Sound Money

Dr Ron Paul has been advocating a return to sound money. If you don't want to be paying a continuous inflation tax, you should want sound money as well. Historically, the only way to prevent inflation is to strictly limit the amount of money in circulation. How do you do that? Why you make the money warehouse receipts for some commodity. That way, there can be no money printed that is not matched by stocks of the monetary commodity available at all times for redemption of the paper money.

Again, history teaches us that gold or silver have been the best commodity to use as a medium of exchange. They each have intrinsic value because of their usefulness (jewelry, electronics, chemistry) and can easily be made into coins and subdivided endlessly. The key to sound money is the concept of a commodity that is interchangeable with the paper money. It is less important what the commodity is, so long as there is a limit on the issuance of paper money (or its electronic equivalent).

Today, the Federal Reserve Bank can create new money at whim to lower interest rates, bail out defaulting financial institutions, buy votes or finance wars. The result of this money creation is exactly the same as when Uncle Vinnie down the block prints up his really good counterfeit $50s. The money supply goes up and all the money becomes worth less. Did you get that? There is no difference to you whether the Fed issues the money or Uncle Vinnie issues the money. The effect on the economy is the same.

It only makes a difference to the guy who gets to spend the money the first time. Either Uncle Vinnie gets to buy his new car or the political cronies of the Fed get the money. Either way, after that first spend, it is just more money in circulation.

So now let's look at some evidence to back this up. Oil has gotten very expensive lately. It is running between $90 and $100 per barrel. But that is when you measure it in terms of dollars. If you measure it in terms of gold, it is still about 1/10 ounce of gold per barrel-mostly unchanged. So the price increase you see is really the lower value of the dollar caused by all that counterfeit money, mostly from Uncle Fed.

So next time you hear some media expert laughing at Dr Paul for advocating the gold standard, you give him a good laugh. He is the idiot!