Every 50 years or so, over the last +150 years of time… free market forces have eventually given the US government a full gold accounting by her Official US Gold Reserves. On our SD Bullion website, we have covered in detail the last 2 times gold accounted for outstanding US dollars (e.g. gold vs dollars). Often told with by mainstream financial press with misinformation as their foundation. Here we briefly examine the raging gold bull market that followed the US Civil War as well as the result of those who held mass greenback issuances over gold. Runaway deficit spending occurred with the US Civil War through the late 1870s (with gold doing the controversial accounting work, while silver was demonetized for assistance for many decades to follow). We along with many of
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Every 50 years or so, over the last +150 years of time… free market forces have eventually given the US government a full gold accounting by her Official US Gold Reserves.
On our SD Bullion website, we have covered in detail the last 2 times gold accounted for outstanding US dollars (e.g. gold vs dollars). Often told with by mainstream financial press with misinformation as their foundation. Here we briefly examine the raging gold bull market that followed the US Civil War as well as the result of those who held mass greenback issuances over gold.
Runaway deficit spending occurred with the US Civil War through the late 1870s (with gold doing the controversial accounting work, while silver was demonetized for assistance for many decades to follow).
We along with many of our customers fully expect similar occurrences to come, given the well documented poor US financial situation of our government and various financial institutions today.
You may have heard someone in your lifetime call Federal Reserve notes (i.e. US dollars) by an old nickname derived from the Civil War era. The ‘Greenback’ is trading up or down, this is still common to hear.
Many financial and FX traders often still refer to Federal Reserve notes as greenbacks and it is not too far off the mark in the sense that they are both fiat currencies.
Trouble is the latter had an implicit promise to one day be exchanged for gold bullion specie at face value par, after the Union had eventually won the Civil War (although that was in doubt for many years according to US history).
Our working definition of ‘Greenback’ today is as follows:
Greenback – (n) an informal reference to US dollars but more explicitly today, legal tender Federal Reserve notes. Originally a fiat currency used from 1861 to 1865 A.D. by the winning Union side of the US Civil War, as they lacked gold bullion reserves to finance their ongoing Civil War efforts at the time.
Wars are expensive, in fact when if you look at financial history WWII and prior, most major wars were followed by rampant price inflations as a result of the misallocated capital and pricing adjustments to goods and services which followed shortly after.
A long term gold price chart in US dollar terms can tell you as much. For example in the following long term US dollar gold price chart, with only monthly average prices reflected, you can likely garner an idea.
Yet shortly we will show you a bit on the speculative mania which followed the US Civil War as gold prices peaked near 8X’s their long term US law defined value.
Just before the Civil War began back in 1860, the United States banks ran out of gold and silver specie coin to lend to the government during the Civil War efforts.
Further complicating matters was their war advisory, the southern Confederate states issued their own Confederate dollar (which later hyper-inflated to worthlessness, or perhaps a mere numismatic collectible note today).
Rather than pay usurious high interest rate loans that foreign banks were charging at the time, the United States’ Union government issued “fiat currency” to finance their Civil War efforts.
These soon to be nicknamed ‘greenbacks’ were legal tender by law in the Union. But of course they were not backed by gold or silver, only the credibility of the then U.S. government and the implicit suggestion that some day after the war ended, they might become redeemable in gold bullion.
Patented in April 1860, an original design and print is pictured below. Obviously greenbacks got their name based on the green colored ink covering their backsides or obverse of the notes.
Greenbacks were issued over a 5 year timeframe in two forms: Demand Notes, issued in 1861 and 1862, and United States Notes issued in 1862 and 1865.
Note the slight but critical change between Demand Notes vs simple Legal Tender Notes from before and after 1862.
This change in greenback note variations led to a 2-tier pricing structure for the two varying greenback notes.
As the former greenback demand note version was usable in extinguishing many more debts than the latter greenback legal tender note versions (i.e. demand notes were usable in paying various taxes at the time, customs duties, etc.).
You can see the demand vs legal tender greenback note price discrepancies priced in gold dollars at the time of the Civil War in the chart below.
None of this fiat currency issuance policy was without criticism. It was indeed the first time the then restricted democratic republic of the United States had officially issued a full fiat currency legal tender note.
Newspaper cartoons at the time painted the greenback issuance policy often in a poor light, citing Lincoln’s Civil War battle failures, and various greedy special interests cartel-ing the greenback issuance table.
These various greenback fiat currency values were derived not merely from whether they were the original demand or later legal tender note versions, but also from the public’s faith that the Union would even be able to someday keep its promise to exchange either type greenback notes for physical gold dollar bullion coins.
Gold rich states like California flexed their legal states rights over the then Federal government decrees, effectively avoiding greenbacks usage in business outside of a few exceptions in person to person bilateral agreements and trades.
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See how this Gold vs Greenback era, led to the demonetization of Silver, with further battles between Capital & Labor.
As well even leading to one controversial central bank financial institution… one that the mass of humanity, arguably still suffers under today.
The fun really gets underway at $800 & $1000 USD
— James Henry Anderson (@jameshenryand) January 26, 2018
Cheers to Stacey & Max + all you readers out there.