Wednesday, June 30, 2010

Government once took sound money seriously

In the beginning the United States government made a good faith effort to establish a sound currency. The Coinage Act of 1792 established a mint and held it responsible for coining money according to rigorous standards. Gold Eagles, for example, were to "contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold." What we call pennies were to "contain eleven penny-weights of copper."

And what if the mint failed to produce coins of this caliber? Section 19 of the Act addresses this situation:
Penalty on debasing the coins

And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.
Can you imagine the Fed being threatened with death if it debauched the fiat currency it has monopoly power over? The Founders understood what we do not, that civilization itself depends on sound money.

Friday, June 25, 2010

Gold to Go

Maintaining that gold is emerging as money, Paul Nathan writes:
At a time when government debt, currencies, and financial institutions are all under suspicion, is it any wonder that the market demands an historic form of money, devoid of government influence and promises? That demand is being sought out and satisfied daily.

Many investors look at the price of gold and claim it is in a bubble. But it is not a matter of price -- it is a matter of possession. If only a fraction of individuals around the world posses gold today, what would a future price of gold be when almost everyone wanted gold? . . . .

In my opinion the private market is in the process of developing a private competing money. No one can predict where this will lead us, but it is happening as we speak. We are seeing the emergence of gold ATMs whereby individuals can convert dollars for gold on demand. If those machines eventually are equipped to also accept gold for paper money, we will have the specter of convertibility on street corners everywhere.

"We are going to make gold public with these machines," said Thomas Geissler, CEO of Ex Oriente Lux AG, which owns “GOLD to go." Fifty thousand machines are being produced to be placed in countries all over the world. And retailers such as Sears and K-Mart have announced they will now be dealing in gold. Companies that buy gold are everywhere, and companies that sell gold are increasing. Convertibility is becoming an industry. This is a further sign of the establishment of the "new" private money.

And why would "almost everyone" want gold? As Jeff Clark at Casey Research notes: Price inflation has not kicked in yet, even though monetary inflation has. According to the World Gold Council (WGC), more countries are buying gold and moving away from the dollar. The Chinese government encourages its citizens to buy gold. China, the world's largest gold producer, already consumes all the gold it mines. But within the next decade the WGC estimates the Chinese demand for gold will double. With war likely between Israel and Iran, and the U.S. certain to be involved, fiat currencies the world over will endure even more depreciation.

For these and other reasons a number of analysts (including Peter Schiff) foresee gold climbing as high as $10,000.

If you thought iPhone sales were hot . . .

Wait 'til you see the rush to buy gold and silver coins when price inflation kicks into high gear. Gary North's 101 Thoughts on America's Economy touches on this:

63. Few Americans understand that monetary inflation produces price inflation.

74. Most Americans believe that a little price inflation is preferable to a recession.

75. So do most economists.

76. Some Americans are beginning to doubt that Federal deficit spending on stimulus programs will restore economic growth.

77. Hardly any economists have doubted this.

89. Few Americans understand the logic or history of the gold coin standard, 1815–1933.

90. Few Americans have ever seen a gold coin.

91. There are very few retail coin companies that sell gold coins.

92. In a monetary panic, their toll-free lines will be busy.

And my thought: There will be a monetary panic.

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