Welcome to USAGOLD's "Gilded Opinion" pages. We invite you to browse our index of outstanding gold-based commentary.
Compounding to the Downside!
by Professor von Braun
August 2nd, 2008
We are currently witnessing
the unraveling of the fiat monetary system, the one that began
with the formation of the Federal Reserve in 1913 and was enhanced
with President Roosevelt's confiscation of the capital of the
American people in 1933, when gold ownership was made illegal.
President Nixon's closing of the gold window in 1971 further unleashed
the fiat system from any remaining constraints and what we have
had since that time is a monetary system that is a pseudo monetary
How can you settle a debt with another debt? How can you settle any transaction when there is no definable form of settlement? What is the dollar actually worth? How can one measure one's wealth when it is priced in something that is an IOU nothing?
The great Ponzi scheme that has been foisted on the people of the world by various Central Banks, who by the way, should have known better, is over. No longer can they 'create' wealth by inflating the prices of non-productive assets such as real estate.
As it is said in the nursery rhyme: "Old mother Hubbard went to the cupboard and found that the cupboard was bare!" There is no capital left, and the savings of the people are no more, having been stolen in 1933, then continuously debased through to today, to the degree that there is nothing left to recapitalize the banking system.
The solution can not be provided by the problem and the problem is the fiat monetary system and the inherent weakness within that system is what is now being exposed. The capital is gone, it is exhausted and all the Sovereign Wealth Funds on the planet can not put Humpty Dumpty together again. Even the term 'Sovereign Wealth' is a misnomer, as there is neither a "sovereign" nor do they hold accumulated "wealth." Rather what they do hold are debt instruments, by way of either US Treasuries or US mortgages, which are none other than an indirect tax on the American people.
We are being told that there is a credit contraction, one that will end 'shortly' whenever that may be, but at the heart of what is unfolding is the monetary system itself and that will not be an easy fix.
To truly provide credit requires capital. Capital and productivity go together but the banking system, as it is today, does not support productivity. Inflating the purported value of non-productive assets by increasing the size of the mortgages attached to these non-productive assets is, as we are beginning to see, a recipe for financial disaster.
Any monetary system that excludes the settlement of a transaction with a neutral item such as the precious metals, is not a monetary system at all. If a transaction is not settled, it is not a transaction as you can not repay a debt with another debt! You can not have a 'balanced' balance sheet if the items on both sides of the balance sheet are debt instruments.
The very idea that a bank can make a loan to some entity and then call it an asset is absurd. It is a liability and if it is denominated in a fiat currency it can never be repaid. At best it can be transferred to another party for a larger 'amount' and kept on the books of the issuer.
What we are beginning to see now is the inability of Mr. Fiat to transfer the debt to another party, in part because there are no other 'parties' left.
All the 'credit' which has been extended is now being seen for what it is. It never was credit per se, rather it was the creation of more debt, dependent upon its 'repayment' by the creation of even more debt by the issuers of that debt.
This has been described as the expansion of the banking system and was deemed to be a necessary component of a sound economy, but how can you have a 'sound' economy when the heart of the economy, the banking system itself, is dependent upon the issuing of more debt to save itself from its original folly, which is the creation of the debt in the first place, without the capital, by way of reserves, to replenish any losses that may arise?
Who is going to replace the tenants that have walked from their mortgage obligations? Who is going to become the issuer of another mortgage to any potential new tenants thereby providing a transfer of an item on somebody else's balance sheet?
Where is the required capital going to come from? If the majority of the people have no savings (that's capital), if there no longer is any equity left in the real estate, if there no longer is a banking system that has capital, then what happens next?
The 'problem' can not provide
the solution! That's akin to pouring petrol on the fire.
The early warnings given by Thomas Jefferson, in relation to banking and central banking in particular, are now becoming factual.
Thomas Jefferson: "The central bank is an institution of the most deadly hostility existing against the principles and the form of OUR constitution. I am an enemy to all banks discounting bills or notes for anything but coin. If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
When the principle unit of account
becomes unaccountable, which essentially is what a fiat system
is, there is no way to measure it's true worth. When you have
a situation involving something that can not be measured then
it can not be held to account.
Counting IOU's and calling the results of that count 'capital' is a disaster awaiting to happen. And that may well be what is unfolding.
The Prof can be contacted by email at firstname.lastname@example.org
Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.
Return to the The Gilded Opinion Index Page
The Rocket School of Economics -- The Lecture Series Index
Centennial Precious Metals
Gold coins & bullion since 1973
Denver, Colorado 80246-0009
and purchase information.