Equity 1 Group
Pushing back the frontiers of economic ignorance and restoring sound financial foundations, one family at a time.

Fiat Money: Currency War (Part 6 of 6)

Lessons to Be Learned



Here in the U.S., I should say the lessons were not learned.  There are many consistencies from the below-mentioned stories that led up to the eventual collapse of the currencies.

The scary thing is that the U.S. has some of these below-mentioned characteristics, the ones that lead to toilet paper money becoming just that.  More on that in just a second.  I would first like to give a brief look at the U.S. attempts with paper money in our short history.

The first attempt with paper money came in 1690 with the issuance of Colonial notes.  The first Colonial notes were issued in Massachusetts and were redeemable for gold, silver, corn, cattle and other commodities.

The other Colonies quickly jumped on the toilet paper money bandwagon and began issuing their own paper currencies. Like a broken record, the money quickly became over-issued.  The lessons of John Law and others were definitely not learned.  It is not good enough just to say that a currency is backed by commodities.  It actually HAS to be backed by commodities.  Essentially, it was still a fiat money, and in a short period of time, Colonials became as good as toilet paper.

The next experiment came during the Revolutionary War.  Big surprise — the issuance of paper money was used to finance the war efforts. This time, the currency was called a continental.

The crash of the continental was spectacular, and the phrase “not worth a continental” was coined.  This brought on a large distrust for paper currency, and until 1913, toilet paper money in the U.S. wasn’t used.  Enter the infamous Federal Reserve and its monopoly on money and interest rates. Now we have the greenback.

Although the money was “officially” backed by a gold standard until 1971, it wasn’t a true gold standard.  When the government found it inconvenient to have a gold standard, it just made it illegal for U.S. citizens to hold gold or exchange dollars for gold.

CLICK HERE to read entire article from the Daily Reckoning.

“Under the infallible leadership of President Franklin Roosevelt, it was made illegal to own gold.  On March 11, 1933, he issued an order forbidding banks to make gold payments.  On April 5, Roosevelt ordered all citizens to surrender their gold — no person could hold more than $100 in gold coins, except for collector’s coins.  He also made it unlawful to export gold for payment abroad, unless done through the Treasury.  The penalty for defying Roosevelt was 10 years in prison and a $10,000 fine.”

But the official demise of the dollar was locked into place in 1971 when “Tricky Dick” Nixon completely severed all ties between the dollar and the gold standard.  During the decade that followed, the U.S. experienced some of the worst inflation in its history, only matched by today’s U.S. monetary and fiscal irresponsibility.

The U.S. of A. has all the characteristics set in place that have led to the collapse of every other fiat currency money in history.

We are currently at war, and the financing of this war is extremely inflationary.  In fact, if you look back at our history, since 1914, the U.S has engaged in 16 military conflicts.  We have been involved in some form of violent international accord in 44 of the past 93 years.  The overwhelming majority of military conflicts result in monetary inflation.

The U.S. has a debt similar to that of Weimar Germany.  All though the reasons for the debt are completely different, it appears thatthis Mount Everest of IOUs is going to be impossible to pay back.  I guess the U.S. could just print 10 trillion dollar bills and hand them out, but the implications of such actions are obvious.

We are currently increasing the supply of dollars at a rate of 13% per annum. This over-issuance of a currency has been the leading indicator of a currency on the brink.

So what’s in the future for the dollar?

Some, myself included, might say that the dollar has already failed.  It has lost over 92% of its value since its initial issuance in 1913.  After the revaluation in 1934, the dollar dropped another 41%.  In my opinion, it already is toilet paper money, but for the above-mentioned characteristics, which are alarmingly similar to the circumstances that led up to the eventual collapse of the dollar’s toilet paper predecessors.  I believe that we have seen only the tip of the iceberg of the dollar’s inevitable path toward becoming toilet paper money.

Until Next Time, – Nick Jones

CLICK HERE to read entire article from the Daily Reckoning.


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