Competition Entry | Financial Collapse because of Fiat Currency, Central Banks and The Federal Reserve

What are the root causes of the global economic crisis?

by AIS

"It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." ― Henry Ford

Historically, many things have been used for money with the most enduring form being Gold or Silver. Paper money is largely a new idea, and the tool of scoundrels and the devious to debase the value of people's savings.

The unconstitutional Federal Reserve was established in December 1913. The plans for The Fed were created in secret at Jekyll Island, Georgia in 1910.

The US dollar as the World's Reserve Currency was established as such by the Bretton Woods Agreement in 1944: “The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments”.

“On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to Gold. As a result, "[t]he Bretton Woods system officially ended and the dollar became fully 'fiat currency,' backed by nothing but the promise of the federal government."

Fiat currency is simply this: The government says that something is money and must therefore be used as money. In the case of the US it is paper money and base metal coins.

The Fed essentially creates money “out of thin air”. You can find out how this is done here.

To understand the current US banking system you have to understand one completely absurd truth (at least for them), namely “debt is money”. The more debt there is, the more money a bank can “create”. The entire banking system is a complete fraud.

The central banks in other countries do primarily the same thing that the Fed does - money is created mostly by the push of a computer button and sent to banks as “loans”. There is no substance to back the money, there is no Gold backing the money - just the “full faith and credit of United States Government” which at this point looks like no faith and lousy credit.

There is no intrinsic value to any fiat currency - there is only perceived value. It is not like Gold or Silver which historically have been used for money and both are metals that people want and recognize as something which can store value. Prosperity can never come from a printing press.

An increase of the money supply by the Fed “pumping” money into the system has caused the majority of America's financial woes. For example, Greenspan pumped billions of dollars (all electronically created) into the US economy after the disaster of 9/11 which helped create a “housing bubble” of over inflated house prices that burst in late 2007 and led to the collapse of the US housing markets and was soon followed by the stock market.

David Gregory, moderator of “Meet The Press” on NBC asked Greenspan: “Are U.S. treasury bonds still safe to invest in?” Alan Greenspan, former Chairman of the Federal Reserve responded, “Very much so. This is not an issue of credit rating, the United States can pay any debt it has because we can always print money to do that. So, there is zero probability of default.”

Greenspan's comment above may sound crazy. He's right. The Fed can just keep on its rampage of inflating the money supply and pay off any debt. The problem is that when the money supply is inflated, the price of goods follows right behind it. And there comes a point in time when people demand too many dollars and thus hyper-inflation happens.

Since The Fed's inception and its control of the money supply the dollar's value has eroded by 96% of it's purchasing power from 1914. What was purchased for 4 cents in 1914 now requires $1.

As the world governments and central banks, particularly The Fed, have no substance to back the money with, that is Gold or Silver, there is no limit to how much money can be “created”. It is a vicious cycle - the more money “created out of thin air” the higher the prices of goods and the less confidence people have in the money as being a way to retain their purchasing power or savings.

The current price of Gold or Silver is a strong indication that many have no confidence in paper money and they're buying Gold and Silver it as protection against the devaluation of their wealth of fiat currency. Gold this year alone has increased in value by around 30%.

As the US had flooded the world with its debt (by borrowing money from places like China, for instance) in order to fund its wars, many countries are realizing that the US dollar is worth less and less as time goes by. They realize it would be better to not use the dollar as much, or to trade in currencies other than the US dollar.

And, it appears that the US is losing its “reserve currency” status. Several countries have directly tried to get away from the dollar and trade goods based on other currencies or commodities. Iraq, under Saddam Hussein, tried and I would suggest where that got him and Iraq. Iran is doing the same thing. They are trading their oil on the open market and receive payment in the form they want, which is not based on the value of the dollar.

The collapse is simple. The US flooded the world with its ever increasing supply of dollars which has led to a declining value of the dollar and its resulting impact upon markets. Countries want to get away from the US dollar as the reserve currency to something more stable.

The world is in a transition phase to some other standard of money. There have been talks about the use of Gold as money or the return of the US to the Gold standard but in the short term it appears highly unlikely that the “banksters” will allow anything that will interfere with their ability to create money “out of thin air”.

The control or manipulation of the money supply is too important to be left in the hands of any government or central bank. It should be left to people alone to decide what form of money they want. For example, if you want to be paid with pencils or copper pipe it's entirely your prerogative to receive such for payment.

There is no “free market” in the US. It is a completely controlled, centrally planned economy. You're not free to create a business without having to comply with countless “regulations” which are merely designed to crush creativity, prevent competition, and confiscate the wealth of those that would be so adventurous as to try and make money.

Ron Paul is the only politician in America who stands firmly against the Fed, fiat currency, and Federal spending. I believe that he has a very clear understanding of economics and why there's a business cycle of “boom and bust” and how to stop it - End the Fed, end the wars, and eliminate the US governments ability to control the money supply.

Here are what I believe are some great quotes about banking:

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

Concerning the central bank in his time, “You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out”. - Andrew Jackson

“I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy danger us to the liberties of the country”. - Andrew Jackson

"The few who understand the system, will either be so interested from its profits or so dependent on its favors, that there will be no opposition from that class." - Rothschild Brothers of London, 1863

"Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild

"Most Americans have no real understanding of the operation of the international money lenders. The accounts of the Federal Reserve System have never been audited. It operates outside the control of Congress and manipulates the credit of the United States" - Sen. Barry Goldwater (Rep. AR)

"This [Federal Reserve Act] establishes the most gigantic trust on earth. When the President [Wilson] signs this bill, the invisible government of the monetary power will be legalized....the worst legislative crime of the ages is perpetrated by this banking and currency bill." - Charles A. Lindbergh, Sr., 1913

"From now on, depressions will be scientifically created." - Charles A. Lindbergh Sr., 1913

"The financial system has been turned over to the Federal Reserve Board. That Board as ministers the finance system by authority of a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money" - Charles A. Lindbergh Sr., 1923

"The Federal Reserve bank buys government bonds without one penny..." - Congressman Wright Patman, Congressional Record, Sept 30, 1941

"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it". - Congressman Louis T. McFadden in 1932 (Rep. PA)

"The Federal Reserve banks are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this nation is run by the International bankers - Congressman Louis T. McFadden (Rep. PA)

"Some people think the Federal Reserve Banks are the United States government's institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign swindlers" - Congressional Record 12595-12603, Louis T. McFadden, Chairman of the Committee on Banking and Currency (12 years) June 10, 1932

"I have never seen more Senators express discontent with their jobs....I think the major cause is that, deep down in our hearts, we have been accomplices in doing something terrible and unforgivable to our wonderful country. Deep down in our heart, we know that we have given our children a legacy of bankruptcy. We have defrauded our country to get ourselves elected." - John Danforth (R-Mo)

"These 12 corporations together cover the whole country and monopolize and use for private gain every dollar of the public currency..." - Mr. Crozier of Cincinnati, before Senate Banking and Currency Committee – 1913

"The [Federal Reserve Act] as it stands seems to me to open the way to a vast inflation of the currency... I do not like to think that any law can be passed that will make it possible to submerge the gold standard in a flood of irredeemable paper currency." - Henry Cabot Lodge Sr., 1913

By the Federal Reserves Own Admissions:

"When you or I write a check there must be sufficient funds in out account to cover the check, but when the Federal Reserve writes a check there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money." - Putting It Simply, Boston Federal Reserve Bank

“Neither paper currency nor deposits have value as commodities, intrinsically, a 'dollar' bill is just a piece of paper. Deposits are merely book entries." - Modern Money Mechanics Workbook, Federal Reserve Bank of Chicago, 1975

"The Federal Reserve system pays the U.S. Treasury $20.60 per thousand notes - a little over 2 cents each- without regard to the face value of the note. Federal Reserve Notes, incidentally, are the only type of currency now produced for circulation. They are printed exclusively by the Treasury's Bureau of Engraving and Printing, and the $20.60 per thousand price reflects the Bureau's full cost of production. Federal Reserve Notes are printed in 01, 02, 05, 10, 20, 50, and 100 dollar denominations only; notes of 500, 1000, 5000, and 10,000 denominations were last printed in 1945." - Donald J. Winn, Assistant to the Board of Governors of the Federal Reserve system

"We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system...It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon." - Robert H. Hamphill, Atlanta Federal Reserve Bank

"By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft." - John Maynard Keynes (the father of 'Keynesian Economics' which our nation now endures) in his book The Economic Consequences of Peace (1920). [NB Keynes was a scoundrel. He means in the affirmative of what he'd like to do with those that try and save money - take it from them.

"Should government refrain from regulation (taxation), the worthlessness of the money becomes apparent and the fraud can no longer be concealed." - John Maynard Keynes, Consequences of Peace

"Banks lend by creating credit. They create the means of payment out of nothing" - Ralph M. Hawtrey, Secretary of the British Treasury

“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank." - Ron Paul

“Believe me, the next step is a currency crisis because there will be a rejection of the dollar, the rejection of the dollar is a big, big event, and then your personal liberties are going to be severely threatened”. - Ron Paul

“Deficits mean future tax increases, pure and simple. Deficit spending should be viewed as a tax on future generations, and politicians who create deficits should be exposed as tax hikers." - Ron Paul

“I will always vote what I have promised, and always vote the Constitution, as well as I will not vote for one single penny that isn't paid for, because debt is the monster, debt is what's going to eat us up and that is why our economy is on the brink." - Ron Paul


The world's economic woes have been created and are not accidental. They are a consequence of the central banks ability to create money out of thin air. Central economic planning and controls by the governments of the world have only made things worse.

There are several books and web sites which I believe will provide much more information about this entire debacle:

Who benefits from cranky economical believe systems?

To name just two examples - neither the housing bubble nor the speculative
trading which currently inflates prices for food and raw materials would
have been alleviated by a gold currency.

In large areas of Brazil among tens of thousands of gold washers and their
infrastructure suppliers gold is the de facto currency for everything.
There you have a gold standard for more then two decades.
Take a visit if you want to learn what inflation is.

Ron Paul, Mises and others are often cited to make economical pseudo
arguments covering the agendas of very rich people who do not want
to pay their taxes.

You don't understand a Gold standard.

To put it simply; a Gold standard would prevent, amongst many other things, the Federal Govt. from spending more money than they had in Gold.

Speculative trading isn't the evil you think it is. You do it all the time. You think, "I better buy such and such an item while I'm near this store so I can save fuel and not have to come back". That's a simple example. Spec trading doesn't directly impact the price of commodities. More correctly Inflation is defined as the increase of the money supply. The effect of the increase in the money supply, due to human action, is an increase in prices as a seller says, "hey, there's more money out there for people to spend so I'm going to raise my prices". This is exactly what happened with the housing bubble.

Primarily price inflation effects those with the least amount of money for food and necessities. It doesn't effect the wealthy too much in those areas. However, it isn't wrong to be rich but coveting someones possessions or money is.

Pay taxes? Rich or poor only an idiot would want to pay their taxes!

If you have some objections to Ron Paul's economic point of view, what works of his have you read?

Two things on the Gold Standard

1)The entire Global Gold supply is fairly close to 5 billion ounces. Not all of this gold is available for minting. The Fed refuses to allow an audit of its gold holdings. It is well known that much of the gold held at the Fed is actually held for other countries.
If you do the numbers you will see that gold would need to be very much more expensive than it is now to be a viable replacement for money. Ron Paul was refering to 1981 levels, things have changed a great deal since then. To refer only to Fedral Reserve Notes is a bit of weasle, what happens to the rest of the debt? Does the United States default on this debt?
2)Adopting the gold standard would do nothing to change the income and asset distributions. In fact it would lock the current ratio in place.

Unless the adoption of the gold standard was coincident with an economic redistribution, America would be branding slaves again wthin 50 years.

Only the US

For the moment I'm not interested in the rest of the world. I'm only interested in the US's financial situation. The Constitution specifically requires only Gold or Silver as money (Article 1 Sect. 8). Rather than explain why the Founders had only Gold or Silver in mind search the web and The Federalist Papers for the reasons. Keep in mind the expression, "Not worth a Continental"....which was paper money that nobody wanted. Congress also is allowed to establish the value of the Gold. Thus I think, pardon my forgetfulness, but a 1 oz Eagle is marked on the back as being worth $25. That's its face value but not market value. "Economic re-distribution" is merely theft and stealing by another name. It would be impossible for the Federal govt. to spend more in the "redistribution of wealth" as it does if we were on a Gold standard. If they didn't have the Gold (or Silver) to back their current spending they would be forced to stop spending. Not enough Gold- no more spending. Thus, it would shrink the size of the Federal Govt. from being the monster that it is courtesy of "the printing press".

Also, when the money supply contracts (M1) prices naturally drop.

By the way. In 1981 Gold was around $400 an ounce. The same price would be between $959 and $1,860. So, Ron Paul isn't off at all.

Check these calculations here-[]=DOLLAR&use[]=GDPDEFLATION&use[]=VCB&use[]=UNSKILLED&use[]=MANCOMP&use[]=NOMGDPCP&use[]=NOMINALGDP&year_source=1981&amount=400&year_result=2011

There are several things that can be done with the supposed National Debt. 1. Determine who the money is owed to. If it's owed to the Federal Reserve then simply abolish the illegal Fed and that solves that problem....or print a whole pile of Federal Reserve Notes and give it to the Fed. THEN....abolish the Fed and outlaw the use of any for of money except Gold or Silver. Thus FRN's would be useless but the Fed would have been paid off. 2. To the other suckers that hold Treasuries pay them off using the Gold (at a fixed price per ounce) which is supposed to be in Fort Know...though it hasn't been audited since the early '50's and frankly no one is sure if there's any there all.

The Gold standard

One good thing about a Gold standard or other precious metal standard is that it would restrict a government's ability to spend. That is; a government could only spend the amount of money it had based on Gold (or Silver) Thus is the govt. of Taiwan had only $1 Billion in Gold it could only spend that amount for various govt. projects or hand-outs.

Ron Paul : Five Myths About the Gold Standard (1981)

By Congressman Ron Paul | Congressional Record, February 23, 1981

I find it amazing that economists can make statements like this, for it is an elementary principal of economics that if one raises the price of a commodity, one will always have enough of that commodity. What we saw in the run up of gold prices is in fact the raising of the price of gold to match the depreciation of the dollar that has occurred, and still is occurring.

Simply put, there will always be enough gold so long as no one interferes with the free market mechanism.

At $700 an ounce the United States government has enough gold reserves to more than cover all the Federal Reserves notes outstanding. If we were to establish a gold standard by the procedure I have outlined in my bill H.R. 7874, then the world would be fully informed of the gold holdings of the United States Government and the price of gold could adjust accordingly, so that when redemption of our greenbacks - our Federal Reserve notes - began, the price would be the market-clearing price. Quite simply, the statement that there is not enough gold is false. It is a scare tactic used by opponents of the gold standard.

The second myth that should be challenged is that the Soviet Union and South Africa could hold us hostage were we to establish the gold standard. It is true that the Soviet Union and South Africa, because they have vast gold deposits, have reaped a windfall in the past decade. Yet we are not today on any sort of gold standard. It is the present inflationary policies of governments the world over that create these windfalls. Rather than giving the U.S.S.R. and South Africa windfalls, we should institute the gold standard.

Stabilization of our monetary system - and perhaps the world monetary system, if the world emulated us - would remove any speculative premium that the Soviet Union and South Africa presently receive. We would see a stabilization of the world price of gold and an end to inflation throughout the world. In such a condition, the Soviet Union and Africa would no longer be in a position to reap windfall benefits.

During the first several months of this year the Soviet Union has withheld gold from the international gold markets. It has recently been rumored that they have sold hundreds of tons to Saudi Arabia at a premium price. Whether or not that is the case, it is easy to see that the inflationary problems that beset us and the rest of the world create the conditions for Russia and South Africa to reap vast economic benefit. The present inflation causes fear and panic among the world's peoples.

Were we to institute a sound money system - a full 100 percent gold coin standard - the fear and panic would be eliminated. There would be no premium to be reaped by the Soviet Union and South Africa, and they would not receive any windfall from the sale of their bullion and their coins. Nor would Russia and South Africa be able to hold us hostage.

The gold reserves of the United States are immense, but no matter what their size, it is extremely difficult to see how Russia and South Africa, either by restraining their production or by dumping gold, could seriously affect us here in the United States. When we reach a full gold coin standard and our unit of account is a weight of gold, as I have indicated in my bill. H.R. 7874, the world's entire production for one year would not influence significantly the value of that weight of gold.

The third myth is, "that a return to the gold standard will cause a depression." Now this statement is a half-truth, for if we improperly institute a gold standard, then we might in fact have a depression. Following World War I, the government of Great Britain returned to a gold standard, but in a deflationary fashion. Britain re-established the link that existed between the pound and gold, prior to World War I, not taking into account the increase in the number of pounds that had occurred during the war when Great Britain was off the gold standard. The result was a short depression, because the political experts completely ignored the damage that had been done by their policies during the war.

Were we to establish a gold standard, we would have to pursue a course that would not result in deflation and would not cause a depression. We would redeem at the market price for a period of one year the greenbacks we have printed, and then cease redemption, allowing the gold coins we have put into circulation to function as our money of account.

If we proceed to a gold standard in an orderly fashion, such as I have proposed in my bill H.R. 7874, then there will be no depression. A gold standard cannot be achieved if we do not end our budget deficits as well. The standard must be accompanied by tax cuts, an end to the printing of paper money, and a significant reduction of federal regulations if we expect a restoration of a sound economy.

Unless we are committed to all these things, even the establishment of 100 percent gold coin standard cannot stop our descent into economic chaos. We must cut the federal government down to constitutional size, and the establishment of a full gold standard is part of that process. The Constitution explicitly forbids any state government, and implicitly the Federal government, from making anything except gold or silver coin a legal tender in payment of debt.

The fourth myth about the gold standard, is that "It will cause inflation." Opponents the gold standard point out that the world supply of gold increases by about two or three percent per year, and such an increase in supply would result in inflation in any country that adopts a gold standard.

I do not wish to challenge the proposition that the world gold supply increases by 2 to 3 percent per year. For the sake of argument, I will accept that as given. The result of such an increase is that prices might stay stable rather than falling. It is useful in this regard to point out the behavior of prices during our history. For most of the 19th century we had an imperfect gold coin standard. In the 67 years prior to the beginning of the Federal Reserve system in 1913 the consumer price index in this country increased by 10 percent, and in the 67 years subsequent to 1913 the C.P.I. increased 625 percent. This growth has accelerated since 1971 when President Nixon cut our last link to gold by closing the gold window.

In 1833 the index of wholesale commodity prices in the US. was 75.3. In 1933. just prior to our going off the gold standard, the index of wholesale commodity prices in the U.S. was 76.2: a change in hundred years of nine-tenths of one percent. The index of wholesale commodity prices in 1976 was 410.2. Today. the index is 612.3. For 100 years on the gold standard wholesale prices rose only nine-tenths of 1 percent. In the last 45 years of paper money they have gone up 536%.

The index of wholesale commodity prices emphasizes the stability of these prices during the entire 19th century. This stability was first overturned during the Civil War - the greenback period - then in World War I, and once again in World War II, and with the inflation that has persisted since that war.

Rather than causing inflation, the gold standard has historically been a bulwark against inflation. It is politically-manipulated money such as we have had since 1934 that causes our inflation.

People today have come to expect that prices will continue to rise, and we see the beginnings of a hyperinflationary psychology setting in.

If we are to avoid the horrendous consequences of such a psychology, we must take dramatic action and give our country an historically proven system, a full gold coin standard.

The last myth about the gold coin standard that I would like to address is the notion that such a standard would be subject to undesirable speculative influences.

This assertion was most recently made in a letter sent by the Federal Reserve Chairman William Proxmire of the Senate Banking Committee. The letter argued that because gold is a commodity used in jewelry and in industry, it is subject to speculative influences that are undesirable in setting up a stable monetary system.

I find such an argument amazing, for it is precisely because it is a commodity and not subject to the manipulation of a bureaucracy in Washington or London that it is desirable. If one wishes to speak of undesirable speculative influences, one need only look at the speculation that occurs daily in the U.S. dollar.

A gold standard would eliminate all speculation about the political motivations of the monetary authorities in governing the supply of money. The great virtue of the gold standard is that it removes discretionary power over the money supply from any one agency, thus ending the most fertile source of speculation. A gold standard puts the power of the monetary system into the hands of the people and takes it away from the politicians and bankers, thus removing a potential vehicle for establishing a tyranny.

Gold cannot be mined as cheaply as Federal Reserve notes can be printed. Nor can its supply be manipulated on a daily basis. There is a great dispersion of power in a gold standard system. That is the strength of the system, for it allows the people to check any monetary excesses of their governors and does not allow the governors to exploit the people by debasing the money.

The letter from the Federal Reserve System to Chairman Proxmire closed with a call for more faith in the System and its good intentions. For over 60 years the American people have been exercising such faith and they have suffered the worst depression and the worst inflations in their history. Let us hear no more of faith in men, but bind government with the chains of an honest monetary system - the full gold standard.

In the Coinage Act of 1792 the Founders provided the death penalty for any government employee who debased the money. One wonders if such a penalty were enforced today how many members of the Federal Open Market Committee would survive the month.

In his "Tract on Monetary Reform" published in 1923, the father of the age of inflation, John Maynard Keynes, wrote: "The individualistic capitalism of today . . . presumes a stable measuring rod of value. It cannot be efficient - perhaps cannot survive - without one."

Lord Keynes was correct. Unless we have a stable measuring rod of value, such as a gold coin standard, capitalism and freedom cannot survive. If not vigilant, we will evolve into the sort of fascism that resulted from the great German inflation following World War I.

The choice before us is simple: Shall we have gold and political freedom or shall we have paper and political tyranny?

re: Into nothing

AIS; That was a good essay. The analysis of the Fed painted an interesting picture. One point however; Fiat currencies, while not being convertable at a fixed rate are not entirely baseless. Rather than a charge on the reserves of a nation, fiat currencies are an ongoing charge against the entire nation, its land, its resources, all its commercial enterprize and all its people. There is the real destruction of money creatio through government spending, deficits, and bailouts. The more the Government debases, the less real ownership and power the people have. All the government money creation flows to external entities. Foreign Governments, Corporations, and international investors are getting an exponentially larger share than the citizens.

The only big problem I have with Ron Paul is his reliance on the Gold Standard. The Gold Standard because of precious metals scarcity, is even worse for exclusivity and exclusion, than is fiat money. If the World were on a pure "Gold Standard", the proportional share/wealth per person would approximatly equal one ounce of gold per person. The relative wealth would not change. Therefore, most people would have nothing. Another problem with changing to a Gold Standard is the scale of the problem to be fixed. The entire global supply of Gold at current prices, is about the same as the US deficit for this year alone?? Nothing for anyone else or for the debt.

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