In a Time of Shadows, Watch the Names With 'K'

"The shadow government is basically a scaled-down version of the one in Washington, with everything necessary to continue critical government operations, including lobbyists, an exact working replica of Dick Cheney, a Starbucks, a five-foot-high Washington monument, and a miniature "congress" made up of gerbils wearing tiny suits who have been trained to hold hearings and authorize the construction of unnecessary highway projects named after Robert C. Byrd.”

Dave Barry, The Miami Herald, April 14, 2002

    After the tragedy of September 11th, 2001, someone of importance announced that there was a shadow government that would replace the elected, constitutional government should an enemy attack wipe it out.  This revelation made headlines.  The American people were not thrilled that there was a secret government operating under cover of the legitimate government.

    I remember when Secretary of State Al Haig announced that he had taken control of the government shortly after President Reagan was shot.  Haig’s coup attempt was more terrifying than the news of the assassination attempt.   

    Call me old fashioned, but I don’t like it when “someone of importance” unilaterally changes the Constitution.

    I have been keeping an eye on Washington DC, and I am now convinced that the shadow government has taken control.  Only recently did I discover how the shadow government is financed.

    The story begins on April 14, 2002.  Dave Barry, the Pulitzer Prize-winning columnist for The Miami Herald, published his annual tax advice column.  Mr. Barry pointed out that taxpayers would have to write two checks to the IRS.  One was for taxes due to the legitimate government.  And the other check was for taxes due to the shadow government.

    Mr. Barry, as you know, is a joker extraordinaire.  But I fear that his light-hearted jest gave someone of importance in the Bush administration the idea of funding a secret government with borrowed money.

    I suspect that “someone of importance” was Karl Rove.  I have never trusted people whose names begin with “K.”  Remember Kim Philby, the infamous double agent in Britain’s MI-6?  The Kardashians?  Boris Karloff?  Former WV state treasurer John Kelly?  (He went to prison for extortion.)  Kato Kaelin?  (OJ’s buddy.)

    My paranoia notwithstanding, it is no mere coincidence that Washington DC lobbyists have offices on K Street.

    Karl Rove’s plan to finance the shadow government with borrowed money was devious.  Enacting the PATRIOT Act laid the groundwork for a weak form of martial law.  What better way to hide a shadow government than by wrapping it in the flag?  Authorizing the Pentagon to shoot its way into Afghanistan and Iraq to search for non-existent WMDs got the military out of the way.  Passage of Medicare Part D, however, was the stroke of Machiavellian genius.

    Medicare Part D did two things.  First, it charmed the silver-haired citizenry with a mega-entitlement to pay for their relentless hypochondria.  Then, the huge profits going to Big Pharma were used to hire more lobbyists to persuade the elected government that mind-boggling deficits in medical accounts were good for America.

    The trap was set.  All the shadow government needed was more deficit spending.  But the Republicans, hapless as they are when it comes to deficit spending, had to be gotten out of the way.  Democrats took control of Congress after the mid-term elections of 2006, a power shift that all but guaranteed huge deficits.

    A shadow government needs a leader; it cannot operate by committee.  So the shadow government decided to hire a community organizer, a friendly pie-server if you will.  This made the ascension of Barack Obama from the Democrat-controlled Senate to the White House possible.

    The rest of the story is history.  Budget deficits exploded.  The elected government gave up trying to pass an annual budget. 

    The elected government abdicated its Constitutional duties last year.  Hopelessly deadlocked on every issue, the elected government appointed a committee of six Representatives and six Senators (including Sens. Kyl, R-Ariz., and Kerry, D-Mass.) to strike a deal to raise the debt ceiling and enact some paltry budget cuts by the year 2075.  In the end, this Super Congress could agree on nothing.  The shadow government had won by default.

    Looking forward in 2012, the elected government will remain paralyzed while the shadow government is on autopilot to borrow another $1 trillion before year end.  The national debt recently surpassed annual GDP making the United States look rather third-worldish.

    Who would have thought that a shadow government could take over the country in a mere decade?

    In the wake of the collapse of the legitimate government, I am on guard.  I have become suspicious of people whose names end with “k.”  Dick Cheney, Barack Obama, Chuck Schumer and Barney Frank are just a few whom I’m keeping an eye on.  These “little ks” are sneakier than the big Ks.



Dave Barry's Shadow Government article

Haves, Have-Nots Both Losing To Inflation

In 1971, a U.S. Army private's basic pay was $3,936 per year. Today, a private's basic pay is $19,739.  When adjusted for inflation, the 1971 Army private was paid more than his modern counterpart. 

Today, one gallon of gasoline costs 10 times more than it did in 1971. After adjusting for improved average automobile mileage rates, fuel per mile driven costs five times as much as it did in 1971. 

The U.S. Bureau of Labor Statistics recently released a chart showing that the purchasing power of $1 in 1971 has decreased to a mere 18 cents today. The dollar went off the gold standard in August 1971. Inflation is the cause for the dollar's devaluation.

People don't readily realize the withering effects of four decades of inflation because habits change and comparable goods aren't always available.  For example, television has changed drastically.  You cannot compare a 1971 tube-type color TV to a 2011 high-definition, flat screen TV.  Home video recording was not available in 1971.  Nor were programming packages with 100+ channels.

Fixed base, rotary dial telephones have evolved into cellular phones. The personal computer did not exist 40 years ago. Medical technology — the MRI scan for one — also was impossible before the silicon chip. And GPS satellites have replaced paper road maps to direct motorists to their destinations.

Automobile costs are hard to compare.  On one hand, modern autos are a bargain when it comes to routine maintenance such as replacing tires, brakes and batteries.  On the other hand, the cost of repairing a fender bender can easily total a modern car. 

There are many comparables that have not changed.  Jack Daniels whiskey is one. Disposable diapers are another. Anything made with 100 percent cotton. Aspirin. An 8-pound sledgehammer. One food economist recently calculated that Thanksgiving dinner with all the trimmings would cost 13 percent more this year than in 2010.  Plywood, framing lumber, copper wire, pipe and concrete are pretty much the same although new houses are generally bigger. Amenities and furnishings have changed, but a one-bedroom apartment is still a one-bedroom apartment.

Over the decades, the Department of Labor has collected a tremendous amount of data while tracking the prices of everything we buy.  The bean counters at the DOL face obstacles in determining the "market basket" of goods and services on which to base the Consumer Price Index.  Sometimes, the CPI calculation can overstate inflation.  If Brand X, a market basket staple, goes up in price, the consumer may very well switch to Brand Y, which sells at a cheaper price. Compiling the CPI also misses coupon shoppers and special sales. 

The CPI market basket includes food and fuel.  Due to their "weight" in the basket, an increase in either cost can ratchet the CPI upward very quickly. Elected politicians do not like this, especially in an election year. Since 2000, our government has relied more and more on the Federal Reserve Price Consumption Expenditure, or PCE, index to measure inflation. The PCE does not consider "core inflation," better known as food and fuel. 

Despite its own shortcomings, the CPI is useful and more relevant to everyday living than the PCE. 

In my opening example using an Army private making $3,936, he would need $22,000 today to stay even with inflation. His high school classmate who took a construction job at $8,000 per year would need $44,725 to stay even.

In 1971, the contractor made twice what the soldier did. In 2011, he still makes twice as much. But look how the gap in nominal dollars between the two has grown from $4,064 in 1971 to $22,725 presently. 

Year after year for 40 years, inflation has clawed away at an annual rate of 4.5 percent. Through pay raises and COLAs, wages have increased to try to keep up with inflation. But as you can see, the compounding effect of incremental percentage increases has led to the wide gulf in nominal dollars between the private and the contractor.

The populists' view of the inflation indexing phenomenon has led them to see America as a nation of haves and have-nots.  In reality, however, wealth measured in inflation-devalued dollars becomes an illusion of wealth. Even the haves are falling behind.

Next year, it appears that both political parties will gin up class warfare rhetoric to win elections.  I hope that the American people will have the good sense to realize that inflation is the enemy, not the haves who resist tax increases or the have-nots who want more income redistribution.

The Battle Beween North, South Continues

I was born in Clarksburg, well south of the Mason-Dixon Line, but not far enough south to be considered a Southerner.  I was born two blocks away from where Stonewall Jackson drew his first breath and one block further from the Stonewall Jackson Hotel.  Still, Clarksburg never has been a Southern town, not in any sense of its Virginia roots or the Old South in general. 

But I did learn what it’s like to live as a Southerner when I went to college in Virginia.  Richmond may have been the capitol of the Confederacy, but Lexington (my college town) was the sacred burial ground of the Old South.  Both General Robert E. Lee and Stonewall Jackson are buried in Lexington. 

To live as a Southerner requires one to learn the riddles of Southern life.  And there are a few distinct riddles that only a Southerner’s mindset can solve.

The riddle that stands out in my experience is: How many Southerners does it change a light bulb?

Forthrightly, the answer is “One.”  Southerners are as dexterous as any folk, and due to the humid heat of the Old South, Southerners work effortlessly to change their light bulbs so as not to work up more of a sweat than is necessary.

The changing of the bulb is a riddle rather than a question because changing a light bulb in the Old South is a ritual.  While one Southerner can physically change the bulb, the ritual is not complete unless a handful of Southerners congregate to wax nostalgic about the faithful service that the old light bulb gave them.

Perhaps this riddle of the Old South stuck in my mind more than the others because Lexington, the burial ground of Lee and Jackson, was still a place where visitors congregated to praise the service of these two men.  Even Yankees who loathed the Confederacy and its stand on slavery have been overheard praising Lee and Jackson as generals and absolving them of their participation in the hostilities.

I was reminded of my Old South education the other day when I went to the hardware store to buy light bulbs.  I could not find a 100-watt bulb anywhere.  The clerks all told me the same thing—that the old bulbs were not being re-stocked because the new bulbs that look like corkscrews are soon to be the law of the land.

Then it hit me like a bowl of day-old grits served cold.  I will be losing all of my old, Edison-style light bulbs.  Their warmth, a warmth that can only be created by heating a tungsten filament, will soon disappear, possibly forever.  Their warmth, a warmth that 100 watts of electricity adds to man-made global warming, is the reason the government has turned on my old friends.

This global warming fever is the handiwork of Al Gore, a supposed son-of-the-south who bought into Yankee Imperialism just to meet haughty women on his Facebook page.  To genteel Southerners, he is their Aaron Burr, a traitor to the light bulb cause.  Some of my esteemed Virginia friends (all from old families I might add) mock Al Gore by referring to him as “Aaron Brrrrrr!”, and then they shiver in disgust.

My visit to the hardware store resulted in my buying a corkscrew bulb that advertised itself as “equivalent” to a 100 watt bulb.  What posh!  A hollow corkscrew full of inert gas pales in comparison to Edison’s tungsten masterpiece.

And whoever heard of a light bulb coming with instructions?  Well, these globe-saving corkscrews do.  It seems they contain mercury and you aren’t supposed to toss them in the garbage can.  The instructions tell the buyer to call a toll-free number or visit a website to learn the disposal rules.

After I read the instructions for disposing this gaseous imposter, I fixed myself a pitcher of mint juleps and celebrated John Barleycorn’s gift to mankind.  The same government that now outlaws Edison’s light bulbs tried outlawing whiskey.  Prohibition was a great boon for Yankee bootleggers and Canadian distilleries, but we Southern bourbon drinkers eventually won that war.  To this day, NASCAR reenacts our battle tactics.

All that the Yankees really want is more tax revenue—Prohibition proved that.  If we agreed to a $2.00 per Edison bulb carbon tax, the Aaron Brrrrrs of this world would declare victory and give us back our tungsten bulbs.

If we win the light bulb war, maybe we could get our old showerheads back and enjoy a cascade of hot water.  Maybe we could buy commodes that flush like they mean it.  And just maybe, we could again buy washing machines that use enough water to launder our clothes.

The tungsten light bulb shall rise again, so sayeth the South.

Keypunched Confessions of an Untaxed Millionaire

I was a millionaire who paid next to nothing in taxes. I used to laugh it off. But when my president began chastising millionaires for not paying more in taxes, my conscience and my patriotism forced me to regret my greedy ways.

It did not help that Warren Buffett was cheering on President Obama and the White Whine Party to oppose Tea Party millionaires who want to keep their money. The pendulum had swung.

My saga began in late November 2010, when the Social Security Administration notified me that my 2009 income was $1,967,732.00. This amount is wrong; I will explain why later. But wouldn't you know? The SSA picked the one year of my tax-paying life that I didn't make more than a million dollars to say that I did!

(Serious readers take note: The previous sentence contains a wild exaggeration.)

I thought a fool's thought. I thought it would be a simple matter to correct SSA's records.

I went to the SSA website, downloaded Form 561-U2, and filed a request for reconsideration on Dec. 9. I even attached information from my tax return to make SSA's job easier.

I did not hear a word from SSA until March 9. Then, SSA replied that the error was due to incorrect information sent to them by the Internal Revenue Service. The letter also instructed me that it was my responsibility — not the SSA's — to contact the IRS and have it correct the error.

This is government at its finest. You wait three months only to be redirected to another government agency.

My next step was to call the IRS to seek advice. After explaining the situation, I was told that the error was mine; that I had keypunched the wrong number when I e-filed my return. The blame game ended, however, when I told the agent that I only file paper returns. Therefore, if it was a keypunch error, it was an IRS keypunch error — not mine.

After considerable study, the IRS called back and advised me to file an amended return. I asked how I could file an amended return when there was nothing to amend. My return, after all, was correct.

The agent then recommended that I dump the problem on the Kansas City office. That's where I had filed my paper return, and perhaps the Kansas City office could override the IRS computer.

It was May 23 when I wrote the Kansas City IRS office. They acknowledged my letter with their standard "45-day letter", which means "Don't expect any action for 45 days."

I got another 45-day letter.

I had the feeling that I was locked in a Twilight Zone curiosity shop that sold grandfather clocks. And for the worse, the clocks chimed but once every three months.

On Sept. 7, the IRS informed me that it had corrected the error. However, the agency failed to send me a transcript that I could forward to the SSA office. To get a copy of the corrected transcript, I had to call an agent. The waiting time alone was 45 minutes, and it took as long for the agent to correct the IRS computer record.

The SSA advised me on Oct.7 that their records had been corrected. It took 10 months and probably 50 hours of my time to correct a split-second keypunch error.

At the outset, I was amazed that the IRS data input system would allow such an obvious error. A clerk had entered a line item ($19,143.00) without inserting the decimal point. Thus, my income was inflated by $1,914,300.00. Bells and whistles should have gone off when this happened.

In this age of precision scanners, why is the IRS relying on keypunch clerks? It's not like Google hired monks to keypunch all of those library books!

The SSA and IRS computers obviously talk to each other. Why couldn't the SSA initiate my request? The SSA should have forced the issue if for no other reason than to discover how junk data from IRS corrupted its database.

Between the SSA, IRS and yours truly, at least 100 man hours were spent correcting this mistake. Maybe even 200 man hours. Maybe 300 man hours.

Like the taxpayers, the IRS and SSA workers are every bit as overwhelmed. It's no wonder. What I went through this year is a case study in poor management of both data and personnel.

To President Obama (and Warren Buffett), I would offer this advice. Before you criticize taxpayers at any level, you should go to the IRS and look under the hood. The search engine that you rely on needs repaired.

In a Colorful World, Sometimes Black and White Tells the Best Story

Netflix has changed its mind again!  Netflix had planned to offer streaming video and then create a new service (Qwikster) to offer DVD rentals.  Now the Qwikster plan has been shelved.

When Netflix went wobbly last month, I switched my movie rental business to a startup company called Bliter.com.  Bliter only offers Black & White films.  But even Bliter has undergone a change. 

Recently, Bliter’s subscribers made it clear that this genre of films is actually White & Black, not Black & White.  So Bliter, bowing to pressure, changed its name to Whackster.

“The Third Man” and “Citizen Kane” are considered by many critics to be the best films ever made.  Both are B&W; both also feature Orson Welles and Joseph Cotten.  Had they been shot in color, these films would be failures.

There is something intriguing about B&W cinematography.   “Gaslight”, a thoroughly scary thriller starring Charles Boyer and Ingrid Bergman, relies on the mysteriously dimming gas lights in Bergman’s town house.  B&W film accents the low lighting.  Color film just can’t do this.

Thanks to B&W, Joseph Cotten is even more evil as a serial killer in Alfred Hitchcock’s “Shadow of a Doubt.”  Can you imagine Hitchcock’s “Psycho” in color? 

Not all B&W films are murder mysteries.  Gary Cooper played Marshall Will Kane in the western, “High Noon.”  Cary Grant played an overwhelmed nephew in the comedy, “Arsenic and Old Lace.”  Humphrey Bogart stayed one step ahead of the Nazis in wartime “Casablanca.” 

David O. Selznick won Best Picture Oscars in 1939 and 1940 for “Gone with the Wind” and “Rebecca”, respectively.  Selznick obviously knew his media.  GWTW had to be filmed in color; “Rebecca” had to be filmed in B&W.

B&W films add a touch of grit to the plot.  Compare “The Bedford Incident” (Richard Widmark) to “The Hunt for Red October” (Sean Connery) or “Crimson Tide” (Gene Hackman).  “The Bedford Incident” (B&W) keeps you on edge throughout; you feel the chill of the North Atlantic in this Cold War submarine chase.

Elmore Leonard’s short story, “3:10 To Yuma”, was first made into a movie in1957.  Starring Glenn Ford and Van Heflin, the movie evolves as a morality play which is accented by B&W cinematography.  The 2007 remake of the same name is in color, and not surprisingly, it is gunplay for gunplay’s sake.  Russell Crowe and Christian Bale are sadly diminished by the relentless carnage.

Blood really shows up in color.  Maybe that’s why directors avoid B&W nowadays. 

Color film has its place.  I cannot imagine “Lawrence of Arabia” or “Bridge on the River Kwai” not being filmed in color.  Yet, Sir David Lean, the director of those masterpieces, shot “Oliver Twist” and “Great Expectations” in B&W.

Steven Spielberg did choose B&W for “Schindler’s List”.  Can you imagine a color version?  But for the life of me, I cannot understand why he didn’t rely on B&W for “Jaws” and “Saving Private Ryan.”  The choice is so obvious.

David O. Selznick would have used B&W.  So would have Sir David Lean.  There, the “Davids” have it!

The studio system ruled the B&W era.  For all of their faults, the studios gave us some interesting pairings of leading men and leading ladies (Claude Rains and Bette Davis, Humphrey Bogart and Lauren Bacall, et al.)  If the studio system still ruled, there would be five “Meryl Streeps” instead of one.  However, I am not sure that any of today’s leading men could match even Fred MacMurray (“Double Indemnity” with Barbara Stanwyck), let alone Clark Gable. 

From the 1930s through the 1950s, actors knew how to act.  They acted with their eyes, facial tics, and hand movements as well as with the way they delivered their lines.  Eli Wallach was 92 when he appeared in 2010’s “Wall Street: Money Never Sleeps.”  Though he has few lines, he is constantly acting—flinching and using his walking stick—while the rest of the cast just spouts rhetoric.

B&W also brought us the horror genre.  Claude Rains was the “Invisible Man” (by H. G. Wells.)  John Barrymore, Frederic March and Spencer Tracy have all starred as “Dr. Jekyll and Mr. Hyde” (by Robert Louis Stevenson.)  Wells and Stevenson understood that the true horror is the evil lurking inside of us, not an otherworldly creature.  B&W film allows for the transformation in ways that color cannot.

B&W rules!



Ten recommended B&W films:

• The Night of the Hunter (1955)
• Lured (1947)
• Deception (1946)
• Ball of Fire (1941)
• Sunset Blvd. (1950)
• Grand Hotel (1932)
• Our Man in Havana (1962)
• Advise and Consent (1962)
• The Big Heat (1953)
• Hobson’s Choice (1954)

Finding the Next Tesla in a Dumbed-Down Society

Nikola Tesla, a Serb by birth, immigrated to America in 1884. He was 28. His education transcript listed “some college.” Mr. Tesla may have been fortunate to have ignored pursuing a college degree for his true genius might have been “dumbed-down” had he mastered the knowledge of electricity as was known and taught at the time.

Tesla’s inventions were critical to creating the alternating current electrical system that powers the world. He conceived the first electric induction motor in 1882. Then he went on to develop equipment needed to operate the electrical grid.

Tesla also mastered radio wave transmission. Although Guglielmo Marconi is considered father of the radio, Marconi’s work had more to do with the successful commercialization of radio than the underlying physics of radio waves that Tesla proved. Tesla demonstrated radio transmission a decade earlier than did Marconi. Tesla transmitted radio waves through the Earth as well as through the atmosphere.

Nikola Tesla was born at the right time. Had he been born 10 years earlier, he never would have met and worked with George Westinghouse (Westinghouse Electric Co.) to build the alternating current electrical system. Had Tesla been born 10 years later, America would have already accepted Thomas Edison’s plan to electrify America with the direct current system that Edison’s inventions were built around.

When Tesla and Westinghouse electrified the 1893 Chicago World’s Fair with alternating current and fluorescent lighting, the die was cast. AC power would be the electrical standard.

What amazes me most about Tesla’s work is that he transmitted electrical energy without wires as early as 1891. His laboratory was lit by fluorescent bulbs. But there were no wires, and the bulbs had no electrodes.

Steve Jobs, the brains behind the Apple Gadget & Widget Co., recently announced his retirement. Immediately, he was hailed by the business press as the greatest American genius since Thomas Edison.

Oh, puhleeeze.

The next time you wet your pants in excitement because your iPad or iPhone found a hotspot, consider for a moment that wireless technology is 120 years old. Nikola Tesla not only dreamed of making every spot on Earth a “hot spot,” but he envisioned wireless-powered trains, ships and vehicles. Tesla’s goal was to use the electrical charges in the ground, in the seas and in the atmosphere as the “grid.”

As usually happens, the constant inventor (ala Tesla) meets two roadblocks. First, technology cannot keep up with the inventor’s mind. And second, the investors want to milk the old patents for all they are worth. Society is then dumbed-down to accept the status quo.

Some of you, especially the disciples of Steve Jobs, are accusing me of blasphemy; I can hear you because I have a tPhone (Tesla phone.) No matter how much you adore Steve Jobs, he is no Nikola Tesla. Steve Jobs, like Nikola Tesla, was a college dropout. End of comparison.

Nor is Steve Jobs the next Tesla. But if Steve Jobs is the best candidate that we have to consider, then how do we find the next Tesla in our dumbed-down society?

My talking about electric currents and electric gadgets is nebulous. So allow me to re-phrase my question in a more practical sense. How do we find the next Red Adair in our dumbed-down society?

On April 20, 2010, a BP oil well in the Gulf of Mexico caught fire and exploded. It took five months to resolve the oil leakage. Throughout the five-month period, it was obvious that neither the oil industry nor the government had a man like Red Adair to rely on — a man who instinctively knew how to tame an oil well fire.

When Saddam Hussein set fire to Kuwait’s oil wells, environmentalists the world over declared that the flames would burn for years. Wrong again, Greenies. Red Adair extinguished more than 100 fires in short order.

Red Adair also should get credit for extinguishing all of Kuwait’s oil well fires. During Red’s career, he hit a slow spell when there were no oil well fires. So he decided to manufacture equipment based on his designs and sell the equipment to his competitors.

Red Adair dropped out of high school.

In our dumbed-down society, Nikola Tesla and Red Adair could never get jobs of importance. They would have no certificates from the Wizard of Oz to vouch for their genius. And neither of these men would suffer the ignominy of dumbing himself down just to get a foot in the door.

I predict that battery makers will be profitable for a long time to come. And I predict that President Obama will continue to promote non-flammable energy.

The Dollar Is More Than Worth Its Weight In Gold

The year was 1970, and I had mastered the mysteries of Money & Banking, a core course for Economics majors.  In retrospect, the Money & Banking course that I took was rather simplistic compared to what has happened since in the banking system.

In 1970, the dollar was backed by gold.  Banks controlled almost all the money.  Banks were open from 9 am to 3 pm on weekdays and until noon Saturdays.  If you wanted money, you went to the bank.

The gold that backed the dollar was stored at Fort Knox, Kentucky.  We knew the gold was there because we watched as James Bond and Pussy Galore thwarted Auric Goldfinger’s evil plan to ruin our gold.  The dollar was as good as gold.

In 1971, everything I learned about the dollar came to an end.  The United States unilaterally ended conversion of the dollar to gold.  The dollar became fiat currency—money backed only by government decree.

In 1933, President Franklin D. Roosevelt ordered the American people to surrender their gold certificates, gold bullion and gold coins to the U. S. Treasury.  They were paid $20.67 per ounce.  A year later, FDR signed the Gold Reserve Act of 1934 which priced gold at $35.00 per ounce.  The official price of gold remained at $35.00 per ounce until President Richard M. Nixon decoupled the dollar and gold on August 15, 1971.

When Kings got into trouble in the past, they called in the coins, melted them down, added an alloy, and issued new coins at the same face value.  This is known as inflation.  FDR did the kingly thing, only he did it with a pen filled with ink. 

President Nixon had little choice but to end the gold standard.  The nation’s inflation rate was rising to 6%.  If foreign governments had demanded payment in gold bullion, the gold reserve would have been drained.  There was also a fear that the Soviet Union and South Africa were sitting on huge gold reserves and would use their suspected hoards to destabilize western currencies.

The gold standard that backed the dollar from 1934 to1971 was, in reality, a fiction.  The official price of gold was arbitrarily determined by a president who was desperate to expand the money supply and stave off deflation.  That the official price of one ounce of gold remained at $35.00 through World War II and the great economic expansion of the 1950s and 1960s tells us that gold remained arbitrarily valued.  The increase in our gold reserves during the period never matched the increase in the nation’s money supply.

Even valued at today’s high price, gold would be inadequate to back even the dollar.  All of the gold ever mined is believed to be worth less than ten trillion dollars at the current market price.  Gold would have to be valued many, many, many times higher to reflect its scarcity if used to back the world money supply.

When viewed in hindsight, one can make the argument that all money is fiat money.  Money has always been worth what the king said it was.  Gold and silver bullion reserves only give the appearance of underlying value.

During the past few years, investors have been buying gold bullion and gold coins.  “Gold has never been worth zero!” is a popular ad slogan.  Investors believe that gold will only rise in value because they mistakenly believe that gold is a standard of value.

Gold is neither priced by its scarcity nor by its cost of production.  Gold pricing in today’s market differs very little from the Dutch tulip mania in the 1600s.  Gold is priced by speculators who see no end to its rise.  Gold hoarding is the latest fad, the latest asset bubble.

Gold has always mystified mankind.  It is the one metal that does not rust or tarnish.  When the Great Pyramid of Egypt is reduced to a pile of sand, the gold in Pharaoh’s tomb will be as shiny as the day it was crafted—assuming it’s still there.  Gold has an eternal quality like nothing else on Earth.

To possess gold leads to avarice.  Stories of avarice and greed abound in the Bible (Exodus), literature (Silas Marner), film (Treasure of the Sierra Madre) and history (Pizarro and the Incas).  And most people believe there is a huge treasure of gold just waiting to be discovered (Lost Dutchman mine and El Dorado.)

If history is an indicator, then it seems that one thing is certain: Just when you get ready to enjoy your gold wealth, someone takes it away.
     
   
Web links
http://www.wellsfargonevadagold.com/confiscation-order.pdf
http://www.enotes.com/major-acts-congress/gold-reserve-act
http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_nixongold.html