The Fed Doesn’t Understand Real MoneyRon Paul
For over one hundred years, monetary policy in the United States has been the purview of the Federal Reserve System. Over that period, the dollar’s value has decreased by over 96% as the Fed has pursued loose monetary policy for decade after decade. Yet despite that abysmal performance, the policymakers at the Fed still consider themselves to be monetary experts.
Perhaps that’s because the Fed has employed, provided scholarships to, or otherwise influenced at one time or another the majority of monetary economists in the country, or perhaps it’s because no one else in Washington cares to delve into the minutiae of monetary policy. No matter the reason, it’s clear every time that a Fed policymaker speaks about money that the Fed doesn’t understand what real money is.
San Francisco Fed President John Williams, who is slated to become the next President of the New York Fed, arguably the second-most important position within the Federal Reserve System, recently stated that cryptocurrency “doesn’t pass the basic test of what a currency should be.” While cryptocurrency certainly didn’t arise in the same manner as commodity currencies, its development was spurred by dissatisfaction with the way that the Fed and other central banks engage in monetary policy. And the popularity of Bitcoin and other cryptocurrencies has skyrocketed precisely because cryptocurrency adherents see the advantages that Bitcoin offers versus the dollar.
Ultimately, money is whatever consumers decide to use as money. Ideally it should serve as both a means of exchange and a store of value. Historically, money has taken many forms, from cows to stones to seashells. In places where money is banned, those who wish to engage in exchange find alternative forms of money, for example the famed use of cigarettes as money in World War II POW camps. But of course no discussion of money would be complete with talking about gold.
Gold has filled the role of money for millennia for a reason. It is difficult to mine, in scarce supply, hard to counterfeit, and lasts forever. Whenever consumers and markets are free to choose their preferred money, gold always ends up being their choice. Successive experiments with paper currency or fiat base metal currency over the centuries have failed time and again, allowing gold to continue to assert itself as the ultimate money.
Unfortunately, gold has been forced out of its monetary role by Congress and the Fed. But while the Fed and the US Treasury do their best to downplay the monetary role of gold in society today, there’s a reason that they continue to store gold at Fort Knox and at the New York Fed. Deep down, even though they might claim that holding gold is merely “tradition,” they really do know that gold is real money, even though they deny it publicly.
The longer the Fed continues to deny the reality that gold is the only real money, the worse it will be for American citizens. The dollar will continue to be devalued as the Fed creates more and more new dollars out of thin air, enabling more rampant government spending and reducing the standard of living of ordinary Americans. But those who understand the Fed’s malfeasance and invest in gold will be able to protect themselves against the fiat dollar’s final collapse.