Brave New Money: Bitcoin: The New Gold?

“Our founding fathers made gold America’s money because, like Bitcoin (digital money), gold is private, person-to-person and decentralized -- all money, no bank. I believe the future of money is to combine them — gold-backed cryptocurrencies.”

A New Monetary System?

Montfort S. Ray, J.D.

Brave New Money

The founding fathers’ primary goal was to create a decentralized society. They wanted to avoid giving too much power to the central (federal) government.

That’s why the Constitution declares that “No State shall make any Thing but gold and silver Coin a Tender in Payment of Debts.”

As a result, during the nineteenth century monetary transactions were private, peer-to-peer, and completely decentralized. No government agency or bank or other third-party recordkeeper was involved.

Today we have a completely centralized (and therefore spectacularly illegal) currency created and regulated by the Federal Reserve and its co-conspirator, the United States Treasury.

The states have lost their way. They have become administrative units of the federal government, like counties are to a state. Not only does no state mandate gold and silver coin as legal tender, all of them prohibit the use of gold and silver as legal tender.

It gets even worse. The Constitution declares that “No State … shall emit Bills of Credit.” Federal Reserve Notes (the money in your pocket) are bills of credit. Therefore, America has a national currency specifically outlawed by the Constitution.

As a result, the dollar has lost 97% of its purchasing power since the Fed was created in 1913, and America has an unpayable National Debt (which doubled in the Obama administration) totaling 21 trillion dollars.

The only way to right the financial ship of state is to create a wall of separation between money and government. In other words, get the federal government and its banking system the hell out of the money business. Return America’s money to the People.
OK, that’s fine, but what form of money would be best? A quick answer is “Gold, of course!”

But is gold the right answer?
Gold is great. However, there are some new monetary kids on the block -- cryptocurrencies -- which have a lot in common with gold. A cryptocurrency is digital cash -- computer-generated money. Bitcoin is the most successful and widely known cryptocurrency. It has the best chance of succeeding as America’s money because of the following:

1) Just like gold, Bitcoin transactions are completely private, decentralized and peer-to-peer. No bank or other third party is necessary for verification or record keeping. Again, all money, no bank.

2) Just like gold, Bitcoin can’t be inflated. It is not possible to create more than 21 million Bitcoins.

3) Just like gold, Bitcoin can’t be hacked, counterfeited or double-spent. Encryption techniques in Bitcoin’s algorithm completely control how the coins are created and used, and all transactions are verifiable by computer systems all over the world.

4) Unlike gold, Bitcoin is convenient. Gold is inconvenient. Who wants to lug around super-expensive rocks? If you are savvy enough to send an email or swipe a credit card, you can buy something with Bitcoin. It’s that easy.

5) Bitcoin has been a better investment than gold -- which has been a great investment in its own right. Since 1971 gold has increased in value approximately 3500% (versus 2100% for the Dow Jones Industrial Average). Bitcoin’s price has skyrocketed from one dollar in 2009 to $6500 today (10/1//2018), an increase of 724,000%. Even with Bitcoin’s “crash” from $19,000 in December 2017 it has increased in value about $700% over the past 18 months.

6) Unlike gold, Bitcoin is volatile. It is experiencing the uncertainty that attends emerging technologies and asset classes. Remember the jaw-dropping volatility of Apple, Google and Amazon in the 1990s? Backing bitcoins with a familiar, established and stable commodity like gold would provide price stability until cryptocurrencies gained wider acceptance.

The rise of Bitcoin is the most important development in the history of money since the use of gold became widespread thousands of years ago. However, in order to understand and properly evaluate Bitcoin, one must have a good basic understanding of the monetary system it seeks to replace. The remainder of this chapter will provide that perspective.

Monetary Dynamite

“The only dynamite that works in this country is the dynamite of a sound idea.  I think we are getting a sound idea on the money question.  The people have an instinct which tells them that something is wrong and that the wrong somehow centers in money.”[1]  --   Thomas Edison

What?  There’s a “money question”?

What’s wrong with our money?  Maybe Thomas Jefferson knows.  He tells us:

Specie [gold and silver coin] is the perfect medium because it will preserve its own level, because, having intrinsic and universal value, it can never die in our hands.[2]

Edison and Jefferson were arguing against a form of paper money (like the money in your pocket) which is not backed/not redeemable by anything of intrinsic and stable value, and which is dying in our hands.

Yeah, I know how strong the dollar has been in the past few years, but you have to look at the big picture.

Since the Federal Reserve was created in 1913 (in large part to maintain the purchasing power of the dollar), the purchasing power of the dollar has declined by 97%.  That trend will not be reversed -- until Bigfoot rides a unicorn down Broadway.

You could buy a dozen eggs for 6 cents in 1900, but today they’ll cost you $2.00. Today’s $100,000 house could have been bought for $3000 back then.

Gold has performed much better than the dollar.  An ounce of gold was worth $18.96 in 1900.  Today it’s worth $1309.00, an increase of over 6900%.  In stock market language, that’s a “69-bagger.”

That is why J.P. Morgan, the best known banker in American history, famously proclaimed that

      “Money is gold and nothing else!”[3]

Why would he say that?   The conventional wisdom today is that gold, an eighteenth century relic, has little value as money.

However, at the lower right hand corner of your CNB and Fox Business television screens, a notice appears every 20 seconds announcing the … price of gold.

Why do they do that?  Alan knows why.

Alan Greenspan, a legendary banker in his own right, said (in November of 2014) that “gold is a currency.  It is still, by all evidence, the premier currency. No fiat currency, including the dollar, can match it.”[4]

Why would he say that?  Because money is gold and nothing else!  When some other form of money comes along that works better, let me know.  I’ll be impressed.

The proof is in the pudding.  Our debt-based and inflationary money and banking system is destroying our currency.  The U.S. dollar has lost 97% of its purchasing power since the Federal Reserve was created in 1913.  Ironically, the Fed was created largely to maintain the purchasing power of the dollar!

Meanwhile gold has appreciated over 1700% since 1913.  The dollar is down 97%, and gold is up 1700%.  Do the math.  Get back to me.

Inflation Is Theft

Alan Greenspan is an honorable man.  For a long while I didn’t believe that.  When he became chairman of the Federal Reserve he relegated gold to the back of the bus.  Since his retirement his real views on gold have resurfaced.  Those views were first made known by Ayn Rand in her book Capitalism: The Unknown Ideal, in which she included the following quote from Greenspan.  Forgive the length of the quote, but it is rich.

“In the absence of the gold standard there is no way to protect savings from confiscation through inflation.  There is no safe store of value.  If there were, the government would have to make its holding illegal, as was done [when the public’s gold was confiscated in 1933] . . .

The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. . . This is the shabby secret of the welfare statists’ tirades against gold.  Deficit spending is simply a scheme for the hidden confiscation of wealth.

Gold stands in the way of this insidious process.  It stands as a protector of property rights.  If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Gold and economic freedom are inseparable.”

That is why the founding fathers enacted Section 9 of Article I of the U.S. Constitution, which requires that:

“No State shall make any Thing but gold and silver  Coin a Tender in Payment of Debts.”

Today, however, no state makes gold and silver coin a legal tender in payment of debts, and every state uses a paper currency in a form which the Constitution specifically forbids (bills of credit – those Federal Reserve Notes in your pocket).

The problem is not paper money per se.  America has always had paper money, but not paper money which is not (at least partially) redeemable in gold and silver coin.

According to the Supreme Law of the Land, you must be able to exchange your paper money for gold or silver any time you want.  And you can’t.

The founders intended to prevent the government from creating more paper than it has gold and silver.  They wanted to prevent the kind of inflation that ruined the currency issued by the Continental Congress (before the Constitution was enacted).  Remember the old expression “not worth a Continental?”

The advantage of legal money (gold and silver) is 1) that it is money in the hands of the People, not in a Federal Reserve-controlled bank, and, 2) "it can never die in our hands” through inflation, and 3) it’s legal.

Gold and the New International Monetary System

I know, I know.  Gold has lost its luster over the last few years.  It has shed more than a third of its value (in dollars) since 2011, but you have to look at the big picture.  The central banks and governments of the world certainly do.  Even while they bad- mouth gold, they are scrambling to buy as much of it as possible.

China, India and Russia act like Dyson vacuum cleaners around gold.  It’s easier for the sun to sneak by a rooster than for an ounce of gold to make it past Vladimir Putin.

Also, consider the almost daily news that many countries of all sizes and stripes (notably Germany, Venezuela, Switzerland, Mexico and the Netherlands) are desperately trying to repatriate their gold from foreign depositories.

Why? Because most countries recognize that the major economies and currencies of the world are extremely unstable.  For example, the recent crash (50% decline) in the price of oil is wrecking the economies and currencies of oil-producing nations.

Also, the world economy is on the verge of collapsing into a recession.  Many argue that we have been in a depression since 2008, but that fraudulent statistics and central bank money printing have just papered it over.

A stock market collapse could easily be precipitated by derivatives.  “The gross size of all bank derivatives positions now exceeds $650 trillion, more than 9 times global GDP.”[5]

Our economy is like a car which has square wheels.  The wheels are our destructive monetary system (an unbacked, debt-based fiat currency created by a fractional reserve banking system).   The rough ride is shaking the car to pieces by creating 1) more and more extreme booms and busts, 2) a stalled economy and 3) an unpayable National Debt.  This is not part of the original Master Plan for America’s money.

“The best way to destroy the capitalist system is to debauch the currency.” - Vladimir Lenin

Money is gold because only gold maintains its value and preserves its purchasing power. The political and financial ruling class hates constitutional coin because it can’t be digitally created, destroyed, inflated, deflated or confiscated.

Gold and silver are money in the hands of the people, a state of affairs, which it is the purpose of the Federal Reserve to prevent.

In any case, we may not have to worry about our money much longer.  Our handlers are designing a new international monetary system in which the dollar is no longer the world’s reserve currency, and I would be stunned if it were not introduced before Barack Obama leaves the White House.

But I’m getting ahead of my story.

Why the Fed Desperately Tries to Create Inflation

 There is a global war between the forces of inflation and deflation.  The world’s central banks are trying to prevent market crashes by inflating their currencies.  In other words they are fighting deflation with inflation.

“The causes of declining confidence in the dollar are the dual specter of inflation and deflation, the perception on the part of many that the dollar is no longer a store of value but a lottery ticket, potentially worth far more, or far less, than face value for reasons beyond the holder’s control.[6]

A standoff in the battle between deflation and inflation does not mean that price stability prevails.  The opposing forces may have neutralized each other for the time being, but neither has gone away.  Collapsing growth in China and a reemergence of the sovereign debt crisis in Europe could give deflation the upper hand.  Conversely, a war in the Middle East followed by a commodity price shock, surging oil prices, and panicked gold buying could cause dollar dumping and an inflationary groundswell that the Fed would be unable to contain.  Either extreme is possible.”[7]

The Federal Reserve has pumped more than $3 trillion into the economy over the last few years in order to create an (alleged) annual rate of inflation of 2-3%.

1) Inflation makes it easier for the government to pay its debts, notably the National Debt, now in excess of $18 trillion.  Three per cent inflation will cut in half the real cost of (and the burden of paying) the National Debt every 20 years.

“Deflation increases the real value of government debt, making it harder to repay.  If deflation is not reversed, there will be an outright default on the national debt, rather than the less traumatic outcome of default-by-inflation.  Deflation slows nominal GDP growth, while nominal debt rises every year due to budget deficits.  This tends to increase the debt-to-GDP ratio [now approximately 105%], placing the United States on the same path as Greece and making a sovereign debt crisis more likely.”[8]

The FED fears deflation because deflation increases strengthens the dollar, which in turn makes it more expensive to borrow more of them. If it’s easier for the government to pay the interest on our National Debt, it is less urgent for spending to be restrained and for the National Debt to be limited.

2) Also, deflation increases the burden of servicing private debt, resulting in defaults on loans and a blizzard of bankruptcies.

“These losses then fall on the banks, causing a banking crisis.  Since the primary mandate of the Federal Reserve is to prop up the banking system, deflation must be avoided because it induces bad debts that threaten bank solvency.”[9]

3) Once deflation gains momentum, it is nearly impossible for the Fed to reverse.  Rickards maintains that if it gets out of hand,

“the only way to break deflation is for the United States to declare by executive order that gold’s price is, say, $7,000 per ounce, possibly higher.”[10]

Rickards predicts this would inflate the price of everything else, e.g., $400 per barrel oil and $100 per ounce silver.

So, strangely, both runaway inflation and runaway deflation will result in a skyrocketing gold price, and will probably have the same effect on the price of gold.

The Fed has been fighting the forces of deflation unleashed by the recent Great Recession by pumping more than $3 trillion into the economy.  It is unclear whether a depression or hyperinflation will ensue, but one thing is very clear – the dollar and the international monetary system (which is based on the dollar) will collapse, not for economic but for political reasons.

Inflation is unexpectedly   partly because the banks aren’t lending. Interest rates are so low that it’s safer and more profitable for them to leave their money with the Federal Reserve. The economic stimulus programs benefit only the financial elite.

The “Consumer Spending” Scam

Also, inflation remains low because Americans aren’t spending much of what they have.  The government says it’s trying to increase consumer spending to support both inflation and economic growth.  Bullroar!

If the government were serious about increasing consumer spending, it could have given the People a small portion of what it routinely steals or squanders.

For example, instead of spending $650 million on an Obamacare website that doesn’t work, Obama could have just given that money to the American people.  That’s two million thirty-one thousand two hundred and fifty-one dollars for each and every man, woman and child in the US! 

The same goes for Obama’s $550 million “investment” in Solyndra, the solar company that went belly-up.  If the money had simply been given to the People, every human being in the U.S. would have received a check for one million, seven hundred eighteen thousand and seventy five dollars.

Consumer spending would have skyrocketed, driving a stake in the heart of deflation and ending the ongoing Great Recession.

However, such a gift would have made the People independently wealthy, a worst case scenario from a tyrant’s perspective.  Obama would rather piss the money away than empower the populace.

Instead, the top five banks, whose combined assets equal the entire annual economic output of the entire country (over $17 trillion), just got a little fatter.

(By the way, the federal government is not authorized by the Constitution to be in the “investment” business.  Can you think of a more inept or corrupt investor?)

CHAPTER 2

 Money As A Weapon

The war between inflation and deflation is occurring in a political context.  Barack Obama and the Global Left want a weaker America.

Let’s do the math.  Behind door #1 is deflation.  Deflation strengthens both the dollar and America.  Behind door #2 is inflation.  Inflation weakens the dollar and America.  Gee, which door is an America-hating dirtbag going to open?

The central banks of the world and their lapdog governments want to weaken and downsize America so that she will be easier to control and will fit more easily into a world government with a globally unified economy.

The best way to accomplish this monetarily is to create a weaker dollar, i.e., to create inflation.  Market collapses and depressions are deflationary, and deflation strengthens the dollar and its position as the world’s reserve currency.

Most of the nations of the world are trying to destroy the dollar reserve currency status because they perceive America as an imperial power.  They (and America’s own leaders) are only too happy to bring her down a few notches.

The major countries are trying to protect themselves from the coming collapse of the dollar, because that will destroy the international monetary system, whose foundation is … the dollar.

They are protecting themselves by creating regional governments with regional currencies.  The European Union’s euro and the Russian Federation’s ruble are recent examples.

The United States of Islam?

Another such regional government is being created in the Middle East.  Obama is doing his part by aiding and abetting terrorist “freedom fighters” (like the Islamic Brotherhood, the Taliban, Iran, Hamas, ISIS, etc.) In other words, he’s helping them to create a Muslim Caliphate.

Terrorism is financed by nations with very deep pockets, like Saudi Arabia, a very dubious “ally” of the U.S. (16 of the 19 terrorists of 9/11 were Saudi).

The Saudis and their friends are now trying to create a regional currency with Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates, Morocco and Jordan (collectively called the Gulf Cooperation Council – the GCC).  I would not be surprised to see membership eventually extended to the newly created Islamic State (ISIS).

The GCC is even considering pricing their oil exports in its own currency.  This would greatly reduce the demand for dollars as a means of payment in international transactions, resulting in tremendous inflation in the United States.

Even more likely is an alliance between Russia, Syria and Iran which could dictate terms to Saudi Arabia regarding the above mentioned Caliphate and the nature of its currency.

(I was surprised to learn that the Koran regards only gold and silver as legal money.)

The United States of North America?

May I also call your attention to attempts to create a regional government and currency in our neck of the woods?

The commotion on our Southern border is in part a smoke screen for the possible creation of the United States of North America, a merger of the United States, Mexico and Canada into an American Union, with its own currency, the “amero.”

As always, standing in the way of any union is the American gorilla.  The main challenge for the elite has been to weaken the United States so that she can be easily absorbed into a larger collective.

However, America’s Achilles heel may be her money.  The dollar has been largely destroyed by de-linking it from gold and silver, resulting in a hundred year program of continual inflation.  Its recent strength (seen in plunging oil and gold prices) is transitory.

The weakness of a currency can be seen in the ratio of its national debt (ours is $19 trillion) to its GDP (ours is 17.6 trillion) … 104%.

Actually, the total U.S. debt (including unfunded liabilities) is 61.2 trillion.  Therefore the ratio is 347%.

Some argue that the destruction of the dollar is yet another example of Problem-Reaction-Solution.  A problem is created (the prospect of a dollar collapse) which gets the usual reaction (“Something must be done!”) and the social engineers then pose the solution for which they created the problem in the first place – a currency switch.

“While the immediate reaction of most Americans would be that the idea is preposterous, as we learned in 9/11, unanticipated crises can cause otherwise unimaginable changes in national policy.  A severe financial crisis, such as the impending devaluation of the dollar, could serve as a catalyst to make the amero a more acceptable idea.  If the alternative were to continue with the dramatically declining dollar or to move to a new currency that would compete strongly in world markets, Americans may be surprisingly ready to accept the amero.” [11]

Perhaps the greatest immediate danger to the dollar lies in the board rooms of foreign central banks and finance ministers.  The dollar now makes up about two-thirds of the reserve currencies of the world’s central banks.  These banks (mainly China and Japan) also hold about half of our National Debt.

The North American Union movement is an entire covert industry, sanctioned and supported by rogue elements within our own government, financed by multinational corporations and committed to the destruction of American sovereignty.

This movement has its counterparts in the African and Asian Union movements, each with its own currency, the afro (I kid you not) and the asio.

Until his recent death, the proposed leader of the African Union was Mohammar Gadhaffi!  You can see that these currency schemes are strictly top drawer.

You will be amazed how many monetary union movements there are in the world.  Just Google the key words.  Start with, say, “South American monetary union,” or “Middle Eastern monetary union.”  Pick any region of the world.

The movement to admit Puerto Rico as our 51st state may be a prelude to an American Union.  Puerto Rico statehood would make America more receptive to the admission of other Latin nations.  “Hey, how about Mexico?

[The remainder of this article is under construction.]

FOOTNOTES

 

  1. Roger S. Sayles, From Sovereign To Serf, Government By The Treachery and Deception of Words195.
  2. Andrew M. Allison, The Real Thomas Jefferson, (National Center For Constitutional Studies, 2009), p. 551-2.
  3. As quoted by James G. Rickards, The Death of Money, The Coming Collapse of the International Monetary System (New York, Penguin, 2014) p. 220.
  4. Tyler Durden, zerohedge.com, November 7, 2014.
  5. Rickards, The Death of Money, p. 11
  6. Ibid at p. 256
  7. Ibid at p. 249.
  8. James Rickards, The Death of Money, The Coming Collapse of the International Monetary System (New York, The Penguin Group, 2014),
  9. Id.
  10. Rickards, The Death of Money, p. 10.
  11. James R. Corsi, The Late, Great USA, James Rickards, The Death of Money, The Coming Collapse of the International Monetary System (New York, The Penguin Group, 2014),  9..
  12. James Rickards, The Death of Money, The Coming Collapse of the International Monetary System (New York, The Penguin Group, 2014),  279.

Copyright © 2017 by Montfort S. Ray