Open Letter to Hugo Salinas Price

Dear Mr. Price:

I read your piece: “On the Use of Gold Coins as Money”.  I think you ask the right question.  This is the elephant in the room.  Why do gold and silver not circulate?

I love your analogy of the Swiss asserting that they will “allow” gold to have a monetary role, this being like “re-hydrating water.”  It is not within the power of foolish governments either to imbue water with wetness, or gold with moneyness.

Gold is already money.  It is the commodity with the tightest bid-ask spread.  It is the commodity with the highest ratio of inventories divided by annual mine production (stocks to flows).  And it is the commodity whose marginal utility does not decline.  These statements are as true for gold today as they were under the gold standard 100 years ago.

Let’s look at marginal utility.  I think you hit the nail on the head: people will pay in anything but gold, if it is possible to do so.  People prefer to keep gold, and this preference has nothing to do with the amount of gold they or anyone has.

 

What is the practical effect of this?  There are two things that individuals could theoretically do with their gold.  The first is that they could hoard it.  It does not produce a yield, and it does not finance production.  But if there is no other option available this is what people must do.

So long as people are taking gold from circulation to hoard it, then the circulation mechanism is broken.  An equilibrium is reached when all the gold is in private hoards.

People could also save gold.  They could buy bonds (or deposit it in a bank that will buy bonds). The enterprises that borrow the gold will use it to finance production.  Gold will continue to circulate.

You make a very important point that is underappreciated, if not lost, in the dialog today.  A piece of paper is a promise.  A gold coin is a tangible good.  I love your analogy to the engagement ring.  If a man gives a woman a contract that says the wedding will be on such-and-such date that is not equivalent to a gold ring!

You make the case that if people have no other means of making payment, they will pay in gold and silver.  You acknowledge this could take a long time.  Let me propose another way to go forward to the gold standard.

There is one thing that will motivate people to place their gold at risk, and give up possession (temporarily).

Interest – paid in gold.

Interest can lure the gold and silver out of hoards and to the twin tasks at hand: recapitalizing the financial system and financing production.  Then it is just a matter of time.  First bondholders and then suppliers are paid in gold.  Gold begins to circulate.

If one has a gold income then one is free to accept gold liabilities, such as leases and employee wages.  For the firs time since 1913, the monetary system would be on a good path.

But without interest, without the promise of a gain to tempt gold hoarders to part with their metal, they will, as you say, find any alternative currency with which to pay.  The world will continue on its inexorable march towards permanent gold backwardation.

That is what I think you and I are both working to try to prevent!

 

Regards,

Keith Weiner

President, Gold Standard Institute USA

Weiner (dot) Keith (at) Gmail (dot) Com

 


 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

6 Responses to “Open Letter to Hugo Salinas Price”

  • Ragnarok1958:

    Release elemental gold from ANY and ALL tax and regulation – period! – and it will see use as a currency again. Make gold itself a reference standard like the meter and gram – untouchable, unregulatable, placed by worldwide agreement out of the reach of political will – forever. That’s what it will take for gold to circulate freely again. The same could be done with silver, but do not attempt to define or regulate a ratio or value between the two. May the best metal (and the most “gold-like” managed fiat currency) win.

    R.

  • ManAboutDallas:

    The solution is ALREADY available, and the technology is READY to implement the solution: allow Demand Deposit Accounts ( what Joe Sixpack calls “chequing account” or “checking account” ) to be DEFINED as DDA denominated in gold or silver, or both. The now-ubiquitous Debit Card would be the means of access, and any transaction carried out in any fiat currency on Earth by using this Debit Card would be, ultimately, settled in gold or silver when presented to the “on-us” bank, just as EVERY ACH transaction is handled now in any allowable currency. A customer would have to make valid, verifiable deposits of gold and / or silver to the account, but once such deposits were accepted and cleared – just as deposits have to be accepted and cleared in currency – the Account could be “spent” for ANY TRANSACTION right down to the proverbial piece of “penny candy”, should the Account Holder wish to make such a purchase. The price of a piece of “penny candy” ( $.01 ) right now, in terms of gold, you ask ? It’s 0.00018015 grams of gold at the price, as of the moment I’m writing this, $55.51 per gram. Now, to our poor little punkin-seed two-decimal-place minds “0.00018015” looks weird. But it’s all in a day’s work for a computer – any computer – and the computer will happily compute one cent ( $.01 ) in terms of grams of gold down to any number of decimal places one might care to reach.

    The takeaway here : Gold and Silver are ready to be USED RIGHT NOW for day-to-day transactions in the REAL WORLD.

  • JasonEmery:

    I see your point, Keith. Just one question, who is to pay the interest on gold, in gold?

    Here’s how I see this playing out. I’m solidly in the ‘hyper inflation’ camp, although not as sure about the timing as John Williams (shadowstats), who thinks we are about a year away. With $12 trillion in liquid dollar assets out there in the Rest of the World (ROW), those assets will increasingly move into monetary metals. So far, the masters have managed the price higher in baby steps. However, I think all this talk about Germany and other countries repatriating their sovereign gold will be the last straw, and a parabolic rise in gold and perhaps other metals is close at hand.

    I’m also in the camp that believes that sovereign gold totals are way overstated, at least if you assume that ‘total gold’ is the same as gold in the vault, not just warehouse receipts. Therefore, I think that confiscation of gold (and probably silver, platinum, etc.) is a sure thing. Where I disagree with some is that it will be different than 1933, in that they will let the price go parabolic first, in order to get a high level of peaceful compliance. One ounce confiscated for $10,000? Also, I think they may only confiscate a portion, perhaps 80%, and small holders can keep all their 3 or 4 ounces.

    Regardless, it is probably safer to underweight gold, and just go with a basket of tangible goods, most of which won’t be confiscated.

    Once the banking system is recapitalized with gold (and silver ?), they can begin a transition to a pure gold standard. With modern debit and credit cards, there is more than enough metal to run the financial system. Let’s say you deposit a gold coin at a bank for a 5 year term. They agree to return your coin, plus five or ten grams of gold at the end of the term. Someone wants to buy a car, and they have a job, but not much savings. They sign a contract with the bank, and the bank credits the account of the auto dealer one ounce of gold. The car buyer instructs his employer to send one gram of gold per month to the bank.

  • GaryP:

    It is, as Zerobs says, an age old axiom that “bad money drives out good.”

    Good money will never be used in payment until there is no alternative, i.e. fiat money is viewed as worthless and not accepted by anyone. Why would you not pay with pieces of paper, if you can, and save your gold for the day when paper is no longer accepted. If you expect paper currency to be worthless someday, you are essentially getting what you buy with fiat for free!

    As long as our society believes that paper money has value, people will hoard gold and spend fiat.

    I, being a pessimist, disagree with the premise that this will ever change peacefully. Since our world economy, and all its governments, are built upon and dependent upon fiat currencies that can be created at will and inflated to eliminate debts ‘painlessly’ I do not think that this system will ever change voluntarily.

    The impossibility of continuing our current system of entitlements was never seriously discussed in the recent election, and outright denied by the winning side. Our current system of government cannot exist in a regime of stable prices using a currency that cannot be inflated at will.

    A hard currency, based on precious metals, may return some day to the US and perhaps the entire world economy (assuming that significant trade continues in a hard to visualize world where debt is not basis for growth). However, before we get there, much pain will occur.

    At the first sign of the collapse of the fiat regime, I expect a repeat of 1932’s confiscation of gold by our government. Making it illegal to own bullion will mean that only criminals can use it for transactions. That will mean that you must be able to defend, by force, yourself during the use of gold for transactions. Any involvement by the police will result in confiscation. Any use of gold, unless you are considered to dangerous to mess with, will mark you for robbery, a robbery you cannot even report, much less find justice for, unless you can impose that justice yourself.

    People may not turn in their gold but it will be only useful to stare at until a rational government returns. That may not occur for many decades. Ownership of gold was outlawed, last time, for over 50 years!

    US gold coins from 1932 valued at $6M, were just this year, confiscated by the federal government (without compensation) because since they should not have issued in 1932 (because the US government stopped issuing gold coins in 1932) they must have been stolen from the government! No need to prove they were not acquired legally, a simple assertion by the US Treasury was enough. The owners were required to prove a negative, a virtual impossibility (that the coins weren’t stolen) in the absence of any evidence that they had been stolen.

    With such a government as this, do you really think your hoard of gold is safe?

  • georgew:

    Keith,
    I like where you are going with this. One of the common fallacies of modern economics is to associate action with inanimate objects. It can be misleading.

    “Why do gold and silver not circulate?”
    Because they are inanimate objects that reside in someone’s list of assets.

    “So long as people are taking gold from circulation to hoard it, then the circulation mechanism is broken. An equilibrium is reached when all the gold is in private hoards.”
    There is no place where commodities/monies “circulate”. They are always part of somebody’s assets and are allocated to consumption, savings and hoarding. Since gold is hardly used for consumption purchases due to high transaction costs, most gold is either savings (future consumption) or hoarding (risk hedging). There is no way all gold can be in private hoards. As it approached this point, gold prices would rise until someone sells…unless you are implying a scenario where gold demand becomes perfectly elastic.

    “Gold begins to circulate.” More accurately, Gold’s use as a money increases, i.e., it is to purchase goods and to fund investments increases.

    Areas worth diving into:
    1. Decreasing transaction costs for using gold in consumption spending.
    2. Define the benefits of using gold, rather than fiat currency, to fund investment. Today, you have to pay someone to store your gold, i.e, warehouse costs. Meanwhile, the fraudulent FRB banks can pay you interest (almost zero with the FED malfeasance today) on your savings and create money substitutes very easy. The real assets money can buy are the same that someone borrowing in gold, but there are three benefits to using fiat money for the lender:
    A. There is high currency risk for the borrower. Gold long term will almost certainly go up in value, so it seems wiser to borrow in fiat and lend gold if long term…which drives the rates to below the fiat rate, i.e, zero.
    B. Per above, banks lend at a very low rate for fiat currency, which means gold would have to lend out at near that rate to be competitive and the warehouse costs are higher and have to be paid by someone.
    C. There is a higher transaction cost, per above. The borrower will take the gold and sell it, usually not directly to the seller of the resources, but a 3rd party, and then buy assets with it. This dealer usually wants a spread.

  • zerobs:

    Basically: bad money replaces good money. Until it gets TOO bad.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • India: Why its Attempt to Go Digital Will Fail
      India Reverts to its Irrational, Tribal Normal (Part XIII) Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line. The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu...
  • Moving Closer to the Precipice
      Money Supply and Credit Growth Continue to Falter The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since...
  • How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System
      Bernanke Redux Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.   Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all...
  • What is the Buffet Indicator Saying About Gold?
      Chugging along in Nosebleed Territory Last Friday, both the S&P 500 and the Nasdaq composite indexes closed at record highs in the US, with the Dow Jones Industrial Average only a whisker away from its peak set in March. What has often been called the “most hated bull market in history” thus far continues  to chug along in defiance of its detractors.   Can current stock market valuations tell us something about the future trend in gold prices? Yes, they actually...
  • The 21st Century Has Been a Big, Fat Flop
      Seeming Contradiction CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.   Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable...
  • A Cloud Hangs Over the Oil Sector
      Endangered Recovery As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.   Too many oil...
  • Will Gold or Silver Pay the Higher Interest Rate?
      The Wrong Approach This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question. Which interest rate will be higher?   It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of...
  • Warnings from Mount Vesuvius
      When Mount Vesuvius Blew   “Injustice, swift, erect, and unconfin’d, Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad   Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.   Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a...
  • Rising Oil Prices Don't Cause Inflation
      Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).   Gushing forth... a Union Oil Co. oil well sometime early in the 20th century   But is it valid to...
  • A Bumper Under that Silver Elevator – Precious Metals Supply and Demand
      The Problem with Mining If you can believe the screaming headline, one of the gurus behind one of the gold newsletters is going all-in to gold, buying a million dollars of mining shares. If (1) gold is set to explode to the upside, and (2) mining shares are geared to the gold price, then he stands to get seriously rich(er).   As this book attests to, some people have a very cynical view of mining...  We would say there is a time for everything. For instance, when gold went ...
  • Silver Elevator Keeps Going Down – Precious Metals Supply and Demand
      Frexit Threat Macronized The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK. The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing... we can't wait! [PT]   The big news as we write this, Macron beat Le Pen in the French election. We suppose this means markets can continue to do what they wanted...
  • The Knives Come Out for Trump
      A Minor Derailment GUALFIN, ARGENTINA – Yesterday, stocks fell. And volatility shot up.   When too many people have too many knives out at once, accidental cubism may result   Reports Bloomberg:   The Dow Jones Industrial Average tumbled more than 370 points, Treasuries rallied the most since July and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe. Major U.S. stock indexes...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com