Why Big Government Statists Despise Gold

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by Tyler Durden
Monday, Aug 16, 2021 - 10:30 AM

Authored by MN Gordon via,

Did you get a 5.4 percent raise this year?

If you answered no, then your income is being systematically diminished by the federal government’s coordinated policies of dollar debasement.

You see, according to the Bureau of Labor Statistics, consumer prices increased 5.4 percent over the last 12 months.  So if your income didn’t increase by a commensurate 5.4 percent, then you are earning less than you were just one year ago.

The fact is price inflation acts as a hidden tax.  It’s the government’s underhanded way to increase spending without overtly increasing taxes.  Yet the tax still takes place, as the dollars in your biweekly paycheck become worth less and less.

The primary culprit of rising prices is the over issuance of federal reserve notes by the Treasury via deficit spending.  This debt based money enters the economy through government transfer payments and other spending programs.  There, it competes with the existing stock of money to buy goods and services.  Prices rise, accordingly.

Through the first 10 months of Washington’s fiscal year, which ends on September 30, the federal government has run a budget deficit of 2.54 trillion.  Of this, $800 billion – or about a third – of this debt was purchased by the Federal Reserve with credit created from this air.  If you recall, since July 2020, the Fed has been buying $80 billion of Treasuries per month.

The failure of these dollar debasement policies to support a balanced and healthy economy is grossly evident.  Asset prices have been inflating for over a decade.  At the same time, wages have generally stagnated.  This has resulted in a massive wealth gap.

Still, for the control freak central planners, operating within the monetary constraints of a stable money supply and the fiscal constraints of a balanced budget are out of the question…

Out of Control Finances

To somehow correct this disparity, the federal government is proposing to go on another spending boom.  Just this week, for instance,  the Senate agreed on a $1 trillion infrastructure bill.  The bill approves $550 billion in new infrastructure spending, which is in addition to $450 billion that has already been approved.

What’s in it?  We don’t know.  But 2,700 pages of Congressional quid pro quo is surly full of abject waste.  But that’s not all…

Up next is the $3.5 trillion human infrastructure social spending bonanza.  Perhaps the kabuki theatre of the approaching debt ceiling faceoff will pare back the package a slight bit.  But nothing on the order that any reasonable person would consider responsible.

Obviously, Washington doesn’t draw enough in tax receipts to cover this new spending.  And the new debt that will be added to the already massive $28.6 trillion national debt is far too big to be honestly repaid.  Thus it will be paid via the printing press; that is, through the stealth default of dollar debasement.

Curiously, in this environment of rising consumer prices, massive deficits, and immense money supply expansion, the dollar, in relation to foreign currencies and gold and silver, is rising.

One year ago, an ounce of gold cost over $2,000 per ounce.  Now it’s about $1,755.  And year to date, the dollar, as measured by the dollar index, has appreciated 3.41 percent.

What gives?

If you hold physical gold and silver as a form of wealth insurance, which you should, don’t pay attention to the ups and downs of gold’s price movements.  With the outright reckless abandoned of the spendthrift politicians in Congress, gold’s price in dollar terms is guaranteed to rise over the next decade.  You can count on it.

Gold will ultimately shine.  Not because of its luster.  But, rather, out of necessity.

Unlike gold, which has no debt obligation or counterparty risk, dollars – and dollar based debt instruments, like bonds – can expire worthless when their promissory obligation is defaulted on.  Alternatively, they can be inflated to nothing when a desperate Federal Reserve, in concert with an overpromised Treasury, moves to dropping suitcases of money from helicopters over major urban centers.

Without question, government finances are completely out of control.  How we got to this disagreeable place is a long story.  But one of the major milestones in this misadventure was reached nearly 50 years ago.  We’d be remiss not to mention it…

Why Big Government Statists Despise Gold

Gold to paper currency conversion once exacted limits upon the public purse.  The Treasury, in concert with the Federal Reserve, could not issue unlimited debt based money.  But that was before the U.S. severed the dollar’s relationship to gold and commenced the dollar reserve standard.

Prior to 1971, as determined by the Bretton Woods international monetary system, which was agreed to in Bretton Woods, New Hampshire, in July 1944, a foreign bank could exchange $35 with the U.S. Treasury for one troy ounce of gold.  After the U.S. reneged on this established exchange rate, when foreign banks handed the U.S. Treasury $35, they received $35 in exchange.

The dirty deed was done by President Nixon on August 15, 1971 – nearly 50 years ago.

To be fair, Nixon was merely playing the hand he’d been dealt.  And thanks to LBJ’s guns and butter program of the 1960s, the dollar had been exceedingly debased from its $35 conversion rate.  Johnson attempted a Band-Aid fix in 1968 to suppress the price of gold with a two-tier system of official exchange and open market transaction.  This intervention was quickly exposed to be at odds with reality.

The lie that $35 dollars were equal to one ounce of gold could no longer stand up.  The weight of reality, and U.S. inflation of the money supply, had overwhelmed it.

However, the lies didn’t stop with the end of the Bretton Woods international monetary system.  In fact, the end of Bretton Woods commenced with a lie…

Specifically, Nixon announced that he would “temporarily” suspend the convertibility of the dollar into gold.  This temporary measure has proved to be permanent.  You can witness Nixon’s announcement via this video link.

Quite frankly, you cannot watch this video often enough.  For it provides a perfect example of a government official lying as soon as he opens his mouth…and with every single sentence uttered.  It also imparts a disturbing amount of economic illiteracy.

At the end of the day, big government statists despise gold backed money because it limits the scope and scale of their reach.  Alas, as the lowlifes in Washington destroy the dollar, new crackpot schemes will be rolled out.  This will likely be in the form of government issued digital dollars that track and influence when and how you spend your money.

Like Nixon reneging on Bretton Woods nearly 50 years ago, these will be desperate measures of a desperate political class.