The Best of Richard Russell (Fiat money & $GOLD-related)
BEST OF RICHARD RUSSELL June 22, 2005
I grew up during the Great Depression. The Depression started around 1931, and it ended around 1940 when the US started "gearing up" for World War II. I spent the Depression years in Manhattan, where my family lived. My buddies and my school mates really weren't very aware of the "hard times." The reason is that we grew up in hard times, and we never knew anything else. We thought nickel hamburgers and nickel rides on the subway were normal. We thought that it was normal for jobs to be almost impossible to find. We thought dollars were real money, and we were right, because you could turn in a dollar for gold or silver -- the only problem was that it was hard as hell to make a dollar -- nobody had dollars, and everybody we knew was looking for a job.
In the '30s in Manhattan the subway had stretches in which the tracks ran above the streets. They were called the "elevated" or just plain the "Els." You could ride the subway all over the city, from the Bronx to Brooklyn, from Astoria to Coney Island for a nickel. You could ride all day and all night for a nickel, and a lot of homeless did just that. Why? It was warm, and the cops left you alone. You could ride the ferry from Manhattan to Jersey or from Manhattan to Staten Island for a nickel. In those days nobody threw away nickels. Hey, I could buy a hamburger at White Castle for a nickel. And I often did.
In the '30s everybody rode the subway. In sections where the subway was elevated above the street, like Third Avenue, you could look down and survey the City. What I remember so well was the numerous shabby little employment agencies. Outside of these agencies you would see long lines of men. They were waiting to be interviewed for jobs. Many of these guys would wait all day for one lousy interview. Most of the interviews were phoney -- the odds of getting a job were slim. One third of America was unemployed in the '30s, and millions of men were looking for work -- any kind of work.
I got my first "summer job" when I was 16, working for the old Postal Telegraph Company. You'd wait in a local office, you and about five or six other kids. A call would go out to deliver a telegram. They'd give you a dime for subway fare to and from the office, and you'd go out to deliver the telegram. For pay you'd depend on the person you delivered the telegram to -- to give you a tip. If you made a dollar for the day, you were doing good. Sure it was a racket, but that was the Depression, and actually, you thought that was normal. You didn't think the company was taking advantage of you -- at least you might come away that day with seventy-five cents or a dollar.
So as I said, nobody worried about the worth of a paper dollar during the '30s. What they worried about was trying to find a dollar.
Then the fraud began. In the early 1930s, the US government said that its citizens could no longer turn in dollars for gold or silver. Nevertheless, the creditors of the US could ask for gold, and somehow that never seemed to bother US citizens, who continued to work for dollars.
In 1971, France called in a great chunk of US gold, and President Nixon "slammed the gold window." No more gold for foreigners or anyone else, he said. From that point on, the dollar was a piece of paper, and on that piece of paper it was printed that this dollar was legal for the payment of all debts. From that point on, the dollar was money by fiat. If you bought a hat from a store, you owed that store three dollars. You gave the store three dollar bills, and they had to accept those three pieces of paper as payment. That was payment by fiat. The store had to take the lousy three bucks, because those three dollars were legal payment for the hat that some poor slob had worked to make.
The government got away with it. People accepted paper for their labor. The government continued to turn out paper by the billions, by the trillions. And one of the greatest lies in economic history stayed alive. The lie was that dollars were money. Yeah, ask the Founding Fathers, the writers of the United States Constitution, whether a 1975 or a 1980 or a 2005 dollar was money. They'd laugh in your face, they would. "You dumb bastard." James Madison or John Adams would say, "You're working for nothing. Hang on to your dollars long enough and you'll see what they're worth. Ultimately, they won't be worth a damn thing."
The great lie has continued until today. People today think they're working for real money. They don't realize that they're working for a figment of the US government's imagination. It's like you're holding a dog leash, and there's no dog there. "Hey, there's no dog there," says a friend on the street. "Well, I thought there was," you answer, "My government told me there was a dog at the end of this leash." Yeah, right.
So saying, let's look at some real money. Here a chart of real money below. Let's call the real money gold. Gold has had a hard time for a long time, because a bunch of liars in Washington have led its citizens to believe that the garbage they turn out is money, and that real money is garbage, or to put it another way, real money is "a useless ancient relic. You use it to fill teeth or for watch cases."
Gold has been consolidating after its recent advance. Gold hit a low on May 31, just above its February 8 low. But over the last few weeks gold has rallied to yesterday's June close of 427.40. As you can see on the chart, this took gold just above both its 50-day and 200-day moving averages. It also took gold right up to, but not above, the declining (blue) trendline. The histograms for gold have turned up and RSI has turned up. So that's where gold is now, at least in terms of dollars.
But gold has a different price for every currency. The major currency in the world today beside the dollar is the euro. The euro is a new currency, and no single nation sponsors it. The euro is the creation of the Eurozone, and nobody knows just how stable or "solid" the euro is going to be. Worse, the European economy as a whole is not doing that well, and the new European constitution was just voted down by France and the Netherlands. So how "good" is the euro? Who the hell knows, I don't, do you?
So two junk fiat currencies run the Western world, the euro and the dollar. The euro is backed by a bunch of fragmented nations that don't have a constitution, and the dollar is backed by the world's greatest debtor, a nation with a negative trade balance that is pushing $700 billion a year.
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