Why He Wants to Abolish the Fed, the IRS, and Reintroduce Gold As Currency
What are Ron Paul’s views on money? Does he really want to “reinstate the gold standard” as so many news reports claim? These are the questions addressed in this Q&A-style bullet list on the subject of Ron Paul and money. It is designed for easy reading, for time conservation - and for making you think about what exactly it is you are earning, saving, investing, and spending every day of your life.
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Why does Ron Paul hate the Federal Reserve?
He doesn’t hate it. He just thinks it’s a bad idea for Congress to pass a law that authorizes an essentially private banking cartel to control the entire money supply of our country. He believes, as the founders did, that this is a non-delegable power exclusively reserved to Congress by the Constitution.
Does he really want to take us back to the Gold Standard?
In one word: No. That is a catch-phrase used (by those who are not familiar with his points) in an an attempt to misinform others (who are even less familiar with what he wants) about his allegedly "backwards" policy proposals. The truth is he does not want to "go back" to a gold standard. He wants to go forward to something that has never existed.
So, what does he really want?
He wants gold and silver to be able to freely compete, as currencies, with government established currencies (like the federal reserve notes that are currently bearing the legend “dollar”) on an even footing. He wants to do this by removing any and all tax burdens from exchanges of gold and silver. (For brevity, whenever we mention “gold” from here on, we refer to both gold and silver).
What’s the difference?
The classical gold standard to which most people refer when they use the term was a government-instituted price control on gold. The government decreed by law that “twenty dollars” were to be the value-equivalent of one ounce of gold, and forced banks to exchange dollars bills for physical gold coins at that rate on demand by any depositor.
What was the point in that?
By doing that the government supported the paper currency it issued (dollars) with the public gold it held in its vaults. People knew from experience that banks tended to overprint paper money (called gold certificates at the time) and that lowered the purchasing power of each bank note. That way, people were assured that they could always demand the real deal if they felt unsure their bank was financially sound.
Why does Ron Paul not want to go back to that system?
Over the years and decades since the US dollar was decoupled from gold (for citizens in 1933, for international banks and governments in 1971), the Federal Reserve (the US central bank) printed far too many paper dollars and created far too many electronic “credits” counted as dollars to now back them with government-owned gold. The dollar’s vlaue relative to gold would immediately frop to far in excess of $100,000.00 oer ounce of gold.
How is letting gold compete with the dollar better?
Letting gold compete with the dollar would empower people, not the government. People would decide whether they prefer to work for, save, and spend gold or fiat dollars. That way, all of the people in the US economy would collectively decide on the true buying power of a dollar compared to an ounce or gram of gold. That way, the government would be out of the loop of the price-setting process for gold and would no longer be able to secretly manipulate its dollar-value.
What is a “fiat” dollar, anyway?
Today, dollars are issued by government decree of “fiat”, and have value only to the extent that people have confidence in the government that issues them. It’s actually far more complex than that because the dollar is also the world’s major reserve currency.
What is a “reserve currency”?
In a world where currency is disconnected from gold or silver and issued by government decree, countries’ governments need to keep something else “on reserve” to back the value of their own currency. The commonly used reserve currency is also used almost universally to settle international trade accounts.
How did the dollar become the world’s reserve currency?
Basically, by agreement between the major powers after World War II. Their representatives met in a hotel in Bretton Woods, New Hampshire, and agreed that the dollar rather than the British Pound should be the new reserve currency. From 1945 until 1971, other countries governments or central banks could still exchange dollars for US-owned gold at the US treasury’s “gold window.” So, to other countries, the dollar was indeed “as good as gold.”
Why did that change?
Prior to 1971, the French president, Charles De Gaulle, figured out that the US had issued too many dollars and so he demanded that all of the dollars France earned in trading with the US be converted to gold. He was right. The US didn’t have enough gold to back all the dollars it printed, so then-president Nixon “closed the gold window” by breaking the US promise to convert external dollars to gold on demand.
How was the dollar supported after 1971?
The US made a deal with Saudi Arabia, the world’s oil richest country. The US promised to buy most of its oil from the Saudi’s and promised them unlimited military protection against Saudi Arabia’s enemies in the middle east in return for the Saudis’ promise to accept only US dollars for their oil from any country that wanted to buy from them. That way, there would always be strong demand for the dollar abroad. Other countries had to buy dollars or trade with the US and accept dollars in order to buy oil from the Saudis. That “petro-dollar” arrangement was then tacitly accepted by all other oil-exporting countries.
This agreement was made by the US in order to avoid the world going back on the gold standard. As the issuer of the world’s reserve currency, and with no remaining obligation to exchange its gold for dollars, the US had a huge advantage over other countries. Other countries had to trade their goods for the dollars they needed to buy oil and other raw materials and goods internationally. The US could simply print the dollars it needed to buy stuff abroad. That way, its main export became dollars.
What exactly is a “dollar” today?
A dollar bill is imprinted with the legend “Federal Reserve Note”. A note is an instrument evidencing a debt and promising repayment. Under the gold standard, a dollar note showed that it was a “gold certificate”. That meant that the bank that issued the note owed the holder a certain amount of gold. Today, the debt a dollar represents is payable in nothing more than another dollar of the same kind. In effect, a dollar is a piece of paper that evidences a debt and that states the paper itself is “legal tender” (or “payment”) for that debt.
What is “legal tender”?
Legal tender is essentially a legal fiction, like a corporation is a legal fiction. The term “legal” means that the law forces anyone to accept federal reserve notes (or their financial equivalents like checks, credit card charges, etc.) as payment for “all debts, public and private” - if offered. Two parties can still agree to use something else in payment, but if offered, federal reserve notes called “dollars” must be accepted.
This, however, works only domestically, inside the US. Internationally, US law has no force. Internationally, the only thing that keeps US dollars in circulation and lends them buying power is demand. If that demand ever disappears in whole or in part, all or a good portion of the dollars circulating outside the US (currently near ten trillion dollars) will find their way back into the US as countries and their companies buy US “stuff”. Without an actual need for US dollars, they will not accept them in trade for anything, demanding other currencies instead.
What role does the new euro currency play in all of this?
Because of the creation of the common currency of the European Union, there is now an alternative to the dollar in the world. Before, and after the world decided that it was acceptable to keep using dollars after they were disconnected from gold in 1971, no other currency was issued by a country that was economically (and militarily) powerful enough to “back it up.” Now, there is such a currency, and the world is starting to trade out of dollars and into euros and a ‘basket’ of other currencies in settlement of international trade accounts. As this process continues, demand for the dollar disappears. That’s why the value of the dollar has been dropping since the ero was introduced as a physical currency back in January of 2002. This phenomenon is known as the euro vs. dollar or “currency war” phenomenon.
How would Ron Paul’s policy proposal help the dollar?
They are primarily designed to help Americans, not the federal reserve bank that issues dollar notes. Americans are the important thing, not the (some say improperly procured) legislatively created privileges of a group of private bankers. Americans need a way to protect themselves from the dollar’s inevitable, ongoing decay. Gold and silver are the best guarantee for doing that because their value does not depend on anybody (or any government or government agent) keeping their promise to pay. Gold is the ultimate form of payment, and payment of gold is final.
How is payment in gold or silver “final”?
When someone pays you a debt they owe you (or pays you for something you sell), the debt represented by a federal reserve note still exists. It is not extinguished. When someone pays you in gold or silver, however, that debt is gone. Every time the US government has the Fed print a new dollar note, the cumulative debt that exists in the world grows. Because the note (representing debt) itself is legislatively decreed to constitute “payment” or “legal tender” for other debts, aggregate debt always keeps growing. The continual printing or other creation of more debt “money” to pay for previously created debt creates monetary inflation.
What is “monetary inflation”?
Monetary inflation, or the expansion of the credit/debt/money supply is the original cause for aggregate price inflation. When more and more money is available to chase the same amount of goods, “the market” (i.e., all people participating in buying and selling “stuff”) bids up the prices of the goods.
How come with all those excess dollars created, price inflation isn’t any higher?
Monetary inflation, or the excess of dollars created by the US Fed in relation to what is needed in the US economy was exported to other countries in the past and kept circulating outside the US economy. Since 2002, more and more of these dollars kept coming back to the US. Normally, they would have driven up all prices of all goods simultaneously. However, the Fed under Alan Greenspan has diverted the focus of those dollars away from consumer or industrial goods and into stocks of US traded companies driving their prices back up from the post 1999 stock market declines (during which the Dow went from 11,000 down to below 8,000 and the Nasdaq lost a full half of its value). Then came the recently “popped” real estate bubble.
Another reason is what many call “hedonic” government statistics that make the Fed and the government look better than they should. By ecluding energy and food prices from the “core” CPI, for example, they make the figures look far more benign than they are (as if food and energy costs didn’t drain individuals’ accounts just like other expenses do!) There are many more shenanigans the government uses, but this is not the place to analyze them.
How can Americans protect themselves from this?
By owning and by being able to earn, save, and spend gold and silver. These metals’ purchasing power remains stable. If the market is left to decide how much a product or service is worth in gold versus dollars, serious disruptions can be largely avoided.
But, isn’t there far too little gold in the world to pay for the world’s products?
No. As long as prices in terms of gold units are allowed to adjust by themselves, there will always be enough gold and silver to pay for everything. The thing is we have all been trained to think in fiat currency terms. “How many dollars does this or that cost me, or how many can I make by selling this or that?” Then we look at gold and think: “How many dollars will it cost me to buy an ounce of gold, or how many dollars can I ‘make’ by selling an ounce?” In terms of gold, prices can go down endlessly to adjust for the amount of goods available in the world without really hurting anyone. With credit-created fiat currency, however, this is a different story.
Is that why Ron Paul wants to decommission the Federal Reserve?
Yes. The Fed (like any central bank in the world) is in the business of printing “money” that really represents nothing more than debt. That debt is then used as justification to create even more debt to “pay” for the already existing debt. This money-creation process brings about an illusion of wealth. The truth, however, is that it’s just an illusion. Today, Americans are more in debt and have fewer savings than ever in their history, all as a result of the Fed’s debt-money creation process and the resulting inflationary tendencies. In truth, everything we think we “own” today we actually owe money on to some lender or some creditor, somewhere - even as a nation.
What about the income tax? Why does Ron Paul want to abolish it?
The income tax exists for basically three reasons: (1) to tax Americans so that the government can pay the Fed the interest it owes the Fed for the money it allows the Fed to create, which it then must borrow from the Fed; (2) to syphon off some of the excess currency created so that price inflation can be controlled; (3) for social engineering purposes by empowering the federal government to manipulate who gets a tax credit for what behavior that is in the government’s (not necessarily the people’s) best interest.
The federal reserve system and the income tax go hand in hand. Together, they constitute a system by which economic and political power are extracted from individuals and states and transferred to Washington DC and the bankers who control the Fed. This is destroying all individual freedom in America, and it does not follow the Constitution - which is the fundamental law that defines and limits the power the federal government is allowed to exercise.
Here is a video from a few of years ago in which Ron Paul still talks about a return to the gold standard. He has since come around to the view that a gold standard will never last because it is a creation of government and can too easily be abolished by government. A free-market parallel gold currency is by far the better solution.