Ron Paul: "What Has QE Wrought?"
The race is now on to find an alternative to our current dollar system in order to escape from the Federal Reserve run banking system. Crypto-currencies have been offered as an alternative with much vigor. By Jan. 3, 2018 their total capitalization was more than $700 billion with 97 percent of that achieved in less than a year. It has been declared a “mania” by many. This type of price appreciation would not have occurred without the funds the QE’s generated by the Federal Reserve. The money managers have been in a quandary for the past 10 years because the inflated money supply and the very low interest rates did not generate the economic growth they wished for. Now it’s going into numerous bubbles like stocks, bonds, housing, student debt, and crypto-currencies. My view is that the entire economy is a huge bubble with sovereign debt being the most dangerous.
Though currently, there is a lackadaisical interest in gold compared to crypto-currencies, I believe gold is in the early stage of the third major bull market since 1971, which started two years ago when gold was $1050/oz. If history is of any benefit, gold will be used in the coming monetary reform, whether it’s accomplished by the government or the market. But if the choice of a monetary unit turns out not related to something tangible, it will prove to be a first in history. Just because our current money is now a total fiat dollar, it can’t be used to justify a market developed fiat currency. We must remember that the dollar was originally defined as a weight of silver or gold. The destructive nature of the monetary event of Aug. 15, 1971 was a consequence of our government refusing to maintain the dollar’s relationship to something tangible, thus making it a fiat currency. This explains why we’re in such a mess. A fiat currency developed in the market, won’t solve the current financial crisis the world faces.
A sound currency must have a fixed definition of a tangible item. Its value must be determined by free market pricing in exchange for goods and services. Bi-metallism, by fixing an ounce of gold to a certain number of ounces of silver was unworkable. Fixing the definition of the monetary unit is similar to fixing the exact length of a “yard or meter.” The “yard” can be used to measure any item you want and it’s crucial in all construction. Likewise, a currency with a fixed definition of a tangible item will facilitate all market transactions. A fiat currency without a precise definition by its very nature will fluctuate wildly and interfere with all economic calculations. This is why all fiat currencies are destructive and end badly. The dollar since 1971 has been a fiat currency and the mischief it has caused has been especially harmful and broad since it has served as the world reserve currency. The importance of this is evident when the US government is willing to exert military force against those who threaten to abandon the dollar in world trade.