“Gold is money. Everything else is credit.” - J.P. Morgan

In the beginning, we had it right. Under the US Constitution, gold and silver were money. And the United States did not have a central bank. Here’s an ominously prophetic warning from Thomas Jefferson: “I sincerely believe that banking institutions are more dangerous to our liberties than standing armies.” Hey, anybody who doesn’t trust banks is all right by me. 😊

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‍The Coinage Act of 1792

One of the first major pieces of legislation passed by the newly-formed US Congress was the Coinage Act of 1792 (aka, “the Mint Act”). That act did several key things in establishing the initial monetary system of the United States.

1. It created the US Mint, housed in Philadelphia (interestingly, anyone wanting a job as an assayer or engraver at the Mint had to post a $10,000 bond just to be considered for employment - $10,000 was a flat-out fortune in those days, when the average annual income was less than $500)
2. It recognized gold and silver as the country’s official form of money
3. It provided for minting of gold and silver coins – standardizing coinage by specifying weight and gold/silver composition, which helped to stabilize commerce
4. It set the gold-to-silver ratio at 15:1
5. It specified markings and inscriptions on coins, including the image of an American eagle and the inscription, “Liberty” – images that, over time, became iconic in American culture

The Coinage Act of 1792 created a foundation for the nation’s monetary system, establishing the US dollar as a recognizable currency.

The Currency Act of 1900

The Currency Act of 1900 built upon the foundation created by the Coinage Act of 1792, by officially recognizing the gold standard – already established in other nations, such as England – as the basis for the US monetary system, and requiring the federal government to maintain a certain level of gold reserves. The act declared a gold dollar as the US standard unit of currency, and required all US currency, including paper notes, to be defined in terms of a specific amount of gold.

The Currency Act – which was also known as the Gold Standard Act – established a fixed exchange rate of $20.67 in US dollars for one troy ounce of gold. It also required the US Treasury to redeem/exchange US paper notes for gold at that specified exchange rate. It established uniform US paper notes, meant to replace all the different paper currency that had been created and issued by various banks and individual states.

All of these measures were designed to provide enhanced monetary stability in the country and enhanced international recognition of the value of US dollars.

The Gold Standard Act further authorized the US Mint to produce Eagle ($10), Double Eagle ($20), Half Eagle ($5), and Quarter Eagle ($2.50) gold coins. In a move aimed at making the US monetary system a more gold-based system, the act provided for converting silver certificates into gold certificates.

Throughout the 19^th century, the United States had enjoyed a rapidly growing and relative stable economy, with virtually no inflation over the entire century. With the passage of the Gold Standard Act, US money was poised to only grow stronger…until the Devil appeared, in the form of the Federal Reserve Bank.

The Federal Reserve Bank (or, the Bank of Satan)

With both Jefferson and his staunch opposition to a central bank dead and buried for nearly a century, in 1913, the Federal Reserve Bank was created. The Federal Reserve was tasked with –

• Keeping inflation down to a target rate of 2%...interesting, in a country that hadn’t had virtually any inflation since its founding
• Promoting full employment…in a country where the estimated unemployment rate had very rarely ventured outside the range of 2.5%-5%...two years after the creation of the Federal Reserve, the unemployment rate was nearly 10%, and 20 years later reached as high as 25%
• Controlling the nation’s money supply…a duty that the country apparently hadn’t seen a big need for in its first 125 years or so of existence
• Stabilizing prices and the economy…less than two decades after the creation of the Federal Reserve, the US experienced the Great Depression of the 1930s

The Federal Reserve Act of 1913 set up the Federal Reserve Bank as the central bank of the United States, and created a system of federally chartered and member banks. The member banks were required to maintain a specified level of reserves on deposit with the Federal Reserve Bank, which would serve as the “lender of last resort” in times of economic instability.

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Federal Reserve notes, not backed by gold, wheat, the Word of God, or anything other than the Federal Reserve itself, have since replaced gold dollars as the official currency of the US.

The Great Gold Heist of 1933

President Franklin D. Roosevelt, with Executive Order 6102, required Americans to hand over all their gold coins, bullion, and gold certificates, in exchange for Federal Reserve notes, at an exchange rate of $20 per ounce of gold. He then revalued gold at $35 an ounce, handing the government a huge profit on the confiscation of real money previously held by US citizens. This enabled the federal government to increase the money supply and embark on the borrowing and spending spree that it has practiced ever since.

The Gold Reserve Act of 1933 made it illegal for private individuals (yes, just private individuals – not banks) to own gold. That would be the law of the land for the next 40 years, until 1974.

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One of the real tragedies of Roosevelt’s gold heist was that it meant the end of the minting of what many coin collectors consider to be the most beautiful gold coin ever created – the Saint Gaudens Gold Double Eagle - which was only produced from 1907 to 1933.

The Bretton Woods Agreement

The Bretton Woods Conference, held in July, 1944, established the new global monetary system that was to rule worldwide following the end of World War II. One has to admit that holding it in July of 1944, just one month after the D-Day landings in Normandy, shows some considerable confidence on the part of the Allies regarding their ultimate victory.

The Bretton Woods Agreement basically established the US dollar as the world’s reserve currency. That move was primarily based on the fact that the US was virtually the only country left standing in the world whose infrastructure and economy hadn’t been gutted by the war. The 44 nations that were signatories to the agreement agreed to peg their currencies to the US dollar. Further, the US dollar was to be convertible into gold at the specified exchange rate of $35 per ounce. The Bretton Woods system helped to minimize currency exchange volatility and facilitate international trade.

The Bretton Woods Conference also saw the creation of the World Bank and the International Monetary Fund (IMF).

The Bretton Woods Agreement also officially returned the US to the gold standard, which it had unofficially abandoned with President Roosevelt’s shenanigans of 1933.

The US Abandons the Gold Standard and the US Dollar Goes to Hell in a Handcart

In 1971, the gold standard was abandoned – first, by the United States, and then, pretty much by default, by every other nation.

By the early 1970s, the United States had a couple of problems. First, it was having to borrow more and more money to fund the Vietnam war and all the various social programs generated by President Johnson’s “Great Society”. Second, it was operating with a sizeable trade deficit. That meant that other nations were accumulating large amounts of US dollars. Many of them then began converting a lot of those US dollars into gold. There arose an increasing fear that US gold reserves might not be sufficient to be able to handle all the dollar-for-gold redemptions. (It was around this time that the – still popular – rumor arose that the US gold vaults at Fort Knox were empty. Although it’s highly unlikely that the US had secretly sold off all of its own, and everyone else’s, gold, the concern that the vaults didn’t hold enough gold to pay off all possible redemptions of US dollars for gold by other nations was a reasonable one.)

On August 15, 1971, President Richard Nixon effectively ended the gold standard by announcing that the United States would no longer allow the redemptions of US dollars for gold.

President Nixon promised the American people, “Your dollar will be worth just as much tomorrow as it is today.” Well, technically, that was true. The dollar didn’t lose any significant purchasing power by just the following day. Nixon just neglected to add, “However, 10 years from now, your dollar will only be worth about half of what it’s worth today.”

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Note, by the way, that the precipitous decline in purchasing power of the US dollar began not when Nixon abandoned the gold standard, but at the same time as the creation of the Federal Reserve. (Go figure, huh?) And, again, this was in a country where there had been essentially zero inflation over the previous hundred years.

The abandonment of the gold standard ushered in the current era of fiat currencies. The value of fiat currencies, which aren’t backed with real money gold or silver (or anything else for that matter), ultimately hinges on nothing more than a government decree that they constitute a nation’s legal tender and have some specified value. (“Fiat” literally means “by arbitrary decree”.)

The fiat currency of the US is, of course, those good old Federal Reserve notes, which the Fed now prints out in quantities of “gazillions”.

The Inevitable Demise of Fiat Currency

Federal Reserve notes are not backed by anything other than the rather illusory “full faith and credit” of the US government. The problem arises when people, and other nations, start raising the question of, “Exactly how much ‘faith and credit’ does a government have when it’s $35 trillion in debt, has nearly $100 trillion in unfunded liabilities, and is still spending like a drunken sailor?”

Well, it looks like that question has arisen in the minds of many around the globe, and the result is de-dollarization – the trend of countries moving away from exposure to the US dollar. It used to be the case that countries such as China and Japan just customarily held hundreds of billions in US Treasury securities. And whenever some of those Treasuries they held matured, then they just rolled the money over into new ones.

That’s no longer what’s happening. Now, when US Treasuries held by China mature, they simply take the money and don’t roll it over into carrying more US debt. China has shed itself of more than half of the $300 billion in US Treasuries that it held just a few years ago – and there’s every indication that they intend to completely divest themselves of US Treasury securities – a move that Russia has already completed.

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And it isn’t just the Chinese who are shying away from the US dollar. The percentage of US Treasuries that are held by foreign governments has dropped dramatically over the past five years. How bad is it? – There are rumors that the Federal Reserve is paying allies such as the United Kingdom under the table to keep buying US Treasuries – just to make it look like there is still strong demand for them. How long can a scheme like that keep working? How long before the UK says, “Look, we’d like to help you, but we’ve got our own mountain of financial problems – we just can’t keep buying your junk bonds.”

Throughout history, all fiat currencies have eventually collapsed. Why? – Well, first, because when a currency isn’t backed by anything real, anything tangible – like, say, gold - it’s not really worth anything – it’s just pieces of paper. Second, when governments have the ability to just print money at will, that’s exactly what they end up doing. The greed and corruption of governments and central banks seemingly knows no bounds. And the inevitable consequences of printing money at will, exploding the money supply, are precisely what the US and other countries are facing now – crippling inflation and crippling debt, which combine to erode the purchasing power of a currency.

Fiat currencies typically experience their final collapse due to things such as hyperinflation or a currency crisis of some sort. Reckless, ever-increasing government spending, mounting debt, and inflation that eventually becomes uncontrollable are the forces that commonly combine to cause the collapse and failure of a fiat currency.

Many economists and market analysts say that we are rapidly approaching the demise of the current fiat currency system, and that it may well be replaced by a return to the gold standard. More than one analyst has voiced the opinion that the only thing holding China back from making the yuan/renminbi a gold-backed currency is the fact that it still holds more than $100 billion in US Treasuries, and it doesn’t want to see the value of those Treasuries go to zero before it can get rid of them. Central banks all across the globe have been buying gold and silver in record amounts, significantly increasing their gold reserves – but gold and silver account for less than 1% of all the investment assets held by American investors. Do the central banks know something we don’t? – Probably.

• J.B. Maverick

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Sources:

https://www.midasgoldgroup.com/news/gold-silver-is-real-money-by-constitution/

https://en.wikipedia.org/wiki/Coinage_Act_of_1792

https://en.wikipedia.org/wiki/Gold_Standard_Act

https://www.investopedia.com/terms/b/brettonwoodsagreement.asp

https://www.visualcapitalist.com/purchasing-power-of-the-u-s-dollar-over-time/

https://www.officialdata.org/us/inflation/1800?amount=1/

https://responsiblestatecraft.org/2023/05/24/dedollarization-is-here-like-it-or-not/

https://www.coinact.us/p/an-act-establishing-mint-and-regulating.html

https://www.greysheet.com/coin-prices/series-landing/twenty-dollar-double-eagle-saint-gaudens-gold-coins

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