Con Job

When does a con game or confidence trick gain legal status? Better yet, when does this con-job become legal tender? How much must be stolen from the con-man’s target, or mark, before all confidence is lost and the scheme is turned on his head? This question came to me recently while pondering the commodity which now backs the US Dollar. That commodity, namely US and International Confidence, has been in shorter and shorter supply domestically and internationally. How did we get to such a place as the proverbial mark in such a scheme?

Backing of a currency by precious metal is a concept nearly instinctual for humankind, and for good reason. Even former FED chief, Allen Greenspan, made the case for the gold standard in his 1967 commentary entitled “Gold and Economic Freedom”. However, private ownership and trade of gold was outlawed for a period of 41 years beginning in 1933. Legal ownership and trade of gold coins and bullion by US citizenry was reinstated by Gerald Ford in 1974. This law, overturning FDR’s 1933 executive order, came with no golden peg to the dollar, so its price was determined on the open market.

The US Dollar was positioned as the world’s reserve currency under the Bretton Woods system organized by the world’s economic planners in 1944. This far from perfect system recognized the US Dollar as fully redeemable at the rate of $35/ounce, however only by governments and central banks as legal parties to such redemptions. During turbulent economic times, President Nixon single handedly extinguished the gold backing of the dollar under Bretton Woods on August 15, 1971.

A truly successful con-job is one which requires the artist to be skilled in the ways of deception, as well as top-notch showmanship. The artist must play the part of protector and provider of great service with his right hand, while robbing the Mark blind with his left. The purveyors of our current economic system of smoke and mirrors have stolen more than $0.81 of our dollar since 1971 (measuringworth.com).

This con is pulled off with flowery and dizzying jargon, which makes our resident artists appear brilliant beyond measure. To get a good dose of stupefying economic prose, try reading the “Implimentation of Monetary Policy” section of the FED’s publication entitled Purposes & Functions. Our international peers are beginning to wake up to the con being pulled, while the Austrian economists at large are bashed by the likes of Paul Krugman for exposing the lack of dollar confidence. China and Russia have publically denounced the Dollar as the dominant currency, and have vowed to trade bilaterally without involving the dollar. More are sure to follow as the world takes notice that the conmen are wearing no pants.

2011 marks the end of a 40 year experiment with a US Dollar left unsupported by gold. How will this confidence game unravel? With an antic dote from our 40th President as an economic snapshot of history, we may be in for an unpleasant ride. “You know, no nation that abandoned the gold standard has remained great,” – Ronald Regan.

-Brock T. Southwick