What Happens When Gov’ts Print Cash? You Won’t Like It

by Marvin Dumont

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See the top of U.S. dollar. It says “Federal Reserve Note.”

That’s because it’s the Federal Reserve (a private corporation) that manages America’s currency supply. It’s a controversial arrangement that may be unconstitutional. Article I, Section 8 of the constitution says, “Congress shall have Power…to coin Money, regulate the Value thereof, and of foreign Coin.”

Congress is supposed to manage America’s cash supply, not private bankers.

When the supply expands significantly, all fiat cash are devalued: The dollars (or bolivars or liras or pesos) in your wallet lose purchasing power. They won’t buy as many goods and services.

This has happened throughout history. In ancient Rome, merchants significantly raised prices because the denarius lost value. Nearly 1,800 years ago bureaucrats removed silver content from Roman coins to pay for emperors’ outrageous lifestyles and military campaigns. (The caesars routinely spent $100,000 to $500,000 per meal, demanding exotic food from hundreds of miles away.)

Even tax collectors considered the denarius (the empire’s official currency) as worthless and wouldn’t accept it as tax payment. But if you were a Roman citizen who possessed gold or silver, you could purchase a lot of goods because the shiny metals were considered premium money.

Modern economists refer to digits printed on cash as nominal value. They’re simply numbers stamped on paper. (5-dollar-bill, 20-dollar-bill, 100-dollar-bill and so on.)

But purchasing value is the only thing that matters: what goods and services you can actually buy with dollars. For example, $20,000 can buy you a car, but in a hyper-inflationary economy, the same (nominal) $20,000 may only buy you a motorcycle.

If John Doe operates a dollar-printing machine, he can print $10 billion for himself. The cash supply would expand by $10 billion but the dollar would be debased — like removing $10 billion worth of silver from denarius coins. The purchasing value is taken out of the pockets of all users of the U.S. dollar and transferred to John Doe (private bankers or whoever operates the dollar-printing machine).

Economists consider cash printing as indirect tax on citizens. It can be unethical because a currency-issuing central bank or government can (indirectly) tax people without going through legislative and executive hurdles of passing a tax increase — a complex undertaking that attracts public debate and media scrutiny.

Normally, proposed tax increases subject politicians to the wrath of voters, and that’s good for democratic capitalism.

However, by creating dollars out of thin air (via printing machine) central authorities (such as the private Federal Reserve) can quietly expand the cash supply and indirectly tax people behind closed doors — without legislative debate; without threat of a President’s veto; without public knowledge; and with no journalists questioning the policy.

The masses would be left grumbling why their wages aren’t enough to pay for childcare, healthcare, or groceries. Not knowing that the paper dollars (“Federal Reserve Notes”) in their wallet have been diluted and lost buying power.

The third President of the United States, Thomas Jefferson, warned future generations not to give control of cash creation to private banks:

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations … will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.”

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