I have been an avid reader of GOLD-EAGLE.com for several years now. The results have not only been enlightening, but also profitable. I have enjoyed all of the authors, from the wisdom of Mr. Gordon, all the way to the passion of Mr. McIntosh. I feel sometimes that we are guilty however, of "preaching to the choir." For that reason, I have given a series of talks on the subject and nature of 'money' to my local Lions Club. The following was an attempt to illustrate how the Federal Reserve works to our members. Since it was during our annual chicken dinner fundraiser, I just could not resist the following…
Due to the timing of this talk, I decided to illustrate a point, as well as, add additional income to our annual chicken charbroil event.
Each year, members of the Lions Club print a bunch of tickets for chicken dinners, which I would like to refer to as "chicken dollars." You see, when we 'trade' these 'chicken dollars' for 'real' money, we are issuing a promise to pay in chickens. Our chicken dollars are actually backed by the full faith in our Lions Club to deliver a "chicken on demand."
Let's just say for the sake of discussion that we decide to cook every Saturday and issue chickens for redemption (don't faint Bryan, we are not really going to cook every Saturday for long). Every week, we sell 500 tickets for $2,500 dollars, and we cook 500 chickens. Nothing too exciting about that.
Now suppose, we notice that not everyone collects his/her chicken dinner every Saturday. Let's say that we make our chicken dollars redeemable for any Saturday, with no date specified on them. Pretty soon, I'll bet, we could start selling an extra 100 tickets a week (a total of 600 tickets) for $3,000 dollars and still only cook 500 dinners. The extra 100 tickets would be a "promise to pay sometime in the future" -- another way to look at this would be, an interest-free loan!
After a while, since the chicken dollars did not need to be redeemed for chickens on a certain date, but were good for chickens on any Saturday, we might notice that quite a few chicken dollars were outstanding and out in circulation. Perhaps on a weekend, when the banks were closed, the yard boy might cut your grass - and you finding yourself short on cash would just pay him in "chicken dollars." After all they were each worth $5.00 or a chicken dinner any time he wanted them. We might find ourselves swapping chicken dinners for things like haircuts, hamburgers or tips. These chicken dollars are now becoming "currency."
This is getting pretty good now! Since people are now using our chicken dollars in trade - and they are redeemable on any Saturday. And since we are issuing more chicken dollars than are being redeemed for chicken dinners, we are doing pretty good here!
Now we get the Mayor involved in the club and talk him into accepting chicken dollars in payment for city sales and property taxes. Chicken dollars have now become "legal tender" (as opposed to chicken tenders). Things are really rolling now. People like the chicken dollars and they are circulating for payments on all sorts of things. People are not redeeming very many on Saturdays for dinners, so we print even more. We decide that the new club house that we always wanted is within reach. We get a quote from the printer to print $500,000 (100,000 tickets) in chicken tickets for a new club house. The printer wants $500 to print the tickets. We change the order to $500,500 and order the tickets to be printed. We take $500 dollars worth of chicken tickets and pay the printer, and then find a contractor to build our new club house that we can pay in chicken tickets. We have now found a way to issue "interest free notes."
As long as we do not have a run on chicken dinners, we are in great shape. Soon we find very few people are redeeming the chicken dollars for chicken dinners any more, but we still have to have a few out there on Saturdays just in case someone comes by. We even contract with a cold storage facility to store surplus chicken dinners for "chicken reserves".
Someone in the club mentions that it could be a problem if everyone wants his/her chicken dinner one Saturday and argues that we should have 100% reserves in our cold storage facility, just in case. He is quickly chastised - and it is explained to him that no more than 40% chicken reserves are necessary at any given time statistically, and that further reserves are just a waste of chickens.
Other Lions Clubs throughout the country have been watching us, and are starting to print their own chicken dollars. Soon all the clubs meet and decide to open a Central Chicken Reserve Freezer Facility that will be the lender of chickens of last resort to protect against a regional run on chickens. Special refrigerated freight carrying airplanes are on stand by to rush Central Reserve Chickens to any Lions Club in any area of the country that might experience a run on chickens.
Since only a few people were redeeming chickens on any given Saturday, we were only cooking a couple of hundred dinners and a bunch of boxes with rubber chickens in them to instill confidence that the chicken dinners were there if anyone wanted to redeem their chicken dollars. Of course, who would want to redeem chicken dollars for chickens! Chicken dollars were easier to carry around and spend on purchases than trying to swap chicken dinners for goods and services.
Everything was going great, until one day, when suddenly everyone was hungry for chicken at the same time!!! All the local Lions Clubs quickly exhausted their small supply of chicken dinners and in a panic called the Central Reserve Chicken Freezer Facility and requested chickens NOW!! Unfortunately, the system was only designed to help with regional runs on chicken and the Central Reserve was quickly exhausted. Panic set in and people ran down the streets crying our chicken dollars are worthless - which of course, caused even more people to run down and try to redeem their chicken dollars, making the situation even worse!
Finally, the International Director for the Lions Club called a press release and declared a pit holiday. All charcoal in pits around the country grew cold. After a week, the International Director explained that due to the shortage of chickens in the freezer that chicken dollars would still be backed by chickens, but would no longer be redeemable in chickens. Anyone who had chicken dinners were ordered to turn them in under penalty of imprisonment. After our chicken reserves were built back up somewhat, it was announced that the chicken dollars were again "good as chicken" and that even though they were no longer redeemable in chickens, they were still backed by chickens in the freezer.
Later, chicken dollars were devaluated, where only a ¼ chicken instead of a ½ chicken, backed the chicken dollar, but not to worry - our chicken dollars are still sound and the envy of the world!
It gets better, but I guess we should get off the story at this point. For those of you who do not recognize it, this is the story of our U.S. dollar up until around 1935. As preposterous as this story is, it only gets better. As the man says "truth is stranger than fiction"!!
Maybe, we just better continue our chicken sales, as we have done all along and just forget about my little suggestion.
Back to history… I believe we left off about the time of France's troubles with the Assignaut Currency that led to the French Revolution. Let's cross the Atlantic and see what is going on in America.
Larry LaBorde
Silver Trading Company
2002
