Election-Year Talk about Sound Money: Are They Serious?

Clint Siegner Clint Siegner

Clint Siegner

January 25th, 2016 Comments
QUESTION: Some of the Republican candidates for president are talking about gold and reforming the Federal Reserve. Do you think they are serious?

ANSWER: We are thrilled to see sound money issues getting much-needed attention. More and more people see the link between unlimited money, unlimited debts, and unlimited government. And they don't like it. Perhaps they will demand and get essential reforms before it is too late.

Unfortunately, it remains an uphill battle. Fed lobbyists helped block the Audit the Fed bill in the Senate earlier this month. Even though a public audit of the central bank garnered majority support in both chambers, Democrat leaders invoked the threat of a filibuster to defeat the bill.

Inflation word cloud

While it may be great politics for candidates to tap into voter anger over out-of-control borrowing and spending during an election campaign, making actual fixes is another matter entirely. There are reasons no monetary system in history has ever been reformed before a crisis. Long experience shows fiat currencies devalue over time and ultimately die a painful death.

Any leader who wants to once again back the dollar with gold will have to be prepared to fight and take major political flak. For starters, they will have to contend with outraged segments of the public. Yes, even some voters who like the idea of sound money may not be fully prepared to sacrifice programs that become obviously and immediately unaffordable when money creation is limited.

Most of the big promises politicians have been making rely on the Fed's magic money machine and otherwise cannot be kept. Gold backing means a stronger dollar. It means obligations to make future payments in dollars get even bigger in real terms. And it means the $100 - $200 trillion in current debts and unfunded commitments, including Social Security, Medicare, and Medicaid, cannot be honored. Not without tax increases so massive only an insane politician would propose them.

A Stealth Default through Inflation Is the Politicians' Preference

Few, if any politicians, will pursue honest money if it means telling people who depend on government benefits they are out of luck. The far easier choice will be to secretly default by printing the money needed. This way the government doesn't have to formally default; it does it by sending the promised cash payments which are simply worth less and less.

Sound money proponents will also have to fight Wall Street and the rest of Washington DC. Bankers partnered with politicians to create the Federal Reserve in 1913. The system they built has worked wonderfully – for them. Nixon's decision to abandon the dollar's final tie to gold in 1971 marked the beginning of four decades of explosive growth in banking relative to other sectors of the economy. The federal government enjoyed similar growth.

...gold and silver have risen substantially in the past 15 years and are enjoying renewed interest as a monetary asset.

Banks used access to cheap and limitless Fed funds to blanket the nation with loans. They use Fed as the lender of last resort during liquidity crunches and they have the political clout to arrange taxpayer bail-outs whenever their bets go against them. In turn, they fund a lot of re-election campaigns and provide spectacular employment opportunities to loyal friends when they are ready to leave government jobs behind.

Bankers, allied with the federal government, accelerated the war on sound money a century ago. It's a war they are now winning in just about every possible sense. Don't expect a quick surrender.

First, gold and silver have risen substantially in the past 15 years and are enjoying renewed interest as a monetary asset. At the same time, popular outrage about fiat money is growing.

People are discovering current fiscal and monetary policies will lead to the total bankruptcy of the United States, a collapse of the dollar, and further erosion of liberty as our government becomes even more draconian.

So we hope reform-minded candidates will engage in these battles and win. If not before catastrophe strikes, then during the aftermath.

Clint Siegner

About the Author:

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.