Alan Greenspan once proclaimed, “Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.” This seems like a very wise thing to say particularly since he made this remark in 1966.
He meant that we should never abandon the gold standard for if we do we will be plagued with high inflation which in turn will debase our wealth. Mr. Greenspan probably didn’t know he was destined to become the chairman of the Federal Reserve Bank at the time. I do think Mr. Greenspan sensed what was looming on the horizon.
It probably did not come as a surprise to him when Fed Chairman Paul Volker, his predecessor in 1972, took the United States off the gold standard which allowed the treasury to print money without having to pay the bearer on demand. The process is called demonetization of money.
This seemed like a good idea at the time since it allowed our Treasury to print all the money Congress thought necessary to pay our debts. And because of the large war debt we had amassed because of Vietnam the printing presses were put into action. The problem with printing money out of thin air was our Federal Reserve Bank was creating inflation to repay present debt with future inflated dollars.
This notion became so popular with both sides of the isle in Congress that our leaders have kept demonetization of money around ever since. The notion of printing currency without gold backing is also called fiat money. It means we make money by decree of our government which is not convertible into anything of value.
Every country on the planet seems to prefer having a fiat currency these days. Politicians seem to like it because it enables them to budget for things voters seem to like and pay for it by adding the deficit onto the national debt. Later, we print more money to cover the deficit and pay the interest on the treasury bills.
Presently you can monitor the amount of money in circulation by looking at an index called the M3. The M3 reflected our nation’s total deficit as 7,932 trillion dollars as of the end of September 30, 2005. One year prior, at the end of September 2004 it was 7,379 trillion dollars. A quick subtraction of the two numbers indicates we printed 553 billion dollars in a single year which was added on to our total money supply merely by printing more money.
The M3 is updated every business day and it enables us to keep track of our nation’s total money supply. Up to now you could go on line to the Federal Reserve’s web site or look at any financial newspaper and see how much money we printed in the last week, month or year.
Unfortunately that will change this month. The Federal Reserve announced that as of March 26, 2006 they will discontinue providing repurchase agreement information, as well as the M3 monetary aggregate numbers. What this means is that the total of our nation’s money stock will become less known to us and it will be nearly impossible for the average person to know exactly how much money is being created by the U.S. Treasury’s printing presses.
Why this March event is taking place is anyone’s guess. My guess is it helps take everyone’s mind off of inflation. It is difficult to watch our money supply grow nearly three quarters of a trillion dollars a year and reconcile this fact with the Federal Reserve Bank and Bureau of Labor Statistics informing us there is low inflation.
The number crunchers at the Bureau of Labor Statistics manipulate inflation by placing lesser cost items into the “basket of goods” and removing items that have had price increases. An example of this would be assumption that if housing prices are high we may decide to rent instead. That is why rental housing, which has been in a price decline, is being used as an economic indicator and not housing prices which we all agree have sky-rocketed.
Inflation can be manipulated to a point but it eventually becomes apparently clear the cost of living has gone up. I’m not an economist but it doesn’t make sense to me how we can keep printing more money to pay our bills without creating inflation. Inflation always seems to find its way into our everyday life.
Here is a perfect example; some of us might recall when a typical 3 bedroom house in neighborhood 1 sold for $37,000 in 1972. Today that same house sells for around $870,000. How can a house appreciate over 23 times it original price in 34 years?
Gold has gone from $35 to $560 an ounce in the same period. Why? This is what inflation, deficit spending and de-monetizing money does. You cannot take from Peter to pay Paul, claim for this to be good economics and expect for it to work indefinitely. Fortunately the City of Foster City is not managed like our Federal Government.
As I look to March I recognize the weight of my responsibility when the City Council begins to seriously examine fiscal policy for the upcoming fiscal year 2006/2007. Like my fellow members on the City Council, I was voted into office and entrusted by you to make certain our treasury is cared for in a responsible manner. This is a great and awesome responsibility which no one on your City Council takes lightly.
As I look for personal guidance as to how I will best serve you, I need not look very far. The guidance I seek comes as a legacy from the men and women who have served on our City Council in the past. Their wisdom and sound fiscal policy making decisions serves as a blueprint for future leaders to follow.
Our past City Councils navigated and charted a course of fiscal responsibility which has rendered Foster City one of the most financially healthy cities in northern California. They stayed a consistent course of sound money management and drew upon reserves only when necessary.
They purchased land during recessions when it was cheap to buy and sold it for huge profits when the markets rebounded and prices went up. Their fiscal policies of protecting our reserves from unsound investment have resulted in us never having lost a penny. They purchased what we needed when it was feasible and necessary, yet resisted the temptation to make purchases or expend capital when we did not have the money.
They anticipated ways of generating new revenue streams and they worked to improve our City so as to make it more appealing to business. When you look around our beautiful City and marvel at what we have become as a community, remember it did not happen by accident. We never borrowed from Peter to pay Paul. We are almost done paying off our bonds and we will soon be debt free.
The financial health of Foster City does not require an abstract understanding of economics. Our financial health and what we have built for ourselves is merely the result of planning, foresight, restraint and wisdom. This is a tradition I and my fellow members on the City Council vow to uphold. I only wish the federal government paid closer attention to little cities like ours when deciding how to keep their fiscal house in order.
The City Council invites all members of our community to listen and pay close attention to our upcoming budget hearings and we invite the public to ask questions and make comments. I believe that if Americans had paid closer attention to our country’s policy of demonetizing our dollar off the gold standard in 1972, our economy would be much healthier today.
I wish to extend an invitation to all members of the community to drop by the City Council Chambers on Sundays between the hours of 3 and 5 P.M. for open discussions. I am looking forward to meeting each and every one of you at some time during my tenure as your elected representative. It will be my honor to endeavor to address your concerns and answer any questions that you may have.
Thanks for allowing me to serve you.
You may reach me via e-mail jkiramis@fostercity.org
print 