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!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding 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:

  • Gold Price Skyrockets in India after Currency Ban – Part III
      When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days.   Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
  • Gold Price Skyrockets in India after Currency Ban – Part IV
      A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost.   Indian jewelry...
  • A Note on Gold and India – What is Driving the Gold Price?
      Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption.   Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com   In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
  • Gold Price Skyrockets in India after Currency Ban – Part V
      A Brief Recap India's Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes will no longer be legal tender. Linked are Part-I, Part-II, Part-III, and Part-IV, which provide updates on the rapidly encroaching police state Expect a continuation of new social engineering notifications, each sabotaging wealth-creation, confiscating people’s wealth, and tyrannizing those who refuse to be a part of the herd, in the process destroying the very backbone of the...
  • Attaining Self-Destruct Velocity
      Bad Monday Some Monday mornings are better than others.  Others are worse than some.  For one Amazon employee, this past Monday morning was particularly bad. No doubt, the poor fellow would have been better off he’d called in sick to work.  Such a simple decision would have saved him from extreme agony.  But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.   Good-bye cruel world! On this our planet,...
  • India's Currency Debacle – An Interview with Jayant Bhandari
      A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).   Banned 500 rupee banknotes   The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
  • Will the Swamp Swallow Trump?
      Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle.   Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP   Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
  • All Aboard! Trump’s Express Train to the Future
      Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999.   Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
  • There Are Two Types of Credit — One of Them Leads to Booms and Busts
      Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.   What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
  • Gold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
      A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.   Initially, gold rallied sharply...
  • Too Early for “Inflation Bets”?
      The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!”   The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc.  We have...
  • Putting an End to the Regulatory Industry
      Gross Regulatory Overburden Corporate life in America these days is fraught with tedium.  First the MBAs imposed their silly six sigma processes and reduced workers to mere widgets. Then the regulators went through and squashed out any fun that remained. Gone are the days when shrewd eccentrics could get rich using techno-babble to hawk the Turbo Encabulator.  Alas, there are rules and regulations stymieing all creativity.  In fact, as a matter of law, such restrictions are shoved...

Austrian Theory and Investment

Support Acting Man

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