Perils of Money Manipulation Explained

Perils of Money Manipulation Explained
October 30, 2012

Jay Lehr, Ph.D.

Jay Lehr, Ph.D. (jlehr@heartland.org) is science director at The Heartland Institute, an... (read full bio)

Review of The Impending Monetary Revolution, the Dollar and Gold, by Edmund Contoski (American Liberty Publishers, Minneapolis, MN, 2012), 206 pages, $19.95. ISBN: 978-0-9655007-0-8.

Edmund Contoski’s The Impending Monetary Revolution, the Dollar and Gold is as an important addition to the discussion and understanding of monetary policy and its effects on economies, societies, and individuals.

The book will improve your understanding of what money is, why the European Union is doomed to failure, why inflation ultimately creates recessions, and why it is impossible for a country to inflate its way out of a recession.

The book would be even better if it had less political partisanship and the author made greater efforts to prove some of the causal relationships he identifies. It also would have benefited from more varied citations supporting the author’s assertions. However, Contoski gets the big things right and has an intensely interesting story to tell.

Probably few readers have a real grasp of the complex financial instrument called the Credit-Default Swap. These insurance-like contracts pay buyers when bonds default. CDS prices rise when bonds’ creditworthiness deteriorates. Contoski explains how incredible volumes of these contracts are temporarily propping up bankrupt members of the European Union, and how they became bankrupt.

Seen Long Ago

The author notes problems of this nature were recognized by Thomas Jefferson and George Washington, who said, “Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest and open the door to every species of fraud and injustice.”

Washington was speaking of “fiat” money, which is now used in major countries around the world. It’s called fiat because it is created by government order, or fiat. It is paper money that has nothing of real value supporting it, such as gold or silver. The U.S. dollar is a fiat currency.

Contoski explains how bank notes and checks simply grew out of receipts given by goldsmiths who were the keepers of the valuable resource in an earlier day. The U.S. Constitution never gave the federal government the power to print paper money, he says, but the government eventually assumed that power.

Few people today realize that President Franklin Delano Roosevelt, feeling his administration threatened by the value of gold in the face of the government’s paper money, made it illegal to own gold. Everyone was forced to turn in their gold or risk going to prison.

Contoski also tells wonderful contemporary stories of intrigue, such as how a woman working at Goldman Sachs was able to disguise Greece’s debt for several years while collecting $300 million for the effort. JP Morgan worked similar magic for Italy.

Fannie’s, Freddie’s Failures

Contoski makes the failures of government mortgage behemoths Fannie Mae and Freddie Mac easy to understand, and he names politicians who created the housing bubble, starting with the Community Reinvestment Act in 1977 and its subsequent amendments, and continuing through the Dodd-Frank Act of 2010.

President Richard M. Nixon ended all pretense the dollar was backed by gold in 1971 by unilaterally ending the Bretton Woods Agreement of 1944 that linked the dollar to gold. Nixon did this because some other nation’s governments were stockpiling gold instead of dollars in recognition of the eventual worthlessness of most paper money.

Contoski also dismatles the economic theory of Depression-era economist John Maynard Keynes, who argued governments can stimulate economies by spending lots of money. It never works over the long haul. Contoski states Keynes’s doctrine grew out of his desire to subordinate liberty and individual rights to a plan of coerced social “improvement.”

Contoski also explains the history of property rights and their importance to a free society, noting the Founding Fathers feared what the French economist and philosopher Frederic Bastiat later wrote about more than 160 years ago: “When plunder becomes a way of life for a group of men living together in a society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”

Redistributionist government policies and handouts of social welfare and corporate welfare are the plunder the Founders feared and Bastiat described.

Constitutional Corrections

A most refreshing part of this book is Contoski’s recognition that it is unlikely any politician can cure the nation’s economic problems, considering their never-ending desire to win votes by pleasing their constituents. He concludes only a Constitutional convention to change the rules for running government can work, and state legislators should be willing to call one in order to get their government back.

Contoski recognizes the difficulty of reforming the federal government, but he convinced me that a few Constitutional amendments, in the states’ favor, could right a century of wrongs and bring the federal government back under the states, which created the federal government. States have allowed themselves to become subservient to the Feds, which was never intended by the nation’s Founders.

Contoski describes a relatively simple set of amendments that could easily pass in a convention and put us back on track. I will not divulge them here—ou must get the book for that.

I promise you that every fifth page of this book you will be thinking, “If only my economics teacher had been able to explain things this well years ago, I would not have had to be silent on so many issues in which the government undermined our free society.”

Jay Lehr, Ph.D.

Jay Lehr, Ph.D. (jlehr@heartland.org) is science director at The Heartland Institute, an... (read full bio)