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After a few more days like this, we’ll all start to believe that
the Dow-gold ratio might reach 2:1 or perhaps even 1:1 in fairly short order.
The desperation continues to deepen as nothing but a fleet of helicopters
appears capable of stopping the fear at this point. The wise people at the
Fed and Treasury are now considering nationalizing the U.S. banks. They
should really read Professor Fekete’s
thoughts on the subject:
The Gold Standard Strikes Back … With a 36-Year Lag
(Part 2 of 2) [PDF]
The way to resolve the credit crisis: Recapitalize the banks with gold
As much as I like the Professor’s approach, I actually
don’t think it could be the entire solution. So, please allow me to
summarize the proposal I have been working on but have been unable to finish
because I keep getting interrupted by pesky unprecedented central bank
interventions.
The First Step Toward A Market-Based Monetary System
1.
Take the pledged U.S. gold
reserves back from the Fed. This gold is being used to collateralize $11
billion of outstanding Federal Reserve Notes at a statutory rate of $42.22
per ounce. Thus, it would take just $11 billion of Treasury securities to do
the swap. The gold is doing no good pledged to the Fed considering that
nobody is (yet) afraid to hold Federal Reserve Notes. That is why the dollar
is still rallying. Rather, people are afraid to hold the (Exter)
pyramid of fractional reserve money supply that has been built on the back of
the greenback over the past few decades.
2.
Cancel the existing gold
certificates that were historically issued and are currently fixed at a ratio
of $42.22 ($380 per 9 troy ounces) by Public Law 93–110, 87 Stat. 152.
3.
Issue new Treasury gold
certificates without a fixed dollar value. These gold certificates shall be
denominated by weight of gold, not fiat.
4.
Make contracts with gold clauses
unenforceable again (see my prior post) but carve out an exception for Treasury gold
certificates.
5.
Open the U.S. Mint to persons
who wish to turn in gold bullion in exchange for Treasury gold certificates.
The (fiat) exchange rate shall be determined by the market (but the Treasury
gold certificates would maintain a stated value of weight in gold).
6.
Treasury gold certificates
backed by whatever U.S. gold reserves still remain in Ft. Knox, West Point,
etc. shall be used to conduct liquidity operations to stabilize the market.
Such operations could include the proposal offered by Professor Fekete, direct purchases of assets or whatever other
means are necessary. The point would be to drop gold from helicopters, which
will have a much more noticeable effect than dropping paper dollars. For one,
paper will take its time fluttering to the ground whereas gold, being among
the most compact materials in the world, will plunge to the ground very
quickly.
I realize this is not a complete plan, nor is it pretty, but it has
one quality that every other plan so far has lacked: it might actually work.
It also avoids the need to confiscate gold, which would obviously be quite
bad for us gold investors and probably wouldn’t work anyway.
By the way, I think silver could also be part of the solution but it
would probably involve the same steps as gold. That is, ban silver in
contracts and issue silver certificates in exchange for bullion delivered to
the U.S. Mint.
For those confused by the banning of gold in contracts, the purpose
for that would be to force people to use Treasury gold certificates instead.
This would create instant liquidity because it would be nothing less than
monetizing gold (and silver to the extent Treasury silver certificates would
be issued).
Your thoughts?
Tom Szabo
Silveraxis.com
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