Peter Schiff

If you’ve spent enough time in the gold community, you might be under the impression that the most imminent threat to the average American isn’t terrorism or unemployment, but rather gold confiscation. Starting with the fact that FDR confiscated gold during the last Great Depression, and continuing to the quite accurate forecast that we are headed into an even Greater Depression, unscrupulous coin dealers have been pushing investors to buy expensive “numismatic” or “collectible” coins that they claim would be protected from government seizure. The only problems are that the original motive for confiscation no longer applies and the “protection” offered by major coin dealers wouldn’t actually help you keep your gold.

THE TYRANT’S ORDER

In 1933, President Roosevelt issued Executive Order 6102, prohibiting the private holding of gold and requiring US citizens to turn over their gold bullion or face a $10,000 fine ($167,700 in today’s dollars) or 10 years imprisonment.

For private citizens, the order listed the following exemption:

Gold coin and gold certificates in an amount not exceeding in the aggregate $100 [about 5 troy ounces at that time] belonging to any one person; and gold coins having a recognized special value to collectors of rare and unusual coins.

Seizing on this “rare and unusual” language, many coin dealers try to convince unsuspecting customers that regular bullion coins are not safe, and that it is worthwhile to pay extra for “numismatic” or “collectible” coins that would be exempt from a Roosevelt-style confiscation.

CALL THE MYTHBUSTERS

The reality is that almost all coins sold as “numismatic” or “collectible” by our competitors are really quite ordinary coins sold at high mark-ups to make these dealers extra profits. If we were in 1933, these coins would absolutely not fall under the definition of “rare and unusual.”

True numismatics are extremely rare or one-of-a-kind coins that collectors purchase for their historical and aesthetic qualities. These coins might retail for $100,000, while only containing $1,400 worth of gold. Most dealers charge a huge premium, so the coin may have to appreciate 30-50% before the buyer can even hope to make a profit. It is a speculative endeavor, and one that is likely to get even riskier as the US descends further into economic depression.

True numismatic coins, like pieces of high art, do well in good times, when people are getting richer and adding to their collections. In bad times, collectors are forced to sell because they need cash. With many collectors in the same boat, prices plunge. Even if the value of the gold in the coin rises, the gold content is only a small fraction of the coin’s value. Since premiums are contracting, the value of the coin falls. So, if you are buying gold due to fear of an economic collapse, you should buy bullion, not numismatics.

WHY WAS GOLD CONFISCATED?

In 1933, when Roosevelt issued his infamous order, the United States was still on a gold standard, meaning every 20.67 paper dollars could have been “redeemed by the bearer on demand” for a troy ounce of gold. Since Roosevelt had many public works projects to finance and also may have wanted to quietly lower real wages to drive employment, he confiscated gold and then devalued the exchange rate to $35/oz (at this point, the only people who could “exchange” were foreign governments). Thus, Americans instantly saw a 40% drop in value for the dollars they held, and the government’s profit was sequestered in something called the Exchange Stabilization Fund, which could be used by the President at whim without Congressional approval. Pretty nifty trick, huh?

It’s important to note that confiscation was necessary to Roosevelt’s plan because we were under a gold standard. Gold at that time was widely held throughout the population. If Roosevelt had devalued the dollar without confiscation, then whatever savings Americans held in gold would have been immune from this hidden tax. Furthermore, many Americans likely would have redeemed whatever paper dollars they held in fear of another devaluation. This could have wrecked the dollar’s viability as a currency.

These rationales no longer apply. In the aftermath of Roosevelt and Nixon’s dismantling of the gold standard, gold is no longer currency. Most Americans hold their savings in dollars and it is the only legal tender (which means it must be accepted in payment of all debts). Thus, President Obama and his buddy Bernanke don’t need to confiscate gold to devalue the dollar and finance excessive spending. In fact, the Fed has more than doubled the monetary base since the financial crisis started.

WHAT, ME WORRY?

The only reason to fear confiscation is in the case that the federal government is in default and needs the gold in order to pay off its creditors. But if it comes to Washington simply stealing our assets at whim, then why would gold be the only target? At that point, real estate, stock and bond certificates, and vehicles would be much easier to seize. Gold has been prized throughout history for its high value-to-weight, making it easy to conceal and trade under tough political conditions. Consider: you could store enough gold to care for a small family for six months (approx. 9 ounces) on the inside of a belt buckle.

Remember, if Washington chooses the confiscation route, we’re talking about a situation of pure pandemonium. When governments begin abrogating property rights in that fashion, the entire market mechanism ceases to function. We saw this in the Great Depression as Hoover and then Roosevelt relentlessly attacked private property and contracts.

If the situation really gets this bad, you aren’t going to trust some government agent with the intelligence of your average TSA officer to judge whether your coins are “numismatic” enough to be exempt from confiscation. The best protection in this case would be to have your gold stored safely at home or off-shore (not in a safety deposit box at a bank, where it is more likely to be seized).

Even in the heat of Roosevelt’s confiscation scheme, government troops did not break into people’s homes. The singular (failed) prosecution under the order took place when a New York lawyer tried to withdraw 5,000 troy ounces from Chase Bank. Ironically, all the gold actually collected by the Treasury was willfully surrendered in a wave of misguided patriotism, while many “law-breakers” simply kept their gold – which is why some old coins escaped the Treasury’s furnaces and are still around today.

SHOP SMART

The bottom line is that unscrupulous dealers use the threat of confiscation as a scare tactic to get you to buy gold coins at mark-ups well above the spot value of the metal they contain. While investors buy physical gold for many reasons – lack of counter-party risk, financial privacy, portability, et cetera – it is principally a store of value, a way to protect your wealth from the relentless devaluation of fiat currencies. Your goal as a buyer is to get the most gold possible for your money, from a dealer you trust. The dealer should make the process transparent and easy to understand, and deliver a genuine product at the agreed-upon price.

As a matter of business ethics and fair dealing to our customers, I decided early on that Euro Pacific Precious Metals would not offer numismatic coins. To put it simply, I think they are a poor investment option.

Peter Schiff is CEO of Euro Pacific Precious Metals. Having spent years encouraging his brokerage clients to buy physical gold, he grew concerned about the growing number of unscrupulous dealers that tried to “up-sell” customers to rare or collectible coins with high markups. Peter Schiff’s gold coin buying philosophy is to buy for the coin’s metal value, not its claimed “numismatic” value. He decided to open his own firm to sell investment-grade bullion products at competitive prices. Euro Pacific only sells reputable, well-known coins that trade on the open market, such as American Gold Eagles, Canadian Maple Leafs, and Australian Kangaroos. To find out more, please visit www.europacmetals.com or call us at (888) GOLD-160.

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Peter Schiff

There has been so much discussion recently about “QE 2″ that you would think the entire financial sector were about to embark on a transatlantic cruise. Unfortunately, they, and we, are not so lucky. In the year 2010, “QE 2″ doesn’t refer to a sumptuous ocean liner, but a second, more extravagant round of “quantitative easing” – stimulus. In the past, this technique was simply called “printing money.” As if the nation has not already suffered enough from the first round, Captain Ben Bernanke and the Fed are determined to compound the damage by hitting us with another monetary juggernaut. Their stated goal is to boost the economy and create jobs. However, since economic growth cannot be achieved by printing money, their QE 2 will sink just as surely as the Titanic.

The intent of QE 2 is to lower interest rates to promote job growth and avoid the apparently growing threat of deflation. But the very idea that the economy is weak because interest rates are too high is laughable. Deflation is the market’s cure for the asset bubbles that have recently burst, so any attempt to avert it will only weaken the economy further.

In fact, one of the reasons the US economy is in such bad shape is that interest rates are already too low. Low rates have encouraged excess borrowing, by both individuals and governments, and discouraged saving, fueling new asset bubbles at the expense of legitimate investment. As a result, the dead weight of debt has simply overloaded our economy, and our creditors are getting nervous. What we need now is to make hard choices, not engage in more easing – to deleverage, not borrow more.

Worse still, by keeping rates too low, the Fed has enabled the US government to grow significantly larger than it otherwise could had its borrowing been restrained by higher rates. Absent these low rates, Washington likely wouldn’t have passed expensive new healthcare and financial regulation reforms; they would be too busy trying to keep the lights on in the Capitol.

For this and other reasons, the bogeyman of deflation is really not a concern at all. It’s not a threat because falling consumer prices could serve as a relief for many suffering from layoffs and pay cuts in the recession. Even if it were a threat, it’s not even likely because so much liquidity has already been created and an infinite amount could still be created at will by the Fed. Consumer prices are already rising across the board, despite a contracting economy, so what’s all this talk about deflation?

The Fed is quick to point to falling real estate prices. But a drop in real estate will no more cause consumer prices to fall than the real estate boom caused them to rise. Real estate prices are too high, and the economy will never truly recover unless they are allowed to fall. It is interesting that when real estate prices were rising, the Fed did not raise rates to bring them down, but now that they are falling, the central bank feels compelled to lower rates to prop them up. If falling real estate prices threaten deflation, why did the Fed not perceive an inflation threat when real estate prices were rising?

My thinking is that, at the end of the day, all this deflation talk is a red herring. The true purpose of QE 2 is to disguise the decreasing ability of the Treasury to finance its debts. As global demand for dollar-denominated debt falls, the Fed is looking for an excuse to pick up the slack. By announcing QE 2, it can monetize government debt without the markets perceiving a funding problem. If the truth were known, a real panic would ensue. So, the Fed pretends buying treasuries is simply part of its master plan to boost the economy, even though, in reality, it is simply acting as the buyer of last resort.

If the Fed really wanted to help the economy, it would raise rates quite dramatically. Instead of preparing for QE 2, it should be unloading the debt it purchased during QE 1. Of course, that is not so easy to do – which is precisely why I was against QE 1 from the beginning. However, even though the exit will be painful, going down with the ship will be even more unpleasant.

Higher interest rates and a commitment from the Fed to refrain from purchasing Treasury debt would force the government to dramatically reduce spending. If we combine less government spending with fewer regulations, reform our tax code in a way that stops punishing savings and investment, stop all government subsidies for real estate so that prices can fall to affordable levels, and allow all insolvent entities to fail, then a real recovery will take hold.

If the Fed refuses to set sail on QE 2, then her loyal passengers might complain, but at least the US will be on solid monetary ground as it tried to rebuild a viable economy. If instead we board QE 2 (and QE 3 and QE 4 thereafter), then we are headed to a sea full of icebergs called interest rate spikes, and all on board will surely drown in a sea of worthless Federal Reserve Notes.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff’s 2008 bestseller “The Little Book of Bull Moves in Bear Markets” and his newest release “Crash Proof 2.0: How to Profit from the Economic Collapse.”

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Of course, America has never enjoyed absolute free-market capitalism: creeping government intrusion and special interest political patronage have existed and increased since our founding.  But America historically has permitted free markets to operate with less government interference than other nations, while showing greater respect for property rights and the rule of law.  Less government, respect for private property, and a relatively stable legal environment allowed America to become the wealthiest nation on earth.

By contrast, the poorest nations almost always demonstrate hostility for free markets, private property, and the rule of law.  Capital formation, entrepreneurship, credit, and wealth accumulation are uniformly discouraged in poor countries.  Private contracts are not reliably enforced, and private property is not secure in the hands of owners.  The predictable result is widespread poverty and misery.

First and foremost, the role of government in business should be limited to resolving contractual disputes.  As long as both parties of a contract enter into the arrangement willingly, without coercion, and with complete and accurate information, they should be expected to live up to their end of the deal.  When a party cannot or will not honor the terms of a contract, it is acceptable for government to provide a court system to resolve disputes in a fair and impartial way.

Government should not dictate the terms of a contract to the parties involved.  However, throughout the 20th century, our government became increasingly comfortable mandating terms that politicians find acceptable without regard to what businesses or their customers might want.   This interference has had a chilling effect on the economy.

For example, government increases labor costs through minimum wage laws, union requirements, healthcare mandates, and various other stipulations that decrease a business’s capacity to hire as many employees as they might otherwise.  And because they can only hire a few, they must reserve those spots only for top candidates.  Thus, a teenager or a handicapped individual may miss out on job opportunities and work experience because of government-created job shortages.  What if someone was willing to work for less than the government-mandated minimum wage, and a business was willing to give them a chance?  Government makes this illegal, and both the business and the worker are worse off for it.

By contrast, business flourishes when government gets out of the way. One example is playing out in the 14th congressional district in Texas. A major multinational company, Caterpillar, is building an assembly facility in Victoria, Texas, rather than in one of the heavily unionized midwest states where it operates other plants.  Texas, as a “right to work” state, offers more manageable labor costs. It also offers a more business-friendly regulatory landscape, and an overall lower tax burden with no corporate income tax.   I am pleased that because of this, the people of Victoria will be rewarded with more job opportunities.

Freedom and a restrained government are what made us an economic power house.  If we keep chasing businesses away with onerous taxes, mandates, and regulations, they will eventually leave.  The best approach to our economic woes that will help the most people is simple: get back to the Constitution and demonstrate respect for free markets, private property, and the rule of law.

Here’s the whole story:

Poll: Most Say “Ground Zero Mosque” Is Inappropriate – Political Hotsheet – CBS News.

Furthermore, it’s in how these these two groups are treated that our government has failed America.

In a fair and sane world, the worker would get rewarded for his production and the moocher would get penalized for not producing. In an unfair and insane world (or where Marxism or Socialism might prevail), the worker gets penalized and the moocher is rewarded.

When the worker is taxed, is that a reward or penalty? When a new teacher spends after-hours making sure her students really learn, but gets less pay than the tenured teacher who could care less about her students, is she being rewarded or penalized. When the moocher is given welfare and subsidized rents, is he being rewarded or penalized? When a farmer is subsidized for not growing food, is he being rewarded or penalized?

When the worker gets penalized for producing, as in the examples above, will you get more production or less? And when the moocher gets rewarded for not producing, will you get more production or less? Our governments are guilty of both these actions and have been for decades. And American citizens who have the mindset that someone else owes them a living is expanding daily because of this (watch the video above to see what we’re up against.).

We must demand that our labor and production not be penalized, but rewarded. And stop the moochers from using the government to take from us. Workers of the world… UNITE!

This bill (now called the Wall Street Reform Bill, to make Wall Street look like the bad guys and take attention off the Fed) will give the Federal Reserve more power. In other words, they’re going to give the private bankers at the Fed, who caused most of the financial meltdown this country is experiencing, more power to do more damage. Call, FAX, email your Senator now and tell them to vote NO on this bill.

www.youtube.com/watch?v=6ojbOd4HPVc

Since my 2008 campaign for the presidency I have often been asked, “How would a constitutionalist president go about dismantling the welfare-warfare state and restoring a constitutional republic?” This is a very important question, because without a clear road map and set of priorities, such a president runs the risk of having his pro-freedom agenda stymied by the various vested interests that benefit from big government.

Of course, just as the welfare-warfare state was not constructed in 100 days, it could not be dismantled in the first 100 days of any presidency. While our goal is to reduce the size of the state as quickly as possible, we should always make sure our immediate proposals minimize social disruption and human suffering. Thus, we should not seek to abolish the social safety net overnight because that would harm those who have grown dependent on government-provided welfare. Instead, we would want to give individuals who have come to rely on the state time to prepare for the day when responsibility for providing aide is returned to those organizations best able to administer compassionate and effective help – churches and private charities.

Now, this need for a transition period does not apply to all types of welfare. For example, I would have no problem defunding corporate welfare programs, such as the Export-Import Bank or the TARP bank bailouts, right away. I find it difficult to muster much sympathy for the CEO’s of Lockheed Martin and Goldman Sachs.

No matter what the president wants to do, most major changes in government programs would require legislation to be passed by Congress. Obviously, the election of a constitutionalist president would signal that our ideas had been accepted by a majority of the American public and would probably lead to the election of several pro-freedom congressmen and senators. Furthermore, some senators and representatives would become “born again” constitutionalists out of a sense of self-preservation. Yet there would still be a fair number of politicians who would try to obstruct our freedom agenda. Thus, even if a president wanted to eliminate every unconstitutional program in one fell swoop, he would be very unlikely to obtain the necessary support in Congress.

Yet a pro-freedom president and his legislative allies could make tremendous progress simply by changing the terms of the negotiations that go on in Washington regarding the size and scope of government. Today, negotiations over legislation tend to occur between those who want a 100 percent increase in federal spending and those who want a 50 percent increase. Their compromise is a 75 percent increase. With a president serious about following the Constitution, backed by a substantial block of sympathetic representatives in Congress, negotiations on outlays would be between those who want to keep funding the government programs and those who want to eliminate them outright – thus a compromise would be a 50 percent decrease in spending!

While a president who strictly adheres to the Constitution would need the consent of Congress for very large changes in the size of government, such as shutting down cabinet departments, he could use his constitutional authority as head of the executive branch and as commander in chief to take several significant steps toward liberty on his own. The area where the modern chief executive has greatest ability to act unilaterally is in foreign affairs. Unfortunately, Congress has abdicated its constitutional authority to declare wars, instead passing vague “authorization of force” bills that allow the president to send any number of troops to almost any part of the world. The legislature does not even effectively use its power of the purse to rein in the executive. Instead, Congress serves as little more than a rubber stamp for the president’s requests.

If the president has the power to order U.S. forces into combat on nothing more than his own say-so, then it stands to reason he can order troops home. Therefore, on the first day in office, a constitutionalist can begin the orderly withdrawal of U.S. forces from Iraq and Afghanistan. He can also begin withdrawing troops from other areas of the world. The United States has over 300,000 troops stationed in more than 146 countries. Most if not all of these deployments bear little or no relationship to preserving the safety of the American people. For example, over 20 years after the fall of the Berlin Wall, the U.S. still maintains troops in Germany.

Domestically, the president can use his authority to set policies and procedures for the federal bureaucracy to restore respect for the Constitution and individual liberty. For example, today manufacturers of dietary supplements are subject to prosecution by the Food and Drug Administration (FDA) or Federal Trade Commission (FTC) if they make even truthful statements about the health benefits of their products without going through the costly and time-consuming procedures required to gain government approval for their claims. A president can put an end to this simply by ordering the FDA and FTC not to pursue these types of cases unless they have clear evidence that the manufacturer’s claims are not true. Similarly, the president could order the bureaucracy to stop prosecuting consumers who wish to sell raw milk across state lines.

A crucial policy that a president could enact to bring speedy improvements to government is ordering the bureaucracy to respect the 10th Amendment and refrain from undermining state laws. We have already seen a little renewed federalism with the current administration’s policy of not prosecuting marijuana users when their use of the drug is consistent with state medical-marijuana laws. A constitutionalist administration would also defer to state laws refusing compliance with the REAL ID act and denying federal authority over interstate gun transactions. None of these actions repeals a federal law; they all simply recognize a state’s primary authority, as protected by the 10th amendment, to set policy in these areas.

In fact, none of the measures I have discussed so far involves repealing any written law. They can be accomplished simply by a president exercising his legitimate authority to set priorities for the executive branch. And another important step he can take toward restoring the balance of powers the Founders intended is repealing unconstitutional executive orders issued by his predecessors.

Executive orders are a useful management tool for the president, who must exercise control over the enormous federal bureaucracy. However, in recent years executive orders have been used by presidents to create new federal laws without the consent of Congress. As President Clinton’s adviser Paul Begala infamously said, “stroke of the pen, law of the land, pretty cool.” No, it is not “pretty cool,” and a conscientious president could go a long way toward getting us back to the Constitution’s division of powers by ordering his counsel or attorney general to comb through recent executive orders so the president can annul those that exceed the authority of his office. If the President believed a particular Executive Order made a valid change in the law, then he should work with Congress to pass legislation making that change.

Only Congress can directly abolish government departments, but the president could use his managerial powers to shrink the federal bureaucracy by refusing to fill vacancies created by retirements or resignations. This would dramatically reduce the number of federal officials wasting our money and taking our liberties. One test to determine if a vacant job needs to be filled is the “essential employees test.” Whenever D.C. has a severe snowstorm, the federal government orders all “non-essential” federal personal to stay home. If someone is classified as non-essential for snow-day purposes, the country can probably survive if that position is not filled when the jobholder quits or retires. A constitutionalist president should make every day in D.C. like a snow day!

A president could also enhance the liberties and security of the American people by ordering federal agencies to stop snooping on citizens when there is no evidence that those who are being spied on have committed a crime. Instead, the president should order agencies to refocus on the legitimate responsibilities of the federal government, such as border security. He should also order the Transportation Security Administration to stop strip-searching grandmothers and putting toddlers on the no-fly list. The way to keep Americans safe is to focus on real threats and ensure that someone whose own father warns U.S. officials he’s a potential terrorist is not allowed to board a Christmas Eve flight to Detroit with a one-way ticket.

Perhaps the most efficient step a president could take to enhance travel security is to remove the federal roadblocks that have frustrated attempts to arm pilots. Congress created provisions to do just that in response to the attacks of September 11, 2001. However, the processes for getting a federal firearms license are extremely cumbersome, and as a result very few pilots have gotten their licenses. A constitutionalist in the Oval Office would want to revise those regulations to make it as easy as possible for pilots to get approval to carry firearms on their planes.

While the president can do a great deal on his own, to really restore the Constitution and cut back on the vast unconstitutional programs that have sunk roots in Washington over 60 years, he will have to work with Congress. The first step in enacting a pro-freedom legislative agenda is the submission of a budget that outlines the priorities of the administration. While it has no legal effect, the budget serves as a guideline for the congressional appropriations process. A constitutionalist president’s budget should do the following:

1. Reduce overall federal spending
2. Prioritize cuts in oversize expenditures, especially the military
3. Prioritize cuts in corporate welfare
4. Use 50 percent of the savings from cuts in overseas spending to shore up entitlement programs for those who are dependent on them and the other 50 percent to pay down the debt
5. Provide for reduction in federal bureaucracy and lay out a plan to return responsibility for education to the states
6. Begin transitioning entitlement programs from a system where all Americans are forced to participate into one where taxpayers can opt out of the programs and make their own provisions for retirement and medical care

If Congress failed to produce a budget that was balanced and moved the country in a pro-liberty direction, a constitutionalist president should veto the bill. Of course, vetoing the budget risks a government shutdown. But a serious constitutionalist cannot be deterred by cries of “it’s irresponsible to shut down the government!” Instead, he should simply say, “I offered a reasonable compromise, which was to gradually reduce spending, and Congress rejected it, instead choosing the extreme path of continuing to jeopardize America’s freedom and prosperity by refusing to tame the welfare-warfare state. I am the moderate; those who believe that America can afford this bloated government are the extremists.”

Unconstitutional government spending, after all, is doubly an evil: it not only means picking the taxpayer’s pocket, it also means subverting the system of limited and divided government that the Founders created. Just look at how federal spending has corrupted American education.

Eliminating federal involvement in K–12 education should be among a constitutionalist president’s top domestic priorities. The Constitution makes no provision for federal meddling in education. It is hard to think of a function less suited to a centralized, bureaucratic approach than education. The very idea that a group of legislators and bureaucrats in D.C. can design a curriculum capable of meeting the needs of every American schoolchild is ludicrous. The deteriorating performance of our schools as federal control over the classroom has grown shows the folly of giving Washington more power over American education. President Bush’s No Child Left Behind law claimed it would fix education by making public schools “accountable.” However, supporters of the law failed to realize that making schools more accountable to federal agencies, instead of to parents, was just perpetuating the problem.

In the years since No Child Left Behind was passed, I don’t think I have talked to any parent or teacher who is happy with the law. Therefore, a constitutionalist president looking for ways to improve the lives of children should demand that Congress cut the federal education bureaucracy as a down payment on eventually returning 100 percent of the education dollar to parents.

Traditionally, the battle to reduce the federal role in education has been the toughest one faced by limited-government advocates, as supporters of centralized education have managed to paint constitutionalists as “anti-education.” But who is really anti-education? Those who wish to continue to waste taxpayer money on failed national schemes, or those who want to restore control over education to the local level? When the debate is framed this way, I have no doubt the side of liberty will win. When you think about it, the argument that the federal government needs to control education is incredibly insulting to the American people, for it implies that the people are too stupid or uncaring to educate their children properly. Contrary to those who believe that only the federal government can ensure children’s education, I predict a renaissance in education when parents are put back in charge.

The classroom is not the only place the federal government does not belong. We also need to reverse the nationalization of local police. Federal grants have encouraged the militarization of law enforcement, which has led to great damage to civil liberties. Like education, law enforcement is inherently a local function, and ending programs such as the Byrne Grants is essential not just to reducing federal spending but also to restoring Americans’ rights.

Obviously, a president concerned with restoring constitutional government and fiscal responsibility would need to address the unstable entitlement situation, possibly the one area of government activity even more difficult to address than education. Yet it is simply unfair to continue to force young people to participate in a compulsory retirement program when they could do a much better job of preparing for their own retirements. What is more, the government cannot afford the long-term expenses of entitlements, even if we were to reduce all other unconstitutional foreign and domestic programs.

As I mentioned in the introduction to this article, it would be wrong simply to cut these programs and throw those who are dependent on them “into the streets.” After all, the current recipients of these programs have come to rely on them, and many are in a situation where they cannot provide for themselves without government assistance. The thought of people losing the ability to obtain necessities for them because they were misled into depending on a government safety net that has been yanked away from them should trouble all of us. However, the simple fact is that if the government does not stop spending money on welfare and warfare, America may soon face an economic crisis that could lead to people being thrown into the street.

Therefore, a transition away from the existing entitlement scheme is needed. This is why a constitutionalist president should propose devoting half of the savings from the cuts in wars and other foreign spending, corporate welfare, and unnecessary and unconstitutional bureaucracies to shoring up Social Security, Medicare, and Medicaid and providing enough money to finance government’s obligations to those who are already stuck in the system and cannot make alternative provisions. This re-routing of spending would allow payroll taxes to be slashed. The eventual goal would be to move to a completely voluntary system where people only pay payroll taxes into Social Security and Medicare if they choose to participate in those programs. Americans who do not want to participate would be free not to do so, but they would forgo any claim to Social Security or Medicare benefits after retirement.

Some people raise concerns that talk of transitions is an excuse for indefinitely putting off the end of the welfare state. I understand those concerns, which is why a transition plan must lay out a clear timetable for paying down the debt, eliminating unconstitutional bureaucracies, and setting a firm date for when young people can at last opt out of the entitlement programs.

A final area that should be front and center in a constitutionalist’s agenda is monetary policy. The Founders obviously did not intend for the president to have much influence over the nation’s money – in fact, they never intended any part of the federal government to operate monetary policy as it defined now. However, today a president could play an important role in restoring stability to monetary policy and the value of the dollar. To start, by fighting for serious reductions in spending, a constitutionalist administration would remove one of the major justifications for the Federal Reserve’s inflationary policies, the need to monetize government debt.

There are additional steps a pro-freedom president should pursue in his first term to restore sound monetary policy. He should ask Congress to pass two pieces of legislation I have introduced in the 110th Congress. The first is the Audit the Fed bill, which would allow the American people to learn just how the Federal Reserve has been conducting monetary policy. The other is the Free Competition in Currency Act, which repeals legal tender laws and all taxes on gold and silver. This would introduce competition in currency and put a check on the Federal Reserve by ensuring that people have alternatives to government-produced fiat money.

All of these measures will take a lot of work – a lot more than any one person, even the president of the United States, can accomplish by himself. In order to restore the country to the kind of government the Founders meant for us to have, a constitutionalist president would need the support of an active liberty movement. Freedom activists must be ready to pressure wavering legislators to stand up to the special interests and stay the course toward freedom. Thus, when the day comes when someone who shares our beliefs sits in the Oval Office, groups like Young Americans for Liberty and Campaign for Liberty will still have a vital role to play. No matter how many pro-freedom politicians we elect to office, the only way to guarantee constitutional government is through an educated and activist public devoted to the ideals of the liberty.

For that reason, the work of Young Americans for Liberty in introducing young people to the freedom philosophy and getting them involved in the freedom movement is vital to the future of our country. I thank all the members and supporters of YAL for their dedication to changing the political debate in this country, so that in the not-too-distant future we actually will have a president and a Congress debating the best ways to shrink the welfare-warfare state and restore the republic.

This essay originally appeared in Young American Revolution, the magazine of Young Americans for Liberty.

Much has been made recently about the supposed economic recovery.  A few blips in a few statistics and many believe our troubles are all over.  Of course, they have to redefine recovery as “jobless” to account for the lack of improvement on Main Street.  But the banks have money, Wall Street is chugging along, and the administration would like to get on with other agendae.

They have even set up a commission to investigate the crisis as if it were all in the past.

The truth is that Americans are still losing jobs, the Fed is still inflating, and more regulations are in the works that will prevent jobs and productivity from coming back.  We are on this trajectory for the long haul.  The claim has been made many times that this administration has only had a year to clean up the mess of the last administration.  I wish they would at least get started!  Instead of reversing course, they are maintaining Bush’s policies full speed ahead.  They are even keeping the Bush-appointee in charge of the Federal Reserve!  They are not even making token efforts at change in economic policy.  And for all the talk of transparency, we hear that some powerful senators will do all they can to block a simple audit of the powerful and secretive Federal Reserve.

We have been on a disastrous course for a long time.  The money supply has doubled in the last year, our debt is unsustainable, the value of the dollar is going to continue its drop, and those Americans who understand where we are headed feel helpless and held hostage by foolish policy makers in Washington.  When the bills finally come due and the dollar stops working we are in for some real social, economic and political chaos.  That is, unless we take some major steps now to allow for a peaceful transition in the future.  These steps are laid out in my legislation to legalize competing currencies.

First of all, no one should be compelled by law to operate in Federal Reserve notes if they prefer an alternative.  We should repeal legal tender laws and allow Americans to conduct transactions in constitutional money.  Only gold and silver can constitutionally be legal tender, not paper money.  Instead, it is illegal to conduct business using gold and silver instead of Federal Reserve notes.  Simply legalizing the Constitution should be a no-brainer to anyone who took an oath of office.  Consequently, private mints should be allowed to mint gold and silver coins.  They would be subject to fraud and counterfeit laws, of course, and people would be free to use their coins or stay with Federal Reserve notes, as they see fit.  Finally, we should abolish taxes on gold and silver, which puts precious metals at a competitive disadvantage to paper money.

The Federal Reserve is a government-sanctioned banking cartel that has held far too much power for far too long and is in the end stages of running the dollar into the ground, and our economy along with it.  The very least Congress can do, if they are not willing to abolish the Fed, and perhaps not even conduct a serious audit of it, is to allow citizens the freedom to defend themselves from being completely wiped out by their monopoly power.

Peter Schiff

As the unemployment rate crossed the double digit barrier for the first time since Michael Jackson learned to moonwalk, President Obama announced that he will convene a “jobs summit” to finally bring the problem under control. Using all the analytic skill that his administration can muster, the President is determined to figure out why so many people are losing their jobs and then formulate a solution. That’s a relief; for a while there, I thought we were in real trouble! In fact, the absolute last thing our economy needs is more federal government interference. If Obama really wants to know what’s behind entrenched joblessness, he should start by looking at the man in the mirror.

Obama is pursuing, with unprecedented vigor, the same policies that have for decades undermined our industrial base and yoked us to an unsustainable consumer/credit driven economy. This doubling down on Washington’s past failures is destroying jobs at an alarming rate. Today we learned that the September trade deficit surged by 18.2%, the largest gain in ten years. Much of the deficit resulted from Americans spending Cash-for-Clunkers stimulus money on imported cars – or “American” cars loaded to the sunroof with imported parts. In exchange for more domestic debt, we have succeeded only in creating foreign jobs.

An article in this week’s New York Times by veteran writer Louis Uchitelle confirmed a fact that I have been alleging for years. Uchitelle pointed out that foreign outsourcing of component manufacturing has led to consistent overstatement of U.S. GDP and productivity. The connection goes a long way to explain why we keep losing jobs even as GDP is apparently expanding.

As our economy becomes less competitive due to higher taxes, burdensome and uncertain regulations, and capital flight, more manufacturing and services will be outsourced to foreign firms. However, the flaw in GDP calculation allows the output of those foreign workers to be included in our domestic tally. Since we count the output but not the worker responsible for it, government statisticians attribute the gains to rising labor productivity. To them, it looks like companies are producing more goods with fewer workers.

The reality is that we are producing less with fewer workers. The added “productivity” comes from higher unemployment and larger trade deficits. This is a toxic formula that will have lethal economic consequences.

Don’t expect the brain trust at the President’s job summit to fret much about these details. That public relations stunt will likely ignore the root cause of the economic imbalances and instead stress the need for government spending on training and education, i.e. more public debt. The unemployed do not need government theatrics, they need actual jobs. But as long as the government props up failed companies, soaks up all available investment capital, discourages savings, punishes employers, and chases capital out of the country, jobs will continue to be lost.

To really fix the unemployment problem, the President must look past his peers in government and academia to understand how jobs are actually created. In the private sector, all individuals have a choice to either work for themselves or someone else. Since labor is far more productive when combined with capital (office equipment, machinery, business models, and intellectual capital), those who lack these assets themselves often choose to work for others who have sacrificed to accumulate them. This increased productivity is shared between the worker and the owner of capital, and both are better off.

However, for one person or company to choose to offer a job to another, there must be an incentive to do so, and they must have the necessary capital. In the first place, employers must commit to paying wages and benefits, comply with government mandates and regulations, and subject themselves to potential lawsuits from disgruntled employees. All of these costs must be measured against the extra profits an employer hopes to earn by hiring an additional worker.

If profit opportunities exist, jobs will be created. Otherwise, they will not. Of course, anything the government does to raise the cost of employment, such as a higher minimum wage, mandated heath care, or greater regulatory burdens, not only prevents new jobs from being created but also causes many that already exist to be destroyed. Anything that diminishes the profit potential of extra hiring will diminish the number of job opportunities that are created. Also, since it is after-tax profits against which employers measure risk, the higher the marginal rate of income tax, the less likely employers will be able to hire.

Finally, in order to hire workers, employers must have access to capital to expand operations. Anything the government does to discourage capital formation automatically diminishes job creation. By running the largest federal deficits in history, Barack Obama is diverting all available capital to the Treasury, and is in effect waging a war against private capital formation.

If the President’s summit truly intends to find the root cause of unemployment, his advisers don’t need Bureau of Labor statistics or complex modeling software, just the courage to drop their dogmatic belief in central planning and embrace the laws of economics.

Peter Schiff

For the most part, the value of the dollar is given cursory attention by the financial media. Typically, its movements are assigned an importance on par with much less determinative metrics such as natural gas futures and construction permits. It’s only when major milestones are reached that anyone really takes notice of the dollar. We are living through one of those times.

The great dollar rally of 2008-2009 has come full circle. When the financial crisis exploded in its full ugliness in mid-2008, the dollar, which had steadily declined over the previous four to five years, put in a rally for the record books. By March 2009, as investors across the world sought safety from the financial storm, the index had surged more than 25%. Since then, the dollar has steadily declined to the point where nearly all those gains have vanished. In short, the panic rally has given way to the long term trend.

So, as the dollar index makes fresh 52-week lows on a nearly daily basis, discussion on the greenback is heating up. And while real insight on the topic is hard to find, the debate centers on the battle between two conventional opinions – both of which are wrong.

The first camp, which is generally supportive of government intervention in the economy, argues that dollar’s decline is a positive for both the economy and the stock market. The second camp, which tends to fall on the more conservative end of the political spectrum, views the dollar’s decline as a problem but feels that tough talk and slightly higher interest rates are all that is needed to restore ‘King Dollar’ to its throne.

First of all, a weak dollar is no better for Americans than a lower paying job is for a worker. And although I would prefer that the dollar remain strong, I know that currency values are a function of supply and demand, not wishful thinking. The past years of reckless monetary and fiscal policy have created conditions that must push the dollar down. Vastly expanded debt levels and monetary expansion have created a greater supply of dollars, while poor investment performance and diminished industrial capacity have lessened the demand for dollars.

The regrettable truth is that while the weak dollar will help rebalance the global economy, it is not a panacea for the U.S. The fall is no more worthy of celebration than a student celebrating falling grades on his report card. If the dollar does not recover eventually, Americans will suffer diminished living standards. To avoid this we must make difficult reforms now. If we continue our current policies, we run the risk of a complete dollar collapse. Far from helping to solve our problems, this would be a true nightmare scenario.

On the other side of the argument, those who correctly equate a weaker dollar with a weaker America mistakenly believe that mere posturing by officials or trivial rate hikes would be sufficient to restore the dollar’s lost vitality. We are long past that point. The best we can do now is to accept the penalty of a weaker dollar as punishment for our prior failures, and start building for the future.

To save our currency, the Fed must get very aggressive with interest rate hikes and reign in the supply of dollars that have flooded the world over the past few years. The federal government must also do its part by cutting spending, which means no more stimulus and no more bailouts. Undoubtedly, these actions will have unpleasant economic and political consequences. A student who studies harder may have to miss a party or two. A simple analogy, but unfortunately it is that simple.

Even in the unlikely event that our political leaders take these courageous steps, the near-term trajectory of the dollar may still be uncertain. A dollar rally that results from higher interest rates and a narrowing federal deficit may soon fade as the recessionary forces that such moves would unleash act to weaken the dollar once again. But at least we would be building a foundation upon which the dollar could eventually find some footing.

With a restructured economy, higher savings, more capital investment, lower government deficits, and higher interest rates, the United States would once again attract international investment. Funds would flow here not out of fear, as they did last year, but out of confidence. The dollar’s strength would not rest on the willingness of foreign governments to buy our debt, but the willingness of foreign consumers to buy our products.

Only then could King Dollar regain its throne.

For a more in-depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar, read Peter Schiff’s 2008 bestseller “The Little Book of Bull Moves in Bear Markets” and his newest release “Crash Proof 2.0: How to Profit from the Economic Collapse.” Click here to learn more.

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