If you have read my last three articles, you are starting to understand the true value of Honest Money to society and to you and ME… but we have barely scratched the surface. The well hidden ‘magic’ of Gold money emerges only once Gold is in free circulation.
However, we do have a slight problem… namely, how in heck do we transition from a paper world, in hock up to its ears, to a world of honest money… to a world of modest, honest debt… to a world where power lies with the people, not with banksters and G’men?
A tough question indeed… and another place where a Big Lie sneaks in… like ‘there is no way’ to go ‘back on Gold’… so don’t even try. If we believe this lie, we are damned to continue with the Chinese paper torture… and nature will take its own course… we will be dragged kicking and screaming back to honest money. Better we disbelieve the Big Lie, and find a rational, reasonable way out of our paper dilemma. I quote Hans Sennholz, well known Austrian economist;
"Sound money and free banking are not impossible, they are merely illegal. That is why money must be deregulated. The Gold standard will return as soon as people realize that honesty is the best policy. As hope of ill gain is the beginning of the fiat standard, so is honesty the mother of the Gold standard. The Gold standard is as old as civilization. Throughout the ages, the Gold standard has emerged again and again because man needed a dependable medium of exchange."
To find our way back, we must understand that a Gold Standard has more than one component; sure honest, real money, Gold and Silver, must be in circulation and in the hands of the people; but this is just the foundation. Once the stable, earth quake resistant Golden foundation is built, we must then build the rest of the edifice.
To create the Unadulterated Gold Standard that is our ultimate goal, we need to build an honest credit system. Credit breaks down into two distinct components; credit (in the form of debt) created by borrowing, and commercial credit, created by clearing urgently needed consumer goods… credit created without borrowing.
The idea of credit and debt are well understood… indeed too well! All the trillions of debt in existence today reflect this emphasis on borrowing… the very stuff we use as ‘money’, the Dollar bills, the Euros… all paper… are borrowed into existence.
Unfortunately, the other vital component, credit created WITHOUT borrowing, is pretty much unknown. I will be writing another article on this very issue… the third leg of the Gold Standard. The first leg is Gold (and Silver) in circulation. The second leg is Gold-bonded debt; the third leg is commercial credit created by clearing, not borrowing.
For now, we talk about Gold Bonds… the second component of the Unadulterated Gold Standard. Gold bonds will work to absorb and extinguish the enormous debt tower that is presently tottering, and threatening to take the world economy down with it. The situation here is simple; ‘if you dug yourself into a deep hole, first stop digging’.
Even a child knows the truth of this; yet seemingly our ‘fearless leaders’ have no clue… the hole dug so far is approximately sixteen trillion Dollars deep… and instead of stopping the digging, they are encouraging, indeed forcing us to Dig Deeper! What total insanity is this?
We can stop the digging by turning to Gold and Silver as our currency… no more borrowing endless quantities of paper into existence. Then, once we have stopped digging, once we have stabilized the situation, we can think of how to repair the problem… how to fill up that sixteen trillion Dollar hole.
The thought of filling this hole is daunting; it is bigger than the Grand Canyon, and will take an awful lot of filling to heal… but given a stable situation, that is no more digging, even a slow and methodical method will eventually fill the hole; instead of digging, start filling.
Bit by bit, day by day, the wound can be healed… and the economic situation also improve day by day instead of staggering from crisis to ever deeper crisis. After all, it took more than a century of digging to make the debt hole as big as it is… don’t expect to fill it overnight.
So how do we start? The plan is simple… start to issue Gold Bonds, instead of paper bonds. Gold bonds are the second major component of a Gold Standard; Gold Bonds are denominated in Gold units, are payable in Gold units at maturity, and pay interest in Gold units… actual, physical Gold, not paper promises.
The key difference between current bonds and Gold bonds is that no paper is involved… only physical Gold. This means that once a Gold Bond is paid, the debt it represents is extinguished… whereas this is not true of paper bonds. Paper bonds issued by the Treasury are never paid off, cannot be paid off… else the Dollars they ‘back’ are themselves extinguished.
Simply put, by issuing Gold bonds we separate money (Gold coin) from debt… (Gold bond). Once this is done, once Gold bonds are issued, the holders of paper bonds will face a choice; continue to hold paper bonds that mature into worthless paper currency… if they ever mature at all… or trade their paper bonds for Gold Bonds, bonds that not only mature into Gold… but pay interest in the form of Gold.
The choice will be a no brainer… and paper bonds will be gradually replaced by Gold bonds. The Gold bonds will eventually mature, and the debt they represent will be extinguished. Gold income, needed to pay interest on the Gold bond, is assured by the circulation of Gold coin.
As paper bonds are retired, the deep hole will continue to be filled… and financial sanity will return to the planet. It may take years if not decades to make this transition… but that is incomparably better than an outright debt default… see Greece or Cyprus for examples of the destruction caused by default. Imagine a default by a major nation, rather than economically invisible entities like Greece or Cyprus.
The idea of ‘inflating away’ the debt is another Big Lie; not only is inflation just as destructive as an outright default, inflating the debt away is actually impossible. The idea that inflation is the consequence of ‘more money chasing less goods’ is false.
In order to create more ‘money’ to chase the goods, more debt must be created to back the new ‘money’… indeed, for every new Dollar created, new debt of exactly one Dollar must also be created. On the other hand, no debt new or old is needed for Gold; Gold IS money, Gold stands on its own, Gold is not ‘backed’ by anything.
Let’s get started. The sooner we stop digging and start filling the better. If we don’t stop soon, the tower of debt will indubitably collapse, and take the world economy… and you and ‘ME’ with it.
Rudy J. Fritsch
Editor in Chief
The Gold Standard Institute