The Mystery Of Banking - 6

How do we get from here to there? The answer is evident in the previous post – we need just one sound bank, which will attract all the real money, store it safely, and also return it to the depositor on demand. So we need to build a City called New Amsterdam. And we need public authorities of this City to “stand above” this bank, to ensure that the contents of its vaults match the records in its books. This is Solution # 1.

Of course, if our The State wants to fix the monetary mess it has engineered, it can re-engineer the banking system, which it owns. It can declare a Financial Emergency, permitted in the Constitution, sack 99.9 per cent of its worthless staff, abolish all the wasteful subsidies, close down entire departments and ministries, and put a halt to all its “pork-barrel” schemes like the NREGA etc. It can them institute legitimate banking and sound money Under Law. If our The State does all this, it can bring its own house to order, and ours as well. This is Solution # 2.

Of course, as Mr. Morrison put it, “You cannot petition the Lord with prayer.” The State is unlikely to do anything unless a real crisis develops. So we the people need to know how to create such a crisis, a crisis that will force the hand of our The State.

Here is what we the people can do.

First, the money and banking system that exists today is designed to subsidize borrowers and penalize savers. So The People should borrow. Interest rates are down. And gold prices are shooting. So my advice to all the people is this: Borrow – and invest in Gold, either physical gold or gold ETFs. If you have Property, take loans against this property (at low interest rates) and invest everything in gold. In time, gold prices will keep on rising, as the supply of gold is limited. In time, the value of the fiat paper notes will keep on declining. At some stage, gold dealers will no longer sell gold for this paper. The fiat paper system will collapse. The State will then try to ban gold sales, ban gold imports, or even, as happened in the USA, move to confiscate private holdings of gold. There will be social unrest. Maybe even civil war. However, this is the non-violent way of destroying the fiat currency system. It is insolvent. It will fall. It must – if all of us switch to Gold. (Or silver, platinum etc.)

Murray Rothbard predicted this happening in the US of A. In his great booklet, What Has Government Done To Our Money: The Case For A 100 Percent Gold Dollar, Rothbard said that, when another recession hits (as it has now):

“The United States authorities would then be faced with two stark choices. One would be to allow the entire banking system to collapse, along with virtually all the deposits and depositors in that system. Since, given the mind-set of American politicians, and their evident philosophy of "too big to fail," it is certain that they would be forced to embrace the second alternative: massive, hyper-inflationary printing of enough cash to pay off all the bank liabilities. The redeposit of such cash in the banking system would bring about an immediate runaway inflation and a massive flight from the dollar.” (p.134) [Thanks to LRC.]

The US of A is pursuing the latter course. As is our The State.

In the US of A, Obama has advised the citizenry to buy stock. But some wise people have rejected this advice, for good reasons.

In India, I am advising the people to borrow – and buy gold.

You decide for yourself.

With this, I close this series of posts on money and banking. Hope you all learnt something valuable from this effort.

To conclude, some good news. Mint has just published my column entitled “In Defence of Individualism.” It can be accessed here. Enjoy the read.