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Sound Money vs. Fiat Money | by r0b0r0b
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Sound Money vs. Fiat Money

Take your pick: An ounce of pure silver or a piece of paper worth as much as monopoly money?


Article I, Section 10, Clause 1 of the U.S. Constitution:

“No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt.”


So why is it that US currency is in the form of PAPER? Where does this paper come from? Why is it called a Federal Reserve Note (FRN)? Why is it used as legal tender?


Briefly, the US monetary system is controlled by the Federal Reserve Bank (the Fed), which was established in 1913 via the Federal Reserve Act. The Fed, despite it's name, is NOT a federal institution. The Fed is a central bank that consists of several secretive, private banks. The Fed has several goals in the United States. First, it loans money, with interest, to the federal government. Second, it adjusts interest rates. Third, it prints fiat currency to be used as legal tender.


The Fed uses fractional reserve banking, i.e., banks "borrow" money from depositors to loan out to borrowers. Why did you think you got interest for storing your money in the bank? Ever notice the interest on a checking or savings account is far less than the interest on a loan? The bank is makes money off your money!


Before FRNs, "paper money" was actually exchangeable for gold or silver. They were backed by these precious metals. Therefore, based on the amount of gold or silver in holding, only a limited number of certificates could be in circulation. This keeps the economy stable, and protects against unlimited expansion of credit (inflation) or unlimited contraction of credit (deflation).


Why gold and silver? Unlike paper, gold and silver will ALWAYS hold intrinsic value. The Fed attempts to stabilize and stimulate the economy by manipulating interest rates, which is accomplished through putting more US currency in circulation-- more money chasing the same product results in inflation. In fact, there has been so much inflation since 1913, that a US dollar today has 4% of the purchasing power that a US dollar did in 1913. With advanced technology and increased productivity, shouldn't we be able to by things for cheaper now?!?! The devaluation of the US dollar is also evident when compared to foreign currencies.


If the US dollar was still backed by gold, it would be inflation proof. In fact, the price of gas would cost about the same as it did 8 years ago!


To learn more about the US monetary system please watch:

Fiat Empire, Money Masters, Freedom to Fascism, Conquering the Spirit of Debt




"All of the perplexities, confusion, and distress in America arises, not from the defects of the Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation." --John Adams


"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance." --James Madison


"You are a den of vipers and thieves and I intend to rout you out, and by the eternal God, I will rout you out. If Congress has the right to issue paper money, it was given them to be used by themselves, and not to be delegated to individuals or corporations.." --Andrew Jackson


"I believe that banking institutions are more dangerous to our liberties than standing armies." --Thomas Jefferson


"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world. No longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men." --Woodrow Wilson




The only Presidential candidate (and probably politician) that understands economic issues and addresses the woes of the US monetary policy is Ron Paul. Read a recent speech by Ron Paul on legalizing competing currencies. And also watch a recent interview with Ron Paul about monetary policy here.


Explore: Feb 16, 2008 #279

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Taken on December 23, 2007