Today's Downsizer Dispatch
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"There are no hopeless situations; There are only men who have grown hopeless about them."
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Jim Babka will be on the air with Gary Nolan today. See below the details for information about how you can listen over the Internet.
Subject: Ron Paul's "Honest Money Act"
Imagine living in a world without inflation, recessions, bubbles, booms, or busts, and where your money buys more and more instead of less and less. Congressman Ron Paul's "Honest Money Act" (HR 2756) could be a big step in that direction.
The "Honest Money Act" (HR 2756) would repeal the legal tender law. If you're well versed in economics and already know why this would be a good thing, ask your elected representatives to cosponsor HR 2756 here.
If you don't know the significance of repealing the legal tender law an explanation follows . . .
The Legal Tender Law Creates a Monopoly
Every paper dollar you own carries the words "Federal Reserve Note" (FRN). This means they were issued by the Federal Reserve System (Fed), a national bank created by Congress. The legal tender law gives the Fed monopoly control over what you use for money.
When a currency is legal tender you are legally compelled to accept it in payment for debts, even if you've made a contract to be paid in some other currency or commodity, such as gold. Repealing the legal tender law would free you to use other currencies, gold, silver, or all of them at the same time, including FRNs.
If this seems like a strange new world to you, please realize that you already live in this world to a certain extent.
When you check-out at a store you can already pay using cash, check, debit card, or credit card, and you probably also have a number of different accounts you use for various purposes. Repealing the legal tender monopoly would simply give you more choices.
How the FRN Monopoly Works
Choice is good because it allows competition. Monopoly is bad because it leads to price fixing. Monopoly control over what people use for money provides the greatest price-fixing power of all, because it impacts ALL of your economic transactions. The Fed can manipulate the price of absolutely everything, by increasing the number of circulating dollars (inflation), or by decreasing them (deflation).
You already know what it means when counterfeiters inflate the money supply. They use their fake money to get something for nothing, taking wealth from others without creating any wealth of their own. It's a form of stealing. But the long-term consequences of counterfeiting are even worse than the initial theft . . .
If the counterfeit dollars were allowed to stay in the economy, instead of gradually being removed from circulation, the result would be an ever-growing inflation of the money supply. This inflation would trick businesses into making a disastrous mistake.
If you were a widget maker you would see an increased demand for your widgets because of the extra dollars pumped into the economy by the counterfeiters. This sense of increased demand and increased wealth would be the "bubble" (or "boom") that always follows an inflation of the money supply.
Your widgets would start to fly off the shelves faster than you could make them. You would have to increase prices to maintain inventories and invest in new production to meet the increased demand. But this increased demand would be an illusion, because . . .
Everyone else would raise their prices too, for the same reasons. Rising prices would remove the perception of increased wealth, and soak up the extra spending power created by the counterfeit dollars. This would cause the demand for your widgets to shrink back to its old level, but with a wicked twist . . .
The increased inventories and expanded production capacity you created in response to the inflationary boom would turn out not to be needed. Your widgets would start to gather dust on the shelf and you would have trouble paying your bills. The result?
You would lay-off recently hired employees and close your recently expanded production facilities.
First came the inflationary boom, or bubble, and then the bust, or recession.
Extra FRNs created by the Fed work exactly the same as extra FRNs created by counterfeiters. They allow those who get the dollars first to get something for nothing, followed by a boom, and then a bust.
The Fed has numerous ways to create new FRNs out of thin air. Economists cloud these methods in complicated jargon, and the talking heads on TV make it all sound perfectly normal and even necessary, but the result is exactly the same as with illegal counterfeiting.
The government uses new Fed-created dollars to get something for nothing, paying some of its bills with the new money before the monetary inflation has time to raise prices. You pay the bill later through the resulting price increases and the economic recession that follows. Monetary inflation is simply a hidden tax.
Given the above explanation it should come as no surprise that the greatest boom and bust in American history happened immediately following the Fed's birth in 1913. Fed inflation put the inflationary "roar" in the "Roaring Twenties" followed by the biggest bust ever, the Great Depression.
All past inflations, booms, and busts were created through essentially the same process, including the recent stock market and housing bubbles. The Fed is simply the government's latest-and-greatest tool for legalized counterfeiting.
How You Can End This Con-game
Imagine what would happen if FRNs had to compete with gold, a form of money that can't be significantly inflated or deflated because of its scarcity and durability. . .
* People would begin to have gold accounts that they would use to buy and sell. The ownership of the gold would be transferred back and forth using checks, debit cards, paper certificates (currency), and a few coins, just like with FRNs.
* When you went shopping you would start to see two prices, one in FRNs and one in a certain weight of gold.
* If the Fed inflated the number of FRNs you would see the FRN prices rise while the gold price would stay roughly the same.
* You would begin to prefer the gold price, so you would want to be paid in gold too.
* How could the Fed stop the flight to gold? Only one way. Stop inflating the number of FRNs.
Congressman Paul has hit upon the easiest way to end inflation, and the booms and busts that follow in its wake. Simply repeal the legal tender monopoly enjoyed by FRNs, and allow monetary competition. Not only would this help to end inflation and recessions, it would also limit the ability of politicians to hide the true cost of government through the inflation tax. But that's not all . . .
Forcing FRNs to compete with gold would also confer one other benefit. Over time the prices you pay would tend to fall as increases in economic efficiency (for example, technological improvements) lower the cost of production and increase the supply of goods and services. A stable money supply tends to become more valuable over time, unlike an inflationary currency that constantly loses value.
To gain the benefits of monetary competition please
use the form at DownsizeDC.org to urge your elected representatives to co-sponsor "The Honest Money Act."
Thank you for being a DC Downsizer.
DownsizeDC.org President Jim Babka will be Gary Nolan's guest today (Wednesday) on The Eagle, 93.9 FM Talk in Columbia, Missouri at 4:30 PM Central time (5:30 PM Eastern, 3:30 PM Mountain, 2:30 PM Pacific). To listen, go to www.theeagle939.com, and click on "Listen Now" in the top right corner of the page (right above the mugs of Beck and O'Reilly).