A fiat money can only function when forced upon the people via aggression or threat thereof. As a tendency, a government, the bigger and more powerful it gets, will more and more take advantage of the system. The monopoly over money creation tempts those in charge to produce money and spend it for the government’s own projects.
In the United States this happens in the form of government bonds issued by the Department of Treasury. Those bonds are bought up by the Federal Reserve Bank. The government gets to spend the newly printed money first and hence gets to purchase goods before everyone else sees their prices rise. They hence benefit from the inflation and effectively impose a tax on those who get to use the money later, the workers who earn wages in businesses.
In 1971, $28 would buy one ounce of gold. Today $813 are needed. $29 are needed today for what $1 would have bought back then. This trend will continue. Inflation always causes misallocations, disturbs a smooth functioning of the market, and reduces prosperity below the level that could be achieved without it. It transfers wealth from those who receive the newly injected money later to those who get it earlier.
But as a certain amount of inflation becomes acceptable to a conditioned populace, the government will push the boundaries toward more inflation and debt with no end in sight. Those who run the state apparatus won’t owe money to anyone when they jump ship. They have no incentive to be prudent. It is the future taxpayer who will foot the bill. A hyperinflation will wipe out enormous sums of wealth for the common man, before the currency is finally destroyed completely. Those who understand the historical relevance of gold money, and act accordingly, will be the winners of this development.
Last Saturday, at the San Francisco “End the Fed” rally organized by the “Campaign for Liberty“, a man on the podium was holding up a Silver Dollar and an American Gold Eagle. To his left the mighty San Francisco Federal Reserve Bank, to his right the US Bank tower. “I hold here in my hand more money than these banks have ever owned … one Silver dollar buys me 2 popcorn, 2 sodas, and 2 movie tickets. My rent is $40 per month.” I presume he is self employed and demands payment in gold and silver Dollars from his customers as much as possible. He said he uses the money in grocery stores, cleaners, and restaurants who gladly accept sound money.
Now the incredible part: When he earns 50 Gold Dollars, he declares $50 on his income tax return for an asset that has a price of currently about $900. So long as he doesn’t cash it in he owes no income tax on its fair value. An American Gold/Silver coin is considered legal tender over the amount that is imprinted on it. This is, in fact, the law: After hearing him speak, I did my research:
As per wikipedia.org, another important decision was made by a court in 1877:
The case of Thompson v. Butler establishes that the law makes no legal distinction between the values of coin and paper money used as legal tender:
A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law knows no difference between them.
I encourage everyone to read this:
It is an article about a Nevada businessman who applied the concept I explained above throughout the 1990s. The most notable sections:
…Kahre hadn’t committed a crime. He had upset the Internal Revenue Service by paying his workers based on the face value of gold and silver coins, versus the market value in the Federal Reserve system (the value of the coins in U.S. paper dollars)…
…The IRS expected Kahre to report his workers’ earnings based on the coins’ market value in the Federal Reserve system. Instead, he didn’t report or pay anything at all because the face value of the coins fell below the reporting threshold. The IRS alleged that Kahre and the other defendants paid at least $114 million (based on the Federal Reserve system) to workers. The use of these coins in trade is a direct challenge to the fiat money system now in place…
…In 1985, Ron Paul and other congressmen challenged our country’s currency system, which was monopolized by Federal Reserve Notes (FRNs) the familiar greenbacks in American wallets. The congressmen successfully pursued the Gold Bullion Coin Act, which required the U.S. government to mint and place gold coins in denominations of $50, $25, $10 and $5 into circulation based on demand. The coins are made of 91.67 percent pure gold….
…[the] jurors delivered zero guilty verdicts. Three defendants, all workers, were acquitted as well as Kahre’s mother, who worked as a runner for her son’s businesses. Two other defendants were partly acquitted, the jury hung on one count each. The jury also hung on all counts faced by Kahre, Loglia and Kahre’s sister, resulting in mistrials…
…The outcome of this case is a magnificent victory for those of us who believe that the United States of America should have an honest monetary system.
I expect to see more cases like this in the near future. As the quality of the US Dollar diminishes people will be forced to look for a better money. What better option is there than using precious metals which the country’s highest federal legislator has made legal tender. The tax savings are a convenient side effect but the practice will certainly be legislated away and violently punished once the government becomes desperate. But at least it would be a means to put an end to the fraudulent Federal Reserve System that has been plaguing this country for 95 years, and once and for all do away with the inflation tax.