Demise of the Dollar, 3rd Edition

CHAPTER 3ATTENTION TO DEFICITS DISORDER

Floating currencies lead to the idea that the government can print and spend US dollars indefinitely. Indefinite overspending. Indefinite deficits. Like a college student running around with her parent's credit card at the mall, nations using fiat currencies don't know when to stop. And we know what happens when more and more of something is dumped into a system: the value of each thing gets less.

Enter our favorite government body, the Federal Reserve, or what the author Edward Griffin has famously dubbed “The Creature from Jekyll Island.” The institution of a Federal Reserve—a central bank dedicated to controlling the money and the supply of money in the American financial system—began after a financial panic in 1907. But the idea had its genesis years earlier in 1895 when the US Treasury was close to bankruptcy. There was also a financial panic in 1893. By 1895, the great financier JP Morgan struck a deal to sell his own gold reserves to the government for a favorable 30‐year bond.

Morgan in effect saved the Treasury but was going “long US economy”—he was helping to save the government, for a tidy profit, so it could remain solvent while his other business ventures played out. Smart. Good work if you can get it.

Well, he got it. In 1907, a dozen years later, there was another banking panic. J.P. Morgan again stepped in with a group of bankers to save the American government. But what could possibly go wrong when a single banker—or ...