"There is danger from all men. The only maxim of a free government ought to be to trust no man living with
power to endanger the public liberty." - - - - John Adams

Monday, June 13, 2011

Andrew Jackson was right

President Andrew Jackson destroying the Bank of the United States. Lithograph, 1828

"All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation."   - - - - John Adams
"Paper money eventually returns to its intrinstic value ---- zero."   - - - - Voltaire
"The bank, Mr. Van Buren, is trying to kill me, but I will kill it."  - - - - Andrew Jackson 

THE BANK PROBLEM.   From Alexander Hamilton to the Federal Reserve it just never goes away.  It was an article of faith in history classes to paint the anti-bank Andrew Jackson as an uneducated, rural rube who just did not understand modern finances.  Those with better educations inside the Beltway and on Wall Street even then attacked those who dared think for themselves and oppose their will.

The problem is both Hamilton and Jackson were right.  A nation really does nation need a central bank (Hamilton), but a central bank does also play politics (Jackson).

In fighting the bank Jackson ordered all federal deposits in the bank withdrawn. To do this, Jackson was forced to fire two Secretaries of the Treasury who refused to carry out Jackson's orders, eventually replacing Louis McLane and William J. Duane with the more agreeable Roger B. Taney.  Despite the Senate's refusal to confirm Taney's appointment, during his nine months as acting Secretary, he carried out Jackson's orders. Jackson announced that effective October 1, 1833, federal funds would no longer be deposited in the bank. 

Jackson was proven right about political actions by the bank.  In retaliation, Nicholas Biddle began calling in loans from across the country, engineering a financial crisis. Biddle believed that this would highlight the need for a central bank. However, the move backfired, when angry businessmen and farmers started blaming the bank. The bank lost its charter in 1836, and went out of business in 1841.

We are right back to the 1830s.  The current "private bank", the Federal Reserve, has been playing a wild and crazy game of high finance and politics.

Right or wrong the Fed is selecting which private business to prop up with government money, pumping up the stock market and running the printing presses night and day to cover the insane spending by the Socialists in Congress.

An argument could be made that the Fed is just trying to save a nation that has been pushed to the brink by moronic government policies.  The counter argument is the Fed helped cause the problems in the first place.

This battle of ideas will not end here.  But for a moment let's look back at American money in the olden days . . . . you remember? . . . . back in the days when our money was backed by gold and silver and actually was worth something. 

1934 five dollar bill with interesting wording (click to enlarge)

I just love the wording on the 1934 five dollar bill:
"This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank."

Under Lincoln's picture the words:
"Will pay to the bearer on demand five dollars." 

The conclusion is obvious.  This sheet of paper with Lincoln's picture that the government handed to you is worthless.  It is an I.O.U.   A promise from the government to pay you in REAL MONEY  (gold or silver) at a later date.  Not having to redeem notes in lawful money brought us the current printing press economy.  The Fed just adds zeroes to the ledgers of banks or runs the presses churning out endless worthless paper.

An example of government created inflation.  Based on government CPI Data, a $20 purchase made in 1913 today would cost $454.  An inflation rate of 2,171%.

Another way to say it, in 1900 some $20 in paper money could be traded for a $20 one ounce gold piece.  Today it would take $1,545 in paper money to purchase a one ounce gold piece.

Samples of American Gold and Silver Certificates

Somehow the economy of the United States managed to function and grow when you could redeem your paper dollars for gold and silver.

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