Our Enemy, the Central Bank

by Geoffery S. Shough
hat tip: GeofferyShough.wordpress.com

“There are a thousand hacking at the branches of evil to one who is striking at the root.” —Thoreau

For the past century, a general trend has taken shape in America where Americans are finding it harder and harder to make ends meet. There was a time in this country when only one member of the average household needed to work in order to support a family, and now it is not uncommon to have both adults in the household working to support their families. To make matters worse, many of the products we buy are declining in quality, and in many cases these same products are becoming more expensive. America has gone from a nation of savers and producers to a nation of debtors and consumers.

There are many explanations behind why this trend is occurring in America, but the most cogent among them is that the Central Bank, called the Federal Reserve (Fed), through its ineptitude in managing monetary policy, produces a hidden tax and causes serious imbalances in the economy with long term and far reaching effects.

For example, one of the ways in which the Fed makes it harder for Americans to live is through the hidden inflation tax. By expanding the supply of money, the Fed transfers wealth from the last receivers of the new money to the first receivers. To elaborate a bit, say the Fed creates two billion dollars out of thin air and purchases assets in the economy with this new money. The first people to receive the Fed’s new money through these asset purchases will be able to spend that money at its full purchasing power, but as the money begins to trickle down through the economy, and it is realized more dollars are buying the same amount of goods, the money loses more and more of its purchasing power. Those who experience the full force of the inflation tax are savers and people on fixed incomes, while those who benefit most from inflation are banks and corporations that are closely connected to the Fed. This is because the more scarce an item is (such as the dollar) the more it is worth. As people begin realizing dollars aren’t as scarce as once believed, the dollars begin losing their value. This is the process that has eroded the purchasing power of the dollar since 1913.

Another way in which the Fed causes hardships for Americans is through its creation of the boom-bust cycle—this being the most harmful of the effects brought about by the Fed on the American public. The boom begins when the Fed makes more money available for loans than is actually available. This mismatch of what are assumed available and what are actually available in resources causes entrepreneurs to miscalculate the profitability of newly undertaken projects.

With the power to create money out of thin air and that newly created money hiding the true scarcity of savings available for loans, the Fed leads production astray during the boom. Jobs are created where they should not have been. Eventually, the livelihoods of millions rest on an unsustainable boom that must end in a bust. Worse yet, each new bust presents an opportunity for government to grow in scope and power. The electorate—for lack of a better idea—believes the politicians who blame the free-market for the chaos that the Fed created. A new complex of liberty stifling and anti-business legislation and regulations emerges after the bust and leaves everyone but special interests worse off.

Fortunately, there is a solution to this whole mess. The Ohio Freedom Alliance (OFA) has started the Ohio Honest Money Project (OHMP) to provide Ohioans with an alternative. The OHMP consists of a three step process to restoring sound money in Ohio. The first step in this process is to abolish the sales tax on gold and silver coin—what the free market long ago determined to be the best money. If gold and silver are to be money, there cannot be a sales tax on these metals. The second step in the process is to get people to take possession of and transact in gold and silver. This is happening more and more every day now that we are living in a time of heightened uncertainty caused by the reckless money printing policy of central banks.

The third and final step is to put in force legislation embedded with triggers. The OFA proposes to add a currency devaluation trigger and a supranational or world monetary union trigger. If either of these triggers are activated (by the dollar dropping below a certain point on an index or the U.S. government entering an unconstitutional union with other nations) then the legislation would declare all legal tender laws in Ohio null and void, thereby putting a stop to Gresham’s Law where bad money drives out good money from circulation. No longer will creditors be forced to accept devalued dollars for repayment of debts.

We at the Ohio Freedom Alliance believe the third step in the Honest Money Project is essential due to the unprecedented economic climate in our country. The U.S. government is currently staring down a mountain of debt and massive unfunded liabilities, like social security, that can never be paid off without completely impoverishing future generations. It is for this reason that we believe this newest bust will result in a highly inflationary environment that will eventually turn into a run on the dollar. The government must either substantially raise taxes or print money to meet its obligations. If it raises taxes, the private sector—the only part of the economy that produces wealth—suffers and turns out fewer jobs, products, and services. In addition to that, raising taxes is very unpopular, and politicians are keenly aware of this because they care more about getting re-elected than planning for the future when they won’t be in office. The easiest option is to print money to pay off the massive obligations; this is also called the monetization of debt, and it is what destroyed the value of Zimbabwe’s currency.

The monetization of debt to meet U.S. obligations will likely destroy the remaining value of the dollar and force the U.S. into a supranational monetary union. A new fiat currency, backed by nothing, will again be forced on Americans.

The alternative to this scenario is that we proceed with the three honest money steps outlined in this article which would give gold and silver a level playing field against any fiat currency. Ohioans would then be able to choose a currency backed by real resources that can’t be printed at the will of government.

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