Something Bernanke is Neglecting To Mention When He Disses A “Gold Standard”
Founder, ML-Implode.com
Other critics have done a good job of debunking Bernanke’s various weak economic arguments against a gold standard, made in his comments to college students two days ago.
However, I think their efforts are largely in vain, as Bernanke’s remarks are directed towards already-decided opponents of monetary gold to give them a fresh excuse (on authority) not to change their position. And those who “believe” in gold will not be swayed by Bernanke’s puerile remarks. None of this changes anything, as far as rhetoric goes.
So I’d like to make an unconventional response.
The essense of my response is this: “Hey, Bernanke, we’re already on a gold standard!”
“Huh?” You might say, not even knowing where to begin. But before you call me crazy, remember that the core financial asset that the US government, and all the rest of the world’s nations and central banks hold, is gold. Yes, still, even today — even in the US (the US is in fact the world champion of gold holdings, with 8000 tonnes, at least, so it claims).
Further, the US has rebuffed recent calls to sell its gold in the last few years, even though this would certainly be useful to raise cash in a time of severe deficits. More broadly, Western central banks have stopped their gradual coordinated sales (which ran from 1999-2009), and Eastern central banks are aggressively buying. Central banks as a group have been buying gold aggressively since 2009. The IMF has made a few sales here and there, but it is not a country (and thus has no national interests), and its sales have been immediately snapped up by central banks, negating the effect.
When Ron Paul questioned Bernanke point blank about why we still hold this official gold last year, Bernanke hemmed and hawed, and then came up with “because it’s tradition”.
Well, if it is really just tradition, and there is no fundamental reason for a nation and/or its central bank to hold gold as its core balance sheet asset, I would like to see Bernanke propose that we sell our gold here in the US.
I doubt he will be doing so any time soon.
So, clearly, all major countries of the world are already on a gold “as the core balance sheet asset” standard. The distinction between now and points past is that they have removed any direct covertibility between the paper money notes they issue and gold. In other words, gold is the official monetary standard, but only for the elites — it is not for mere peasants like you and I to get access to the gold backing the currency they issue on a day-to-day basis.
This distinction in hand, the picture becomes more disturbing. Bernanke isn’t arguing against the monetary usage of gold on some sort of general economic basis. He’s arguing that you shouldn’t have access to gold in the sense of providing the same sort of monetary stability that central banks and nations still, today, hold it for. The elites doing so, and benefiting from this dichotomous system, include Ben Bernanke himself.
Of course, you can still go out and swap your dollars for gold, on the open market (since 1974). But central banks and governments will not, as they did in the past, guarantee the amount of gold backing currency notes. There is one and only one reason for them to still hold gold but not provide such a guarantee to their citizens: because their first objective is to provide an “elastic currency”, which is to say, one which allows them to continually rob the monetary value from the “little people” so they can redistribute it to the preffered banking and political cronies.
They still need gold to prove their credibility to the rest of the world, but are no longer willing to make such a guarantee to their own citizens. This is what Bernanke is defending, not the total absence of using gold in a central monetary role.
When you put it like that, it doesn’t sound so noble, does it?
Now, it is also worth mentioning that Bernanke, like most mainstream economists, worships FDR for confiscating gold from US citizens and devaluing the dollar during the Great Depression — which was the start of this system where only the global elites hold and deal in gold in an official capacity. Yet, FDR’s manuver did not end the depression: indeed, there were more years of the Great Depression ahead of the 1934 gold confiscation than behind.
This is because a depression isn’t primarily about deflation caused by the currency as Bernanke so dogmatically believes — it is more about factors in the banking system, business and trade world, and government, that have to do with the sudden onset of uncertainty. To the extent that policy makers and other leaders in this complex system fail to lift of the veil of uncertainty, the depression will continue.
The fact that cash is suddenly withdrawn from lending by the usual lenders in this picture does not automatically imply that the answer is to shower the economy with more cash, inflating the money supply. That’s what FDR did with his gold confiscation and devaluation, which, for all its trampling on the Constitutional rights of citizens, only gave a brief “sugar high” to the economy. That’s because FDR (despite implementing some useful relief measures) ended up strangling the economy by becoming too interventionist, creating regime uncertainty. Businesses went on strike.
The same thing is happening today, except this time the problem cannot be blamed on a gold standard. Despite a COMPLETELY elastic currency (Bernanke can print as much as he wants, and in fact, the business world is BEGGING for another round of his “QE” money printing — because everyone loves sugar highs), we are stuck in the same sort of economic rut as in the Great Depression. We have showered the economy with cash — with Bernanke trying DESPERATELY to keep it from getting into the hands of us peasants, using advanced financial engineering “technology” — yet the economic machine seems to be going nowhere. This is called “pushing on a string”, and apparently, it can happen just as well without a gold standard.
This all proves my point that a depression is more about regime uncertainty than monetary factors, which are secondary.
Actually, monetary factors do play a key role, but that is primarily in creating the onset of a depression by fuelling a speculative bubble beforehand. When central banks and the banking system inflate the money supply and times are not only good, but great, the “animal spirits” are in effect, the “money multiplier” kicks in, and enormous financial committments are made that cannot possibly be paid back on the long-run fundamentals.
There is no simple monetary cure that can reverse this situation once it has occurred. While the unsound financial committments are in a sense monetary, more importantly, they are societal, and must gradually be unwound through a process of disappointment, acceptance, change of control, shifting of real assets, and bankruptcy.
When the government creates regime uncertainty (as it is doing today with laws like Dodd-Frank, rather than going after the core financial fraud using the ample laws already on the books), and further, acts to preserve the very institutions that have failed the most and most need to give up control, it solidifies a long-term depression into place.
In fact, one of the moves that would help get us out of this depression would be to do something concrete that would increase faith in our financial system. I suggest that widening the monetary availability of gold once again to the market in general — that is, making dollars freely convertible to gold — would help immensely.
And rather than repeat the mistakes of the past by pegging gold to an arbitrary level (essentially government price fixing), the government should allow gold to be convertible to and from the dollar at a “market clearing level”, adjusted regularly by auction, so that the Treasury does not either lose undue gold ounces, or induce further deflation by over-valuing gold against the dollar.
Further to my comment of 9 August 2016, unlike the old Bank Rate system with its high interest rates, Quantitative…
Comment by Bridget on 22 March 2012:
Great points! Very interesting perspective. I do love how FDR is applauded for ending the Great Depression through his pump priming tactics when in fact it was the onset of the second great war that saved our economy. But that, I have been told, only proves the point that government spending can, in fact, pull us out of a depression. Which the counter argument, of course, is that killing millions of people sure sounds like a great achievement in economic policy.
Nice work Aaron!
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Comment by Ivan on 22 March 2012:
I enjoyed the article, but I must correct Bridget on something very serious. The idea that the Second World War ended the Great Depression is just as much a myth as the idea the FDR’s pump-priming, deficit spending, crop-burning, price-controlling, economically illiterate mayhem ended it. Both stories are just that: stories – stories replete with enough buncombe and shoddy thinking to bring those who favor common sense to utter dismay. I strongly recommend looking at the work of Dr. Robert Higgs on this subject. He has written many articles and given many talks (available on YouTube) demolishing this myth.
The crux of Higgs’ argument rests on two points. The first is one that would surely be seen as self-evidently commonsensical had the economics departments of the world’s universities not been hijacked by Keynesian cranks, and indeed was seen as such in days of yore before Lord Keynes poisoned the well: it is simply that destruction is just that – destruction. Bombs and rockets don’t create anything, they only destroy. Keynesian are too blinded by the fact that people must be employed to build bombs, and that still more people must be employed to rebuild a city after it has been leveled, to see that those people could have been doing productive work and ADDING to the stock of capital had not what was already there been destroyed. It’s not jobs per-se that are a sign of economic prosperity, but the KIND of jobs at which people work. To see how absurd the idea that war spending and destruction leads to prosperity is, all you have to do is realize that a consistent believer in this would have to advocate, for the sake of economic growth, say, carpet-bombing New York City, reducing people’s homes to rubble, and then paying them to rebuild everything – surely a crazy idea. Bastiat showed us all the broken window fallacy way back in 1850, and still it persists…
Furthermore, it is only after the government STOPPED spending money on war and reduced its expenditures by a whopping 65% – in 1946 – that the economy actually recovered. Indeed, in 1946 the US economy grew the most in a single year than it ever has in any other year during its history. During the war years, things were so scarce that food and clothing had to be rationed and price controls were imposed on nearly everything under the sun. Embarrassingly, Keynesians everywhere at the time were screaming that the government must not demobilize under any circumstances, or the result would be a horrific depression. Scarcely has any prediction ever been more wrong.
Keynesians have tried to respond to this by saying that the incredible prosperity of that year was due to private consumers, with their pent-up demand, filling in the spending gap created by the government, but this is also wrong, because the numbers just don’t fit that theory. It wasn’t until about 18 months after the war ended that total consumption spending reached the level it was at during the war years, and by then the recovery was already long over.
One more thing you need to realize is that all economic statistics from about 1940 until the end of the war are completely meaningless. As I said during the war years, there was a great deal of rationing and government-imposed price controls, meaning that the prices for goods at that time were not their real market prices. Fighters and bombs were not sold at market-clearing rates. The prices for these implements of war were arrived at in back-room deals in a way completely divorced from the real economy. This means that the “prices” for these goods, from which all the national income statistics of the time were based on, didn’t reflect reality – the real state of the economy and of supply and demand – in the slightest way. Thus, all the statistics claiming there was “prosperity” in America during the war years are extremely misleading.
Comment by Ron Anderson on 22 March 2012:
It is diversionary only to waffle for or against a gold standard when inflation is only a symptom of something far greater happening. That is, the Western manufacturing base is steadily being syphoned across to Asia because their workers gain so little compared with ours, and, we will not buy much more expensive comparable items to save our workforce jobs.
I suggest that adding a gold standard to western currency now will make no difference at all to the stated underlying cause here. China is rapidly gaining our manufacturing base and so all our wealth as we consume their goods instead of our own.
As for a new gold standard now, if we peg our monetary systems to gold next the Chinese will continue to buy up the gold and we will cease to be able to disguise the economic meltdown really caused by our imploding manufacturing base.
Gold will suddenly become very expensive as world supply diminishes toward the East. What will the USD look like then?
Without a manufacturing base the Western nations will continue to need to be propped up by handouts of new currencies. If these paper currencies are pegged to gold next we won’t be able to churn out anymore paper as gold and silver will still vanish toward china where more and more people are actively putting their profits into metal at an escalating rate now.
When there is no more cheap gold or silver to peg our currency to where will our national wages come from then? The conclusion to this crisis is terminal and we all rush toward it now until or unless we can come up with a practical solution, like equal award pay rates for workers internationally – ‘Yeah right!’
I tell you we are nearly all dead men walking now… Aren’t we? We can see the meltown of Western culture as it has previously occurred when there were too many people and a gutted economy. We called it World War One and Two, didn’t we?
History shows the process and its result rather well. We can see how far along individual nations are on the path. We can see those exhausted nations who never made it, ran out of money or resources, or, just exceeded biological barriers we were all prepared to live happily within without escalating lawlessness and the terrorism poverty creates.
Cultural implosion is beginning now. It really started about 2 or 3 decades ago when we all seemed to be at our most affluent and had many more children and took on more debts than our cultures and world could afford.
I can’t see any possible way to rebalance world manufacturing among countries unless they are all producing enough internal wealth to balance what is leaving. The bigger those trade inbalances, the clearer the outomes we barrel toward now.
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Comment by admin on 23 March 2012:
Brilliant essay from Antal Fekete going further into detail on how first the gold standard, then lack thereof, was mismanaged to produce the Great Depression (and respectively, the current depression).
http://www.zerohedge.com/news/antal-fekete-responds-ben-bernanke-gold-standard
Comment by admin on 23 March 2012:
I’m sorry Ron but I cannot agree. I think you are clearly confusing cause and effect.
I contend it is impossible to create the kind of “hollowing out” of our economy, as well as cultural decline, without adulterating the money at its very foundation. After all, Lenin himself said this was the way to sabotage the capitalist system. Ironic that the driving force in doing so was our own “capitalists”, in a WWI/WWII trend of unprecedented totalitarian power-grab.
If you would observe closely, you would note that as far as the private economy was going, it was largely healthy until the final breakdown of the dollar’s international gold backing under Bretton-Woods, in the late 60s and early 70s. At this point, things got ugly. Nixon cut the gold tie, inflation and loss of confidence in the dollar skyrocketed, and Nixon went right to China to “open its economy to us”.
It is almost as if Nixon knew that, after destroying the currency, he would need to find a dirt-cheap peasant-labor-driven manufacturing source of almost limitless scope, so that this might allow us to paper over the deterioration of the domestic economy for longer.
Sure enough, in the 90s, mainstream economists and the government were gleefully proclaiming that there was no problem with offshoring because, hey, look at how the goods cost “deflation” is creating an overall benefit to consumers.
Of course, since all of that was maintained with flimsy, fiat-based “vendor financing”, an ultimate day of reckoning inevitably had to come. We’ve entered the beginnings of that with the financial crisis.
It is clear to me that the high level, policy-driven monetary deterioration led the “superficial” aspects of economic breakdown in this history.
Anyway, I suggest reading the Fekete essay I posted above.
Comment by Greg Olson on 1 June 2012:
I believe the more than 500 year old balance sheet process never did properly account for fiat money 150 years later in the mid 17th century. When the gold standard was removed to a pure fiat economy in 1971, it blew up the balance sheet equity. Every dollar is traced to debt today, so it’s no longer “owners equity”. In one stroke of the pen, they redefined our equity as debt. The balance sheet is theoretically moving toward assets = fiat liability, dropping the equity. The FASB accountants should be fired. They should not have allowed the President to remove the gold standard in 1971 because now the equity and liabilities no longer reflect reality to balance to the assets. The correct the problem, the fiat liabilities should be reduced when profits are earned. The accountants in authority should never have allowed the 1971 decision about removing the gold standard until they first put in place the accounting to handle it. As it is now, the fiat money created from nothing and tied to assets can never be paid down, forever, for the profits of the country will be funded by debt. Net worth has been blown up, since the fiat money now is worthless and defined as “fiat debt” by the decision.
Comment by Greg Olson on 2 June 2012:
This seems to be a knowledgeable place. I wanted to explain the intent of my last post. I have an Accounting degree, and I’m examining the balance sheet implications of a pure fiat system, which our country has moved to by removing the gold standard.
The conclusion I’m realizing is staggering, but I need some very good accounting minds to look at it with me.
In a barter or gold system, the company profits include no debt in them, but they represent the value added to society by human work and intelligence represented by gold profits. In other words, if I borrow gold and promise to pay it back, there is a receivable and claim on that gold that is distributed in the economy. I can use that gold to buy capital and earn a profit, and then pay the gold debt off and retain the gold profits, which have real value, and therefore, belongs in owners equity or retained earnings.
Therefore, when the original balance sheet method was designed more than 500 years ago, it was not designed to handle fiat profits in the equity section of the balance sheet. Indeed, in a 100% fiat system, every asset is associated with fiat debt. There is zero owner’s equity by definition. It’s debt, not equity.
To pay off all the debt will fiat cash, all the assets go back into the black hole where the debt was created from nothing. In other words, you can’t pay off the total fiat debt with revenue from loans or credit cards, without creating debt somewhere else. The fiat money that creates revenue does *not* have gold collateral to generate equity. So as fiat money pays for products and services, not only does it inflate prices, it also puts **debt money** in equity.
When the gold standard was removed, the FASB needed to include an accounting change that would recognize profits by reducing the fiat liability; otherwise the balance sheet equation doesn’t close at the macro level. On a gold fractional reserve system, the accounting had some integrity since is a fiat dollar represented a real asset that was loaned that had value. Even though the person borrowed the gold indirectly through a note, it is exchanged in the system and represents as an asset if “gold” and equity was defined somewhere else in economy. In other words, “gold” was created in the imagination beyond the reserves, but it was gold not fiat debt. And it worked, as long as society does not claim all the gold at once, blowing up the fantasy. It balances.
But on a fiat system without gold, the cash is a fiat liability, and so, when it goes through the economy it remains a fiat liability at a macro level, until the liability is paid off. Therefore, there is no “owner’s equity” in a pure fiat system. It’s just assets and liabilities.
Once the 1971 decision was made, the entire accounting system became a deception and fraudulent. It rigged the banks so that the debt can never paid off, except by others going into debt too, and we associate our salary, wages, and materials to a liability of fiat money, creating a perpetual slave system to the banks forever. The total debt cannot be paid off, without someone increasing debt elsewhere in the closed fiat system. Impossible.
Furthermore, without equity profits in the transaction tied to real value of gold, the assets grow only when the fiat debt grows. The assets shrink, only when the fiat debt is paid off. This is extremely serious. Where is FASB? Where are the accountants to stand up and pronounce the banks broke the 500 year old accounting system by removing the gold standard? Obviously the banks are a whole lot smarter than we are. Within 30 years, they have cranked the fiat debt up to $58.5 trillion dollars in all sectors, with no way to even pay it off without borrowing more money. This happened because the decision blew up the equity of the balance sheet at a macro level. Do you see it? All the mortgage debt, government debt, financial sector debt, and consumer credit drove the REVENUE side and net earning in all of the companies across the nation. It’s not in the individual companies books as a liability, but it went through the revenue side and landed in equity, deceiving all of us!
To correct the accounting, all of the “debt” that landed in accumulated net earnings needs to be recorded as a worthy asset in the nation. Any liability that created that revenue needs to be reversed by an accounting adjustment to REDUCE the fiat debt and balance books. The banks have been overpaid, indeed, even before the gold standard was removed. The banks have been ripping us of with faulty accounting principles for 350 years. The fact is, the fractional multiplier is not real money, so the liability should have been reduced when profits were generated from the very beginning.
Please will some bright accountant please explain where I’m wrong in detail? Thank you.
If I’m theoretically correct, the banks owe us a lot of money back as a nation due to very bad accounting practices that were pushed on the accountants 350 years ago.
Comment by Greg Olson on 12 June 2012:
I hope my last two posts were clear. I noticed there are some typos. Sorry about that. I really need some other accountants to verify if my logic is correct. By removing the gold equity profits in 1971, as well as in 1650AD for that matter by creating fiat notes, it has completely changed the entire accounting process to favor the banks, and we will eventually all be financial slaves to them, if FASB doesn’t change the accounting rules. Today on a *national macro level* Assets = Liabilities is the balance sheet equation.
The poor accounting is designed to have the fiat debts increase forever. Why has no one seen this for 350 years? Answer: The bankers and accountants at the top know exactly what they are doing with fiat accounting. We have trusted they cared about us and have integrity, when in fact, they do not. They just want the fiat debts to grow and grow forever. I believe for that reason people like me and you at the bottom of the accounting ocean did not see it for 350 years. We have implemented what was passed onto us, assuming it was correctly accounted for.
If I am wrong, I need to know it, and why. Please help. If I’m correct, the implications are astronomical. It means the banks owe us a huge refund for ripping us off for 350 years. How do they pay for it? Simple. Make an accounting entry to lower the fiat debt and increase retained earnings for the profits earned by *debt funding* for the last 350 years. The math is simple. The % of debt to equity times profit equals the amount of the adjustment needed to lower fiat debt balances.
If my argument is still a bit foggy, you have to look at what we are doing. On a company level, we are recording profits in retained earnings. It looks fine, so we don’t consider it further. We are not Congress, the President, or the Federal Reserve that reviews the macro view for the nation. So we don’t feel anything is wrong. We don’t record where the cash revenue originates from customers, whether from equity or liability. However, at a national macro view, if we buy something with a credit card, that revenue is not a profit for the “nation” all, but it’s a debt. But we are recording it as retained earnings in owner’s equity, when it is not. It’s a debt on a credit card. So we are not properly recording the transaction on a national level. The equity and debt are out of balance at the top. A debt at the top macro level is reclassified as equity at the bottom micro level. It’s simply misstating the national books, and it needs to be fixed, either by moving the equity revenue back into debt, or moving the fiat debt into equity. Then the micro adds up to the macro. Eventually it’s going to go one way or the other way, for once we removed the gold standard, that decision put the books theoretically out of balance. On a gold standard, theoretically, every dollar in the nation was backed by gold. So there was integrity in the books using a fractional reserve system.
But let’s go back before the fiat system was invented. 500 years ago, any loaned gold (a debt) passing through the revenue sales account did not come from a fiat black hole, but it had inherent value based on the prior work of human beings. It was real gold revenue, not fiat revenue. In the 1500s, a business borrowed gold to make a profit, but the lender had a receivable claim on that gold. And if a company succeeded and was profitable, the receivable was paid in gold, not fiat debt money. The gold asset or a receivable is owner’s equity by definition, not a liability.
However, if the companied failed, only the lender took the risk and lost money. But the gold still remained as owner’s equity somewhere in the nation. The nation’s balance sheet equity didn’t decrease when a business failed. However, it would **increase** when the businesses increased profits. But that increased profit was limited to the nation’s ability to produce gold. The growth was slower, but it was quite stable on the balance sheet. That process and definition started changing in 1650AD with the goldsmiths introducing the fiat system to Europe, and the accountants were asleep at the wheel and made a mistake, or they were deliberately in bed with the banks and knew the accounting was bad. In an instant, the gold equity was nuked 100% in 1971. Now the fiat accounting is a huge problem. The balance sheet is misstated. It’s out of balance. It is a rational inconsistency.
In contrast, in 1500AD retained earnings was real and tangible. 500 years ago there was no need to account for the revenue source being debt or equity—because the debt was backed by gold equity somewhere else. But today, it’s a big deal because the revenue is now backed by fiat debt, which is a liability, not gold in owner’s equity.
Therefore, the books have not been correctly stated since 1650, and gradually the fiat fractional reserve system has changed all the accounting transactions in the banks’ favor. If we are to have a fiat system, the only way to level the playing field with the banks is to change the accounting for fiat profits. The liability must be reduced to define our intelligence that creates real value as retained earnings in owner’s equity. Otherwise, by definition, we are worthless human beings that cannot add value to society by our industry.
As it is today, the accounting methods define us as slaves to a communist system that removes our freedom by redefining property ownership. Today’s fiat system is pure communism in which property ownership is destroyed by accounting methods and definitions rather than by armies taking our property away from us. But the end result is exactly the same. The accounting rules destroy capitalism and the free market system by stealth. But we can’t see it at the bottom. Each individual company accounts for revenue without recording the source of the cash, and we currently use a traditional balance sheet that includes owner’s equity, deceiving all of us, hiding from all of us the real reason the total debts increase forever in a fiat system. They can never be paid off without the GDP imploding on itself to $0. Thus, only those that manage the finances at the national level can perceive the erroneous accounting. And they, of course, like it the way it is. Otherwise, it would have been corrected centuries ago.
I cannot believe I’m the first one to have seen this accounting error in 350 years. I’m not that smart. It’s not even that hard to see. The only reason I see it now is that I’ve taken a recent interest in macro economics which led me to think in terms of macro accounting. Thus, logic leads me to conclude the banks are leading the accountants. The banks want to become the only owners on earth in 50 to 100 years, depending on the decision FASB makes in the next several decades. Once the decision is made, it will be nearly impossible to change. Now is the time to get the issue on the table and see what is really happening and what is at stake. Do we want all of our property tied fiat money at the top? You might not have debt today, but all of your assets are by definition tied to debt somewhere else in the system. Someone else has to fund your assets with borrowed money by accounting definition. Total assets will equal total fiat debt.
The banks will argue that fiat profits don’t belong in owner’s equity, of course, and that the opposite should occur. The equity should be reduced instead of debt, since the profit is funded by fiat debt. The Income Statement should no longer be tied to the balance sheet Retained Earnings, since the profits are technically tied to fiat liabilities, not gold based equity.
But that bank argument assumes we have been accounting for fiat money correctly since 1650 AD. Thus, the argument *must* return to a time prior to 1650AD when a 100% gold-based or real asset equity existed. The profits added increased equity value to society, and the intelligence and work to create that profit was a new asset/equity for any nation, an increase in real wealth. Fiat money did not exist. Now that fiat liability was created 350 years ago, we must reduce the liability to be consistent with the GAAP prior to that time. It was an accounting mistake made in 1650AD, and therefore, it diffuses the banks’ argument.
Otherwise, our human intelligence and hard work defaults to being owned by the banks, not as an asset tied to equity, but as an asset tied to a liability, with zero possibility to change it. We have to argue the 1650 AD mistake, or the banks will argue “GAAP”, and will win, based on using “Generally Accepted Accounting Principles” for 350 years, and they will eventually disconnect the Income Statement from the Balance Sheet by defining that profits are all funded by fiat debt, and have been defined as such, beginning in 1650 AD, and it was not a mistake. Today, without the gold standard, there is no reason to record profits in owner’s equity any more, for we have gradually transitioned to a new way of financing by 100% liability.
This is very serious. I hope anyone reading “gets it”. It means inflation and growing debt forever. The banks have the GAAP basis to argue the accounting has been correct since 1650AD, and now that we legally removed the gold standard, by using GAAP, and if no mistake occurred, then the income statement and balance sheet should no longer be tied together in retained earnings. It has to be argued as a 1650 mistake now, or the banks will one day change it, and we will have nothing to say about it! Once it is changed from the top, without debate for “correct accounting” and that fiat accounting violates “GAAP” prior to 1650AD, we are all toast. The banks will win, and the possibility of returning to a gold standard of some sort will be removed forever
Furthermore, without the equity part of the balance sheet, we as a people actually become a liability to the black hole of fiat money, which was created from nothing, and thus, we become a nation of worthless works and assets on the books! Does anyone out there follow my logic? How does it feel to have your work and intelligence be defined as worthless on the accounting books? Zero equity. Assets = liabilities. There is no way to be a full or part owner as a nation, unless you are a banker. The banks will own everyone’s job, company, and literally all the assets on earth. Do you get it? To grow a business, the owner will have to use fiat money, or to buy a product or service, someone will need to borrow money to buy it. You can pay off your debt, but it will require someone else to borrow money to give you the cash pay it off, for that is where your salary will come from—borrowed money. Eventually, as the debt breaks past economic limits, new businesses stop forming, unemployment increases, and the GDP implodes as the debt is paid off faster than it is created, and you don’t get a paycheck anymore.
The profits earned by any company are a liability, not owner’s equity. There is no more gold standard, but there is only a debt standard to fund assets, which includes your salary. It’s already that way at a national level, but you and I just didn’t think through it, because at a company level, we can’t see it. It’s not clear today, but if they ever change the accounting rules and remove equity from the balance sheet for all companies by FASB law, and disconnect the Income Statement from the balance sheet, then we will all “understand it” at the bottom. That will remove all owners from the equation. It may take 50 to 100 years to do that, but that is the logical conclusion in the end by removing the gold standard in 1971. We can’t be naïve and blind. The bankers are quite aware of what they are doing. We are ignorant on how to argue the case for a gold standard, for we are blinded by the GAAP methods the banks created 350 years ago. If we don’t become smarter than the banks as a people, we will one day be their slaves 100%. The banks will be the only owners in town.
Comment by Greg Olson on 20 June 2012:
I see no one has responded yet. I don’t know where to go to have another accountant think through what has happened since 1971. This is very serious, and our total debt is almost $60 trillion because of the accounting mistake. Comments please. I’ll come back later to check if anyone responds or not.
Comment by admin on 20 June 2012:
I had some thoughts, Greg, but just didn’t have time to post them. I’ll reply briefly.
First, I don’t think having accountants look at what you are saying is going to help. Most accountants fall into the category of having been trained NOT to think at the high level you are contemplating.
You’d be better off with a philosopher.
Now, as to the specific point, I think you have an apt insight, and I and others have made a similar observation: the switch to fiat money (especially of the debt-monetization variety) essentially switches the asset side of the balance sheet of the economy (or: all balance sheets in the economy) from actual assets to liabilities.
One might think that things like physical plant are still “assets”, but when there is more debt (i.e. their construction/acquisition is financed), then there really are no assets in the equation to speak of.
Now, I think this is a bigger concern at the “macro” level than “micro”. It doesn’t specifically matter to any corporation or individual that the currency itself behind the “asset” side of their balance sheet is really a liability — to the monetary issuer!
It’s simply not a relevant concern at the level of running the business or day-to-day cash flow. Where it comes into play is in the long term, because of (1) the gradual depreciation of the currency, which effectively transfers value to the money issuer and therefore erodes capital, and (2) that during a crisis, the monetary authority and its supplicants (or masters, depending on your view on who pulls the strings) has the power to avoid (or forestall) being foreclosed upon, while forcing or allowing others to be foreclosed, therefore gaining a competitive advantage over them.
But it is interesting to observe that in the aggregate, if we put together all private balance sheets in society, we can pretty accurately say that the “asset” side is just an illusion, and all “assets” there are really just held in trust for the state/money issuer — or put another way, private property has effectively been abolished.
Of course, if society owns real assets outright (i.e., hard assets exceed paper assets plus liabilities), then it does truly “own” something free and clear, but from an aggregate point of view, this is certainly not the case because right now “paper assets” plus liabilities clearly exceed real assets in all developed economies worldwide (and the opposite situation probably is only fleeting if it ever occurs under fiat currency).
Comment by Greg Olson on 27 June 2012:
Thank you for your response. Technically, in 1971 we became a Communist country, according to the accounting definition. The definition of property ownership at the national level was removed.
Yes, right now at the local level, it’s not a problem, so no one is concerned. But in the long run, it is critical for our nation. Just because we record profit as “equity” in a company doesn’t mean it is. It’s debt. It’s all debt.
In fact, I believe the accounting has been wrong for 350 years. The fiat debt needs to be reduced for the profits generated by a company that adds value to a nation. The banks don’t deserve to take credit and own our creative intelligence for the profits we create. They owe us a refund by reducing fiat debt–a lot of it. They have overcharged us for 350 years.
This cannot be viewed at the local level because the original accounting system was developed many centuries before the fiat system was invented by goldsmiths, and when it was created, the revenue was not separated between “debt verses gold payment” because everything was paid in gold or silver or barter.
The older accounting system is what we use today, and it worked OK until 1971, when we removed the gold standard. The revenue is not revenue. It’s debt! We don’t see it because the accounting was never designed for a 100% fiat system. Just because the original accounting was not designed for a 100% fiat system is no excuse for the accountants to not fix it today.
As long as the promise to pay in gold existed (though it was a fractional reserve), it was compatible. But now it is not. Do you realize Nixon removed the entire equity of the nation by his signature? Does anyone “get it”? It is *only* fixed by adjusting fiat debt for profits!
We are now a Communist country, technically speaking, for there is no owner’s equity at the top. The definition of property ownership secretly changed without our thinking through it. Communists use guns to redefine ownership of property. The Federal Reserve did it without firing a shot.
In terms of the accountants, we need more than a philosopher. We need the accountant egg-heads that developed the theoretical foundations. They need to think through the impact of changing to a 100% fiat system. They did not. The FASB needs to change the rules or our Constitution will be removed, eventually, and replaced with a Communist dictator-type government.
The tops-down king-directed Federal Reserve fits into a Communist model, not a Constitutional republic. It has been grinding away at our freedom roots for 100 years. In 1971, it won the final victory. We are now a psycho nation that has lost its identity. We have two minds, “Communist-Free”. But eventually, according to mathematical reality, the Communist mind will prevail, unless the fiat accounting is changed by FASB. The numbers will drive us to pure Communism.
Furthermore, changing the rules would reduce the fiat debt significantly today — right now in the business sector. Everyone is searching for solutions out of this economic mess, and the easiest one is an accounting change. Any company that has debt can look at the profits in the last 100 years, and calculate the refund. (Profits x fiat debt/equity = refund) Then the current fiat debts should be reduced accordingly to the accumulated error for 100 years. The banks over charged us.
This is more than a theory. The accountants were deceived by the banks, and we were ripped off. In 1971, the entire old accounting structure fell apart.
Comment by Greg Olson on 28 June 2012:
(Continued) For those companies that have paid off all their fiat debt, they can’t reduce any debt balance. It is already 0. However, they should not have paid for the profits they created from debt, and therefore, the need a cash refund. Thus, companies should examine profits in history, determine the total debt, and based on % debt to equity financing, they should be given a check for cash, even though they have no debt. Since it is fiat cash, such a thing *can* be done with ease to “adjust” the books for the profit accounting. It’s created from nothing. But it would mean the new “cash” is not tied to any debt, and therefore, it is an asset tied to value created by the intelligence of human beings. The companies earned it. In essence, a business that adds value by work to society is “equity”, as good as gold, and it should not be a liability by definition. The asset is worth more than gold, actually, and the accounting system needs to reflect that value in the fiat accounting methods. To call it a liability is sheer Communism.
The banks get their authority from the government laws, and therefore, the government is indirectly driving the Federal Reserve. The FASB is actually run by the SEC, if you look it up, and the SEC gets its authority from Congress. And Congress gets its authority FROM THE PEOPLE. Therefore, it’s not too late for the people to rise up and fix it. But if we wait decades, it will be too late. The banks will move to redefine the accounting rules and remove equity from the balance sheet. We will just report assets and liabilities separately, without a “balance sheet” view. Assets will not need to equal liabilities, and we will be left with *three* statements: Assets, liabilities, and the Income Statement. This will happen at the bottom. Equity will be removed. Leave it alone, and that is what it will change into, for that is logically what it is *today*. Then the Communist structure will be fully in place, and it will be impossible to fix it after that decision is made.
The banks know they *can’t* implement the 100% fiat system like that under the United States dollar. They have China’s currency in mind. I believe that decision was made in 1971. Communist Russia was sacrificed as a decoy two decades later. The banks have had their eyes on China for 41 years, ever since the gold standard was removed.
The United States trade deals with China began shortly afterward–in the 1970s! It was never the plan to have China become like the United States. The plan is to have the United States become like China.
I doubt the US Congress or Presidents know the end goal. They are pawns in the “free enterprise” false rhetoric of the banks’ “gambling casinos”. Our country has a Sesame Street and Barney attitude that is just foolish when dealing with Communist or Muslim nations. But the banks and China *leaders* know the game plan, but the people at the bottom can’t see it. They are not accountants. Then don’t know the change in 1971 created a Communist USA. We will fight and die for freedom before being identified that way. The banks know that, so they are in the process of changing the world currency to China’s currency, so they can get total control of the world without firing a shot.
Finally, you make a good point. The accountants don’t look at macro accounting. However, the Federal Reserve does, and thus, there is no organization on earth to stand up to what they are doing. The US Government uses the Federal Reserve’s data for the macro view accounting, putting our country in its hands, as they move their plans forward. The Government, Nation, the SEC, and the FASB need to wake up to the big picture of what’s happening or Communism will cover the globe because of the *fiat accounting* alone.
I believe most of Congress and our Presidents are very naïve to what the banks’ end agenda is. They are being told we are moving to a New World Order democracy, which Congress is attracted to. Even Bush Senior made is public approval of the idea as President. But it is not the agenda. It’s world Communism. The banks are lying about that.
The Sesame Street American Presidents and Congress will be the first to be executed, if the full agenda is ever achieved. They are deceived fools to believe the New World Order will be a democracy of some sort. The banks have been wooing our Presidents and Congress for decades to “help the world with democracy”, producing the fiat money as gifts to nations to weaken all the nations of the world, creating economic dependency on the banks. The Big Bird yellow Congress stooges will be skinned, plucked, and burned in the oven, if they don’t wake up to what’s going on. They will be the first to die. The accounting *proves* this is true. The numbers don’t lie. It’s Communism we are heading towards, not a world democracy. If Congress understood this hidden agenda, every one of them would change their minds in seconds and fix it immediately. They are sitting ducks of death in the future.
Anyway, I appreciate your feedback, and knowing someone is getting the message, somewhere, as you have said you see it, gives me some peace of mind. There is actually an accounting solution to stop the banks, and Congress has the power to change it through the SEC edict to the FASB, if they don’t wait too long.
That being said, I would feel even more comfortable if more trained accountants and CPAS—those with the PhDs and the highest experts would read my proposal and agree that it is a strong case and has merit. I have an accounting degree, but that doesn’t qualify me as an expert in the field. We need some freedom-fighter expert accountants to delve into this deeply.
Comment by Greg Olson on 11 August 2012:
Well, I didn’t get a response from any PhD accountants. Sigh.