The Fed's 100-Year War Against Gold (And Economic Common Sense)

Tyler Durden's picture

On December 23, 2013, the U.S. Federal Reserve (the Fed) will celebrate its 100th birthday, so we thought it was time to take a look at the Fed’s real accomplishment, and the practices and policies it has employed during this time to rob the public of its wealth. The criticism is directed not only at the world’s most powerful central bank - the Fed - but also at the concept of central banks in general, because they are the antithesis of fiscal responsibility and financial constraint as represented by gold and a gold standard. The Fed was sold to the public in much the same way as the Patriot Act was sold after 9/11 - as a sacrifice of personal freedom for the promise of greater government protection. Instead of providing protection, the Fed has robbed the public through the hidden tax of inflation brought about by currency devaluation.

Via Bullion Management Group's Nick Barisheff,

The Fed is, unlike any other federal agency, owned by private and public shareholders - mainly large banks and influential banking families. It operates with as much opacity as possible, and only in the past two decades has the public become aware of this deception, thanks in large part to former Congressman Dr. Ron Paul, and the advent of the Internet.

The build-up of massive amounts of debt will result in the end of the U.S. dollar as the world’s de facto reserve currency. This should come as no surprise: Previous world reserve currencies, starting with Portuguese real in 1450 and continuing through five reserve currencies to the British pound, which capitulated its position in 1920, have had a lifespan of between eighty and 110 years. The U.S. dollar succeeded the British pound, but its peg to gold was broken domestically in 1933, and internationally in 1971, when President Nixon closed the gold window. This resulted in unrestricted and exponential debt creation that will likely see the U.S. dollar’s reserve currency status end sooner rather than later.

Why the Fed Hates Gold

The Fed has many reasons for being at war with gold:

1. Gold restricts a country’s ability to create unlimited amounts of fiat currency.


2. The gold held by the Fed and the United States has not been officially audited since 1953; there are several credible indications that this gold has been leased or swapped, and probably has several claims of ownership. Germany’s Bundesbank was told in January 2013 that it would have to wait seven years to repatriate 300 tonnes of its gold currently held by the Federal Reserve Bank of New York. The only plausible explanation for this delay is that the gold is not available.


3. Gold is the only money that exists outside the control of politicians and bankers. The Fed would like to control all aspects of the global economy, and gold is the last defense of the individual who wishes to protect his or her wealth.


4. Historically, gold serves as the most stable measure of purchasing power. Gold owners begin to measure risk in terms of ounces of gold, and this provides a broader perspective — the “gold perspective.” It takes into account factors that are considered unquantifiable through the narrower “fiat perspective” that banks and financial media prefer to use. It also shows up real inflation.

Two Policies the Fed Uses to Rob Savers and Taxpayers

Under the gold standard, governments are more transparent in raising funds through direct taxation. Under a fiat system and a central bank, they have to be much more secretive. There are two policies or practices currently being used to transfer wealth from the public to the government. These are:

1. Financial Repression


Financial repression is a hidden form of wealth confiscation that employs three tactics:


(i) indirect taxation through inflation;
(ii) the involuntary assumption of government debt by the taxpayer (like the Fed’s purchase of Fannie Mae and Freddie Mac CDOs);
(iii) debasement or inflation brought about through unbridled currency creation and capital controls; and

2. Government’s Position on Bail-ins and the Illusion of FDIC Insurance

Many believe their bank deposits are insured against bank failure, as this is the Fed’s main argument for its existence. This is far from the truth, since the FDIC could only cover .008 percent of the banks’ derivative losses in the event of major bank failures. Banks legally see depositors as “unsecured creditors,” as proven by the Cyprus bail-in.

The Fed’s Real Accomplishment

When measured against gold, the U.S. dollar has lost 96 percent of its purchasing power since the Fed’s inception in 1913. This is mainly through currency debasement, which leads to inflation. Real inflation, if measured using the original basket of goods used until the Boskin Commission in 1995 changed the rules, is running about 6 percent higher than is officially acknowledged, according to John Williams of The CPI used to measure a “fixed standard of living” with a fixed basket of goods. Today, it measures the cost of living with a constantly changing basket of goods, measured with metrics that are themselves constantly changing.

History shows countries following the gold standard have a higher standard of living, stronger morals, and an aversion to costly wars.

Thanks to the Fed’s irresponsibility, foreign governments and investors are exiting the dollar and U.S. Treasuries, leaving the Fed as the buyer of last resort. This has painted the Fed into a corner, because it will be difficult, if not impossible, to curtail its bond and CDO purchases through its QE program, or to raise interest rates without crashing the markets.

When economists and historians can objectively look back at this past century, they will likely find the Fed, as well as the world’s other central banks, indirectly or directly responsible for:

• Personal income tax (introduced the same year as the Federal Reserve Act)
• Two world wars
• Several smaller unproductive wars
• The expropriation of U.S. gold in 1934
• The Great Depression
• Loss of morality in money and government
• Expansion of government to unprecedented levels
• The many economic bubbles that left countless investors ruined
• The decimation of the U.S. dollar’s purchasing power
• The spread of moral hazard throughout the global financial community
• Destruction of the middle class
• Migration of gold from West to East

The main thesis  is that gold will continue rising because several exponential, long-term and irreversible trends will continue forcing the need for greater and greater government debt, and government debt is the main driver of the price of gold, as we can see in Figure 1. For the past decade, debt and the gold price have shared a conspicuously close relationship.

Total Public Debt Outstanding


These trends—the rising and aging population, dwindling natural resources, outsourcing and movement away from the U.S. dollar—continue to develop.

As the following in-depth presentation notes, this has been going on since the Fed's inception:


The Federal Reserve Centennial Anniversary_Ext_Formatted_Final_13.11.13.pdf

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worldofdebt's picture

Wow, Love this site!!

Almost at 10,000 hits and growing:

"WORLD OF DEBT" -- See the Hilarious Music Video:

nope-1004's picture

FED = White collar criminality.  Let's have a FED Q&A on twitter.  JPig's went so well.....


Deo vindice's picture

Worldofdebt - please, if all you can do is shill your Youtubes, give it a break.

TwoShortPlanks's picture

Yeah, fucking disgraceful; you don't see us plugging out own agenda round-ere! (LOL)

Squid-puppets a-go-go's picture

Here's the limitation of this analysis:

gold to $3.6k will only account for the monetary supply.

But very shortly thereafter america would again be defaulting on its debts and liabilities.

Unless the US govt accompanies a reprice of gold to $3.6k with a wholesale cancellation of derivatives and the vast majority of welfare commitments (both civilian and corporate), it will sink back in the mire of its excessive spending

The alternative is to reset gold at a much higher rate, or go a 50/50 kind of solution (gold to $10k + cancellation of substantial portion of welfare/expenditure)

Or it can keep all the ridiculous welfare and military/corporate spending going and raise gold to $100 000 per ounce

I'm waiting patiently upon their decision. Over to you Yellen.

Squid-puppets a-go-go's picture

and another thing:

 Unless she is a total fucking idiot who thinks she can bluff the world indefinately, a gold realignment is her only get out of jail free card aside from wholesale global debt jubilee

Yellen only has a year or two to do this. Because if the rest of the world swings behind an alternative proposal by china/russia/whoever, the initiative is lost and the world will say 'bullshit gold is x, china reckons its worth y'

lordbyroniv's picture

Gold is a mere tradition. 


Gold is not money.



silverserfer's picture

as musch as not having a banker up your ass is "tradition". You obviously dont mind the new place to keep your "wealth"

Dr. Engali's picture

Do you even know what money is? Can you tell us the characteristics of money? There is a difference between money and currency. Your homework assignment is to tell us what it is.

withglee's picture

Money is "a promise to complete a trade". This is obvious when you examine the three steps in a trade: (1) Negotiation; (2) Promise to deliver; (3) Delivery.

With simple barter (2) and (3) happen instantaneously on-the-spot. Money allows (2) and (3) to happen over time and space. And what is it that is happening over that time and space? A trading promise is working toward delivery.

Some trading promises end in DEFAULT and must be sopped up with INTEREST collections maintaining INFLATION at zero by the relation: INFLATION = DEFAULT - INTEREST

Todd Marshall
Plantersville, TX

FreedomGuy's picture

Okay. Gold is not money? Feel free to send me your not-money gold. I will send you some paper in return.

withglee's picture

If I send you 13 Benjamins will you send me an ounce of gold? These people will:

I'll bet you won't send me that gold for my Benjamins. That means those ounces of gold have arbitrary value and not universal value. You value them higher than Merit does.

withglee's picture

I'm amazed when your stating the obvious, as you have here, brings negative votes. People need to turn on their brains. There's not enough gold in the world to back the amount of trade the world needs just to exist, let alone grow. One ounce trades for just $1,300 and there's just one ounce per person on Earth.

And you who want to hit me with that "we'll just redefine what gold can trade for" stick, work out the pricing on this one:

Miners trade a little less than an ounce of gold to bring a new ounce of gold into existence.

RockyRacoon's picture
What Price Gold in a Gold Standard?

By David C. Harper, Numismatic News
September 28, 2010

This article was originally printed in Numismatic News.

Asking whether the U.S. dollar should be backed by gold prompted many reader responses to our poll. Dealer Steve Album very thoughtfully did some calculations. He concluded there isn’t enough gold.

“According to the Federal Reserve M1, current number of dollars is about 1.75 trillion. After doing the calculation, I found that at the current gold price of about $1,280 per ounce, we would need about 48,000 to 50,000 tons of gold to back up all the dollars. That is about one-third of the amount of gold that has been mined since ancient times, about 150,000 tons according to an article that appeared in The Economist a few months ago.

“There is absolutely no way any government could acquire that much gold. The alternative would be for the price of gold to rise to something like $5,000 per ounce, at which point only about 350 million ounces would have to be stashed in Fort Knox. No wonder the goldbugs are hungry for the gold standard. But if we take the M2, then we are talking about 8.65 trillion dollars.” Those are very large numbers.

Readers who suggest there is enough gold do so on the basis that we simply set gold’s price at $10,000, or even $30,000, as one reader did. Certainly anyone who buys gold at today’s $1,280 would love to see an official price set at $30,000.

I’ve decided to jump into the numbers game this week, too.

During the classic operation of the gold standard before World War I, what was required was that all government paper money be exchanged on demand for the official amount of gold each note represented.

Now the economy of the period was almost as sophisticated as the current economy. Banks made loans. People wrote checks. Credit was extended (maybe not with modern debit and credit cards) but certainly with merchants running tabs for customers that were settled later. Bank loans were not backed by gold in the sense that there was gold sitting in a vault covering the money lent. Checks were not backed by gold. Private credit was not backed by gold. Only paper money was backed by gold.

Current U.S. paper money outstanding totals $952 billion (M1 includes checking accounts). Whatever gold there is has to add up to $952 billion with 100 percent gold backing. The U.S. official gold reserves are 261 million troy ounces. To make them worth $952 billion would mean an official price of $3,647.51.

In 1968, near the last point that the gold standard was functioning, it was called the gold exchange standard because of all countries, only the U.S. had to exchange its notes for gold (others exchanged their paper for U.S. paper money).

That was the year the Congress repealed the requirement that there be 25 cents in gold for every $1 note issued. Such a backing requirement implies that a successful gold standard can be operated by the United States with its present resources at an official price of $911.88, though to start off at the lowest point possible probably would not generate confidence that it could work.

However, the $911-$3,600 range shows that whatever reasons there are not to adopt a gold standard, the quantity of gold is not one of them. It is a matter of will and a question of price.

Squid-puppets a-go-go's picture

and that was 2010's M2, meaning 2013/14 would be upper limit of , what, $4200 ?

withglee's picture

"However, the $911-$3,600 range shows that whatever reasons there are not to adopt a gold standard, the quantity of gold is not one of them. It is a matter of will and a question of price."

What utter rubbish. First this essay assumes money must be "backed" by something (precious metals, capital, large stone wheels, whatever). But money is "a promise to complete a trade". If you say promises must be "backed" by something (besides the honor of the traders) the advantage in a trade automatically (and unnecessarily) goes to those who have the "blessed" backing. That's nonsense to make that concession. No sane person would stand for that.

And notice that the essay never mentions the cost of bringing a new ounce of gold into existence. Right now we have excellent evidence that it takes miners a little less than an ounce of gold to bring a new ounce into existence. Run the numbers on that one. Once you figure in all the factors of production it's obvious they amount to a little less than $1,300 per ounce produced ... or 13 barrels of oil ... or 70 ounces or silver ... or 300 bushels of corn. You can't then arbitrarily say that new gold is worth $3,000 or $30,000 or $300,000 or whatever you think it needs to be to prove your thesis. If you do, that makes the labor and the oil and the silver and the corn worth that higher amount too!

There's one ounce gold per person on Earth. You don't have to think about M1, M2, Z90 or anything else. One ounce per person ... period. And you're saying someone must have access to gold before they engage in trade (or savings). Well, that means on average each person is allowed $1,300 of trade or savings. That wouldn't get most of the readers here through a single day.

q99x2's picture

The world knows the FED has declared war on them.

NOTaREALmerican's picture

Re:  The world knows the FED has declared war on them.

I donno.   Not so sure they know about "the Fed" doing it.   I suspect most of the world assumes "The Fed" is just "the bank" of "The US Government".   It seems most Europeans DO know the US is run by and for "the rich" but - then - these same Europeas vote to consolidate power in Brussels.   So, even when you "believe" something (the US is run by "the rich") it doesn't mean you know why or how it came to be that way. 

It's funny what people actually believe.   Mericans believe voting means they've got a democracy.   Merican believe there's social class mobility because a few dot commers win the dot-com lottery. 

The human brain will basically believe anything if you package the bullshit right.  

JustObserving's picture

One may not mind the Fed's war on gold but the Fed lies and cheats constantly in its war on gold - and worse, it is winning.

US spending on Vietnam war in 2011 dollars was $738 billion and US went off the gold standard due to that spending on August 15, 1971.  The spending on wars in Iraq and Afghanistan is estimated to be between $4000 and $6000 billion in 2011 dollars or 5 to 8 times the cost of the Vietnam war.

Carl Popper's picture

If by winning you mean slowing down gold's ultimate rise then let them win some more. I would like to see even lower prices for a while. The fed can only slow the rise gold and silver. Nothing more. Be grateful for free gifts from the fed in terms of temporarily lower gold and silver prices

NOTaREALmerican's picture

Re:  5 to 8 times the cost of the Vietnam war

Costs allot more for the REAL patriotic contractors to fight these days, inflation ya know...

silverserfer's picture

yeah, but its like a Charlie Sheen kind of "winning."All fucked up and super crispy.

Urban Redneck's picture

When did the US ever payoff the principal on the $ borrowed to pay for the war in Vietnam?

asteroids's picture

Why didn't somebody ask Old Yeller about zee German Gold today?

lordbyroniv's picture

GO BITCOIN !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

jimmytorpedo's picture

Go fondle your memory stick.

Yeah, not very satisfying is it.

Dr. Engali's picture

I was really hoping that the fed would die before it's centennial. Sadly, barring some miracle, it looks like it's going to make it.

Carl Popper's picture

Guys never worry about a war on gold.

Keep your two months of living expenses in cash and, with the rest of your "savings", dollar cost average into gold and/or silver.

Forl "investments" own pieces of businesses, bonds, real estate and tangible assets.

Gold is a great savings vehicle for money you are not likely to need any time soon, but prefer not to "invest."

Over any thirty year time frame gold should outperform cash. It doesnt matter what the antigold crowd does. Ignore them.

Duke Dog's picture

The way I see it, simply buy smaller pieces of money - roosters are ok, but 1/10th ounce of anything, but eagles, are better:)

moonstears's picture

Edward Griffin deserves a nod, not just Paul, IMO

withglee's picture

Eustace Mullins and Ezra Pound did the work and wrote it up in "The Secrets of the Federal Reserve". Griffin just plagiarized him.

moonstears's picture

Fair enough, but Mullins wanted to blame races, not multi ethnic groups, Griffin nixed the racism to impact more readers.

withglee's picture

He did it without Mullins consent. That's not fair enough regardless of how races and ethnic groups are viewed. Griffin never mentions Mullins. What a ridiculous rationalization!

A Lunatic's picture

The FED doesn't give a shit about gold. If the FED wanted gold they would already have it. Fiat allows them to steal with impunity; gold does not.......

NOTaREALmerican's picture

The Gold "argument" is nice, but pointless. 

Any empire needs a way to extract loot from the peasants to enrich the owners of the empire and fund the fun wars fought by the dumbasses.   The CB does the trick.   If the CB didn't exist now, it would be created tomorrow.  And the Red and Blue Team sociopaths would create bullshit for their dumbasses about why it would be in the interests of all Mericans to have a CB.

You can't keep the dumbasses from beleiving the bullshit created by the sociopaths.    So,  fantasizing about a gold currency is like semi-autistic socialists fantasizing about their utopia.  

Figure out how to keep the dumbasses from believing bullshit and who knows, anything might be possible (well, except all the semi-autistic ISM's). 

unwashedmass's picture

picking up rumors of JPM/GS ultimate gold smackdown to the 1K level next week...the GRAND FINALE. Should last about fifteen minutes. 

can't wait. 

That said, this could go so, so, so wrong for JPM, the Cartel and the country......very scary......China will have the chance to take us apart in a heartbeat. 

How did we let it get to the point that one predatory bank could take down the entire country? How? 

JustObserving's picture

From Silverdoctors:

“At least two big banks, I would say Goldman Sachs, JP Morgan, maybe a big hedge fund…are trying to push gold down to that support zone at around $1000. I think they’re already short, and right now they’re letting the reversing dollar do the work for them.

Al Huxley's picture

That's actually from Toby Connor (or Gary Savage) -  So that's not 'rumor', that's just his opinion based on what he's seeing in the charts.  Not that rumors or 'insider info' (Andy McGuire, 'London Trader') about gold are worth anything anyway...

RaceToTheBottom's picture

"JPM/GS ultimate gold smackdown to the 1K level next week...the GRAND FINALE."

I think it will go into next year, late January at least.  To preserve the options games.  I will take a bath....


Just IMHO, worth less than the effort to read it.

silverserfer's picture

olto- its goldbugs.. rule the world. dont forget it!

Quaderratic Probing's picture

Plot wage growth for the same time