Dear Friend of GATA and Gold:

Fiat currency advocates aren't the only ones who perpetuate myths about economics, like the desirability of central banking. Central banking works great in theory but in practice central banking is the power to create infinite money, which is absolute power, and of course it is never exercised by an impartial machine following infallible formulas; rather is it exercised by fallible people who are corrupted absolutely by absolute power.

Gold advocates have their own myths too, foremost of which is that gold is the best money because central banks can't print it as they print ordinary currency. But of course Western central banks long have been printing gold in nearly infinite quantities -- "paper gold," claims on gold that doesn't exist, hypothecated and rehypothecated from gold leased by central banks -- and the markets and financial news media long have fallen for it. It's why the gold price long has ridiculously lagged currency creation.

A close second among the myths of the gold bugs is that fiat currency has no intrinsic value -- that, as Voltaire is said to have observed, "Paper money eventually returns to its intrinsic value -- zero."

Voltaire's observation arose from his witnessing the corruptibility of central banking and the destruction of the currency in France in the 1600s and 1700s. But while a piece of paper purporting to be money may be just a piece of paper, typically today paper currency represents far more than that and likely always will, as noted this week by Chris Mayer of The Daily Reckoning.

Starting with the example of the U.S. dollar, Mayer notes that this mere paper or its electronic derivative is given enormous value by the taxing power of the government that issues it. Value is also conferred on that paper by government's enforcement of legal tender laws requiring its acceptance "for all debts, public and private."

Mayer goes on to note other unappreciated truisms from the age of fiat money, like the obsolescence of levying taxes for national government revenue, a point perhaps made first by the vice president of the Federal Reserve Bank of New York, Beardsley Ruml, in 1945, whose observation has been noted from time to time by GATA and certain other gold bugs, like the Tocqueville Gold Fund's John Hathaway:

http://www.gata.org/node/10188

http://www.gata.org/node/510

http://www.gata.org/node/511

That is, in a fiat money regime, governments create money at will and the only purposes of national taxes are to conceal government's money-creation power from the population and to determine how money will be distributed, a mechanism of social control.

Ruml's point illustrates still other economic myths of the advocates of fiat currency and central banking: the myths that central banks need to lease gold to earn a little money on a supposedly dead asset and that the International Monetary Fund needs to sell gold from time to time to finance aid to poor nations.

Having the power of money creation without any respect to gold, central banks needn't lease or sell it for any revenue-raising purpose. No, central banks need to lease or sell gold only to hamper a potentially competitive currency and maintain their own absolute power over the world.

Mayer's commentary is headlined "The Real Reason the U.S. Dollar Has Value" and it's posted at the Daily Reckoning here:

http://dailyreckoning.com/the-real-reason-the-u-s-dollar-has-value/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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 -- Published: Sunday, 30 March 2014 | E-Mail  | Print  | Source: GoldSeek.com

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