Gold's Hidden Secret
The Moral Hazard Of Fiat Money
Douglas V. Gnazzo
"Thus, our national
circulating medium is now at
Dec 15, 2005
the mercy of loan transactions of banks, which lend, not
money, but promises to supply money they do not possess."
The U.S. Federal Reserve Note's
price of gold has breached the high-water mark of $540 dollar
bills. Now, I trust many are thinking to themselves: "that's
pretty odd language to use to describe the recent move in the
price of gold - why not just say the dollar price of gold is
up to $540 dollars?"
Because it isn't - it can't
be. It is impossible under the present system of irredeemable
paper fiat debt-money. Here's why:
Federal Reserve Notes are dollar
bills. A dollar bill (FRN) is not a dollar. A dollar bill
is the complete antithesis of a dollar. They are to one another,
as darkness is to light. This is one of the secrets of the temple
they don't want you to know.
A dollar is 371.25 grains
of pure silver - commonly known as a Silver Dollar.
Bills And Certificates
Here is a photo of a $10,000.00
dollar bill or Federal Reserve Note, from 1918, which is no longer
in print. Notice at the top it states, "Will pay to the
bearer on demand." Federal Reserve Notes no longer have
that notation on them - why?
Photo courtesy of the
Federal Reserve Bank of San Francisco
A Brief History of Money
Let's here what the Fed has
"In 1914, Federal Reserve
Notes, which comprise more than 99 percent of today's paper
money, were issued by Federal Reserve Banks as direct obligations
of the Federal Reserve System. They replaced National Bank Notes
as the dominant form of paper money." 
"Fiat money is
similar to representative money except it can't be redeemed for
a commodity, such as gold or silver. The Federal Reserve notes
we use today are an example of fiat money." 
Promissory Notes And Promises
As the above photo of the Federal
Reserve Note from 1918 clearly shows, the note had written across
it the words: "will pay to the bearer on demand." Originally
all such FRN's were legal promissory notes, as they had written
on them the four necessary stipulations to be a legal promissory
- A specific date when payment
is due (on demand)
- The amount to be paid (the
amount written on the face of the note)
- A person or entity that will
make payment known as the maker (The Federal Reserve)
- A person or entity that will
receive payment called the payee (the bearer in possession of
Starting in 1963 Federal Reserve
Notes omitted the specific due date (on demand), and the payee
(bearer). Two of the four stipulations required for qualification
as a legal promissory note were no longer on the face of the
notes, yet the Federal Reserve Notes have continued to be issued
up to the present day.
It would appear that present
day Federal Reserve Notes are not even legal promissory notes,
but simply promises to pay - commonly known as a debt obligation
Silver And Gold Certificates
The following is a photo of
a silver certificate from 1878, courtesy of the Federal Reserve
Bank of San Francisco.
Courtesy of The Federal
Reserve Bank Of San Francisco
Brief History of Money
Notice the wording that starts
at the very top of the certificate, and continues down the face
of the certificate. It says, "This certifies that there
have been deposited with the Assistant Treasurer U.S. in New
York, N.Y. payable at this office to the bearer on demand One
Hundred Silver Dollars."
From this we see that silver
certificates, which came before Federal Reserve Notes, were redeemable
or payable on demand in Silver Dollars.
We also see, as stated in the
quote just prior to the silver certificate, that paper fiat money,
a.k.a. Federal Reserve Notes, are not redeemable in gold
"In 1967 Congress authorized
the US Treasury to stop redeeming silver certificates in silver
dollars or bullion beginning the following year." 
Here is a photo of a very rare
gold certificate, courtesy of the Federal Reserve Bank of San
Courtesy of The Federal
Reserve Bank of San Francisco
Brief History of Money
The certificate is repayable
(redeemable in gold coin) to the bearer on demand.
Now we will look at the dollar
that came before all the different forms of money we have seen
so far - the dollar of the Constitution - the Silver
Dollar. Some of the other earlier forms of money were
redeemable in Silver Dollars. The Silver Dollar had no need of
being redeemable - as it was real honest money that stood on
Flowing Hair Silver
The Constitution stated that
the money of the United States was to be coined, not printed.
It also stated that nothing but silver and gold coin were acceptable
as legal tender (legal tender being a questionable issue which
will be discussed in a future article).
Of A Dollar
The Coinage Act of 1792 clearly
defined the U.S. unit of account - the dollar:
"DOLLARS OR UNITS
-each to be of the value of a Spanish milled dollar as the same
is now current, and to contain three hundred and seventy-one
grains and four sixteenth parts of a grain of pure, or four hundred
and sixteen grains of standard silver." 
From this we see that according
to the Constitution and the Coinage Act of 1792 that a dollar
371.25 Grains Of Pure Silver - A Silver Dollar.
The U.S. Silver Dollar had
its genesis from the Spanish Silver Dollar known as Pieces of
Eight. As the Federal Reserve Bank of San Francisco states:
"During much of the 17th
and 18th centuries, the Spanish Dollar coin served as the unofficial
national currency of the American colonies." 
Gold & Silver Certificates
Gold certificates were not
issued until 1863-65. They continued to be issued until 1934.
They were redeemable in real honest gold coin. From 1878 through
1957 silver certificates were issued. They were payable on demand
in real honest Silver Dollars.
President Roosevelt made gold
certificates illegal to own as of January 17, 1934. In March
1964, the Secretary of the Treasury halted redemption of silver
certificates for silver dollars.
Federal Reserve Notes
Beginning in 1914 Federal Reserve
Notes were issued by The Federal Reserve. As stated in the Federal
Reserve Act of 1913:
FEDERAL RESERVE ACT
SECTION 16-Note Issues
1. Issuance of Federal Reserve
Notes; Nature of Obligation; Where Redeemable
Federal reserve notes, to be issued at the discretion of the
Board of Governors of the Federal Reserve System for the purpose
of making advances to Federal Reserve banks through the Federal
Reserve agents as hereinafter set forth and for no other purpose,
are hereby authorized. The said notes shall be obligations of
the United States and shall be receivable by all national and
member banks and Federal Reserve banks and for all taxes, customs,
and other public dues. They shall be redeemed in lawful money
on demand at the Treasury Department of the United States, in
the city of Washington, District of Columbia, or at any Federal
Reserve Bank. [12 USC 411. As amended by act of Jan. 30, 1934
(48 Stat. 337). For redemption of Federal Reserve notes whose
bank of issue cannot be identified, see act of June 13, 1933.]
A Dollar Bill Is Not A Dollar
So, we see that a dollar is
not a dollar bill. One is a weight of silver; the other is a
piece of paper (FRN) that is not backed by anything except promises
to pay. And what are Federal Reserve Notes redeemable in? - Lawful
money as stated in the above quote.
Which begs the question - what
is lawful money? Are Federal Reserve Notes lawful money? If Federal
Reserve Notes were lawful money, why would they need to be redeemable
in lawful money?
All of which means that our
money has not evolved, it has devolved.
It has gone from the high-water
mark of Honest Money - of silver and gold coin, to certificates
redeemable in Honest Money of silver and gold coin, to pieces
of paper not redeemable in anything - other than lawful money,
whatever that is. Perhaps Ben will be able to enlighten us.
Currency Debasement - From
High To Low
- Silver and Gold Coin - 1792
- Honest Money
- Silver and Gold Certificates
(redeemable in silver and gold coin)
- Federal Reserve Notes - 1913-14
(non-redeemable paper fiat)
The secret is out of the bag:
A Dollar Bill Or Federal
Reserve Note Is Not The Dollar Of The Constitution.
This is the secret the elite
international bankers do not want us to know. This is why the
global collectivists are afraid of silver and gold - because
they are HONEST MONEY.
Honest Money keeps the bankers
honest, they cannot just create money at will - by fiat. Under
the ever-watchful eye of gold and silver, bankers cannot loan
money that they do not have on deposit, and create by the very
act of loaning.
This is the moral hazard of
paper fiat debt-money, of Federal Reserve Notes or dollar bills.
Banking is the only business allowed to function where the moral
hazard to honor contracts
is called into question.
What other business is allowed
to loan that which they have not earned - that which is not in
their possession - that which doesn't even exist?
Ask the Chairman of the Fed
if the money is on deposit, ask him if ten percent of the people
wanted their money all at the same time, if the money is there
- if it really exists.
Or is the money merely in electronic
book-entry form - shades cast by the magic of slight of hand:
the wonders of double-entry bookkeeping? Now you see it, now
you don't. The more there is for me, the less there is for you.
Money that circulates only
because it has been forced upon the people by legal tender laws
is not Honest Money. What the State enforces as acceptable
for payment of taxes is not Honest Money. It is not the stuff
of free markets. It is not the money of the Constitution.
Is it honest to lend that which
one has does not have? Is it honest to lend that which one has
not earned? Is it honest to create that which one loans out,
and then to charge interest on it, for doing nothing? Fractional
reserve lending of paper fiat debt-money evokes the epitome of
moral hazard, and thereby pays homage at the altar of the money-god
Why has our money been allowed
to devolve from honest silver and gold coin to the present dishonest
paper fiat known as Federal Reserve Notes?
Why under the watch of The
Federal Reserve since 1913 has Federal Reserve Notes lost 95%
of their purchasing power?
Why are we not taught in school
the importance of purchasing power? Why are we not taught in
school the constitutional definition of a dollar?
If you say we are honestly
taught these things, then I ask: why can't the smartest monetary
minds at the Fed prevent our money from becoming worth less and
less, almost to the point of worthlessness? If they were taught
such, they sure aren't practicing what they were taught.
How can the greatest nation
on Earth idly sit by and sheepishly accept the debasement and
destruction of its money? Cui Bono?
The Yellow Brick Road
Follow the money is the answer,
back to the wizard behind the curtain - the emperor without any
clothes. Loans start out where? They begin at banks - commercial
Where do commercial banks get
money to loan? They get it from the people. Where do the people
get the money? They get it as payment - payment from the government,
for services rendered to the government.
Where does the government get
the money to pay its workers, vendors, and other employees? It
gets it from the collection of taxes.
But aren't we just going around
in circles? Before the people could pay money in taxes, they
had to get it from somewhere. Where did they get it? Ah yes -
at work. Where then did their employers get it?
The Circuitous Money Trail
The people get money from their
employers and banks. Employers get money from their customers,
and banks. The banks get money from government employees, vendors,
and contractors. The government gets money to pay its employees
from the Federal Reserve. The Federal Reserve gets money by monetizing
the debt of the U.S. Treasury - the debt of the State. See The
Federal Reserve: Fractional Reserve Lending for a detailed
This is the reason the bankers
are allowed to function by a different set of rules than other
The Federal Reserve Monetizes
The Government's Debt.
Without one hand washing the
other, the State would have to get their financial house in order;
they would not be able to run the deficits they presently do.
They would not be able to run up the debt they do. And the bankers
would not be able to lend out that which they do not have on
deposit; and to then charge interest on it - to make a profit
The greatest monetary mind
of the century - Sir Alan Greenspan has decreed such to be the
"Deficit spending is simply
a scheme for the confiscation of wealth. Gold stands in
the way of this insidious process. It stands as a protector of
property rights." 
Those are the words of The
Chairman of The Federal Reserve - Alan Greenspan, whom some say
is the greatest Fed Chairman to have graced the hallowed halls
of the temple.
The writing is on the wall,
patiently waiting on the fullness of time - to render its verdict.
What Price For Gold
A savvy analyst in the gold
market made a very keen observation regarding the inflation-adjusted
price of gold the other day:
"At $500, gold's real
price (as deflated by the CPI) is still lower than the peak of
every rally since 1972. It would take a nominal gold price of
$860 to match the deflated $500 high of 1987 and $1,020 to match
the $510 seen in 1982. In order to test the 1980 high of $850
the nominal value would need to trade at $2,177." 
This is an important point
wanting further discussion. Gold's "real price" is
lower than all rallies since 1972 when adjusted for inflation.
As discussed in many previous articles, paper fiat debt-money
looses purchasing power over time. See GOLD:
Sovereign of Sovereigns.
For example, the Fed has an
calculator that figures out the loss of the purchasing power
of our money from any given year to the present. If you plug
in the year 1913 (that's the year the Fed took control of monetary
policy) and you put in the present year of 2005 - you find that
what cost $1 dollar bill in 1913 costs $19.66 today.
Now you know why some claim
the Fed has done a really lousy job of providing a sound monetary
policy, as the dollar bill or Federal Reserve Note has lost over
95% of its purchasing power since the Fed took control - or perhaps
took over would be closer to the mark.
Everything is priced in U.S.
dollar bills or Federal Reserve Notes - even the "price"
of gold. Because Federal Reserve Notes (dollar bills) keep loosing
more and more of their purchasing power, all other items priced
in dollar bills, keep get costlier - including gold.
But there is much more to the
story then meets the eye - another one of those hidden secrets
of the temple looms large, and obfuscates the view - laying waste
to the land.
Purchasing Power vs. Price
Let's take a closer look at
exactly what it means for the price of a good to go up. On one
hand it means that it takes more dollar bills to purchase it,
just as the Fed's Inflation calculator clearly shows. Many say
that inflation is the price of stuff going up - of it costing
more, as in higher prices. See Gold:
Is It Really All in the Name for a more detailed account.
But what makes prices, in aggregate,
go up? If individual producers are doing a good job, production
should be going up. If the latest technological advances are
being put to work, production should be going up. Sir Alan has
often spoken about the "production miracle".
If the economy as a whole is
getting better at producing goods and services, then general
prices over time should be falling, not rising. Naturally, certain
cutting edge technologies will at first cost more to discover
and implement, but once implemented, in aggregate, society should
become more efficient; and not just in regards to how many (quantity)
widgets can be made, but in the cost (quality of efficiency)
of making the widgets, as well.
Yet debt is rising, not falling.
Stuff is getting more expensive, not cheaper. What gives?
The moral hazard of paper fiat debt-money is what gives.
When money can be created out
of thin air, and loaned out with interest, no means of production
can overcome such a hideous monetary system that sucks the blood
of life (purchasing power) out of its unwary host. Shades of
The House of Dragon flitter about.
When money is created by the
monetization of government debt, those under its shadow are involved
in a vicious game that cannot be won. We become shackled to a
life of debt servitude from which there is no escape: under the
present monetary system of paper fiat debt-money that is.
The Only True Power Evil
Has Is The Power To Destroy Itself
Illusion And Deceit
But remember what the Constitution
states is money: gold and silver coin, not paper. Remember the
devolution of our monetary system from coin, to certificates,
to paper fiat.
When our money is allowed to
be dishonest, to be mere promises to pay - our monetary system
is on self-destruct. Federal Reserve Notes are doomed to lose
their purchasing power, just as the Fed's Inflation
So beguiling is paper fiat
that even those who favor gold as Honest Money are deceived into
accepting the "pricing" of gold in dollar bills, or
Federal Reserve Notes.
To Do So Is To Accept The
The dollar of the Constitution
is a weight of silver: one ounce of silver - the Silver Dollar.
The Dollar Bill Or Federal
Reserve Note Is Not The Constitutional Silver Dollar.
One is an honest weight of
silver - the other is a piece of paper that represents a debt
obligation. One is the means of payment (silver), the other is
a promise to pay - but pay with what?
Delusions Of Price
Prices go up only because THE
VALUE OF THE MONEY GOES DOWN, causing a larger quantity (price)
of dollar bills needed to buy the same amount of goods - even
Gold And Silver Should Not
Be Priced In Dollar Bills Or Federal Reserve Notes.
The Constitution and the Coinage
Act of 1792 clearly state the same.
Gold And Silver Should Be
Priced In Honest Weights Of Gold And Silver.
Our money is gold and silver
coin, not paper Federal Reserve Notes of debt-obligation. Gold
and silver are the standard by which the dollar is defined -
the unit of account - so says the Constitution.
All prices of all goods should
be according to the constitutional definition of a weight of
silver or gold, not of a number of Federal Reserve Notes. What
good will it do for gold to rise to $3000 an ounce if the money
of account is still paper fiat Federal Reserve Notes?
When you sell your ounce of
gold for 3000-dollar bills - you will be accepting money that
has lost as much purchasing power as your gold just "went
up in price."
You will not be any better
off. You will be back to square one. This is the shabby secret
they do not want you to know or understand.
Only Honest Money can cure
the ills of such a cancerous monetary system. Only gold and silver
exchanged by weight and fineness alone can overcome the debasement
and loss of purchasing power that paper fiat debt-money has caused.
Remember the words of the Maestro:
"Deficit spending is simply
a scheme for the 'hidden' confiscation of wealth. Gold stands
in the way of this insidious process. It stands as a protector
of property rights."
Remember the words of Faust
after making his deal with Mephisto:
"The first thing I did
was print the bills
10's, 20's, 100's and all
The people were happy, both short and tall" 
A dollar bill is not the dollar
of the Constitution. A dollar bill is a Federal Reserve Note
that is a promise to pay. The dollar of the Constitution is the
Silver Dollar - an honest weight and measure of 371.25 grains
of pure silver.
Forced legal tender laws, backed
by the enforcement of the State, decree that the people must
accept the unacceptable - paper fiat debt-money that has lost
95% of its purchasing power, which means it is nothing more than
a means of wealth transference.
To accept gold and silver to
be priced in dollar bills or Federal Reserve Notes is to accept
the unacceptable, it is playing by rules of the game that have
by stealth been changed.
The Dollar of the Constitution
is a Silver Dollar. Silver and gold are not defined or priced
in dollar bills - Silver and Gold coin are money - Silver and
Gold are the standard by which prices should be set, according
to weight and fractions thereof.
To sell your gold and silver
in exchange for paper fiat debt-money is to accept the unacceptable
- to accept for your precious metal mere pieces of paper that
are doomed to continually lose more and more purchasing power.
Be not deceived by the illusions
they disperse as truth. Seek the return to Honest Money.
Too Many Are Walking In
The Stubbornness Of Their Heart.
"Prudence, indeed, will
dictate that Governments long established should not be changed
for light and transient causes; and accordingly all experience
hath shewn that mankind are more disposed to suffer, while evils
are sufferable than to right themselves by abolishing the forms
to which they are accustomed." 
Beginning of the New Year - Open Letter To Congress
Seeking Redress For The Return To Honest Money
Fisher, 100% Money
Federal Reserve Bank of San Francisco A
Brief History of Money
Federal Reserve Bank of Minneapolis The
History of Money
Brief History of Money
COINAGE ACT OF 1792
Brief History of Money
Ross Clark - ChartWorks
Declaration of Independence
Douglas V. Gnazzo
Douglas V. Gnazzo. All rights reserved.
is CEO of New England Renovation LLC, a historical restoration contractor
that specializes in restoring older buildings that are vintage historic
landmarks. He writes for numerous websites and his work appears
both here and abroad. Just recently he was honored by being
chosen as a Foundation Scholar for the Foundation for
the Advancement of Monetary Education (FAME).
Disclaimer: The contents of this
article represent the opinions of Douglas V. Gnazzo. Nothing contained
herein is intended as investment advice or recommendations for
specific investment decisions, and you should not rely on it as
such. Douglas V. Gnazzo is not a registered investment advisor.
Information and analysis above are derived from sources and using
methods believed to be reliable, but Douglas. V. Gnazzo cannot
accept responsibility for any trading losses you may incur as
a result of your reliance on this analysis and will not be held
liable for the consequence of reliance upon any opinion or statement
contained herein or any omission. Individuals should consult with
their broker and personal financial advisors before engaging in
any trading activities. Do your own due diligence regarding personal
investment decisions. This article may contain information that
is confidential and/or protected by law. The purpose of this article
is intended to be used as an educational discussion of the issues
involved. Douglas V. Gnazzo is not a lawyer or a legal scholar.
Information and analysis derived from the quoted sources are believed
to be reliable and are offered in good faith. Only a highly trained
and certified and registered legal professional should be regarded
as an authority on the issues involved; and all those seeking
such an authoritative opinion should do their own due diligence
and seek out the advice of a legal professional. Lastly Douglas
V. Gnazzo believes that The United States of America is the greatest
country on Earth, but that it can yet become greater. This article
is written to help facilitate that greater becoming. God Bless
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