Robert Sczech

Common Misconceptions About the Fed and Gold

There is this old claim that the Fed is a private institution which enslaves the American people via the issue of debt money. This claim although true, misses the main point. The Fed is only a legal construct designed to obfuscate the truth. Monetary policy is set by the US government and money is issued (via the treasury bonds) by the US Treasury. The main purpose of fiat money is to simplify the collection of taxes. In order to keep taxes steady and growing, the US government needs a tool to control the economy. That tool is the Fed and its manipulation of short term interest rates.

In order to truly understand our monetary system, we need to look at it from the point of view of generating a stream of taxes to support congress and the general government. These tax collections have been rising steadily over the years, regardless of how the economy is doing. It is this rising percentage of the GDP which is collected by the governments which is the actual problem - not the fact that the Fed is officially a private institution. Although the Fed is a private institution, no Fed chairman will ever act against the will of congress or the US president.

Why Gold is Likely to Keep Moving Higher

"THE RULE OF SUPPLY AND DEMAND" does not explain anything since another basic principle of economics says SUPPLY = DEMAND. Things which are not produced will not be demanded and things which are not demanded will not be produced (for long).

Why Gold is Likely to Keep Moving Higher

Regarding gold and inflation: In 1913, one ounce of gold sold for less than $20. A few weeks ago, one ounce of gold sold for $1,000 - a price increase by a factor of 50. According to the federal inflation calculator (google it) at the Federal Reserve Bank in Minneapolis, goods and services worth $20 in 1913 would cost $418.79 in 2007. There is no better proof that gold is an excellent inflation hedge. Even if gold fell down to $400 per ounce (very unlikely), it would still cost as much (in inflation adjusted Dollars) as it did cost in 1913.

One further reason to hold gold: It is the only widely recognized asset which can not be taxed away by either collapse of the currency, inflation or direct taxation. Possession of gold was historically synonymous with the ability to escape government terror.

Finally, to say that gold is worthless because it is useless is nonsense. In truth, gold is valuable because it can not be used. Everything which can be used, will be used, and, as the result of that usage, it will wear out and deplete, that is, it becomes worthless because of that usage. Gold is precisely valuable because it can not be used up. It is this almost religious property of gold which explains its popularity in jewelry making.

Finally, it requires a supernova in order to create gold. In other words, all gold on earth comes from outside the solar system as our sun is too young and too small in order to be a supernova.