No debt is extinguished until it’s paid. No debt is paid until the seller receives payment in lawful money (gold or silver coin). Through most U.S. history, our government issued gold and silver certificates (paper money) that could be redeemed in gold or silver coin. Because these gold and silver certificates could be redeemed in lawful money (gold or silver coin), the gold and silver certificates were treated as if they were lawful money and competent to actually “pay” debts.
Legal tender (such as our modern U.S. currency) is not lawful money. Legal tender is, at best, a promise to pay—and I.O.U. of sorts—but not (yet) an actual “payment”. Legal tender is a means of discharging—but not paying—our debts. Legal tender and the discharge (rather than payment) of debt has been historically employed by governments that are at least insolvent and probably bankrupt.
Originally, U.S. legal tender was declared to be redeemable in lawful money. If you accepted a Federal Reserve Note (FRN) to discharge a debt, you could take that FRN to the U.S. Treasury and redeem the piece of paper for some number of silver dollars. But since A.D. 1971, no legal tender/U.S.-dollars have been redeemable in gold or silver. As a result, since A.D. 1971, we’ve had a completely new, bizarre and arguably unconstitutional form of currency that is claimed to be a “legal tender” but is no longer redeemable in anything other than more legal tender.
For example, today, if you accept a $100 FRN as legal tender to discharge a debt, and you take that $100 FRN to a Federal Reserve Bank and/or the U.S. Treasury to be “redeemed,” the Federal Reserve and/or Treasury will simply “redeem” your “old” $100 FRN with a “new” $100 FRN. You walk into these institutions with an irredeemable paper $100 FRN (legal tender) and you leave with another irredeemable paper $100 FRN.
Point one: Americans have merely “discharged” but not actually “paid” any of their debts since A.D. 1971.
Point two: American legal tender is now an irredeemable promise to pay. That is, by law, our legal-tender/promises-to-pay will never be actually paid, nor are they even intended to ever be paid. Our currency has been pure fraud since A.D. 1971.
The most you can get from the government for one of their promises to pay is another promise to pay. But you will never be paid, nor will you ever extinguish any of your debts. It appears that you, I and the rest of the American people, are deemed by government and the courts to be a nation of permanent insolvents, debtors and bankrupts. Why? Because virtually none of us have actually paid a debt in over 30 years.
Today, virtually all paper debt instruments—stocks, bonds, and cash—are paper promises to pay. Not payments. Insofar as cash (legal tender; FRNs) is irredeemable, all debt instruments (stocks and bonds) that can only be, ultimately, transferred for cash are also irredeemable. That is, your stocks and bonds have no fixed value.
Understanding that our legal tender and virtually all of our paper promises to pay are irredeemable is a surprising and even shocking insight. That understanding is subtle, hard to comprehend and even harder to believe. But once you understand that virtually all paper debt instruments (promises to pay) are irredeemable, you will understand why you want to get rid of your paper and purchase all the gold and silver you can acquire.
The following New York Times article may help to illustrate the significance and consequences of a monetary system based on the fraud of irredeemable debt—promises to pay that were never intended to be paid.
On June 25th, the New York Times published an article entitled “Congress Looks for a Culprit for Rising Oil Prices”. That headline made me laugh as I remembered Peter Sellers playing the bumbling Inspector Jacques Clouseau in the Pink Panther. I can just imagine Congress’ bumbling search for somebody (else), anybody (else) to blame for high oil prices and the approaching economic collapse—which seems certain to happen, omigosh, in an election year!
According to the New York Times:
“Even though the evidence is incomplete, [crude oil] speculators have nonetheless become prime targets for legislative action. . . . But energy expert, Daniel Yergin, claims that ‘the focus on speculation is largely misguided; the rise in oil prices can be explained by basic economic factors, such as the limited growth in supplies in recent years, a weakening dollar, a global surge in energy demand and a string of production disruptions in countries like Nigeria.’
According to Mr. Yergin, the market is relentlessly bidding up oil prices in response to deep-seated fears that the growth in demand will keep outpacing the growth in oil supplies in coming years. ‘There is a shortage psychology . . . that is reflected in the price of oil. You are seeing a lot of people who have never invested in commodities who are now piling into the market. But calling it speculation is way too simplistic.’”
“What role financial institutions—pension funds, mutual funds, and hedge funds, among others—are playing in driving up the price of oil to nearly $140 a barrel remains a key question.”
I suspect that these institutions simply sense that since “what can’t be paid, won’t be paid,” that they’re gonna lose their buns if they continue to hold onto irredeemable paper promises to pay like stock or bonds. I suspect that these institutions are therefore moving from paper promises to pay toward actual payments.
Oil futures are not “payments,” per se—but they are far closer to “payments” than stocks since there is an option to actually take possession of the oil. In other words, the only way you can ever redeem a stock is by taking cash—which is simply another irredeemable paper promise to pay. But commodities futures have the option of being redeemed in the physical commodity itself—not just another fistful of irredeemable paper dollars. Given that the dollar’s value is declining dramatically, and possibly disappearing, the incentive to invest in stocks or bonds—which can only be redeemed in dollars which can’t be redeemed in anything but more dollars—is diminishing. Investors are therefore seeking investments which can be redeemed in something real.
Thus, the “what can’t be paid” insight is 1) driving people out of paper promises to pay and into tangible payments (commodities); and 2) thereby helping to fuel commodity price increases (inflation) at the same time the value (not just price) of stocks, bonds, cash and other paper promises to pay are seriously depreciated.
Rising oil prices are not caused by “greedy” speculators. The rise is caused by objective investors who are moving out of one losing investment into what appears to be a winning investment. If these investors were merely moving from one losing stock (say, GM) into another winning stock (say, IBM), no one would care or comment. But these investors are moving out of stocks, bonds and cash (promises to pay that are redeemable only with more irredeemable promises to pay—dollars) as a class and moving entirely into the alternative class of commodities which can be redeemed in a fixed quantity of tangible wealth.
Thus, unlike stocks, bonds and cash (mere paper promises to pay which are redeemable in nothing other than more promises to pay and are thus irredeemable), commodities futures offer a promise to pay (the future) that can be actually redeemed in tangible substance (the fixed quantity of the commodity). I.e., if push comes to shove, the futures investor can actually take delivery of whatever commodity he’s invested in. Of course, as an investor, you might not relish the idea of taking actual delivery of 10,000 pork bellies, but this possibility is far more attractive than the chance of taking delivery of say $100,000 whose value had been repudiated by 15% by inflation. In today’s economy, you can win with the pork bellies but you are guaranteed to lose with the dollars.
Point: The alleged “speculators” are beginning to sense that irredeemable debt instruments as a class are going to lose big. These “speculators” are therefore seeking to invest in actual payments (gold or silver coins) or at least redeemable promises to pay—promises to pay that can be redeemed in some tangible, real substance like corn, crude oil or gold.
“There is little doubt that investments in commodity markets have grown in recent years as investors sought assets offering better returns than stocks, bonds or currencies. Investors, faced with a weakening dollar, a slowing economy and rising inflation, found a hedge in crude oil.”
I doubt that stocks, bonds and cash can be truly described as “assets”. They are mere promises to pay. IOUs. These promises to pay are asset-like, but I regard only payment (like a gold or silver coin, or a new truck, parcel of land or other tangible item) as an “asset”. Most modern paper promises to pay are primarily matters of wishful thinking. Because our paper promises to pay are not redeemable at any fixed value in a tangible, physical material, those paper promises are essentially a form of gambling. Because the value of the paper promises is constantly changing (and usually declining), as Forrest Gump might say, “Legal tender and other irredeemable promises to pay are like a box of chocolates—you never know what you will get.”
Because there is no assured value to legal tender, taking legal tender necessarily implicates risk. The intentional assumption of risk equals gambling.
I also disagree with the New York Times description of investments in crude oil futures as just another “hedge” of the sort that might be found in stocks, bonds or cash. Crude oil futures differ from other paper promises to pay in that the commodities futures are not just another subjective “hedge” that can’t be redeemed in anything other than more irredeemable promises to pay (cash). Crude oil is a tangible commodity. Crude oil futures are promises to pay that can be redeemed in tangible reality: Crude Oil.
“Some analysts who testified before a House panel estimated that oil prices could fall to around $60 a barrel if speculators were driven out of the commodity market.”
Well, as y’all know, “if” is a mighty big word. “If speculators were driven out of the commodity market,” they would presumably be thereby “driven” back into stocks, bonds, cash or other irredeemable paper promises to pay. If everyone could be “driven” to once again accept irredeemable promises to pay (dollars) as if they had real value, the dollar would once again soar and the current fiat monetary system could survive.
Unfortunately, the House testimony that oil prices could fall to $60 a barrel if speculators (investors) were driven out of the commodity market is about as realistic as testifying that I could leap 20 feet into the air if government would simply repeal the law of gravity. Technically, both testimonies are true, but both are also wishful thinking. What can Congress do to stop crude oil “speculators”? Criminalize investing in crude oil? I see no way that investments in crude oil can be curtailed.
The fundamental problem facing Congress is not “speculators” investing in crude oil. The problem is that people are beginning to abandon all investments that are nothing but paper promises to pay that, on average, can’t/won’t be paid and are therefore partially or even largely irredeemable. The “problem” is that people are moving into investments that can be redeemed in something tangible like corn, crude or gold. The problem is not investors moving greedily into oil, but rather investors moving fearfully out of paper—i.e., abandoning irredeemable paper promises to pay (dollars). This move—from irredeemable paper promises to pay into payments or at least redeemable promises to pay—is evidence that irredeemable paper promises to pay (the foundation for the modern monetary system since A.D. 1971) is in mortal peril.
Ask the Federal Reserve—they’ve declared for years that the fiat dollar’s only real backing is the American people’s confidence in the dollars. Unfortunately, the move from paper promises to pay into commodities is evidence that the public is losing confidence in the irredeemable paper promises to pay (dollars). Public confidence in irredeemable paper promises to pay is the dollar’s last source of value. Irredeemable in gold, silver or even oil, the dollar’s only lifeblood is public confidence. As that confidence wanes and the public moves from the irredeemable into the redeemable, the dollar will die, the economy will collapse, and people (maybe lots of them) may die.
Thus, the consequences of the move from irredeemable promises to pay into redeemable promises to pay (commodities futures) are far greater than a mere rise in the price of crude oil and inflationary pressures on the prices of food, products and services. Increasing investments in crude oil in particular and commodities in general are evidence of a universal loss of confidence in the “value” of dollars and thus a mortal threat to the U.S. and global economies that are based on the dollar’s value.
Can public confidence in the fiat monetary system be restored? Perhaps—at the point of a gun—but otherwise, I don’t see how. I doubt that that confidence can be restored without a currency that is redeemable at fixed rate in gold, silver, food, something tangible. If my analysis is correct, the rising price of crude oil may be absolute evidence of the dollar’s impending demise and a brutal collapse of the U.S. economy.
The rising price of oil is not a simple matter of mathematical price relationships. The rising price of oil is evidence of an kind of economic blasphemy—the repudiation of irredeemable debt—the foundation of the world’s economic system since A.D. 1971. Properly understood, the rising prices of oil, gold and commodities in general are not evidence of “inflation”; they are evidence of the dollar’s approaching demise.
“Facing mounting pressure to step up its oversight, the Commodity Futures Trading Commission said that it had recognized the need for better information. Its acting chairman, Walter L. Lukken, said his agency was seeking more trading data from exchanges in both the United States and abroad.”
The “need for better information” and search for “more trading data” is just an excuse to play for time. No amount of tinkering with interest rates or the quantity of money can solve the problem. There is no legislative solution available. Congress can’t criminalize investing in crude oil (or gold, or other commodities). Congress is even less able to compel the people to have faith in the irredeemable dollar. We have finally reached a point where there is no hope, but hope.
So who knows?—if the problem with irredeemable debts can be postponed far enough into the future, perhaps the people will “naturally” regain confidence in the irredeemable dollar. But I can’t see how. The system has relied on the people’s ignorance and ability to be deceived for over 30 years. Once folks see the truth, it’ll take a real miracle to persuade them to once again trust to the former lie that irredeemable debt instruments are safe investments. But that may be all that’s left to prevent an economic collapse: miracles; divine intervention. Without those, I suspect that the question is not “if” but rather “when” will the dollar die and the U.S. economy collapse. Two weeks? Two months? Two years? I don’t know. But I’ll bet the answer is closer to two months than two years.
“Senator Schumer said he could see no easy answers to high oil prices. ‘Everyone would like to believe that there is a silver bullet—like a bubble or speculation—that can solve our oil problem. But instead, it would be better for the nation to focus on conserving energy and reducing its oil consumption.’”
Maybe so, but how can the nation “conserve energy” and “reduce its oil consumption” without going into a recession or even depression? Senator Schumer’s comment implicitly admits that the entire government has no clue how to handle the problem, and that there’s probably no new strategy able to prevent an economic meltdown.
In fact, if America really wanted to solve the problem with crude oil prices, we wouldn’t need “conservation” or “reductions in consumption”. Instead, we should 1) recognize the inherent fraud and danger in accepting legal tender (irredeemable promises to pay) as currency; and 2) restore the kind of money (gold and silver coin) that is expressly required by Article 1 Section 10 Clause 1 of the Constitution of the United States. Unless and until we go back to a constitutional form of money, America is headed for a shotgun wedding with economic disaster.
The only remaining question is “When?”.
I don’t know—but I’d say “Soon”. Buckle up.
