What Really Backs the U.S. Dollar?

Since 1971, U.S. citizens have been able to utilize Federal Reserve notes as the only form of money, and for the first time had no currency with any gold or silver backing.

This is where you get the saying that U.S. dollars are backed by the “full faith and credit” of the U.S. government. In other words, Nixon implied "take our paper dollars or don’t".

The U.S. at this time was a world super power having been victorious in WWII and there really wasn’t much anyone could do about the decision by the U.S. government to abandon metal backing.

What does a dollar or Federal Reserve note represent now that gold and silver no longer back any of the currency printed in the U.S.?

A dollar bill used to say,

This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank.

Look at a dollar bill today. It simply says:

This note is legal tender for all debts, public and private.

In other words, you can’t redeem it for “lawful money.

Guess what folks? A dollar bill is not lawful money, but rather “legal tender.”

From the Treasury;

Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. Redeemable notes into gold ended in 1933 and silver in 1968. The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are “backed” by all the goods and services in the economy.

What the government, via the Treasury and the Federal Reserve, really did in 1971 was coerce you to accept something (Federal Reserve notes) that used to be redeemable for gold and/or silver but now aren’t redeemable at all.

But let’s play along with their definitions and see if “all the goods and services in the economy” really back the dollar?

What the Treasury would have you believe is that GDP backs the dollar. GDP is defined as “The monetary value of all finished goods and services within a country’s borders in a specific time period It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.”

To break it down;

GDP = C + I + NX + G

where:

• “C” is equal to all private consumption, or consumer spending, in a nation’s economy.
• “I” is the sum of all the country’s businesses spending on capital.
• “NX” is the nation’s total net exports, calculated as total exports minus total imports. (NX = Exports - Imports).
• “G” is the sum of government spending.

For the U.S. presently:

• C is down to nothing with high unemployment and people struggling just to pay bills.
• I is down to nothing (especially now that lending has dried up).
• NX is hugely negative and has been for quite some time.
• G is all that is running the show.

Yes, that’s right, government spending is all that is running the show for the most part. Does anyone think that adding more debt to debt is in the long run a healthy thing to do? Does it work for the consumer to take out more credit cards and use this newly created credit to pay for old debt and current expenses? Hardly.

So how will it work for the U.S. government? Can the U.S. government really afford to keep policing the world and fight wars when the only thing that allows them to do so, the U.S. dollar, is on the brink of collapse?

So if this theory of GDP backing the dollar is viable, and if government spending is all that is backing the dollar at this point in time, where do they get the money to do it?

Answer: taxes and printing it out of thin air.

Since politicians don’t get elected by raising taxes, that leaves only one viable answer; printing it or creating credit. Or in other words, DEBT. It’s a nice legacy that our generation is leaving future generations isn’t it?

The George W. Bush administration was spending out of control and President Obama’s administration is piling on debt at an even more alarming rate “to prevent the system from collapsing” mind you. Any bets on their success? The system will collapse as long as government keeps spending.

But the reality with this government theory of GDP backing the dollar is flawed to begin with. The dollar acts as a “medium of exchange” and is only valuable because it can be exchanged for goods and services. It is one’s production that is the actual backing of the dollar, not the piece of paper itself.

Take another look at that dollar bill you pulled out….

Do you need further proof that U.S. dollars are debt? What does it say at the very top of the dollar bill? It’ says “Federal Reserve Note.”

What is the definition of the word “note?”

Note: “A written promise to pay a debt.”

What is this debt that you, the one who is possessing these dollars, has to pay? I thought your production (via your hard earned labor) was something you got to keep? But according to what you are being paid for your labor, i.e. dollars you are accepting as payment, are nothing but IOUs.

Since you can’t redeem these IOUs for “lawful” money (gold or silver) any longer, what makes you think that these pieces of paper called “notes” that have 38 short years of existence, are going to maintain your wealth in the years to come?

What are you doing about it today to protect yourself?

Don’t be confused by all the games the Treasury and the Federal Reserve are playing. Educate yourself as to what money is and what really backs the U.S. dollar. Educate yourself about investing in gold.

Disclosure: no paper positions

Comments

[KIT:]

Money today is the paper representation of the value of labor. The real imbalance is the introduction of very cheap labor from Asia. The dollar is adjusting down to account for the fact labor has been devalued. The moving of factories goods and services to this new lower value area makes the promise on the USD bill less real.

Jun 28 06:33 PM

[john s. gordon:]

well in about 1949 when i was in university i used to go to the bank & hand them a piece of paper saying X dollars on it & they would give me some silver dollars in exchange, no grumbling or questions asked. now that was real money.
subsequently my silver dollar collection was stolen & i have not attempted to replace it. all it proves is that the paper money is harder to steal than the metal.
those who buy precious metal as an inflation hedge have to pay a commission to the seller, pay rental to the seller or someone else to store it safely, & pay a commission to the buyer when attempting to sell it. who wins? - the money dealers (they are very actively advertising on television these days).
> jack

Jun 28 06:35 PM

[Nathaniel C:]

What really backs the US dollar? American slaves like me who support this ponzi scheme called the Federal Reserve and pay illegal income taxes, state taxes, property taxes, sales taxes, inflation tax, and now carbon taxes. Why do we continue to pay? Because if we dont, the government will swat team you and throw you in one of their private prisons where you work .06 cents an hour for a corporation.

But I am trying to get out of this country as quickly as possible.

Jun 28 06:39 PM

[Econ Base:]

Agree with the reader above. The American taxpayer is the primary backer of USD.
Read portfolioforlife.blogs...

Jun 28 07:21 PM

[Dave Wrixon:]

Sure as an inflationary hedge precious metals make a lot of sense, and I can understand in the current environment why people might like to have a physical holding. However, those that dream that you are ever going to back to a situation where money is measured in weight of Gold are somewhat delusional. Even the British Pound never related to a Pound of Gold, as I understand it, it was Silver.

The real point is that ever since paper money was invented the level of backing was always inadequate, although this was not made known to the public. And indeed the whole concept is wrong, because the value of currency is so much more than the value of Gold Reserves. It is so much more than the Gold Reserves could ever be. An economy that relied on a Gold backed currency would therefore be implicitly weaker than a Fiat currency. But we were all sold a dud. I remember the constant talk on the News in the 1970s and 1980s about our Gold Reserves. People actually really thought is was important. It wasn't. It was complete bullshit. The UKs national wealth was never a function of our dependent on the pathetic amount of Gold that we held then or now.

The bottom line is that Modern economies are dependent on the notion of currencies backed by the output the economy. They are also very dependent on credit generated through partial reserve banking. The problem is that in the US, the generation of credit and debt were knowingly and recklessly driven beyond accepted limits through shear greed, and the system is broken, and frankly cannot be fixed. If there was an easy way out of the mess, I would have done the article by know. Yes, America will claw its way back over time but it will take decades, but it has lost in preeminence in the global economy and no force in the universe is ever going to bring it back. To be fair it would have lost in anyway, but the whole process has been speeded up by at least a generation.


On Jun 28 10:49 AM fireball wrote:

> dave
> i usually agree and enjoy most of your posts.
> gold and silver monies held up pretty well in history until soveriegns
> or their bankers began debasing.
> i believe money is what is accepted rather than decreed by a corrupt
> state. point taken about the beans. liquor, and tobacco too.
> to me metals are a wealth protection insurance policy. i have no
> insurance that i ever want to need.
> a backed currency is protection of theft by corrupt politicians through
> the sneak tax of inflation. if the debt is montized then all savers
> of frns are screwed, taxed to oblivion.

Jun 29 01:17 AM

[chuckles8888:]

What I wonder about the gold bugs is what they will do when the mesiah makes it illegal to own gold again? FDR did it with an executive order in '32. I think Obama has studied FDR pretty well and is copy catting him now. He won't want to tax us and recieve the money the Fed just printed, so he will "have to go where the money is", gold and silver. If you are about to embark on a multi trillion dollar spending spree, you can use fictitious money. When he stacks the court, collapses the economy, proclaims Marshall Law, we won't be in a very powerfull position to do anything against the "All Powerfull Oz". Then we can line up to take the "mark" so we can eat our MRE's and praise mesiah for saving us against that evil capitalism.
If money isn't worth anything, the government will take your gold,.... count on it. Why else do you think there is an ammo shortage now?

Jun 29 02:40 AM

[Dave Wrixon:]

There is no fundamental value to Gold beyond it physical properties that cannot be emmulated by other materials that cheaper.

Where it does have value is in the Human Psyche to the extent that it still exists, but this is not an absolute and it varies with time and level of intellectual development. There is no doubt that in ancient times wealth was almost uniquely measured in Gold. But things were different back then. Most people didn't have the right to own land. In Feudal times land ownership was more a hereditary right than it was a function of the market. Estates could easily be redistributed by the King according to favor and allegiance. Even the way the mating game was played was rather different. Women did not chose mates on the basis of physical attraction or personality, instead their father tended to use them as pawn is some political chess game. Human rights did not exist and for the most part people had no say in their own destiny. There was no democracy for the most part.

So much has changed since then, including the way educated and intelligent people understand the nature and worth of Gold. Pointing to a few obscure clauses in an almost archiac document really does nothing to change current reality. Gold is not money in any sense that is meaningful to an economist or even a banker. It is a commodity, and in todays economic world there is no merit in backing currencies with commodities. To persist that it is a useful objective to pursue Gold backed currency just shows a fundamental lack of understanding of economics. It simply cannot happen unless things decend into anarchy and we decend into the modern equivalent of medieval fifedoms.

Having said all that there is clearly a market for Gold, and I dare say that a significant part of that market is not base on bizarre misconceptions about the nature of the substance. Furthermore even where its valuation is based on such misconception by a minority, little will change those opinions in the short-term. So Gold has a markt value, and that market value is related to closely to the real worth of money. As the value of the dollar tumbles the market value will increase in that currency even if it changes little against other items of value. Indeed, it valuation will surge ahead of events as people attempt to hedge against inflation. It may not be the best hedge but because it is simplistic and will be readily understood by the panicking masses, the short-term surge will be substantial. However, over the medium term the age old problem of deriving an income from Gold Bullion will become apparent and it will settle back gradually to follow long-term trends.

Why do I know? Because I was a Gold Bug, whilst most of those commenting on here were still in short trousers.


On Jun 28 01:12 PM Doug wrote:

> Dave,
>
> Thanks for your comments. Your first comment however is a little
> perplexing to me. You start out by saying; "this is a mixture of
> lies and half truths," yet only offer one statement you disagree
> with if I read you correctly; "Gold and Silver aren't Lawful Money
> anywhere." It would help if you quoted exactly what I said as I didn't
> state that gold and silver are lawful money (at least today) in the
> article but gave a historical perspective on the transition of money.
>
>
> But to address this "lawful money" issue further....
>
> If you took a look at the law of the land (the constitution), however,
> you could draw the conclusion that congress abjudicated their duty
> in 1913 when they passed the Federal Reserve Act giving us Federal
> Reserve Notes and ignoring Article 1 Section 8; "The Congress shall
> have power to lay and collect taxes, duties, ... make anything but
> gold and silver coin a tender in payment of debts;"
>
> In fact, currency used to say "redeemable in gold coin" and later;
> "This note can be exchanged for lawful money." So Congress knew what
> lawful money was, but eventually cut loose from it.
>
> The rest of what you wrote follows my thinking for the most part
> except your comment "I would sooner have a container full of Heinz
> Baked Beans" (instead of gold).
>
> I think you would agree that not everyone would plan ahead and store
> up some baked beans. In that case, what would people use to acquire
> the beans if they didn't plan ahead? In other words, what can they
> produce with their labor that others will want in exchange the beans?
>
>
> In the Argentina hyperinflation times, there were in fact barter
> shopping areas that were set up. People would come in and give the
> person at the entrance something of value in exchange for scrip that
> could be utilized to purchase beans or other items that day.
>
> My goal is to get people to acquire that "something of value" today
> so they have purchasing power when needed (and if needed). "Insurance"
> like fireball mentioned in his post.
>
> Gold has a history as a store of value. The can of beans has a shelf
> life.

Jun 29 08:12 AM

[Doug "Digge...:]

Chuckles,

It's not as much that Obama has studied the great depression era, but Bernanke is a self proclaimed expert of that time. He went so far as saying in his 2002 speech (without using these exact words, but praising the result) that the confiscation of gold "was a good thing."

The devaluing of the dollar is what he was saying was good, and how convenient for the Fed to do the same thing today? Especially because Bernanke thinks it's "good!" Yes, good for the Fed...but not for the People who possess dollars.


On Jun 29 02:40 AM chuckles8888 wrote:

> What I wonder about the gold bugs is what they will do when the mesiah
> makes it illegal to own gold again? FDR did it with an executive
> order in '32. I think Obama has studied FDR pretty well and is copy
> catting him now. He won't want to tax us and recieve the money the
> Fed just printed, so he will "have to go where the money is", gold
> and silver. If you are about to embark on a multi trillion dollar
> spending spree, you can use fictitious money. When he stacks the
> court, collapses the economy, proclaims Marshall Law, we won't be
> in a very powerfull position to do anything against the "All Powerfull
> Oz". Then we can line up to take the "mark" so we can eat our MRE's
> and praise mesiah for saving us against that evil capitalism.
> If money isn't worth anything, the government will take your gold,....
> count on it. Why else do you think there is an ammo shortage now?

Jun 29 11:52 AM

[Doug "Digge...:]

Dave,

You said,

"Pointing to a few
> obscure clauses in an almost archiac document really does nothing
> to change current reality."

So in your mind, the Constitution is "an almost archaic document." Wow! Maybe we should just ignore the wisdom of our forefathers all-together then eh? Perhaps the Declaration of Independence, since it's old, should be forgotten too?

You said;

"Gold is not money in any sense that is
> meaningful to an economist or even a banker."

Gold used to be "lawful money" according to our own government. Federal Reserve Notes used to be "redeemed in lawful money." Our Constitution defines money as "nothing but gold and silver." To say that gold "is not money" today implies that it is not exchangeable for other goods and services, which is simply not true, whether "lawful" or not. Gold has purchasing power.

Gold is not meaningful to a Keynesian economist that is true. But to an Austrian economist, it is. How well have the Keynesian economists done for us with their forecasts and policies? Isn't it ironic that government has sided with Keynesian economists over the years since the inception of the Federal Reserve so that they can conveniently have the ability to spend with no restraints (especially of late), fight wars at will and give themselves lifetime incomes with only four years of service? There are no "golden handcuffs" and the People allow government to continue this nonsense by continually electing them. Unfortunately, the People are the boiling frogs and that is what I'm personally trying to stop.

You said;

To persist that it is a useful objective to pursue
> Gold backed currency just shows a fundamental lack of understanding
> of economics. It simply cannot happen unless things decend into anarchy
> and we decend into the modern equivalent of medieval fifedoms.<br/>

I never said anything about a gold standard. This is something you gleaned out of what I wrote. If I did say something about a gold standard, I wouldn't discuss a gold "backed" standard as the viable option.

You said;

So Gold has
> a markt value, and that market value is related to closely to the
> real worth of money.

I think this is where we differ in our understanding. You say that gold has a market value related closely to the real worth of money, but what is money to you? Is a dollar bill money? Did you read my article? A dollar bill is debt. How can debt be construed as money? The dollar bill in and of itself is a medium of exchange, just as gold is, but with inflation, the value of one goes down and the other goes up. I know you understand this as you stated so in your reply (which I address further below).

Inflation is clearly in our future. I wrote about this in more detail the beginning of last year here: fedupbook.com/blog/bud.../

Richard Russell has said for years the effect of what is happening with our government spending is they need to inflate to make the debt smaller. In fact, he says "inflate or die."

My point of writing some of these articles is to try and enlighten the masses about what is to come and help them prepare for it.

You said;

"As the value of the dollar tumbles the market
> value will increase in that currency even if it changes little against
> other items of value. Indeed, it valuation will surge ahead of events
> as people attempt to hedge against inflation. It may not be the best
> hedge but because it is simplistic and will be readily understood
> by the panicking masses, the short-term surge will be substantial."

This is where you do understand that inflation is coming, but to what extent we possibly (probably) have different viewpoints.

Do you think that TIPS are a good hedge vs. inflation? Whose rate of inflation, the governments CPI? Which version of CPI, the current one or the one utilized under the Carter administration?

Even with higher interest rates coming, as they came the last time we experienced double digit inflation, they haven't kept up with the real rate of inflation. Add the government's taxes on the dollars invested in the bank on that interest and, as in the late 70's and early 80's, people lost purchasing power.

Will tomorrow's result be the same as the 70's and early 80's? I don't think it can be. I think it will be much worse, unless government were to somehow come to their senses and stop spending. But hey...maybe the Cubs will win the World Series!

Thanks for the replies, but I don't think we'll change our viewpoints to find a place of agreement (except with inflation on the horizon).

On Jun 29 08:12 AM Dave Wrixon wrote: (replied to above)

Jun 29 12:45 PM

[Doug "Digge...:]

Econ Base,

I pretty much said that in my article with this statement; "It is one’s production that is the actual backing of the dollar, not the piece of paper itself."

Without the production, government wouldn't be able to tax.

The real question that needs to be answered is, what constitutional right does government have to take some of our production? But that's another topic for another time.


On Jun 28 07:21 PM Econ Base wrote:

> Agree with the reader above. The American taxpayer is the primary
> backer of USD.
> Read portfolioforlife.blogs...

Jun 29 12:50 PM

[fireball:]

nathaniel c
see june 29 daily crux. looks like an article that will interest you on tax havens, the top 20, my friend.


On Jun 28 06:39 PM Nathaniel C wrote:

> What really backs the US dollar? American slaves like me who support
> this ponzi scheme called the Federal Reserve and pay illegal income
> taxes, state taxes, property taxes, sales taxes, inflation tax, and
> now carbon taxes. Why do we continue to pay? Because if we dont,
> the government will swat team you and throw you in one of their private
> prisons where you work .06 cents an hour for a corporation.
>
> But I am trying to get out of this country as quickly as possible.

Jun 29 03:12 PM

[Dave Wrixon:]

Taxation has been a fundamental right of Government since man learnt to write. Without taxation you have have no Government and therefore anarchy, which is where Gold as money comes in. Not sure the rest of the forum is going to charge down that road after you.

That is the basic problem with the premise of Gold as currency. As previously stated it is capable of operating totally independently of Government control. What kind of Government is going to sanction that? Politicians by their very nature love to meddle, never going to happen in a democracy, and it ain't going to happen in a totalitarian regime either. Maybe on some desert island, but then why not just use sea shells. Man Friday won't know the friggin difference!

But even from a academic standpoint Gold as currency would make economies work much less efficiently that they do under Fiat. Do you really think the progress made since the invention of the Steam Engine would have been possible where ever unit of currency was backed by gold bullion on auditable basis.


On Jun 29 12:50 PM Doug wrote:

> Econ Base,
>
> I pretty much said that in my article with this statement; "It is
> one’s production that is the actual backing of the dollar, not the
> piece of paper itself."
>
> Without the production, government wouldn't be able to tax.
>
> The real question that needs to be answered is, what constitutional
> right does government have to take some of our production? But that's
> another topic for another time.

Jun 29 03:32 PM

[Dave Wrixon:]

No, I have previous stated that this is fraud. If you look at my posting on inflation you will understand that I believe the US Government and perhaps others to a lesser degree have for two decade systematically been declaring inflation as growth.

seekingalpha.com/artic...

I am not sure whether Greenspan went along with it, or was just too stupid to know the difference.


On Jun 29 12:45 PM Doug wrote:

> Do you think that TIPS are a good hedge vs. inflation? Whose rate of inflation, the governments CPI? Which version of CPI, the current one or the one utilized under the Carter administration?

Jun 29 03:37 PM

[Doug "Digge...:]

Dave,

My crux is with what government does with my taxes. The People do have a choice in that as government abuses its taxing authority to fund wars, take care of their corporate friends with subsidies, and waste on other projects that could be done better and cheaper by private enterprise.

There's much more to it than the above. The IRS is not a necessity just as war is not a necessity, or the Department of Education, Department of Homeland Security, TSA, and many other governmental wastes. But I'm not going to go into more detail on this as it detracts from the original intent of my article.

And you're wrong. Taxation is not a "fundamental right of government" unless given to it by the People. Unless people start waking up to the fact that they are in control of government, said government will walk all over them. That is what I am "Fed Up!" with (amongst many other things).

You keep going back to gold as "currency" and I'm not promoting that. Not once did I say this, but you keep trying to prove your points based on it. It would help if you quote what I say and then try and debate it. But using my exact words does nothing to help prove a point that you're trying to make because I'm not writing about gold as currency.

If gold were to trade side by side with dollars on an apples to apples basis, without the 28% tax that "government" puts upon it, then we might have a fair system. As it stands, we don't, yet gold still needs to be part of every individuals portfolio as insurance. This has nothing to do with gold as currency. It does make sense from an investment standpoint and people who understand "What Really Backs the U.S. Dollar" now know this.

Lastly, this is the second time you've mentioned "democracy." The U.S. is not a democracy, but a Republic which follows the rule of law, the U.S. Constitution, which you have stated is "archaic."

It's ok for you to have your opinions and I'll keep writing mine and the reader can come to their own conclusions.

Thanks for the discourse. I really don't have anything else to discuss with you.


On Jun 29 03:32 PM Dave Wrixon wrote:

> Taxation has been a fundamental right of Government since man learnt
> to write. Without taxation you have have no Government and therefore
> anarchy, which is where Gold as money comes in. Not sure the rest
> of the forum is going to charge down that road after you.
>
> That is the basic problem with the premise of Gold as currency. As
> previously stated it is capable of operating totally independently
> of Government control. What kind of Government is going to sanction
> that? Politicians by their very nature love to meddle, never going
> to happen in a democracy, and it ain't going to happen in a totalitarian
> regime either. Maybe on some desert island, but then why not just
> use sea shells. Man Friday won't know the friggin difference!
>
> But even from a academic standpoint Gold as currency would make economies
> work much less efficiently that they do under Fiat. Do you really
> think the progress made since the invention of the Steam Engine would
> have been possible where ever unit of currency was backed by gold
> bullion on auditable basis.

Jun 29 07:20 PM

[goldrealmny:]

What really backs the dollar? Short answer: NOTHING. Long answer: the money printing scoundrels at the Federal Reserve, the idiotic wealth-destroying Congress, the insolvent US Treasury, and the conglomeration of broke businesses and insolvent sheeple, welfare recipients, unemployed, and other assorted deadbeat sheeple.

So what do you do? Simple. Buy PHYSICAL gold and silver BULLION (not the worthless paper promises - FOOL'S GOLD ETFs - that will DEFAULT eventually as many prominent gold pundits have pointed out for many reasons). Holding bullion is THE BEST WAY to hold "cash." Just sit back and wait and have a long time frame. How much will a hamburger or gallon of gas cost in 10-20 years. How much do you think gold will be worth. I bet more than $1000!!!! Gold works for inflationary AND deflationary extreme situations. Deflation by definition makes "money" more valuable and gold is the BEST form of "money." Homestake Mining was the BEST performing stock in the 1930s by a MILE. It paid MASSIVE dividends. They were "minting money" lol! I don't think I need to explain why gold works for inflationary outcomes. Just look at the 1970s and this current decade.

Jun 29 11:28 PM

[Dave Wrixon:]

I have to agree with you. The US has to stop playing the Imperialist power and balance the books. It simply must make saving somewhere and the most logical place to start looking for the Lions share is Defense. You could close down the CIA for start. How much bloody use have they been over the years?


On Jun 29 07:20 PM Doug wrote:

> Dave,
>
> My crux is with what government does with my taxes. The People do
> have a choice in that as government abuses its taxing authority to
> fund wars, take care of their corporate friends with subsidies, and
> waste on other projects that could be done better and cheaper by
> private enterprise.
>
> There's much more to it than the above. The IRS is not a necessity
> just as war is not a necessity, or the Department of Education, Department
> of Homeland Security, TSA, and many other governmental wastes. But
> I'm not going to go into more detail on this as it detracts from
> the original intent of my article.
>
> And you're wrong. Taxation is not a "fundamental right of government"
> unless given to it by the People. Unless people start waking up
> to the fact that they are in control of government, said government
> will walk all over them. That is what I am "Fed Up!" with (amongst
> many other things).
>
> You keep going back to gold as "currency" and I'm not promoting that.
> Not once did I say this, but you keep trying to prove your points
> based on it. It would help if you quote what I say and then try
> and debate it. But using my exact words does nothing to help prove
> a point that you're trying to make because I'm not writing about
> gold as currency.
>
> If gold were to trade side by side with dollars on an apples to apples
> basis, without the 28% tax that "government" puts upon it, then we
> might have a fair system. As it stands, we don't, yet gold still
> needs to be part of every individuals portfolio as insurance. This
> has nothing to do with gold as currency. It does make sense from
> an investment standpoint and people who understand "What Really Backs
> the U.S. Dollar" now know this.
>
> Lastly, this is the second time you've mentioned "democracy." The
> U.S. is not a democracy, but a Republic which follows the rule of
> law, the U.S. Constitution, which you have stated is "archaic."
>
>
> It's ok for you to have your opinions and I'll keep writing mine
> and the reader can come to their own conclusions.
>
> Thanks for the discourse. I really don't have anything else to discuss
> with you.

Jun 30 01:17 AM

[Dave Wrixon:]

Well you comments on Gold being good in a deflationary environment are naive. If the value of paper money goes up then Gold will go down. If the inflation argument is true then the converse is undoubtedly false.

Your premise that there is nothing backing the dollar is just about true. It is back by net tax revenue. After interest charges, this is already just about non-existent and likely to turn negative. The US should be put into Chapter 9.


On Jun 29 11:28 PM goldrealmny wrote:

> What really backs the dollar? Short answer: NOTHING. Long answer:
> the money printing scoundrels at the Federal Reserve, the idiotic
> wealth-destroying Congress, the insolvent US Treasury, and the conglomeration
> of broke businesses and insolvent sheeple, welfare recipients, unemployed,
> and other assorted deadbeat sheeple.
>
> So what do you do? Simple. Buy PHYSICAL gold and silver BULLION
> (not the worthless paper promises - FOOL'S GOLD ETFs - that will
> DEFAULT eventually as many prominent gold pundits have pointed out
> for many reasons). Holding bullion is THE BEST WAY to hold "cash."
> Just sit back and wait and have a long time frame. How much will
> a hamburger or gallon of gas cost in 10-20 years. How much do you
> think gold will be worth. I bet more than $1000!!!! Gold works
> for inflationary AND deflationary extreme situations. Deflation
> by definition makes "money" more valuable and gold is the BEST form
> of "money." Homestake Mining was the BEST performing stock in
> the 1930s by a MILE. It paid MASSIVE dividends. They were "minting
> money" lol! I don't think I need to explain why gold works for
> inflationary outcomes. Just look at the 1970s and this current
> decade.

Jun 30 01:21 AM

[Doug "Digge...:]

Thanks again for the discourse Dave (and others).

It's not easy to discuss things and have differences of opinion, but an overall understanding of what our government is doing and how they are cutting this nation off at the knees with their actions while the People just sit and take it is rather alarming. Especially the governments (both parties) infatuation with military action.

My goal is to use my talents to make people aware of that for which many do not know. As a former financial advisor for over 20 years, I have a pretty good pulse of what people know and understand. It ain't pretty. But it's not their fault.

Jun 30 09:59 AM

[tc1:]

Thank you, Digger, for a very provocative piece, though i've given a few caveats and "corrections" to a few (IMO) overstatements in your article.

But first let me say that your article and many of the interesting responses by readers have squarely addressed fundamental issues that virtually no one is openly talking about in the supposedly "serious" circles of our society.

I was concerned by a few of your premises; for instance, when you state:

>For the U.S. presently:
>C [private consumption] is down to nothing with high unemployment and people struggling just to pay bills.
>I [the sum of all the country’s businesses spending on capital] is down to nothing (especially now that lending has dried up)

Digger, these are misleading over-statements. Yes, people are saving more, but OBVIOUSLY people are STILL SPENDING on all sorts of things, not as much as a year ago, but it's not down to "nothing." And businesses have not stopped spending on capital--look at GE, for instance, which is making all sorts of loans and amping up its R&D budget (as is IBM, Siemens, and many other businesses large and small).

You also wrote:
>government spending is all that is running the show for the most part. Does anyone think that adding more debt to debt is in the long run a healthy thing to do?

Well, Digger and fellow readers, sometimes it IS absolutely necessary and QUITE HEALTHY to wisely borrow anew on top of stupid forms of earlier debt if that money can then be used for a sound business enterprise to MAKE a lot MORE INCOME, wipe out one's earlier stupid debt, and generate lots of profits.

For example, think of a college student who runs up a huge gambling debt on his credit card of $50k. Should he no longer borrow ANY MONEY whatsoever from his parents or the govt to finish his college education since he is "already in debt"? No. The funds to finish his education can then land him a decent paying job (we assume he's in a field where living wage jobs are still available, e.g., a nursing job paying $70k, or an engineering job paying $100k), and in time he'll pay off his gambling debt and begin to save some of his salary each year.

It's the same with our country-- for three decades, too many hawks and big-spenders of our tax monies bankrupted us on defense projects (the biggest single form of government agency waste and unused products/services) , instead of investing the tax monies, R&D brainpower, etc., into peacetime technology and sustainable development-- like renewable energy, high-speed public transport, more competitive educational institutions, living-wage job-creation and job-training, etc.

Now there is a move in this country, spearheaded by progressives and with moderates in alignment, to SPEND MORE INTELLIGENTLY and SPEND NOW so as to create a viable economy with a "healthy GDP" based on greentech, better healthcare, etc.

The CEO's of some of the biggest cap companies all finally "get it" and are getting on the bandwagon to a healthier, saner, more productive and stronger manufacturing USA.

I have a fair amount of gold and silver (and other commodity) investments in my portfolio, but i'm also betting on companies like GE and a host of renewable energy firms to do it right and make us once again an exceedingly STRONG manufacturing economy, a strong producer of valued goods and services (not fancy financial instruments of debt) and an abundance of living wage jobs that will make ours once again a relatively healthy economy with a strong middle-class and far less poverty and wealth stratification.

GO USA and GO WORLD!

Jun 30 03:21 PM

[Doug "Digge...:]

tc1,

Thanks for the comments. I would agree that my statement, "private consumption is down to nothing" should be expanded upon. Thanks for bringing it to my attention.

Part of my thinking is that consumer spending at this time "should" be down to nothing because of the trouble I predict is headed their way.

Consumers have cut back on their use of credit, but yes, they are still spending on necessities and to a lesser extent, other non-essentials.

It does surprise me the level that some continue to spend, so I could rephrase that sentence.

As far as businesses go, I could use the word "many" businesses, and even separate large from small. I do know that many small businesses are struggling and banks aren't lending to them. I speak with suppliers to these businesses and also, every time I am out and about, always ask the same question of all, "how's business?"

As far as larger businesses go, sure, one could find some that are investing in their future (and some small ones too). From what I've read about GE, their spending is flat year over year, but they are still spending the same amount on R&D. There is still concern however about its finance unit.

IBM and Siemmens of course are not U.S. centric and can take advantage of that situation.

My question to these companies like the ones you mentioned, at least from a U.S. perspective, would be, outside of U.S. government spending in certain segments of the economy, what makes them think that things are going to get better? Exports? The Consumer? My wager would be on a further and deeper decline based on my own research.

As to the rest of what you wrote, people (and of course government) need to live within their means. Adding more debt isn't going to solve problems quickly. As a matter of fact, credit card companies have always wanted people to add more debt. Then they become slaves to them.

My thoughts on your college student example would be, who in their right mind, parents included, would give a gambler more money? lol But I know your point was that the fruits of his labor would go to paying off the debt quicker than could be done without the education. I think this is going off on another tangent of discussion though. It's easy to do that, but I'd rather stick with addressing your comments about my article, which I appreciate.

Your faith in the manufacturing ability of our country is surprising to me. The U.S. is now primarily a service based economy and I'd really like to know your opinion on how the U.S. can compete with the likes of India, China, Korea, etc. when their labor is at least 5 times less than that of the U.S. employee, and without unions to deal with. I plan on blogging on this in the future, but would like to hear what you have to say.

Even with our service economy, I quite often get a Filipino on the other end of the telephone call to the credit card companies and other businesses that take advantage of their $5 a day labor (they speak fluent English there).

IMO, there has to be a reduction in U.S. wages and an increase in these foreign country wages, so I don't see the U.S. being too competitive and thus will keep with my views reduced spending related to GDP for businesses. IMO, the writing is on the wall if not already written.

I do admire your optimism. I just think we have further (probably much further) to fall before your scenario comes to fruition, especially with the direction the Obama administration (and Bush before him) is taking.

Jun 30 10:43 PM