Political Information
By William A. M. Buckler
Mar 15, 2010 - 4:10:14 AM

The Privateer
2010 Volume - Early March Issue - Number 649

-snip -
This Is Fundamental:
“Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. This has been the case since 1933. The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are ‘backed’ by all the goods and services in the economy.”

The above is reproduced verbatim from the “FAQ” section of the US Treasury’s website. It is the last paragraph of the answer to the question - “What are Federal Reserve Notes?” The fundamental flaws in the structure of money and sovereign debt all over the world have seldom been stated better.

In the US, sovereign or Treasury debt is repayable in Federal Reserve notes or US Dollars. In all other nations, a similar but not identical situation pertains. As stated by the US Treasury, US Dollars “receive no backing by anything”. These same US Dollars, though, have been the global “reserve currency” for nearly 70 years. All other nations hold US Dollars or, more often, US Treasury debt as the “backing” for their own currency and sovereign debt paper.

Please note an inaccuracy in the quote from the Treasury website. It is true that for American citizens, Federal Reserve notes have not been redeemable since 1933. That is because it became illegal for Americans to own Gold in 1933. But Federal Reserve notes WERE redeemable in Gold (at $US 35 per
troy ounce) by foreign governments and central banks after 1933. Had they not been, there would have been no Bretton Woods in 1944 and the US Dollar would not have become the global reserve currency. Federal Reserve notes - US Dollars - have received “no backing by anything” only since August 1971.

Legal Tender:
Go back to the Treasury statement quoted above: “In another sense, because they are legal tender,Federal Reserve notes are ‘backed’ by all the goods and services in the economy.”
This is the reason why Franz Pick called US Treasury debt paper “guaranteed certificates of future confiscation”. Legal tender is defined as an offered payment which, by law, cannot be refused in settlement of a debt and have the debt remain in force. If Federal Reserve notes have “no backing by anything” as the Treasury says they do, then they are by definition worthless pieces of paper, inherently no different from the contents of a box of tissues. Conversely, if Federal Reserve notes are “backed by all the goods and services in the economy”, as the Treasury claims they are, then the US government must have first claim on all these goods and services. In essence, they must OWN them.

It must be stressed that ALL currencies everywhere are exactly the same as the US Dollar. None is redeemable in anything. None is backed by anything. All are “legal tender”. It is the fact that these currencies ARE legal tender which has, so far, prevented them from being recognised as the inherently worthless pieces of paper (or plastic) which they are in fact. Would you accept a stack of notes which, by the stated admission of their issuer, have “no value for themselves” if you had no legal choice but to do so? Would you rush to the “safety” of sovereign debt backed by the “full faith and credit” of the government which prints it, knowing that the only ultimate means of repayment is the literal confiscation of “all the goods and services in the economy”?

In all the frenzied analysis and debate which has been building inexorably since the start of the global financial crisis nearly three years ago, these are the kind of questions which have been suppressed by main force. Instead, like a catechism of religious faith, the sermon has been mounted: All that is
necessary is to pile on yet another layer of debt! That will fix everything, because governments can’t go broke. There is only one problem. Governments ARE broke, by the nature of their money.

Learning By Experience:
“$100 placed at 7 percent interest compounded quarterly for 200 years will increase to more than $100,000,000 - by which time it will be worth nothing.”
Robert A. Heinlein - Time Enough For Love - Copyright 1974 Mr Heinlein himself, to humanity’s great loss, did not quite make it to 81 years old. Mr Heinlein’s creation in the book, Lazarus Long, was more than 2000 years old when he wrote that in his notebook. Lazarus Long never did die in Mr Heinlein’s books and never will as long as they are read.

If there actually existed a man today who was 200 years old (let alone  2000), and if that man had paid close attention to what was going on around him over his lifetime, he would not refute Mr Heinlein’s statement. That man would have seen dozens if not hundreds of examples of the complete loss of purchasing power of money issued by governments all over the world. And as the money lost all purchasing power, so did the debt paper of the government issuing that money.

Economic history is littered with bits of gaudy paper once highly sought after as either money or sovereign debt but now worthless. Over a long but achievable human lifespan (say 100 years), a list of the currencies and sovereign debt issuances which are worthless today would fill the rest of this page.

- End snip –
William A. M. Buckler

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