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MONEY IN LEGAL TERMS
Paragraphs from a great book entitled, "Our Ageless Constitution,"
published by the W. David Stedman Associates

"Since 1968 the money of the United States has consisted of two things:
-- Legal-tender Federal Reserve Notes, not redeemable in gold or silver.

-- So-called "clad" coins composed of base metal
with NO silver or gold content whatsoever, and
zinc cents.

As the "Supreme Law of the Land," the
Constitution requires any change in its
provisions be made only by the process of
amendment. No amendment has ever been proposed,
let alone made, in any of the monetary provisions
of the Constitution since the Framers drafted
them. Yet the government operates as if drastic
alterations have taken place.

The standard unit of money the "dollar," no
longer contains any precious metal at all, though
the Constitutional "dollar" was defined as 371
1/4 grains of fine silver.

Gold and silver have been withdrawn as the base
of the monetary system, although the Constitution
provides that "No state shall . . . make any
thing but gold and silver Coins a Tender in
payment of debts".

Irredeemable Federal Reserve Notes (what the
Framers would have called "Bills of Credit") have
become the nation's currency, although the
Constitution explicitly provides that "No state
shall emit Bills of Credit, and delegates no
power to Congress to emit such 'Bills' either".

The Federal Reserve system, composed of thousands
of private banks, ultimately controls the supply
of money in the country through the emissions of
Federal Reserve Notes, although the Constitution
provides that Congress alone has the power to
"coin money and regulate the Value thereof".

None of these alterations has ever been
sanctioned as constitutional by the Supreme Court.
Russell Comment -- Through ignorance, through
laziness, through duplicity, through sheer
stupidity, our politicians have allowed banking
interests to circumvent the United States
Constitution -- and none of their "alterations"
have ever been subject to Constitutional
amendment nor have any of these "changes" in the
Constitution ever been presented before the
Supreme Court of the United States.

The result has been years of destruction of the
purchasing power of US "money," and a build-up of
debt and deficits that will, in my opinion,
confront this nation with a coming crisis that
will be unprecedented.

On top of everything else, the Bush
Administration has, in its all-out frenzy to be
reelected, chosen the path of an expensive war,
massive new federal spending plus large tax cuts.
This presents Americans with only one defense:
the purchase of true intrinsic money -- gold.

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Fiddling While the Dollar Drops
By David Ignatius
Friday, December 5, 2003; Page A31
Something ominous is happening when the United
States reports its biggest surge in productivity
in 20 years, as it did Wednesday, and yet the
dollar plunges to an all-time low against the
euro.

The dollar is sinking these days on good news and
bad, and the explanation is pretty simple:
Investors around the world are worried that the
Bush administration's policies are eroding the
value of the U.S. currency. So they're rushing to
unload greenbacks, in what could soon become a
full-blown financial crisis.

"The dollar crisis is the story," warns James
Harmon, an investment banker who headed the
Export-Import Bank during the Clinton
administration. "A lot of smart money has moved
out of the dollar in the last six months," he
explains. "Now the latecomers are rushing to
sell, and that's adding to the momentum."

The "smart money" includes financial guru Warren
Buffett. He disclosed last month in Fortune that
since the spring of 2002, he has been making
"significant investments" in foreign currencies
for the first time in his career. What worries
Buffett is that the U.S. trade deficit has
"greatly worsened," and is now running at more
than 4 percent of GDP. That puts the U.S. economy
at the mercy of foreigners, and their willingness
to hold surplus dollars.

So long as global investors believed that U.S.
authorities were ready to protect the dollar as a
reserve currency, they kept adding to their
stashes of greenbacks, despite the trade deficit.
But that confidence may finally be disappearing.

The dollar's decline during the Bush presidency
has been remarkable. It has tumbled about 44
percent from its October 2000 high of about 83
cents to the euro. Over the past year alone, the
decline has been more than 15 percent. Investors
who trusted in the dollar as a store of value
have been clobbered, so it's not surprising that
they want to sell, even at current depressed
prices. They fear that worse is coming.

"I'm appalled at what's happening to the dollar,"
says investment banker Felix Rohatyn, a former
U.S. ambassador to France. "A basic
responsibility of a government is to maintain the
value of its currency."

Rohatyn argues that the Federal Reserve should
signal that it "will not allow a dollar crisis to
happen" by raising the Fed funds rate at which
banks can borrow money overnight, from its
current low level of 1 percent. Fed Chairman Alan
Greenspan insisted recently that there isn't any
dollar crisis, which only made some investors
more nervous.

If you haven't already gagged on your raisin
bran, consider this nightmare scenario --
outlined by an investment banker who for many
years headed his firm's currency-trading
operations. This veteran trader contends that the
markets have entered a cycle in which
"overshooting" -- meaning a further sharp fall in
the dollar's value -- "is a distinct possibility."
The core problem, he argues, is that China and
Japan have been determined to keep their
currencies cheap -- China by fixing the yuan at
an artificially low level and Japan by
intervening in exchange markets to keep the yen
from rising. With their undervalued currencies,
the Asians can export massively to the United
States and accumulate ever-larger surpluses of
dollars.

Hence the nightmare scenario: Between them, China
and Japan now hold more than $1 trillion in U.S.
Treasury bonds, the trader estimates. But with
the declining dollar, the Asian giants have
suffered severe losses on these portfolios.

If they decided to hedge just 20 percent of their
dollar exposure, they could drive the dollar down
from this week's low of about $1.21 against the
euro to $1.35, contends the trader, and other
sellers would trigger a further weakening to
$1.45 or so. Facing that sort of decline, the Fed
would have to boost interest rates to protect the
currency. And higher rates, in turn, would drive
down the U.S. stock market.

The Bush administration seems comfortable with a
cheaper dollar because it's a way of stimulating
demand for American products abroad and
sustaining the U.S. economic recovery. In other
words, it's good politics. But paradoxically, the
U.S. recovery will only worsen pressure on the
dollar by sucking in more imports.

To prevent a full-blown crisis, the
administration must take prompt action. It should
pledge to cut the deficit; it should stop playing
politics with free trade; and it should signal
that it will intervene in currency markets when
necessary to protect the dollar's value. Those
steps might convince global investors that
somebody at the White House is at least minding
the store.

davidignatius@washpost.com
© 2003 The Washington Post Company

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