Thursday, October 30, 2008
From 321Gold come these musings on paper money and precious metals by Richard Russell of Dow Theory Letters notoriety. It seems that the financial media has left out one key element in attempting to understand the recent crisis - money itself.
The one area that no one touches, that no politician will mention, that no investigative journalist will dare discuss is the value and viability of fiat money. Yet, we know that throughout history, no fiat currency has ever survived. My thinking is that fiat money was expressly forbidden in the US Constitution. The Founding Fathers in their wisdom expressly stated that the US was not to resort to fiat money. Today, the US government can "print" Federal Reserve Notes and decree by law or fiat that what they are printing or creating by computer is legal for the payment of all debt. In other words, fiat money is indeed money by government proclamation. It's as if the US government proclaimed by fiat that "all cats are now dogs." It makes that much sense. Since money is wealth or payment for work done, the question is -- is fiat money really wealth? To ask that question today is almost treasonous.There are a few who speak of fiat money as one of the prime culprits in the current mess, notably Representative Ron Paul (R-Texas) who has been a staunch supporter of sound money for many years, but this topic does seem to be off-limits for the mainstream media.
Every central bank on the planet is now grinding out their brand of fiat currency -- and in large quantities. I believe that somewhere ahead doubt will rise as to the validity and logic of fiat money. Fiat money has existed and been accepted for recent decades. My belief is that ultimately this bear market is going to expose the great fraud of fiat money. Right now, for some reason, gold and gold bars are being swept off the market. Call up any coin dealer and ask about his inventory of gold coins. He'll tell you he has none. Why? What's happening? I think this is the first stirring of distrust in fiat money. The little cloud, now no bigger than a fist, is growing. The little dark cloud is distrust in fiat money. And it's growing.