Worldwide Nonstop Inflation -Why? Part III

Last Restraint against Inflation Removed

But in 1968 that, too, changed. The government passed a law getting rid of the 25-percent-gold requirement as a backing for its currency. Inflation increased.

With this obstacle gone, it was observed that the government ?continued to succumb to the continual political pressure for more and more inflating.?

All the silver was taken out of coins. Hence, the entire money system in the United States was divorced from backing by anything of real value.

Where the paper money had once pledged on its face that the United States ?will pay to the bearer on demand? the dollar value in real money (gold or silver), now it says: ?This note is legal tender for all debts, public and private.? The paper certificate that had for centuries only represented the real money (gold, or even silver) was now declared to be money. Which has real value ? paper money or gold?

Foreigners also Told ?NO? Adds to Inflation

While Americans could no longer get gold for their dollars, foreigners could. Gold was still the required money for payment of debts between governments in their international dealings. It was an agreement between the western nations.

But with constant inflation in the United States, foreigners became more distrustful of their U.S. dollars. So, many began turning them in for gold. Steadily, gold drained out of the U.S. Treasury

By 1971 the gold situation had worsened badly. Foreigners then held over fifty-five billion paper dollars, but the United States held gold valued at only about ten billion dollars. And the foreign dollar holders were showing signs of panic, of making a ?run? on the little gold left in the U.S. Treasury.

In August of 1971, the United States took drastic action. It closed the ?gold window,? suspending gold payments for its debts overseas. The promise it had made to redeem paper dollars for gold in overseas transactions was renegged. Other nations were shocked.

What did it mean? Some observers pointed out that for all practical purposes it meant that the United States had declared bankruptcy in its international dealings. This is another reason why the world?s money markets have become more unstable in the last few years

Will Inflation Eat up to Money?

Summarizing what has happened, the United States, the anchor of the Western world?s economy, has taken the following steps that many economists regard as a debasing of its currency. It has:

(1)?forbidden its citizens to turn in paper currency for gold (or silver);

(2)?forbidden its citizens even to own gold except in jewelry or rare coins;

(3)?removed any gold backing at all for its currency in domestic circulation;

(4)?refused to allow foreigners to turn in their dollars for gold;

(5)?spent more money than it made, accumulating huge debts and issuing more and more paper money to cover them.

True, living on borrowed money can stimulate an economy. If an individual earned $100 a week and then borrowed another $100 each week, year after year, of course he would live better?for a while. So too with nations. Their constant spending in excess of income does temporarily stimulate an economy. But it leads to huge debts and rampant inflation,

Also, a nation is not much different from an individual? where economic laws are concerned. You reap what you sow. Sooner or later there has to come a day of reckoning for reckless spending. An individual or a nation that keeps spending more than it makes will someday go bankrupt. There are no exceptions to that rule.

At the same time, it is not likely that gold, silver or any other precious metal could indefinitely be used to back paper currency. Populations grow, and so must currency in circulation. But gold that can be mined from the earth is limited. So there is this dilemma?people lose confidence in paper money not backed by gold (or silver), but sooner or later these precious metals could not back all the currency that would come into existence anyhow. This dilemma shows the basic instability of money. And many individuals are now buying government approved silver and gold.

Where Is Inflation Heading

In any event, with fewer and fewer restraining forces at work, many nations have built up huge debts. They have flooded their economies with paper currency to pay their bills. As some economists have pointed out, any private citizen that did such a thing would be accused of counterfeiting.

One source stated that money printed without any backing ?is as counterfeit and valueless as if it were printed in a gangster?s basement, the difference being that the authorities have a license and the gangster doesn?t. Tragically, the result upon economy is exactly the same.?

All the evidence from the field of economics, and politics, indicates that things are no different today. Many governments are issuing paper money without anything of real value to back it up. Since ?every experiment with this kind of money has resulted in disaster,? there certainly is no valid reason to think that our time is likely to be an exception. Inflation will continue.

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Source: http://www.gongyifair.org/worldwide-nonstop-inflation-why-part-iii.html

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