Once upon a time, US currency was actually backed by gold and silver and you could redeem paper money for its equivalent in these precious metals. During the Depression that all changed with the Executive Order signed on April 5, 1933 by FDR "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates," and requiring everybody on or before May 1, 1933 to deliver all gold coin, gold bullion, and gold certificates to the Federal Reserve in exchange for paper money.
Then, in 1944 the Breton Woods Conference agreed upon a gold standard, the US fixed the value of gold at $35 per ounce and the rest of the conferees fell in line until Nixon in 1971, squeezed by financial pressures of the Vietnam war, un-fixed gold from it’s $35 per ounce anchor and detached our currency from any gold standard at all. Ever since, it’s just been paper, backed up by the US government’s promise to make good.
Well, that is all up for grabs now, as are so many other things. T incoming Obama Administration has boldly gone into the fray and conjured up a stimulus package the size of the September Bailout, another $600 to 700 Billion dollars on top of that September $700 or 750 Billion dollars.
Add that together with another chunk of billions to rescue Citi last week – $20 Billion up and another $306 Billion in potential backup monies for their stinkiest of assets, some Bear Stearns money, stewardship of both Fannie and Freddie and their many Trillion dollar obligations, an FDIC which has been bleeding money cleaning up after major bank failures, and the drowning of Lehman, and others, and I count us moving toward a couple of Trillion dollars of new obligations for the Fed, give or take a few Billion here or there.
Then, shovel onto that heap the untold Billions, and maybe Trillions, to rebuild our crumbling infrastructure, Billions more to care for thousands and thousands of seriously wounded military personnel in their teens, twenties, thirties who have served one, two, three, four or more tours in Iraq and Afganistan and will live for many more decades, a Social Security system which is about to be buried by the retirement, or at least the eligibility of the aging Baby Boomers, the Detroit Automakers’ mess and the reality that more Billions will either be loaned or given to them to avoid the loss of millions of jobs, and more.
Oh yes, the 50 states are mostly broke and a lot of the major cities are too. So, it would seem that states like California, which are running on fumes right now, will need some of the Fed’s largesse too. I understand the Mayor of Baltimore already has his hand outstretched, palm up.
Do you have your calculator out? If our national debt is some ten Trillion dollars, then debt service on that could be a half-Trillion or so a year, give or take a few Billion.
We are looking at something like 40% of our GDP being pledged, given, begged, borrowed or purloined for all of these rescues, TARP, and the critically needed stimulus package – maybe more if we have not hit bottom and there are yet more time bombs on more balance sheets or more panic on Wall Street threatening to sink more titans of finance and business, melting down their stock value in a week or so. I know I sound like a broken record but, where, oh where is all this money coming from?
You know the answer and I know the answer. Fire up those printing presses; we are about to print a whole mess of currency to meet all of these needs and more I have not mentioned. We don’t need gold at Fort Knox anymore, or silver, or anything else to back our paper – we just print more and more and more.
Today we fear deflation; if and when we beat back that monster, we had better start fearing inflation, around 2010 or 2011 that is what will happen when you fire up those printing presses now.