Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Gold, MMT, Fiat Money Inflation In France

Commodities / Gold & Silver 2019 May 20, 2019 - 02:14 PM GMT

By: Kelsey_Williams

Commodities

Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan and Canada are not operationally constrained by revenues when it comes to federal government spending. In other words, such governments do not need taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency.”  Investopedia

Of course governments are not ‘constrained’ by revenues. They have always been able to “print as much as they need”.

Modern Monetary Theory is not ‘modern’. Far from it. 

In the late eighteenth century, France was deeply in debt. A general lack of capital and confidence had taken its toll and the economy was lacking in signs of activity. Growth was stagnant.

The conditions were such that it would be reasonable to expect a return to better times without interference by government. Unfortunately, that would require patience and restraint by the politicians. Most politicians cannot resist the cries of “do something”. Even if the cries are non-existent, the government will hear them.


A finance committee in the National Assembly in 1790 said that “the people demand a new circulating medium…the circulation of paper money is the best of operations…it is the most free because it reposes on the will of the people…it will bind the interest of the citizens to the public good.”

And what better way to encourage support for printing worthless paper money than to appeal to the French people’s patriotism: “Let us show to Europe that we understand our own resources; let us immediately take the broad road to our liberation instead of dragging ourselves along the tortuous and obscure paths of fragmentary loans.”

Rather than exercising patience and restraint, the French government was headed in the opposite direction. A call to action had been sounded.

There was strong resistance to this effort, but it was not enough to stem the tide of enthusiastic support for it. Fundamental economics and historical experience were ignored in favor of the rallying cries of politicians and others.

The first issuance of paper money in France under its constitutional government was announced in April 1790. The supposed backing, or security, for the paper money was based on confiscated property of the French National Church.

In addition, the notes paid interest of 3% per annum. As such, they were expected to “soon be considered better than the coin now hoarded..” (‘coin’ meaning gold).

Initial effects of the paper money were quite positive, and any ill effects would likely not have been felt to the degree that befell France and exacerbated the effects of a very bloody revolution just a few years later IF the government had left well enough alone.

But, after spending the proceeds, the government again found itself in dire straits, and another issue of paper money was thought necessary. Plaintive cries of resistance were countered with a sophisticated oratory that emphasized the stability and security of the proposed currency.

Also, at this time, there were predictions that paper currency would be more desirable to hold than gold, and that gold would soon lose all its value.

A bill authorizing the issuance of another version of paper notes was passed in September 1790, only five months after the initial issuance. This time the notes bore no interest. The security of land backing was considered highly adequate.

The circulation of the new notes was expected to handily outclass its supposedly inferior competition, i.e., gold and silver. Oh, and by the way, this particular issue of new notes was twice as large as the first.

A third issue was approved in June 1791; and a fourth followed in Decmeber of that same year. Both issues were approved quickly and with much less fanfare and very little obvious opposition.

Part of the reason for less outspoken resistance to the new issues of paper money can be likened to the response of a first-time user of drugs. Once the pleasing effects have been felt and then subside and disappear, the desire for another fix becomes stronger. Also, the effects of subsequent fixes do not yield the same quantifiable benefits as before. Hence, it requires more of the drug, or money/credit to yield similar results as previously recognized.

This is exactly why governments and central banks find it impossible to back away from creating more inflation. So the cycle continues until outright rejection occurs. Or, the addict dies from the cumulative negative effects.

Another reason for the relative ease that accompanied further new issues of paper money by the French government was that the lack of patriotism imputed to opponents became synonymous with treason.

The threat of the guillotine may have deterred noticeable opposition to the new issues, but it did not stop the deleterious effects that descended on France as a result of the deluge of paper money. Prices of everything became enormously inflated. In less than five years, basic necessities  such as flour (to cook with) and wood (to heat your home) increased in price by more than one-hundred fold, and in some specific cases, as much as two-hundred fifty or more.

There was one thing, though, that did not reflect anything close to a proportionate increase in price. The wages of laborers by the summer of 1792 were no higher than they were four years earlier.

Makers of manufactured goods stopped producing and laid off workers. Fundamental economic activity weakened and became non-existent. The price of gold in francs went up by a multiple of 288. That is the equivalent of gold going  from $1300.00 per ounce currently to more than $370,000.00 per ounce by the end of 2023.

The issues of paper money continued. Speculation and trade in real property and specie (gold and silver) was rampant. There were, however, brief periods of time when the value of the French currency rose.

The long-term decline of the U.S. dollar over the past century is marked by similar periods of stability and an increase in value. But they do not last.

In an effort to support the value of its worthless paper currency, and force the desired economic activity and responses, the French government levied progressively higher taxes against the wealthy. The wealthy were married and unmarried men with various levels of income deemed to be excessive. Sound familiar?

Some of the rich hid their wealth or fled the country. Fines, imprisonment in irons, and death awaited those who refused to accept the worthless paper money in trade or for repayment of existing debts. Price fixing was attempted, too. Remember wage and price controls imposed under President Nixon?

And mobs threatened shopkeepers and store owners by demanding and taking what they wanted. And the mobs targeted anyone who had anything to do with money.

All the while, the French government continued to proclaim the soundness of the worthless paper by pointing out that it was backed by the security of confiscated lands. How often have we been told that the national debt is not a problem because we owe it to ourselves? Or that the U.S. dollar is backed by our productive economy?

France had experimented with paper currency seventy years earlier and it had failed miserably. Those in favor of this new walk on the wild side pointed to the backing of the confiscated lands and also the support of the people under its new constitutional government as factors which would prevent a similar failure. They were wrong.

And when the folly was finally recognized officially, various attempts were made to correct the errors. A new paper money “fully secured and as good as gold” was authorized. The new money would not be backed by gold, however. It was secured by public real estate.

The connection to gold was made by claiming that the new paper money had a value that was fixed at a specific percentage of gold. The claim was meaningless and ineffective.

The amount of the new paper was equal to the total of all previous issues. All issues circulated side by side. Both old and new money sank to about two percent of their original nominal value.

The U.S. dollar today is worth two percent of its former value of one hundred years ago. The French government in the 1790s eclipsed the value of their paper money by a similar percentage in only five years.

Paper money has a history of dismal failure at every turn. Whether it was France in 1720 or 1790; or the United States in our country’s early history; or the Southern Confederacy during the Civil War. We have seen its flaws and failures made clear in Germany in the 1920s, and more recently in Zimbabwe and Venezuela.

The definition of MMT above seems to distinguish between the money borrowed by government as contrasted with money printed. There is no difference.

When the U.S. Treasury borrows money, it issues securities that are I.O.U.s printed on paper. Those Treasury ‘bonds’ and ‘notes’ are just as worthless and irredeemable as paper currency itself.

The bonds and notes become part of the circulating medium of money and purchasing power as soon as they are issued. They are accepted as collateral for new loans of digital money that continue to inflate the supply of money and credit.

And the money that is received by the government in exchange for the Treasury securities that it issues is spent almost immediately and is back in circulation in short order.

The continual issuance of Treasury securities by the United States government meets the definition of inflation. Inflation is the debasement of money by government.

And the practice of fractional-reserve banking exacerbates and compounds the debasement. Inflation never stops.The debasement of money by governments and central banks is ongoing and non-stop.

Governments act and administer according to their own need for survival. They act, in conjunction with their central banks, in their own self-interest.

Today’s intentional destruction of the U.S. dollar has been in motion since the inception of the Federal Reserve in 1913. And it won’t stop until the currency is completely worthless, regardless of how long it takes.

The end result is an economic depression. The effects of that depression will be proportionate to the harm inflicted by the paper currency and will reflect the extent to which fundamental economics have been ignored and abused.

The reason that the end place of all paper money (currency, government bonds and notes, and digital/electronic equivalents of the same) is the scrap heap is because all paper currencies have no inherent or intrinsic value. All of them are substitutes for real money, i.e., gold.

(Historical facts cited in this article are taken from the book “Fiat Money Inflation In France” by Andrew Dickson White)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2019 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules