Greetings!

We left off on Monday with our discussion of gold-backed money versus non-gold-backed money, determining whether or not it is important to have our money supply backed by some form of “sound” or “true” or “real” money such as gold or silver or whiskey (or Tide detergent? Read today’s article to find out more about that!), or whether it is more important to change who has the power to issue our money (currently that power lies with the nefarious—there, I said it!—Federal Reserve here in the U.S.).

Today, Gary continues his discussion with the arguments that each side has against the other, discusses what the Wizard of Oz and flying monkeys have to do with our monetary system, and draws some final conclusions.

Enjoy, and please let me know what you think in the comments!

To your financial success,

— Kung Fu Girl

P.S. If you have any questions for Friday’s QnA, please send them in…I may even do a video QnA this week if you’d like to see my smiling face!

Take it away Gary, and thanks!

Ruminations on Monetary Reform and Gold-backed Currencies (Part 2)

Social Credit Advocate Arguments

Social credit advocates would argue that a gold-backed currency, either in full or partial, without other changes would still leave the banking system creating the entire money supply, including the Fed, while leaving the obligation to redeem the gold with the public Treasury.

They would also argue that the constraints on the creation of money do not naturally reflect changes in GDP or population that would necessitate a greater issuance of money to avoid deflation.

Social credit advocates say that the monetary supply growth due to greater GDP from technological advances could be sent directly as an annual dividend check to the people. We could go back to a system where there would be virtually no need for income taxes, as there wasn’t before 1913.

Gold Standard Advocate Arguments

Of course, the advocates of a gold standard still see any of these new currency systems as “fiat” currencies, susceptible to arbitrary creation and inflation, and point out that historically all fiat money schemes have ended in the destruction of the currency.

Even if the social credit currency is created according to a strict and audited formula like GDP, any currency managed by the hands of men is inherently corruptible, unsound and ultimately leads to the destruction of the currency and the social fabric.

The gold faction typically refers to their opponents using the derogatory term “Greenbackers”, an eponym that others apparently wear with pride.

Gold? Or Silver? Or Both…

But even if the hard money advocates are right, we also have to ask ourselves, what’s so special about gold. Sure, we know all the arguments that it can’t be fabricated or faked (tungsten-filled bars aside), and that it’s portable, durable, easily divisible and universally accepted.

But so is silver, and perhaps silver and gold-backed money supplies are interchangeable or equally viable. Silver has not had many arguments to back the currency, however, since silver is consumed in industrial applications and above-ground stocks of monetary silver are roughly equivalent to monetary gold at a much lower price.

E.g., it would also have to be $10,000/oz to back the entire money supply.

But, conversely, it was the famous monetary reformer William Jennings Bryan that claimed “You shall not crucify mankind on a cross of gold” at the Democratic National Convention in July, 1896 in what is still considered one of the greatest political speeches in American history.

Bi-Metallic Standard Advocates and The Wizard of Oz?

The economic panic of 1893 led many Americans to believe that a bi-metallic standard was the only way to overcome the economic rigidity and potential for deflation of a pure gold standard.

As many people know, the Frank L. Baum “Wizard of Oz” books were allegories of the monetary factions of the day, with the Scarecrow representing the naïve farming industry, the tin man representing the heartless industrial sector, and the cowardly lion representing William Jennings Bryan himself, proud in his stance, but too cowardly to assert himself and win the Presidency.

Dorothy’s slippers in the book were not ruby, but silver, advocating a silver standard as the solution to the road back home. The name “Oz” obviously comes from the abbreviation for ounce. The poppy fields were allegories to the opium wars that helped finance the international bankers.

The wicked witch of the east was the banking cartel out of NY, and the wicked witch of the west was the oil cartel out of Cleveland and the Midwest. Special credit if you know who the flying monkeys represent!

(For more detailed background on the Wizard of Oz allegory to our financial system of the day, I highly recommend Ellen Brown’s book, “Web of Debt”, or the movie “Secret of Oz”, at www.secretofoz.com).

Conclusions…What Are Our Alternatives?

Even if you still believe that gold is the best system and the only way to create a non-fiat currency that stands the test of time, I’m not sure there aren’t some viable alternatives.

Let’s say for example that we left the government and/or Fed as the primary issuing authority for the currency, but instead of having a gold peg at say $1500/oz, they created a benchmark of a loaf of bread at $5/loaf. Naturally the govt. would have to set up bake shops in every town, which sounds like a disaster, but fixing a common commodity or staple that is easily traded can have an effect on stabilizing all prices around it.

It doesn’t necessarily have to be gold. It could also be gasoline, or in theory, just about anything, as long as a practical system of exchange was enforced. (I now read that a black market for “Tide” detergent has been created and is becoming something of an underground currency itself.)

The monetary issuing authority would be kept “honest”, so to speak, from arbitrarily inflating the money supply or it would go bankrupt maintaining the peg. Many countries have gone bankrupt maintaining a dollar peg, as we know (reference again Argentina most recently in 2001).

A monetary issuing authority doesn’t necessarily need to go bankrupt by having all its gold drained as the only way to control the issuance of money. But as I once recall reading, if we still leave the banks in charge of issuing the interest-bearing money, and we had a monetary system backed by chairs, we would soon have nowhere to sit!

So, what position do you take now? Which is the best road for monetary reform?

I’m not sure I’ve got all the answers, but I’m more inclined to think there are strong merits to both camps, and that perhaps some common ground is the right answer, and either approach would be an improvement over today.

We absolutely have to take the money-issuing authority away from the banking system and return it to the public for the greater good of society.

And perhaps gold is part of the new monetary system, or other instruments in combination can provide the flexibility that the economy and the society needs.

I even think with our technological advances, that something like the digital bitcoin system has many of the attributes that a new monetary system needs, most importantly the removal of a central issuing authority completely, and a mathematically foolproof way to avoid corrupting and/or expanding the size of the money supply.

Practical limitations for use, distributions, point of sale transactions, etc. would need to be overcome, and probably in a newly designed system from bitcoin, but the possibilities are out there for monetary systems other than those purely backed by gold.

I hope this has stimulated some thinking on your part and helped you see both sides of the arguments even if you had your mind made up one way or another.

I really believe this is one of the most important subjects one can study, and if we are going to build a better, fairer world for everyone, monetary reform and a workable monetary system has to be at the heart of it, along with all of our other Kung Fu knowledge, of course!

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Thank you Gary!

I would love to hear your thoughts in the comments (and so would Gary, I’m sure!). Thank you so much for reading and for being a part of our Kung Fu Finance community! Together, we will figure all of this stuff out.

To your financial success,

—Kung Fu Girl