Crash Course Chapter 9: A Brief History of US Money

The purpose of this section is to show you that the US government has radically shifted the rules during times of emergency and that our monetary system is really a lot younger than you might think.

After the panic of 1907, when private banker J.P. Morgan intervened as the lender of last resort, banks began agitating for a government solution. In 1913, a federally-sponsored cartel was created, called the Federal Reserve, which sounded governmental but really was not. The stock of the Federal Reserve was to be held by its member banks, not the US government nor the public, which remains the case today. So what we call the Federal Reserve actually is a federally-sponsored banking cartel, licensed to lend money into existence. By the 1930’s a Federal Reserve fueled speculative bubble had burst, resulting in numerous bank failures, which shrank the money supply by nearly a third in three years. Despite being chartered as a lender of last resort, the Federal Reserve failed to halt a catastrophic banking collapse.

In 1933, newly-elected President Franklin D. Roosevelt decided to counter the falling money supply in a most drastic manner. To accomplish this he confiscated all privately-held gold and immediately devalued the US dollar. This goes to show how governments, in a period of emergency, can change rules and break their own laws.

Fast forward to 1971, when President Nixon “slammed the gold window,” ending its dollar convertibility. Without a gold backing, there was no hard, physical limit to how many paper dollars could be issued. Since we now know that all dollars are backed by debt, what do you suppose happened to US debt levels once the externally applied rigor of gold was removed?

What will it be like to live here when our nation is creating a trillion dollars every 4 weeks? How about every 4 days? Every 4 Hours? 4 Minutes? Where does it stop, if not in hyperinflation and the destruction of the dollar and, by extension, our nation? The unredeemable U.S. dollar remains a popular reserve currency as a matter of convenience, but nothing requires or guarantees that it will retain this role.