decreasing. This was because while the value of the currency was stable, increasing efficiency in production, coupled with competition, caused a gradual decrease in prices. Today these efficiency induced price decreases are masked and over-shadowed by even larger inflation-caused decreases in the value of megabyte [paper and electronic] currency. -L. Reichard White, MONEY, (Brownsville, Penna.: WhiteINK 1997) 932_clip66
"...history has shown that over and over again there's a great deal of pressure to print money ... in order to provide resources to the governing powers or the powers that be. Right now inflation is relatively low. Alan Greenspan and the Federal Reserve have done a good job at keeping monetary growth low and fairly steady. But that's an exception in the history of the Federal Reserve. It's an exception in the history of other central banks. " -Milton Friedman, CNN Moneyline, 22 Jan 1998, ~7:26:15 PM EST 932_clip67
Though an indispensable requirement for the functioning of an extensive order of cooperation of free people, money has almost from its first appearance been SO SHAMELESSLY ABUSED BY GOVERNMENTS THAT IT HAS BECOME THE PRIME SOURCE OF DISTRURBANCE OF ALL SELF-ORDERING PROCESSES in the extended order of human cooperation. The history of government management of money has, except for a few short happy periods, been one of incessant fraud and deception. In this respect, governments have proved far more immoral than any private agency supplying distinct kinds of money in competition possibly could have been. -F. A. Hayek, _THE FATAL CONCEIT The Errors of Socialism_, [Cap. emphasis added] (Chicago: The University of Chicago Press 1988), p. 103. 932_clip68
The [Indonesian] people are angry about an inflation rate that's hit 40% a month. Some basics are rising even faster: Gasoline has soared 70% the past two weeks; rice has doubled in the same period. "Who can afford to live, let alone eat, here anymore?" said Mozes, a 43-year [old?] accountant. -"Economic despair turns peaceful protests violent" by James Cox, USA TODAY, FRI./SAT./SUN., MAY 15-17, 1998, COVER STORY, pg. 1 932_clip69
"It is evident that so long as the public use money at all, the Government can continue to raise resources by inflation. Moreover, the conveniences of using money in daily life are so great that the public is prepared, rather than forego them, to pay the inflationary tax, provided it is not raised to a prohibitive level. Recent experience everywhere seems to show that it is possible to inflate 100% every three months without entirely killing the use of money in retail transactions, but that a greater rate of inflation than this can only be indulged in at the peril of total collapse." -Lord John Maynard Keynes, father of "Keynesian Economics." 932_clip70
-Russian inflation is 67% this month, which makes it almost impossible for average Russians to survive. 100,000 Russians in Moscow will lose their jobs in the next two months, and that's just in the financial sector alone. -NBC Evening News, 3 Oct 1998, ~6:36:11 PM EDT 932_clip71
- Russian teachers in one province accepted 15 bottles of Vodka per month in lieu of cash for their salaries. They had previously been offered toilet paper and "funeral products," which they rejected. -CNBC, 22 Sep 1998, ~11:38:54 AM EDT 932_clip72
"The reason why there is very little support for [the] gold standard, you know as well as I in the current context, is the consequences of those types of market adjustments are not considered to be appropriate in the 20th and 21st century." -Federal Reserve Chairman, Alan Greenspan, Semi-annual Humphrey-Hawkins Testimony to US House, July 22, 1998, 11:45am 932_clip73
NEW: Under Tito Yugoslavia ran a budget deficit that was financed by printing money. ... By the early 1990s the government used up all of its own hard currency reserves and proceded to loot the hard currency savings of private citizens.
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... Despite the government desperate printing of money it still did not have the funds to keep the infrastructure in operation. ... The unemployment rate exceeded 30 percent. *
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... In October of 1993 they created a new currency unit. One new dinar was worth one million of the old dinars. ... This of course did not stop the inflation and between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. This number is a 5 with 15 zeroes after it.
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... On November 12, 1993 the exchange rate was 1 DM = 1 million new dinars. By November 23 the exchange rate was 1 DM = 6.5 million new dinars and at the end of November it was 1 DM = 37 million new dinars. At the beginning of December the bus workers went on strike because their pay for two weeks was equivalent to only 4 DM when it cost a family of four 230 DM per month to live. By December 11th the exchange rate was 1 DM = 800 million and on December 15th it was 1 DM = 3.7 billion new dinars. The average daily rate of inflation was nearly 100 percent.
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... On December 29 the exchange rate was 1 DM = 950 billion new dinars. ... At the end of December the exchange rate was 1 DM = 3 trillion dinars and on January 4, 1994 it was 1 DM = 6 trillion dinars. On January 6th...the government announced a new new Dinar which was equal to 1 billion of the old new dinars. This meant that the exchange rate was 1 DM = 6,000 new new Dinars. By January 11 the exchange rate had reached a level of 1 DM = 80,000 new new Dinars. On January 13th the rate was 1 DM = 700,000 new new Dinars and six days later it was 1 DM = 10 million new new Dinars.
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On January 24, 1994 the government introduced the super Dinar equal to 10 million of the new new Dinars. Source: James Lyon, "Yugoslavia's Hyperinflation, 1993-1994: A Social History," /East European Politics and Societies/ vol. 10, no. 2 (Spring 1996), pp. 293-327. The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94 932_clip74
How could the consequences of gold-standard discipline imposed on bankers, governments, politicians, and other "social engineers" possibly be worse than the above consequences, ALL caused by the "20th and 21st century" "paper standard??" -lrw 932_clip75
It would be a great mistake to suppose that the statesmen of France, or the French people [in April of the year 1790], were ignorant of the dangers in issuing irredeemable [not exchangeable for gold and/or silver] paper money. ...Many then living had felt the result of such an experiment--the issues of paper money under John Law, a man who to this day is acknowledged one of the most ingenious financiers the world has ever known; and there were then sitting in the National Assembly of France many who owed the poverty of their families to those issues of paper. Hardly a man in the country who had not heard those who issued it cursed as the authors of the most frightful catastrophe France had then experienced. -Andrew Dickson White, Fiat Money Inflation in France, (Irvington-on-Hudson, New York: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. 1959 [Last revised 1912]) pg. 28->30 932_clip76
Marta Martinez, a middle-class retiree, 75, said she has never experienced a crisis like the one afflicting Argentina today. ... "When I was a child I experienced the crisis of 1930, and the people talked a great deal about that and the lack of work. But never - never - did it compare to what we are seeing now, a situation as desperate and distressing as this," she said, her voice breaking. Argentina: Images of a shipwrecked nation By Marcela Valente, Asia Times, March 29, 2002 932_clip77
It was no mere attempt at theatrical display, but a natural impulse, which led a thoughtful [French] statesman, during the [paper money] debate, to hold up a piece of that old paper money and to declare that it was stained with the blood and tears of their fathers. [3] -Andrew Dickson White, Fiat Money Inflation in France, (Irvington-on-Hudson, New York: THE FOUNDATION FOR ECONOMIC EDUCATION, INC. 1959 [Last revised 1912]) pg. 28->30 932_clip78
"We must [now] address not only a run on a bank or a firm, but also a run on nations." -Bill Clinton speech to World Bank & IMF, CNBC, 6 Oct 1998, ~11:18:39 AM EDT 932_clip79
Inflation in Yugoslavia is 20% per day. To deal with the problem, Yugoslavia's central bank is planning to issue [print] a billion dinar note. It will be worth $3.00 US. -CNN Headline News, 27 Aug 1993 4:01:46 PM EST 932_clip80
It was this idea [that gold money was too expensive relative to paper money] that led Adam Smith and Ricardo to the opinion that it was very beneficial to reduce the cost of producing money by resorting to the use of paper printed currency. However, things appear in a different light to the students of monetary history. If one looks at the catastrophic consequences of the great paper money inflations, one must admit that the expensiveness of gold production is the minor evil. -Ludwig von Mises, Human Action A Treatise on Economics, Third Revised Edition (Chicago, Illinois: Contemporary Books, Inc. 1966), pg. 422 [XVII. INDIRECT EXCHANGE 6. Cash-Induced and Goods-Induced Changes in Purchasing Power -available also from http://www.mises.org/humanaction.asp] 932_clip81

Notes:

[1] There were only eight significant post-Napoleonic wars during the 19th Century -- and six of them lasted less than two years, three were over in less than one year:

1855 ------- Crimean War 1861 -- 1865 American Civil War, Abraham Lincoln 1866 ------- Prussian-Austrian War, North-German Union 1870 -- 1871 German-French War 1877 -- 1878 Russian-Turkish War, Congress of Berlin 1894 -- 1895 War between Japan and China 1895 -- 1898 Spanish-American War 1900 ------- 2nd Anglo-Boer War in South Africa

The two longest wars, The American Civil War and the Spanish-American war, were U.S. Government wars -- and the American Civil War was only able to last as long as it did because it was financed by suspending gold convertibility and "financed" by printing "green backs" (the North) and "Confederate money" (the South).

On the other hand, The National Defense Council Foundation lists 59 countries "found to have endured serious conflicts this year (2001)." -List of 2001 World Conflicts, Sunday December 23, 2001 1:36 PM ET, By The Associated Press return

[2] Niall Ferguson is a history professor who taught at Cambridge and is now a tenured Oxford don. Those are the credentials of an establishment, or "court," historian, whose main purpose is to protect the patriotic and political myths of his government. return

[3] Nonetheless, that very same French National Assembly voted to issue paper "assignats." That decision led to ten years of misery for the French people, and eventually to the reign of Napoleon. return

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