Silver to paper, to?

I'm going to leave Obama and his vacation on the other side of the Planet for the moment.  It's unlikely he'll do anything that will cause immediate damage.  I predict he won't do much more than prove once again he's more politician than statesman.  The real damage has been done much closer to home.  With the exception of the business community, most Americans didn't pay much attention to the Federal Reserve Bank.  Running out of tricks, the Fed decided to try a last ditch effort to stimulate the economy.  They Purposely Devalued the US Dollar.  It's an old trick, in a conversation earlier Lewis, a Grumpy Contributor, who actually understands how the Money Supply Works, and who I wish I could have conned into trying to explained it, put it to me this way;

I think what's going on now with the FED does have something to do with wanting to devalue the currency to make our economy more competitive internationally. However, I believe the main reason is that there simply isn't the demand for more US debt internationally. So the FED is bailing out Congress right now. It is monetizing the debt. This will eventually lead to hyperinflation. The only reason the first round of QE didn't do that, was because the commercial banks were too afraid to lend, and they could get a safe return with US treasuries and shoring up their reserves with the FED.


Also, those commodity spikes we've been seeing recently will hit the stores eventually, full force. Probably starting early next year.

Like I said, monetary policy is very difficult to understand. Good luck trying to explain it to the masses. The best way you can put it is - government counterfeiting. That's really all it is. All states attempt to counterfeit, and devalue the currency. Rome did it by clipping parts of gold and silver coins. We're in the digital age now, with no currency anywhere backed up by anything. It's very dangerous territory. I think we will eventually see a world-wide collapse at some point.

Chipping away the edges of gold and silver coins.. The face value remained the same and as long as the Roman Empire covered most of the Civilized World, who cared.  The process also left more metal in the treasury.

In the 1930's Franklin Roosevelt took it a step farther.  For large transactions, it was much easier to carry a wad of paper money than walking around with several pounds of gold in your pocket. At the time the amount of paper money in circulation was limited by the amount of Gold or Silver in the US Treasury, if you had a Twenty Dollar bill you could walk into a bank and cash it in for Silver.

FDR took us of the gold standard, larger bills became Federal Reserve Notes instead of Bearer Notes,  this was the beginning..  The Treasury could issue tons of paper money without have to worry about those pesky redemption's.  Singles, Fives and Tens  could still be redeemed for silver.  If you're much under 50, the odds are you've never seen a Silver Certificate.  Where a modern one dollar bill says Federal Reserve Note, the old ones used to say Silver Certificate and at the bottom In Silver Payable to the Bearer on Demand. This is from Wikipedia

End of the Silver Certificates



 Silver Certificate Certificates circulated, mainly in the $1 denomination, widely throughout the United States in the years following 1934. When the '34s wore out, they were replaced with a new, more modern-looking Series 1953 (1935 for the $1 silvers; see below), with the same face changes as the Series 1950 Federal Reserve Notes had experienced. However, the Silver Certificates began to disappear from circulation during the 1940s and 1950s. The amount of Silver Certificates in circulation depended directly upon the amount of silver bullion in the Treasury vaults. As people redeemed the certificates for bullion or silver dollars, the notes were shredded, because the notes had lost their backing and could not be recirculated unless there was more silver being produced.

The price of silver was also rising. In 1960, it was nearing $1.29, which meant that silver dollars were worth more than $1. This meant that people would receive their silver dollars and melt them down for the bullion, thereby reducing the amount of silver in circulation, which was already falling.In March 1964, Secretary of the Treasury C. Douglas Dillon halted redemption of Silver Certificates for Silver Dollars. In the 1970s, large numbers of the remaining silver dollars in the silver dollars in the mint vaults were sold to the collecting public for collector value. All redemption in silver ceased on June 24, 1968.

The last time money was worth the paper it's printed on

In 1964 Lyndon Johnson was running short of money.  Like Roosevelt before him he needed to finance a mountain of Social Legislation, he also was dealing with an expanding war,  There was limit to what he could "borrow" from Social Security. which wasn't supposed to touched to begin with.  In order to increase the money supply, Treasury ended the issuance of Silver Certificates and the Production of Silver Coins. With the majority of the nations gold and silver back in the vaults the amount of currency that could be issued was limited only by

Coins became silver plated imitations and Silver certificates were replaced by Federal Reserve Notes, backed by the Government's promise to redeem them with real money someday.   With the majority of the nations gold and silver back in the vaults the amount of currency that could be issued was limited only by the amount of paper and ink available and the discretion of the Federal Reserve.

At the time the policy wasn't super inflationary because the US still had a major manufacturing base.  There was a balance of trade deficit, but Americans still bought American for the most part.  Components for Government Contracts had to be manufactured in the United States.  Vietnam ended Johnson's career and the mess was left to Richard Nixon who resigned in disgrace just before the world caught on.  Barack Obama walked into a job he wanted, then claimed to have inherited a mess.  Jerry Ford literally inherited a disaster waiting to happen.  Not only had he replaced the only President in US History to resign before he was removed from office, the inflation caused by the first oil shortages had just started to become apparent and it was going to get worse.   It was during the end of the Ford Administration that the Principle in the Social Security Trust Fund actually Declined,   That's when the devaluation and inflation that would eventually doom the Carter Presidency started..

During the Carter years if there was a way for something to go wrong, something found it. There was the Iran Hostage Situation and the totally Mucked Up rescue attempt.  Americans started finding out the Japanese didn't make such bad cars after all, in fact they'd out last, out  perform and got better gas mileage than American made cars.  American auto manufacturers suffered.  There were oil shortages, Mortgages hit 19% if you get one...  The Government literally robbed Social Security,,, they didn't even bother with the IOU's the paper balance of the Trust Fund declined thou the Cater Administration and well into Reagan's First Term,  The Fed Printed lots of dollars, but they didn't do what was intended.  By the time Carter left Office, the Melt Value of a Silver Quarter was almost 7.00 Dollars in Federal Reserve notes. In 1974 the country quit making copper pennies, they were worth more as scrap, than money.

Buy the time Reagan was elected gold was at 680 Dollars an ounce..It had been less than half that when Carter took office.   We never recovered what we lost from the Ford Administration  into the Reagan Years.  Gold and Silver depreciated, never back to what they had been, that was lost as well.  A more modest rate of inflation lasted from the middle of Reagan's first term to roughly the end of Bush Jr's first term.  The Economy took some hits, we had recessions but nothing like the Carter Years.

The Fed started tampering with the money supply again at the begining of the Great Recession, (which we've been told is over) All you seem to hear is estimates of how much monopoly money they created.  Now in order to "Boost the Economy the Fed is cranking up the Printing Press.  Lat week they purchased 600 Billion Dollars with the push of a computer button. They plan on continuing the process at the rate of $100,000,000,000 a month. They used the money to buy Government Debt and to give the banks money to loan.  The banks are already sitting on all the cash they need.  The only rational to the "Easing" is to make the ratio of debt to GDP look better and to spur inflation. Yes the Stock and Commodies Markets took a jump.  The jump is inflationary, the dollar declines, it takes more dollars to buy something,  The fed is betting the average American is to dumb to correlate the increase in his 401, to his higher cost of living.

Look around, odds are, your Refrigerator, Stove, Computer, Washing Machine and ball point pens were all manufactured outside of the US.  If the dollar is worth less the cost of those goods goes up. 

Having lived throug this once, I wouldn't wish it on anyone.

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