How Could America Have Squandered the Gold of Ancient Egypt and the Incas?

Gold has been the store of human endeavor since ancient times. While each ounce of gold can hold only a finite amount of labor, perhaps 1,000 hours in non-industrialized nations, some of the gold locked in Fort Knox has touched millions of hours of labor from civilizations untold. For gold’s greatest benefit, as with all money, is not its storage of value but its lasting ability to temporarily hold value in the exchange of non-coincidental barters.

For millenniums, money was the interchange commodity for simple trades as between farmers and herders. The farmer gave the herder a coin in winter for meat, and the herder returned the coin at harvest time for a bushel of vegetables. Farmers and herders relied on the value of gold because precious metals took effort to mine and purify, were tested for weight and purity, and could be stamped, coined and carried. With such a universal appeal, precious metals became synonymous with storage of value and dominated the world’s choice for money.

At one point, America held within its coffers 70% of all the gold that has ever been purified from ancient Egypt and the Incas through modern times. But it was our misjudgment as to the true value of gold that robbed our forts of ingots and brought America to the precipice of ruin. As history’s greatest superpower, why did America not learn from ancient empires that tumbled down the path to insignificance, and why did we allow our government to amass more debt than has ever been owed by every other soul that has ever lived?

1964 marked an accelerating turning point in America’s misfortunes. In 1964, President Johnson was elected to enact Great Society reforms just as America was increasing her involvement in Viet Nam. Baby boomers were entering the work force just as multinational corporations were beginning an upsurge of direct foreign investment and the transfer of jobs to overseas markets. America’s use of oil was peaking just as political undercurrents were coalescing around oil as a geopolitical force.

Six simultaneous assaults on the American dollar joined to fuel the American financial malaise; a lack of fiscal adherence to a gold standard, military excursions in support of American interests, funding of the great society, a lack of will to respond to oil cartels, multinational corporate indifference to the plight of the American worker, and a financial industry gone wild.

America did not Steward Its Gold

Even though, for 600 decades of recorded history, gold was the stable base of transactions, the world has temporarily abandoned this gold standard for the last 5 decades. Our abandonment was not because of the world’s enlightenment that gold is an unnecessary physical impediment to the electronic age of finance. It is because, with no viable alternative, the world has clung to the hollowed out American dollar that inflated beyond the discipline of the gold standard.

In the 20th century, industrialized nations twice attempted to redistribute wealth through great wars that left all of Europe bankrupt. Afterward, America held 70 percent of the world’s processed gold, and became through Bretton Woods the gold-backed, paper money guarantor of the free world. During the next 15 years, America squandered her gold to cover currency imbalances, until by 1960 the dollar lost its legitimacy. Interestingly, it took Spain over a hundred years to squander its 20,000 tons of Inca gold.

From 1971 until now, America and the rest of the world have had little choice but to allow our currencies to float, giving up the imperfect discipline imposed by a gold standard. As a result of America’s freewheeling monetary policies, it is now encumbered by a spend drunk Congress and an obliging central bank that have conspired to reduce the value of America’s 1971 fiat dollar to a mere 17 cents today.

Scholars suggest that the reason for the dollar’s fall was the inevitable Triffin dilemma which requires America to carry a current account deficit to provide the world with reserve currency. Yet debt financed trade imbalances are not required to provide reserves. Reserves could just as well have been sold to other countries as given to them through trade shortfalls. No, America’s post war monetary policies quickly gambled away the historical hegemony that was bestowed on us at the end of two world wars.

This five decade hiatus from a gold standard will prove only temporary. Gold’s appeal as the engine of financial growth has not been lost on China. At the end of World War II, U.S. gold reserve was over 18,000 tons but has since reduced to 8,000 tons. China is executing a strategy of purchasing approximately 250 tons per year and, as the world’s largest producer of gold, producing 320 tons per year, and now has surpassed all but the U.S. as the second largest holder of gold with 2,000 tons.

Military Excursions Drained America’s Coffers

Without the ability to borrow vast moneys, earlier civilizations relied on warring, exploration and conquest to quickly expand their stores of gold. This strategy was not without consequences. To fund war, Rome engaged in coin clipping and smelting with lesser metals to reduce size and value of denarius in attempts to pay soldiers with coins of veiled value. After 200 years, the Roman denarius reduced from 100 percent silver to only 5 percent just prior its army leaving Rome unprotected from invasions and fall. Interestingly, it has taken less than 100 years for America’s dollar value to plunge that amount.

As all empires have before, America found that its wars must be financed with inflation. The Fed supported an excessive expansion of the money supply (dollar clipping), creating debt to fund each of America’s wars. The Civil War added 2.8 billion. WWI added another 21 billion. WWII created another $216 billion. The Korean War was financed with taxes. Viet Nam increased the debt $146 billion. Cold war expenditures cost 1.6 trillion. The first Gulf War cost a mere $7 billion. In contrast, Iraq cost $786 billion and Afghanistan cost $397 billion. Not including the 700 foreign soil U.S. military bases that contribute greatly to America’s balance of payments deficit, her major wars added a total of $3.4 trillion dollars of carried debt.

The Great Society Became the Broke Society

President Johnson outlined The Great Society in his State of the Union Speech on January 4, 1965, saying “The great society asks not how much, but how good; not only how to create wealth but how to use it.” Notwithstanding the good that was done by these programs, they drained America’s future potential GDP growth and the money that would fuel her economic engine.

46 years later, Great Society initiatives touched education, health, urban renewal, transportation, arts and culture, Medicare and Medicaid, the Food Stamp program, Project Head Start, The National Endowment for the Arts, The Corporation for Public Broadcasting and federal aid to public education for a total expenditure of $9.5 trillion dollars.

America’s Addiction to Oil Made Us Slaves to the Oil Cartel

Oil enabled powerful nations to create a world order that flowed money from agrarian nations to those that controlled hydrocarbon powered machines. Oil was the catalyst that propelled the 20th century’s world leaders into fortune and thrust the world into war. Oil is a finite fuel, controlled by a few nations that are barely separated geopolitically and have common ancient civilizations and modern goals.

Already struggling from Viet Nam and Great Society debts, America found herself the object of a politically motivated oil embargo in 1973. Fuel prices soared and supplies tightened to cause the 70’s stagflation in America. From then until now, America has not found the political will through fluctuating fuel prices to organize an intervention away from oil dependence.

Since the embargo, America has consumed 250 billion barrels of oil at a total cost of $11 trillion dollars. This debit line in our national budget has only one trade, oil for dollars. Had America given our energy war a smidgeon of the effort of placing a man on the moon, we could have easily reduced energy consumption by 20 percent for the same productive output, transportation, and environmental comfort, and saved 2.2 trillion dollars. Surely, the costs to achieve such a modest conservation would have to be netted from the gross, but those costs could have been internally generated and added to America’s GDP.

America’s Multinational Corporations (MNC) were Indifferent Citizens

While America fought the war on poverty, her political leaders surrendered to the war on American jobs. Certainly, with the relative world peace supported by America’s military, globalization was bound to occur. With the risk of direct foreign investments reduced, the last five decades have unleashed an acceleration of money flow and intellectual capital from America to other countries.

While over 4 trillion dollars have been invested overseas by American uberwealthy, America has also been a receiver of investment, so that the net outflow has only been 0.7 trillion. However, the loss of America’s wealth and jobs has been much greater, contributing to a stagnant workforce where one in four able Americans has been idled. MNC direct foreign investment has indirectly added $4 trillion dollars to America’s debt.

The Fed Financed MNCs and Saved Banks but Failed to Keep America Employed

During most of the 17th century, Europe embroiled itself in wars that killed 30% of its population. Some of the world’s largest banking houses failed as royal debtors defaulted, including England in1672. Finally, in 1694, the king agreed to give the Bank of England authority to print all of England’s bank notes in exchange for bank loans to support his war with France. The newly created Central bank, having transferred its risk of loss to British subjects, profited simply by printing money for the monarchy. However, this excess printing did not stop the emptying of England’s coffers.

After America revolted to escape the monetary control of the Bank of England, Hamilton, the United States’ Secretary of the treasury, proposed a charter to a create a similar central bank for America. Against Thomas Jefferson’s insistence, the First Bank of the United States became the precursor to America’s Federal Reserve. Some say major banks manufactured a bank run in 1907 to destabilize the Treasury and instigate support for the Federal Reserve Act of 1913 establishing the Fed, a quasi-agency, private enterprise with a quasi-public board.

From the establishment of the Fed until today, many have argued that major Fed decisions have enriched banks at the expense of the American People. An example is the erroneous decision the Fed made to keep interest rates high for an extensive period of time as America and the World clearly were entering the Great Depression. Also of heated debate was the decision to bail out the banking industry at the start of the Great Recession.

Nonetheless, Fed decisions combined with lobbied efforts to reduce financial regulations, allowed Wall Street to orchestrate multiple financial bubbles that consecutively destroyed value in American portfolios. It cost taxpayers $88 billion to bail out the S&L crisis. The boiling and bursting of the dot.com bubble evaporated $5 trillion dollars. Notwithstanding that the credit default bubble lost the world $30 trillion in value, it has thus far cost America $51 billion in bank bailouts, $787 billion in stimulus, $1.5 trillion in quantitative easing, $5 trillion in lost property values, and with over 5 million bankruptcies and 5 million foreclosures, ruined trillions of dollars worth of wealth generating credit.

In Conclusion

Adding up the numbers versus our $15 trillion dollar debt, it is amazing that the resiliency of the American economy is thus far holding ground:

10,000 tons of gold: $0.5 trillion
Wars: $3.4 trillion
Great Society: $9.5 trillion
Lack of Energy Policy $2.2 trillion
MNC DFI: $4.0 trillion
Banking Debacles: $12.4 trillion +
Total $32.0 trillion

The idea of currencies unsupported by gold reserves is not in itself troublesome. Whether Crowley shells, tally sticks, or paper money, if the market has trust in its role as a place holder for non-incidental barter, any money will do. However without the external discipline imposed by a gold standard, America must instead substitute gold’s imposition for a President strong enough to stand for American sovereignty, a Fed subjugated to defend a stable currency, a Congress selfless enough to impose its own financial discipline, and a willingness of American businesses to defend American jobs. Otherwise, America’s five decade reign over this short lived worldwide fiat money dollar system will come to an end.

Do Business Schools Graduate Business Leaders Who Disregard America as A Stakeholder?

In a recent Linkedin group discussion, a business school graduate questioned whether we should be discussing the politics of business on the  site; rather should we be using the group discussion for issues only regarding business development and networking.  I responded that global issues of jobs are the pivotal issues we should be discussing.  My response is below.

In March 1989, a federal grand jury indicted one our most infamous Wharton alumni, Michael Milken, on 98 counts of racketeering and fraud.  In 1993, after being released from prison for serving time on six counts securities and tax violations and paying $1.1 billion to those he abused, Mr. Milken founded the Prostate Cancer Foundation and then Faster Cures, making a difference in medical research processes.   Fortune magazine called him “The Man Who Changed Medicine” in a 2004 cover story on his philanthropy.

Mr. Milken had a second chance to atone for classic Wall Street greed that erupted into criminal activity.  Yet, had he not spent time in prison for his misdeeds, would his unethical financial manipulations been acceptable by Wall Street standards?  Many in America judged him as the poster child for the problems with business schools; that schools like Wharton send guys like him to Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley, and Goldman Sachs without adequately preparing them to deal with the ethics of business. 

My class certainly touched on the ethics issue, going as far as to review “Den of Thieves”, an eye opener account of how a few brilliant business school graduates harmed America.  While we all gained from courses that increased insights into ethical choices and their global effects on business, if the objective of these courses was to inspire the next generation of Wall Streeters to rise above recent activity that will be recorded by history as “Milken crack steroids”, they did not succeed.

I appreciate mutually beneficial Linkedin connections.  However, at this historic fulcrum, when our childrens’ future are being defined by  our nation’s business leaders, I have acted on a purpose beyond my personal business goals by starting a blog, www.jobvoucherplan.com  to advocate for the unemployed in America.  As I write, I sense Wharton grads’ responsibility to help set our country’s path.

Milton Friedman, avowed defender of free markets, said that “the business of business is business”.  Our grads, armed with his quotes have been enlisted by investment banks and multinational corporations to transfer capital and jobs offshore.  Brandishing his philosophy, our grads chide protectionists stating that America must out innovate others to advance our country.  They then use the shield of American property laws to transfer American innovations to offshore subsidiaries, favoring international shareholders without regard for America as a corporate stakeholder.

Michael Porter is now publicly modifying Freidman’s concept with corporate social responsibility, including countries as stakeholders.  Recognizing a stark difference in this business theory from Freidman’s, I am raising issues of corporate responsibility regarding country of origin, increased national security definitions of American innovation, reevaluation of property laws regarding intellectual capital, and defining corporations as U.S. citizens with citizen rights, but equally as important, with citizen responsibilities.

Assuming that the Wharton Alumni group is specifically for professional development, networking and career/business building, if discussing these topics helps us develop deliberated beliefs about these historic issues, does it fit the group intent?  Even if we take Milton’s distilled view of business as the basis of our overarching context for business, I would say emphatically yes.  At a minimum, dismissing these issues as politics, limits our responsibility to examine a greater context for business decisions we make.   More importantly, discussing these issues may assist Wharton business leaders to consider business alternatives that create maximum profits for global shareholders while exercising corporate citizen stewardship for America.

Has China Usurped America’s Era of Hegemony?

  When I travelled to China in the early nineties, I saw hundreds of Chinese citizens near Beijing carrying wet cement in cloth sacks on their backs to dump in front of other workers who smoothed out the globs of cement with wooden utensils to build ten lane highways, when no Chinese owned cars nor had the income to buy them. I saw scores of men, climbing dozens of stories into the air on bamboo scaffolding, building the skyscraper city of Shenzhen when China yet had no office dwellers to fill their glass towers.

These were my witness to China’s strategy of ascending to their position as the 21st century hegemonist; a strategy that has been executed with a decade’s long horizon since the late 70s. While China fed our baby boomers that were entering their demographic spending years in the eighties, she patiently accumulated financial strength on behalf of all Chinese that had come before, and of all that would thrive in the future. While China exercised discipline on behalf of her citizens, our Wall Streeters demonstrated sophistication over that same extraordinary demographic to lead our country through one bubble after another, achieving societal instability and accruing immense personal wealth in the process.

Yes, our country’s leadership was outmaneuvered by a Wall Street banking system that has gone unchecked for 30 years. But it has also asked for and has been self-servingly supported by an enabling central banking system that feeds congress’s compulsive appetite for debt. As a result, America’s role as the world’s orchestrator of monetary policy has been undermined, our wealthy are seeking safe haven in the next world order, and our citizenry is at a loss for why our standard of living seems to be entering the community or European nations. Can we, as a pluralistic democracy, gain the discipline that the dynasty to our east has shown, or is our century of hegemony over?

China’s Reserve Currency Strategy

In two previous posts, I discussed a fishing village in which some of the men in the village were required to sit on the bank and not fish because the fisherman from the other village were willing to fish for them at a lower cost.  The eastern village in that story represents the Asian economy, with its powerful core being China, which is willing to accept and some say manipulate undervalued exchange rates in order to grow through exports. But is China manipulating its currency?

Assuming China’s industry has identical productivity to the U.S. and the Chinese worker is conditioned to accept $3,000 annual wages to our worker’s $43,000, then China could conceivably sell anything to the U.S. for a lower cost than we can produce, cover the costs of direct foreign investment, and yet make a profit. If China chooses to keep its profit in hard U.S. currency and build a war chest over time, why would the Yuan need to revalue? China is setting the rate at which it will provide value to the west, and we as consumers are accepting their price. 

The world is flooding China with capital, allowing it to continue this wealth accumulation strategy at the United States’ expense. We are countering by quantitative easing to devalue their store of U.S. value but in the process are exacting payments from all countries that hold dollars as reserve funds.  And now the experiment of the Special Drawing Rights reserve currency has begun.   Countries are banding together to end America’s reign as the provider of reserve currency When that finally occurs, we will have lost a strategic advantage.

We have continued to devalue our currency over the years and holders of our currency have lost value each year as a result.  Nevertheless, developing nations have increased holdings of our dollars as a hedge against downturns in their economies.  Our continuous devaluing through the years could be argued as an appropriate payment for our military’s defense of worldwide peace that has allowed unprecedented trading wealth for all countries. But it’s a stretch to charge the world for our inability to surge real growth during the last quarter century to support the demographical spending desires of our baby boomers and our lack of regulatory oversight of the financial shenanigans of Wall Street.