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The enemy in the mirror

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The Money Changer
From the Archives : Originally published April 20th, 2002
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Category : Gold University





On 4/11/02 LeMetropole Cafe published an article by David B. Upham, "Will Gold Be Confiscated Again?" With all due respect to Mr. Upham, he erred when he wrote, "Gold's legalisation has not restored it as money. Government legal tender laws continue to force the use of so-called federal reserve notes. The use of gold as money remains forbidden. The absolute governmental monopoly of fiat money continues to be protected by law against competition from gold."

USING GOLD AS MONEY IS NOT FORBIDDEN

Effective October 27, 1977 (twenty-five years ago) gold clauses once again became enforceable in US courts. On June 5, 1933 House Joint Resolution No. 192 went into effect, which declared that it was against public policy to discharge debts by paying gold. That is, HJR 192 effectively made "gold clauses" (contractual agreements specifying payment in gold) unenforceable in court. They were not "forbidden" in the sense that you could go to jail for contracting in gold, you just could not avail yourself of the courts to enforce a gold clause in case of default.

The so-called "legalisation of gold" at the end of 1974 actually repealed the provisions of the Gold Reserve Act of 1934 that forbade private ownership of gold. However, gold clause contracts were still in legal limbo, so the law "legalising" gold clause contracts was passed in 1977, and is codified at Title 31, United States Code, Sections 5118(a)(1) and (d)(2). The enforceability of these new gold clauses was tested and upheld in Fay Corp. v. Frederick & Nelson Seattle, Inc., 896 F2d 1227 (9th Cir.).

THE US GOVERNMENT MINTS BOTH GOLD AND SILVER MONEY

Pursuant to 31 United States Code since 1986 the United States mint has minted gold coins in (crazy) denominations of $50 (one troy ounce), $25 (one-half troy ounce), $10 [sic] (one quarter troy ounce), and $5 (one-tenth troy ounce). The US mint also makes a .999 troy ounce (not one full troy ounce) pure silver coin called the Silver Liberty, but popularly known as the "Silver American Eagle."

These coins are all legal tender per 31 USC 5103, "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts."

How this could be plainer, I cannot imagine.

SO WHO HAS THE MONOPOLY?
Mr. Upham states, "The absolute governmental monopoly of fiat money continues to be protected by law against competition from gold." Let's unravel that claim.

First, the government doesn't issue the fiat money, the Federal Reserve banks do. The federal government tenders bonds to the Federal Reserve system, which in turn either issues Federal Reserve notes or issues bank deposit credit in favour of the government. The Federal Reserve also issues bank notes or bank deposit credits to pay for purchases of securities from private banks.

Therefore, Mr. Upham has inaccurately accused the federal government of exercising a monopoly of creating money out of thin air. No, in 1913 the federal government gave this monopoly to a private cartel, the Federal Reserve system. See 31 USC 5103, cited in full above, which grants legal tender status to Federal Reserve notes. In Title 12, USC Section 412 Federal Reserve notes are further described as "obligations" of the United States government. Further, all private banks in this country create money out of thin air whenever they loan money.

WHO CREATES WHAT?

So who creates the fiat money? Technically, the Federal Reserve system and the banks do the deed, not the US government. The US government's brand of fiat money is called US notes (pursuant to the Greenback Act of 1863, as amended), and the Federal Reserve has pulled all of those out of effective circulation.

So while a monopoly indeed does create fiat money in the US, it is the privately owned Federal Reserve system and privately-owned banks that do it, not the federal government directly. On the question of whether the Fed is a private entity or not, see Lewis vs. United States, 680 Fed. 2nd 1239 (9th cir., 1982). As the old joke goes, the Federal Reserve is not federal and has no reserves. That's right, the Fed is not a government entity, and never mind the window dressing.

Secondly, if the United States government itself issues gold and silver coins, and these are freely available in the market place (along with many foreign minted coins), no one could reasonably conclude that the government is protecting the monopoly "by law against competition from gold." One may reasonably argue that the government has corruptly bestowed a monopoly on creating fiat money to a private cartel (the Fed and the banks), but that is another matter.

Thirdly, even the monopoly competes with itself. People use many forms of money in the US: Federal Reserve note currency, checks, and most of all, credit cards. Credit card issuers, too, create money out of thin air.

THE ENEMY IN THE MIRROR

There is no law that prohibits Mr. Upham or anyone else in the US from using gold and silver money, and all the gold and silver coins ever minted by the US government are still "legal tender." But that just makes the riddle deeper. If that's so, why do we all use paper money, bank deposit money, and credit card money?

Because fiat money is easier to use than gold or silver. So rather than make a fuss or cause trouble, we do what is easy.

If you want to see the real enemy of sound gold and silver money, look in the mirror. They exploit us because we want to be exploited.

Below you will find a short article article that explains the whole hilarious US monetary system.

BEATS ME! WHAT IS A DOLLAR?

Pose this question to a federal government or Federal Reserve official and he will run you around the bush for months, mumbling blather like, "The value of the dollar depends on the productive capacity of the U.S. Economy" or "Dollar currency is backed by the full faith and credit of the United States Government." They may even read to you from a dollar bill, "This note is legal tender for all debts, public and private" -- perhaps adding to the mystification by citing some public law of such and such date.

Ask this question in a state court (say, when a judge assesses a fine) and you will most likely land in jail. "Judge, I want to pay all my debts, not just discharge them but the law makes conflicting Statements about what a dollar is. Can you tell me what this state has declared a dollar to be, pursuant to the U.S. Constitution at Article 1, Section 10? Then I can be sure I have paid the fine in dollars."

You will set off on a hilarious, rollicking journey through numerous damp penal institutions as the judge and every other state official from Governor to Second Assistant Tire Checker ducks, dodges, and weaves to avoid answering your question. They all know that every state violates Article 1, Section 10, enforcing payment in "dollars" of bank credit or Federal Reserve [bank]notes, but they surely won't be the ones to admit it. The emperor has no clothes, but I don't want to be the one to tell him

Congress shall have power . . .

Under the common law, which is still our right, nothing but gold and silver was money The United States Constitution at Article 1, Section 8 granted congress power to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and 'measures."

No State shall . . .

The Constitution at Article I, Section 10 withdrew from the states power to declare anything other than gold, or silver a tender in payment of debts. "No State shall *** emit Bills of Credit [legal tender paper money]; make any Thing but gold and silver Coin a Tender in Payment of Debts."

THE STANDARD DOLLAR & DOLLAR STANDARD

Pursuant to the Constitution, congress later enacted the Coinage Act of April 2, 1792 1 which forever set and immutably fixed the standard dollar as a weight of silver equal to 371.25 grains (0.7734 troy ounce or 24.0565 grams or 1.292929 dollars of silver to the ounce. The same act provided for gold coins valued but not denominated in dollars ($10 eagles, $5 half-eagles, and $2.50 quarter eagles). Once a standard has been set, it cannot be changed, any more than congress could declare that the present "foot" measure should comprise ten inches rather than twelve. The only constitutional standard money of the United States is the 371.25 grain dollar of silver.

At first dimes, quarters, and halves were simply the tenth, fourth, or half weight of a silver dollar. However, the Act to Devalue the Subsidiary Silver Coinage of February 21, 1853 2 reduced the weights of the dime, quarter, and half dollar to 173.61 grains (0.3617 troy ounce), 86.805 grains (0.1808 troy ounce), and 34.722 grains (0.07234 troy ounce), respectively, and made them legal tender for $10.00 only.

ADJUSTING THE GOLD COINS

Because Congress set the silver price of gold too low in the Coinage Act of 1792 (at 15:1), gold fled the U.S. to other world markets where it bought more silver. Thus in 1834 congress finally had to adjust the weight of the gold coins to reflect their market value in silver. The Coinage Act of 1834 3 reduced the gold coins' weight slightly. The Coinage Act of 1837 4 minutely reduced the weight of gold valued at one dollar to 23.22 grains of fine gold (0.04375 troy ounce or 1.5046 grams), 20.6718 dollars to the ounce.

A GOLD STANDARD?

The Gold Standard Act of March 14, 1900 5 defined a dollar of gold as a weight of fine gold (24 karat) of 23.22 grains (0.04375 troy ounce or 1.5046 grams), 20.6718 dollars to the ounce, no different from the Coinage Act of 1837.

WHAT ARE FEDERAL RESERVE NOTES?

Federal Reserve notes are not "dollars,' but they are "legal tender." Whenever a contract payable in "dollars" fails to specify payment in a certain form of "dollars," the payee must accept whatever sort of "dollars" are defined in the law as "legal tender." The law states, "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts. Foreign gold or silver coins are not legal tender for debts." 6

The law defines Federal reserve notes as "obligations of the United States *** receivable for all taxes, customs, and other public dues." 7

ANOTHER GOLD STANDARD?

The Gold Bullion Coin Act of 1985 8 provided for the American Eagle gold coins containing one troy ounce (denominated "$50"), one-half troy ounce (denominated "$25"), one-fourth troy ounce (denominated "$10" [sic]), and one-tenth troy ounce (denominated "$5").

ANOTHER SILVER STANDARD?

The Liberty Coin Act of 1985 9 provided for 0.999 troy ounce (not 1.0000 troy ounce.) silver coins denominated "one dollar" and "one Oz. Fine Silver." Although their official name is "Liberty [silver] coins," they are commonly but erroneously called "silver American Eagles.'

MULTIPLE LEGAL TENDERS

Since 1985 congress has provided the United States with a complex multiple legal tender monetary system composed of many sorts of "dollars": irredeemable United States notes 10, irredeemable Federal Reserve note 'dollars," 11 base metal token coins and debased silver coins 12, 1792-standard dollars of silver 13, 1900-standard "dollars" of gold 14, American Eagle gold "dollars" and silver Liberty 0.999 troy ounce "dollars" 15. All are denominated in "dollars" although markets value these various "dollars' at vastly different rates.

NOT SINCE THE WAR OF NORTHERN AGGRESSION

The last time this situation prevailed was after the War Between the States when United States notes, national bank currency, U.S. silver coins, and U.S. gold coins were all legal tender denominated in "dollars" and all valued at differing rates. In 1878 the United States Supreme Court construed these contradictory laws as meaning that "a dollar is a dollar is a dollar" for legal tender purposes. 16

One owing a debt may pay it in gold coin or legal-tender notes of the United States, as he chooses, unless there is something to the contrary in the obligation out of which the debt arises. A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law knows no difference between them. 17"

WHAT IS A DOLLAR?

The implications, especially in accounting for revenue and paying taxes, are staggering but untried and unproven in court. In personal business you are unquestionably free to write contracts specifying payment in legal tender gold18 or silver coin and thus contract out of the paper money system. But one point is clear: the only thing that gives the government and the Federal Reserve power over our economic system is our own willingness to use their irredeemable paper notes in our daily lives. If you are a slave of the paper money system, you are forging your own chains.


Lewis Douglas (US Budget Director), remark to James P. Warburg after President Roosevelt announced that the US was going off the gold standard, April 18, 1933.


Douglas was wrong, of course.  The end of Western civilisation had already come sixty years earlier, when the United States demonetised silver.

In the last eight months I have been forced to recognize a huge gap in my understanding.  I know that I am not alone, since over and over I read phrases like, “Gold is the money that has withstood the test of time” and “Gold has always been the only money,” and “Gold is the only money with intrinsic value.”

This, of course, is all wrong.  100% wrong.  The gold standard by itself is a problem, because it is essentially monistic.   A gold standard alone is just a fiat standard in disguise.  Bimetallism is the only answer, with gold defined in terms of silver and silver in terms of gold.  That offers a self-correcting mechanism to keep the currencies honest.  A gold standard is just fiat money defined in terms of gold and gold defined in terms of fiat, without any independent valuation to keep the system honest.

That the bimetallic system is self-correcting can be induced from the 45 centuries men used it.  Since what date have we had the greatest monetary and financial instability?  Since the introduction of the monometallic gold standard in the 19th century (not to mention the introduction of Central Banks, beginning with the Bank of Sweden in the 1650s).

I am embarrassed to admit it, but this never quite lodged in my mind until I read an article, “Gold Standard = Fiat in Disguise” by one J.N. Tlaga that  appeared on LeMetropoleCafe.com.  Why I never saw the real issue in bimetallism, namely, it keeps the whole system honest and makes fiat impossible, I can't explain, but it is considerably embarrassing.  If nothing else, I should have seen it from a philosophical/theological standpoint, because a gold standard system is monist, and the universal matrix of truth is Trinitarian, not monist.  Anyway, I didn't see it, but do now.

The gold/silver system governed itself for nearly thirty centuries, without any governments fixing ratios.  The first reference I remember to fixing ratios was the Spanish mint upping the ratio about 1496, so that argues they had been regulating it since the Middle Ages. The Romans also issued coins at fixed ratios, but deferring to the existing market, not trying to maintain some arbitrary ratio in the face of it.  Meanwhile, the ancient East operated on a far different ratio, and the world was not destroyed or disrupted. 

Today the market's operation on the bimetallic ratio ought to be far more efficient than ever before, in view of technological advances in communications.

Once again, we see that the issue of money is far too delicate and crucial to mankind's health to be left to government.  Frankly, I believe the American Founding Fathers thought exactly that way, reading from the monetary system they set up. 

That system was actually trimetallic, with copper, silver, and gold.  The ratio was 840.21 ounces of copper equal 15 ounces of silver equals one ounce of gold, and that’s what the coins gave.  They intentionally set up a system with a lower gold/silver ratio than the prevailing world rate (15:1 when the French mint rate was 15.5:1) in order to draw silver, the metal of daily commerce, into the country. They were right, since the colonies had suffered from a dearth of specie for two centuries. 

The system they set up was one that Ed Vieira calls “symmetallism,” although I'm not sure that is the precise term, since others use that differently.  Anyway, he means a system where one metal is the standard coin (in our case, the dollar of silver) and the coins of the other metal (“Eagles”, not even denominated in “dollars” per the 1792 Coinage Act, but “valued in” dollars) are periodically adjusted to answer changes in the market ratio.  That exactly was done in 1834, without cheating anyone. 

And through all this, everyone was free to contract for payment in silver, or gold, or anything else, without compunction.  And they couldn’t be forced to take inflated bank notes.  And there was no central bank.

But didn’t the fluctuations in value of gold versus silver wreak havoc with world commerce?  From 1833 through 1873 – four decades – the London price of silver valued in gold ranged from $1.297 an ounce (1833, against an official US price of $1.2929 an ounce) to $1.36 an ounce (1859).  That’s a gigantic, colossal deviation of – 4.86 percent!  Today a 4.86% fluctuation in fiat money exchange rates in one day would put everybody to sleep, let alone four decades that quiet.

The cure for our monetary woes is not a gold standard, but a return to a sound, self-correcting bimetallic gold and silver standard.




By : Franklin Sanders

www.the-moneychanger.com


Reprinted with permission from The Moneychanger. Franklin Sanders lives on a farm in Middle Tennessee by choice, deals in physical gold & silver, and has been writing and publishing The Moneychanger for nearly 26 years. In 1993 he wrote Silver Bonanza for Jim Blanchard. Last year he published "Why Silver Will Outperform Gold 400% and & The Professional Trading Secrets That Will Make the Most of Your Silver & Gold Investments," still available at www.the-moneychanger.com/order/publications.phtml.

You can sign up for Mr. Sanders' free daily e-mail commentary on gold & silver at www.the-moneychanger.com, and download your free portfolio calculator to keep up with your gold and silver investments.



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Franklin Sanders lives on a farm in Middle Tennessee by choice, deals in physical gold & silver, and has been writing and publishing The Moneychanger for nearly 26 years. In 1993 he wrote Silver Bonanza for Jim Blanchard. Last year he published "Why Silver Will Outperform Gold 400% and & The Professional Trading Secrets That Will Make the Most of Your Silver & Gold Investments," still available at www.the-moneychanger.com.
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Interesting possibilities here.

A debt is rent. The debtor has in fact rented some tangible from the renter.
Yes, fiat currency is still tangible as long as those using it agree. Oh, and the dictates of government.

I rent you a skid-steer loader for a period of time for some consideration and at the end of that rental period, I regain possession of the loader. NOT some cash equivalent.

Ergo, rent gold/silver coins for a period of time for some consideration (interest/fee) and at the end of the rental period, the return of the coins must be complied with.
Same for loans of bullion.

The gold/silver is either money or it is a commodity. Or the coins are money and the bullion a commodity. Or, ...

Perhaps the real problem is attempting to fix PM valuations and then game the system. Use a standard system of weights and measures. That is the best way to deal with the problem. Let the valuation of the currency float against PMs. Use both currency and PMs side by side.
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Interesting possibilities here. A debt is rent. The debtor has in fact rented some tangible from the renter. Yes, fiat currency is still tangible as long as those using it agree. Oh, and the dictates of government. I rent you a skid-steer loader for a  Read more
overtheedge - 10/23/2012 at 10:49 PM GMT
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