By Keith Weiner
Careening from Crisis to Crisis
Back in the old days, homes had fuse boxes. Today, of course, any new house is built with a circuit breaker panel and many older homes have been upgraded at one time or another. However, the fuse is a much more interesting analogy for the monetary system.
Electricity for the adventurous. [PT]
Photo via lievielectric.com
When a fuse burned out, it was protecting you from the risk of a house fire. Each circuit is designed for only so much current. The problem is that higher current causes more heat, and it can start a fire. So they put fuses in, which burn out before the wire gets hot enough to be dangerous.
The problem is that it’s annoying when a fuse burns out, especially when it’s the last one and the hardware store is far away and/or closed for the weekend. So people all too often put a penny in the place of the fuse. And then, human nature being what it is, they left it there long-term. As an aside, pennies in those days were solid copper, not the copper plated zinc they use today because it’s cheaper.
We would guess that a disproportionate number of house fires were started because an overloaded circuit became overheated, and the protective fuse was replaced with a penny that would keep the juice flowing no matter what.
So, what has that got to do with gold and silver? A penny in the fuse box is a perfect analogy for what President Roosevelt did in 1933. Many believe when he confiscated gold, it was to grab the loot. While we have no doubt that he and his cronies lusted for the gold of the people, he had a more serious purpose.
Until 1933, gold was the core monetary asset in the banking system. When people withdrew their gold coin — redeeming their gold, not buying gold — that forced the bank to sell a bond to raise the gold to redeem depositors. If a bank could not raise enough gold, perhaps because bond prices were going down, then the bank was bankrupt. Another problem is that falling bond prices mean rising interest rates.
Roosevelt’s infamous “gimme!” Always an excellent reminder what ostensibly democratic governments will do under the pretext of emergency (not that anyone who paid attention in recent years needed one – Greece, anyone?). The common denominator seems to be that the theft gets bigger and more brazen (but they all “mean well”). Of course, if one is unlucky, even worse things can happen. Imagine standing at the banks of the Neva across from the Winter Palace in early November 1917 and asking yourself “I wonder what will happen next?” (in that situation one was soon bound to learn that some commies were worse than others). Excuse the detour… [PT] click to enlarge.
Roosevelt was trying to stop the run on the banks, and trying to push interest rates down.
He did stop the run, and interest continued to …read more
Source:: Acting Man
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