We all hear in the political realm about the need for an economic recovery. And yet, nothing substantial ever happens. Because those giving advice have no idea what is wrong. Here are my suggestions.
Firstly, I recommend that the United States of America repeal the legal tender acts as well as laws that prevent competition in currency. More specifically, I advise congress to repeal laws 18 USC § 486 and 18 USC § 489. These two laws directly prohibit the competition in currency that would provide a mark-driven check against the current status of the United States dollar. Allowing a competition in currency would allow the existence and use of a stronger currency in the United States. Rather than force all transactions, especially in regard to large amounts of capital goods, to use dollars, which are continually being inflated, currency alternatives would give both domestic and foreign investors an opportunity for a more secure currency with far less risk.
One private organization, Liberty Services, which had spent many years diligently opposing the laws against currency competition, developed a minted coin currency (backed in gold, silver, and even copper) which it traded for Federal Reserve Notes beginning in 1998. These Liberty Dollars, as they were titled, were called into question by the FBI and the Secret Service and were eventually seized in November of 2007. The operation was declared to be a violation of the anti-counterfeit laws above and as of 2009 the enterprise was shut down and its founder is currently spending time in prison. The opportunities for currency competition are great and the businesses willing to provide these services are plenty. The only thing preventing these opportunities from being carried out is the laws, which benefit the Federal Reserve banking system and punish the economy as a whole.
The second recommendation that I would like to put forward is an elimination and prohibition of all taxes on gold and silver. Two of such taxes are the sales tax on gold and the capital gains tax on gold. As for an example of the first tax, the recently passed healthcare bill, the Patient Protection and Affordable Care Act, included a provision which amended the Internal Revenue Code and requires that a Form 1099 be “filled out for all purchases of gold which exceed $600.” Gold currently sits at around $1380 per troy ounce. At this price, every transaction that includes more than half an ounce of gold requires the use of a 1099. This tax is akin to charging a tax for exchanging a dollar bill for quarters. As per the second tax, that is, the capital gains tax, there exists in the IRS code a requirement that any gain on a “collectible” is subject to a 28% gains tax. In addition, if this “collectible” has been held less than a year before being sold again, the gain is taxed at 35%. The ramifications of such a tax include the fact that it discourages gold from being traded. This is especially serious considering that gold as money needs to be on equal footing with Federal Reserve Notes in order to adequately compete. Taxes, which act as a punishment of sorts, dissuade investors from using metals like gold. Gold needs to be treated as money and be given the same opportunity as the fiat money of the Federal Government.
The third recommendation is to allow for the full GAO audit of the Federal Reserve to reveal to the American people exactly what has happened in regards to monetary policy since the closing of the gold window in 1971. The partial audit of 2010 revealed to the world that the Federal Reserve has been taking great liberties in bailing out banks and other financial organizations both domestically and abroad. The most heinous crime in this circumstance was that the Federal Reserve was acting with the American people’s money without the knowledge of Congress. With a full audit of the Fed, the Congress needs to demand the information documenting all known and unknown transactions. The United States House Financial Services Subcommittee on Domestic Monetary Policy and Technology, which oversees the Federal Reserve, spends much of their time attempting to gather information from the Federal Reserve, which reveals what they think is appropriate at their own discretion.
The laws which protect the Federal Reserve from auditing, most importantly 31 U.S.C. § 714, should be repealed and monetary transparency should ensue. The Congress, as well as the American people, have a right to become aware of what the Federal Reserve is actively doing and what its role has been in our economic crises and the disastrous effect on the dollar. One argument that the Fed makes against such audits is that “openness” would be disastrous because, as Fed Chairman Ben Bernanke wrote, it would “seriously threaten monetary policy independence, increase inflation fears and market interest rates, damage economic stability and job creation.” The first half of this statement is true by definition (but in light of the circumstances, this is a very good thing) and, as per the second half, some of this might come true. However, an auditing of the Fed will simply reveal the reality of our economic system behind the front that the Federal Reserve has provided. In other words, inflation is rampant and our economy is unstable, however, this is hard to see because the Federal Reserve artificially props up our economy with its monetary policy. In order for true growth to reach our nation, the “artificial prop” must be dissolved.
The fourth recommendation is to amend the Federal Reserve Act of 1913 to deny it the powers to manipulate the dollar and continue its inflationary monetary policy; most specifically, those powers included in Title 12 Subchapter IX of Chapter 3. While all of the Federal Reserve powers should eventually be repealed or phased out, it would be wise to transition with these powers in subchapter IX being terminated first. The best examples of the powers that should be denied the Federal Reserve at this place in time are located in section 347a-347d. In these sections, the ability of the Federal Reserve to make “advances” to member banks, individuals and corporations, as well as foreign banks. As discussed in other posts, the nature of the Federal Reserve, in making such advances, expands the supply of money and lowers interest rates, therein causing perpetual inflation and the boom/bust cycle. These dangerous impacts on our economy need to be stopped immediately. The American people should no longer be forced to face ever-inflating dollars and a continuation of the boom/bust cycle. Furthermore, it should be our aim to strip the Federal Reserve of its authority to make monetary decisions and naturally, since this power is the one most used, this type of control over the system is a great way to start.
The goal in halting all inflationary policy is to attempt to find a stabilization in the supply of money so that we can link our dollar back to gold. To continue this expansion of credit would make it impossible to ever track the amount of notes, deposits, certificates, and other forms of money. One of the major problems in finding a way back to gold as a backing for the dollar is how to transition because there is no way to know how much money [in US dollars] in relation to our gold reserves exists in the world. There are some who suggest re-introducing gold at gold/dollar ratio similar to its pre-inflation rate. This would overvalue the dollar and gold would drain from our economy as holders of money all over the world would rush to exchange their money for gold at a much higher rate than the current market rate. Furthermore, an overvalued dollar would hurt our exports as an overvalued dollar tends to make prices go up for world buyers. There are others who advocate for re-introducing gold at a gold/dollar ratio that undervalues the dollar and allow monetary expansion to play “‘catch up.’” This would have “an extremely inflationary influence… [and] prices would start to climb until they reflected the new dollar/gold ratio.” All dollar-based savings would be damaged severely. The final option is to allow, with competition of currencies and the increased use of gold as money in this economy, for the market price of gold to slowly and naturally reveal itself with normal market reactions. Blocking the inflationary policy of the Federal Reserve here in my fourth recommendation serves the purpose of aiding a market-based gold rate for the dollar to be linked to. This leads me to my fifth and final recommendation.
The fifth recommendation is to reaffirm the role of the United States Treasury in issuing and controlling the official mint of the U.S. dollar. In other words, at this step, the Federal Reserve is done away with completely. After a time, as the money supply in relation to gold stabilizes per step four, the markets will begin to recognize the rate at which gold most naturally is exchanged. The United States Treasury can at this point issue a new gold coinage pursuant to Article one Section eight of the US Constitution. This new gold backed currency should be declared legal tender and be made available for exchange for Americans holding Federal Reserve Notes. This would encourage the use of gold throughout the economy and would incite the foreign investors to hold value and capital in a strong American currency. The new gold currency and the dollar could coexist well, just as the inflated fiat money and the gold money did during the French Revolution, and ease the transition to a gold backed dollar. At this point, the original dollar can more easily be linked back to gold and defined for the first time in over a hundred years. The Federal Reserve will no longer be of any use, and the United States Treasury can take up its full Constitutional role once again.
Beyond the US Treasury, which of course cannot be trusted to maintain a gold standard (it’s actions led us to the Federal Reserve in the very first place), that is another topic for another time. Ideally, there would be no centrally planned monetary policy and currency system. It has destroyed the 2oth century.