When Four Gold Pens Changed the World

Join Us on May 17th as We Explore and Explain the Past and Future of the American Economy [The Rude Awakening] May 11, 2023 [WEBSITE]( | [UNSUBSCRIBE]( When Four Gold Pens Changed the World - December 23, 1913, is a day that lives in infamy. - That’s the day the Federal Reserve was formed. - Byron King gives us an excellent history lesson. [Are you prepared for the next phase of Biden’s America?]( It all started with [Executive Order #14066 passed by President Biden.]( Millions of middle-class Americans are already at risk… and they don’t even know it… Biden’s policies have set us up for an unprecedented summer ahead. [Are you prepared for Biden’s biggest blunder to date?]( Because thanks to the dems' latest scam I believe we are headed for trouble in the coming days. You need to learn how to prepare for the looming Biden Blackouts set to spread across the country. [C]( here right now]( pay very close attention.]( [Click Here To Learn More]( [Sean Ring] SEAN RING Dear Reader, Good morning from a sunny Asti! One of the reasons I love listening to, and reading, Byron King’s history lessons is his unerring ability to transport us back in time. We can feel the lesson as we’re being taught. Next week, Byron and I will join our Paradigm Press colleagues, Jim Rickards, and Danielle DiMartino Booth, for an excursion to Jekyll Island, the scene of the crime. What crime was that? The formation of the Federal Reserve. Byron’s piece today focuses on the actual day, three years later when Woodrow Wilson signed what would become the Federal Reserve Act of 1913 into law. Of course, later, Wilson would lead America into World War I, despite his campaign promises. It’s difficult to assess which was the more significant mistake. But without fear of contradiction, we can say the Fed vexes us daily. Read to the bottom so you know how to attend our special Jekyll Island Livestream at zero cost. And I’ll see you a bit later in the Morning Reckoning, where I write a New America requires some Old Hickory. For now, I’ll leave you with Byron, so you can feel the slippery slope from gold down to elastic money. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening [Byron King] BYRON KING “I’ll do the deed first,” said the President of the United States, Woodrow Wilson. “And then I’ll have something to say.” President Wilson signs the Federal Reserve Act. Painting in 1923 by Wilburg G. Kurtz; courtesy of Woodrow Wilson Presidential Library and Federal Reserve Bank of St. Louis. With a gold pen in hand, Wilson signed his first name, “Woodrow.” He set that pen down and picked up another gold pen, with which he wrote the first part of his last name, “Wil.” And then, with a third gold pen, he repeated the procedure to finish his last name, “son.” “I’m using a series of pens,” said Wilson in a lighthearted tone, nodding towards the writing implements now arranged side by side on the mahogany desk. “Yes,” said Senator Hamilton Lewis of Illinois. “Just as the bill came forth in installments,” another spirited comment that elicited laughter from the observers assembled in the Old Executive Office Building, adjacent to the White House. And indeed, as gatherings of important people go in Washington, D.C., this was quite a crowd. Onlookers to Wilson affixing his signature included numerous cabinet officers: the Secretaries of the Navy and War, as well as the Interior, Agriculture, Commerce, and Labor. The Postmaster General was there, too. And Speaker of the House Champ Clark, along with Representative Carter Glass, Chairman of the House Committee on Banking and Currency, and Senator Robert Owen, head of the Senate Committee on Banking and Commerce. When the Act of Congress was signed, Senator William Chilton of West Virginia stepped forward with another imprint of the same document. He handed the papers to Wilson, along with a fourth gold pen, and asked for a copy with the President’s signature, a request to which the nation’s Chief Magistrate smilingly obliged. And so it was that on Tuesday evening, December 23, 1913, President Woodrow Wilson signed the Federal Reserve into being. He used four gold pens, symbolic not just of the law at the time, but of the very idea of money, from ancient days to the present. Front page of New York Times, December 24, 1913, announcing “Currency Bill.” [Over 62 And Collect Social Security? 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[Click Here To Learn More]( The Reaction to the Act In its next-day edition of December 24, 1913, the New York Times called the law Wilson had signed a “Currency Bill,” intended to bring “Friendly Aid to Business.” On the same day, in Boston, the [Christian Science Monitor]( led its story with a simple declaration that “The Glass-Owen currency bill is now law.” Per the Science Monitor, this was the “Dawn of a New Day.” And further, “President Wilson Says It Will Give Merchants System of Free Credits First Time in 50 Years.” In the middle of the country, the [Omaha Daily Bee]( headlined its edition of December 24 that the bill set up a system of “Free, Elastic, Uncontrolled Currency at Disposal of Business Men.” Got Gold? Still, with or without this new law, the legal money of the United States was based on solid, mined-from-the-ground gold per the Gold Standard Act of 1900. This law, signed by President William McKinley, formalized the longstanding use of gold as the basis for U.S. currency, fixing the value of one dollar as equal to 25.8 grains of 90% pure gold. (And what was this “grain,” you might wonder? It’s part of a system of weight and measurement with historical roots in the Bronze Age when people calculated value based on the weight of, literally, a grain of wheat or barley. In more modern times, a grain is defined as a mass of 64.79891 milligrams.) By the late 1800s and early 1900s in the U.S., a $20-gold piece was made of 90% gold and 10% copper, the latter metal used to increase the hardness of the alloy. In total, it weighed 33.436 grams (note: one ounce is 31.1 grams), giving a final tally of .9675 ounces of gold in every such coin of the realm. U.S. 1908 Saint Gaudens gold $20 “double eagle,” Note: no motto/In God We Trust And as the U.S. monetary system stood, this is how things were established on Christmas Eve, 1913, when President Wilson used four gold pens to sign a new law to create a central bank for the U.S., and to help U.S. business better function in a world still working on a classical gold standard. Now, not quite 110 years later and in no small measure due to long-term efforts of the Federal Reserve, that old $20 American gold coin is worth nearly $2,000 just for the precious metal, let alone the scarcity premium and markup for whatever value may come with numismatic rarity. In other words, do the math here: over the past century and one decade, the value of a dollar has declined by 99% if you use gold as the basis for comparison. Looking ahead, where do things go? Well, we could discuss it all day. Join Our Cost-Free Livestream! But instead of that, let me invite you to a livestream broadcast on May 17, 2023, Wednesday afternoon, at 1:00 pm Eastern Time from Jekyll Island, Georgia. It’s no charge to you, and you can [sign up for free here](. Then and there, on May 17 at 1:00 Eastern Time, two of the finest economic analysts in the country, Jim Rickards and Danielle DiMartino Booth, will discuss the origins and function of the Federal Reserve, its history, and its current moves that shape the economy of not just the U.S. but the entire world. Again, you can [sign up for free here](. And why broadcast from Jekyll Island, you might ask? Because Jekyll Island is Ground Zero for the modern American monetary system. [It’s where a small group of bankers met in November 1910]( to hammer out details of a plan that evolved into the Act of Congress that President Wilson signed on December 23, 1913. In the context of American history, Jekyll Island was a critical point, truly a fulcrum of events. In particular, that Jekyll Island meeting was when and where the monied interests of a newly industrialized country looked back at a series of economic crises and panics that marked the story of the nation. They reviewed serial breakdowns of commerce in 1812, 1818, 1825, 1837, 1847, 1857, 1873, 1884, 1890, 1893, 1903, 1907, and even the year of the meeting, 1910. And they were determined to do something to remedy the economic flaws of the evolving American system. According to the Jekyll Islanders, every crisis or panic was rooted in a signal deficiency of U.S. commerce, namely, insufficient money in circulation at critical moments in time. That is, every so often, not enough silver and gold in the pockets of the people and the accounts of business interests. The remedy, thought the economic planners, was an “elastic” American currency in which the money supply could expand or retract depending on business conditions. Distill it all down to the basics, and this led to the idea of a “central bank,” one that would manage the currency supply. At root, this was behind the creation of the Federal Reserve. Looking back with the benefit of a century’s hindsight, it’s fair to ponder whether or not the Federal Reserve was a successful idea or an abysmal monetary, political, and even social and cultural failure. Begin with a charitable view that no institution is entirely good or bad. And then the question arises as to whether the Federal Reserve has provided more benefit to America and its people than it may have caused harm. These are profound ideas, and they’ll be the subject of discussion by Jim Rickards and Danielle DiMartino Booth on Wednesday, May 17, 2023, at 1:00 pm, Eastern time. And you can [sign up for free here](. Jim and Danielle will look back, look at the present, and most importantly, look ahead to the future, to the U.S. and global economy that is fast evolving. The context will be through the lens of the Federal Reserve, an idea hatched at Jekyll Island and signed into law a few years later by President Wilson and those four gold pens. I hope to see you on the viewer list and watching live from Jekyll Island at one of the most important talks of the year. [Please sign up for free here](. That’s all for now. Thank you for subscribing and reading. Best wishes, [Byron King] Byron W. King In Case You Missed It… Great (Inflation) Expectations [Sean Ring] SEAN RING Dear Reader, Good morning from a gray and cloudy Piedmont! Sometimes we spend so much time staring at one thing and lose sight of all the other essential variables we ought to consider. For example, I’ve been ranting about the Fed for over a year. Chairman Pow is doing his level best to get inflation numbers down by raising unemployment. In short, crashing the economy to control the inflation he and his confederates unleashed. Sure, inflation is of paramount importance. But the Fed isn’t the only generator of it. Take the government, for instance. Congress and the Executive left the fiscal spigot open so long that we only just started to notice we’re standing knee-deep in fiscally-driven inflationary waters. You may not remember, but the first piece of legislation Barack “Insane” Obama signed into law in 2009 was the $787 billion stimulus package to resuscitate the economy after the 2008 Great Financial Crisis. As Uncle Miltie Friedman once said, “Nothing is so permanent as a temporary government program.” That $787 billion has never been pulled out of the budget. I’ll look at the market, inflation, and this idiotic debt ceiling debate in today's Rude. Where Are We Market-Wise? Let’s revisit our SPX chart: [chart] We’re still at magenta point 10. It seems the market can’t quite breach 4,200. Every time we get to 4,160 or so, the SPX tends to turn down. There certainly is a bunch of overhead supply at that level. But above that, there’s not much at all. That’s why I was so optimistic a few months ago. I thought we’d easily breach 4,200, and it’d be clear sailing above. That scenario has yet to materialize. But even if we turn down from here, we’ve had higher lows since the beginning of the year. So there’s no reason to expect a significant sell-off from the charts alone. We’ll revisit the market later via a history lesson. For now, let’s turn to the macro picture. What Expected of Today’s CPI? Today’s a big day for macro, as last month’s CPI numbers come in. To refresh your memory, the Consumer Price Index (CPI) measures the average price of a basket of consumer goods and services, such as transportation, food, and medical care. It’s calculated by taking price changes for each item in the predetermined basket of goods and averaging them. CPI changes are used to assess price changes associated with the cost of living. PERIOD ACTUAL PREVIOUS 8:30 am Consumer price index April 0.1 0.1% 8:30 am Core CPI April 0.4 0.4% 8:30 am CPI year over year April 5.0% 5.0% 8:30 am Core CPI year over year April 5.5% 5.6% Prices are still rising month-on-month. That means the Fed must still have a hiking bias. It’s Chairman Pow’s job to kick inflation to the curb, and he hasn’t done a good enough job yet, according to these numbers. Only Core CPI year-on-year is cooling off a bit. But it’s still rising. Disinflation is not deflation. But I’m not sure this is the big story, as I mentioned earlier. [Send Me Your Mailing Address!]( The biggest gold bull market in history has just begun. That’s why New York Times best-selling author Jim Rickards has arranged to send his must-read book on gold to any U.S. citizen with a valid mailing address today. [Click here now to see how to claim your copy of The New Case For Gold](. [Click Here To Learn More]( What’s the Debt Ceiling Is and Why It Matters. You’ve probably been reading about the negotiations between Speaker of the House Kevin McCarthy and President Biden over the debt ceiling. It’s an important matter that will ultimately get settled by raising it. The reason why it’s a big deal that time around is because McCarthy isn’t in control of the House. If you remember, it took 15 ballots to make McCarthy Speaker. But before I go on, let’s lay it out simply. What’s the debt ceiling? The debt ceiling is a legal limit the U.S. Congress sets on how much money the federal government can borrow. This limit applies to the total national debt, which includes both the debt held by the public and the debt held by government accounts. The concept behind the debt ceiling is to control the debt level and maintain fiscal responsibility. Deficits versus the national debt When the U.S. government spends more than it collects in revenue, it must borrow money to cover the deficit. This is done by issuing government bonds that investors, including foreign governments, can purchase. Over time, if the government continues to run deficits, the total debt will increase. Why does it suddenly matter? Congress has traditionally raised the debt ceiling as needed, but it has become a contentious political issue. Raising the debt ceiling is effectively an acknowledgment that the government is increasing its debt. It's important to note that the decision to raise the debt ceiling is separate from the decision to approve the spending that creates the debt; those spending decisions are made through separate legislation. If these decisions were made together, it’d put a leash on spending, something neither party wants to do. Of course, the US has defaulted before, just not as a superpower! If the debt ceiling is not raised and the government exhausts all available funds, it would lead to a default on its obligations, something Biden claims has never happened before. That’s a load of malarkey, as the US defaulted four times in its history. And that’s not even counting the Continental dollar, which inflation killed. [The Hill]( noted the four times the US has defaulted: - The default on the U.S. government’s demand notes in early 1862 was caused by the Treasury’s financial difficulties trying to pay for the Civil War. - The overt default by the U.S. government on its gold bonds in 1933. The United States had, in clear and entirely unambiguous terms, promised the bondholders to redeem these bonds in gold coins. Then it refused to do so, offering depreciated paper currency instead. - Then the U.S. government defaulted in 1968 by refusing to honor its explicit promise to redeem its silver certificate paper dollars for silver dollars. - The fourth default was the 1971 breaking of the U.S. government’s commitment to redeem dollars held by foreign governments for gold under the Bretton Woods Agreement. Treasury Secretary Connally notoriously told his upset international counterparts, “The dollar is our currency, but it’s your problem.” A U.S. default would have dire consequences, both domestically and internationally. It would decrease the credit rating of the U.S., increase borrowing costs, and initiate a significant economic downturn. So what happens now? The debate over the debt ceiling often involves broader disagreements over government spending and taxation. Critics of raising the debt ceiling argue it enables unsustainable spending patterns, while proponents say it's necessary to cover obligations the government has already agreed to. But the big issue is that the more you raise the debt ceiling, the more government spends. And the more government spends, the more money gets pumped into the system. And the more money pumped into the system, the more price inflation it creates and exacerbates. If McCarthy and Biden fail to raise the debt ceiling, a US default would be catastrophic for a dollar-centric world. But if they succeed, the higher inflation will go, weakening the dollar. Slow death or fast seem to be the choices here. In the meantime, look at how stocks traded the last time we had a bit of drama around the debt ceiling, courtesy of my friend and colleague Alan Knuckman: [chart] Wrap Up. Jay Powell isn’t just fighting the market. He’s fighting his fiscal foes in McCarthy and Biden. The USG’s prolifigate spending overrides Powell’s contractionary policies. The market isn’t sure who will win, so it’s now trading in a tight range. But history tells us it can get dicey. Let the chips fall where they may. But my bet is on the ceiling getting raised (after a decent amount of hullabaloo). Have a great day. All the best, [Sean Ring] Sean Ring Editor, Rude Awakening ‘Secrets of Jekyll Island’ A LIVESTREAM Broadcast with Jim Rickards & Danielle DiMartino Booth [Jekyll Island] On Wednesday May 17th at 1pm EDT you can watch live, exclusively through your access link from the comfort of your own home, as two of the world’s foremost thought leaders deliver world class economic insight. [Click Here Now to Reserve Your Seat]( Clicking the button above automatically registers you for ‘Secrets of Jekyll Island’ but does not obligate you in any way to attend the event. By reserving your spot, you will receive event updates. We will not share your email address with anyone. And you can opt out at any time. [Privacy Policy](. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. 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