Under monetary science the current financial turmoil is a natural and predictable consequence. The U.S. monetary system does not so much collapse as evaporate. The current atom of the financial universe is a ‘bill of credit’ in violation of the U.S. Constitution. That atom is dissipating. The result is a credit contraction.

During a credit expansion capital moves into less safe and less liquid assets. The current crisis is rooted in the creation of the Federal Reserve in 1913, President Roosevelt’s domestic gold prohibition in 1933, and President Nixon’s closing of the gold window in 1971. By illustration, a ball thrown into the air eventually reaches a zenith and gravity naturally and predictably pulls the ball to the earth. For nearly 100 years the worldwide monetary system has been in a credit expansion. The zenith was reached. In the words of Paul Volcker, former Chairmen of the Federal Reserve, this is "the mother of all crises."

Among the safer and more liquid assets are T-Bills and Federal Reserve Notes but they can evaporate in hyperinflation. As Alan Greenspan testified in 1998, “Gold still represents the ultimate form of payment in the world. … And gold is always accepted and is the ultimate means of payment.”

Gold and silver are not only commodities but key checks and balances in the Constitution. As Ludwig von Mises argued: “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

At the risk of sounding alarmist, but probably in good company, the current financial catastrophe is the demise of the largest worldwide monetary system in recorded history. There is mayhem at the heart of an empire and no one knows how it will play out.

Most importantly it is here, in America, that the critical question is being posed: Repression or Regeneration?

The Constitution gives guidance towards the path of regeneration. After all, it was forged in the anarchy of the Continental Dollar. The Founding Fathers contended with their own credit contraction. They performed better than the Weimer Germans of 1923.

The Constitution does not define "money" but does state it is "coined" rather than "printed." The Federal Government is given no authority to charter a central bank, issue currency or define legal tender. States may define legal tender but are prohibited to only gold and silver. Thus, a free market for currencies is preserved. On the other hand, the fifth plank of the Communist Manifesto calls for:  “Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.”

The consolidation of Bear Stearns, Merrill Lynch, AIG, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac, etc. appear more in keeping with the Communist Manifesto than the Constitution.

The Founding Fathers dealt seriously with this issue. Dr. Ron Paul has noted: “Counterfeiting the nation's money is a serious offense. The founders were especially adamant about avoiding the chaos, inflation, and destruction associated with the Continental dollar. That's why the Constitution is clear that only gold and silver should be legal tender in the United States. In 1792 the Coinage Act authorized the death penalty for any private citizen who counterfeited the currency. Too bad they weren't explicit that counterfeiting by government officials is just as detrimental to the economy and the value of the dollar.”

Thus two roads diverge and the path taken will make all the difference. Imagine the brightness of a world if America finds her way home. What can be done? To start, starve the bad and feed the good.

Trace Mayer, J.D., holds a degree in Accounting from Brigham Young University and a law degree from California Western School of Law. He has devoted time to the study of Austrian economics and claims to be a rabid advocate of the non-aggression axiom and free speech. He is a member of the Society of Professional Journalists and the San Diego County Bar Association. He has worked as an entrepreneur, investor, journalist, and monetary scientist, and operates RunToGold.com.

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