By Elliott Wave International
Very few people know that the United States did not create a monetary unit pegged to "buy" some amount of metal, as if the dollar were some kind of money independent of metal.
In 1792, Congress passed the U.S. Coinage Act, which defined a dollar as a coin containing 371.25 grains of silver and 44.75 grains of alloy. Congress did not say a dollar was worth that amount of metal; it was that amount of metal. A dollar, then, was a unit of weight, like a gram, ounce or pound. Since the alloy portion of the coin was nearly worthless, a dollar was essentially defined as 371.25 grains -- equal to 24.057 grams, or 0.7734 Troy oz. -- of pure silver. (15.43 grains = 1 gram, and 480 grains = 1 Troy ounce.)
In a nutshell, a dollar was equal to a bit more than 3/4 of an ounce of silver; or, in reverse, an ounce of silver was equal to $1.293.
The same act declared that a new coin, called an Eagle, would consist of 247.5 grains of gold and 22.5 grains of alloy. It valued this coin by law at ten dollars, meaning 3712.5 grains of silver.
In other words, Congress, rather than allowing gold and silver to trade freely against each other, equated the value of a certain amount of gold to the value of a certain amount of silver. Briefly, it established an "official" value for gold so that 247.5 grains of gold = 3712.5 grains of silver. This is an exchange ratio of 15:1. A dollar was 0.7734 ounces of silver, and Congress was declaring that a dollar would buy 0.0515625 ounces of gold, so gold was valued at $19.39/oz.
This stupid attempt at creating an artificial parity drove gold coins out of circulation, because the market had determined that an ounce of gold was in fact worth more than 15 ounces of silver.
Still trying to establish a workable parity, Congress in 1834 passed another coinage act, changing the value of a ten-dollar gold piece from 247.5 to 232 grains of gold (plus 26 grains of alloy), thereby tweaking the gold/silver ratio closer to 16:1. Now gold was pegged at 23.2 grains per dollar, which is equal to 0.04833 ounces, so gold was now valued at $20.69 per ounce.
This was no fix, because after gold was discovered in California the market quickly valued silver higher than gold, thus driving silver out of circulation. Neither Congress nor, as we will soon see, the Fed, can repeal the laws of economics and succeed at forcing a particular value on anything.
The coinage act of 1837 tweaked the purity ratio of gold and silver U.S. coins, making it 90%. This change edged the gold content of an Eagle to 232.2 grains, meaning that one dollar would buy 23.22 grains of gold, so gold was now valued at $20.67per ounce. A dollar, however, was still 0.7734 oz. of pure silver.
The silver standard ended in 1873, when a new Coinage Act scrapped the definition of a dollar as a certain weight of silver and adopted a new standard based on the weight of gold, maintaining the formula of $1 = 1/20.67 ounce of gold. The Gold Standard Act of 1900 declared that gold would remain the only standard for valuing a dollar and confirmed that a dollar was 1/20.67 ounces of gold.
In 1913, Congress passed the Federal Reserve Act. This act gave a new banking corporation the monopoly power to issue dollar-denominated banknotes backed by bonds issued by the Treasury. In other words, it gave the Fed the power, in a roundabout way, to use government debt as backing to counterfeit dollars to benefit the government.
It was counterfeiting because the Fed issued its notes on dollars (gold) it never had, and it would never find itself obligated to liquidate its store of Treasury bonds.
The Fed's counterfeiting diluted the supply of dollar-denominated debt, which naturally led to gold's being worth more per dollar than the notes.
In January 1934, Congress passed the Gold Reserve Act, under which the government seized Americans' gold, canceled all business contracts in gold, outlawed citizens' possession of gold and reduced the amount of gold that would define a dollar.
President Roosevelt personally dreamed up a new value for the dollar, which he pronounced to be 1/35 of an ounce of gold, thus making the "price" of gold $35 per ounce. In one stroke, then, he stole 41% of the value of everyone's dollars in a single moment, to the benefit of the government.
This article was excerpted from Elliott Wave International's new report, "Government, the Fed and the Nation's Money: 200 Years of Ineptitude; 100 Years of Theft and Failure; 50 Years of Economic Regression," authored by Robert Prechter. The full report demonstrates how the government is looting your accumulated wealth, and what you should be prepared for when the Fed-note era comes to a crashing halt. Click here to read the full 10-page report -- it's free.
Jeff,
I always hope I gain fresh, new info to aid me in my search of history/economics & I'm always disapointed at seeing authors/writers have nothing new for me as I am here agian with you. Help me & Help yourself!
Do a tiny bit of research:
http://usawatchdog.com/
Some of us are ridin hard to catch that herd, but we've not caught'em yet. I suggest 25 seconds in to start:
https://www.youtube.com/watch?v=VLmrsl70N9M
Further Jeff, Shadowstats.com... John Williams.. look into his site fyi.
I spent a few seconds on that top website. It looked like a libertarian/conservative opinion site. There were a lot of comments to the effect that Obama's doing a bad job, but no in depth commentary with the possible exception of the anti-war pieces. I have no idea what you mean by "catch that herd".
Contrast the tone and content of a site like usawatchdog with http://www.zfacts.com and you will see the difference.
I don't place too much stock in shadowstats. Here is an interesting bit of commentary on it.
http://econbrowser.com/archives/2008/09/shadowstats_deb
But I think there is one place that shadowstats and I agree on - its that increase in cost of living is highly different if you assume someone is paying for a house vs if you assume they are renting it. A gallon of milk cost about $3 in 1980 and is $3 today. Candy Bars and Books have doubled over that period, and almost everything else with one large exception has stayed in that range. The exception, of course, is the group of goods that can be bought by rich people in greater quantities.
This is a central economics truth that most economists seem to like to ignore. There is no such thing as price inflation on things poor people buy when poor people don't have increasing number of dollars. However when rich people have increasing numbers of dollars you can see price inflation on things like oil (already a special situation for other reasons), real estate, and various assets. For example, since 2002, the price of gold has gone from about 60 gallons of milk to closer to 400 gallons of milk.
Woulda, coulda, shoulda. Who cares how we got into these dire straights. The fact is, we're in them. We all could have woken up this morning oblivious to our past and the affect would still be the same. Arguing about the past does not change the present.
The unfortunate fact is that however we got here, here is a growingly unpleasant place to be:
https://www.youtube.com/watch?v=LlYojsi3Zqw
This complex system that is the world economy gets more complex by the second. Controlling an increasingly complex system eventually becomes impossible. Imagine trying to control the climate, today's climate. Eventually humanity might be able to do this. But imagine if the climate was getting more complex, more continents, more oceans, rivers, and mountains, add in variable day and year lengths, etc. The complexity would grow faster than humanity's ability to adapt much less control it. This is the model of the world's economy - completely unpredictable and growing more so.
Great video... I would respond, though, that we can turn around inequality pretty quickly if we take the right steps. It reminds me of a Chomsky quote. "“Everyone’s worried about stopping terrorism. Well, there’s really an easy way: Stop participating in it.” Everybody was worried about globalism in the early 1900s, but then we decided to fix the middle class. Once we fixed the middle class no-one worried about globalism until Reaganomics/Coolidge "Laissez Faire" came back.
Jeff, you can't be seriously arguing that Americans as a group, or the U.S. economy in general, was significantly better off during 1934 to 1940 than they were from 1920 to 1932. These are inherently misleading benchmarks. The market crash of 1929 - 1932 wiped out practically all the economic gains of 1920 to 1929. You don't seriously contest the fact the President Roosevelt confiscated a huge amount of American wealth through his outlawing of gold ownership. And that wealth was directly transferred to the benefit of the U.S. government - officially ushering in the era of big government that has lasted 80 years and is now on the verge of total bankruptcy.
"Jeff, you can't be seriously arguing that Americans as a group, or the U.S. economy in general, was significantly better off during 1934 to 1940 than they were from 1920 to 1932. "
This point seems to have confused you so I will give you a simple analogy. Lets suppose your healthy weight is 150 and you put on a lot of weight and become 250. Then through a combination of diet and exercise you become 225. No I am not seriously arguing that you are healthier at 225 than 150. Let me turn the question around. You can't seriously be arguing that because 225 is greater than 150 then diets must not work, can you?
"The market crash of 1929 - 1932 wiped out practically all the economic gains of 1920 to 1929. "
You left out part. The version with relevant context is, "The market crash of 1929-1932 that happened at the end of the most Republican-controlled government of the last century wiped out practically all of the economic gains of said administration." When I see a car wrapped around a tree then I am more apt to blame the car speed and condition of the driver that occurs before the accident than I am to blame the ambulance that arrives.
"You don't seriously contest the fact the President Roosevelt confiscated a huge amount of American wealth through his outlawing of gold ownership. "
It depends on how you measure. If you are asking whether changing the price of gold de-facto acted as a progressive tax, then I would say it probably did. If you are asking whether there was a negative effect on 99 percent of Americans from the action, then obviously not. When you look at the system as a whole there was a massive positive impact.
"officially ushering in the era of big government that has lasted 80 years and is now on the verge of total bankruptcy."
Completely wrong. National Debt was at a generational low as a percentage of GDP in 1980 when Ronald Reagan rode in and declared government the enemy. National debt also decreased significantly under Clinton and deficits have decreased significantly under Obama. If Reagan and Bush had been debt-neutral then the entire US debt would have been paid off under Clinton.
Actually Jeff, the outstanding national debt did not "decrease significantly" instead it still rose every single year under Clinton. Look no further than the US Treasury stats for confirmation.
http://www.craigsteiner.us/articles/16
You don't get the fact that parabolically rising debt and simply the yearly interest to maintain it is not sustainable. Typical lib.
Um, you forgot to divide by GDP.
http://zfacts.com/p/318.html
You don't get that parabolically rising debt started with the tax breaks for the rich that occurred under Reagan.
"Typical lib."
You also forgot to counter any of my points (other than your misleading dig at the Clinton record) before turning to attack the person.
You can crunch and divide all you want with diversions and smokescreens.
There has never been a year when actual debt principal has been paid down.
You are calling the US Treasury a liar by stating they are using misleading stats. It's all there in black and white, and you don't like it.
Here is guessing you don't even know the difference between "the deficit" and actual national debt.
Quick Jeff: What's the difference between "the deficit" and the national debt? You do know this one, right?
Are the US Treasury debt numbers false? How about inflation, Jeff? Is it really non existant in your world, even though health care premium double digit annual increases astonishingly account for a less than 1% weighting in the CPI formula? Do tell.
Deficit vs debt?
Yes. Deficit is that thing that has gone down every Democratic term since FDR (as a percentage of GDP) and up as a percentage of GDP every Republican term over the same period.
Debt is that thing you get when you add it all up.
It sounds like the responders here don't have any facts to show I am wrong but desperately want me to be wrong. Here is a return question. When people have told you that the deficit was a problem, were they rich people?
"Very few people know that the United States did not create a monetary unit pegged to "buy" some amount of metal, as if the dollar were some kind of money independent of metal."
I would say that every American knows at least about the great depression and a significant fraction of those know that it was caused in part by being on the Gold Standard.
"Neither Congress nor, as we will soon see, the Fed, can repeal the laws of economics and succeed at forcing a particular value on anything."
This I will certainly agree with, although it seems a bit strange to see all the conservative writers trying to ignore the laws of supply and demand when it comes to labor and the price to rent money.
"to use government debt as backing to counterfeit dollars to benefit the government."
This is not the correct definition of "counterfeit" because the federal print presses are working according to law.
"The Fed's counterfeiting diluted the supply of dollar-denominated debt, which naturally led to gold's being worth more per dollar than the notes."
Reaching a true conclusion does not support a false premise. Please refer back to the part of your essay where you write "Congress passed"
" In one stroke, then, [President Roosevelt] stole 41% of the value of everyone's dollars in a single moment, to the benefit of the government."
Ok, so apparently, contrary to the earlier assertion, President Roosevelt actually did have the ability to repeal the laws of supply and demand. Suddenly, everyone in the country was able to buy 41% fewer goods with their money. And yet, if you look at US growth rate per the Bureau of labor statistics, rather than shrinking 41% in a second great depression, we actually grew by 10% a year from 1933-1945 (compared with 10% or less *total* under the heavily conservative years 1920-1932).
I would suggest that before leveling charges that the government "stole" 41% of the nations wealth in a fell swoop, you actually check first whether people were better off or worse off after that happened.
The great depression was caused in part by the gold standard, eh? Wow folks, here's a guy who is not only ignorant of history, but ignorant of basic economics as well. And right away he goes to politics; a typical move of the brain dead. You are right though, the government didn't actually steal anything. By the time that theft happened, the not-so-USFed was in control, but I guess you'd call that a conspiracy theory. Go buy your bonds and paper junk my intellectually obtuse friend.
"Wow folks, here's a guy who is not only ignorant of history, but ignorant of basic economics as well."
If the facts are against you, pound on the law. If the law is against you then pound on the facts. If both are against you, then pound on the table.
**If the facts are against you, pound on the law. If the law is against you then pound on the facts. If both are against you, then pound on the table. **
Jeff,
I realize that you don't know that pounding the table is exactly what you are doing here, but that is the case of fact & law.
I find it a interesting topic though as much as I thought I used to know about this subject a few years back I ran across some real expects on the subject that made me realize that this is one complicated rabbit hole.
But I will share a few thoughts on the subject.
You used BLS stats a proof of something yet most everyone knows most often govt stats are just a lie.
So your proof is worth a bucket of warm spit.
Ask yourself, you looked at the US BLS stats only for the US, but where & how was capital being deployed & how it was being used elsewhere in the world?
IE: US/UK Wallst/City London banking trash was aiding/abetting the build up of Germany's/Japan's/Italy's war machine.
IE: Go back and read speeches/news accounts of those time periods of FDR's, Hitler's, JPM, etc.. I find some of them very interesting. And from that I see Pearl Harbor was hardly a shocking surprise to those informed back then nor was the '29 crash. (Jessie Livermore, etc...)
The founders made the best attempt they could to set up a system of individual liberty & freedom with a tightly controlled & limited in powers/authority.
FDR & many other polecats hare/are completely resisting the founder's intent & step by step the newer leaders have been moving us step by step into some sort of Commie/Nazi authoritarian hell hole.
IE: Wiki+Cloward & Pevins
IE: FDR+SSI
Zerohedge recently put an article showing inflation was almost non-existent from the founding of the nation to 1913's FRS being created & that there were far fewer economic declines prior to the FRS creation.
Another problem with your guy's type logic is that when you look at a certain time period of history for economic conclusions seem to use no input for the conditions that existed prior or afterwards.
IE: the small last Great Depression started 1929. Not True, the ground work that Wallst Bank/Insurance types used to cause the '29 GD started far earlier.
For my studies I like to go back to the start of known recorded human economic history & study how one event could have lead to the next.
Say, you go back a few years... Jesus's 1st recorded act was that of violence, took a bullwhip after the bankers of the day.....Wizard of Oz, Yellow brick road, silver slippers... William Jennings Bryant, etc... Great Earthquake/Fire of San Francisco & the economic crash of (1906-7?). Note the economic crashes afterwards around major US cities shortly afterwards.
Short of the long,
You seem to support a vertical integrated govt monopoly control & I support what the founders were attempt, a horizontal control of power by the individual in a representative form of govt.
I support some sort of labor/commodity basket to base currency off of that includes more then just Gold/Silver, but it'll happen.
Anyway, I hope you get over your authoritarian wet dream, because taking almost 15% for SSI/Medicare tax plus 24-35% govt taxes right off the top of a worker's paycheck isn't working out & raising the minimum wage only makes it worst for the employer, the employee & the US economy.
It'd be far better to move to untaxed labor/commodity basket to base currency & away from FRS mortgage money, end this IRS system & replace it with some like we see at the gas station with the fuel tax.
Everyday people drive in buy gas/pay taxes & drive off without look over their shoulder for govt swat team, no volitions by the govt of their 5th/6th/14th Amd Rights as is currently the case with this IRS tax system.
This is in part why people flock to Zerohedge & Infowars to aid in finding where to look for the original sources of research material.
Good Day
PS Randy Brogdon for US Senator from Oklahoma, primary is June 24th, help you can, if not at least call out his competitor on Lankford's Sorry Voting Record!
Sorry for any typos, I've got to go.
"You used BLS stats a proof of something yet most everyone knows most often govt stats are just a lie."
Ok, bring in a more reliable source and this conversation can continue.
"Zerohedge recently put an article showing inflation was almost non-existent from the founding of the nation to 1913's"
However financial depressions were commonplace. Before the New Deal, the Great Depression was only the largest example of a type of event that happened every 20 years or so.
Which would you prefer? For your wages and your bills to go up by a certain percent, or to be out of work and in the bread line. Think about it.