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Amanda's Essay!

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2014 Scholarship Recipient2015 Scholarship Recipient

We are all Keynesians now. What are the cultural, economic and political consequences of fiat money?

by Amanda Treadway
Class of 2015

The Pitfalls of Fiat Money

As many astute economists have observed fiat money could well trigger either a serious devaluation of the U.S. dollar or even a collapse of our nation’s currency. These looming threats have developed most significantly since the formation of the Federal Reserve System in 1914. The damage that various, ill-advised, fiat monetary policies have created for our nation over the last one hundred years have placed us squarely in a crisis mode. But the ripple effects are not just economic. They are political and cultural as well. Permit me to explain, beginning with the economic.

First, one must recognize that when famed monetarist economist Milton Friedman explained his precise use of the phrase “We are all Keynesians now” that he quickly added that “in another (sense), nobody is any longer a Keynesian” – presumably because of the evident failure of Keynesian economics in the long run. Furthermore, although Keynesian policies are essentially fiscal in nature, they tend to encourage a central bank to fall into the monetary trap of issuing fiat money.[1] And just what is fiat money?

It is money “created out of thin air” with nothing of value to back it up. Fiat currency is money fabricated without any underlying value such as a precious and scarce metal, yet it is - at present - the very basis of the nation’s currency.[2] How did previous generations of Americans allow this to develop?

Traditionally, our leaders used the well-established practice of printing our money based on our holdings of gold. Nevertheless, as years passed our monetary decision-makers, especially those empowered to alter basic policies such as the Federal Reserve chairmen, have created a delicate and precarious monetary construct that has more in common with a house of cards than a home built on bedrock. This shift from a gold standard to risky and highly questionable over reliance on fiat money, when combined with our overextended fiscal obligations of eighteen trillion dollars and growing, have placed our nation’s economic health into jeopardy. In fact metaphorically speaking, some economists such as Peter Schiff argue that we need to be hospitalized for intensive care treatment both on the monetary and fiscal levels[3].

Originally, the Founding Fathers in our Constitution in Article 1, Section 8, Clause 5 authorized the Congress to “regulate the Value there of” our currency. This clearly means that it must be based on a store of value. Traditionally, the standard was based solely on holdings of gold. At times various groups have advocated a bi-metallic standard such as William Jennings Bryan in the presidential election campaign of 1896 with his call for a ratio of sixteen ounces of silver to one of gold. [4] Yet even while the nation appeared to commit permanently to the gold standard in 1914 with the formal creation of the Federal Reserve System, our nation’s central bank reserved the right to change the rules of the monetary game away from a store of value into a fiat system. Sure enough, over the years the Fed as a unique private-public, semi-secretive organization has tampered with the constitutional dictum to maintain a store of value.

Now, let us fast forward to the Great Depression of the 1930s, an era marked by huge political considerations. For instance, President Roosevelt adopted a series of monetary and fiscal measures that embraced much of the advice of famed British economist James Maynard Keynes. The followers of Keynes are referred to as “Keynesians” and their basic message is this: at times a government may need to jump start a depressed economy by creating a demand for government-generated jobs and services. FDR introduced a wide variety of Keynesian programs such as the CCC, WPA, and the TVA. Some of those make-work programs enjoyed a measure of success, but others proved to be failures and quite wasteful. Yet, politically, they enjoyed a following. [5]

Furthermore, the fiscal downside of FDR’s approach is that Keynesian-style government programs caused a large increase in the national debt. The political upside is that voters get shovel-ready jobs and the politicians ingratiate themselves to those voters who benefit from such programs. They are rewarded with future votes cast for their re-election.

>> continued...

2012 GIRC scholarship Recipient

Congratulations to
Amanda Treadway
on receiving the 2015 Greater Irving Republican Club (GIRC) Scholarship Award.

Congratulations to Amanda Treadway on receiving the 2015 Greater Irving Republican Club (GIRC) of twelve hundred dollars ($1,200). Amanda is a 2015 graduate of the Highlands School. This is the sixth year this scholarship has been awarded.

Amanda served as student council treasurer, class representative, National Honor Society treasurer, Captain of the soccer team, Captain of the volleyball team, and involved in the student ambassador program and choir. She finished as Saludatorian with cum laude national Latin exam, AP scholar with honors, and earned gold and silver principle's awards. Amanda was active in community service by getting involved in her church volunteering opportunities, missions, Christmas in the park and much more.
Amanda plans to attend Texas A&M University. The 2015 GIRC Scholarship Topic: “We are all Keynesians now. What are the cultural, economic and political consequences of fiat money?”

The GIRC meets on the first Tuesday of each month at 7:00PM at Spring Creek Barbeque on Airport Freeway. Visitors and guests are always WELCOME!

The requirements for the scholarship were:
• Graduating high school senior
• Resident Citizen of Irving
• Cumulative grade point average of
3.0 or better

The applicants were also required to complete an application that included a teacher recommendation and an original 500 to 600 word essay entitled “We are all Keynesians now. What are the cultural, economic and political consequences of fiat money?”.

The GIRC plans to continue to award a scholarship each year to students who reside in the city of Irving.

GIRC's 2015 Scholarship Award recipient, presented to Amanda Treadway in June.