Mises Wire

Sound Money Is Required for Real Budget Discipline

News here in the USA has been full of the latest farce known as raising or not raising the debt ceiling. After the usual dog-and-pony show, a budget deal was reached. But was it progress? It was a foregone conclusion that the debt ceiling would be raised, yet again, for the simple mathematical reason that unless the budget is cut, via spending cuts or increases in taxes, it can do nothing else.

With the budget deficit projected to be (hold on to your hat!) $1.5 TRILLION, that is a political impossibility. Notice that I used the adjective “political.” Of course, technically it isn’t impossible to balance the budget or even run a surplus. But under the current monetary regime of fiat money that can be produced in any amount at the click of a computer at the Fed, there is no support either in Congress or among the electorate to do so.

All of us are corrupted collectively, as described by German economist Thorsten Polleit. Since the sky will not fall, yet, by printing more fiat money, no one can be expected to support real budget cuts—not the military, retirees, Medicare and Medicaid recipients . . . the list goes on and on. The Fed will continue to print money to support the rising government debt, in nominal terms only, until the dollar’s purchasing power is destroyed.

The only way to prevent this catastrophe is to return to sound money; i.e., linking the money stock to a commodity, almost certainly gold. By “linking” I mean that what the people call “money,” whether in the form of paper certificates, bank accounts, or some other form such as digital currency, is backed 100 percent by the commodity. The commodity is money. Nothing else. Certificates, bank accounts, or other forms are merely convenient ways to transfer ownership of claims upon the money stock.

Yes, this is the only way. Forget about electing or appointing the “right” people to Congress or the Fed. As long as any person or entity CAN print fiat money, it WILL print fiat money. It is illogical to support a monetary regime in which printing fiat money is permissible and expect that anyone exists who will refrain from doing so. Therefore, turn off your TV. Stop reading the business press. The US federal debt will grow and grow, and nothing can stop it under the current monetary regime.

The Return of Gold as Money

So, is that it? We are doomed? NO! Gold will return! Why? For the simple and rational reason that gold and only gold works. For five thousand years gold was money and money was gold. Gold allows complete strangers to engage in productive exchange. Not only complete strangers but even enemies can engage in productive exchange. You don’t like the Russians? OK, but you don’t have to like them in order to buy their natural gas. Cooperative exchange means, per se, that both parties expect to benefit.

For all I know my local hardware store owner may be an Atlanta Braves fan, about as low as it gets for a Philadelphia Phillies fan like me. Nevertheless, I appreciate the convenience and quality of his store’s products and services, and I’m sure he appreciates my patronage. This is not a frivolous matter. Gold allows everyone to benefit from a worldwide division of labor that requires no vetting of personal or political views or affiliations. In other words, gold leads us to a world of peace and prosperity.

The “East” Will Lead the Way, and Eventually the “West” Will Follow

The era of fiat money and dollar hegemony is coming to an end. Russia, China, India, the Arab nations, South Africa, Brazil, and others—let us call them the “East”—soon will settle their international trade in gold. It will work. Then the Western fiat money nations, led by the United States, will watch as, one by one, former allies start jumping ship. This does not mean that they are willing to be dominated by Russia or China, for example, only that real prosperity is dependent upon honest money; i.e., gold. The dollar will be thrown on the ash heap of history just like the French assignat, the Confederate dollar, the German papiermark, and more recently the Zimbabwean dollar. Of course, real statesmen, especially American, would understand this and start preparing their nations for this immense change in which military power is irrelevant.

Time for Humility

It never hurts to remind ourselves that the world is a very big place and America is just one small part of it. We must learn to be good citizens of the world, honest in our commercial affairs, friendly and respectful toward all, and meddle in the internal affairs of no one. For a nation that has arrogantly assumed that it is special, this will be a very hard pill to swallow. American military power and the dollar as the world’s premier reserve currency created a hubris that is evident in many areas.

Preposterously we claim the power and authority to change the weather and the earth’s temperature, to control the health outcomes for billions of people through international vaccine mandates, the ability and maybe authority to change a person’s biological sex . . . the list goes on and on. It is time for a return to humility, honesty, and above all freedom of the individual to live his life as he, and only he, sees fit.

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